According to a release on INMAN News on Friday loans entered the foreclosure process at a record rate during the fourth quarter, and things are likely to get worse before they get better, the chief economist for the Mortgage Bankers Association said today.
Although reductions in short-term interest rates have lessened the shock of interest-rate resets for many borrowers with adjustable-rate mortgage (ARM) loans, falling home prices are leaving more homeowners with little or no equity in their homes -- and less incentive to keep up on their mortgage payments.
Thursday, March 27, 2008
Foreclosure Update
According to a release on INMAN News on Friday loans entered the foreclosure process at a record rate during the fourth quarter, and things are likely to get worse before they get better, the chief economist for the Mortgage Bankers Association said today.
Although reductions in short-term interest rates have lessened the shock of interest-rate resets for many borrowers with adjustable-rate mortgage (ARM) loans, falling home prices are leaving more homeowners with little or no equity in their homes -- and less incentive to keep up on their mortgage payments.
Although reductions in short-term interest rates have lessened the shock of interest-rate resets for many borrowers with adjustable-rate mortgage (ARM) loans, falling home prices are leaving more homeowners with little or no equity in their homes -- and less incentive to keep up on their mortgage payments.
Wednesday, March 12, 2008
Charlottesville VA Real Estate Market Update
Charlottesville Real Estate Market Update
Currently Active Properties: 2,372
Median Price of Active Properties: $324,995
Average Days on Market for Active Properties: 148
Sold in February: 141
Median Price of Solds: $260,000
Average Days on Market for Solds: 138
Total Volume of Sold Property: $54,527,788
What can we derive from these numbers? Well, there was over 54 million dollars of sold property in the month of February in the Charlottesville Area (which includes Charlottesville, Albemarle, Green, Louisa, Fluvanna, and Orange). We can obtain the months of inventory by taking the number of sold properties in February and dividing that into the number of active properties. So 2372/141 = 16.8 months of inventory in the Charlottesville Area. The good news is that this number is down from 20.1 months of inventory that we had at the end of January. This show the market is slowly inproving on a monthly basis.
There could be a number of reasons for this. First, its an election year, and history shows that during election years, intrest rates drop, and there is generally a boost in the economy. This year is no different. Interest rates did drop and after they hit rock bottom and started to slightly rise again, real estate picked up.
We'll see if this trend remains.
Browse Charlottesville Real Estate
The statistics used came directly from CAAR (The Charlottesville Area Association of Realtors).
Charlottesville VA Real Estate Market Update
Charlottesville Real Estate Market Update
Currently Active Properties: 2,372
Median Price of Active Properties: $324,995
Average Days on Market for Active Properties: 148
Sold in February: 141
Median Price of Solds: $260,000
Average Days on Market for Solds: 138
Total Volume of Sold Property: $54,527,788
What can we derive from these numbers? Well, there was over 54 million dollars of sold property in the month of February in the Charlottesville Area (which includes Charlottesville, Albemarle, Green, Louisa, Fluvanna, and Orange). We can obtain the months of inventory by taking the number of sold properties in February and dividing that into the number of active properties. So 2372/141 = 16.8 months of inventory in the Charlottesville Area. The good news is that this number is down from 20.1 months of inventory that we had at the end of January. This show the market is slowly inproving on a monthly basis.
There could be a number of reasons for this. First, its an election year, and history shows that during election years, intrest rates drop, and there is generally a boost in the economy. This year is no different. Interest rates did drop and after they hit rock bottom and started to slightly rise again, real estate picked up.
We'll see if this trend remains.
Browse Charlottesville Real Estate
The statistics used came directly from CAAR (The Charlottesville Area Association of Realtors).
Foreclosures Even Affecting the Rich - Lender to Michael Jackson: Pay up or Beat It
Foreclosures are even affecting the Rich right now. Last month the Hearst mansion went to auction, and now it looks like Neverland Ranch, home of Michael Jackson will be going to autcion.
Lender to Michael Jackson: Pay up or Beat It
I wonder where this carousel is going to stop before its over...
Lender to Michael Jackson: Pay up or Beat It
"On March 19, at 1:00 p.m., Michael Jackson’s Neverland Ranch in Los Olivos,
Calif., is scheduled for a public auction at the Santa Barbara County Courthouse
at 1100 Anacapa Street. The opening bid is estimated to be at least $20,000,000.
The sprawling Jackson estate — located at 5225 Figueroa Mountain Road — sits on
2,800 acres of rolling hills in California’s wine county north of Santa Barbara.
Financial Title Co. filed the notice of trustee’s sale with the Santa Barbara
County Superior Court on Feb. 26. The auction notice for the property was
recently posted on RealtyTrac, the leading online marketplace for foreclosure
properties." - RisMedia
I wonder where this carousel is going to stop before its over...
Foreclosures Even Affecting the Rich - Lender to Michael Jackson: Pay up or Beat It
Foreclosures are even affecting the Rich right now. Last month the Hearst mansion went to auction, and now it looks like Neverland Ranch, home of Michael Jackson will be going to autcion.
