from The Wall Street Journal
Sept. 24, 2008
http://online.wsj.com/article/SB122226123307770911.html
Sales of previously owned homes declined in August, but in a promising sign the backlog of unsold homes shrank.
Sales of existing homes fell 2.2% in August from the previous month to an annual sales pace of 4.91 million units, the National Association of Realtors said Wednesday. The data cover sales of homes, condominiums, and townhouses.
The inventory of unsold houses fell to a 10.4-month supply at the current sales pace, compared to July's 10.9-month supply. The current inventory is still large and many analysts say prices must fall even more to attract buyers. The median home price was $203,100 in August, down 9.5% from the year before.
"We would not expect to see any real stability in the housing market until we work off more of this inventory," said Wachovia Corp. economist Adam York in a note to clients.
Sales increased in parts of California, Florida and Nevada where subprime loans and foreclosures are heavily concentrated, the NAR said. Chief economist Lawrence Yun noted that sales of deeply discounted properties "are accounting for a disproportionately high level of sales in the current market" and helping to drive down the median sales price.
Efforts to work through bloated inventories may be hampered by the financial crisis on Wall Street.
"Home sales will be constrained without a freer flow of credit into the mortgage market," Mr. Yun said. "The faster that happens, the sooner we'll see a broad stabilization in home prices that in turn will help the economy recover."
But lenders continued in the second quarter of 2008 to toughened standards on home loans, the Federal Reserve's latest quarterly survey of senior loan officers at U.S. banks showed. About 75% said they tightened standards on prime mortgages, and that tightening is expected to continue this year.
Besides tighter loan standards and falling prices, the housing market also has been hurt by a weakening job market. Nonfarm payrolls have declined for eight consecutive months.
Regionally, sales of existing homes declined 6.6% in the Northeast and 5.3% in the West. Sales rose 0.9% in the Midwest and 0.5% in the South.
Write to Jeff Bater at jeff.bater@dowjones.com
Wednesday, September 24, 2008
Sunday, September 21, 2008
Our Current Situation from Mortgage Market Weekly
"THE PATH TO SUCCESS IS TO TAKE MASSIVE, DETERMINED ACTION." Anthony Robbins. And success in stabilizing the markets and the economy is exactly what the government is hoping will happen as a result of the massive, determined actions they took late last week in response to unprecedented happenings in the financial markets.
Treasury Secretary Hank Paulson announced that the US government will guarantee money market funds, after panic led to a "run on the bank" type of environment. A whopping $180 Billion was withdrawn from market funds on Thursday alone. And the fear was so great that a premium to put money into Treasury securities was paid, which actually exceeded the rate of return. So effectively, the return was negative! People were actually paying for a place to put their money that would be safe because they had fears of losing principal. The government guarantee helped to ease these fears and stabilize the markets.
The Fed announced plans to create a market place for illiquid mortgage debt. This should do a lot of long-term good to help the housing and lending environment. As if that weren't enough, the Securities and Exchange Commission also placed a temporary ban on the short selling of 799 different financially related stocks.
What prompted these dramatic actions? Very dramatic happenings earlier in the week.
After 158 years in existence, Lehman Brothers filed for bankruptcy last Monday due to overexposure of high-risk loans in the mortgage arena. Then, the Fed gave insurance giant AIG an $85 Billion lifeline to keep it from going into bankruptcy, after initially stating it would not intervene. Then it was announced that Merrill Lynch is being acquired by Bank of America, which will save them from the same fate as Lehman Brothers, and now troubled bank Washington Mutual is looking for a buyer as well.
Also playing a role was the fact that the Fed left its benchmark Fed Funds Rate (the rate banks charge each other for overnight lending) unchanged on Tuesday, not wanting to counter the recent improvements the US economy has made in the way of inflation. While this benefited Bonds and home loan rates earlier in the week, Stocks felt heavy selling pressure on the news...which added to the reasons for the actions taken late last week.
The government's announcements on Friday are great news for the overall health of our financial system, though they did cause Bonds and home loan rates to move away from their best levels of the week. All in all, Bonds and home loan ended the week slightly worse than where they began. Additionally, stocks had their most volatile week in history - but ended the week almost exactly where they started.
