Housing Bubble Bursting?

[Randolph Kinney]

Homeowners cashing out

Fifteen-year high of 88% of refinancers extract equity

More homeowners turned to mortgage refinancing to extract equity in the first quarter as rising interest rates made other forms of home-equity borrowing more expensive, Freddie Mac said Tuesday.

In the first quarter, 44% of all Freddie Mac mortgages were refinanced loans. That was down slightly from 45% in the fourth quarter.

Freddie Mac said it expects overall cash-refinancing to pump $170 billion into the economy this year, down substantially from the $244 billion in 2005.

Freddie Mac's cash-out refinance survey found that properties refinanced during the first quarter of 2006 experienced a median house-price appreciation of 30% during the time since the original loan was made, up from 29% in the fourth quarter 2005. For loans refinanced in the first quarter of 2006, the median age of the original loan was three years, about one month older than the median age of loans refinanced during the fourth quarter of 2005.

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B4630D55F%2DAFFF%2D41EF%2D8230%2D62365DF8DFB3%7D&siteid=mktw&dist=nwhreal

 

[JSmith43]

A fellow LO sent me a chart off his computer. He is a rate tracking machine & likes to do technical analysis. I'll give you a peak at it since it has such pretty colors.

BTW, many of you fence sitters better pack your parachutes:icon_smile:
Storm clouds on the horizon

 

[moh malekpour]

This chart shows that T-Bonds Yield for Mid 2006 is below 4.5% but it is above 5% now. It is 5.12%.

 

[JSmith43]

This chart shows that T-Bonds Yield for Mid 2006 is below 4.5% but it is above 5% now. It is 5.12%.

Well, you made me check, since I had to convert to pdf to attach the graph. I thought something weird happened. Also, this LO sometimes jokes around, but is generally very serious about his data.

The yellow line showing current T rate ends between 5% and 5.5%

 

[Randolph Kinney]

It will be interesting to watch the FED and the shape of the yield curve. Today, it is positive sloping indicating that market participants see more economic growth ahead. The FED will raise the FED Funds rate to 5% this week. After that, there will be a pause from any more FED action with lots of FED speak about its commitment to fight inflation while trying to do nothing with interest rates until the market forces the FED to take action because an increasing positive slope of the yield curve indicates more growth and inflation expectation.

Here are todays interest rates in the attached graphic.:new_popcornsmiley:

 

[moh malekpour]

I guess, I was looking at the year 2005. What is the commercial rate? is this the interest rate that banks charge borrowers?

 

[JSmith43]

Randolph, I'm going to pull a Moh:icon_smile: and point out that the 1 year arm avg is more like 5%.

The 30 year looks close enough. The graph is flawed!!

If I were to do a conforming loan 80% LTV, good credit and income, for say, $250,000 on a purchase. 6.375 all day long.

A one year arm, same parameters, 5.25 although I do have one investor that is showing 4.5, almost a sure sign of a pricing input error, it is so far off the mark.

 

[JSmith43]

I guess, I was looking at the year 2005. What is the commercial rate? is this the interest rate that banks charge borrowers?

Commercial rates are highly customized (all over the board). Adjustable and/or adjustable hybrid, for the most part. No Fannie, no Freddie to sell off the action. Plus, bankers consider quantity and quality of the income stream, (debt coverage ratio, etc), perhaps add a nod to the deep pockets of the borrower, compensating business factors, etc. It really depends on the situation more so than for residential, IMO.

I cannot do commercial loans with my employer, so I am not the best source of specific rate information.

See my other post for a sample of "rates banks charge customers" info.

 

[Mike Simpson]

"My future's so bright...I gotta wear shades!"

"Mike I been reading all this Housing Crap. & I wonder have you ever been involved in Real Estate in a downward trend market. YES!! Mike there is such a thing..."

Karl-

You answered your own question for me...thanks!

I do currently RESIDE in WA State. I'm in my 16th year in some sort of real estate related industry. I originally got my real estate license in '89' I believe it was (and allowed it to expire). I became a state certified residential appraiser in '96.' I got my real estate license again in '01' & my associate broker's license in '03.' And I've been investing since longer than the chronology above.

I've seen a number of down cycles in that period (no economy shattering bubbles though).

Mike there is such a thing. (as a "down cycle")

So now we're calling em..."down cycles." No one from my camp Karl...has EVER suggested that home prices will continue to rise forever unabated. What we ALL do...is attempt to debate this annual notion--which prevails here--that a nationwide housing bubble will be visited upon us soon. We're arguing against this theory; that an economy distroying event will take place that causes housing prices to fall 20-80%...and that it will last anywhere from 8-15 years!!!

There's just too many variables for ANYONE to make such dire predications, although some do, with the tenacity of The Energizer Bunny.

Mike's a smart guy and of course is very aware that there are plenty of bad markets out there...I doubt you sell him investing in Florida condos anytime soon.

Assuming I'm the Mike you're referring to...EXACTAMUNDO!

And, add to that that Mike is in an area that has had a nearly "perfect storm" on the positive side for development. I can remember as far back is 1980 people in Seattle complaining that too many Californians were coming in and that was causing real estate prices to rise. From what little I know, it would seem like that part of the country is poised for continued increases in overall economic growth.

Dead on...except native Seattlites are probably in the minority now. I love Californians by the way. They make for some of the most excited clients (they're thrilled with how much their money can buy here).

Although some economic trends (such as unemployment or stagflation) can affect housing markets nationwide, they are still basically local markets.

That's another VERY GOOD argument against a nationwide housing bubble.

I just got in from 3 days in Ocean Shores. I'll get some answers to Georges earlier questions this coming weekend, but in the meantime...some of the more die hard Bubblist might want to start rechecking their charts-n-graphs. They might try and come up with an answer on their own as to why their predications continue NOT to materialize (answers other than, a giant government conspiracy).

-Mike

 

[JSmith43]

It will be interesting to watch the FED and the shape of the yield curve. Today, it is positive sloping indicating that market participants see more economic growth ahead. The FED will raise the FED Funds rate to 5% this week. After that, there will be a pause from any more FED action with lots of FED speak about its commitment to fight inflation while trying to do nothing with interest rates until the market forces the FED to take action because an increasing positive slope of the yield curve indicates more growth and inflation expectation.

Here are todays interest rates in the attached graphic.:new_popcornsmiley:

I think the source of the chart data for 1 year ARMS must be averaging in the start rates for all those option arm type programs. If the teaser buydown rate is folded into their data, that makes it worthless as a benchmark, in fact, quite misleading. Lots of them go out the door at 2-3.5% teaser rate, but the real rate is index plus margin and somewhere in the 5's:icon_smile:

Edit: Holy Crap! I don't market for these type of loans so I don't follow CMT or 6 Mo. Libor.Make that somewhere in the 6's-7+!! Surprise, suprise all you Quicken following sheep! Lambs to the slaughter:icon_frown: