The rates are still staying low this week. We hit our lowest rates in over 37 years on Wednesday with a slight uptick in rates this morning. The 10 year treasury bill is trading at 2.10 this morning. Investors are still in dismay as they wonder how the banks continue to lend at the largest spreads ever on mortgages.

If we look at the spreads between the 10 year treasury and 30 year mortgages, I believe you can historically expect about a 180 basis point spread. So basically, you would add 1.8% to the 10 year treasury yield. Today the 10 year treasure is 2.1, hence our rates should be at 3.9% or so. The banks are currently at a spread of 275 or so over the 10 year treasury with rates trading around 4.875.

The investors for mortgage backed securities are demanding higher returns due to the risk of mortgages and the default ratios. The banks are also working on retrieving their losses by adding their spread to the treasury to rebuild their coffers. Make no doubt about it, the banks never lose!! The public will always pay for it in the long run. But, if they did just “absorb” the losses, they would become insolvent and then our money would be worth nothing. Banks are a for profit business and have to pay dividends to their investors. Therefore, the spreads will remain high until their balance sheets rebuilt.

Having said that, the rates are still fantastic and buyers are now coming out of the woodwork. Finally.

                                        Source for statistics: California Association of Realtors

Gary Watts has long been recognized as a forecasting expert by the real estate industry. His long-term analysis has also drawn the attention of the media due to his consistent accuracy. His Economic Outlook has been spotlighted in regional newspapers, including the Orange County Register and the Los Angeles Times. He has been seen on the PBS TV program Real Orange, and he has been a featured advisor on real estate forecasting roundtables. He holds a degree in economics with advanced studies in psychology from California State University at Sacramento. 

The housing market below $250,000 has most likely reached the bottom
Prices now in the $350,000 range are close to the bottom.
The rest of the housing market still suffers a restructuring of prices. 
Expect foreclosures and short sales to dominate the market through 2010.
Listing inventory should rise due to the large number of foreclosures set to enter the market.
The credit conditions should greatly improve, bringing more buyers into the market place.
Demand for properties will continue to be higher than the past three years.

         Are you “On The Fence” About Buying a Home?

• It helps transform the mortgaged-back securities.
  This keeps access to capital for borrowers high and
  interest rates low.

• Conforming/jumbo conforming rates should drop in
  the coming weeks by as much as a percentage point.

• It improves confidence in the stock market allowing
  investors to once again realize profits, which they in
  turn can re-invest in mortgages.

• Credit will flow again bringing new, qualified buyers
  into the market to take advantage of the investment
  opportunities currently available.

• Modified mortgages will allow some homeowners to
  restructure their mortgages and avoid foreclosure.

If you’re on the fence, now is an excellent opportunity to realize
dramatic savings on a home purchase before the market shifts,
and we begin the next ‘UP’ stage of the cycle.

Presidential elections always have a noticeable impact on the economy. Historically speaking, presidential elections usually reverse prevailing trends, which is good news in this economy. Since the media is covering a lot of the “drama” and not much on actually what the policies of each candidate are. I’ve desided to do a bit more investigation myself. For your convenience click below to be directed to the economic policy section of each candidate’s website.
Economic Policies for: Barack Obama

Economic Policies for: John McCain

I asked my loan broker, Dean Rathbun this week how important is it that Fannie Mae and Freddie Mac stay in existence. And her is what he had to say. Fannie Mae and Freddie Mac, the two government-supported mortgage giants at the centre of America’s housing market, pose a particularly acute problem for the government. Not only are they too big to fail, they are almost too big to rescue.
They hold or guarantee some $5.2 trillion of the nation’s $12 trillion of mortgages, backed by the thinnest wafer of capital, meaning their collapse would imperil the already paralyzed American housing market. Yet, an analyst at Graham Fisher, a research firm, points out, nationalizing them, a stark choice for the government since their shares tumbled last week, would “result in a doubling of the federal deficit, a further collapse of the dollar and unthinkable implications for the Treasury’s cost of funding in the debt markets.” (more̷

