Archive for May, 2009

Subprime Blogger offers weekly Mortgage Rate Predictions as well as Daily Mortgage Rates News so make sure to check back daily for real estate and mortgage information.

Getting mortgage rates that you want is something that many home owners wish they could do.  Unfortunately the case is that many Americans feel trapped because of the current economic stay.  Well, if you think you feel trapped then what do you think the mortgage lenders are feeling right about now?  They have to start funding more mortgage for two reasons.  The first reason is the the government is almost forcing their hand to help the struggling economy.  The other reason is that they need to charge fees so they can actually make some money.

Well, if you know that mortgage lenders are in the market to “lend” money then you might have the upper hand.  Well, that will be the case if you are a prime borrower who has not made any bad financial decisions in the recent past.  If you have a credit score of under 750 and your loan-to-value ratio on your home is above 95% then you might be out of luck.  Lenders are getting their hands forced, but they are not going to lend money to anyone they would consider subprime; we know what happened the last time that type of lending took place.

If you are a prime borrower and you are looking to get that low mortgage rate, now might be the time to do it before mortgage rates go higher.  Now that the 10 year treasury yield has started its uptrend, it is highly likely that we are going to see mortgage rates head back above 5%.  If this is the case, you will want to get your mottgage application in now to get a rate under 5%.  I would also strongly suggest you know the value of your current home if you plan on refinancing.  Many home owners have not had an appraisal in quite some time and the appraisal value for their refinance is coming in much lower than expected.

If your home is the value you think it should be and you have good credit and a solid income, you DO have leverage over the mortgage lenders.  Realize that they need you just as much as you need them.  If you haven’t noticed, over 340 mortgage lenders have gone bankrupt in the last three years so most of them are willing to do whatever it takes to get the good borrowers in their doors.

Something else I strongly urge you to realize is that the lower rate you get, the higher fees you will pay.  There are many mortgage lenders out there who offer a no cost mortgage or a no cost refinance but you are going ot pay for it with a higher rate.  Several of the sites state this on the front page to avoid any confusion!  If you plan on getting a no cost mortgage, expect to pay at least .25% more for your mortgage.  Oftentimes it is worth it to just pay the fees and get the lower rate for long term savings.

Ultimately, if you have been smart with your money and have made strong financial decisions you should be able to get that low mortgage rate that you want.  If you have lived in your current home over four years and you are not in a bubble market, you are likely to have a loan-to-value ratio near or under 95% which would put you in a perfect position to get the rate you want.  Another suggestion I would give to most home owners is that you are always free to walk away.  Just like when you are buying a car, do not feel like you owe the mortgage broker anything.  It is his job to provide you with all this information and you can turn it down at any time.

It looks as if mortgage rates are heading higher in the very near future, so go out there and get that low mortgage rate before it is too late and rates get above 5.5%.  The government is forcing the hands of many of these mortgage lenders so take advancage and get that low mortgage rate that you want.

Daily mortgage rates news reports on issues that affect the current real estate market as well as the overall economy.  Today’s article dives into the possibility that the real estate collapse will send the economy in another downward spiral.

As reported on Subprime Blogger way back in December, the commercial real estate collapse is inevitable.  Corporations are not willing to pay the high cost of rent when many of their business can be run out of homes or low rent buildings.  When driving through many major cities, you will notice that a substantial amount of skyscrapers are almost completely empty.  When you can see completely through a building and notice that their are no tenants, that is a sign of things to come.

Many rental units in major cities are seeing a decline in rent value as most major corporations are asking for lower rent or they are willing to close their doors or move.  Rite Aid and Starbucks are two major United States corporations that are willing to close locations if their rent is not reduced by at least 25%.  This is very bad news for everyone involved.  It is bad news for the major corporations because they have obviously been paying way too much in rent in recent history and they are likely to shut their doors on some high priced locations.  It is bad news for the individuals who own the properties because the value of their land and building have plummeted with this recession.

The property owners have one of two choices.  They can reduce the rent and hope that they create a figure that is accepted by the corporations or they can let the companies shut their doors and move out.  Several Rite Aids have closed throughout the country and much of it has to do with the high cost of real estate.  If Rite Aid is paying $40,000 a month to rent a premier corner and that particular store cannot turn a profit, they have no other options than to ask for lower rent or completely remove that store.

This is going to greatly hurt the retail industry as many people are going to lose their jobs and there will be empty buildings that litter the landscape.  You have probably all been to a town where there are empty drug stores on the corners of intersections and it is not a pretty sight.  Expect to see more of these as all retailers are doing their best to cut costs and reducing rent or closing stores will definitely do that.

