Too Much Housing Inventory?

VICTORVILLE MODEL HOMES DEMOLISHED – SHOCKING VIDEO

Housing Inventory

Mortgage Market Update

Sorry for the delay in getting this out to you.   My schedule today put me away from my computer for most of the day wrapping up some month end closings and meeting with the president of a local title company.   He’s going to be rolling out something interesting that I’ll write about next week (it’s not public yet).

Any way, what’s happening with the markets today?

• Chrysler filed for bankruptcy.   it will be very interesting to see what the ramifications of that are in terms of bank losses, job losses and whether people will continue to buy Chrysler cars (even at the tepid pace they have lately.)   Oh, the impact on Chrysler retiree’s pension funds will be interesting to see.
• The Chicago Purchasing Manager’s Index came in “less bad” than expected.   Not exactly a good report, but not horrendous either.
• Weekly jobless claims (a very volatile number) came in lower than expected.

Oh, and there’s this little unknown called the swine flu.  (Or what’s the name now?)   There’s a lot of questions on whether this will have a big economic impact or not.   Stay tuned.

When you combine those with the volatility that’s been added due to the Fed yesterday, we bumped up .125% on rates today.

We’re at 5.000% with 0 pts on a refi for 30 years.
4.75% with 0 pts on a purchase.

Both are with credit scores of 740 or higher.

Due to the volatility that I discussed last night, I’m recommending that you cautiously float.   I think that the bump up today will probably be short lived and we’ll see things drop back down tomorrow.   However, the operative word is cautiously because the Chrysler bankruptcy and the swine flu are the wildcards in that equation.

I’ll have more as time allows.

Tom Vanderwell

Mortgage Market Update

The Fed Translated….

Yep, it’s that time again.    The Fed met yesterday and today and came out with their announcement this afternoon at 2:15 pm.   I promise that this one won’t be as long as the last Fed Translated was.

As usual, my comments are in bold and italics…..

April 29, 2009

For Immediate Release:

Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower.  The downhill slope is less steep than it was.  Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time.  We aren’t going to see a substantial turn around in the economy soon.  A weak, ambivalent turn around, probably, but not a strong return to growth.  Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability. What else could they say but to say that they anticipate that what they are doing will eventually work?   Would the markets be happy if they said, “We don’t have a clue whether what we’re doing is going to work?”   Nope.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. They don’t say for how long, but I’m going to say that I think we’ve got 12 to 18 months until we start seeing a rapid spike in inflation and a rapid jump in interest rates.  Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.  Let’s look at that for a minute.   They think that inflation would be lower than is healthy for a while and so…. So they are going to do what they can to spur things on and encourage inflation – which brings up the possibility that they’ll stir up inflation that they can’t “control.”   Kind of scary…..

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance sheet in light of financial and economic developments.  They are going to continue to do what they’ve been doing because: 1) They don’t want to take the step that they are trying to avoid which is to overhaul the banking system and 2) If they aren’t willing to take the big steps with Bank of America, Citibank and others, they have nothing else they can do.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Tom here….. So what do I expect the Fed’s statement will do to the markets?   Actually, probably very little.   We might see a little more volatility in the next few days but I expect that we’ll see more volatility and turmoil out of the results of the banking stress test than we will out of this statement.

The Fed Translated

More with Sheila Bair

This was on CNBC on Tuesday.  I found it informative…..

Sheila Bair

Morning Market Update

This is going to be a quick one because there will be more to write about later today.

I told you earlier that GDP came in worse than expected.

The Fed’s announcement comes out at 2:15 this afternoon.

Rates are unchanged today. 

We’re at 4.875% for a 30 year fixed refi with 0 pts.
4.625% for a 30 year fixed purchase with 0 pts.

Both are for conventional mortgages with credit scores over 740.

I’ll stay in touch, let me know if I can help.

Tom Vanderwell

Mortgage Market Update

Gross Domestic Product

You know all of those comments about “green shoots” in the economy?   And how people were saying that the worst is over?

Well, this report kind of shoots a whole in that theory.   The “market” had expected the GDP to only be down 4.6%, but it actually was down at 6.1%.   That’s a big change…..

I’ll have more later….

Tom Vanderwell

U.S. Economy Shrank at 6.1% Rate in First Quarter – WSJ.com

Gross domestic product decreased at a seasonally adjusted 6.1% annual rate January through March despite rising consumer spending, the Commerce Department said Wednesday in its first estimate of first-quarter GDP.
MORE

* Real Time Econ: 12 Reasons to Be Optimistic

The 6.1% drop was much bigger than Wall Street expected and hardly different than a 6.3% plunge in the fourth quarter, when the recession that began in December 2007 deepened.

Economists surveyed by Dow Jones Newswires expected a 4.6% drop in GDP during the first three months of 2009.

GDP

Too Big to Fail or Too Big to be Reorganized?

Some thought provoking discussions on Charlie Rose about what’s happening…..

Charlie Rose

Guest Post – Being a Seller in a Buyer’s Market

Once again, I’m turning to my friend, Jeff Brown, for today’s guest post.  Jeff has an uncommon ability to generate the type of “Straight Talk” that is needed in today’s markets.

I hope you enjoy this!

Tom

Selling Real Estate In A Buyers’ Market? Here’s How To Turn The Tables · BawldGuy Talking

Disclosure: In order to avoid hurt feelings I’ve taken some liberty with some of the facts of the example used. These changes are insignificant as they relate to the main theme. They’re required, in my judgment so as to protect the privacy of others. You’re free to continue reading now.

