It has been a rough year for many around the world. The economic crisis which started three years ago as a downturn in an overheated United States real estate market has spread world-wide. Many would ask what they have to give thanks for in a year in which so many have lost their jobs and houses. Well, we believe there is a lot to give thanks for. For one, after declaring that the economy could withstand the downturn, the government soon came to realize that we must apply strong medicine. Starting in 2008, we did apply this medicine in a variety of ways from record low rates to making sure that the banking system did not collapse. We have not addressed the long-term issue of deficit spending, but most would agree strong measures were warranted.
In every challenge there are opportunities. For example, the down market has made real estate a bargain and millions are becoming owners for the first time. The recent extension and expansion of the tax credit shows the government will continue to apply strong medicine. Low rates, low prices and a government subsidy point to a bargain that many have not seen for many years. Even the recent lull in housing starts bodes well for the long-term prospects of real estate because analysts agree that the market will not rebound permanently until the excess inventory is off the shelves. As the bad news has brought opportunities for millions, the good news of a rebounding real estate market can also create problems. For one, don’t expect record low rates to be with us forever. The Federal Reserve Board has kept short-term rates close to zero and also has brought long-term rates down as well by purchasing mortgage securities. As the market rebounds, less help will be needed and when the government backs off, the record sale on real estate we have witnessed may be over.
The Markets. Rates moved down in the past week. Freddie Mac announced that for the week ending November 19, 30-year fixed rates averaged 4.83%, down from 4.91% the week before. The average for 15-year fixed fell to 4.32%. Adjustables were also down with the average for one-year adjustables falling to 4.35% and five-year adjustables decreasing to 4.25%. A year ago 30-year fixed rates were at 6.04%. “Rates on 30-year fixed-rate loans fell for the third consecutive week to the lowest since the week ending May 21st, while 15-year fixed rates were the lowest since our records began in 1991,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Low fixed rates throughout the third quarter prompted an estimated $1.1 trillion in refinancing activity, saving homeowners about $10 billion in aggregate payments over the first 12 months of their new loan. Moreover, for the fourth consecutive quarter, more than 95 percent of prime borrowers who originally had an ARM selected a conventional fixed-rate in the third quarter of this year. Meanwhile, new home building showed some weakness in recent months. Residential construction eased 10.6 percent (annualized) between September and October, largely driven by a 33.3 percent decline in new condominium and apartment buildings and represented the slowest pace since records began in 1959.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated November 20, 2009
Daily Value- Monthly Value
6-month Treasury Security 0.14% 0.16%
1-year Treasury Security 0.27% 0.37%
3-year Treasury Security 1.24% 1.46%
5-year Treasury Security 2.18% 2.33%
10-year Treasury Security 3.35% 3.39%
12-month LIBOR 1.234% (Oct)
12-month MTA 0.544% (Oct)
11th District Cost of Funds 1.272% (Sept)
Prime Rate 3.25% (Dec)
Given the success of the first-time homebuyer tax credit and its extension into next year, the National Association of Realtors is forecasting that existing home sales will jump 13.6% in 2010 after a 2% increase in 2009. First-time buyers will account for a record 47% of home sales in 2009, according to NAR chief economist Lawrence Yun. “In fact the credit is working better than first projected — it now looks like we’ll have 2.3 million to 2.4 million first-time buyers this year,” he said. The National Association of Home Builders estimates the tax credit has generated 200,000 extra sales. Mr. Yun expects sales of previous owned homes will hit 5.7 million in 2010, up from 5.0 million in the previous year. Congress recently extended the $8,000 first-time homebuyer tax credit to April 30 and it gives buyers with a binding sales contract an extra 60 days to close. The lawmakers also created a new $6,500 tax credit for repeat or move-up buyers. Bernard Markstein, NAHB director of economic forecasting, expects the extended/expanded tax credit, which goes into effect Dec. 1, will generate 180,000 extra sales, including 40,000 new home sales. Source: National Mortgage News
Home loan rates below 5 percent are about to disappear, predicted Denis Salamone, COO of Hudson City Bancorp, the nation’s largest thrift. “I don’t think the market will stay this low for many more months,” Salamone said Tuesday. Salamone said that despite the Federal Reserve’s decision to keep short-term rates low, if the Fed buys fewer mortgage-backed securities, loan rates will rise. It will take another 12 to 24 months to sell off excess inventory, Salamone said. Source: Reuters News
Home builders who sold or walked away from properties at the height of the housing meltdown are back in the market for choice parcels to develop in places like Las Vegas, Southern California, and Orlando, Fla. “In the past, (builders) had really been the ones that had been feeding the market and selling lots to investors,” says Tom Dallape, a principal at The Hoffman Co., a land brokerage firm based in Irvine, Calif. “Now all of a sudden they are rushing back in.” Among builders buying aggressively are Ryland Group Inc. and Meritage Homes Corp. Pulte Homes Inc., which acquired Centex this year, is working off that builder’s inventory. Analysts observing the market point out that these purchases could be regrettable. “There is certainly some risk that if the market tails off again or we start to see cancellations pick up, some of those deals that previously penciled may not pencil anymore,” says Megan McGrath, an analyst with Barclays Capital. Source: Associated Press
