Why Homes Are Still Declining

The bail out money given to banks was to keep them solvent, but also to loosen their purse strings. But bank balance sheets are so weak, that if they want to continue to operate as banks, they have to husband their resources. By law, banks have to maintain capital ratios and until these toxic assets are removed from their books they wont be lending much at all.

So far, we have seen federal funds go from 5% to 2%, and interest rates drop to the lowest rates since January, 2009. Considering all the effort to keep rates down, you would think mortgage rates and mortgage credit would have responded better. Not so....the agency mortgage pass-throughs yields are substantially higher than Treasuries.

Mortgage credit costs are actually rising. Bill Gross, managing director of Pimco funds and bond guru accurately points out that If the cost of credit – the discount rate for present value – would go down, then asset prices would be better supported.

Why Homes Are Still Declining

1. Global Imbalances: Investors are demanding a higher yield from Agency mortgage-backed securities because we dont know what's next...uncertainty

2. Banks: The banks are husbanding bail out money to keep their balance sheets in shape and themselves in business.

3. Lenders: They fired so many people they are having trouble meeting the need. They have all the business they can handle and are not likely to be more rate competitive.

4. Cost of Borrowing: Add to that increased fees, points and increased spreads a home buyer has to meet to finance and it is obvious that homes are not yet the bargains they appear to be.

Until we meet that magic intersection that Greenspan calls price equilibrium, the space where home price and borrowing costs cross, its home prices that will decline to meet the buyers ability to carry.

Thanks for Reading

Howard Bell

www.yourpropertypath.com

A web site of over 450 articles related to real estate focused primarily on property management.

Your Property PathSF

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Special thanks to Pimco for the chart

Adverse Negative Feedback Loop

First there was the subprime mess which collapsed the housing market. Then the independent mortgage companies collapsed and then came a credit freeze because the banks no longer functioned with all these bad loans weighing them down. They began to husband what resources they had left and this led to companies forced to cut back because they couldnt get normal operating flows due to the lending curbs. Then came the massive layoffs and a collapse in confidence that caused consumers and business alike to pull back on spending, buying or investing. This led to more misery and more cut backs, stock markets losses and more failures and foreclosures.

Welcome to what Federal Reserve chairman Ben Bernanke Tuesday described as the destructive power of the so-called adverse feedback loop, in which weakening economic and financial conditions become mutually reinforcing and how severe recessions become a gathering storm.

Thanks for Reading

Howard Bell

www.yourpropertypath.com

A web site of over 450 articles related to real estate focused primarily on property management.

Your Property PathSF

http://yourpropertypath.blogspot.com/

Trade talk for the San Francisco real estate industry. Your source for property management tips, policies and market trends.

Your Property Path Amazon Store

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Special thanks to blue adept for the photo

Freddie Mac Weekly Mortgage Update: MORTGAGE RATES UP

30-year fixed-rate mortgage: Averaged 5.15 percent with an average 0.7 point for the week ending March 5, 2009, up from last week when it averaged 5.07 percent. Last year at this time, the 30-year FRM averaged 6.03 percent.

15-year fixed-rate mortgage: Averaged 4.72 percent with an average 0.7 point, up from last week when it averaged 4.68 percent. A year ago at this time, the 15-year FRM averaged 5.47 percent.

Five-year Treasury-indexed ARMs: Averaged 5.08 percent this week, with an average 0.6 point, up from last week when it averaged 5.06 percent. A year ago, the 5-year ARM averaged 5.34 percent

One-year Treasury-indexed ARMs: Averaged 4.86 percent this week with an average 0.5 point, up from last week when it averaged 4.81 percent. At this time last year, the 1-year ARM averaged 4.94 percent.

From the Freddie Mac Site

Mortgage rates followed bond yields higher this week following reports of record continuing jobless claims and a downward revision in economic growth in the fourth quarter of 2008, said Frank Nothaft, Freddie Mac vice president and chief economist.

Real Gross Domestic Product was revised from a 3.8 percent decline to a 6.2 percent drop in the fourth quarter mostly led by a 4.3 percent fall in consumer spending, which was the largest decrease since the second quarter of 1980. The housing market continues to slow as well. New home sales fell 10.2 percent in January to the slowest pace since records began in January 1963 while pending existing home sales slowed by 7.7 percent, the weakest since the series began in January 2001. More recently the Federal Reserve noted in its March 4th regional economic report that residential real estate markets remained in the doldrums in most areas, with only scattered, very tentative signs of stabilization..

Howard Bell

www.yourpropertypath.com

A web site of over 450 articles related to real estate focused primarily on property management.

Your Property PathSF

http://yourpropertypath.blogspot.com/

Trade talk for the San Francisco real estate industry. Your source for property management tips, policies and market trends.

Your Property Path Amazon Store

http://astore.amazon.com/yourpropertypath20-20

super deals on agent open house tools We hand picked Amazon for the tools you need

Obama and Mortgage-Aid

Almost One of Three Homeowners Under Water

According to Moodys, almost 27 percent of home owners are now under water and owe more on their mortgage than their house is now worth. Obama has some new ideas to help homeowners wending their way through this uncharted territory

Fannie and Freddie

Refi - Remove restrictions from refinancing mortgages Fannie and Freddie own or have guaranteed when more is owed on a home than it is worth. The White House says this could reduce monthly payments for up to 5 million homeowners.

Incentives

Lenders - The government will make up part of the difference between the old monthly payment and the new, for those lenders that will reduce the value of a mortgage. Participating lenders would be required to cut payments to no more than 31 percent of a borrower’s income. Up to 4 million homeowners could benefit.

Liquidity - The Treasury Department and the Federal Reserve will continue to buy Fannie and Freddie mortgage-backed securities to maintain stability and liquidity. Obama has 200 billion for this project.

The government said it would absorb up to $200 billion in losses at each company, by using money Congress set aside last year.,

New Bankruptcy Rules - Changing bankruptcy rules so judges can reduce mortgages on primary homes to their fair market value. The borrower must abide by the court mandated payment plans.

Community Support - 2 billion in grants to communities that will use innovative methods to help reduce foreclosures.

When we are done with all of this expense we will be looking at a debt to equity ratio of 90%. The next generation will be saddled with very high taxes and/or inflation.

Obama's argument is that we can grow our way out of this with an economic expansion of 3-4% a year. I certainly hope we can because otherwise we will be an aging, indebted society that will have to make hard choices about caring for its elderly and educating its immigrant young.

Warren Buffet just released his annual shareholders report, dismal though it was he left us with this: "Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead." Amen

Thanks for Reading

Howard Bell

www.yourpropertypath.com

A web site of over 450 articles related to real estate focused primarily on property management.

Your Property PathSF

http://yourpropertypath.blogspot.com/

Trade talk for the San Francisco real estate industry. Your source for property management tips, policies and market trends.

Your Property Path Amazon Store

http://astore.amazon.com/yourpropertypath20-20

super deals on agent open house tools We hand picked Amazon for the tools you need