The Fed Has Lowered House Prices By Over $20,000

I have said for 11 years that the interest rate on a mortgage is more important than the price of a home when it comes to calculating the monthly payment of a home. Let me prove it to you—

On November 24th when this HUGE mortgage bond rally started, FHA mortgage rates were at 6%. Today, they are at 5%, a decrease of 1%. Thus, on a $200k loan a buyer’s monthly payment just dropped $127!

This is equal to a price drop of $21,182 in the last 22 days! This is GREAT news!!!

The Fed Lowers Rates

Today the Federal Reserve lowered short-term interest rates, the Fed Funds Rate, by 3/4%.

Here is some of what they said in their policy statement--

· The risk of inflation has decreased appreciably.
· The Fed will continue buying large quantities of mortgage backed securities or MBSs and will expands its purchase of MBS if needed.
· Weak economic conditions are likely to warrant exceptionally low Fed Funds Rate for some time.
· Going forward the Fed’s focus will be to support the functioning of the financial markets and to stimulate the economy. (No mention of their mandate about containing inflation.)

Here is what I think we will see happen--

* We will probably see the Fed Funds Rate at 2% or lower throughout 2009.

· It appears that the Fed is committed to keeping mortgage rates super low. How low? I don’t know for sure. I would assume with 99% certainty a rate below 5.50% and with 60% certainty rates below 5%.

· For how long? I could see this being the case for 6 to 9 months maybe. Why? Fewer people normally buy a home in the dead of winter and we are 4 months away from the peak buying and selling season. Or until housing sales rebound nicely nationwide.

Freedom For New Home Buyers

For the last several years big home builders have forced their clients to use their in-house lender to receive the discounts that the builders offer on their homes. In turn, their in-house lenders put hundreds of thousands, if not millions of people into crappy sub-prime loans. Why? Sub-prime loans paid them better. But, this is about to change.

I read an article this week about the new RESPA changes coming into effect on January 16, 2009. RESPA is maybe the most important set of laws that regulate housing and lending in our country and HUD is implementing changes that BENEFIT YOU.

Home builders will no longer be allowed to offer special financing or closing cost incentives to their clients if they use their preferred lender. Builders must offer these incentives to every buyer no matter what mortgage company the buyers choose! Yeah! Builders can no longer require the use of a certain settlement provider such as a mortgage company when offering any discounts or incentives.

Buyers will soon be free to choose their lender when buying a new home!

More Good News for Colorado Housing

It was reported this week that there 14% fewer foreclosures completed in our great state in the first 9 months of the year compared to the first 9 months of 2007. This is the first time we have seen a year over year decline since 2003!

Kathi Williams, Director of the Colorado Division of Housing, said she is “cautiously optimistic about the future.”

A second report revealed that Colorado’s delinquency rate is below average. This week TransUnion reported the delinquency rate on mortgages throughout the country as of September 30th. They define their delinquency rate as at least 2 months behind on their mortgage payments.

In Colorado our delinquency rate is 3.38% which is 15% below the national average of 3.96%. On average the national delinquency rate is normally around 2%; but has risen considerably in the last 18 months.

What does this mean for first time home buyers? The end of Denver homes being on "sale" is nearly over and will probably end in 2009. Don't miss out on this once in a generation sale.

Mortgage Rates at 4.50%???

On Wednesday afternoon it was announced that the Treasury is considering a plan to lower mortgage rates to 4.50% to stimulate the housing market and our economy. And this was widely reported by the media as I have received several calls on Thursday and Friday about this.

How would they do this? It appears that the Treasury is considering buying more Mortgage Backed Securities from Fannie, Freddie, and Ginnie and financing these purchases by issuing new Treasury debt, probably 10 year T-bills which are currently yielding under 3%. Thus, creating a spread and making money just like a bank does. How I love the power of Arbitrage!

Personally, I believe the Treasury could accomplish this by saying just 1 additional word—explicit. If Hank Paulson and Ben Bernanke would just say that the Treasury “explicitly” guarantees the MBS’ of Fannie and Freddie, mortgage rates would tumble without 1 penny spent. But, I don’t know any politician who knows how to do anything without spending money. Ugh!

Denver Home Prices Up 2.8%

In the 3rd quarter S&P/Case-Shiller Index Report it revealed that Denver has had the 3rd best performing real estate market in the country when compared to 19 other large metropolitan areas. Here in the Denver MSA our prices have only dropped 5.4% in the last 12 months. Many large cities have seen double digit price drops with some markets seeing drops of over 25% in the last year.

However, since March 2008, which was our lowest reading for the year, prices have INCREASED 2.8%. WOW! I bet you did not know that.

