How Low Can Housing Prices Go?

As the bubble continues it's long grinding deflation we are seeing a classic 'buyers-strike', the spring buyers haven't appeared despite historically low interest rates and home prices continue to be discounted over asking prices of just 2-3 months ago.

Here is the national home purchase application index. It measures the applications in process to buy a new home. The survey is pretty solid in that about 50% of large lenders are surveyed every week. If this was an EKG, the patient is dying, get the paddles stat!

The spike you see in Q1 2010 is the end of the home buyer tax credits and a major push by the FED to push mortgage rates down. As the tax credits expired on a Federal and state level the number of new buyers started to disappear. Then during Q3 2010 and Q4 2010 we had excellent fixed mortgage interest rates

This prompted another group of buyers to get an application in and start the home buying process. Then because of inflation, Federal government budget issues, and prospects for a better national economic environment(b.s.), mortgage rates moved back up again from the best levels in history. The amount of inventory that will be coming onto the local real estate market is huge:

These are foreclosed homes currently owned by Fannie, Freddie and FHA. They may or may not be on the market yet. Some are in need of repair, some are listed etc. As with all goods/services, supply and demand will lead the market to adjust prices. I fully expect much lower(10-25%) prices in some former bubble states. If people are concerned about jobs and unemployment is around 9-10% you can't expect any stability in housing, in the golden state unemployment is 12.3%, ouch.

Now with the recent wallet shock of $4 gas on the household and business budget it's going to be a tough spring selling season. Blockbuster closing hundreds of stores, Borders doing the same it doesn't broadcast confidence to people as they go about their daily lives.

Buyers... remember it's an asking price. Bargain accordingly. Here is your jumbo mortgage rate chart as well:

Paying More For Most Everything

Today’s must read piece is the WSJ discussion of Inflation:

“The pace of consumer price increases in the U.S. is quickening after being dormant for months. But a tug of war between the prices of goods and the prices of services, playing out beneath the surface, could keep inflation from becoming the worry it is in China, Europe and many emerging markets.”

Prices rose 1.6% in January 2011 vs 2010 — the biggest increase in eight months. The key has been commodities — gasoline, cotton, wheat, coffee, and oil are all higher.

Labor, on the other hand is not. Wages are flat, unemployment is stubbornly high, and hence, prices for Services are flat to lower. That is keeping a lid on inflation.

Hence, the dueling deflation versus hyper-inflation commentaries:

“Soaring commodities costs world-wide are pushing up prices for many goods, while a slowly recuperating U.S. economy, soft housing market and a persistently high unemployment rate are holding down prices for U.S. services.
Goods prices were up 2.2% from a year earlier, paced by jumps in food and energy prices, according to the Labor Department’s January consumer-price index, and are rising faster than they did before the recession. But services prices were up only 1.2% from a year earlier, far below the 3.4% inflation rate registered for services between 2000 and 2008.
The opposing pull of prices for goods and services could have a big effect on the course of U.S. inflation. Federal Reserve Chairman Ben Bernanke is betting that rising prices for goods like gas and food will not spread into the broader economy. He and many private forecasters do not expect the U.S. to see the kind of rising inflation now plaguing China, India and other parts of the world.
Goods inflation has outstripped services inflation for long stretches since mid-2007, something that hadn’t happened since the 1970s. For most of the last 30 years, goods prices had been held down, in part, by cheap imports from low-wage countries like China. But recently, China and other developing markets have become huge consumers of commodities, which is putting upward pressure on American prices for many globally traded goods.”

Well worth reading in its entirety. Inflation must be managed carefully by governments and central banks. I fully expect this will continue to impact mortgage rates especially long term fixed jumbo loans. We have seen them move from 4.875%(best level ever) in the summer to about 5.50% now. 

Housing Bubble: Winners, Losers and the Aftermath

http://marketplace.publicradio.org/features/anatomy/foreclosure/

Marketplace has a special report on the housing crisis through the lens of one house that fell into foreclosure. There is an interactive version of the story, and links to audio version and the companion 30-min documentary:

SoCal Connected and the acclaimed public radio show Marketplace have teamed up to take a tough look at the housing market crisis through one Los Angeles home. This special, reported by Marketplace’s Kai Ryssdal, traces the property from savvy investment boom to foreclosure bust and back again. We’ll meet the couple who bought the home low in 2002, improved it, and sold it four years later at almost triple the price; the couple who bought high and lost the home to foreclosure; and the couple who bought it this year at a fraction of the price it sold for in 2006.
The story of Lot 354 reflects the lending practices that contributed to the crisis in America’s housing market, how economic forces led to the housing crisis and what the future may hold for both buyers and sellers.

Listen to the radio program

How Does a Cash Advance Buy Respect?

Economic life in challenging times can do a number on your dignity. Particularly for the working person, always having to fight to pay bills on time, a single emergency expense (such as broken appliances, insurance deductibles and medical co-pays) can make all your hard work seem futile. If you need to buy back some respect, maybe a online cash advance can help you do it.

What is a cash advance? It’s your next paycheck, except it comes earlier. It won’t be the full amount, but a portion of your pay – which might be just enough to pay the most important bills. Cash advance loans are available through online payday loan companies, and restore respect for you and your work in the following ways:

• Cash advance loans respect you for working hard. If you have a job, you can get a cash advance. No collateral is required. No stellar credit rating is necessary (a cash advance is based on a paycheck only, so even if you have a very poor credit score it doesn’t matter). Just prove you are employed for one to three months and have a checking account where your loan can be received electronically.

• You manage your bills on YOUR schedule. Of course your rent or mortgage is due on one day, your phone and utility charges on others. Perhaps you have car loans and insurance payments that hit at different times during the month. With a cash advance, you will be able to pay those bills on their due date. That’s control of the calendar.

• An easy application respects your time. The whole process of applying for a cash advance loan takes about 20 minutes. That’s it – once the application is submitted online, from your personal computer, you simply sit back and get the approval. Check your bank the following morning and the money will be there.

After you’ve managed the bills for the month, and worked out a plan to repay the loan, you can look in the mirror with respect as well. You’ve earned it.

Home Values Continue To Decline

Data through November 2010 shows negative annual growth rates in 17 of the 20 MSAs and the 10- and 20-City Composites compared to what was reported for October 2010.

The 10-City Composite was down 0.4% and the 20-City Composite fell 1.6% from their November 2009 levels. Home prices fell in 19 of 20 MSAs and both Composites in November from their October levels.

Only four regions – Los Angeles, San Diego, San Francisco and Washington DC – showed year-over-year gains. Eight markets – Atlanta, Charlotte, Detroit, Las Vegas, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices peaked in 2006 and 2007, meaning that average home prices in those markets have fallen even further than the lows set in the spring of 2009.

Your CS Housing chart round up, click for even larger graph:

Mortgage Rates Rise Across the Board

Word of the Week:

hesitates3rd person singular present of hes·i·tate (Verb)

1. Pause before saying or doing something, esp. through uncertainty.

2. Be reluctant to do something.  More »

Merriam-Webster

Seems a lot of conforming mortgage folks missed the low 4% rates and never locked. He who hesitates loses. The price of borrowed mortgage money has risen about .50% in the last few weeks. We have seen increases especially on fixed jumbo loan products and fixed conforming government backed(taxpayer). This is pressuring home shoppers especially. We have heard from a lot of realtors that the recent rapid rate increases has resulted in clients waiting or being forced to downgrade or offer less on the property. It really is about the payment for all but the top 1-2% of earners. 

For a client borrowing a cool million on a jumbo mortgage, a .50% rate move is not insignificant. From 5% on a 30Y Fixed Jumbo Loan in late November to the first week of the new decade at 5.50% for a very well qualified borrower, moves the payment from $5368 to $5677. Long run that is over 100k in additional interest cost. Higher or lower from here? Biased higher. Nothing more concrete as Mr Jumbo Mortgage's crystal ball is in for warranty repair in a small Turkish village. Great Charts Below:

Job Market Improvement Boosts Jumbo Loan Rates

ADP reports:

Private-sector employment increased by 297,000 from November to December on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from October to November was revised down but only slightly, from the previously reported increase of 93,000 to an increase of 92,000.

