Saturday, December 6, 2008
Posted on Saturday, December 6, 2008 at 01:05PM by Bill Webb Post a Comment So, what is going on in our market? Many of you are seeing the national news every evening and seeing the situation as painted by the media. It is important that you understand what is going on in the Dallas area as well as the particular community that you are located. November, as expected, was not kind to the real estate market. As we saw the financial markets melt and become chaotic, we saw real estate transactions slow down dramatically. I did some research and the local zip codes with the greatest amount of income are the zip codes that slowed the most. In other words, those most affected by the stock market’s demise were the quickest to act in real estate. This was not unexpected, given the severity of the financial mess. It has taken a few weeks for potential buyers to become adjusted to the economy. As confidence is re-established with the economy we are seeing buyers starting to return to the market. What we also know is that our local market is quite different from the national market. Here is a sampling of what is going on in our local market at this time. The Dallas area enjoys an employment growth rate of 2.3%, which is far ahead of the national average. Of the twenty largest cities Dallas ranks number one in the category of most affordable homes. The North Dallas area (which is where most of you are) has a job growth rate of 2.6% which was the highest gain of the thirty-two metro areas that were surveyed. Home prices have declined slightly in the Metroplex. Our market shows a decline of about 2.6% as compared to a national average of over 16%(this is the number you see on the nightly news). To summarize our situation I believe that we have seen the worst of it. That is providing our national economic scene does not deteriorate further. I do think we will start to see a rise in home sales locally. Interest rates are now in the 5.5% range and are trending lower. I believe that we will see lower rates in the near future as lending practices start to loosen a bit. I also believe that the government is making the housing industry a major focus of its recovery plan. I still believe that homes in this market need to be priced right and in the best condition possible to make sure that they get sold. We must make sure that the buyer can see value.
I have received many calls today from agents and consumers alike who are hearing news reports of fixed rate mortgages being reduced by the government to 4.5%. While rates are very, very low right now, they are not at the 4.5% level. More importantly, they may or may not be headed in that direction. As you are aware, interest rates are driven by market forces and respond to bond market issues in response to daily economic news and, occasionally, whims. The government does not “set” the interest rates. Accordingly, this news story is not factually accurate. Having said this, could there be days in the coming weeks or months that we have access to interest rates at these levels? Yes, this is possible. However, it is far from certain and should, therefore, be considered with great caution. It is important that consumers understand that current interest rates are in the low to mid 5’s which is historically extremely low. A client who chooses to wait on his/her buying decision until rates hit “bottom” will likely end up missing the great opportunities of today…and miss the bottom as well. History has taught us that the bottom typically lasts for a period of hours, not days, and is quite elusive. Please read the opinion of the mortgage analyst below. Larry Baer does a wonderful job of explaining the discrepancies between the news media and the markets. As he says: “The markets are always right. You and I are some of the time.” I think most readers would agree there is a big difference between talking the talk - and actually walking the walk. The Wall Street Journal and Reuters News Service really got the rumor mills buzzing yesterday when they claimed their "sources" within the U.S. Treasury Department are whispering insider knowledge that indicates the government is considering reducing residential mortgage rates to 4.5% by upping investment in mortgage-backed securities. The plan would be for Fannie Mae and Freddie Mac to buy up more mortgage-backed securities to help drive borrowing costs roughly 1.0% lower than last week's U.S. average of 5.53% for a 30-year fixed mortgage. I certainly don't want to rain on anybody's parade here - but there are a couple of things I think you ought to consider in order to put this story into perspective. The Treasury Department already has authority to buy billions of dollars of mortgage-backed securities - it has yet to use that authority to any large degree. Does additional purchase authority suddenly create a storm of mortgage-backed security purchase activity that didn't exist before? How much additional buying power is necessary to push 30-year fixed-rate mortgage-backed securities down to 4.5%? The Federal Reserve announced plans to buy $500 billion of mortgage-backed securities from Fannie and Freddie on Monday - which did cause rates to spike lower - for a couple of hours - before mortgage interest rates finished flat to slightly higher through this morning. As I write, 30-year fixed rate mortgages in most of the country are trading at or near levels last experienced in June 2003 - when they touched 5.25%. It is unlikely any coordinated effort by the government to push 30-year mortgage interest rates to 4.5% or lower will occur until at least January 20th - there's probably too much "political hay" to be made by the majority party to make this event happen any earlier. Last but not lest, in my 30-years of managing mortgage market risk on a daily basis I've never seen mortgage interest rates sustain a dramatic move to lower levels when Uncle Sam is dumping huge amounts of supply into the credit markets. Current estimates indicate Uncle Sam has an immediate borrowing need that is multiples of his previous all-time record. So in a nutshell, we're talking about a program that doesn't even exist, that has no qualifying parameters, no timeline for implementation if it actually takes form and that will - at best - offer a note rate that is roughly 50 basis-points less than is immediately available in the market today. I hate these "two in the bush versus one in the hand" dilemmas - don't you? Shifting gears a little bit, I want to remind you that the economic "biggie" of the week is on tap tomorrow morning at 8:30 a.m. ET. The employment report is expected to show the economy shed 320,000 jobs in November, accelerating the labor market decline from the 240,000 jobs lost in October. In my judgment a dismal nonfarm payroll report is already priced into the mortgage market. As desensitized as mortgage investors have become to miserable macro-economic data it will likely take a November job loss figure greater than 350,000 and/or a national jobless rate higher than 6.9% to support a rally in the mortgage market. Numbers that match the consensus estimates for the November nonfarm payroll data will likely have little, if any significant impact on the near-term direction of mortgage interest rates. The above article was contributed by Tish Ashley of The Funding Source