Mtge rates have only one way to go from here... up. WRONG!

Among the many misconceptions on affordability, financing seems to be another point of weakness among the advisers in the real estate profession.

While it's true that mortgage rates are based on the treasury yield curve, most commonly the 10-year, those treasury yields are not completely akin to the discount rate that the Fed controls. That's because mortgage rates are calculated using a spread over treasuries. That spread is still discernibly higher than average because of credit conditions the past couple years. So, although the base rate may not go lower (already close to zero), the spreads can tighten much further; possibly as much as a full percentage point from current levels as stabilization continues it's tough road onward.

That makes debates about present affordability meaningless. Affordability is a multi-prong decision process, whereas realtors are only focused on the Fed's discount rate. They have no understanding of the fixed income market and the yield curve to make more educated opinions to their clients. The NAR (their governing body) is already the laughing stock of interest rate trading professionals, so their integrity is not supported by such opinion regardless.

Beside the condition outlined above, the yield curve will continue to flatten - meaning that long rates will tend lower, toward their short-ended brethren. That means that the part of the yield curve that mortgage rates are most dependent on will show lower rates than we have already seen and mortgage rates (such as 30-year fixed) will go well below the celebrated 5% in the coming new year.

The deflation impacts we have continuously stressed here will see these mortgage rates go lower while property prices are also pressed lower due to supply-demand effects, at the same time.

So, when you hear that "there's no better time to buy a home, than right now," do the world a favor and teach your fellow realtor the above lesson. Their governing body cannot pass on these facts because it would mean another couple years of low or no business!

Young Folks Giving Houses Back To Banks

WSJ BLOG/Developments: Young Folks Giving Houses Back To Banks

Posted By Dawn Wotapka The housing crash has come to this: With so many Americans owing more on their homes than they're worth--in some cases hundreds of thousands of dollars--more are debating walking away, or halting payments they can afford and waiting for foreclosure. Statistics don't exist because no one declares their reasons for walking away, but a handful of papers have suggested that there's something to the anecdotal reports about borrowers "strategically" defaulting on their mortgages. A top industry consultant suggests such defaults may be more common with the younger set [under 30] that didn't grow up with the pay-your-mortgage-before-everything-else mentality. This generation is more likely to view owning simply as an investment, says John Burns, president of John Burns Real Estate Consulting. Culturally, "it's more acceptable than it was" during previous downturns, he says. Indeed. A few months ago in Las Vegas, I met a 26-year-old man who said that in 2007, he put no money down for a $250,000 loan that got him a 1,400-square-foot, four-bedroom home in Northwest Las Vegas. When he spotted a nearby home with the same floor plan--but with a pool and guesthouse--for $100,000, he moved out in January and gave it "back to the bank." "Why would I keep paying on a $250,000 loan?" he asked. "I would not ever buy a house again." [We tried to follow up with this guy, but his number had been disconnected.] Think about it: If you're young and unattached, relocating into a rental isn't that big of a deal. And it may be another seven years before you're ready to buy again--by then the black mark is off your credit score. But families have to think about children in local schools, and community ties are more important. For them, a monthly mortgage similar to rent might make staying put--and not having to move an entire household--more logical. But, should housing prices continue to fall, things could change. Last month, we told you about a professor who argues it's OK to walk away. "Homeowners should be walking away in droves," Brent T. White, an associate professor of law at the University of Arizona, wrote in a discussion paper. "The real mystery is not-as media coverage has suggested-why large numbers of homeowners are walking away, but why, given the percentage of underwater mortgages, more homeowners are not."

RE Lemmings, Reflect On This!

There is much debate about why the stock market is being flooded with money. The residential property market is one of the beneficiaries of such psychological lifts. The timeline below is telling. What do you think we are in for over the next two years? This is an IQ test.


