According to Donald Kohn, a top Fed official, the Fed will give serious attention to cutting rates again at the Dec 11 meeting. As of this date we have seen a 3/4 of a point drop in rates and still inventory is increasing and the foreclosure rates are going through the roof. No doubt, only to get worse because we have so many ARM's beginning to reset.
His remarks sent the stock market up over 300 points on the possibility of a rate cut to keep the economy from slowing down, seems the credit tightening is now slowing economic activity. Generally, rate cuts take 6-9 months to better economic activity.
NAR's LAwrence Yun doesnt predict any major who said low mortgage rates and job growth should keep sales from falling. Personally, I think we have quite a ways to go. It takes a long time for peoples perception to change and as of now that perception is to wait for more price decline and possibly lower rates. Not yet stabilized in my opinion.
Thanks for reading
www.yourpropertypath.com
November 28, 2007
November 15, 2007
Mortgage Rates and Market Opportunity
Freddie Mac Weekly Updates
The 30-year fixed-rate mortgage (FRM) averaged 6.24 percent unchanged from last week when it averaged 6.24 percent as well. Last year at this time, the 30-year FRM averaged 6.24 percent. Note: The 30 year rate has not changed since last year.
The 15-year FRM this week averaged 5.88 percent . A year ago, the 15-year FRM averaged 5.94 percent. Note: The shorter term 15 year rate is lower by 6 basis points year over year.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.96 percent this week. A year ago, the 5-year ARM averaged 6.04 percent. Note: The short term variable rate is lower 8 basis points year over year.
The Take-Away
The Fed rate reductions are hardly impacting mortgage rates which means to me that they are not interested in bailing our the homeowner. If we cant count on the Fed to stimulate sales and keep homeowners in their homes then where is the market opportunity.
Market Opportunity
1. Rental Property: The apartment sector is doing well because when people are not buying they will rent. This is soaking up rental supply and boosting cash flow and property value.
2. Foreign Buyers: The dollar keeps dropping relative to other currencies. When interest rates drop, other currencies "pay better" than the dollar. I think that if you are an investor or agent in areas that are of investment interest to foreigners, then there may be opportunity in marketing to investors who see our property as inexpensive vs. their own currency.
Thanks for reading
Howard Bell
www.yourpropertypath.com
November 8, 2007
Is the Fed Really Helping Homeowners
Chairman Ben S. Bernanke speaks before the Joint Economic Committee, U.S. Congress on the economic outlook on November 8, 2007
Developments in Financial Markets
Chair of the Federal Reserve system spoke before Congress on Nov 8 to report on the state of the economy. I read the report and Here is a summary of what I got out of it.
1. Financial turmoil was triggered by investor concerns about the credit quality of mortgages, especially subprime mortgages with adjustable interest rates.
2. Delinquencies on these mortgages are likely to rise further in coming quarters as a sizable number of recent-vintage subprime loans experience their first interest rate resets.
Federal Reserve Policy Actions
1. August 17, the Federal Reserve Board cut the discount rate ( read short term rates, mortgages are long term rates) the rate at which it lends directly to banks--50 basis points, or 1/2 percentage point, and subsequently took several additional measures.
2. These efforts to provide liquidity appear to have been helpful on the whole, but the functioning of a number of important markets remained impaired.
The Risks
1. Financial market conditions would fail to improve or even worsen, causing credit conditions to become even more restrictive than expected
3. House prices might weaken more than expected, which could further reduce consumers' willingness to spend and increase investors' concerns about mortgage credit.
4. Financial market volatility and strains have persisted.
5. Sharp increases in crude oil prices have put renewed upward pressure on inflation and may impose further restraint on economic activity.
KEY: The FOMC will continue to carefully assess the implications for the outlook of the incoming economic data and financial market developments and will act as needed to foster price stability and sustainable economic growth. Note: Sounds like another cut in interest rates to me. But whats the impact? Where is the homeowners in this reduction. We know that credit card owners and home equity loans are the kind of debts that respond to short term reductions, but where is the help for the homeowner?
