What Now? More From The Financial World

Previously, we detailed the news about Fannie Mae and Freddie Mac. Today the news broke about Lehman Brothers and Merrill Lynch. The on-going saga of the sub-prime mortgage loans claims another set of victims. One is down for the count and the other is on life-support. Again, greed overcame common-sense.

One of our key strategic mortgage partners sent us the following message that gives a summary of that news.

“Its just another manic Monday”…The Bangles. If you thought last Monday was wild on the news from Fannie and Freddie, the headlines that lead us into this week are even crazier. First, Mortgage Bonds are up sharply, which should lead to much better home loan rates and the great refinance opportunities that we have been expecting.

Let’s begin with more fallout in the financial sector. Lehman Brothers is done after 158 years, thanks to their exposure to sub-prime mortgages. And another casualty, that was narrowly avoided was Merrill Lynch, which is being acquired by Bank of America, again this is all due to their greed and exposure in the risky mortgage business. Also on the ropes is insurance giant, AIG, as they try to raise cash quickly to stay afloat.

So what do all these headlines mean to us in the mortgage business? It’s a time to look for opportunities. Pricing will be at its best level in some time, homes are at much more attractive prices, terms to purchase are far more favorable than they have been and the forecast could get even better. Prices should improve nicely today as money flows out of Stocks – but there is another story on the Bond side. We know that Treasury Bonds offer the lowest yield with the lowest risk. Then Mortgage Bonds offer a higher yield and for an even greater yield, there are Corporate Bonds. But they do carry higher risk. With all the turmoil in the financial sector, the risk on Corporate Bonds has increased significantly. While this will translate to higher yields being offered, the risk on Corporate Bonds may be greater than the appetite or tolerance of investors. In fact, many funds will preclude
investments in riskier Bonds.

As fund managers and investors seek alternatives they will notice that Mortgage Bonds offer a much higher yield than Treasuries with the same guarantee. This should help Mortgage Bond pricing down the road…especially, with some potential good news on inflation. The Dollar has made significant gains against other major currencies, which should help import prices. The Job market is weak and that should keep wage based inflation in check. The move in Oil lower has been dramatic. A $52 drop in two months puts Oil at $95…likely on its way to $85. All these positive inflationary factors spells good news for mortgage rates.

But this time it will not be as easy, as credit and appraised values will represent more of a challenge. That said, there are a lot of deals to be had. Brush up on how to improve credit scores with the tools inside MMG and do as much research as possible on valuations for potential refi clients ahead of time.

Remind your clients that these drops in rates don’t last forever and should be taken advantage of if they make sense. Greed kills.

As we have said quite a few times, both on this blog, in messages to our cusotmers, and in face-to-face meetings that the wrong focus is one that focuses on the price of the home you are looking at, but the price of the money you need to purchase that home. You will purchase that home only once, but you will be making payments for that mortgage loan month after month for many years.

Essentially, this is the time to buy a home! The price of money, in terms of interest rates are low. FHA loans are at 5.5% and Conventional 30 year loans are at 5.875%. If you can qualify for a mortgage loan and want to buy a home, this is the time to do it. People who were looking for homes are now giving up because they’ve been told that it is the “end of the home selling season” and will stop pursuing that new home. You nnow have less competition out there. The homes that were for sale did not automatically get removed from the market. Many are still for sale!

But no activity or serious offers will cause them to pull their homes off the market…either permenantly or temporarily.

This is the period that most buyers miss out on opportunities. They want to wait until the next home selling season next year, when EVERYONE IS THINKING OF DOING THE SAME THING. Think about it. When would you like to be purchasing a new home? When everyone else is looking at the same home as you or would you prefer that they stay home so you can have your pick of homes?

If we can’t find your new home, it doesn’t exist.

Linda & Terry Iwaniw
REALTOR Associates
RE/MAX Home Team
Laurel Springs, NJ
http://www.snewjerseyhomes.com/
http://www.i-teamhomes.com/
609-417-1086

Tags: home inventories, home inventory, home marketplace, home sales, housing market, Marketplace, mortgage rates, Real Estate

The Housing Market in New Jersey

The housing market will regain its footing eventually is a certainty – and there are developing signs that we are seeing the early stages of a recovery now.  The housing market in New Jersey has neither been worsening or improving, for the past several months. Although, this is not welcome news for both home sellers and new home builders attempting to sell a home now because it likely ensures that prices will continue to drift lower over the short term. However, that may change soon because the Contract-Sales in New Jersey have held pretty steady at a monthly pace of about 7,000 homes for the last 3 months while the Unsold Inventory levels have actually started to decline. Also of interest that over the past 12 months the Unsold Inventory levels have increased by only 1%, suggesting that we’ve reached the high-water market for the supply of homes on the market. But make no mistake about it, the weakness affecting the housing market is not over yet  but the end to the downward cycle is getting closer.This past June, the housing market’s performance reflected an Unsold Inventory supply of 10.8 months (a significant decrease from 15.6 months at the beginning of the year and a bit higher than 8.5 months  of one year ago). More evidence of stabilization is that the supply of unsold homes has shown little change in the past 4 months (10.5 months in March, 10.0 months in April, 10.4 months in May and 10.8 months in June). Because the Unsold Inventory is operating in such a narrow range implies that the housing market is starting to gain a foothold, which is a significant first-step, toward recovery.

What has clearly worsened recently however, is the weakening of the national and local economy resulting in significant job losses. This environment serves to erode home buyer confidence due to resulting concerns about job security and future earnings growth. As was discussed in detail at our Spring Housing Workshops earlier this year, the timeline for a recovery of the housing market is in the hands of the economy. An optimistic view on the economy is for a short-lived economic slowdown (recession) which reverses course later this year and sets the stage for a more robust market in 2009. Ironically, a short-lived recession could actually benefit the housing market by accelerating the market correction and setting the stage for stronger sales demand next Spring. A longer and deeper recession however, would create even greater challenges for housing by extending the current cycle and forestalling a recovery. An in-depth presentation on how this will affect local submarkets will be included in our Fall Seminar Series.

Tags: home inventories, home marketplace, housing market, real estate in new jersey, real estate inventories, real estate sales, unsold homes