It's nearly impossible to pick the bottom of a bursting market bubble. The only time that you'll know when the housing bubble has struck bottom will be several years from now. Right at this moment, even the pundits are clueless, especially in light of the recent economic upheaval.Nevertheless, there are some compelling reasons to consider making a home purchase now. First, mortgage rates are at historic lows. Many banks and credit unions are offering mortgage rates just slightly higher than 5 percent for a 30-year fixed-rate loan, and there's talk that the federal government may try to push mortgage loan rates down around the 4 percent mark.Second, home values have already slid dramatically. In some areas where values skyrocketed during the housing boom, such as California, Florida, and New York, it's not uncommon to hear stories about home values dropping more than $100,000 below previous prices. Some pundits believe prices will drop even further.
How do you know when the time is right? Probably the best route to take, and the one that will allow you to sleep best at night, is to set your sights on a reasonable home price, and act when the market reaches that number. To find that figure, look at current home prices and compare them with previous highs. Sooner or later, home values should resume their upward climb. That means that you may lose some value in the short-term, but in the long haul, you could profit handsomely.Another important question to consider: Are you financially ready to make a purchase, and take on a mortgage loan? Do you have a stable income, with decent savings, and minimal credit card debt? If you're in a profession that can make it through these tough economic times and you have good credit, this could be a perfect time to buy. Purchasing a house now, then waiting for a return to previous housing price levels would feel like a boom. It's the perfect case of buying low and selling high.If you have bad credit and heavy consumer debt, it may not be wise to become a first time homebuyer in the current housing market. However, if you're in reasonable financial shape, it's the ideal time to take advantage of slumping house prices and low mortgage loan rates. There may never be a better time to buy.
Please give us a call for all of your mortgage needs...
(314) 993-6690. We are always available to help! If you are in the market looking for houses, we can help you with that too!! Give us a call at: (314) 993-6023 for all your real estate needs.
FED Meeting Results on Mortgage Rates
Yesterday, the Fed kept the Fed Funds Rate steady at 0 - .25%, the lowest range ever and this was no surprise. However, they did offer some interesting thoughts, with their statement indicating that they anticipate “economic conditions likely to warrant exceptionally low levels of the Federal Funds Rate for some time” and that “inflation pressures will remain subdued in coming quarters”.
They went on to say that the Federal Reserve continues their plan to purchase large quantities of Mortgaged Backed Securities to provide support to the mortgage and housing markets, and “it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant”. Let’s hope the media doesn’t spin these comments to read “this means rates will continue to drop and remain there into the Summer”…thereby creating another round of fence-sitters. We have seen this strategy to be very costly to borrowers, read on for more on this.
Many of you have been hearing and are up against the argument “I am waiting and holding for 4.5%”..but here’s one reason we may not get there. Yes, the Fed has been buying Mortgage Bonds, but if you look at what they are purchasing, they are buying a lot of FNMA 30-yr 5.5% and 5.0% Bonds, which won’t have much of a positive effect present rates.
Why is the Fed buying these Bonds? Well if you think about it, it’s very smart of the Fed…and maybe even a little sneaky…because 5.5% Bonds actually represent outstanding mortgages with rates of 6 – 6.50%. which are precisely the loans being refinanced today.
So many of the mortgages in the FNMA 5.5% pools will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. And this is likely a big reason why the Fed said they could continue this purchasing program beyond June, if necessary. So the Fed buying higher rate coupons will not necessarily get rates to 4.5%, but it should put a ceiling on how high rates can go during the near term.
Another objection could be customer greed…even though it makes sense to refinance right now, and save $250/month for example, the greed factor kicks in as clients fall in love with the thought of a 4% handle on their refinance rate, so they risk saving that $250/month in the hopes of gaining another $30. Clearly, things can turn and this window of opportunity could pass them by. But even if they are correct and are able to grab that lower rate and save another $30/month – they must be reminded that they are losing the current savings – or in the example used, $250 – for every single month they wait. So even if they get the rate they are looking for, it could take years to make up what they lost by waiting. This point must be explained to your customers.
