Tuesday, September 25, 2007

South Bay-Beach Cities:Interest Rates.. No Relief in Sight...

A Banker with a sense of humor......

It's been one week since the Fed met and lowered the funds rate and the discount rate... The euphoria that followed the announcement of the action taken by the FED was good news for Wall Street but what about the housing market woes.

Are mortgage interest rates lower? For potential buyers and sellers in Manhattan Beach and the Beach Cities..sadly the answer is is not really.

The FED action lowered short term rates but long term rates are still on the high side. Bond rates are responding to inflation fears over the long term. Mortgage rates are tied to bond rates not short term rates. Conforming loans saw rates go down but fixed rate Jumbo loans are still hovering around 6.9%-7.25% with no relief in sight. Adjustable rates are slightly better for conforming loans but Jumbo loans are still considered to be risky and remain high compared to the rates for conforming loans.

What it means in our local real estate market is that rates continue to be higher on Jumbo loans while qualifying is more stringent. Sales have slowed down and prices are beginning to decline slightly as the pool of buyers becomes smaller. Buyers who are qualified are being very selective and cautious. I suspect that many buyers are waiting to see if rates and prices will drop over the next few weeks. some are anticipating that the FED will cut rates again in October to try and keep the housing market together.

The SEC is now beginning an investigation into the mortgage crisis to determine how so many borrowers were allowed to get subprime loans. It makes you wonder where these guys were three years ago when these loans really hit the market ... counting their profits no doubt. I find it hard to believe these guys just don't get it. They push adjustable loans over fixed rate loans by making qualifying easier for an adjustable then a fixed. Then they moan and whine about the fallout that happens when the loans go bad.

I have questioned this policy for a long time as it never made sense to me that you could qualify for a higher loan amount with a rate that can go up then you can on one that is fixed. The reason is simple bankers/credit markets don't want to make long term fixed rate loans. They are afraid that if rates will go up and they will be stuck with a loan that has a lesser rate. So they come up with creative products that ultimately don't work for the general public.

If the FED lowers the funds rate again in October you will probably see a small decrease in rates but don't expect to see them stay low for very long. Many buyers are waiting to see prices fall farther before they buy thinking that they can always refinance later at a lower rate. However I wouldn't be too sure about that. The interest rates over the last few years have been significantly lower then at any time in the last 30 years. That may not last much longer.

There is a lot of demand for credit world wide. I suspect that as just as the price of gas has risen because of higher demand from emerging countries we will see the cost of money rise for the same reasons.

Local Rates: Provided by Bob Madden of Platinum Capital

Conforming Loans ( $417,000-)

30 Year Fixed 6.125% 1.00 Points
15 Year Fixed 5.875% 1.00 Points
5/1 ARM 5.875% 1.00 Points

Jumbo Loans($417,000+)

30 Year Fixed 7.000% 1.00 Points
7/1 ARM 6.500% 1.00 Points
5/1 ARM 6.375% 1.00 Points

Rates today are slightly higher then those I posted on September 13, 2007. Here's some advice from Brian Brady... America's Most Opinionated Mortgage Broker about loan shopping and rates. The rate on the 10 year Treasury Bill points to fears of possible inflationary pressures in the future. It will be interesting to see where the FED sees the immediate problem..is it a credit market in chaos or future inflationary pressures. Stay tuned for the next meeting toward the end of October.


Anonymous said...

Hi Kaye,

I will be back in the market for a home in Manhattan Beach when values stabilize. My wife and I sold our "big" house 2 and a half years ago (kids off to college) and hesitated to buy as the market went nuts. We've been very happy leasing in the meantime. I respect your candor and will contact you when rates/prices look a little calmer. My best guess is things may take another year or two, but hey, last time values got this out of whack 80% of the downturn took less than a year. Once again, it's nice to find that maybe all realtors aren't full of it.

Kaye Thomas said...

Anonymous- Thank you for your kind words.. The market is rather unpredictable with high priced premium properties selling at or over the asking price and often with multiple offers.. while other very nice homes just continue to sit..
I think the key will be stability returning to the financial markets... I look forward to hearing from you when you think the timing is right..

Anonymous said...

Anon of 12:28 PM:

Stick to your guns. Your timing will likely prove to be prophetic.

Kaye Thomas said...

Anonymous- I would really like to be right about this market.. but it's different from others we have seen over the years..

Anonymous said...

Hi Anonymous 12:28,

We also sold our house and are waiting on the sidelines. It seems like the market is finally slowing. We don't plan to use an agent to purchase our next home. Any thoughts on that?