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Your Interest Rate Update

July 7, 2009

Since we've put the first half of 2009 behind us, it's time to review the predictions/educated guesses I made for this year, and see how on - or off - the mark I was.

1) Mortgage Interest Rates: I did well on this one. I thought mortgage rates would hover around the 5% range for 30yr fixed conforming loans (those under $417,000) for most of the year because of the Fed's tactic of buying Mortgage Backed Securities and Treasuries. I've been right, so far, even though they held well below 5% for a good while longer than I'd anticipated. At the mid-point of the year, the Fed is about half way through with purchasing their initial allocation. I think their continued purchases, and the languishing stock market might lead to money shifting, back into bonds and Mortgage Backed Securities and open another window of sub 5% rates. In fact, with earnings season about to begin for Q2, I'm looking for that window to open any day. Jumbo rates (true Jumbo, those over $625k) have indeed moderated, as I'd predicted. In January, they were upwards of 8% for 30yr fixed. They're now down below 7% again. I don't see them drifting too much lower for some time, still. But, 6.5% or 6.75% isn't bad! And, Jumbo ARMs are in the mid-4%s to mid-5%s.

2) The Housing Market: Jury's still out on this call. I said we'd bottom in 2009. I believe we'll bottom in California later this year, maybe early next - nice broad window for me to hit... But, if we consider that real estate appreciation could be a mean-reverting trend, we could overshoot the correction to the downside, before reverting to the historic average. Here in the Sacramento area it looks like new listings are down in most price ranges, pending sales are up, and actual closings are down. All of that could illustrate that we're working our way through the excess inventory, and returning to a more normal market. If you're interested, I can email you the stats for the four county Metro Area I've been tracking. Let me know. Of course, there's still a lot of inventory that's already bank owned, but not yet on the open market. Not to mention the folks already in foreclosure, and those who are behind on their mortgages, who may fall into foreclosure. So, this could merely be a plateau before another little dip down, instead of a true bottom. Time will tell.

3) Word of the Year: I had two. Stagdeflation and Quantitative Easing - Well, I was a little off on this one. These terms haven't found their way into the mainstream media yet, and you probably haven't heard them, unless you're a finance and economics dork, like I am.

4) I thought our economic stimulus would be a pork barrel magnet. We'll see. It's too early to tell, since the dollars are barely hitting the street now (unless you're on Wall Street). But, I did hear a report that Barney Frank - after leading the charge to have GM move through bankruptcy (not that that was a bad idea, but...c'mon Barney) to become leaner and meaner - convinced the newly appointed CEO to delay closing of a plant that operated in his district - to save jobs. Never mind that it may not have been an efficient use of their resources. That's likely just the beginning of those shenanigans.

5) Debt forgiveness: Yes, mortgage debt forgiveness. It's happening, but not that widely yet, so I'll give myself half a point. Ocwen has cut principal balances on about 20% of the loans they modify. I'm sure other investors and servicing companies are too. We might start hearing more about it as we move through this cycle. But, as you can imagine, lenders/investors probably want to keep that on the down low.

6) My freebie: Commercial Real Estate collapse. This is taking a little longer to fully materialize than I'd expected, probably partially due to changes in the "mark to market" accounting rules, and all the money banks have been plowing into their balance sheets, so they're delaying the inevitable. But, we continue to hear about more and more commercial property bankruptcies, foreclosures and delinquencies. Names like General Growth (the largest mall owner) and Red Roof Inn are a couple recent casualties. I think we're just at the tip of that iceberg

So, that's 3.5 out of six. Not bad, for educated guesses, I guess...

In my next update, I'll try to address the heavyweight fight between inflationists and deflationists and what it means to you.

In the mean time, if you, your family, or friends have any questions about financing residential or commercial real estate, please call or email me. Here are today's rates. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
30 yr fixed mortgage	4.875%	1	5.115%	$300,000.00	$ 1,588
15 yr fixed mortgage	4.500%	1	4.700%	$300,000.00	$ 2,295
3/1 ARM	4.000%	1	4.190%	$300,000.00	$ 1,432
5/1 ARM	4.250%	1	4.460%	$300,000.00	$ 1,476
5/1 ARM Int Only	4.500%	1	4.760%	$300,000.00	$ 1,125
Jumbo (ask me about the new limit, per your zip code)
30 yr fixed mortgage	6.750%	1	6.876%	$550,000.00	$ 3,567
15 yr fixed mortgage	6.000%	1	6.255%	$550,000.00	$ 4,641
3/1 ARM	4.375%	1	4.555%	$550,000.00	$ 2,746
5/1 ARM	5.375%	1	5.595%	$550,000.00	$ 3,080
5/1 ARM Int Only	5.625%	1	5.875%	$550,000.00	$ 2,578
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.