Rates do change daily....call our office for the most current up-to-date rates!! We look forward to serving you.
Why Is That Home Seller (Finally) Smiling? Because National Housing Supplies Cratered In December 2008.
If you only looked at the headlines, you may have missed the important part of December's Existing Home Sales data.
While most papers trotted out some version of a "Home Sales hit 17-year low in 2008" story, astute observers noticed that national housing supplies cratered last month, providing a support point for a battered U.S. economy.
Based on the number of active home buyers and sales volume nationwide, there is now 9 months worth of housing supply -- down from November's reading of 11 months.
When supplies fall, prices rise. It's basic economics.
Look at the chart at right. It shows the cities with the tightest housing supply as of December 2008. In particular, note the stat lines for foreclosure havens Sacramento and Orange County, California:
The two points are related, of course, and it helped push the West Region to the forefront of December 2008 home sales activity. And then there's the secondary effect from outsized, West Region activity (which many analysts say is foreclosure-fueled). The West literally caused the national median sales price to plummet last month, directly leading to the other headline run by newspapers today. Nationally, the median sales price is down by $30,000.
To that, I say: Who cares?
Statistically, Median Sales Price means nothing to an active home buyer or home seller. It's just the price point at which half of all homes sold for more, and half of all homes sold for less. The median is subject to influence from all sorts of irrelevant factors, including:
And not to mention that the median sales prices of the national market is irrelevant anyway because a nobody buys in the "national real estate market" -- they buy in Blue Ash, Ohio, for example. Or Lincoln Park in Chicago. And each of those individual markets have their own forces, separate from what's happening in Sacramento.
If we only read the headline, we'd miss that point and it's why the biggest takeaway from December's Existing Home Sales data is that housing supplies are down in many U.S. markets. This provides support for home prices and points to a strong Spring Buying Season. Sellers should be smiling: Reduced Supply + Constant Demand = Higher Home Prices.
And then the cherry: December's data doesn't account for new home buyers since mortgage rates fell late last year. Judging from the purchase acitvity in my own mortgage practice, I feel that buy-side activity is up in not just my main markets of Cincinnati and Chicago, but everywhere.
If it's true that falling prices bring out the buyers, expect housing strength through early-2009 until the market finds its balance.
For the most current and up-to-date interest rates, call Envoy Mortgage at 314-993-6690. For any Real Estate information, call our Assist-2-Sell office at 314-993-6023.
What Mortgage Rates Will Do Over The Next 30 Days
The group's 30-day prediction for mortgage rates:
I am predicting that rates will increase over the next 30 days. My prediction may not be appropriate for your individual situation and it may be wrong, too.
Here's what I told Bankrate.com:
"The stimulus package's breadth will harm mortgage bond markets."
A lot of what's happened to mortgage markets since late-November have been based stimulus plan predictions. Markets are pretty certain that the package will aim to stabilize housing and banks -- it just doesn't know by how much. At first, the guess was $500-700 billion and mortgage markets liked that number.
Strangely, when the media talked about it, they neglected to mention the range, instead latching on the $700 billion part. Maybe it was the psychology of the reporting or just good vibes, but around that time is when mortgage rates took their first plunge, kickstarting the current Refi Boom. Markets probably liked a $700 billion figure more than a $500 billion one.
But $700 billion may also have been the limit of the market's tolerance. We say this because on January 15, House Democrats unveiled a pumped-up version of the original stimulus plan worth $875 billion. The unexpected costs of the plan promptly sparked dollar devaluation fears. It was on that day that mortgage rates stopped falling.
Bond markets started to erode January 15 and with each passing day, mortgage rates have gotten worse. On-the-fence rate shoppers in places like Mason, Ohio and Lake Forest, Illinois now wonder if they gambled on rates too long. Sadly, the answer may be "yes".
Wednesday, in his Capitol Hill testimony, Obama economic advisor Paul Volcker said that "several trillions" may be necessary to right the U.S. economy. This is the same guy, you'll remember, who helmed the Federal Reserve when interest rates shot past 15 percent. Volcker is not averse to strong and painful medicine. If he says we need trillions (with an s), it could happen. And that could further devalue the U.S. dollar, pushing mortgage rates up more.