Another major area of concern in the retail space is shopping malls, both indoor and outdoor.  Unless a mall is in a premier location and has devoted shoppers, it is likely that many stores are going to start shutting their doors.  Any store that is not part of a major chain is going to greatly struggle to pay rent in a shopping mall.  Retail sales continue to show a downward trend so most companies are forecasting that their sales are not going to pick up in the near future.  If that is the case, they need to decide what an acceptable rent would be to turn a profit.  Unfortunately, some companies would need ZERO dollars in rent to produce a profit and that is obviously not going to happen.

Expect to see many of your common mall stores shut down in the next six to twelve months.  Any retailer that sells an item that is not absolutely needed is going to find it very difficult to “pay the rent” in the current economy.  All high end clothing and furniture retailers are going to have to have a very loyal customer base to get through this troubling time.  There is no doubt that some malls will stay pack and be able to make money, but it will not be the way it was three years ago when malls were being built in every suburb of even mid sized cities.

Many of the buildings that are currenly being rented out were locked in MANY years ago before mortgage interest rates started declining.  I am sure many of the landowners have refinanced and gotten lower rates but even if that is the case, it is still going to be difficult to find tenants that are willing to pay the steep cost of rent when it is extremely hard to turn a profit.

Corporate office space will also see a heavy hit in this commercial real estate collapse.  Companies that had district offices peppered throughout the United States are likely to cut these offices back.  Many retailers have already created a plan to get the district staff in to much lower rent areas, possibly even into the stores in which they manage.  This will not be something that many district and regional managers want to hear, but most companies are willing to do whatever it takes to make money.

If district and regional offices start closing, landlords are going to have to find someone to take over that space.  For the next few years, it is very possible that many of these office spaces will remain vacant until corporations start making money or foresee their outlook as positive.  The only way this will happen is if the recession comes to a close and Americans start spending money again.

Daily mortgage rates news provides you with current information on the real estate and mortgage market.  Today’s article looks at the prospect of higher mortgage rates due to the increase 10 Year Treasury Yield

The correlation between the 10 year treasury yield and the 30 year fixed mortgage rate is undeniable.  Since Freddie Mac started documenting average mortgage rates back in 1971, the relationship between the 10 year treasury yield and mortgage rates is almost exact.  When yields increase so do rates; when yields decrease rates follow suit.  If this is the case then why has the 10 year treasury yield been uptrending since January but mortgage rates have been in a steady downtrend?  Government interaction!

Investor Glossary defines the 10 year treasury yield as

A 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. A 10-year Treasury Note is issued with a defined rate of interest, or coupon rate (for example 5% of the note’s face value). Every year, holders of the 10-year Treasury Note receive the coupon rate from the Treasury. After ten years, the 10-year Treasury Note matures and the owner is paid the face value. The percentage of that total payment that exceeds the 10-year Treasury Note’s market price, annualized, is called the yield. When the current market price for the 10-year Treasury note rises, the yield for the 10-year Treasury Note falls, and vise versa.

When the yield starts to increase, it is often a sign that the economy is getting better as investors are willing to put money back into the United States.  We are at a very unusual time in that the housing market remains in terrible condition and yields are rising.  The President and Federal Reserve Chairman were hoping to help the housing market by creating very low mortgage rates that would spark the interest of new home buyers.  Well, it looks like that is not going to be the case as yields are going to pull mortgage rates back to reality.

It will be very interesting to see what comes out of this situation.  Either the yield increasing is a prediction that the economy is going to get better and home prices will eventually increase due to the increase in investments and consumer spending or much worse will happen.  If mortgage rates head higher, the economy does not get better and home prices continue to slide, we could see a VERY long recession.  Every American has already felt the effects of the recession so far and it could get much worse.

Imagine home prices sliding even further and the amount of defaults continuing to rise.  This could definitely happen if mortgage rates get to 6% or higher.  The only reason there has been even remote interest in the real estate market over the last half year is because mortgage rates have been close to or under 5%.  Unfortunately, most of the interest that has come from mortgage rates being so low is in the form of refinancing.  What the housing market and economy needs is for NEW home buyers to come into the market and take some of the excess supply out.

New housing supply remains over 10 months which is well above the norm.  To see a stabilization in home prices new housing supply needs to get under six or seven months which doesn’t look like it is going to happen any time in the near future; especially if mortgage rates are on the rise.  To make matters even worse, the amount of defaults is continuing to rise as we are starting to see the second wave of resets.  Expect to see many Alt-A and other exotic mortgages reset in the next year which will be a HUGE problem for many home owners.

Overall, it looks like an increase in mortgage rates is inevitable.  This does not mean that you will not be able to get a very low mortgage rate.  As many of my friends like to tell me, if I could get that low of a mortgage rate when I was your age, I would have been estatic.  We have to realize that even if mortgage rates do add a half of a percentage point, they will still be at some of the lowest levels in the history of the housing market.  If you have been debating getting a refinance, I would strongly urge you to do it now before mortgage rates follow the 10 year treasury yield higher.

