Thumbnail Sketch: Though it feels as if we have the first faint glimmers of recovery in the financial markets—with investors showing more willingness to put money into mortgage securities and other forms of lending—we are still not out of the woods in most of the nation.
Aaron Smith, of Moody’s Economy.com, reports: “With fewer home sales and increased foreclosures pushing unsold inventories even farther into record territory, house prices are set to fall even further. We have long held that the median national house price could fall as much as 10% from peak to trough. In light of recent events, we now estimate that house prices must fall by no less than 10% for enough inventory to clear to allow the market to stabilize.”
That would mean a 10% value correction on an averaged national basis—higher or lower in certain localities. Clearly, we already know of some markets that have lost more than 10% on the average. On the other hand, we have seen a resistance to value decline in other areas, like North San Diego County and much of the San Francisco Bay Area, along with Portland, Oregon, and Seattle.
Wise buyers in this market are well aware, though, that a 10% “loss” at the selling end can be more than compensated for by a lower price when you are buying your next property. This is, increasingly, a market full of bargains—but the financial press continues to focus solely on the negatives. Perhaps that is why the few who approach this market as a window of opportunity gain so much wealth over the long haul: They compete with very few other buyers for those bargains.
In any case, mortgage interest rates are easing currently, making the bargains even more attractive. The view—shared by this observer—that interest rates might continue their downward slide ran afoul of a revised employment report, in which August’s apparent loss of 4,000 jobs overall was revised to a gain of 89,000. It is difficult not to make silly jokes about the elves crunching these numbers—what WERE they thinking?—especially since the low payrolls report of last month was the final straw in the Fed’s decision to cut the fed funds rate by a half a percent. Fun with statistics continues soon, as we await the Fed’s next move at the very end of this month.
It is difficult to be overwhelmed by 110,000 new jobs, though, particularly since they were largely government jobs, so we still watch for somewhat lower rates ahead. If we are right, we may soon see a stronger refi market and a slight firming in the overall real estate market sooner than is now expected.
October 10, 2007
KEY INDICATORS
Gold $743.40/ounce [up]
Crude Oil (Brent) $77.83/barrel
[up]
U.S. Dollar to…
Euro .7096 [up slightly]
Japanese Yen 117.02 [up]
6-mo Treasury Bill Yield 4.20%
10-yr Treasury Note Yield 4.63%
[6-mo up 5 bps, 10-yr
up 10 bps]
30-yr Fixed-rate Mortgage 6.60%
15-yr Fixed-rate Mortgage 6.25%
1-yr ARM 6.04%
[HSH average rates: 30-yr DOWN 20 bps, 15-yr down 11 bps; ARM down 34 bps]
Mortgage Bankers Association Mortgage Applications Index
week ending 9/28
Overall
636.7 (down 2.7%; down 2.8%
the week prior)
Purchase Money Loans
411.4 (down 1.8%; down 7.3%
the week prior)
Refinancing Loans
1950.4 (down 3.8%; up 3.3%
the week prior)