Lender to Michael Jackson: Pay up or Beat It
I wonder where this carousel is going to stop before its over...
Lender to Michael Jackson: Pay up or Beat It
"On March 19, at 1:00 p.m., Michael Jackson’s Neverland Ranch in Los Olivos,
Calif., is scheduled for a public auction at the Santa Barbara County Courthouse
at 1100 Anacapa Street. The opening bid is estimated to be at least $20,000,000.
The sprawling Jackson estate — located at 5225 Figueroa Mountain Road — sits on
2,800 acres of rolling hills in California’s wine county north of Santa Barbara.
Financial Title Co. filed the notice of trustee’s sale with the Santa Barbara
County Superior Court on Feb. 26. The auction notice for the property was
recently posted on RealtyTrac, the leading online marketplace for foreclosure
properties." - RisMedia
I wonder where this carousel is going to stop before its over...
Thursday, March 6, 2008
Home Builders Go 'Green'
Home Builders Go 'Green' To Seek New Selling Point (Full Article)
We have seen this all over the board in our area, especially in area like Spring Creek by Zions Crossroads. Looks like we have the same problem in the nation.
We have seen this all over the board in our area, especially in area like Spring Creek by Zions Crossroads. Looks like we have the same problem in the nation.
"The Census Bureau and the U.S. Department of Housing and Urban Development jointly released their monthly report on new home sales early Wednesday morning.
The report showed new home sales declined once again, this time to a seasonally adjusted annual
rate of 588,000 units. The revised December figure was 605,000 houses for a month-over-month drop of 2.8 percent. The January 2008 figure is 33.9 percent below the January 2007 estimate of 890,000 sales. " - Jim Carlton From The Wall Street Journal Online
Home Builders Go 'Green'
Home Builders Go 'Green' To Seek New Selling Point (Full Article)
We have seen this all over the board in our area, especially in area like Spring Creek by Zions Crossroads. Looks like we have the same problem in the nation.
We have seen this all over the board in our area, especially in area like Spring Creek by Zions Crossroads. Looks like we have the same problem in the nation.
"The Census Bureau and the U.S. Department of Housing and Urban Development jointly released their monthly report on new home sales early Wednesday morning.
The report showed new home sales declined once again, this time to a seasonally adjusted annual
rate of 588,000 units. The revised December figure was 605,000 houses for a month-over-month drop of 2.8 percent. The January 2008 figure is 33.9 percent below the January 2007 estimate of 890,000 sales. " - Jim Carlton From The Wall Street Journal Online
Do Young, Tech-Savvy Buyers Need a Real Estate Agent
Do Young, Tech-Savvy Buyers Need a Real Estate Agent?
Despite charging a full service commission of 6% on listings, a large number of agents in our area are not providing full service if they are not marketing a home correctly and efficiently on the internet.
As one reader pointed out in response to a WSJ.com post on photos in real-estate listings, "most agents are not utilizing technology efficiently." The readers explains, "We had a young agent and he did an excellent job with marketing our town home. We ended up getting three dozen offers. He also uses BlackBerry and a few other tech gadgets which many agents simply don't use or cannot afford or whatever." Lauren
Baier Kim from the Wall Street Journal
There are tons of websites that every home needs to get exposure on to ensure the best sale for their client. For example, Yahoo! Real Estate, Google Base, Trulia, Realtor.com, and craigslist are some of the most popular. 82% of homebuyers start their search online. How many of those are you missing out on?
Leave comments!!!
Do Young, Tech-Savvy Buyers Need a Real Estate Agent
Do Young, Tech-Savvy Buyers Need a Real Estate Agent?
Despite charging a full service commission of 6% on listings, a large number of agents in our area are not providing full service if they are not marketing a home correctly and efficiently on the internet.
As one reader pointed out in response to a WSJ.com post on photos in real-estate listings, "most agents are not utilizing technology efficiently." The readers explains, "We had a young agent and he did an excellent job with marketing our town home. We ended up getting three dozen offers. He also uses BlackBerry and a few other tech gadgets which many agents simply don't use or cannot afford or whatever." Lauren
Baier Kim from the Wall Street Journal
There are tons of websites that every home needs to get exposure on to ensure the best sale for their client. For example, Yahoo! Real Estate, Google Base, Trulia, Realtor.com, and craigslist are some of the most popular. 82% of homebuyers start their search online. How many of those are you missing out on?
Leave comments!!!
Home Warranty of America, Inc., Offers Green Home Warranty Option
March 6, 2008-Home Warranty of America announced the availability of one of the first-ever green home warranty options in the nation. According to HWA, real estate professionals can now offer their buyers a comprehensive home warranty from HWA with the option to purchase GreenPlus. This new option provides replacement of the appliances and systems shown below with Energy Star rated products, if the unit cannot be repaired.
