The Meadows, a townhome community, in Montville New Jersey

The Pointe, a 55+ adult townhome community, in Livingston NJ

The Quick and Expected Climb to 6% Mortgage Rates (How To Stay Dry When The Fed Throws Water At You)

Mortgage rates have been steadily climbing, from a low of 4.5% around November 27, 2009 to above 5% on December 22, 2009.  For the past two months I've been warning that this will eventually happen. It's not because the economy is recovering; it isn't recovering.  The reason mortgage rates will rise to 6% or above, soomer rather than later is because that is the "natural" market.

About a year ago, The Federal Reserve announced a $1.25 Trillion mortgage rates subsidy,by purchasing mortgage-backed securities in the open market, through March, 2010.  Right before that subsidy was announced, mortgage rates were at or above 6%.  The subsidy was referred to as Bernanke's "nuclear option" meaning he was using an extraordinary monetary stimulus to keep mortgage rates artificially low.

One year and 12 months into the 15-month game, we're at $1.07 Trillion spent on this open market MBS purchase progran.  This means that the Fed still has about $150 Billion to spend in three months, so mortgage rates should stay around 5%, right?  After all, the Fed only spent $80 billion/month and they have at least 2 months of money left.

Markets are discounting mechanisms meaning that traders anticipate how potent the Fed can be.  The Fed's just about out of bullets and MBS traders know it.  Let me try to give you an example of what the Fed did by recanting the explanation I gave, to a Del Mar REALTOR, on the beach this summer.

I had my daughter (Maggie) get me ten cups of water from the ocean.  Then I drew six lines in the sand, equidistant from each other, and labeled them 6% (on the right) through 4.5% (on the left). I had Maggie stand at 6% and explained that this represented Dec, 2008 mortgage rates.  I announced that my intention was to throw water at her until she moved to the left, away from 6% and towards 4.5%.  I grabbed two cups and threw one at her, then at the line marked 5.5%; Maggie quickly darted to the left. 

Then, I threw a cup at her every time she inched to the right.  I explained that Maggie was acting EXACTLY like the MBS traders, naturally gravitating towards the "natural" market.  Each time I chucked a cup full of"stimulus", Maggie moved back under 5% and closer to 4.5%.  Once, she got real daring (like the MBS market this past summer) and I threw three cups at her.

At the beginning of December, The Fed had two cups of water.  Now, they only have 1.5 cups of stimulus left. 

Maggie, knowing that I only had 1-2 cups left, knew she could afford to get a bit wet in her dart towards 6%.  She faked me by jumping like Rickey Henderson dances off first base; I threw a half cup of water at her.  Then, she defiantly and purposefully walked towards 6%, knowing full well that I would throw my last cup of water at her.

Maggie knew she might get a bit wet but that I was utterly and completely out of water.  She got sprinkled but was safely standing at 6% and I was as bone dry as the Sonoran desert in July.

That's what I think is happening today.  The MBS traders are purposefully selling mortgage-backed securities, knowing that the Fed will buy every last bond they offer until they are "bone dry".  Everybody is running towards the finish line (6%) now and they don't care how wet they get along the way.

Mortgage rates are headed to 6% and it probably won't take until March, 2010 for them to get there.

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Housing Market Predictions: We've Heard Them All, Except the One That Matters ... Yours!

• Housing will not fully recover until 2012.  That is when the glut of backlogged foreclosures is expected to be phased out of the market. 

 

• Housing will recover by the end of the year.  Now that inventory has contracted to average levels for what constitutes “normal” regional markets in major metropolitan areas where prices have declined as much as 50% in the past three years, and month to month sales have steadily increased over the past six months, demand has realigned with supply to arrest the freefall in values.

 

• The housing recovery began in early 2009.  Median price increases in some markets indicate that even while many pundits were openly wondering when the bottom of the market would appear, it was actually several months in the rearview mirror.

Many factors and variables, and just as many divergent opinions to boot.  So many, in fact, that you almost have to choose amongst the purported experts to determine whether you fall in the half empty or half full category.  Job rates, interest rates, unemployment rates … psychiatric rates, for spending too much time poring over the data and extrapolations will render one in need of a head exam. 

Overanalysis 101.

You don’t need flow charts to tell you where things stand at the moment.  You won’t need a market report to tell you when things are better.

You’ll know the market has recovered when you no longer dread the trip to the mailbox or evening phone calls.

You’ll know the market has recovered when you can confidently re-enable automatic bill pay from your checking account instead of prioritizing which ones get paid this month by how far past due each is.

You’ll know that the market has recovered when you don’t have to decide whether you or a loved one is really ill enough to warrant the cost of a trip to the doctor.

