Friday, May 29, 2009

Interest Rates Are Rising

One of the few brightspots during recent times was the low interest rates. These once in a lifetime rates spurred a refinancing boom - giving many people extra money every month and generating income for brokers, lenders, appraisers and everyone else tied to refinancing. It also helped the ARM holders - keeping affordable payments rather than rising ones. However those times are fading away. If you did not lock into a rate by early May you just may be out of luck. If governmental forces can drive rates back down they will - or at least try very hard to - but chances are that boom has also busted. From this article in Bloomberg titled Bernanke Bid To Lift Housing Scuttled By Rising Rates, Defaults. We discussed the defaults earlier, now lest look at the rising rates -

Federal Reserve Chairman Ben S. Bernanke’s efforts to bring down borrowing costs to revive the housing market and help the economy are stalling. Mortgage rates are almost back to where they were in March before the 30-year rate fell to a record and sparked a refinancing boom. Mortgage delinquencies rose to a record 9.12 percent of U.S. home loans and house prices dropped the most on record in the first quarter, industry reports show.

“Housing is not going to be the engine to get us out of this recession,” said Robert Eisenbeis, chief monetary economist for Vineland, New Jersey-based Cumberland Advisors Inc., and former research director at the Federal Reserve Bank in Atlanta. “They’ve squeezed a lemon and now they’re trying to squeeze some more, but you can only get so much juice out of a lemon.”

Rates are rising as President Barack Obama is trying to spur a housing recovery. Obama has pledged to spend $275 billion to help keep as many as 9 million Americans in their homes and stem the rise of foreclosures. His measures also include a tax break of as much as $8,000 for first-time homebuyers that wouldn’t require repayment.


Freddie Mac estimates 73 percent of the projected $2.7 trillion of mortgage originations in 2009 will be for refinancing. In 2005, when the annual rate of home sales peaked, 48 percent of the $3.3 trillion in mortgages were refinancings, according to Freddie Mac. Refinancing originations may rise 145 percent to $1.87 trillion this year, according to a Mortgage Bankers Association estimate, the first increase in four years.


Treasury yields are rising as the U.S. government sells debt and investors anticipate more supply of government securities being sold to fund federal spending. That in turn is helping push mortgage rates higher.

Part of the problem for some wanting to refinance was the barriers of being underwater or having a second mortgage that would not resubordinate. People who could have saved substantially were left out of the refinance rush. Now with the rates inching upward they will be less inclined to rush out. It will also cause problems for the ARMs resets.


JM said...

Like many others I inquired about refinancing, only to find the same games going on by the same characters. If I refinanced, the new LTV would take me above the 80% mark because of the new and improved appraising standards. I'd have to pay PMI, which would then always be on my loan because as values go down, down, down that 80% LTV becomes rather elusive. Or I could do a special program which would not require PMI but it would tack on about .25 points to my loan rate, which would be about the same as PMI. The same people who swore that real estate always goes up are now telling me my home isn't worth what I paid for it. Quite a different song today from 2002-2007. Rates would need to get to 4.5% to make a refinance worth it for me, and that won't happen anytime soon.

Anonymous said...

Well you may need to look in the mirror.You over paid for your is that simple. The realhores are a bunch of blood suckers who prey on the uninformed.
I know because when I talk to these unethical propagandist they can just make happy talk comments without facts countering their BS.
NY/NJ housing prices are near freefall now, but you would not know that from the realhores.
A little surprised that we do not hear of sucker peak homebuyers going on a rampage in a realhores offices because their credit and lives have been decimated.

JM said...

Anonymous, I've been tracking property sales in my neighborhood and things have held up close to what I paid for my place in 2008. Property is highly segmented and you can't assume that every corner of NJ is in free fall. I put down 20% and since in Year One of a 30 year mortgage the principal doesn't get reduced by a lot, a $10000 appraised value decline is going to bring my LTV over 80% for refinancing purposes. Our friends the brokers, realtors, lenders, etc. made it sound as if refinancing is always an option should that Jumbo-ARM become too hot to handle. In my case, refinancing wasn't worth the up front cost to save $100 a month after all was said and done, while the brokers I talked to made it sound as if I would end up living under a bridge if I didn't pull the trigger on a refi (much like the 2002-2007 real estate sales pitch). We're going to see a lot of owners seeking refinancing who are disappointed. I've always approached a home as place to live and sort of a forced savings account, not a magic wealth generation machine.

NJHH said...

Hi JM!

Another part people need to factor in is the high costs of closing. When you factor in what you have to pay up front or add onto the loan it may not be worth it either. I came across several that were almost 10 grand. It would have taken over 6 years just to break even. Plus it also adds several years onto the mortgage.

But the push is definitely there for ReFis. Even when it may not be in the person's best interest.

Anonymous said...

Hey JM where do you live because the best of the best are falling hard.
Thishappy talk ain;t going to work. Prices are falling and will continue to fall until the median income in the area can afford a house not this 50% of income non-sense lending that went on form years and no money down drones that bid up houses.

JM said...

I live in Somerset County. I'm not saying my town is immune, but it is the kind of place where people want to live. We're not dependent on a neverending stream of NYC financiers commuting in on the train. Instead we're dependent on a neverending stream of pharmaceutical executives and researchers, ha ha. I got in at almost 15% off 2006 peaks, and I will concede that prices in my town might dip another 10%. The top end of the market is getting hit hard since Wall Street bonus money isn't pouring in. Areas where speculation was rampant are getting hit hard too, same for outlying areas 60 miles away from job centers. Good middle and upper middle class towns close to job centers won't get hit as hard as other areas.

I was looking at closing costs of around 3 grand which would have creeped up to $4500 once the rustproofing and extended warranty were added in. Not worth it for $100 savings in a starter home, especially since I was looking at cash forked over at closing instead of rolling closing costs into the loan (another formerly ubiquitous practice now being curtailed).