Industry Overview

Nationwide Factors Effect our Local market!!
 

Mortgage Rates

Lower housing starts took pressure off inflation resulting in mortgage rates ending the week slightly lower to an average of 6.69%, down from the previous week’s rate of 6.74%.  Rates could stay low if there is the perception that the housing market will be a longer drag on the economy than many had anticipated.

If the core Consumer Price Index stays the same or declines over the coming months, it is a good sign for mortgage rates.  Why?  Because if inflation remains in check, it soothes the bond investors’ fears “that its erosive effects on the purchasing power of a bond’s fixed payments will be mitigated.”  Consequently, the increase in bond prices pushed bond yields and mortgage rates lower.

Good news – rates may stay lower.  Bad news – in order for the good news to happen the consumer must continue to view the housing market in a negative way, home-builder optimism must continue to decline and housing starts must remain low, all of which result in a drag on the economy thereby reducing inflationary pressures.   

That was one side of the story, here’s another reported on the same day:

“Mortgage rates are expected to push higher after Tuesday’s surge in yields for 10-year Treasury notes and news that two Bear Stearns hedge funds that invested heavily in bonds backed by sub-prime mortgages may be near collapse.”

10-year T-Notes were at 5.15%, an increase of 6 basis points in 24 hours that could push rates higher.

The hedge funds had invested heavily in mortgage bonds and collateralized debt obligations backed by home loans.  Mounting losses in these types of funds could lead to similar difficulties with others, making it more difficult for mortgage originators to sell loans in the secondary market.

Same week, yet two differing views on what will happen to mortgage rates.  Go figure.

Housing Slump

According to Henry Paulson, Treasury Secretary, “the major slump in the housing industry is nearing an end and should not have a major impact on the overall economy.”

Paulson was quoted as saying, “We have had a major correction in this country . . . I do believe we are at or near the bottom.”  He also noted that the U.S. economy is being helped by the strength of the global economic picture with unemployment in Europe at a 15 year low and many global financial markets awash with large pools of money to invest.

Did you know?

According to the Office of Federal Housing Enterprise Oversight, these were the appreciation rates for the Pacific Northwest states:

                                   2006 Increase            
Idaho                                 13.99%                  

Montana                            10.72%                         

Oregon                              13.49%                         

Washington                        13.70%                         

5-Year Average = 12-13%

Now, compare those NW figures to these:

California                            4.60%                       

Florida                               9.45%                       

Hawaii                                7.33%                       

Nevada                              3.95%                         

5-Year Average = 20-22%

The Pacific Northwest states had reasonable and consistent growth.  The other states were overheated and, therefore, more connected to sub-prime lending because of the excessive and unrealistic appreciation rates leading to ridiculously high housing prices.  It also explains why we have about 4.5 months inventory in the Portland metro area vs. 8.5 nationwide (read: California, Florida, Hawaii, and Nevada).  Even though sales volume and transactions may be down compared to last year, we are still much better off than many major markets.

Make sure you have our info and a solid market assesment for 2007 for Bethany as it varies even form what we have here!

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