February 28, 2007 - Dow Jones @ 12,268

March 13th, 2007 - Henry Paulson: "the fallout in subprime mortgages is "going to be painful to some lenders, but it is largely contained"

March 28th, 2007 - Ben Bernanke: "At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained"

March 30, 2007 - Dow Jones @ 12,354

April 20th, 2007 - Paulson: "I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained." , "All the signs I look at" show "the housing market is at or near the bottom"

Unemployment Rates By County

The residential real estate market depends on consumer psychology, more than ever. For that reason, the NAR (your realtors' talking head) is trying to offset the RE.ality of the consumer's realization - likely too little too late. So while the economic rebound (spelled repair) continues to reverse as much damage, as soon as possible, there is NO evidence of employment growth - NONE! In fact, the outlook for productivity growth through cost cuts implies continued job cuts through next year. This is especially representative of the financial services industry, the hub of NYC and the metro area (Hoboken) employment machine.

But the misunderstood aspect of this "recession" is that of deleveraging in assets of varying liquidity - from paintings to real estate. The employment outlook is a slow moving picture, starkly represented by this collage over the past two years:

http://cohort11.americanobserver.net/latoyaegwuekwe/multimediafinal.html

So while buyers may misunderstand this current bounce as a bottom for the next few years, they would be troubled by any evidence that supports their theory for emotional commitment to a "home." This is the stupidity of the psyche for home ownership without any regard for the commitment as a key "investment" - first and foremost.

By way of a timeline, the Hoboken response to sales and prices is about HALFWAY through the reflected drop in prices. While activity is a precursor to price support, the current activity shows only bottom end first-time buyers. A picture that's falls short of the foundation necessary for any stabilization, let alone price reflation.

Seller denial is a leading indicator... so we have far to run...

Anymore Lipstick For The RE Pig?

Jobless Rate Suggests More Pain To Come In Housing Market

By Prabha Natarajan Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Fannie Mae (FNM) reported eye-popping losses as a result of the sharp deterioration in home loans it had guaranteed, and warned that its credit losses would continue to mount into next year. Now for the really bad news: Friday's dismal report that the unemployment rate had hit 10.2%, exceeding the Federal Reserve's highest projection much earlier than expected, will mean that Fannie's losses will continue longer than expected. Housing analysts say they have to raise their forecasts on mortgage delinquencies and foreclosures as unemployment creeps up. Despite a rising number of home sales and other positive data, the broad housing market won't really recover until employment picks up. "The rise in unemployment rate is an indicator of people's inability to pay mortgages," said Mark Fleming, chief economist with First American CoreLogic, which analyzes loan data. "You have risk that's not limited to prime, subprime or Alt-A, but affects everyone across the board." Over the spring and summer, the housing market showed signs of recovery with home prices clawing back from the depressing lows that they hit last winter. Further, sales of existing homes also improved as first-time buyers took advantage of a federal credit and low mortgage rates. Such improvements scaled back some of the negative equity on houses. However, this tentative recovery could be erased if job losses continue to grow and the economy stays down. "Most people will continue to pay mortgages and live in their house, especially if it's owner occupied, whether negative or underwater on the loan," Fleming said. "It's only when I lose my job or some other precipitating event that makes it difficult to pay a mortgage and I don't have equity, that I think of walking away." Fannie, which holds $198.3 billion in nonperforming loans, says the dual stress of rising unemployment and falling home prices are responsible for this high number. In June, the agency had $171 billion in nonperforming loans on its books, and that was up nearly two-thirds from $119.2 billion at the end of last year. The government has tried to help these borrowers by arranging loan modifications and refinancing options, and now is prepared to let people lease homes after losing them to foreclosure. But it's unclear if these efforts would do much more than provide temporary props to the problem. "Improving employment conditions is the key to producing sustainable recovery in housing," say CreditSights housing analyst Frank Lee in a recent presentation, adding that the government measures have failed to address the underlying problems of high unemployment and rise in mortgage delinquencies and foreclosures. The team also pointed to an overlooked data - continuing unemployment claims - that goes in tandem with job losses. Those receiving unemployment benefits for 26 weeks is at 6 million, with 3.8 million more people receiving these benefits under federal extension programs. When these folks are weaned off these support programs, there is likely to be a spurt in mortgage delinquencies and foreclosures. CreditSights projects that it may take six years, under the most optimistic terms, for employment to return to pre-recession levels, and until then problems in the housing market aren't likely to go away.