In other economic news, it looks like the restaurant industry is started to see a light at the end of the tunnel.  There is still contraction in the overall industry, but much less than over the past year.  Since the beginning of the year, that contraction is slowly working its way towards expansion.  Sadly, I think part of this is the psychology that things are getting better because the stock market has increased and our President keeps telling us he thinks the economy is showing glimmers of hope.  It will be interesting to see if there is heavier contraction after mortgage rates start rising again coupled with the decline in home values.

When attempting to make interest rate predictions one must first look at the prime rate as well as the ten year treasury yield.  When the prime rate is low and ten year treasury yield is in a downward trend, it is almost inevitable that interests rates will head lower in the very near future.  The same holds true of the opposite is the case; when the prime rate starts increasing and the ten year treasury yield is in an uptrend, interest rates are going to increase.

The interesting issue we currently have at hand is the fact that the ten year treasury yield started uptrending in January but the prime rate has been set to basically zero for quite some time.  The prime rate has been set at zero because the Federal Government is willing to do whatever it takes to get financial institutions to start lending money again.  If they let the banks and financial institutions borrow money for free, they are likely to start lending to borrowers at a much higher rate.

The issue we currently have has made it very difficult to make interest rate predictions.  There is no doubt that the government is going to keep the prime rate as low as possible until they see the end of the recession at the end of the tunnel.  No one knows when this will be but it doesn’t seem likely in the near term.  So one would think that interest rates would remain low until the government increases the prime rate.

The other side of the argument is that mortgage interest rates are directly correlated to the ten year treasury yield.  With the current ten year treasury yield at 3.7%, mortgage rates should be hovering around 5.6% and not the 4.9% they are at.  The Federal Reserve has created artificial mortgage rates by buying back mortgage backed securities, but there is only so much they can do before free markets actually work and mortgage rates follow the ten year treasury yield.

To make a prediction on where interest rates are headed, you must decide what is a better indicator of interest rates.  Is the prime rate a better indicator or is the ten year treasury yield better?  I personally believe in free markets and do not like the idea that the government is trying to force mortgage rates below 5%.  They have definitely done this for the past two months but eventually they are going to run out of bullets.  There is only so much money that Ben Bernanke can print before other countries stop investing in our currency.

The dollar has already taken quite a plunge since the announcement that the Federal Reserve Bank was going to buy back over $1 Trillion in mortgage backed securities.  It is likely that we will continue to see the dollar sink as the United States is printing this money rather than taxing the citizens.  In my opinion, neither should happen and the government should let free market capitalism work.  As most of you know, that will definitely not happen with the Obama administration.

With all of that being said, I predict that interest rates will head higher with the ten year treasury yield.  If the yield continues its uptrend that started back in January, it is likely that we will see mortgage rates back up to 5.5% or higher.  The government will do everything they can to stop this, but sometimes there is only so much that can be done.  If mortgage rates do continue higher then it will be very interesting to see where the housing market goes.

With higher commodity prices, plummeting home values and the dollar sinking to new year to date lows each and every day, things do not look good for American citizens.  I know that President Obama and his staff are working very hard to help this economy but it seems like we are shooting at a target and missing greatly.  All of the plans he has enacted should begin to show in the economic data, but we have yet to see results.

I will be very interested to see the sentiment of our President if the economy continues on the path it is on.  Unfortunately, most Americans do not realize where we are headed.  There is something to say about being optimistic, but being blind to the fact that things could get much worse is a deathtrap.  I think we all have friends and family who feel the current recession is almost over because “the news said things are getting better.”  Of course the news says things are getting better, most media outlets are in love with President Obama.

I do not like to be the bearer of bad news, but how have things gotten better?  Are any major PRIVATE corporations hiring?  Has anyone seen the value of our currency increase?  Is your home value appreciating?  Are college students getting hired to great jobs like they deserve?  I would imagine that the answer to each of these questions is a solid NO!  Please do not drink the Obama lemonade and think that every plan this man creates is going to help this economy.  I totally admit that he is trying very hard, but some of the ideas he has created are not helping.

I am sure we will continue to try different programs as our president is all about change, but I would like to see a change that actually works.  From the beginning of this presidency I stated that taking money from the rich and giving it to the poor would not help this economy; it looks like I have been right so far.  I also disagree with President Obama feeling that the dollar “remains strong.”  The current results of the President Obama vs Subprime Blogger investment challenge are as follows:

SPY - UP 19.9%
USD - DOWN 5.4%

While President Obama feels the dollar is strong, I believe the opposite therefore I invested in the commodities etfs of Energy, Precious and Base Metals and Agriculture.  Here are my investment returns since March 22nd:

DBA - UP 11.4%
DBB - UP 12.3%
DBE - UP 16.8%
DBP - UP 4.7%

Very interesting to see that I have definitely caught up to the President and I am confident I will dominate this challenge in the years to come!

