The Bright Side…

Current economic news is very negative.  Unemployment is high and moving higher.  Weak consumer finances and confidence have translated to reduced consumer spending.  Each phenomenon reinforces the other, which means things are going to get worse.  So what is the bright side?  Here are a couple thoughts.

The few people that have been living within their means and saving are now in a position to buy assets at reduced prices.  This is true for real estate and stocks.  It is also true for consumer goods because a lot of products will go on sale early this year. 

Also, the government will likely be forced to take a central role in stimulating the economy.  If it does this by sponsoring research and development into new technologies for solving our energy and environmental challenges, new engines of economic growth could be discovered.  The near future looks tough, but hopefully the distant future will be better for it.  

Also, money is not everything.  The mountain biking conditions in Tahoe this weekend should be amazing.  I will be out there focusing on another positive, tacky dirt.

New and Old…

Barack Obama is now the president elect.  This marks a new era for the US.   Whatever your political inclination, it is pretty amazing. 

Now for something old and vastly less important, but still pretty interesting.  Over the weekend, I went with my girlfriend Anya down to Bishop to do some climbing.  On the way back, we made a side trip to the gold rush boom-town turned preserved ghost town of Bodie. 

Gold was first discovered in the area that is now Bodie during the late 1850s.  By 1880, the town was thriving with 10,000 or so residents, despite it’s location at above 8,000 feet in the mountains South East of Bridgeport.  As quickly as Bodie boomed, it faded away.  According to information provided by the Park Service, gold valued at $900 million in today’s dollars was mined in Bodie, but still most claims proved unprofitable.  Also two large fires burned large portions of the town.  By the end of World War II, only a couple people were left.  Now it sits abandoned, but preserved. 

There is still writing on the chalk board in the school house, un-used coffins in the morgue and dust covered furniture in the homes.  Walking through the streets and peering in the windows is like looking back in time.  Definately worth a visit.

Here are some photos

   

  

And a link.  http://en.wikipedia.org/wiki/Bodie_State_Historic_Park

Fed Cuts Half Point to 1%…Stocks Decline, Mortgage Rates Steady

The news on today’s Fed cut is this: It was expected and likely won’t significantly help the economy.  The policy statement acknowledged that the economy has slowed significantly and that further “downside” risks remain.  It also noted that lower energy and commodity prices are promoting “price stability.”  This means that inflation is now much less of a concern than it has been over the past 6 months.  At 1%, the Fed Funds Rate is at it’s lowest level in many decades, yet the statement keeps the door open for further reductions. 

Stock prices were all over today, but the Dow closed down about 80 points.  10 year treasury yield moved up to 3.85% and mortgage rates remained steady.  If tomorrow brings a change in mortgage rates, it will probably be for the worse.  I do think, however, that rates will soon dip lower again. 

Click this link to read the Fed Statement: http://www.federalreserve.gov/newsevents/press/monetary/20081029a.htm

Just to be current, rates are now up…

Since rates were last down, they have gone up.  30 year fixed rate pricing is now above 6.5% with no-points.  The Fed is meeting later today and a significant cut is likely, so it is safe to expect more movement.   Look for another, more thorough, update after the announcement.  

All buyers should be in close contact with their mortgage people.  Rates are moving so much that from one day to the next, potential monthly payments are changing significantly.

Rates Lower, Obviously Still Volatile.

Mortgage rates are continuing to demonstrate significant volatility.  Today this was manifest in a .25% drop in fixed rate pricing.  Now fixed rate loans are available in the 6.250% range with no-points and under 6% with one point.  At some points last week, rates were .5% higher. 

Why is this happening?  As I mentioned in my last post, general volatility in the financial markets is creating volatility in mortgage rates. 

Also, don’t be surprised if stock prices and mortgage rates improve, or get worse, together.  Usually when one gets better (for example, stocks move higher), the other gets worse (rates move higher).  Last week and today, the opposite happened.  When stocks fell, rates went up.  And when stocks rallied, rates dropped. 

This has been happening, at least in part, because investor appetite has been shifting less in terms of one asset class versus another and more in terms of appetite for something versus appetite for nothing. 

When a more normal environment returns, so will the old relationships between mortgage rates and stock prices.  In the meantime, who knows.

Mortgage Rates Higher, More Volatile…

Here is a recap of the past week and a half.  Monday before last, 30 year fixed rate pricing was slightly under 6% with no-points.  By Wednesday morning, it was slightly lower.  By Wednesday afternoon, it had moved up to 6.375%.  By Friday afternoon, it had moved higher still to 6.625%.  This happened as the Dow moved into the low 8000s and temporarily erased all investor gains since 2003.   This morning, rates were near 6.8% with no points, close to the highest level of 2008.