Dishwasher
Refrigerator
Clothes Washer
Heating System (with 90% efficiency)
Water Heater (with a tankless water heater)
Oven, Range, Cook Top
“This is an incredible breakthrough in the home warranty business. It means that many of the thousands of replacements we handle each year for our customers with these appliances and systems will upgrade to much more energy efficient units, helping to save money for our customers. It will also reduce energy consumption and positively impact the environment through less greenhouse gases” said David Sobel, vice president of sales, Home Warranty of America.
“We know from Energy Star that if just one in 10 homes used Energy Star qualified appliances, the change would be like planting 1.7 million acres of trees. We believe real estate professionals and consumers want this and so do we. It can only be a win-win for all of us,” said Marc Roth, president & CEO, Home Warranty of America.
The company says that HWA has made GreenPlus also available through its direct-to-consumer home warranty programs to expand its reach and impact. This allows those consumers not selling or buying a home to also participate.
“We want to be a part of reducing greenhouse gases and saving our customers real money. Doing our part in this global action is imperative to secure our children’s and grandchildren’s futures,” added Sobel.
Heating, ventilation and air conditioning (HVAC) can account for up to 45% of a homes energy costs. Energy Star HVAC equipment can save up to 20% on heating and cooling costs. Source: www.energystar.gov
For more information, visit www.hwahomewarranty.com.
The company says that GreenPlus is now available to real estate professionals in Texas, California, Nevada, Oregon, Washington, Kentucky, Indiana, Ohio, Arkansas, Mississippi, Alabama, Georgia and Tennessee. It will be available nationally by April 1, 2008.
Dishwasher
Refrigerator
Clothes Washer
Heating System (with 90% efficiency)
Water Heater (with a tankless water heater)
Oven, Range, Cook Top
“This is an incredible breakthrough in the home warranty business. It means that many of the thousands of replacements we handle each year for our customers with these appliances and systems will upgrade to much more energy efficient units, helping to save money for our customers. It will also reduce energy consumption and positively impact the environment through less greenhouse gases” said David Sobel, vice president of sales, Home Warranty of America.
“We know from Energy Star that if just one in 10 homes used Energy Star qualified appliances, the change would be like planting 1.7 million acres of trees. We believe real estate professionals and consumers want this and so do we. It can only be a win-win for all of us,” said Marc Roth, president & CEO, Home Warranty of America.
The company says that HWA has made GreenPlus also available through its direct-to-consumer home warranty programs to expand its reach and impact. This allows those consumers not selling or buying a home to also participate.
“We want to be a part of reducing greenhouse gases and saving our customers real money. Doing our part in this global action is imperative to secure our children’s and grandchildren’s futures,” added Sobel.
Heating, ventilation and air conditioning (HVAC) can account for up to 45% of a homes energy costs. Energy Star HVAC equipment can save up to 20% on heating and cooling costs. Source: www.energystar.gov
For more information, visit www.hwahomewarranty.com.
The company says that GreenPlus is now available to real estate professionals in Texas, California, Nevada, Oregon, Washington, Kentucky, Indiana, Ohio, Arkansas, Mississippi, Alabama, Georgia and Tennessee. It will be available nationally by April 1, 2008.
Home Warranty of America, Inc., Offers Green Home Warranty Option
March 6, 2008-Home Warranty of America announced the availability of one of the first-ever green home warranty options in the nation. According to HWA, real estate professionals can now offer their buyers a comprehensive home warranty from HWA with the option to purchase GreenPlus. This new option provides replacement of the appliances and systems shown below with Energy Star rated products, if the unit cannot be repaired.
Dishwasher
Refrigerator
Clothes Washer
Heating System (with 90% efficiency)
Water Heater (with a tankless water heater)
Oven, Range, Cook Top
“This is an incredible breakthrough in the home warranty business. It means that many of the thousands of replacements we handle each year for our customers with these appliances and systems will upgrade to much more energy efficient units, helping to save money for our customers. It will also reduce energy consumption and positively impact the environment through less greenhouse gases” said David Sobel, vice president of sales, Home Warranty of America.
“We know from Energy Star that if just one in 10 homes used Energy Star qualified appliances, the change would be like planting 1.7 million acres of trees. We believe real estate professionals and consumers want this and so do we. It can only be a win-win for all of us,” said Marc Roth, president & CEO, Home Warranty of America.
The company says that HWA has made GreenPlus also available through its direct-to-consumer home warranty programs to expand its reach and impact. This allows those consumers not selling or buying a home to also participate.
“We want to be a part of reducing greenhouse gases and saving our customers real money. Doing our part in this global action is imperative to secure our children’s and grandchildren’s futures,” added Sobel.
Heating, ventilation and air conditioning (HVAC) can account for up to 45% of a homes energy costs. Energy Star HVAC equipment can save up to 20% on heating and cooling costs. Source: www.energystar.gov
For more information, visit www.hwahomewarranty.com.
The company says that GreenPlus is now available to real estate professionals in Texas, California, Nevada, Oregon, Washington, Kentucky, Indiana, Ohio, Arkansas, Mississippi, Alabama, Georgia and Tennessee. It will be available nationally by April 1, 2008.
Dishwasher
Refrigerator
Clothes Washer
Heating System (with 90% efficiency)
Water Heater (with a tankless water heater)
Oven, Range, Cook Top
“This is an incredible breakthrough in the home warranty business. It means that many of the thousands of replacements we handle each year for our customers with these appliances and systems will upgrade to much more energy efficient units, helping to save money for our customers. It will also reduce energy consumption and positively impact the environment through less greenhouse gases” said David Sobel, vice president of sales, Home Warranty of America.
“We know from Energy Star that if just one in 10 homes used Energy Star qualified appliances, the change would be like planting 1.7 million acres of trees. We believe real estate professionals and consumers want this and so do we. It can only be a win-win for all of us,” said Marc Roth, president & CEO, Home Warranty of America.
The company says that HWA has made GreenPlus also available through its direct-to-consumer home warranty programs to expand its reach and impact. This allows those consumers not selling or buying a home to also participate.
“We want to be a part of reducing greenhouse gases and saving our customers real money. Doing our part in this global action is imperative to secure our children’s and grandchildren’s futures,” added Sobel.
Heating, ventilation and air conditioning (HVAC) can account for up to 45% of a homes energy costs. Energy Star HVAC equipment can save up to 20% on heating and cooling costs. Source: www.energystar.gov
For more information, visit www.hwahomewarranty.com.
The company says that GreenPlus is now available to real estate professionals in Texas, California, Nevada, Oregon, Washington, Kentucky, Indiana, Ohio, Arkansas, Mississippi, Alabama, Georgia and Tennessee. It will be available nationally by April 1, 2008.
Huge Changes May be Coming for Lenders and Appraisers
This article is relevant information to the Charlottesville Area and Real Estate in general. There have been quite a few past clients where appraisals came in higher than expected and we had conversations about this exact scenario.
Bloomberg News reported on Wednesday that Fannie Mae is proposing to ban the use of appraisals by a lender's employees or those arranged by mortgage brokers.
The proposal was contained in what Bloomberg referred to as a "talking points" memo distributed to lenders this week and was in response to an investigation of the mortgage industry by New York Attorney General Andrew Cuomo. In November the AG filed suit against First American, parent company of one of the country's largest appraisal management companies, charging them with folding under pressure from Washington Mutual, a major client, to use only those appraisers that provided property values acceptable to WaMu.
WaMu was not included in the original suit but Cuomo demanded that Freddie Mac and Fannie Mae each appoint an Independent Examiner to review mortgages and the underlying appraisals that the two GSEs have purchased with particular emphasis on those purchased from WaMu.According to the Bloomberg article, the memo was part of an on-going effort by Fannie Mae to cooperate in the Cuomo probe.
The proposed change would mean that Fannie Mae would no longer authorize its lending partners to use appraisers employed by a wholly owned subsidiary and, while we have not seen the memo, apparently it contains reference to the eventual establishment of an appraisal clearinghouse which we assume would assign appraisers to a project.
Bloomberg quotes Jonathan Miller of a New York appraisal company Miller Samuel, Inc. as saying that about three quarters of residential mortgage appraisals are arranged through brokers who only get paid if a loan closes. Miller called the practice "laughable" because it creates a financial incentive for mortgage brokers to push appraisers toward higher valuations. Higher appraisals also mean more homeowners qualify to refinance their homes and take cash out, he said.
The appraisers themselves have long urged that appraisers be required to keep arms-length from the lenders. Many complain that honest appraisers who refuse to match the values that the lenders want soon find them selves without work and that they are frequently pressured by the loan officers who assigned them to a project to raise their values.
The proposed restrictions would apply to loans acquired after Sept. 1, according to the memo.
Huge Changes May be Coming for Lenders and Appraisers
This article is relevant information to the Charlottesville Area and Real Estate in general. There have been quite a few past clients where appraisals came in higher than expected and we had conversations about this exact scenario.
Bloomberg News reported on Wednesday that Fannie Mae is proposing to ban the use of appraisals by a lender's employees or those arranged by mortgage brokers.
The proposal was contained in what Bloomberg referred to as a "talking points" memo distributed to lenders this week and was in response to an investigation of the mortgage industry by New York Attorney General Andrew Cuomo. In November the AG filed suit against First American, parent company of one of the country's largest appraisal management companies, charging them with folding under pressure from Washington Mutual, a major client, to use only those appraisers that provided property values acceptable to WaMu.
WaMu was not included in the original suit but Cuomo demanded that Freddie Mac and Fannie Mae each appoint an Independent Examiner to review mortgages and the underlying appraisals that the two GSEs have purchased with particular emphasis on those purchased from WaMu.According to the Bloomberg article, the memo was part of an on-going effort by Fannie Mae to cooperate in the Cuomo probe.
The proposed change would mean that Fannie Mae would no longer authorize its lending partners to use appraisers employed by a wholly owned subsidiary and, while we have not seen the memo, apparently it contains reference to the eventual establishment of an appraisal clearinghouse which we assume would assign appraisers to a project.
Bloomberg quotes Jonathan Miller of a New York appraisal company Miller Samuel, Inc. as saying that about three quarters of residential mortgage appraisals are arranged through brokers who only get paid if a loan closes. Miller called the practice "laughable" because it creates a financial incentive for mortgage brokers to push appraisers toward higher valuations. Higher appraisals also mean more homeowners qualify to refinance their homes and take cash out, he said.
The appraisers themselves have long urged that appraisers be required to keep arms-length from the lenders. Many complain that honest appraisers who refuse to match the values that the lenders want soon find them selves without work and that they are frequently pressured by the loan officers who assigned them to a project to raise their values.
The proposed restrictions would apply to loans acquired after Sept. 1, according to the memo.
Mortgage Rates and the Fed - Get it Straight ! !
I ran across this article today by Matthew Graham. I thought it would be useful information for those looking to buy property. Here it is:
"I can't decide what was more troublesome yesterday: the comically uninformed questions put to Big Ben regarding mortgage rates, or the comically inaccurate article printed by CNBC on the same subject. Whatever the case, the media is awash with analysts, experts, officials, and laypersons offering rather strong opinions on a subject about which they have such a painfully shallow understanding.
Today Bernanke testified before congress on the state of the economy. I'll leave it to the 1000 or more other articles to bring you up to speed on the salient points. I'm more concerned with something that no one has really talked about yet: the lack of understanding of our mortgage problems. My concern began to peak after overcoming my amazement at a question I heard today from Luis Gutierrez. CNBC has kindly saved me from needing to type the exchange, listen here.
This question would not be that troublesome at all if it came from a mortgage consumer in the general public (if you don't know why it's troublesome yet, that's OK, we will cover that in a moment). But it comes from a member of the House financial services committee, a member of the subcommittee on financial institutions/consumer credit, and the chair of the subcommittee on domestic and international monetary policy. This guy should know something about this topic! For all I know, he and the rest of his ilk are quite knowledgeable in the rest of their purview, but his question, in conjunction with previous communications from members of congress, illustrates an appalling lack of understanding about the very specific topic of the macroeconomic role of mortgage finance.
Simply put, mortgage rates are tied to Fed policy decisions about as much as they are tied to the price of pork bellies! OK, that's a slight exaggeration. But I've previously written on just how unconnected the two can be. We've seen some Fed rate cuts that have preceded decreasing mortgage rates, and other rate cuts that have preceded increasing mortgage rates. It's enough to confuse anyone! (sarcasm) Wait! Maybe Fed rate cuts don't have a direct bearing on mortgage rates! (sarcasm) Sure, Home Equity Lines of Credit are tied to Prime, but that's about it. Maybe there is more than just one thing that affects mortgage rates! (sarcasm)
Since I know you're burning with curiosity, I'll give you a short version of the answer Bernanke should have given. Here goes... Almost all mortgage rates are in direct relationship with the yields of Mortgage Backed Securities (MBS). MBS are basically bonds: when the price goes up, the yield goes down. Their yields vary directly with mortgage rates and they are responsive to macroeconomic forces in a similar way to other types of bonds. So since inflation decreases today's value of a dollar, and since bonds return a fixed income, inflation makes bonds less valuable. (do you see where I'm going with this yet?). When something is less valuable, less people want to buy it, so the price goes down to attract buyers. When the price goes down on a bond, the yield goes up. And we just said that MBS yields equal mortgage rates. Ipso facto, ergo, therefore, rising inflation is a stimulus for rising mortgage rates.
Granted, this is not the whole story, but it is one of the most easily understandable reasons that mortgage rates have not fallen in concert with the Fed rates. Yes, money is cheaper for banks when rates are cut but BANKS DO NOT SET MORTGAGE RATES!!
Countrywide has to get together with Fannie Mae or Freddie Mac, pour a couple billion dollars of 30 year fixed mortgages into a cauldron, mix well with eye of newt and leg of toad, go down to the flea market, and auction off very small cups of this witch's brew (individual Mortgage Backed Securities) to investors. It's these investors: Saudi oil barons, overseas governments, institutional investors, and billionaire Chinese businessmen, who really hold the note on your mortgage. It's their appetites and goals that truly determine mortgage rates. Luis Guitierrez should know that. And you should too.
The fun continued when I read CNBC's article. I don't even have the space in this article to go line by line on this one, but suffice it to say that, should our bovine friends (especially bulls) not feel up to the task, the assertions herein could serve as equivalent fertilizer.
Mortgage rates high? Historically we're quite low! Perhaps it is referencing the fact that mortgage rates haven't fallen as much as they "should have" considering the yield on the 10 year treasury, which even mortgage brokers believe (incorrectly) is a good indicator of interest rate direction.
Yes, the spreads between mortgage rates and treasury rates are wider than they've been in the past. Maybe that has something to do with the perception of quality decreasing in the wake of a massive mortgage crisis! (understatement) Mortgage yields have always been higher than treasury yields in order to compensate investors for the extra risk.