Mortgage rates move for all sorts of reasons but inflation via currency devaluation is a pretty tough for markets to ignore. The larger the stimulus package, the more that rates will rise.
Rates do Change Daily - Please give us a call for the most current and up-to-date rates!! 314-993-6690.
While the economy remains a shipwreck, many experts predict a second wave of the mortgage crisis involving Alt-A and Option ARM loans. But even more alarming is that some industry observers expect this new phase of the crisis to be worse than the original subprime fallout.As the financial crisis spreads, and the housing market continues to limp along taking prices deeper into the basement, an entire new foreclosure tsunami is expected to hit in the next few months. A year ago, the word "subprime" reared its ugly head in the popular jargon of average Americans and was nominated by one literary club as the "word of the year." If things turn out the way many expert economists anticipate, the terms Alt-A and Option Arm may get added to that list of notorious mortgage industry expressions in 2009.
Alt-A loans, which are mortgages that are one step up from subprimes in terms of their quality and resistance to problems, are failing in record numbers. That trend is likely to pick up steam going forward. These Alt-A loans are in many ways identical to subprimes, except for the fact that they're made to people who have relatively good credit. But plenty of people who had high credit scores two or three years ago are now in much worse shape because they've lost income, assets, and equity. They're slipping dangerously into the red, and as economic challenges expand, their ability to repay their Alt-A obligations will diminish.
Then there are the rather exotic loans known as Option ARMs, which are famous for giving homeowners more control of their payments. They're expected to tank in a big way, as ARM resets cause their rates of interest to spike, and make it much harder for homeowners to make their larger monthly payments. The Option ARM offers the choice of making payments of interest and principal, or smaller payments of interest only. Many homeowners have been making bare minimum payments, but that means that their principal hasn't shrunk. When the low teaser rates on those Option ARM products expire, automatic ARM resets may trigger a gigantic wave of foreclosures across the U.S., as homeowners find themselves owing much more than their homes are worth at a time when unemployment is leaving many Americans with no steady income. Typical payments will, for instance, go from $800 or $1,000 a month to $1,500 or $1,800 a month.The perfect storm is brewing, in other words, but this time, it will pass through the heart of the real estate economy at a time when the nation is still trying to cope with the original disaster of the subprime crisis. Subprimes have cost our economy about a trillion dollars, and Alt-A loans may contribute another trillion in losses before 2010. Many will continue to reset into 2010, which means that the pain of foreclosures will be time-released and prolonged into the foreseeable future.
Please call our office at any time to speak with one of our mortgage loan experts with any questions you may have.
In the years when real estate was booming, home equity values grew much faster than inflation, personal income, and rent metrics. Assuming that those values have to get back to where they would've been without that excessive growth, it might be a long time before home prices start increasing again. The grand housing experiment of the early 21st Century has gone sour. Like something out of Aldous Huxley's Brave New World, mortgage lenders tried their hand at providing homeownership to everyone-even those who couldn't afford it. Initially, the results were promising; home prices and home equity climbed, and homeowners became wealthy. But now, it's all gone bad, and some experts are arguing that the damage done may last a lifetime. An argument is brewing about home values. In the wake of the subprime mortgage crisis, housing prices have already dropped almost 20 percent. Some experts are saying that we could expect another 15 to 20 percent decline before things begin to turn up again. This dismal prediction is rooted in the relationship between housing values to inflation, income growth, and rents.
Over the long term, housing prices normally track with inflation. A graph showing inflation-adjusted home values throughout the 20th century would have its variances, but would remain roughly flat. But extend that graph out a few years, and the flat line takes a quick and steep turn upward just after the turn of the century. That steep climb continues until 2006 before it starts to head south again.
The pace of personal income growth has historically influenced how fast housing prices have grown. This makes sense; houses are paid for from income. If income doesn't grow, people can't afford more expensive homes-unless, of course, lenders loosen the financial requirements for mortgages, or change mortgage terms so that the payments no longer reflect the loan size. Sound familiar? That's exactly what happened during the housing boom, and it unleashed home values to grow at a faster pace than personal income.