Forecast for the Week
The ride isn't over...the coming week may see more wild movement in the markets, as the financial sector responds to all the recent action, along with several reports due in the latter part of the week. We'll get a read on the housing market with Wednesday's Existing Home Sales Report and Thursday's New Home Sales Report. And we will get a read on the economy with Friday's Gross Domestic Product Report (GDP is the broadest measure of economic activity) and Thursday's Durable Goods Report.
What are "durable goods"? Simply put, they are items that are durable (i.e. cars, furniture, appliances, games, cameras, business equipment, etc), and are made to last longer than three years. This report shows a good measure of consumer and business consumption and buying behavior, and depending on the health of the report, could add to the volatility we have seen.
Remember when Bond prices move higher, home loan rates move lower...and vice versa. Bonds and home loan rates are still much improved from several weeks ago, despite giving up some recent gains. This could be a great time to take a close look at your home loan financing needs, as rates remain at historic lows. As always, I will be watching closely to see how Bonds and home loan rates continue to respond in these volatile times.
Sent to the SCV Home Team by:
Eric T. Mitchell,
CMP, CMC, CRMS
Vice President
| Business Development and Private Mortgage Banking |
Mitchell & Associates
a division of Metrocities Mortgage
Sherman Oaks CA 91403
Treasury Secretary Hank Paulson announced that the US government will guarantee money market funds, after panic led to a "run on the bank" type of environment. A whopping $180 Billion was withdrawn from market funds on Thursday alone. And the fear was so great that a premium to put money into Treasury securities was paid, which actually exceeded the rate of return. So effectively, the return was negative! People were actually paying for a place to put their money that would be safe because they had fears of losing principal. The government guarantee helped to ease these fears and stabilize the markets.
The Fed announced plans to create a market place for illiquid mortgage debt. This should do a lot of long-term good to help the housing and lending environment. As if that weren't enough, the Securities and Exchange Commission also placed a temporary ban on the short selling of 799 different financially related stocks.
What prompted these dramatic actions? Very dramatic happenings earlier in the week.
After 158 years in existence, Lehman Brothers filed for bankruptcy last Monday due to overexposure of high-risk loans in the mortgage arena. Then, the Fed gave insurance giant AIG an $85 Billion lifeline to keep it from going into bankruptcy, after initially stating it would not intervene. Then it was announced that Merrill Lynch is being acquired by Bank of America, which will save them from the same fate as Lehman Brothers, and now troubled bank Washington Mutual is looking for a buyer as well.
Also playing a role was the fact that the Fed left its benchmark Fed Funds Rate (the rate banks charge each other for overnight lending) unchanged on Tuesday, not wanting to counter the recent improvements the US economy has made in the way of inflation. While this benefited Bonds and home loan rates earlier in the week, Stocks felt heavy selling pressure on the news...which added to the reasons for the actions taken late last week.
The government's announcements on Friday are great news for the overall health of our financial system, though they did cause Bonds and home loan rates to move away from their best levels of the week. All in all, Bonds and home loan ended the week slightly worse than where they began. Additionally, stocks had their most volatile week in history - but ended the week almost exactly where they started.
Forecast for the Week
The ride isn't over...the coming week may see more wild movement in the markets, as the financial sector responds to all the recent action, along with several reports due in the latter part of the week. We'll get a read on the housing market with Wednesday's Existing Home Sales Report and Thursday's New Home Sales Report. And we will get a read on the economy with Friday's Gross Domestic Product Report (GDP is the broadest measure of economic activity) and Thursday's Durable Goods Report.
What are "durable goods"? Simply put, they are items that are durable (i.e. cars, furniture, appliances, games, cameras, business equipment, etc), and are made to last longer than three years. This report shows a good measure of consumer and business consumption and buying behavior, and depending on the health of the report, could add to the volatility we have seen.
Remember when Bond prices move higher, home loan rates move lower...and vice versa. Bonds and home loan rates are still much improved from several weeks ago, despite giving up some recent gains. This could be a great time to take a close look at your home loan financing needs, as rates remain at historic lows. As always, I will be watching closely to see how Bonds and home loan rates continue to respond in these volatile times.
