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The Dow Sinks And Mortgage Interest Rates Follow. What's Going On?

By Paul McFadden

Industry Observer with Responsive Pest Control

May 21, 2010 04:13 AM

Good morning! Happy Friday! As many of you know, the Dow Jones Industrial Average (stock market) has given up a lot of what it gained recently. In fact, I think it is about even for the year. This is coming on the heels of a huge run-up last year. Needless to say. mortgage interest rates have fallen to lows not seen since the end of last year. It should be interesting to see what direction this will all take in the coming months. Here is what I think is going on.

One, the worldwide debt problems (in this case Europe) cannot be ignored. Greece is in the process of being bailed out by other countries and Spain has also indicated they are having financial problems. What hasn't been disclosed by our government is that our debt is every bit as great as Greece and other parts of Europe. Furthermore, China's economy, which was growing like a weed, is showing some serious signs of strain. The real estate market in China has suddenly hit the skids.

It's interesting that our government is touting how things are turning around. And, in some cases and areas, that's true. But let's talk about psychology here for a moment. The psyche of the American people is still one of being pretty scared. I see it every day. People are scared about their job situation, how they're going to pay their bills, etc., etc. What this means is they're hesitant to pull the trigger on home purchases, etc.

Is it all doom and gloom? No. There are always opportunities and I know some people who are doing well. But I think we need to be realistic about what's going on around us. There is no quick-fix. It's going to take time to work through this crisis. I expect 2010 to be a ho-hum year economically. Yes, mortgage interest rates are low right now which is good for my business but, last week, mortgage applications were at a 13 year low. I also expect the stock market to hover within the range it's been in for most of this year.

What say you? I'm curious as to your thoughts. Feel free to weigh in. I'd like to hear what's going on in your neck of the woods. Have a great day!

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Robert Rauf

CMG Home Loans - Toms River, NJ

You would think that our phones would be ringing off the hooks with rates this low... I think it all comes down to job security ... people need to be confident in their jobs to think about buying a home.

My fear is the day that rates go POP on the upside. that could happen all at once when we get one good report, or when Europe sorts things out and that flight to quality goes away, that knee jerk reaction in the market will be a harsh one, leaving a lot of folks saying "shoulda coulda woulda..."

May 21, 2010 04:17 AM

John Mulkey

TheHousingGuru.com - Waleska, GA

Housing Guru

Paul - As you point out, there is no "quick-fix," something politicians would love to create and which many consumers seem to expect. I'd love to see our leaders working on some long-term solutions, but they seem much more focused upon the next election. And those long-term solutions would come at a great cost politically, creating a level of pain most are unwilling to accept.

May 21, 2010 04:33 AM

Donne Knudsen

Los Angeles & Ventura Counties in CA - Simi Valley, CA

CalState Realty Services

Paul - I agree that the fear of losing their jobs is keeping a lot of people on the fence. In the last year or two, I have had so many people who have made those first few steps of getting pre-approved and going out and making a few offers to then decide to put their search on hold because their employers started having layoffs and these people are now fearing for their jobs and are now suddenly very afraid of making the most important purchase of their lives. I don't blame them either.

On the other hand, I have also seen several of my clients suddenly get so fed up with the search that they just give up and go and renew their leases for another year. I don't know what it's like up in your market but the competition down here in Los Angeles and Ventura counties for the lower end market (200k-400k) is wicked fierce. The first time buyer is the neglected dog that everyone (REO banks and their LA's) kicks around and treats really badly.

As a long time dog mama (in more ways than one), I just try and do whatever I can to assist these poor souls in achieving their dream of buying a good home.

May 21, 2010 05:11 AM

Esko Kiuru

Bethesda, MD

Paul,

The recent mortgage purchase app drop is a scary thing, coming on the heels of the tax break sayonara. The rest of the year could be rather lame in housing and the entire economy.

May 21, 2010 08:51 AM

Paul McFadden

Responsive Pest Control - Seattle, WA

Pest Control, Seattle, WA.

Esko: I agree with you. I do expect another real estate boom down the road. I plan to blog about this soon. Take care.

Donne: Good for you. We will make it through. Have a wonderful weekend!

John: I appreciate your comments. I agree with you. There is no quick-fix. Obviously this is compounded by our politicians lack of desire to make the hard choices as you so eloquently stated. Take care.

Robert: good points. I had some interest in an email I sent out today about how rates were approaching last year's lows but it's really up to us to generate and keep the business going. I don't expect people to be phoning me left and right at this point. Have a great day!

May 21, 2010 09:58 AM

The Dow Sinks And Mortgage Interest Rates Follow. What's Going On?

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