In their quarterly reports S&P/Case-Shiller breaks out their data by price ranges as well, which is very helpful. Here is what I learned--

Homes priced under $212,570--
* Prices are down 6.8% in the last year.
* Prices are up 5.4% since March 2008

Homes priced between $212,571-$317,033
* Prices are down 4.8% in the last year
* Prices are up 4.2% since March 2008

Homes priced above $317,033
* Prices are down 5.4% in the last year
* Prices are up just 1.3% since March 2008

This data tells us that lower priced homes are peforming the best in the last 6 months, the 2nd and 3rd quarter. For the highest priced homes, the market appears to be softening in the last 6 months when compared to the previous 6 months. This is probably due to the difficulty of getting a mortgage as home prices rise above $439,000 (conforming loan amount of $417,000/95% LTV).

A second good sign is that inventory levels are dropping which should help cause prices to rise. Currently, we are seeing some of our lowest inventory levels in 3 years.

Only 1 Bank Will Approve This Loan

For many years I have said thousands of times "Cash is King!" Let me be the first to tell you: The King Is Dead!!!

Two clients tell the story the best. One gentleman could put $100,000 down on a $200,000 house; but I could not get him approved for even a FHA loan! Why? His credit report consisted only of 4 unpaid collection accounts. And I was not allowed to verify non-traditional credit like rent, utilities, insurance payments because his traditional credit report was filled only with collections. A 50% LTV did not matter!

A second client is a young lady fresh out of college with her first professional job. Her problem: she has no traditional credit or credit score. Thus, I added her Dad to the loan as a non-occupying co-borrower which FHA allows. Her Dad is giving her $40k for a down payment. His credit is perfect and he has a 7 figure income. I have their FHA loan approved through FHA's Total Scorecard underwriting software. Easy loan? Wrong!

Knowing that she has no credit score, I thought this could be a problem. It was! 11 of my 15 FHA banks said "NO!" Three of them said maybe if I can verify at least 3 or 4 non-traditional credit tradelines for her. Only one bank has said YES to this loan as approved by FHA!

So, who is the new King? The new King is definitely credit and credit scores. In fact, most banks and the PMI companies require that a borrower have at least 3 traditional credit tradelines open for at least 12 months regardless of any on-line approval that I receive from Fannie, Freddie, FHA, or VA.

Say hello to the new KING.

What Makes Me Scream!

Nothing makes me scream louder than Mortgage Professionals telling people that mortgage rates are tied or linked to the 10 Year Treasury Bill. Plus hundreds of "Talking Heads" in the media believe and say this as well.

NO THEY ARE NOT!!!!!!!!!!!!!!!

The last 2 days of trading make my point as the 10 Year Treasury Bill is up over 400 basis points in price as the yield has plummeted over 1/2% to 3.01%. On Thursday, the 30 Year Treasury Bond's yield or rate dropped .64%.

But, in the last 2 days the 6.00% Fannie Mae 30 year bond has gained a grand total of 11 basis points in price!!! And mortgage rates have remain unchanged. You see mortgage rates are directly correlated with the sale of mortgage bonds and nothing else.

If your Mortgage Professional ever says that mortgage rates are tied or linked to the 10 Year Treasury Bill, please please tell them that they are wrong. Then, hire a Mortgage Professional who knows the TRUTH and can advise you the best.

Posted on November 21, 2008

It's Not A Waiter's Market

On Tuesday NAR, the National Association of Realtors released their third quarter report on real estate sales in every MSA in the country. The headline for Denver was "prices drop 11% in the last year!" Watch out the sky is falling!

Now, let's look at the facts. Yes, median prices dropped 11% from September 2007 thru September 2008. But, what's happening recently? For the 3rd quarter prices were unchanged from the 2nd quarter. And prices actually rose .7% in the 2nd quarter. That's two quarters in a row of good news!

Almost all of the 11% drop occured in the 4th quarter last year when prices dropped 9.5% in those 3 months.

Home prices are firming up in Denver and the Case-Shiller Index reveals that March 2008 was probably the bottom of the market here in Denver. It's a buyer's market, NOT a waiter's market!

EZ Way To Calculate Your Mortgage Payment

Currently, 30 year fixed mortgage rates have been at or hovering around 6.00% for most of the year. With rates exactly at 6% today here is how to calculate your monthly mortgage payment--

Every $10,000 you borrow costs you $60 a month.
Every $100,000 you borrow costs you $600 a month.

Thus, if you borrow $220,000 on your new mortgage your principal and interest payment will be $ 1,320 approximately. Now this payment does not include your payments for property taxes, homeowner's insurance or mortgage insurance if needed.

Most people are surprised by how little money they save if they put an extra $10,000 down. This is why I normally recommend you keep YOUR money in the bank and not in your house under the mattress. Keep your money where it is safe and you can get to it in an emergency such as illness, death, or job loss.

Don't forget this maxim: It's better to have and not need, then to need and not have.