So don't be surprised when the Fed cuts rates and mortgages hold steady. As long as inflation is a concern and the quality of MBS as an investment is in question, there will not be a direct relationship. My Scoff-O-Meter was tripped all the more abruptly as yesterday was a fantastic day for mortgage rates, a very inopportune day to write such an article.
In conclusion, even if it's not feasible for the average consumer to digest and understand the complex macroeconomic forces that govern mortgage rates, the more people in congress and the news media that understand, the better equipped the general population will be to mitigate our freefall towards and stimulate our recovery from what will be one of the lowest points in our economic history."
Thank you matthew for you wonderfully written post. Leave comments and let's discuss this!
"I can't decide what was more troublesome yesterday: the comically uninformed questions put to Big Ben regarding mortgage rates, or the comically inaccurate article printed by CNBC on the same subject. Whatever the case, the media is awash with analysts, experts, officials, and laypersons offering rather strong opinions on a subject about which they have such a painfully shallow understanding.
Today Bernanke testified before congress on the state of the economy. I'll leave it to the 1000 or more other articles to bring you up to speed on the salient points. I'm more concerned with something that no one has really talked about yet: the lack of understanding of our mortgage problems. My concern began to peak after overcoming my amazement at a question I heard today from Luis Gutierrez. CNBC has kindly saved me from needing to type the exchange, listen here.
This question would not be that troublesome at all if it came from a mortgage consumer in the general public (if you don't know why it's troublesome yet, that's OK, we will cover that in a moment). But it comes from a member of the House financial services committee, a member of the subcommittee on financial institutions/consumer credit, and the chair of the subcommittee on domestic and international monetary policy. This guy should know something about this topic! For all I know, he and the rest of his ilk are quite knowledgeable in the rest of their purview, but his question, in conjunction with previous communications from members of congress, illustrates an appalling lack of understanding about the very specific topic of the macroeconomic role of mortgage finance.
Simply put, mortgage rates are tied to Fed policy decisions about as much as they are tied to the price of pork bellies! OK, that's a slight exaggeration. But I've previously written on just how unconnected the two can be. We've seen some Fed rate cuts that have preceded decreasing mortgage rates, and other rate cuts that have preceded increasing mortgage rates. It's enough to confuse anyone! (sarcasm) Wait! Maybe Fed rate cuts don't have a direct bearing on mortgage rates! (sarcasm) Sure, Home Equity Lines of Credit are tied to Prime, but that's about it. Maybe there is more than just one thing that affects mortgage rates! (sarcasm)
Since I know you're burning with curiosity, I'll give you a short version of the answer Bernanke should have given. Here goes... Almost all mortgage rates are in direct relationship with the yields of Mortgage Backed Securities (MBS). MBS are basically bonds: when the price goes up, the yield goes down. Their yields vary directly with mortgage rates and they are responsive to macroeconomic forces in a similar way to other types of bonds. So since inflation decreases today's value of a dollar, and since bonds return a fixed income, inflation makes bonds less valuable. (do you see where I'm going with this yet?). When something is less valuable, less people want to buy it, so the price goes down to attract buyers. When the price goes down on a bond, the yield goes up. And we just said that MBS yields equal mortgage rates. Ipso facto, ergo, therefore, rising inflation is a stimulus for rising mortgage rates.
Granted, this is not the whole story, but it is one of the most easily understandable reasons that mortgage rates have not fallen in concert with the Fed rates. Yes, money is cheaper for banks when rates are cut but BANKS DO NOT SET MORTGAGE RATES!!
Countrywide has to get together with Fannie Mae or Freddie Mac, pour a couple billion dollars of 30 year fixed mortgages into a cauldron, mix well with eye of newt and leg of toad, go down to the flea market, and auction off very small cups of this witch's brew (individual Mortgage Backed Securities) to investors. It's these investors: Saudi oil barons, overseas governments, institutional investors, and billionaire Chinese businessmen, who really hold the note on your mortgage. It's their appetites and goals that truly determine mortgage rates. Luis Guitierrez should know that. And you should too.
The fun continued when I read CNBC's article. I don't even have the space in this article to go line by line on this one, but suffice it to say that, should our bovine friends (especially bulls) not feel up to the task, the assertions herein could serve as equivalent fertilizer.
Mortgage rates high? Historically we're quite low! Perhaps it is referencing the fact that mortgage rates haven't fallen as much as they "should have" considering the yield on the 10 year treasury, which even mortgage brokers believe (incorrectly) is a good indicator of interest rate direction.
Yes, the spreads between mortgage rates and treasury rates are wider than they've been in the past. Maybe that has something to do with the perception of quality decreasing in the wake of a massive mortgage crisis! (understatement) Mortgage yields have always been higher than treasury yields in order to compensate investors for the extra risk.
So don't be surprised when the Fed cuts rates and mortgages hold steady. As long as inflation is a concern and the quality of MBS as an investment is in question, there will not be a direct relationship. My Scoff-O-Meter was tripped all the more abruptly as yesterday was a fantastic day for mortgage rates, a very inopportune day to write such an article.