This example recently took place in a smallish northern California city.

First of all let’s face something that may be our currently reality — it’s entirely possible real estate in general is beginning its painful U-Turn as we speak. It’s also entirely possible it ain’t. From my vantage point, which allows me to see more than a few markets up close and personal, there’re too many signs for me not to think something might be afoot. But I digress, and besides, we’ll not know for sure until our rearview mirror tells us, right?

Buyers in markets so heavily tilted in their favor tend to behave accordingly — Duh. They make sometimes insultingly low-ball offers. Insist sellers pay a large part if not all their closing costs. Want price adjustments at every turn, mostly from the leverage they perceive available to them during the inspection period. They do it until they sense the seller is about bleed out, then smile, back off, and wait for the escrow to close.

So the million dollar question is, just how does a seller successfully shift the balance of power? Can it even be done? You bet your bloodsucking vampire-buyer it can. It’s so simple, yet so many sellers are afraid to implement the approach. I’ve never understood why.

A recent example comes from our own files. Our seller, as we warned him from Day 1, had to swallow pretty much everything the buyer wanted. Still, the final price was a record high in that neighborhood since about August of last year. Not bad. The buyer had made his offer literally hours after it had hit the market. He wanted it. And why not? The property itself was nearly perfection personified — a factor which shouldn’t be lost on you.

Every time we yielded to the buyer’s agent (on one point after another) it was quietly mentioned by us how this was a buyers’ market and we really had little choice. Once we arrived at the bottom line, which was, according to our seller, written in his own blood, we made one itty bitty request of the buyer’s agent.

We’d like the deposit, which was nearly $10,000 on a sales price under $500,000 — to become permanently/irrevocably non-refundable on the last day of the inspection period — passed by escrow through to the seller at the end of business that day. We’d been so reasonable throughout, he felt he couldn’t/shouldn’t refuse this one small request.

Then the appraisal came in low. The agent said that was ‘unexpected’ but the seller would need to ‘adjust’. We politely demurred, instead saying the buyer would need to be paying for more of his own closing costs than previously agreed. “He doesn’t have it” replied the agent. “Then I guess we have a problem, ‘cuz the seller just ain’t in the mood” said the ‘other’ Brown. Continuing politely, he said, “You’ll need to figure a way to make it far more palatable for the seller. He’ll adjust to this farce of an appraisal, but your client will hafta come up with a lot more than he has so far. This is a two way street.”

One wonders what the conversations must’ve been like between the buyer and his agent at this point. There was simply no way, no how the buyer was gonna walk away from his nearly $10,000 deposit — and everyone knew it. The best part? That deposit was like the 10 ton elephant in the room nobody (needed, wanted to) talk about — especially the buyer’s agent.

We may hear from various buyers and/or agents saying they’d surely not ever allow a deposit to ‘go hard’ as it’s called. Fair enough. But I’ve been able to make it happen over half the time in every buyers’ market in which I’ve participated, with the exception of ‘74-75. Why not then? Gimme a break, as I was 23 at the time and hadn’t yet had the full advantage of all the mentoring I’d eventually receive.

If you’re a seller in a buyers’ market, please put this strategy into play. Buyers and their agents tend to become more than a tad cocky, and will often let their guard down. I call it IBS — Invincible Buyer Syndrome. It’s often exacerbated by a much worse malady — IBAS — Invincible Buyer’s Agent Syndrome. The really pivotal players more times than not in this approach are the buyers’ agents themselves.

Anywho, give it a try. In this example it generated about a 7% increase in our seller’s ultimate net proceeds — not a bad result, all things considered.

Wanna talk? Call me at 619 889-7100 or email me through the Contact BawldGuy widget up top. Have a good one.

Bawld Guy

More on the Case – Shiller Index and housing prices

This just goes to show that what you read in the headlines isn’t the whole story, and while there might be some “glimmer” of good news in the story, the numbers are certainly not pretty yet.

So, take it for what it’s worth.  One month’s sign that things are easing up a little bit is what we got today.   Let’s wait and see what happens from here…..

Tom Vanderwell

breakingviews – Housing: ‘Better’ doesn’t mean ‘good’ – Apr. 28, 2009

Is the U.S. housing market approaching bottom? The rate of decline in U.S. house prices moderated in February. Prices fell 2.1%, according to the Case-Shiller composite index of ten cities.

That sounds like great news for housing-hobbled banks. After all, real estate prices are a key factor in the stress tests the biggest banks are undergoing, right? Not so fast.

Better isn’t synonymous with good. The decline is less dramatic than January’s 2.6% fall, but it’s still an awful figure. Prices have fallen 18.8% over the past year, according to the index.

But let’s be optimistic an say the moderation continues, with prices gradually approaching a bottom. The improvement was half of one percent in February (that’s to say a 2.1% decline instead of a 2.6%).

Now assume the rate of decline slows to a quarter of a percent in March and continues this trajectory. At the end of the year, prices would be 19% lower – worse than the baseline case under the stress tests.

Case Shiller

The Impact of 401K Plans on the Housing Market

60 Minutes did the attached piece on 401K plans and how the absolute devastation in the markets is postponing and impacting retirement plans.   It raises a question (or two) for me:

• Has the impact of what has happened in the financial and real estate markets changed your retirement plans?
• Have you taken a good hard look, preferably with the assistance of a financial professional and/or a real estate professional to determine whether you are still on target for the type of retirement you want?

Watch the video and if I can help, let me know.

Thanks!

Tom Vanderwell

Watch CBS Videos Online

401K, retirement plans

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