This month’s ADP National Employment Report suggests nonfarm private employment grew very strongly in December, at a pace well above what is usually associated with a declining unemployment rate. After a mid-year pause, employment seems to have accelerated as indicated by September’s employment gain of 29,000, October’s gain of 79,000, November’s gain of 92,000 and December’s gain of 297,000. Strength was also evident within all major industries and every size business tracked in the ADP Report.

This latest report came in very strong vs estimates of about 100k new jobs added in this period. This has resulted in an small early morning rally on Wall St. Stocks  are slightly higher but the biggest change is a rise in the 10Y Treasury from 3.33% to 3.45% as of 12:11 EST. We have seen a boost in mortgage rates across the board. Market based jumbo loan programs are up about .125%-.25% from yesterdays best levels. The plane is boarding don't be late before the captain shuts the door on 5% fixed jumbo loan rates.  

Jumbo Loan Rates: Was 2010 the Lowest?

Well, the final figures for 2010 are in and we may very likely have seen the best jumbo loan rates ever. But time will tell. If the economy double dips into a recession or the moon falls to earth causing epic panic then we may go back down to the sub 5% range for very well qualified clients. But the strong winds are blowing the sails of global economic recovery with the US projected to grow 2-3% in 2011. A rising economy will continue to push jumbo mortgage rates up. Mr Jumbo Mortgage advises to lock anything in the low to mid 5% range given the current environment. As in all things this could change in a minute. Contact our office anytime we can be of service here.

www.thegreatloan.com

Timelapse of the Great Storm of 2010

December 2010 Blizzard Timelapse from Michael Black on Vimeo.

Impounds: Savvy Jumbo Loan Trick

Many aspects of a jumbo loan are confusing to borrowers, and impound (escrow) accounts rank high on the list. It’s the responsibility of the banker to educate borrowers on impounds, so the borrower can make the right decision based on his individual needs. But, the real trick is knowing that in general the rate discount for having impounds is about 0.125 up to 0.25% annually. As jumbo loans with impounds have the lowest rate of default so the saving is passed on. Borrrowers who lack the discipline to save money and end up scrambling to write those big checks for property taxes and hazard insurance premiums may want to consider an impound account. The chart below shows some of the pros and cons of having an impound account. Borrowers who are more disciplined and can better manage money on their own may choose to not open an impound account.

PROS CONS Borrower convenience Less control Ensures payment Homeowner is still responsible Protects the home Funds tied up Earns interest (see below) Earns little or no interest

Lender-Required Impounds Lenders and investors are very risk-averse in today’s mortgage environment, and may require an impound account. Impounds are mandatory for all FHA loans, regardless of the loan-to-value (LTV). High LTV and high-balance loans are riskier for all lenders, and individual lenders may impose their own impound requirements. Even if a lender does not require impounds, there may be a fee to waive them. Unless impounds are required by a lender, the borrower should be educated and have the right to choose.

Many States Require Interest on Impounds to be Paid

		STATE	CURRENT INTEREST
		California	2% annually
		Connecticut	1.5% annually
		Maine	0.205% quarterly
		Massachusetts	2% annually
		Minnesota	3% annually
		New York	2% quarterly
		Rhode Island	0.225% annually
		Utah	0.594% annually
		Vermont	0.25% quarterly
		Wisconsin	0.46% annually

5 Sec Summary of This Years Posts

Bond Market Doesn't Like Tax Cuts: Mortgage Rates Spike

Bond Market Revolt

The US Treasury bond market reaction to the Fed’s QE policies and to this disgrace of a budget proposal was swift and severe. I have a picture of it for you right here.



That is what the bond market thinks of Ben Bernanke’s plan to spur inflation but hold down treasury yields.

The ovals show today’s bond-market reaction to the budget deficit that Bernanke will no doubt monetize as part of QE III and QE IV when this round of “quantitative easing” blows up in his face.


Conforming Mortgages Went From 4.00% to 4.50% in the last few weeks. This is not helping housing or the economy at all.

Jumbo Mortgage Rates have moved from 5.00% to 5.375% in the last two weeks in particular.

Interest rates are ultra-low by historical standards by any measure but we can clearly see what will happen if enormous deficits, high unemployment and a weak dollar are not addressed soon by the FED, Congress and ultimately by the american people.