Sent to the SCV Home Team by:
Eric T. Mitchell,
CMP, CMC, CRMS
Vice President
| Business Development and Private Mortgage Banking |
Mitchell & Associates
a division of Metrocities Mortgage
Sherman Oaks CA 91403
Wednesday, September 17, 2008
Wild Markets, The Fed, and Opportunities
Uncertainty in Financial Markets Could Cause Dramatic Rise in Existing ARMs at Next Adjustment
If you or anyone you know has an Adjustable Rate Mortgage, this is an important point to consider. Many ARM loans are tied to the London Interbank Offered Rate (LIBOR). In fact, there are six million loans in the United States that use LIBOR to determine the interest rate and as the name suggests, many banks use this rate to lend money to each other.
But, today, banks lack confidence that the money they lend will be paid back. In light of what has happened with Lehman Brothers, IndyMac Bank and others, as well as AIG, banks are requiring much higher rates on LIBOR to offset the added risk.
The Federal Reserve Left Rates Unchanged but...
The Federal Reserve met yesterday leaving the target rate unchanged at 2.00% but just like LIBOR the actual rate being charged by banks to each other is closer to 6.00%. This again suggests that those with ARM loans should consider a refinance into historically low fixed rates.
What Happened?
Financial companies have been under attack. IndyMac was the largest bank to falter in twenty years. What brought IndyMac down was their exposure to defaulting loans. This sapped investor confidence and drove down the stock price until they filed for bankruptcy.
Following IndyMac, we saw Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch succumb and were either forced into conservatorship, to close their doors, or to sell themselves. AIG, the world's largest insurance company was also impacted, forced to make a deal with the U.S. government to stay in business.
What You Can Do Now?
We have Team members who would be happy to go over your loan situation and help you understand how the recent events may affect you, and how you can best be protected. Additionally, chaotic times like these often present opportunities. I look forward to hearing from you.
If you or anyone you know has an Adjustable Rate Mortgage, this is an important point to consider. Many ARM loans are tied to the London Interbank Offered Rate (LIBOR). In fact, there are six million loans in the United States that use LIBOR to determine the interest rate and as the name suggests, many banks use this rate to lend money to each other.
But, today, banks lack confidence that the money they lend will be paid back. In light of what has happened with Lehman Brothers, IndyMac Bank and others, as well as AIG, banks are requiring much higher rates on LIBOR to offset the added risk.
The Federal Reserve Left Rates Unchanged but...
The Federal Reserve met yesterday leaving the target rate unchanged at 2.00% but just like LIBOR the actual rate being charged by banks to each other is closer to 6.00%. This again suggests that those with ARM loans should consider a refinance into historically low fixed rates.
What Happened?
Financial companies have been under attack. IndyMac was the largest bank to falter in twenty years. What brought IndyMac down was their exposure to defaulting loans. This sapped investor confidence and drove down the stock price until they filed for bankruptcy.
Following IndyMac, we saw Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch succumb and were either forced into conservatorship, to close their doors, or to sell themselves. AIG, the world's largest insurance company was also impacted, forced to make a deal with the U.S. government to stay in business.
What You Can Do Now?
We have Team members who would be happy to go over your loan situation and help you understand how the recent events may affect you, and how you can best be protected. Additionally, chaotic times like these often present opportunities. I look forward to hearing from you.
Tuesday, September 09, 2008
Update on Fannie and Freddie
Update on Fannie and Freddie
By: Tom Vanderwell, Straight Talk About Mortgages
Posted: Monday, September 8th, 2008, 8:40 am MST
Well, it happened. In case you haven't heard the news, Fannie and Freddie were bailed out by the Federal Government over the weekend. I'm not going to go over all of the details but just try to hit some "high points."
So, here goes:
1. The Federal government now owns 80% of Fannie and Freddie. That means that the shareholders in those two companies lost 80% of their equity in the company compared to what they had last Friday.
2. Why did the Government do this? It's pretty simple. The markets had lost confidence in the long term viability of the two institutions and therefore the debt that they have issued was being questioned and their ability to finance additional housing was being called in question. This was done to stabilize and calm the financial sector of the markets which were very volatile to say the least.
3. What has changed since Friday? A couple of things: 1) The "unofficial" backing of Fannie and Freddie's debt by the US Government is now official. 2) The question of what will happen to shareholders in the company has pretty much been answered.
4. What hasn't changed since Friday? The problems in the loan portfolios at Fannie and Freddie haven't gone away. The problems in the housing market haven't gone away. However, today the markets so far have been breathing a huge sigh of relief that says, "Yeah, Uncle Sam is here to protect us!"
So what does this mean going forward?
1. I've already heard that a lot of economists are saying that there could be a significant drop in mortgage rates. I'm not so convinced [and neither is the SCV Home Team] that we're going to see THAT BIG of a drop for a couple of reasons: a) The US Government just became on the hook for an additional $5 Trillion in debt and that will have an impact on the cost of treasury debt and so forth. b) The additional borrowings by the government are going to have an impact on the value of the dollar and that will make US debt more expensive. c) The only thing that has really changed is that the "right to foreclose" on Fannie and Freddie has actually happened. It hasn't changed that much. But we'll see. I hope I'm wrong. Our rates dropped by .25% today. [Due to overhanging federal debt and obligations, the SCV Home Team expects that interest rates will be rising at the end of this year, and dramatically so. Expect pre-election relative stability, then watch out!]
2. Volatility in the financial markets will be the "norm" this week. Expect big fluctuations as the markets attempt to sort out what this all means and what happens from here.
3. The government did this to prevent the mortgage markets from seizing up. That was a necessary step because having a mortgage market that keeps lending money is crucial to eventually working through the housing debacle that we are in. However, there are substantial issues in the mortgage world that aren't being solved by the takeover.
4. No substantial changes in programs or underwriting guidelines. The goal of the bailout was to keep Fannie and Freddie functioning and that will happen, but it's not going to make credit a lot easier or downpayment guidelines lower. Let's face it, Fannie and Freddie weren't making any money doing things the way they used to, so I don't think we'll see a return to that.
5. As the markets realize that the fundamental issues in today's housing/economic/credit market crunch haven't gone away, we'll see the euphoria of the first day or two slip and the value of the bailout will diminish. However, it will continue to keep the housing market moving so we can attempt to work through the inventory issues and eventually find a bottom and start building from there.
Is this the silver bullet that is going to answer all of the housing market and economy's problems? Sorry, I wish it was, but I don't see it that way. It was basically the implementation of what the markets felt was coming any way.
[ Tom Vanderwell
http://straighttalkaboutmortgages.com
or email Tom at:
straighttalkaboutmortgages@gmail.com ]
[The SCV Home Team concurs with this analysis.]
By: Tom Vanderwell, Straight Talk About Mortgages
Posted: Monday, September 8th, 2008, 8:40 am MST
Well, it happened. In case you haven't heard the news, Fannie and Freddie were bailed out by the Federal Government over the weekend. I'm not going to go over all of the details but just try to hit some "high points."
So, here goes:
1. The Federal government now owns 80% of Fannie and Freddie. That means that the shareholders in those two companies lost 80% of their equity in the company compared to what they had last Friday.
2. Why did the Government do this? It's pretty simple. The markets had lost confidence in the long term viability of the two institutions and therefore the debt that they have issued was being questioned and their ability to finance additional housing was being called in question. This was done to stabilize and calm the financial sector of the markets which were very volatile to say the least.
3. What has changed since Friday? A couple of things: 1) The "unofficial" backing of Fannie and Freddie's debt by the US Government is now official. 2) The question of what will happen to shareholders in the company has pretty much been answered.
4. What hasn't changed since Friday? The problems in the loan portfolios at Fannie and Freddie haven't gone away. The problems in the housing market haven't gone away. However, today the markets so far have been breathing a huge sigh of relief that says, "Yeah, Uncle Sam is here to protect us!"
So what does this mean going forward?
1. I've already heard that a lot of economists are saying that there could be a significant drop in mortgage rates. I'm not so convinced [and neither is the SCV Home Team] that we're going to see THAT BIG of a drop for a couple of reasons: a) The US Government just became on the hook for an additional $5 Trillion in debt and that will have an impact on the cost of treasury debt and so forth. b) The additional borrowings by the government are going to have an impact on the value of the dollar and that will make US debt more expensive. c) The only thing that has really changed is that the "right to foreclose" on Fannie and Freddie has actually happened. It hasn't changed that much. But we'll see. I hope I'm wrong. Our rates dropped by .25% today. [Due to overhanging federal debt and obligations, the SCV Home Team expects that interest rates will be rising at the end of this year, and dramatically so. Expect pre-election relative stability, then watch out!]
2. Volatility in the financial markets will be the "norm" this week. Expect big fluctuations as the markets attempt to sort out what this all means and what happens from here.
