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Useful Information, Advice, Education and a Fair Honest Deal on your Mortgage
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Providing
Useful Information, Advice, Education and a Fair Honest Deal on your Mortgage
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 Here are the rest of the last week's comments....... Higher Mortgage Rates on China Decision..... September 23 Which has more force, Mother Nature or the Fed?..... September 22 FOMC ups rates to 3.75%, says Katrina could fuel inflation ..... September 20 The Week in Review..... September 18 |
Greenspan worries about "exotic" mortgage instruments..... September 26 6:27 PM EST Rita was not the force that Katrina was, although such a close path to New Orleans makes it so tough on those people, my thoughts go out to them. The market has risen even higher today and we close in on posting 6% rates with no points for the first time in over 6 months. Right in line with my mid-summer predictions. On the economic front, housing is on tap this week and the sales of existing homes in August released was the second highest on record. Throughout the week, we will also see new home sales and the very important Consumer Confidence number that will be a post Katrina indicator. We also have a number of Fed board members giving speeches this week and the market will be watching closely to see if any give hints that there will be any slowdown in the rate hikes. First on tap was Mr Greenspan himself who made a point of noting that the "frothy" housing market continues to roll along with record numbers as shown in the existing home sales release. He alos noted that there are spots in the market where increases in prices are just plain too fast to be able to be justified and upheld and that much of these increases are due to second home buying. When speaking of the second home, this is where he used the reference to the "exotic" mortgage instruments as he called them. He was referring to ARM's, in particular the 1 year, 3 year or even the option ARM products that these second home investors are taking out to make these purchases. As you know, Mr Greenspan is a man of very few words, so I will try to elaborate a bit on his concerns. There are areas of the country where there have been price increases of over 15% a year! He has indicated that he is concerned that some of these areas will actually lose value in coming years to bring the long term price increase more in line with a 5-7% rise in prices. For people who have been in their homes for a long time and will be there for some time to come, there is likely more than enough equity built up to absorb a period of falling prices. For these people, this is not really an issue other than perhaps wishing that they had sold at the high point of the market. On the other hand, investors are buying homes with 1 or 3 year ARM's with the sole intention of flipping a property for profit after it increases another 15% in value. For these people, there is a definite problem if prices begin to fall and they are stuck with a mortgage that begins to adjust. According to Mr Greenspan, he worries that these people have not considered the real downside of having to deal with an adjustable rate and higher payments in the event that they have to hold the property for 5 or 10 years in order to make a profit. In Michigan, we have not had the exorbitant price increases and this is not as big an issue as in some parts of the country, but it becomes an interesting discussion when rates are so close together. Right now, we are talking only 3/8% difference between the rate on a 3 year ARM and a 30 year fixed rate mortgage. On a $150,000 mortgage that is only $36 a month. I find it very hard how some buyers (and mortgage people) are suggesting to borrowers to take anything but a fixed rate mortgage right now. Unless you flat out know that you will be selling this house within a year, take advantage of this small difference and the still historically low fixed rates. Have a great day.......... Updated Forecasts This continuing trend of higher and higher rates has caused me to change the rate lock advisory to lock for all four stages. In addition, I have updated my forecast to show rising rates for the second half of 2005. This is a combination of what we have seen in both the market and the economic reports over the last 3 months and the continued tendencies of the market to shoot higher of very little good news. Now, on the bright side, the global economy is still going nowhere. We have quite a quandary where if the market does not rise in response to continued increases by the Fed we could see an inverted rate curve due to the global pressures. This is still a very good possibility and should we see anything close to an inversion, rates could drop quickly. The very high number of mortgages that are ARM's vs Fixed rates would switch in a heartbeat if you can get a 30 year fixed at a lower rate than a 5 year ARM!! If this fine line were to get crossed, you can throw all the forecasts of higher rates right out the window. Stay tuned! See you tomorrow! Where are rates headed in the next 3 months? It looks like the trend will be heading steady or higher with new projections out and the higher oil prices and Fed rate increases driving rates over the next 3 months The September Fed Meeting You can read the Fed's statement on the Board of Governor's Federal Reserve website for yourself. For the 11th straight time, the Fed has increased the Federal funds rate, citing inflationary pressures from energy prices as the reasoning in raising rates one more time. The Fed did make a point of stating that in the long term, inflation was under control. Where are rates going this year? The entire first part of the year, I have been sticking with the experts position that for the year of 2005, we can expect to see mortgage rates to level out in the 6.5% to 6.75% range for a 30 year fixed rate mortgage by the end of the year. Although this forecast has been the same for the last 3 years and has yet to materialize, this long term forecast must be still taken into account. My personal expectations are that 30 year rates will be rising for the second half of 2005 barring any more terrorist attacks. If I were financing/refinancing a home . . . . I would Lock if my closing was within 10 days I would Lock if my closing was 11- 30 days away I would Lock if my closing was 31 - 45 days away I would Lock if my closing was more than 45 days away *As always, this commentary is only my personal opinion if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of any/all other borrowers. DailyInterest.com
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