In conclusion, even if it's not feasible for the average consumer to digest and understand the complex macroeconomic forces that govern mortgage rates, the more people in congress and the news media that understand, the better equipped the general population will be to mitigate our freefall towards and stimulate our recovery from what will be one of the lowest points in our economic history."
Thank you matthew for you wonderfully written post. Leave comments and let's discuss this!
Mortgage Rates and the Fed - Get it Straight ! !
I ran across this article today by Matthew Graham. I thought it would be useful information for those looking to buy property. Here it is:
"I can't decide what was more troublesome yesterday: the comically uninformed questions put to Big Ben regarding mortgage rates, or the comically inaccurate article printed by CNBC on the same subject. Whatever the case, the media is awash with analysts, experts, officials, and laypersons offering rather strong opinions on a subject about which they have such a painfully shallow understanding.
Today Bernanke testified before congress on the state of the economy. I'll leave it to the 1000 or more other articles to bring you up to speed on the salient points. I'm more concerned with something that no one has really talked about yet: the lack of understanding of our mortgage problems. My concern began to peak after overcoming my amazement at a question I heard today from Luis Gutierrez. CNBC has kindly saved me from needing to type the exchange, listen here.
This question would not be that troublesome at all if it came from a mortgage consumer in the general public (if you don't know why it's troublesome yet, that's OK, we will cover that in a moment). But it comes from a member of the House financial services committee, a member of the subcommittee on financial institutions/consumer credit, and the chair of the subcommittee on domestic and international monetary policy. This guy should know something about this topic! For all I know, he and the rest of his ilk are quite knowledgeable in the rest of their purview, but his question, in conjunction with previous communications from members of congress, illustrates an appalling lack of understanding about the very specific topic of the macroeconomic role of mortgage finance.
Simply put, mortgage rates are tied to Fed policy decisions about as much as they are tied to the price of pork bellies! OK, that's a slight exaggeration. But I've previously written on just how unconnected the two can be. We've seen some Fed rate cuts that have preceded decreasing mortgage rates, and other rate cuts that have preceded increasing mortgage rates. It's enough to confuse anyone! (sarcasm) Wait! Maybe Fed rate cuts don't have a direct bearing on mortgage rates! (sarcasm) Sure, Home Equity Lines of Credit are tied to Prime, but that's about it. Maybe there is more than just one thing that affects mortgage rates! (sarcasm)
Since I know you're burning with curiosity, I'll give you a short version of the answer Bernanke should have given. Here goes... Almost all mortgage rates are in direct relationship with the yields of Mortgage Backed Securities (MBS). MBS are basically bonds: when the price goes up, the yield goes down. Their yields vary directly with mortgage rates and they are responsive to macroeconomic forces in a similar way to other types of bonds. So since inflation decreases today's value of a dollar, and since bonds return a fixed income, inflation makes bonds less valuable. (do you see where I'm going with this yet?). When something is less valuable, less people want to buy it, so the price goes down to attract buyers. When the price goes down on a bond, the yield goes up. And we just said that MBS yields equal mortgage rates. Ipso facto, ergo, therefore, rising inflation is a stimulus for rising mortgage rates.
Granted, this is not the whole story, but it is one of the most easily understandable reasons that mortgage rates have not fallen in concert with the Fed rates. Yes, money is cheaper for banks when rates are cut but BANKS DO NOT SET MORTGAGE RATES!!
Countrywide has to get together with Fannie Mae or Freddie Mac, pour a couple billion dollars of 30 year fixed mortgages into a cauldron, mix well with eye of newt and leg of toad, go down to the flea market, and auction off very small cups of this witch's brew (individual Mortgage Backed Securities) to investors. It's these investors: Saudi oil barons, overseas governments, institutional investors, and billionaire Chinese businessmen, who really hold the note on your mortgage. It's their appetites and goals that truly determine mortgage rates. Luis Guitierrez should know that. And you should too.
The fun continued when I read CNBC's article. I don't even have the space in this article to go line by line on this one, but suffice it to say that, should our bovine friends (especially bulls) not feel up to the task, the assertions herein could serve as equivalent fertilizer.
Mortgage rates high? Historically we're quite low! Perhaps it is referencing the fact that mortgage rates haven't fallen as much as they "should have" considering the yield on the 10 year treasury, which even mortgage brokers believe (incorrectly) is a good indicator of interest rate direction.
Yes, the spreads between mortgage rates and treasury rates are wider than they've been in the past. Maybe that has something to do with the perception of quality decreasing in the wake of a massive mortgage crisis! (understatement) Mortgage yields have always been higher than treasury yields in order to compensate investors for the extra risk.
So don't be surprised when the Fed cuts rates and mortgages hold steady. As long as inflation is a concern and the quality of MBS as an investment is in question, there will not be a direct relationship. My Scoff-O-Meter was tripped all the more abruptly as yesterday was a fantastic day for mortgage rates, a very inopportune day to write such an article.
