2013: Second Lowest Mortgage Rates on Record

From Grant Norris of RPM Mortgage/Platinum Capital:

Despite the steep rise in rates in 2013, the average rate for the entire year (4.25%) is the second lowest on record next to 2012's 3.75%.  The previous 3 years were each roughly 0.25% higher and 2008 was roughly a full 1.0% higher than that.  To make this easier to digest, here's a quick recap of that info:

2008 - 6.0%
2009 - 5.0%
2010 - 4.75%
2011 - 4.5%
2012 - 3.75%
2013 - 4.25%

  

Grant Norris

Fw: WSJ MARKETS ALERT: U.S. 10-Year Treasury Yield Hits 3%

‎Rates headed up!

David J. White
South Bay Brokers, Inc.
310-916-1533

From: WSJ.com Editors Sent: Thursday, December 26, 2013 8:15 AM To: david.white@southbaybrokers.com Reply To: access@interactive.wsj.com Subject: WSJ MARKETS ALERT: U.S. 10-Year Treasury Yield Hits 3%

The Wall Street Journal Markets Alert U.S. 10-Year Treasury Yield Hits 3% U.S. Treasury bonds fell Thursday, pushing the yield on 10-year notes to 3%, a threshold that may signal a new baseline for higher interest rates that could send ripples through the U.S. economy and global financial markets. The benchmark 10-year Treasury note's yield was at the highest level since September, marking the second time this year that the yield reached the 3% mark. See More Coverage » Follow Us Unsubscribe Email Settings Contact Us Privacy Policy You are currently subscribed as david.white@southbaybrokers.com. For further assistance, please contact Customer Service at support@wsj.com Copyright 2013 Dow Jones & Company, Inc. All Rights Reserved.

Home buyers face dilemma with shortage

Even the general media is beginning to admit it! Inventories are very low in most major cities, including the South Bay beach cities. But rates are even lower! – David

http://www.sfgate.com/business/networth/article/Home-buyers-face-dilemma-with-shortage-4342162.php

It's Not Easy Managing Green (the Money Supply, Interest Rates, Inflation...)

Big Ben

As mentioned in this article from New York Times (a source seldom quoted by this blogger), Ben Bernanke's Fed Panel Is Divided on Direction.  Seems "too little too late" is the new "too much too soon" when it comes to his attempts to "manage" interest rates and inflation.

Granted, it's a thankless job.  But monetary theory, the antithesis to Keynesian economics (whose theories the current administration has conclusively disproved), tells us that these economic factors are the results of supply and demand.  These may be positively influenced by communicating clear policies and sticking to them.  Ultimately, however, they are set by the market, meaning that attempts to manage them require market intervention, which tends to be costly and short lived. - David

Do the Research: South Bay Home Inventories are Not High!

Do the research! Here are the actual levels of single family homes for sale in the South Bay Beach Cities and El Segundo.  

Note that although many factors would characterize this as a "Buyers Market," the level of inventories is low.  This represents an opportunity for sellers to list their properties at a time when competition is quite limited, and when low interest rates make mortgages affordable to your target buyers.  This is a "seam" in the marketplace that smart sellers can use to their advantage. 

Charts like this and in much greater detail, updated daily, are always available at www.BeachCityDigs.com by clicking on the "South Bay Market Data" tab.   - David

How low are current mortgage rates? From Money-Rates.com

Here are 3 convincing answers from www.money-rates.com on how low current mortgage rates really are.  Remembering the adage that "you live with the payment, not the price," and that interest comprises most of your mortgage payment in the early years, this is info that homebuyers need to be taking seriously!

Even the LA TIMES Thinks Now May be the Time to Buy!

Any time the LA Times writes about real estate, it's difficult to know whether to expect which theme will dominate: "doom" or "gloom."  So when they publish an article saying Now may be the time to buy a home, something big must be going on (or the business editor was vacationing).  There is: interest rates are on the upswing as we've been saying for some time.

Don't lose sight of the fact that higher rates reduce affordability, so potential sellers should be as interested in this news as potential buyers.

Now if you check the reader-submitted comments accompanying the Times article online, you're bound to see the doom and gloomers arguing for waiting till rates go up, thinking this will cause prices to crash.  These folks miss two critical points: the crash already happened (not sure how anyone could have missed that), and affordability is hugely impacted by rates.  - David

Brace for Higher Rates: Fannie & Freddie Move From the Skids to the Chopping Block

Seldom does the marketplace ring a bell when mortgage rates are about to rise.  This time, there is a bell, and it's ringing quite clearly. This article from the Financial Times proves it's even audible across the pond!: White House seeks wind-down of Fannie and Freddie. -David

Unexpected Happenings: A Cash-in Refi? Standard Sale of an Underwater Property?

Here's a new term for you: a Cash-in Refinance. It's not a recommendation, but an interesting concept whereby homeowners wanting to refinance their homes but having little or no equity actually contribute new funds at the time of the refi. It's one way to take advantage of the amazing rate environment we're experiencing, and there are scenarios where this actually generates a positive return.

Another approach, if you are slightly underwater, is to pay the difference on sale of your home, in order to preserve your credit while getting highly favorable loan terms and a great price on a trade-up property.