KEY: From Freddie Mac - the 30-year fixed-rate mortgage (FRM) averaged 6.24 percent, Last year at this time, the 30-year FRM averaged 6.33 percent. The 15-year FRM this week averaged 5.90 percent, A year ago, the 15-year FRM averaged 6.04 percent. Now, I have read that the variable mortgages will be readjusting for 3-5 years and that the average households annual mortgage increase will be $10,000. The long term rates are hardly affected by the .75% decrease already provided by the Fed. The total decline in rates from last year to this is not enough help. Can the Fed possibly think that .09% on the 30 year and .14% decrease on the 15 year mortgage rates will be enough to keep people in their homes and supply off the market? Im afraid as far as price and supply there is much more bad news to come, unless Congress steps up and significantly helps the home owner.
Thanks for Reading
www.yourpropertypath.com
Developments in Financial Markets
Chair of the Federal Reserve system spoke before Congress on Nov 8 to report on the state of the economy. I read the report and Here is a summary of what I got out of it.
1. Financial turmoil was triggered by investor concerns about the credit quality of mortgages, especially subprime mortgages with adjustable interest rates.
2. Delinquencies on these mortgages are likely to rise further in coming quarters as a sizable number of recent-vintage subprime loans experience their first interest rate resets.
Federal Reserve Policy Actions
1. August 17, the Federal Reserve Board cut the discount rate ( read short term rates, mortgages are long term rates) the rate at which it lends directly to banks--50 basis points, or 1/2 percentage point, and subsequently took several additional measures.
2. These efforts to provide liquidity appear to have been helpful on the whole, but the functioning of a number of important markets remained impaired.
The Risks
1. Financial market conditions would fail to improve or even worsen, causing credit conditions to become even more restrictive than expected
3. House prices might weaken more than expected, which could further reduce consumers' willingness to spend and increase investors' concerns about mortgage credit.
4. Financial market volatility and strains have persisted.
5. Sharp increases in crude oil prices have put renewed upward pressure on inflation and may impose further restraint on economic activity.
KEY: The FOMC will continue to carefully assess the implications for the outlook of the incoming economic data and financial market developments and will act as needed to foster price stability and sustainable economic growth. Note: Sounds like another cut in interest rates to me. But whats the impact? Where is the homeowners in this reduction. We know that credit card owners and home equity loans are the kind of debts that respond to short term reductions, but where is the help for the homeowner?
KEY: From Freddie Mac - the 30-year fixed-rate mortgage (FRM) averaged 6.24 percent, Last year at this time, the 30-year FRM averaged 6.33 percent. The 15-year FRM this week averaged 5.90 percent, A year ago, the 15-year FRM averaged 6.04 percent. Now, I have read that the variable mortgages will be readjusting for 3-5 years and that the average households annual mortgage increase will be $10,000. The long term rates are hardly affected by the .75% decrease already provided by the Fed. The total decline in rates from last year to this is not enough help. Can the Fed possibly think that .09% on the 30 year and .14% decrease on the 15 year mortgage rates will be enough to keep people in their homes and supply off the market? Im afraid as far as price and supply there is much more bad news to come, unless Congress steps up and significantly helps the home owner.
Thanks for Reading
www.yourpropertypath.com
October 31, 2007
Fed Lowers Rates Today
Today the Fed cut rates a 1/4 of a point to 4.5%. This is going to provide immediate impact to HELO loans and credit cards. ARM's, resetting now are expected to increase monthly payments by as much as $10,000 a year per household. I expect these people to get some immediate relief, since banks want to own loans not property.
The Fed cut rates by a half point only six weeks ago on Sept. 18. The rate reduction was designed "to forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets."
This rate cut may help consumers and variable owners stay in their homes (we hope), but the larger economy needs more time for the good news to trickle down because rate cuts take 6-9 months to work their way through the economy.
Michael Corkery's article in the Wall Street Journal today quotes an economist at Goldman Sachs. The latest decline in the homeownership rates indicates that this year, as many as 900,000 households moved from owning homes to renting them, says Jan Hatzius, an economist at Goldman Sachs. "It's a very big deal," Mr. Hatzius says. "It implies a very low level of housing demand over the next several years."
Good News
Property managers will do well since people relocating or owning more than one home will have trouble selling.
Multi family housing (rentals) should do well. All those people who would like to buy will now rent and wait out the market hoping to "catch the bottom".