In conclusion, even if it's not feasible for the average consumer to digest and understand the complex macroeconomic forces that govern mortgage rates, the more people in congress and the news media that understand, the better equipped the general population will be to mitigate our freefall towards and stimulate our recovery from what will be one of the lowest points in our economic history."
Thank you matthew for you wonderfully written post. Leave comments and let's discuss this!
"I can't decide what was more troublesome yesterday: the comically uninformed questions put to Big Ben regarding mortgage rates, or the comically inaccurate article printed by CNBC on the same subject. Whatever the case, the media is awash with analysts, experts, officials, and laypersons offering rather strong opinions on a subject about which they have such a painfully shallow understanding.
Today Bernanke testified before congress on the state of the economy. I'll leave it to the 1000 or more other articles to bring you up to speed on the salient points. I'm more concerned with something that no one has really talked about yet: the lack of understanding of our mortgage problems. My concern began to peak after overcoming my amazement at a question I heard today from Luis Gutierrez. CNBC has kindly saved me from needing to type the exchange, listen here.
This question would not be that troublesome at all if it came from a mortgage consumer in the general public (if you don't know why it's troublesome yet, that's OK, we will cover that in a moment). But it comes from a member of the House financial services committee, a member of the subcommittee on financial institutions/consumer credit, and the chair of the subcommittee on domestic and international monetary policy. This guy should know something about this topic! For all I know, he and the rest of his ilk are quite knowledgeable in the rest of their purview, but his question, in conjunction with previous communications from members of congress, illustrates an appalling lack of understanding about the very specific topic of the macroeconomic role of mortgage finance.
Simply put, mortgage rates are tied to Fed policy decisions about as much as they are tied to the price of pork bellies! OK, that's a slight exaggeration. But I've previously written on just how unconnected the two can be. We've seen some Fed rate cuts that have preceded decreasing mortgage rates, and other rate cuts that have preceded increasing mortgage rates. It's enough to confuse anyone! (sarcasm) Wait! Maybe Fed rate cuts don't have a direct bearing on mortgage rates! (sarcasm) Sure, Home Equity Lines of Credit are tied to Prime, but that's about it. Maybe there is more than just one thing that affects mortgage rates! (sarcasm)
Since I know you're burning with curiosity, I'll give you a short version of the answer Bernanke should have given. Here goes... Almost all mortgage rates are in direct relationship with the yields of Mortgage Backed Securities (MBS). MBS are basically bonds: when the price goes up, the yield goes down. Their yields vary directly with mortgage rates and they are responsive to macroeconomic forces in a similar way to other types of bonds. So since inflation decreases today's value of a dollar, and since bonds return a fixed income, inflation makes bonds less valuable. (do you see where I'm going with this yet?). When something is less valuable, less people want to buy it, so the price goes down to attract buyers. When the price goes down on a bond, the yield goes up. And we just said that MBS yields equal mortgage rates. Ipso facto, ergo, therefore, rising inflation is a stimulus for rising mortgage rates.
Granted, this is not the whole story, but it is one of the most easily understandable reasons that mortgage rates have not fallen in concert with the Fed rates. Yes, money is cheaper for banks when rates are cut but BANKS DO NOT SET MORTGAGE RATES!!
Countrywide has to get together with Fannie Mae or Freddie Mac, pour a couple billion dollars of 30 year fixed mortgages into a cauldron, mix well with eye of newt and leg of toad, go down to the flea market, and auction off very small cups of this witch's brew (individual Mortgage Backed Securities) to investors. It's these investors: Saudi oil barons, overseas governments, institutional investors, and billionaire Chinese businessmen, who really hold the note on your mortgage. It's their appetites and goals that truly determine mortgage rates. Luis Guitierrez should know that. And you should too.
The fun continued when I read CNBC's article. I don't even have the space in this article to go line by line on this one, but suffice it to say that, should our bovine friends (especially bulls) not feel up to the task, the assertions herein could serve as equivalent fertilizer.
Mortgage rates high? Historically we're quite low! Perhaps it is referencing the fact that mortgage rates haven't fallen as much as they "should have" considering the yield on the 10 year treasury, which even mortgage brokers believe (incorrectly) is a good indicator of interest rate direction.
Yes, the spreads between mortgage rates and treasury rates are wider than they've been in the past. Maybe that has something to do with the perception of quality decreasing in the wake of a massive mortgage crisis! (understatement) Mortgage yields have always been higher than treasury yields in order to compensate investors for the extra risk.
So don't be surprised when the Fed cuts rates and mortgages hold steady. As long as inflation is a concern and the quality of MBS as an investment is in question, there will not be a direct relationship. My Scoff-O-Meter was tripped all the more abruptly as yesterday was a fantastic day for mortgage rates, a very inopportune day to write such an article.
In conclusion, even if it's not feasible for the average consumer to digest and understand the complex macroeconomic forces that govern mortgage rates, the more people in congress and the news media that understand, the better equipped the general population will be to mitigate our freefall towards and stimulate our recovery from what will be one of the lowest points in our economic history."
Thank you matthew for you wonderfully written post. Leave comments and let's discuss this!
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