More info: Doubling Down on Housing - WSJ.com

-David

Treasuries Tumble, Pushing 10-Year Yields Up Most Since April

Predicting mortgage interest rates is a challenging proposition (if accuracy matters to the forecaster!). The 10-year Treasury Bond is a major key.  As this article says, "we're on a knife's edge."  But are we, or is that only in the short term?  It's difficult to imagine a scenario that would not have rates increasing from their current levels in the coming years. - David

July 10 (Bloomberg) -- Treasuries fell for the first week in a month, pushing 10-year yields up the most since April as concern eased the U.S. will slide back into recession and the government prepared to auction $69 billion of notes and bonds.

The 30-year bond yield rose above 4 percent and the 10-year yield exceeded 3 percent for the first time this month as stocks and commodities climbed, damping bonds' haven appeal. A report next week is forecast to show a U.S. retail sales decline slowed last month, adding to data that showed unemployment claims down and wholesale inventories up.

"We're seeing a move toward riskier assets," said Guy Lebas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC in Philadelphia. "There's a feeling that the pessimism was overdone."

Meltdown Post Mortem Ad Nauseum

The Fed continues to be grilled over whether it caused the mortgage meltdown via low interest rates, or allowed it via lax bank supervision.  Here's the latest:  Fed Transcripts Stoke Debate on Rates - NYTimes.com. 

So what's the answer?  They allowed it via lax bank supervision.  Those insisting the Fed caused the mortgage meltdown via encouraging low short-term interest rates don't understand (or don't want the public to understand) basic macroeconomics, and like to imply that the Fed has more influence on mortgage rates than it does.

Beige Book Says...

Latest Federal Reserve Beige Book is out.  Search on Beige Book for earlier posts on how to read it. 

FRB: Beige Book--Summary--April 14, 2010

For the San Francisco District (ours on the west coast), real estate comments include the following:

"The pace of home sales remained mixed across areas but appeared largely stable overall, while home prices edged up further in some parts of the District. However, contacts noted that continued limitations on the availability of nonconforming "jumbo" loans have restrained sales of higher-priced homes in some areas."

Certainly spot on regarding recent activity in the South Bay.  Prices have completely stabilized; numerous multiple offer situaions.  Jumbo loans will be a big boon when they become available on the more expensive properties, especially once stated income reappears.  Commercial looking a little tough! - David

FT.com - Kohn makes case for low interest rates

Outgoing Federal Reserve VC Don Kohn makes case for continued low interest rates, in support of Fed Chair Bernanke's position on the matter.  He's got it right. 

The recovery is real but fragile.  The few calls for increasing rates that are beginning to trickle out of other camps within and beyond the Fed are based upon a dangerous, destabilizing paranoia: that central banks must raise rates whenever they are low, simply because they might later be blamed (e.g., for the inflation that might happen or the low-rate mortgages that might be granted or the comparisons with Alan Greenspan that might be made) if they don't. - David

Homebuyers scramble as mortgage rates jump - Builder Magazine

Homebuyers are suddenly realized that rates have jumped 1/4% and are on their way up. So the best strategy for homebuyers is lock in a rate and a purchase while home prices are still near their 7-year lows. Rates are still excellent (around 5.25%), but there's no reason to ride them back up and wish you'd taken advantage of the waning buyer's market, especially in the South Bay where prices stabilized at the beginning of 2010. - David

Auctions, Data Weigh on Treasurys - WSJ.com

Simple formula:

Demand for 10-year Treasury securities down => Yield of 10-year Treasury securities hits 4% => Mortgage rates headed up further. - David

Auctions, Data Weigh on Treasurys - WSJ.com

Castles for the Common Man - WSJ.com

For a little while longer, while rates remain low and jumbo mortgage credit remains tight, outstanding bargains will continue to be available at the upper end of the market for those with the cash to afford them, even in the Beach Cities!  - David

Cheap Mortgages May Last as Investors Replace Fed - Bloomberg.com

The Federal Reserve wrapped up its program of mortgage purchases this week, leaving it to investors to replace the demand.  The level investor demand will have a great influence on the level of mortgage interest rates in the coming months. While rates have crept up around 25 basis points (1/4%), it's generally perceived that Cheap Mortgages May Last as Investors Replace the Fed.

It will be important for buyers and sellers alike to keep a close eye on rates as they continue to creep upward, for their impact upon affordability and payments is enormous. - David

Fed Meets, Rates Hold, Time to Refinance

In this MarketWatch video, a BankRate expert explains the importance of locking in low fixed rates while the Federal Reserve keeps rates low (as they reaffirmed today).  This is smart advice in an environment of rates that are low for now but can only go up. - David

Mortgage rates fall again to new low

Latest on rates: Down slightly, new low, still great.

But potential volatility coming when Fed ends its purchases of mortgages at the end of this month. And the possibility of greater difficulty locking a rate during your purchase transaction (due to a shortage of investors waiting to buy loans without the Fed keeping things moving). - David

NY Fed warns against rapid sale of assets - FT.com

Good advice from the New York Fed: The Federal Reserve should not sell off its mortgage assets, or at least not rapidly.

FT.com / US / Economy & Fed - NY Fed warns against rapid sale of assets

By holding its enormous portfolio of mortgages (accumulated in a successful effort to keep mortgage markets liquid during the downturn), the Fed can continue to help the market normalize despite bringing its new purchases to a close. - David