Thanks for reading
Howard Bell
Your Property Path
The Fed cut rates by a half point only six weeks ago on Sept. 18. The rate reduction was designed "to forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets."
This rate cut may help consumers and variable owners stay in their homes (we hope), but the larger economy needs more time for the good news to trickle down because rate cuts take 6-9 months to work their way through the economy.
Michael Corkery's article in the Wall Street Journal today quotes an economist at Goldman Sachs. The latest decline in the homeownership rates indicates that this year, as many as 900,000 households moved from owning homes to renting them, says Jan Hatzius, an economist at Goldman Sachs. "It's a very big deal," Mr. Hatzius says. "It implies a very low level of housing demand over the next several years."
Good News
Property managers will do well since people relocating or owning more than one home will have trouble selling.
Multi family housing (rentals) should do well. All those people who would like to buy will now rent and wait out the market hoping to "catch the bottom".
Thanks for reading
Howard Bell
Your Property Path
October 28, 2007
Housing Markets: Where Are We Now
Fed Watch:
Much of what happens rests on the cost of money. Lower interest rates grease everything from home sales to commercial loans which the the economy at large. The Fed meets Oct. 30 to Oct. 31 and the lingering issues of the credit markets probably will give us another rate cut. Home Equity Loans and credit card purchases are very quick to respond but typically Fed rate cuts take six to nine months to completely filter through the economy.
Arms, are expected to reset and I read that they will add another $10,000 of annual mortgage payments to households. Without a rate reduction we will see even more supply, lower prices and more foreclosures. The more these things happen, the more people wait before buying as they try to catch the bottom. It just reinforces the existing trend. If anything should convince the Fed its time to lower rates (they are about where they where last year) this should do it.
I wanted to pass on to you the projections of the Mortgage Bankers Association; following is an edited list from the article
Housing Starts; We expect housing starts and home sales to reach bottom in the second and the third quarter of next year, respectively.
Existing home sales for 2007; will decline by about 12 percent from 2006 to 5.72 million units. Sales will decline further by about ten percent in 2008 before picking up by five percent in 2009.
New home sales; will decline by 22 percent from 2006 to 819,000 units. We expect an additional decline of ten percent in 2008. For all of 2009, we expect new home sales to rise by about six percent.
Home prices; for new and existing homes are expected to decline this year, with median prices falling about two percent. Prices should decline at a similar rate in 2008 before flattening out in 2009.
Residential mortgage originations; will decline about 15 percent in 2007 to $1.18 trillion from $1.40 trillion in 2006. Given projected declines in sales and prices for all of 2008, purchase origination should fall by 15 percent to 1.00 trillion in 2008. We expect purchase originations to rise about five percent in 2009, as home sales and home prices pick up.
Refinance originations; will also decline about 15 percent to $1.13 trillion in 2007 from $1.33 trillion in 2006. A significant amount of loans have faced or will face their resets this year and next year.
Total mortgage production will be down about nearly 15 percent to $2.31 trillion this year from $2.73 trillion in 2006. Total originations should decline another 18 percent next year as both purchase and refi originations drop.
Thanks for Reading
Your Property Path
Much of what happens rests on the cost of money. Lower interest rates grease everything from home sales to commercial loans which the the economy at large. The Fed meets Oct. 30 to Oct. 31 and the lingering issues of the credit markets probably will give us another rate cut. Home Equity Loans and credit card purchases are very quick to respond but typically Fed rate cuts take six to nine months to completely filter through the economy.
Arms, are expected to reset and I read that they will add another $10,000 of annual mortgage payments to households. Without a rate reduction we will see even more supply, lower prices and more foreclosures. The more these things happen, the more people wait before buying as they try to catch the bottom. It just reinforces the existing trend. If anything should convince the Fed its time to lower rates (they are about where they where last year) this should do it.
I wanted to pass on to you the projections of the Mortgage Bankers Association; following is an edited list from the article
Housing Starts; We expect housing starts and home sales to reach bottom in the second and the third quarter of next year, respectively.
Existing home sales for 2007; will decline by about 12 percent from 2006 to 5.72 million units. Sales will decline further by about ten percent in 2008 before picking up by five percent in 2009.
New home sales; will decline by 22 percent from 2006 to 819,000 units. We expect an additional decline of ten percent in 2008. For all of 2009, we expect new home sales to rise by about six percent.
