When will the housing market bottom out? That has been one of the most popular questions of the past year+. I say we may have seen it this past week.
On Monday March 9th the Wall Street Journal asked the question Dow 5000? wondering if the stock marketwould continue to fall that far. The next day began a four day rally that was boosted by news that Citi earned profits in January and February. Throughout the week other banks such as Chase, Wells Fargo, and Bank of America reported similar positive news.
Looking back to the stock market collapse of 2000-2002, we can see a similarity. The market bottomed out on October 9th 2002. That day the front page of USA Today read "No End In Sight". The following day the stock marketbegan a rally and everything turned around. Interestingly, both of these headlines were published on the 9th and were followed by rallies that started on the 10th.
In a typical market, though this market is obviously not typical, stocks and bonds have a give and take relationship. Investors pull money out of the bond market and place it in the stock market when they feel confident. This is important to the housing market as mortgage rates move based on the performance of mortgage-backed securities, which are a type of bond. In other words, when the stock market goes up, mortgage rates usually go up. When the stock market goes down, mortgage rates typically go down.
Since many investors point to the banking industry (lending institutions) as the cause of the economic crisis, good news from the banks leads to confidence. Money goes into the stock market and interest rates go up.
Adding to this is mark-to-market. This accounting rule was the topic of a congressional hearing on Thursday. After scandals such as the one involving Enron, this rule was put in place to help with transparency regarding a companies assets. Unfortunately, the rule is a little too strict and the result is that banks appear to be in worse financial condition than they are. Congress has requested that the SEC propose an adjustment to this rule within 3 weeks. When this happens, we can expect to see additional good news in the banking industry, which would help to spur the stock market.
But wait, isn't the federal government trying to lower interest rates? Yes, but is it working? Since January the federal government has been buying mortgage-backed securities at a pace of more than $4 Billion a day in an attempt to push mortgage rateslower. The result? Looking at a few rate sheets mortgage rates at the close of business yesterday were almost identical to rate sheets at the close of business on February 12th. Although the intentions are there, it definitely seems as though their actions have much affect.
The only real change we've seen is that underwriting requirements continue to constrict. Many people who would have qualified for a mortgage on January 1st no longer qualify.
Stop waiting!!! That is about the best way I can summarize my point.
Home prices are at or near the bottom.
Interest rates are at or near the bottom.
Inventory of homes for sale remains high.
Qualifying for a mortgage will continue to get harder.
The government is giving an $8,000 tax credit to first-time home buyers.
For those who have been waiting, if that isn't enough reason to get out and start looking into homes or consider refinancing now, I'm not sure what is.
Senior Loan Officer
251 Bellevue Avenue, Suite 102
Hammonton, NJ 08037