What is Happening in the Mortgage Market

Everyone Wants a Lower Price, But What About the Impact of Interest Rates?

When shopping for a home, the natural tendency of any buyer is to want to pay the lowest price possible. It's important to keep in mind, however, that the sales price is not the only factor that determines what the monthly payment will be. In fact, the impact of higher interest rates can easily nullify any benefit of waiting for a lower price.

Why Should I Rush to Buy?
While you may have heard discussions in the media about the decline of property values in many markets, the rate of decline appears to be stabilizing.

That being said, it would not be unreasonable for buyers to want to hold out for an additional decline of 10%, hoping to capture the best possible price. However, as property values have declined in many areas to 2003 levels or lower, waiting longer to pull the trigger could be a mistake. Many markets are reporting that lower property values have been bringing out investors and the result has been multiple offers on many properties. Properties priced correctly are not declining and, in fact, are creating a lot of interest.

Interest Rate Complacency
The problem is that many home buyers have been lulled into a sense of complacency because of extremely low interest rates. Since the Federal Reserve initiated its program of buying mortgage-backed securities, which control the rates people pay for their home loans, rates had been range bound, bouncing between 4.50% to 5.00% for a 30-year fixed-rate loan.

But buyers shouldn't be confused by this. These rates are artificially low! Historically, interest rates have been above 6.00%. And any rate obtained below this number is a great deal, especially on homes with price tags from 2003!

Markets are Unforgiving
The last two weeks of May showed just how unforgiving the markets can be for people who choose to procrastinate. In just five days, interest rates from many lenders increased anywhere from .50% to 1.00% as fixed-income investors demanded more for their money.

For anyone who was waiting for prices to drop even more, a 1.00% increase in interest rate would bring a higher monthly principal and interest payment on a home, even if the price of that same home had fallen an additional 10% in value.

If your clients are waiting for prices to fall even lower, be aware that while holding out for a lower price may help them win the battle, they could lose the war in terms of monthly payments and overall affordability. With the Federal Reserve scheduled to end its buying of mortgage-backed securities this year, rates only stand to go higher for those that wait. In fact, interest rates are already on the rise and could go higher from here.

Clock is Ticking on Free Money
If you have clients who are planning on purchasing their first home this year, be sure to let them know that they need to take possession before 12/01/2009 to be eligible for a tax credit of up to $8,000. In a survey conducted in March by Move.com, nearly 50% of home buyers are currently unaware that this free money exists in the marketplace. And since over 50% of all buyers are first-timers in today's market, this could impact a lot of your clients.

If you have questions about this update, give us a call. I can show you how waiting for the lowest price could really cost your clients more in the long run.

Sincerely,
Richard Woodward
Envoy Mortgage Pros
972-661-5136
Rwoodward@envoymtg.com

Mortgage Bonds are trading higher today allowing mortgage rates to drop and are following through on yesterday's rally. Giving a boost to Bonds is news that hedge fund Paulson & Co., which successfully bet with the housing decline, said that it is buying distressed debt and Mortgage Backed Securities, that are currently cheap.

Stocks also had a good day yesterday but off those levels today with the S&P 500 Index trading below resistance around 943. We’ve mentioned this level many times, and its amazing how stocks have hung around this area for the past couple of weeks.

The New York Federal Reserve bought $23B in Mortgage Backed Securities in the latest week and mainly concentrated in the 4.5% to 5.5% range. This translates to mortgage rates around 5.5% to 6.5%.

Consumer Sentiment came in close to expectations, and caused no market reaction.

See today's rate on the home page:  www.MortgageProsUs.com

Richard Woodward

Banker / Senior Branch Manager

Because You Deserve The Best

Mortgage Pros is Now Envoy Mortgage

Office: (972) 661-5136 Fax: (972) 314-9647

17311 Dallas Parkway Suite 173 Dallas, TX 75248

Visit Us Online - www.Envoy-Mtg.com

Mortgage Bonds are trading slightly higher today in a trend that we've seen during the recent decline in Mortgage Bond prices. Yesterday, Mortgage Bonds lost 81bp, with the recent sharp declines due mainly to the added supply hitting the markets.

Former Fed member Frederic Mishkin and PIMCO's Mohamed El-Erian were both on TV this morning confirming that the Fed is in a tough position. With home loan rates spiking considerably higher in the past few weeks, the Fed has to be concerned about how they can impact the economic recovery, but unfortunately may not be in the position to do much. As we have seen in recent weeks, the Fed's purchasing program has done little to offset the enormous amount of supply and selling coming from the Bond market.

And think about it – the cure for higher rates may be higher rates, because all of those refinance transactions being done are closing and being turned into Mortgage Backed Securities. Those securities have added greatly to the supply of Bonds being offered – so the Fed’s buying of Mortgage Bonds doesn’t have the ability to push rates lower, because the sale of new Mortgage Bonds being offered outweighs what the Fed is able to buy. We can only imagine where rates would be without the Fed buying of Mortgage Bonds, which currently is serving to at least slow down the pace of the rate increases we are seeing.

For the moment, we can Float as prices are a little higher this morning. But should things change, we will Alert you. For your customized rate quote, please call me or apply online at www.Envoy-Mtg.com

Richard Woodward

Banker / Senior Branch Manager

Because You Deserve The Best

Mortgage Pros is Now Envoy Mortgage

Office: (972) 661-5136 Fax: (972) 314-9647

17311 Dallas Parkway Suite 173 Dallas, TX 75248

Visit Us Online - www.Envoy-Mtg.com