Home prices; for new and existing homes are expected to decline this year, with median prices falling about two percent. Prices should decline at a similar rate in 2008 before flattening out in 2009.
Residential mortgage originations; will decline about 15 percent in 2007 to $1.18 trillion from $1.40 trillion in 2006. Given projected declines in sales and prices for all of 2008, purchase origination should fall by 15 percent to 1.00 trillion in 2008. We expect purchase originations to rise about five percent in 2009, as home sales and home prices pick up.
Refinance originations; will also decline about 15 percent to $1.13 trillion in 2007 from $1.33 trillion in 2006. A significant amount of loans have faced or will face their resets this year and next year.
Total mortgage production will be down about nearly 15 percent to $2.31 trillion this year from $2.73 trillion in 2006. Total originations should decline another 18 percent next year as both purchase and refi originations drop.
Thanks for Reading
Your Property Path
October 24, 2007
Markets are Telling us Something
Stocks continued to decline today. The last big surprise was Citigroup reporting a loss of 57% of its income for the quarter. Today Merril Lynch reported a much larger than expected loss Merril Lynch increased the amount of its write-down by $2.9 billion for a total of $7.9 billion. Merrill said it lost $2.24 billion, or $2.82 a share, compared with a profit of $3.05 billion, or $3.17 a share, in the period a year earlier. Earnings from continuing operations were $2.85 a share. Revenue fell 94 percent, to $577 million from $9.83 billion a year earlier.
These losses are much greater than any of the experts were expecting and all is due to the subprime mess and the financial engineering of very complex products that exaggerated the move .
Whats it Mean for Us
Of course, if the lenders dont know how deep this is, no one else does .My guess is that the Fed will have to lower interest rates....
Freddie Mac reports that:
15-year Fixed Rate Mortgage: this week averaged 6.08 percent with an average 0.6 point, up from last week when it averaged 6.06 percent. A year ago, the 15-year FRM averaged 6.06 percent.
30-year Fixed-rate Mortgage:averaged 6.40 percent with an average 0.5 point for the week ending October 18, 2007, unchanged from last week when it averaged 6.40 percent. Last year at this time, the 30-year FRM averaged 6.36 percent.
Im surprised that rates havent really dropped at all from last year. The Fed better get on it or we face a looming recession is my guess... Sorry for the gloom
Thanks for Reading
Howard Bell
October 20, 2007
Real Estate: What the Markets are Telling Us
Yesterday the markets took a real tanker, dropping over 366 points on more bank losses. Wachovia reported a 10% drop in income and a 1.3 billion dollar loss, much better than the Citigroup loss of almost 57%.
Given the bank reported losses of recent days this wasnt as bad as it could be. What caused this real drop was that Caterpillar reported a decline in income...causing fears that the real estate recession was spreading. A small panic set in and sellers stepped up.
Looking closer: Caterpillar posted a 21 percent gain in quarterly profit but fell short of analysts’ estimates. The company cut its full-year profit forecast, sending its stock down 5.3 percent, to $73.57. Net income at Honeywell, the manufacturer based in New Jersey, climbed 14 percent, and the company raised its yearly sales expectations. But the stock still fell nearly 4 percent, to $58.32.
Can we draw any conclusions for the real estate industry
1. People are really nervous
2. Seems some of this is a small panic, but Monday will tell us more.
Are we Dead in the Water
According to Freddie MAc's Richard Syron: Some parts of the housing market are literally frozen up. It has introduced an enormous amount of fear into large parts of the household sector about what's going to happen to them when they get to reset [their mortgage rates] . . . I think this is a substantial depressive to the overall economy . . . I would put the possibility [of a US recession] in the 40 to 45 per cent range.
However
1. The volume of applications filed to refinance an existing loan was down 1.1% on a week-to-weak basis.
2. Applications for loans to purchase homes rose a seasonally adjusted 2.1%.
The trick is to find those sectors in your area that are doing well.
1. Depressed prices draw long term investors
2. Foreclosures draw bargain hunters
3. Multi Family is doing well because rentals become in short supply lifting cash flow
4. Vacation homes are doing well
5. Certain retirement communities may not be tied to the economic cycle
Thanks for Reading
Howard bell
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