US Housing Starts Down - But is this Bad News?

Today, the US Department of Commerce reported that housing starts fell to record levels in April. Is this bad news? In an appreciating real estate environment, definitely. But, the US economy, real estate, lending, and even consumer spending are all contracting. Times are different now.

I am encouraged by these numbers. Why? Because there is a glut of housing inventory on the market now. This inventory needs to be consumed before new homes hit the market.

Though the media will largely report on the headline number (since they are all about getting attention through the headlines), and analyst remarks will fall on both sides, this remains: housing starts are lower, BUT DEMAND IS UP. Consumers are eating into this inventory. Inventory levels are declining in many markets - especially the overheated and subsequently over-depressed ones. Builders are also being more prudent when it comes to construction, which is healthy in the long-term. Don't you think? I'd be interested in hearing your thoughts.

Fed Announces More Stimulus

The Fed’s Announcement and What It Means to You

On Wednesday, after the Federal Open Market Committee meeting, the Fed announced a plan to expand their
purchasing of Mortgage Backed Securities to $1.25 trillion from the previously targeted amount of $500 billion set forth in early December.

Media translation: Rates are dropping to four percent tomorrow!

Realistic translation: The Fed’s ongoing commitment to purchase Fannie Mae and Freddie Mac mortgage backed
securities should help keep mortgage rates low and stable for several more months.

I have received a number of emails and calls asking me what I think will happen with mortgage rates based on
this latest announcement. Here are some of the most common questions I am receiving and the information
I am sharing with my clients.

I’m thinking of refinancing. Will the Fed’s announcement drive interest rates lower?

Answer: The initial reaction in the market was a slight drop in rates from Wednesday morning’s rate sheets. But this was tempered mildly Thursday with a small move higher. Keep in mind that the Fed’s actions expand on a program it unveiled late last year. That program drove down the average rate on a conforming 30 year fixed mortgage to the low 5% range and even into the high 4% range if a consumer was willing to pay closing costs and/or points. Rates have been bouncing around in this narrow range since then. Wednesday’s announcement suggests the Fed is making an enduring commitment to keep rates that low, possibly through the end of the year. But it’s not as if this announcement ensures the average rate will drop tomorrow to 4% at zero points.

Is there any risk to waiting for a lower rate?

Answer: There are a number of risks to consider. Unemployment numbers are increasing and I have already
had loans in progress where a borrower falls victim to corporate down sizing or lay offs that squash their opportunity to refinance. Foreclosures and distressed sales have also caused values to plummet in what seemed to be stable neighborhoods. This trend looks like it could be getting worse before it gets better. Lenders have become very tough on appraisals and require the most current data in a borrower’s neighborhood to establish value. Also, lender guidelines have changed overnight and caused deals to fall out. Clearly, the opportunity costs can be severe while waiting for that extra $20 - $50 per month savings versus taking the bird in hand while rates are at historic lows.

Is there any opportunity for me to refinance my Jumbo loan?

Answer: While we are still seeing liquidity issues keep a strangle hold on Jumbo money, we are getting indications of some lenders starting to open up this market again. The pricing for loans in the range from $417,000 up to $625,500 was recently expanded to include loan amounts up to $729,000. The pricing in this range is getting very close to the normal conforming loan pricing under $417,000. For loans above $729,000, I will keep you posted on new
developments as they come around … hopefully very soon.

Please feel free to contact me directly by replying to this message or calling me with any specific questions about your loan scenario, and I’ll be happy to help you.

What are the "clogs" in the flow of the Credit Markets

Many people have pointed fingers at the parties responsible for the credit crunch - Wall St., Main St. Banks, consumers, and so on. Truth be told, there's enough blame to go around. One of the largest contributing factors affecting loans on the books is an obscure accounting rule, called "mark to market". This rule is intended for tightly traded securities, ones for which there is not a large trading market. The "toxic assets", hodge-podge of both "good" and "bad" loans, fall into this category. Once one group of collateralized debt obligations gets "written down", others banks with similar assets also need to write down tose assets. A domino effect of write downs ensues. There has been no end in sight.

Washington, including President Obama's office, The Treasury Department, and the SEC, to name a few, are considering suspending the mark-to-market rules. Some speculate that the new financial system rescue package will create a "bad bank" that the government will house, and that this rule change may prop up the assets of this bank, with the intent of halting the downward spiral in book valuations.

Will this work? I do not know. But one thing is for certain: if we do nothing we will fail. I think this forward-thinking from the governmnet will eventually lead to normalizing the credit markets.

Wall Street certainly thinks so.

Can you still buy real estate with no money down?

Quickly, the answer is yes, but you need to know where to look. Please attend this webinar and I will let you know.

https://northpointgroup.webex.com/northpointgroup/onstage/g.php?t=a&d=924479411

Introduction

Those of you who know me understand why I do what I do. For those that don't, well, here it goes. So often people retire that aren't "ready" to, in one way or another. Either they are forced to retire for circumstances beyond their immediate control, they are not financially ready to retire, or they settle for a retirement below a standard of living to which they are accustomed, or lower than one for which they hoped. Often, it is a combination of both. I have found that many people who build wealth 1) do it over time, and 2) do it with real estate as a vehicle to grow their wealth. So, what I do is help people build wealth by advising them in their real estate endeavors, help them invest, and help them with financing. Truly, not all real estate is created equally, and as the old adage goes, real estate is local, local, local. Something interesting happens to me when I help people purchase real estate: I feel a unique sense of pride in helping people achieve their life goals through smart real estate investing. The method we use works. It's not by any means the only way to succeed in real estate, but certainly one that has been proven to work. In this blog, I want to share with all my readers several things: my views on real estate and particular investments, educational posts on the state of real estate and the mortgage markets, trying to demystify things happening in Washington, Wall St, and Main St. and so on.

I always welcome your comments and inputs, and hope this blog meets your real estate investing needs.