3. The government did this to prevent the mortgage markets from seizing up. That was a necessary step because having a mortgage market that keeps lending money is crucial to eventually working through the housing debacle that we are in. However, there are substantial issues in the mortgage world that aren't being solved by the takeover.
4. No substantial changes in programs or underwriting guidelines. The goal of the bailout was to keep Fannie and Freddie functioning and that will happen, but it's not going to make credit a lot easier or downpayment guidelines lower. Let's face it, Fannie and Freddie weren't making any money doing things the way they used to, so I don't think we'll see a return to that.
5. As the markets realize that the fundamental issues in today's housing/economic/credit market crunch haven't gone away, we'll see the euphoria of the first day or two slip and the value of the bailout will diminish. However, it will continue to keep the housing market moving so we can attempt to work through the inventory issues and eventually find a bottom and start building from there.
Is this the silver bullet that is going to answer all of the housing market and economy's problems? Sorry, I wish it was, but I don't see it that way. It was basically the implementation of what the markets felt was coming any way.
[ Tom Vanderwell
http://straighttalkaboutmortgages.com
or email Tom at:
straighttalkaboutmortgages@gmail.com ]
[The SCV Home Team concurs with this analysis.]
California Median Home Price Slips 37.7 Percent
Home sales increased 17.5 percent in June in California compared with the same period a year ago, while the median price of an existing home fell 37.7 percent, the California Association of Realtors® reported recently.
"Statewide home sales remained above the 400,000 level for the said C.A.R. President William E. Brown. "Following a 30-month string of year-to-year percentage decreases that began in October 2005, sales during June also posted their third consecutive year-to-year gain.
"Sales were driven in part by large shares of deeply discounted distressed sales in many parts of the state," he said. "With lower prices and favorable interest rates, affordability also has improved significantly in recent months, paving the way for many buyers to purchase their first home."
The median price of an existing, single-family detached home in California during June 2008 was $368,250, a 37.7 percent decrease from the revised $591,280 median for June 2007, C.A.R. reported. The June 2008 median price fell 4.3 percent compared with May's $385,840 median price.
The inventory dropped from a 10.2-month supply to 7.7 months, assuming sales continue at the rate posted during June.
Thirty-year fixed-rate mortgages averaged 6.32 percent during June, compared with 6.66 percent a year ago. Adjustable-rate loans averaged 5.15 percent compared to 5.68 percent in June 2007.
It took a median of 49.1 days in June 2008 to sell a single-family home, compared with 51.5 days for the same period a year ago.
[Long time readers of this Blog will understand the problems with 'median home prices' as a measure of home prices, but this report does show that home prices have fallen considerably from just a year ago. Home price changes vary considerably from town-to-town, and from neighborhood to neighborhood. If you would like an idea of the prevailing price changes for your home and neighborhood within our north Los Angeles market area, please give the SCV Home Team a call at 661-290-3750.]
"Statewide home sales remained above the 400,000 level for the said C.A.R. President William E. Brown. "Following a 30-month string of year-to-year percentage decreases that began in October 2005, sales during June also posted their third consecutive year-to-year gain.
"Sales were driven in part by large shares of deeply discounted distressed sales in many parts of the state," he said. "With lower prices and favorable interest rates, affordability also has improved significantly in recent months, paving the way for many buyers to purchase their first home."
The median price of an existing, single-family detached home in California during June 2008 was $368,250, a 37.7 percent decrease from the revised $591,280 median for June 2007, C.A.R. reported. The June 2008 median price fell 4.3 percent compared with May's $385,840 median price.
The inventory dropped from a 10.2-month supply to 7.7 months, assuming sales continue at the rate posted during June.
Thirty-year fixed-rate mortgages averaged 6.32 percent during June, compared with 6.66 percent a year ago. Adjustable-rate loans averaged 5.15 percent compared to 5.68 percent in June 2007.
It took a median of 49.1 days in June 2008 to sell a single-family home, compared with 51.5 days for the same period a year ago.
[Long time readers of this Blog will understand the problems with 'median home prices' as a measure of home prices, but this report does show that home prices have fallen considerably from just a year ago. Home price changes vary considerably from town-to-town, and from neighborhood to neighborhood. If you would like an idea of the prevailing price changes for your home and neighborhood within our north Los Angeles market area, please give the SCV Home Team a call at 661-290-3750.]
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