One of the sings of an improving real estate market is “cherry picking.” What happens is buyers look for the best property they can find. It has the best location, best amenities, best upgrades, best landscape and most important-
best price. As these properties begin to be priced at a number that corresponds to the buyer’s specific set of parameters, homes start to sell. One by one, the really good deals begin to sell. As these homes begin to sell, other buyers, who waited too long, get nervous and decide they had better purchase also. Once all the “cherries” are gone, we then have the “dogs” that no one wants. They are priced the same as the “cherries,” but are inferior in some way.  As these properties begin to sell, the new market value for the neighborhood is set. This is the new fair market value which guides both buyers and appraisers. After all the “dogs” are sold, sellers who have been on the market for months and years have a decision to make. They must either drop their price to fair market value or take their home off the market. As this process begins, inventory will drop and won’t be replaced very quickly. Many sellers will not want to sell their homes for the lower fair market value. When those properties, owned by sellers who are motivated and are willing to take fair arket value, sell, the real estate market will begin to stabilize. Unless the government does something stupid, we will slowly get back to a normal market where prices are negotiated over 10,000 to 20,000 dollars within the listing price.

There will always be some properties in neighborhoods that will sell for more or less. This stabilization has happened after each of the other cycles in the 1970’s, 1980’s and 1990’s. Always remember the golden rule in real estate, “long term.” No one has ever been hurt by owning their own home for 20 years. That also means you don’t use your home’s equity as a savings account. If you kept the same loan on the property that you had when you purchased it 20 years ago, you’d have equity in your home and te value would be higher. Period.

1 Interest rates on long-term, fixed, and adjustable mortgages are at historically low levels. The rate on a 30-year, fixed mortgage is hovering just below 6 percent, while, by comparison, interest rates were hitting 8 percent and higher during the last market downturn in the late 1990s, and were between 10 and 12 percent at the height of the last housing boom in the 1980s. Lower interest rates make it easier to qualify for a loan, and your monthly payments are more affordable. 

2 No one can put a price on the intrinsic value of homeownership. Home prices also reflect financial worth and, the good news is, across California the median sales price for a single-family home has been consistently rising for several decades. In short, housing remains a solid, long-term financial investment. While the pace of home appreciation has slowed over the last year, historical data suggest home prices will continue to appreciate over time. The projected median home price for a single-family home in California in 2008, for example, is $553,000.
By comparison, the median price in 2000 was $241,350; $193,770 in 1990, and $99,550 in 1980. (source: C.A.R.)

3 The length of time a home remains on the market before it is sold has increased from roughly two weeks in 2004 to between eight and nine weeks in 2007. According to the unsold inventory index provided by the CALIFORNIA ASSOCIATION OF REALTORS®, it would take 16.3 months to sell all the homes on the market at the current sales pace, compared with 6.4 months in 2006. With more homes on the market for longer periods of time, you have more choices when it comes to selecting a home today. 

4 The multiple-offer frenzy that dominated the latest housing boom has subsided, and there is less pressure on today’s home buyers to outbid one another. REALTORS® in California reported that in 2007 only 28 percent
of homes sold had multiple offers, compared with 57 percent in 2004. (source: C.A.R.) 

5 The credit industry crisis that has made securing a home loan difficult for many has led to heightened scrutiny of mortgage lenders. As a result, state and federal agencies have created protections for home buyers that were not in place a year ago. The U.S. Federal Reserve, for example, has proposed a plan to require lenders to confirm a borrower’s ability to afford a mortgage before making a loan and establishing guidelines for explaining sub-prime loan terms in order to better educate buyers. Many new public education and awareness campaigns, such as Freddie Mac’s “Don’t Borrow Trouble®” campaign, have been developed to help you achieve the dream of homeownership without the financial risks that led so many borrowers into trouble in recent years. Buying a home in today’s market may be challenging, particularly for those with credit problems or little saved to put toward a down payment. But there are many factors impacting the current housing market that make buying a home today a viable option.

Presidential elections always have a noticeable impact on the economy. Historically speaking, presidential elections usually reverse prevailing trends, which is good news in this economy. Since the media is covering a lot of the “drama” and not much on actually what the policies of each candidate are. I’ve desided to do a bit more investigation myself.
For your convenience click below to be directed to the economic policy section of each candidate’s website.
Also below are the links on how specificly each candidate will fix the housing crisis.

Economic Policies for:

Hillary Clinton                          Barack Obama               John McCain

Here are the specific plans each candidate has for the housing crisis:

Hillary Clinton                         Barack Obama                 John McCain