« March 2008 | Main | May 2008 »
For anyone that wants to do some research on how the nonprime mortgage conditions are in Minnesota, or any other state, just browse on over to this interactive map provided by the Federal Reserve Bank of New York.
Dynamic Maps of Nonprime Mortgage Conditions in the United States
You can see how Minnesota isn't the hardest hit from loans of this variety but we are in the upper 30% of states affected.
Good morning everyone,
Here we are again, awaiting word from the Federal Reserve. What are they going to do with the Overnight Rate? What are they going to say in their Policy Statement? What does the future hold?
The speculation of the markets is that they'll either cut one more time, for another 0.25, and say they'll probably hold there going forward for awhile. One and done. However, a strong argument can be made that they should where they are. Why?
Well, they've already cut dramatically and pulled some dusty monetary tools of the shelves (the Discount Rate, the special credit facilities, etc.) to support the ailing financial machinery. Will another 0.25 have much impact at this stage? Doubtful. So, why fire a bullet, leaving one less to be fired, when the impact might be marginal?
An even more important reason is that after the Fed "came to our rescue" this year inflation is rising. You feel it. I feel it. We all feel it! As you go about your daily life, filling up your gas tank, buying food for you & your family, buying toothpaste, razor blades, lunch at Panera, doesn't it all seem more expensive?
That's because it is. The Fed will likely be changing gears in the coming 2-4 months and begin its focus on fighting inflation. It will have to. Why? Consumer spending will continue to be curtailed as we all have less & less disposable spending as our staples are eating up more and more of our pocketbook every day.
Oh yeah, your probably wondering where are mortgage rates ahead of this meeting. I got carried away with that missive. The 30 year fixed rate is holding around 5.875% with no points this AM. That's actually doing better than I thought.
If we get any dramatic moves I review it here and ping you on the email if it is important enough.
Year 2008. The year the music stopped.
After 6-7 years of rapidly rising home prices what is readily apparent now is that this fervor has stopped. The exit strategy of being able to sell a property for more than you paid for it is rapidly turning into a "no exit" dead-end for many people.
If you bought a property in 2005 or 2006, you most likely bought the top of the market. Ugh! I can really say that because I bought two properties at the top. Double ugh!
We are working our way through a period of deep psychological change regarding money, credit, savings, real estate, and the direction of our society. At least it can be said that we live in "interesting times."
Unfortunately, the music hasn't only stopped, the mic & speakers are also broken. Its going to take several years for the carnage and pain of this pullback to moderate in our collective psyche.
Last year, I predicted it'd probably be 2010 before we saw any upward progress again on real estate prices in Minnesota. That's what I still think.
My daily conversations with clients & acquaintances continue to add anecdote to this reality. I'm sure you know what I'm talking about, this effects each & every one of us.
Not much to report on mortgage rates the past few weeks. The benchmark 30-year fixed rate mortgage is hovering around 6% with no points.
The rates on ARM programs aren't that appealing in general. In fact, many lenders are discontinuing any of the very short-term ARMs. Why? Nobody wants to take on market risk over the short-term (the next 12-18 months).
Underwriting guidelines continue to tighten and the changes Fannie Mae has made only adds costs to all but the most squeeky-clean of credit scores.
The big issue that hits all of us continues to be falling home prices.
Earlier on in this credit crisis (see how the media no longer calls is a "contained sub-prime problem?), banks would proceed as normal on delinguent mortgage borrowers and begin to foreclose.
The new reality is that the surging volume of properties moving into foreclosure only floods the market with an inventory of "motivated sellers" at a time when buyers are few and far between. Ouch! But hey, their bankers, right? They'll come out fine.
What they are finding now in their weighing of options is that maybe, just maybe, a different strategy makes more sense. What could it be?
Maybe it'd be better to reduce the principal balances and take the hit now but get these loans back into performing loans (where payment are made in a timely basis) and make the lost money back on the interest.
That's a ton better than amassing the legal fees in addition to the capital loss that will occur selling a glut of properties into this market.
Remember, bankers that lend on mortgages never wanted to be property owners. They were lending against a borrower's ability to repay and just secured it to the real estate for peace of mind security.
Once they threw out the time-tested knowledge of how to assess & price the borrower's ability to repay it all blew up!
A quick glance at mortgage ratesheets this morning and the best 30 year fixed rate with zero origination is now at 6%.
Don't expect to see below six anytime soon.
Some more news from the front lines; several refinancing transactions I was working on for long-time clients this month have fallen apart for the same reason. FALLING real estate prices.
Just another ripple of this mess.
Mortgage bonds are breaking through a key technical level I'm been watching for in today's trading.
What does this mean?
It means "so long" 30 year fixed rates under 6%, that's what. I gave the heads up on this a few weeks back and that window is now closing. I don't expect to see fixed rates under 6% anytime this year and, quite possibly, not for several years.
Just because the housing market is slowing down doesn't mean we have to see lower rates to get it to pick back up. Nope. The only thing that will cure this ill is lower home prices. Some cure, huh?
New day, same stuff.
Mortgage rates have stabilized in recent weeks and continue to linger just below 6.0% on the 30 year fixed rate mortgage. But, for how much longer?
The days, weeks, and months are numbered. There just are not a lot of market reasons to see mortgage rates moving lower anytime soon. Browse my posts from the past few weeks for more foundation on this belief.
The spring/summer purchase market has arrived in Minnesota. What will be? From early signs I think we will see home sellers finally capitulate and drop prices to levels that ensure sales. Unfortunately, the levels to make this happen wipe out the paper gains we've seen in our homes prices the past 3-6 years. Ick!
Heads up! For long-time readers that know my pursuits I've got something pretty exciting coming in about 60 days. I so wish I could share it with you right now but we've got to put the final touches on it before making it public.
You'll be among the first to know, just have to wait another 60 days....
Brett
Ick. Today's Jobs Report from the government indicated a loss of 80,000 jobs in March. They also threw in revisions to the January and February reports to account for another 40,000 lost jobs during those months.
The talking heads in the media & government continue to "debate" whether or not we are in a recession while everyday Americans live one.
In fact, a recent poll from the New York Time/CBS News release yesterday they found that Americans are in the gloomiest moods about our economy since they started that polling ba in the early 1990's.
81% of American think the country is "on the wrong track." I sure do. What do you think?
Back to that dismal Jobs Report; we might see a small improvement in mortgage rate pricing off of it but the way the markets are trading we are not getting anything like we used to off the news. Why?
Because there aren't any investors who want to buy mortgage debt. In recent years we had historic demand from investors to buy mortgage debt and that is why rates were so low and the programs a plenty to get someone a home. Not so anymore.
That dynamic will continue for some time. So, even as we are likely to continue to see weakening economic news in the months ahead we won't see the normal improvement in mortgage rates. That relationship is from the past. The current one is one of complete disconnect.
Well, I'll be speaking to students at Michigan State University next Monday & Tuesday and be back posting on the blog when I return.
Have a good weekend,
Brett
