Monday, September 3, 2007

The Mortgage "Problem"

I get this weekly market update emails from a dozen different lenders. (It's a stock program they can buy into. It's usually pretty good information, but I really don't know who to really give accreditation to, since I get a dozen copies a week from a dozen different lenders.)

I'm using it as a prelude to 2 posts I'm currently writing. One is "who are the sellers, and why are they selling" and the other is "who are the buyers who are buying (or not buying) and why?"

MARKET COMMENT (from the Mortgage Matters e-newsletter)

So the world isn’t coming to an end. On the contrary, it’s thriving quite nicely, at least according to the most recent slate of economic data releases. Gross domestic product – the broadest measure of economic health – expanded at an annual rate of 4% in the second quarter, significantly higher than the 3.4% most economists had predicted. Leading the way was strong business investment, followed by robust consumer spending, which increased a better-than-expected 0.4%

The good news is that all this increased economic activity was non-inflationary. In fact, the personal consumption expenditure (PCE) index, the Federal Reserve's preferred measure of inflation, rose a mere 0.1% in July, half of June’s 0.2% increase.

The news wasn’t quite as encouraging on the housing front, but it wasn’t necessarily discouraging either. Sales of existing homes met consensus estimates, with purchases declining 0.2% to an annual rate of 5.75 million in July, the National Association of Realtors reported. Contractions aren’t welcomed, to be sure, but then again, the contraction was expected.
Meanwhile, the prime, conforming mortgage-rate scene continues to improve. The 30-year and 15-year fixed-rate mortgages dropped a few basis points to average 6.45% and 6.12%, respectively, while the five-year Treasury-indexed hybrid adjustable-rate mortgage inched up a basis point to average 6.35%. Rates are roughly where they were this time last year.

The year-long drop in housing prices has alarmed many housing commentators. But should it? Housing is often depicted as an exemplar of steady, linear growth market. However, price volatility happens more often than expected. Since 1979, residential real estate prices have had two 10-year cycles where prices have risen significantly, then retreated approximately 15% to 20% over the subsequent year or two. Similar booms and busts can be traced back to the early 1900s.

In the last bust, during the saving & loan crises of 1991, the federal government responded with the Resolution Trust. The feds are again responding. President Bush has introduced a plan to allow the FHA to accept more distressed borrowers, while Fannie Mae’s is already helping distressed borrowers refinance and retain their homes with its successful “Homestay” program.
More borrower relief could be forthcoming from the mortgage market. The Federal Reserve will likely lower its influential federal funds rate when it meets on September 18. But rates could dip lower this week, particularly if productivity and costs and the employment situation beat market expectations.

This Newsletter is for informational purposes only. The information contained herein may not be applicable to every situation or jurisdiction and we urge you to consult your professional advisor prior to acting on information contained herein. The content, accuracy and opinions expressed herein are not verified or endorsed by the sponsor hereof.

Uncle Jack again:

Real Estate, like stocks, and fashion is cyclical. Things go up and come down and go up and come down. What was HOT once goes out of style. What no one wanted a while ago becomes popular again. That's why Vintage Vegas is blooming, while the thousands and thousands of 80's and 90's neighborhoods are wilting and looking shabby. The 2000's neighborhoods had become "too" expensive for the working people to buy, and traffic problems created the first "commuting from the suburbs" headache that has ever been experienced in Las Vegas.

The urban core of Las Vegas Real Estate was still doing well during the last year even as the suburbs started seeing the foreclosure crisis swell. But the "lending crisis" which has now been downgraded to a "lending problem" steamrolled right over the top of us.

I'm getting lots of buyer calls from 2 distinctly different groups. Group one has money, believes that real wealth comes from REAL ESTATE, and are looking for bargains. They believe that Vintage Vegas holds the best appreciation opportuny in the coming rebound. Group 2 wants to LIVE near work, wants a unique charming home in upwardly changing HIP neighborhoods. The question question for both groups is whether they can get a loan at the moment, not whether there's a great house out there for them.

2 and 3 years ago, getting the money was easy, and getting the home was hard. The pendulum has currently swung completely the other way and a lot of it has to do with OVER reaction both then and now.

As the newsletter I quoted above points out, things will soon change again. The Fed and the Government and the markets will sort things out, new loan programs will emerge, the inventory will shrink, rates will come down, confidence will increase. My mother always taught me that progress come 2 steps forward, and then a step back till the next 2 steps forward.

We're in the 1 step back phase at the moment, and the cycle will change once again. The next 2 steps forward in Vintage Vegas will be huge. I know that 3, 6, 9 months from now, the number one thing I'll be hearing is "Damn, we missed the bottom, we should have bought something last summer or fall, when the pickings were best".

That's the definition of "Cyclical".

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