Dennis' Mortgage Blog

Question of the week:  Did you pat yourself on the back?

Answer:  If I could reach my back I might have.  For several months I have been addressing the high activity in the real estate market and its concentration in the first time buyer price ranges.  Noting that year over year home sales have been increasing in the number of units, while at the same time the median price have been decreasing I have explained these numbers indicate what our company has been experiencing:  significant activity in the entry level price ranges.  Since median price is not average price the combined data of increase in units sold and decline in median price indicate where the buyers were.  Yesterday you were able to read in many Southern California papers, most notably the Los Angeles Times (which for some reason still holds the reputation for many that it is not news unless the LAT reports it), that the median price for homes in the six county Southern California region have remained flat at $250,000 since January.  Three months in a row with prices at the same level tells me we are probably seeing the bottom of the market, at least for the bottom of the market.  Higher price ranges will take some time to sort themselves out but it all has to start with the entry level condos and single family houses.

A couple of things may upset the apple cart and lead to some more slippage in prices: 1) higher rates will decrease buying power and therefore demand, which is currently high 2) implementation of the Home Valuation Code of Conduct forcing lenders to use national appraisal services rather than local, experienced appraisers (click here for my comments earlier) 3) the May 29, 2009 expiration of the 90 day moratorium on foreclosures in California could see banks rushing to market the homes that should have been put on the market during the 90 day period; this dramatic increase in supply could create another glut and price drop.

So while it is good news that prices appear to have stabilized at one end of the market, there are some potential pitfalls that could see a temporary set back to the stabilization.

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With rates staying flat for the week we appear to have a new range of rates for rates with our today’s rates being the floor of the range.  We have seen some temporary one or half day dips below the line, hit with luck in timing and impossible to predict, but three out of four weeks is a pretty good trend.  Our technical factors in the mortgaged backed securities markets are showing us bouncing off the 25 day moving average time and time again and a pretty good drop to the next level of resistance at the 50 day moving average.  “Dennis, what the heck?” 

Long time readers of the Weekly Rate and Market Update know, or should know!, that rates rise and fall within a certain range for a period of time, when rates spend several days above or below the range then we see a new range of higher, or lower rates.  For example looking at the chart below for conforming rates, from the end of December to the middle of March rates landed on 4.875% eight out of thirteen weeks.  That was solid floor of the rate range, when that range was broken on the low side on March 24^th we saw a new range of rates with the floor now being 4.75%.  This is the new floor to our rate range that rates have hit and bounced off of several times—it has been tested occasionally with a day or half-day dip below the number, but over all this has been our floor.

Because there is much more “softness” above the current rate level than there is below it, in fact there is much “hardness” below the number.  This creates a sentiment among investors that there is more likeliness of higher rates than lower rates in the future, if they feel this way they will invest this way.  Barring some as yet unknown economic, political or geopolitical news or data, rates will continue to see more likeliness to go up than down in the near future.

Please summarize.  Prices have reached some sense of stability with that stability coming from the bottom prices ranges and rising higher.  Rates are bouncing off a new low established just a few weeks ago.  Wells Fargo announced big profits last week, this week other financial stocks announced earning better than expected, unemployment numbers while bad were better than expected, and taking out dropping energy prices the inflation numbers were not reflective of a recessionary economy.  Summary:  I think we are in the orange section in the bell curve below; for rates, and prices and the economy as a whole.

Rates were flat for the week.  And yes we continue the old trend of improvements on Monday and Tuesday, flat Wednesday and losses on Thursday and Friday for the third week in a row.

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional  4.75%                 FLAT

30 year conforming-jumbo 5.25%                     FLAT

30 year FHA    5.00%                                      FLAT

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

We have had our first tragedy with Harrison, our 8 month old smooth coated Collie “puppy” (in quotes because he is not about 40 inches long and about 60 pounds!).  He figured out that when one of us is sitting on the couch with the white thingy in our hands looking at the noisy box with the moving pictures on it he is not the center of attention.  Therefore the white thingy with all the buttons must go!  We have a little yard in back of the house next to the pool where he early on liked to go with his stuff and chew it.  More than once we have found socks, his rope toy, “Buster” his stuffed dog he likes to carry, pencils, the starter button for my barbecue, and chased him back there when he grabbed the white thingy.

Tuesday he was successful in his quest to destroy the evil white thingy that creates something other than him as the center of attention and we lost our beloved DirecTV remote control.  Thankfully DirecTv has great customer service and responsiveness and after a quick on-line order Wednesday we have a new evil white thingy to torment poor Harrison.  How long will it survive?

One of the many joys of homeownership is the ease of pet ownership without having to get landlord permission—well that and kids!  J 

Have a great weekend,

Dennis

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