It used to be that you could expect to buy a home for somewhere between 15 and 20 times what it would cost to rent that home for a year. But in the boom years, that multiple rose to more than 30, which was probably an indication of irrational buying behavior. Some experts now believe that home values will naturally fall enough to re-establish those traditional relationships with inflation, personal income growth, and rents. If that argument is valid, the 20 percent value decline experienced thus far isn't nearly enough. Further, once home values drop back to where they should be, they'll revert to the slow-and-steady growth that was apparent throughout most of the 20th century. Gone are the days when home equity was a self-replenishing money tree. Net it all out, and it may be a long time before home values recover.
Please feel free to call our office with any questions and/or concerns you may have. We are always here to help!
(314) 993-6690.
Mortgage Rates Expiring In 3 Hours, 39 Minutes (January 2009)
Mortgage Rate Volatility slowed a bit in December after record-breaking changes in October and November. The slowing pace of change is good news for Cincinnati homeowners that joined the Refi Boom that closed out 2008. It was much easier to shop for a mortgage rate in the absence of 4- and 5-Rate Sheet days.
A "rate sheet" is a mortgage lender's active, available-to-the-public mortgage rates for all of its products. This includes 30-year fixed rate mortgages, 5-year ARMs, and the like.
However, rate shopping is not all bacon. Mortgage markets are still moving with tremendous velocity, historically. Over the last two months, mortgage rates changed 2.15 times per day, on average -- nearly 11 rate changes per week.
In December, mortgage rate quotes "expired" every 3 hours, 39 minutes.
This rapid pace of change is one reason why "sleeping on it" can be dangerous. Mortgage rates may be low in the morning, but by the afternoon, they could absolutely be not-so-low.
Look, I've heard it from enough home buyers by now that I can safely tell you -- unless you're prepared to accept a higher rate, you may not want to gamble on getting the lower one. A good question to ask yourself is this: "Is it worth a 1/8 percent rate increase to gamble that I'll find an 1/8 percent lower rate tomorrow?"
Mortgage shopping wasn't always complicated, but it is now.
In addition to a volatile rate environment, external factors are muddying up the mortgage waters, too:
In fact, there are 9 very good reasons to consider taking the first low-rate mortgage you find that fits your long- and short-term financial goals. The most important one, of course, is that it's as likely that mortgage rates will rise in 2009 as they will fall. Forget what the experts tell you -- they're paid to make guesses and they're often wrong.
In markets like this, a sound piece of mortgage advice is to make friends with a "good lender". They're good mortgage lenders for a reason. They're fair with clients and they provide extra support that you won't get from a call center. And, most times, they're cheaper, too.
So, shop for mortgage rates every 3 hours, 39 minutes, or save yourself the trouble and work with a reputable lender who's both fair and knowledgeable. If you ever want a speedy rate quote, call or email me.
Now that 70% of your competition is gone, are you prepared to take your share of the market? Gain insight into what caused today’s current financial crisis and learn how you can be part of the solution by watching this three-part video series featuring Barry Habib. You’ll also want to check out the two articles written by Barry Habib linked below.
The ‘Mark to Market’ Accounting Rule: What it is and why it is important to you now!The Credit Crisis and the Emergency Economic Stabilization Act of 2008
Chapter 2Understanding the Real Reasons Behind the Current Economic Crisis: Adventures in Accounting (17:51)
Barry Habib is the Chairman of Mortgage Success Source and one of the leading authority figures in the mortgage industry today. Because of Barry’s diverse areas of expertise, he is often featured on CNBC, NBC, CNN and FOX television networks. To make arrangements to have Barry speak for your organization’s next event or company sales rally, please contact Laura Smith at (800) 963-1900 for more information.
"Friends of Kids with Cancer" Charity Event Sponsored in part by Envoy Mortgage
Greg Iverson-Envoy Mortgage
Gary Bussard-Branch Manager STL Envoy Mortgage
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