Generally, mortgage rates drop when stocks tank, but late last week the opposite happened.  Mortgage rates moved sharply higher while stocks moved sharply lower.  And the Fed cut too.  So what’s a buyer to do?  (Or anyone considering refinancing?)

My advice is keep in touch with your mortgage advisor (or call me if you don’t already have a good relationship with a lender) and watch the market.  Sooner or later, rates will come back down.  This is one likely upside of the recession we are in, or headed into.  Also, the volatile nature of market means that rates can experience large swings down or up, just as we are seeing in stocks.  So opportunity could be around the corner.  Still, if you have found a house, but have not secured a rate, you should do so as soon as possible.

If you have an adjustable rate mortgage, you should know what “LIBOR” is…

LIBOR is an acronym for “London Inter-Bank Offered Rate.”  It is a measure of bank-to-bank borrowing costs. This is important to know because the turmoil in the credit markets is making inter-bank borrowing costs go way up. Of course, LIBOR is going up too. 

Many adjustable rate mortgages  (ARMs) are tied to LIBOR indexes. This means that folks with ARMs scheduled to adjust in the next few months could end up with higher rates than they expect.  For more information on LIBOR and other interest rates follow this link.

http://www.moneycafe.com/library/libor.htm

 

Anyone with additional questions or interest in refinancing out of a LIBOR ARM should scoll down to the bottom of the page and visit one of my business websites.  There you will find my phone number and e-mail.   

Do you want the good news or the bad news? Here’s both…

Today the House passed the bailout bill and President Bushed signed it into law.  The markets reacted positively initially, but the Dow still fell almost 160 points on weak jobs numbers. 159,000 jobs were lost in September. 

The bailout is probably a good thing.  But it is hard to tell for sure because if it ends up avoiding some catastrophe, obviously that catastrophe won’t happen and we won’t know definitively why it didn’t.  My take is that the whole thing was a “best guess” on the part of policy makers.  Probably more risk in in-action than action, so they acted. 

The jobs numbers are certainly a bad thing.  They indicate that the economy is slowing further.  So while the bailout may have avoided some unattractive outcomes, it has not and will not cure the economy. 

To end on a positive note, mortgage rates may improve next week.  Giving banks an opportunity to part ways with their worst assets should eventually make room for them to buy new mortgage bonds.  When they start buying, rates should improve.

Mortgage Money Still Available…

Everyone knows that the financial markets are under significant stress.  Large institutions have failed and inter-bank lending has nearly come to a standstill.  Never-the-less, mortgage money is still available.  Anecdotal evidence suggests that this not widely understood.

My intention with this post is to reassure potential buyers and hopeful sellers that qualified individuals can still get home loans.  Remember that the Government bailed out Fannie Mae and Freddie Mac.  The whole purpose of this nationalization / rescue was to maintain liquidity in the mortgage market. 

This does not mean that loans are as easy to get as they have been in the past.  Certainly some types of loans – jumbo, low-down payment, stated income – are getting harder to come by or have completely disappeared.  However,  prospective buyers should still apply for financing.  Many will be pleasantly surprised.

Fannie / Freddie Taken Over, Rates Dip Further

Over the weekend, mortgage giants Fannie Mae and Freddie Mac were taken over by the federal government.  They are now under the control of the Federal Housing Finance Administration and receiving funding from the Treasury. 

These two previously private (non-government) companies play a central role in the mortgage and housing markets by purchasing residential mortgages.  This purchasing allows banks to make make loans and buyers to buy. 

However, significant losses due to higher delinquency rates and falling home values pushed Fannie Mae and Freddie Mac near the brink of insolvency.  If they were to fail, the already battered housing market would almost certainly crash and drag the economy down with it.  The government could not let this happen, hence the takeover and funding.   

The immediate impact for consumers is lower mortgage rates.  Today’s 30 year fixed pricing is down near 6.0% with no points. Buyers should take note of this because a month ago rates were nearly .75% higher.  On a $250k loan, this amounts to almost $125 month.

Looking down the line, it is harder to tell what is in store.  Underwriting guidelines could change, but this will not happen over night.  For more info on how the takeover could affect you take a look at this New York Times article by Ron Lieber. 

http://www.nytimes.com/2008/09/08/business/08consumer.html?ref=worldbusiness