Along with mortgage rate trends, make sure to check out the mortgage rates forecast column to get a deeper look into the future of mortgage rates.

There was a very fitting article over at Calculated Risk on Wednesday.  In the article, the author illustrated the point that mortgage rates and 10 year yields have had a very high correlation since 1971.  From historical data, the current ten year yield of 3.7% suggests a 30 year mortgage rate around 5.6%.  Yesterday, Freddie Mac reported average mortgage rates at 4.91% which is a jump of .09% from last week.  This totally caught me by surprise until I looked at the 10 year yield, now it seems quite obvious that mortgage rate trends are going to cause rates to head higher for quite some time.

This is quite an interesting time as never before in the history of the United States has the concept of the government buying back mortgage backed securities (MBS) been the case.  With so many trillions being wrapped up in mortgage backed securities, the government decided to start buying these up.  The idea was that the purchases of MBS would force mortgage rates lower which would a cause a spark in interest in the housing market.

For almost two full months mortgage rates have been under 5% and been steadily decreasing.  Mortgage rates continued to decrease even when the Ten Year Treasury Yield was increasing; this almost never happens.  The interactions of the government were creating false mortgage rates but in the long run free markets will determine true mortgage rates.  We are now seeing this as mortgage rates bounced last week and I would predict that we will continue to see rates head higher as the ten year treasury yield remains in an uptrend.

What does this mean for the overall housing market?  Bad news!  Ben Bernanke and President Obama were hoping to spark the interest of new home buyers by offering them many tax benefits and the chance to get a new home at mortgage rates unheard of from a historical perspective.  Well, home buyers will still get the $8,000 tax cut if they purchase before December 1st, 2009 but it looks like those low mortgage rates have come and gone.

Will the rising interest rates hurt the overall housing market?  How could they now?!?  If individuals were reluctant to buy a home when mortgage rates were 4.8% then who is going to buy a home when mortgage rates are headed back to 5.5%?  That could be the difference in over $50,000 in interest over the course of a 30 year home loan.  I am not sure where the next idea is going to come from for the current administration but I sure hope they have a few tricks up their sleeves.

It has also been reported that most of the foreclosure modifications are defaulting.  Once again, this is very bad news for the housing industry.  If more homeowners are getting foreclosed upon there will be much more supply on the market.  Housing supply is exactly what this country does not need.  In a bit of good news, April Housing supply came in at 10.1 months versus 10.4 months last April.  This is a step in the right direction but we still have TEN months of housing supply on the market.

In April we had historically low mortgage rates, the Making Home Affordable Plan was in effect, tax credits were given to new home buyers and President Obama was encouraging all new home buyers to get out and buy that new home.  With all the measure taking place, we still only saw a nine day drop in housing supply?  I am extremely worried that the measures taken by the Federal government are not only not working, but they are devaluing our currency.

By buying back TRILLIONS of dollars in mortgage backed securities the US Dollar is falling off the face of the earth.  As I sit in my office I see CNBC talking about the dollar right now and how it has declined under 79.  Before the move by Ben Bernanke to buy mortgage backed securities, the US Dollar was at 87 and in a strong uptrend.  Since then, the dollar has seen a steady decline below the 200 day moving average and it looks like support is nowhere to be had.

So, the housing market remains in extreme trouble, the US dollar is tanking and the unemployment rate continues to rise in most states.  This economy is getting better?  Umm, I would love for someone to prove to me, with DATA, that the economy is actually getting better.  I know most data is a predictor of the economy, but there is nothing to prove that things have turned around.  Yes, the stock market has seen a steady increase over the last three months but that is on the hope that earnings will come in better than expected.  Have any of the major United States corporations actually shown that they are producing strong earnings?

Let me answer that for you, NO!  Hell, today the government decided that the taxpayers should own GM.  Thanks a lot, just what I want, to own another shitty company that is going to waste taxpayer dollars.  So lets see, the taxpayers now own Freddie Mac, Fannie Mae, AIG, and GM.  Bankruptcy is essential to free market capitalism, let these companies go bankrupt!  We, the taxpayers, do not want our hard earned money to go towards propping up companies that have been extremely unsuccessful.

Overall, the government has done everything in their power to create false mortgage rates but the free market will ultimately win out.  When this happens and mortgage rates go back to 5.5% we are likely to see another strong downtrend in the overall housing market.  This is very bad news for current home owners but it is the truth.  The best case scenario is to not worry about the overall value of your home but enjoy what you have.  Mortgage rate trends have reversed and are likely to head higher, so please expect home values to decline with this being the case.