You’ll know the market has recovered when you no longer have to explain to the kids why you can’t go to the zoo or stop for ice cream today. 

You’ll know the market has recovered when sleep comes as readily as worry formerly did.

You can stop looking to someone else to tell you when the market is fully healed as the housing implosion is the root of these greater ails.  It’s far easier to take stock of your own life, and those of your friends and family, to see where along its arc the pendulum is currently settled.  As the finance/housing sector dragged our economy into the muck, it will again lead us back to dry ground.  No need to watch the stars for celestial clues.  Just do what no pundit can and watch your own life for improvement.  You’ll know housing has recovered when both of your own feet are planted squarely on terra firma. 

Most importantly, beware the forecasts that don’t jive with your own internal index.  Those who would adamantly assert the rosiest or bleakest prognosis are likely more interested in influencing your behavior than in your well being. 

“Buy now before prices shoot back up!” 

“Sell now before prices erode further!” 

When you stop listening to yourself, you risk placing all of your trust in the megaphones of those who have a vested interest in your fear.

Is the housing market improving?  Is now the time to buy?  The time to sell?  For months, I have been asked to provide the answers to these questions.  I have dutifully provided my vague predictions with the obligatory caveat that no one truly knows how a free market will behave from one day to the next.  I realize, though, that in supplying answers to those who actually give the market context, that we have all been looking at this thing from the wrong perspective.  It makes zero difference where I think the market stands at present, and where it is headed.  The very consumers who ask me these questions are the ones who will ultimately provide the truth or fallacy to my various hypotheses.  So I turn the tables and ask the consumer, the actual authority, the very same question. 

“What is the state of the Real Estate market?”

Feel free to comment here or send me an email with your thoughts.  Looking for opinions from consumers and laypersons, not agents or financial wizards (all comments welcome, though).  I will post the results in a follow-up piece.

Mr. Homeowner & Mrs. Homebuyer, the floor is now yours.

8 Myths of Staging to Sell - Busted.

Home staging (or property styling as it's commonly known as on the Australian property scene) is really an art, not a science. One of the many things a professional home stager understands is that it's the house that's up for sale, not the home owner's bread baking ability or taste in music. So, from the sublime to the rediculous - here's 8 myths of staging to sell - busted!

1. Buyers can see past my stuff
No - they can't. 95% of house hunters shop with a 'what you see is what you get' eye. You'll be maximising your chances of a better and quicker sale if you take the time to clean out, clean up and keep your look simple.

2. Baking bread, brewing fresh coffee and playing soft music will make a buyer fall in love with my house.
Maybe once upon a time this was true - but most would-be buyers are onto that old trick. It's more likely to trigger alarm bells, with many wondering what it is you're trying to hide. Your buyers will be happy with a place that looks and smells clean.

3. I'll need to clear everything out to help buyers see themselves living here.
This is only partly true. Wall to wall family photos are distracting, as is your porcelain rooster collection. These things are best put away. But don't go overboard, otherwise you'll end up with a look that feels cold and sterile.

4. If it's an original feature - it adds value.
Sometimes yes - but often no. Generally a property built less than 50 years ago without being updated is more likely to appear dated, rather than classic.

5. My place isn't worth staging.
All homes are worth taking the time to present in a positive light to buyers. The trick to knowing where to start and what to do is in having a good idea of what buyers in your target market will expect, along with learning more about what competing properties in your area are offering.

6. Empty rooms look bigger.                                                      

This is rarely the case. Buyers will always prefer to see how a room is used and what will fit in it, rather than be left to guess. Very large rooms can also be too intimidating for some. Even borrowed furniture can help buyers get an idea of scale and give the eye something of interest to focus on.

7. Converting a bedroom into a home gym won't be a problem.
Bedrooms are one of the most valuable commodities of the 'for sale' property. Having a home gym set up in a bedroom will prompt buyers to wonder why that is. I remember once looking at a house where this was the case. When I came across the bedroom with the gym in it, I immediately began to question if a bed would even fit. Always give the rooms in your house a purpose.

8. No need to worry about wardrobes and cupboards.
Home storage is a big deal to most buyers and is surprisingly valuable. Prospective buyers will open storage cupboards in kitchens and bathrooms, so keep them tidy. Keep only what you're using on a daily or weekly basis, and pack the rest away ready for the move.

Have you got a staging myth you'd like busted? Share them with me here.

 

Donna Ross

Great Impressions Real Estate Staging

"I love helping Sydney home owners and real estate agents catch the eye of choosy buyers with their 'for sale' listings, with fast, simple and inexpensive decorating fixes."

Exquisite Grand Center Hall Colonial in Montville NJ

Condition Trumps Location