The Costs are Outweighing the Benefits
We’ve stated that the benefits of low interest rates have run their course. We hold to our contrary opinion that low rates are actually hindering more than helping markets these days. Consider the mortgage market: Even though mortgage rates are dwelling in the basement, fewer people are applying for mortgages. The MBA reported that purchase activity declined 1.2 percent to the second-lowest level since 1997 last week, while refinancing activity slid 7.3 percent from its May 2009 highs.
The Federal Reserve’s low-rate policy is hardly inspiring confidence. “Rates must be low because the economy is circling the drain,” so the man-on-the-street rationale goes. It’s the wrong message to send, because promoting risk aversion also means promoting inertia. Risk-averse markets are simply less willing to engage in riskier, but worthwhile, economic activity.
This risk-averse sentiment is readily reflected in the capital markets, where the relatively non-productive assets of gold and Treasury securities continue to be the investments of choice. That’s unfortunate, because we’d all be better off if there were more investment in the very productive (though riskier) assets of home purchases and renovation and mortgage lending.
Up, Up, But Not Quite Away
We were expecting a little more, but at least it’s trending in the right direction. We are speaking of the employment report, which showed payrolls rose by 431,000 last month.
That would be very good news, if not for the fact that 411,000 of the new hires were related to the census. Nevertheless, that still leaves a net positive for the private sector. The increase was enough to push the unemployment rate down to 9.7 percent (though some pundits argue the drop was really due to a lower participation rate).
You never want to read too much into a single month of data, but we remain encouraged: job growth and wages picked up from April to May, while the average workweek lengthened. And although moderate compared to past post-recessions, the recovery is looking more sustainable after consumer spending and business investment rose at a healthy pace in the first quarter.
Overall, we think this latest employment report provides another reason to act now in both the mortgage and housing markets.
The Post-Credit Era
We’ve been saying for the past month or so that we’re not particularly worried about the end of the federal homebuyers tax credits. We also weren’t particularly concerned when the Federal Reserve said it would cease purchasing mortgage-backed securities. After all, the only way to discover if a market is truly healthy and viable is to stop subsidizing it.
It’s still early to render a verdict, but so far so good. People recognize that the combination of low rates and lower home prices represent a great opportunity, while many shoppers who failed to find a home to qualify for the tax credit remain undeterred and, just as important, rational – understanding the go-go days of the early 2000s are over. And that’s a good thing. The market of that era was driven more by speculation and less by fundamentals. And though it was highly remunerative for many of us, we see how it turned out.
In housing, slow and steady wins the race, which is why we continue to advise our clients that today’s market offers good fundamentally sound deals that can be financed at good economically advantageous interest rates. Sounds like a win-win deal to us.
San Bruno Real Estate “Shake Up” 2010!
112 Georgia Ave. San Bruno, Ca. $419,000So far, in 2010, San Bruno real estate inventory is low making it a great new environment for homeowners who have been thinking of selling! Currently there are only 30 homes for sale ranging from $299,000 for a small one bedroom home to $1,000,000 brand spanking new homes in a new developement! Md range is about $550,000-$600,000.
With interest rates still teetering between 5 and 6%, home buyers are out in full force looking for good deals before the rates hike up!
What we are seeing is pretty quick sales of homes in the lower and mid ranges while the high end homes are taking awhile. They are selling though! It took quite a few months but the new homes in the Skycrest Develoment next to Lunardi’s have all sold! One most recently at $918,000! Read more
Are We There Yet?
We cannot say for sure, but we think we are darn close. Of course, we are speaking of the bottom in mortgage rates. Last week we explained how the Federal Reserve has influenced the market with its massive purchases of mortgage-backed securities. This week we offer statistical support for our contention that rates are at least close to bottoming, if not likely to reverse soon.
Calculated Risk, an insightful Web site that tracks the comings and goings of the housing and mortgage markets, supplied the evidence. Calculated Risk has noted (as have we) the close relationship between the 30-year conventional fixed-rate mortgage and the yield on the 10-year Treasury note. Based on statistical analysis reprinted on Calculated Risk’s Web site, the 30-year conventional fixed-rate mortgage is expected to rise to 5.4% based on the current 10-year Treasury yield of 3.45%.
www.deanrizzi.com
Buyer (Still) Beware
We warn once again that it will not be a buyer’s market into perpetuity, though others have a different opinion. Some forecasters – Goldman Sachs being the most prominent – project the Federal Reserve will hold the fed funds rate low for “many years” in order to help U.S. consumers and companies pull out of their funk. If that were the case, then it would appear that mortgages rates ranging between 4.5% and 5.5% could be the norm deep into 2011.
Meanwhile, Reuters reports that homebuyers are still negotiating good discounts based on data released in July’s Zillow Real Estate Market Report. Zillow notes that buyers paid 3.3%, or nearly $7,039, less than the last listing price on homes for sale during July. What’s more, 22.8% of all homes listed for sale on Zillow during August were listed for a median 96 days, up from 91 in July.
It sounds like the trend will remain the buyer’s friend through 2011 – until you dig a little deeper. Zillow also noted that the 3.3% discount is down from June’s 3.5% discount and substantially down from January’s 4.6% discount. It is also worth noting, yet again, that the usual hard-hit burgs in Nevada , Florida and California skew the data.
“Even if prices stabilize and rise, we can still finance at cheaper rates,” so the counter argument goes. Yes, that is the case today, but we think Goldman and others are underestimating how quickly an economy can turn and how quickly inflation can conflate. It is a buyers’ market today, so buyers should take advantage of it today. As for tomorrow? We are much less sure.
Is history repeating itself?
In recent months the entry level Real Estate market has shifted and become for some people, a competitive sport. If priced correctly homes aren’t lasting past the first week’s open house as buyers are frantically racing to submit offers. Supply is low and demand is high and we all know with that combination multiple offers arise. What’s good for the goose isn’t necassarily good for the gander.. is history repeating itself? Is what is occuring now exactly what we saw a few years ago when home prices soared and multiple offers were just expected? There are many factors that come into play, some may argue this market is nothing like the one we saw a few years ago. We can say for sure banks have tightened up their guidelines to put it gently. Unless you can prove you qualify, you don’t get approved. Interest rates are lower and home prices have dropped so buyers in today’s market essentially have more buying power. Appraisals have been tightened and often times more then one is necessary to get approved by the lender. With that said, is it really all that different? Are consumers so eager to purchase a home for fear they will “miss the boat” that they are over extending themselves to make it happen. Hopefully with the tightened lender guidelines, history won’t repeat itself. What are your thoughts as I would love to hear them…
Nicole Machado www.mve2day.com
January home sales in the west are WAY up!
I just caught this article off of Google AP. I’m passing it along because it gives more detailed picture of the January sales report. NAR reports existing home sales where down to their lowest levels in six years. However, if you look at the western region, they are up 32.1 percent from a year ago. Although prices are down, sales jumped 57% in the bay area!! Buyers are clearly taking advantage of the high inventory. What a great time for young families to get into that first home!
http://www.google.com/hostednews/ap/article/ALeqM5h78GtI74ZouhZ1bCfF7cOWPQWKzwD96IS94O1
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