Saturday, December 15, 2007

Getting bleaker by the day

While I feel strongly about the Bay Area housing market becoming a strong one for buyers in the coming years as prices decline sharply in nearly all local markets, I have tried to remain optimistic that the economy will slow slightly, yet remain in tact. But the more reports and statistics I read, the grimmer things look for the financial system overall. Yes, markets run up to an unsustainable level all the time, and then pull back for a correction. Nothing new there. But this latest run-up puts us in uncharted territory - combining 40-year-low interest rates with the loosest underwriting standards in the history of lending. Did you really think Richard and Suzie down the street should have "qualified" for that $1M mortgage when they earn a combined $130k/year? It didn't add up then, and it doesn't add up now. And the fallout is underway. The severity of it is what no one can put their finger on. But many are starting to really get worried about how bad it just may become, including yours truly.

Check out this column by Paul Krugman in this past week's New York Times on why the Fed's latest attempts to rescue us from all this just might not work.

Wednesday, December 12, 2007

The real agenda with the Bush foreclosure plan

You think the current administration really cares about the homeowners in danger of foreclosure? I. Think. Not... Am I surprised, and should you be? Hell. No...

See details here and what Treasury Sec. Henry Paulson revealed.

Tuesday, December 11, 2007

Sub-prime mess = Crack cocaine?

An interesting comparison from the District Attorney of Brooklyn, NY.

Leamer says no recession..... for now

What do I think? I am on the fence on this one.. seriously. I have much respect for Leamer and his work at UCLA and feel strongly that his Anderson Forecast team is more impartial than any of the big brokerage houses' anaylists (ya think?). But the recession call is still too early to call. It's close, but it's still too early. The election year of '08 will answer nearly all of the questions about where this country is headed in the next several years, both politically and economically, which can be one and the same.

We know that home sales and pricing will fall in '08, and foreclosures will continue to rise, but the employment numbers and interest rates in the first part of the year will dictate where we go. Hang on for an interesting ride...

Read this to see what he says about California specifically.

Monday, December 10, 2007

Current rates, volatility and the rate freeze

Check out RPM Mortgage's Julian Hebron's weekly rate overview:

My lock alert last week proved effective, as extreme volatility continues. Fixed and ARM rates opened this week .375% to .5% higher than last week. Last Wednesday, mortgage bond yields (that lenders look to for rate pricing) were at 2-year lows, and today bond yields (and ARM but not fixed rates) are at the highest levels since the peak of the credit freeze in late-August—all of this in 4 trading days. Because of this and reasons I discuss below, I think the rates below will drop.


When the Fed announces their rate decision tomorrow at 2:15 Eastern, I think they’ll cut the Discount Rate, a 1-to-30-day rate the Fed charges global banks for short-term loans in times of distress, by 50 basis points (.5%). This will bring the Discount Rate to 4.5%, which should finally start to mean something to cash-strapped money center banks (like UBS, Citi just this week) that continue to post bad debt write-offs. Until now, the Discount Rate hasn’t been low enough to be better than other options, but at 4.5%, it may be.

The Fed Funds Rate, a rate Federal Reserve banks charge each other for overnight loans, will likely be cut 25 basis points (.25%) to 4.25%, although many believe it could be a 50 basis point (.5%) cut given Fed Chairman’s November 29th acknowledgement that “current stresses in financial markets make the uncertainty surrounding the [economic] outlook even greater than usual.”

But bond trading, which takes cues from Fed rates, certainly doesn’t show expectations for 50 basis points. Friday’s jobs report showed the steepest wage growth in 2 years, which stoked inflation fears and led to a bond selloff that continued into today. This Thursday and Friday, there are 3 critical inflation reports. If the Fed Funds cut is 50bps (downward rate pressure) and inflation comes in higher (upward rate pressure), fasten your seatbelt for more rate swings.


When a deal is close to being real (e.g., when purchase offers are going out), I give definitive quotes. But on actual execution of rate locks, I’m taking more of a trader’s approach to capture opportunities amidst the volatility. With day-to-day rate swings of .25% or more, and economic fundamentals that point to lower rates over the next 25-60 days, I can (and do) capture rates on any single trading day that are better than any 25 to 200 day moving average rate. Especially lately, I've been able to capture better than the quoted rate.


A client told me Saturday night that a couple he knows – Jumbo A-paper borrowers with 20% equity, perfect credit, and high-paying jobs – were adamantly defending the stance that they’ll qualify to get their 5yr ARM from 2004 frozen. This profile couldn’t be further from qualifying, but it proves how confusing and disruptive to lender underwriting operations this rate freeze will be. You multiply this couple by thousands who will clog up the system “just to see” if they can qualify, and it spells trouble.

In short, I think it’s mostly political rhetoric that has just enough credibility to come in handy during an election year. Picture your candidates stumping, and referencing the one case their assistant dug up as a success story. It might get headlines and votes, but it doesn’t unwind this housing correction any faster. I’m certainly sympathetic to borrowers who are in distress; I’m in the trenches with them daily. But government intervention in free markets is unwise and will probably prove to prolong this correction.

Are mortgage rates poised to begin their incline?

Check out the Realty Times Interest Rate Update. What do you think? Time to lock in now if you are a buyer?

Berkeley fixer a stones throw from Solano Ave Zachary's

This spacious bungalow sits on a nice corner lot in a great neighborhood known as Thousand Oaks where you can actually see the backside of Zachary's pizza up the street. With a little work and sweat equity, this 1265 sq ft, 2 bed/2 bath home can be brought back to life. Based on the high amount of interest at the open house and fab location, I expect this to sell quickly and likely above asking price.

I predict a selling price of at least $650k, maybe up to $700k.

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