Wednesday, August 09, 2006

Borrowers Relieved

From Newsday:

Home buyers and borrowers relieved

The Federal Reserve may have helped Hempstead resident Dean Giamundo buy a house.

The Fed's decision to keep its federal funds rate at 5.25 percent yesterday likely will lead to some stability in long-term interest rates as well, experts said. And that's good news for Giamundo, 40, and his wife, Marianna, who have just started looking for a house.

"It's not that it would change my decision, but am I hoping interest rates stay down? Of course," Giamundo said. "At that point, we can afford a little more expensive house."
More immediately, the pause in rate hikes will help consumers with home equity loans and other adjustable products. The cost of a $100,000 home equity loan has doubled in the past 12 months, going from $4,000 a year to $8,000 a year, because of rising interest rates, according to mortgage broker Bob Moulton, with Americana Mortgage Group in Manhasset. Moulton noted that for the past two years, he has gotten calls from customers with adjustable products, wanting to know how each hike would affect them. Yesterday, the calls were different, as customers were happy they'd finally get a break, he noted.

While a pause from the Fed might be good news for those waiting on the sidelines (keep waiting), I doubt the pause will do much of anything to help those with home equity loans or adjustable rate mortages. Payments won't be any lower, and just as many facing substantial payment shocks from ARM resets will still see that same shock.

Keep in mind, the Fed's upward push in short-term rates has had little influence on long-term rates (Greenspan's Conundrum). We have yet to see what trend will develop now that the Fed has paused.

However, inflation pressures still persist. The productivity data released yesterday points to a concerning increase in wage pressures. The pause is likely to be just that, a pause. The FOMC has 3 more meetings scheduled this year.

Caveat Emptor!


Anonymous Anonymous said...

Take a look at this!

Saturday July 29, 2006,
Otteau Appraisal Group Report on New Jersey Real Estate
June is an important month for the residential real estate market as it represents the traditional end-point of the Spring selling season and typically sets the high-water mark for home sales in any given year. Thus, the residential market in New Jersey had much
at stake as any hopes for a market comeback would fall heavily on the June sales performance.
In June, contract-sales activity ran 9% below May and 24% below June 2005, continuing the pattern set earlier this year and dimming hope for a market comeback any time soon. From an inventory perspective, the number of unsold homes on the market increased by 4% in June adding further to an already saturated market. Year-to-date comparisons indicate a 17% decline in Contract Sales and a 70% increase in Unsold Inventory when compared to last year at this time. Some encouragement can be found in the fact that Unsold Inventory increased by only 4% in both May and June, as compared to a much higher increase in the preceding months of January (+15%), February (+12%), March (+13%), April (+12%), giving some hope that inventory will stop it’s upward spiral. At the same time however, even a modest increase in Unsold Inventory is detrimental to the market given the current high inventory levels.
Looking ahead, the Summer selling season typically brings gentle but steady declines in buying activity followed by more pronounced dips during the Fall and Winter seasons. Add in the effects of rising mortgage rates, record high energy prices, and the erosion of consumer confidence towards the future of the housing market and there’s no reason to expect a rebound any time soon!
From a price perspective, there is mounting evidence that home prices will decline over the short term as motivated sellers make business decisions to accept a lower selling price in exchange for a quicker sale. On the New Construction front, the myriad of sales incentives ranging from discounted pricing on upgrades, mortgage rate buy-downs and other financial incentives are the market equivalent of price reductions which will steer the overall residential market to a lower price point. Given that the New Jersey Housing Market realized an 87% increase in home prices from 2000 – 2005, the adjustments now taking place come as no surprise. Nonetheless, expect a bumpy ride over the next few years as the market struggles to restore an affordability balance in the face of rising mortgage rates and energy prices.
Jeffrey G. Otteau, President
The Otteau Appraisal Group, Inc.

8/09/2006 05:17:00 AM  
Blogger Metroplexual said...


you are linked to newsweek through an article on Ben Jones bubble blog.

8/09/2006 05:41:00 AM  
Blogger grim said...

From Reuters:

Toll Brothers contracts fall 45 percent

Toll Brothers Inc., the largest U.S. luxury home builder, said on Wednesday signed contracts were down 45 percent in the quarter just ended when compared with a year ago, as the U.S. housing market continued to slide.

For the fiscal third quarter ended July 31 signed contracts fell to $1.05 billion, down from $1.92 billion in the same period last year.

Toll said it expects to close on sales of 8,600 to 8,900 homes for the fiscal year ending October 31, down from an earlier reduced forecast of 9,000 to 9,700 homes

8/09/2006 06:17:00 AM  
Blogger grim said...

Thanks Metro, I noticed the link last night when some traffic started coming in from that site.


8/09/2006 06:58:00 AM  
Blogger DebtVulture said...

Toll continues to omit affordability issues when it lists reasons for the net order decline. Consumer confidence and oversupply brought on by speculators putting homes on the market are what they list as the problem. Wonder who sold all those homes to the speculators in the first place? Hmmmm.

They are also not offering as many incentives as other builders so they may be in for a tough time going forward on the sales front. Toll is dead, long live Toll.

8/09/2006 07:08:00 AM  
Blogger grim said...

From Marketwatch:

Countrywide July mortgage funding falls 19%

Countrywide Financial Corp. said Wednesday its mortgage fundings in July fell 19% from year-ago levels, to $36 billion. Monthly purchase volume in July was $17 billion, compared to $21 billion in July 2005. Year-to-date purchase activity fell 3%, to $119 billion. Adjustable-rate loan fundings for the month of July were $17 billion, a 27% drop from July 2005. Home equity loan fundings for July rose 4% in July from a year ago, the company said.

8/09/2006 07:30:00 AM  
Blogger grim said...

Calculated Risk has the Wednesday MBA Mortgage Application Data:

MBA: Application Volume Increases

8/09/2006 07:32:00 AM  
Blogger grim said...

From the AP:

WCI 2Q Net Drops on Slowing Home Sales

Home and apartment-tower builder WCI Communities Inc. said Wednesday second-quarter earnings fell sharply as the Florida housing market slowed.
Net income dropped 70 percent to $22.7 million, or 52 cents per share, from $75.3 million, or $1.61, per share, in the year-ago period, which included land sale gains of $100 million, or $1 per share. Revenue fell 21 percent to $529.4 million from $670.7 million last year.
Gross margin fell to 19.1 percent from 27.4 percent in the same quarter of 2005. Aggregate value of apartment and home building orders fell 62.4 percent over the same period a year ago to $238.4 million, while the number of unit orders declined 62.4 percent to 287. The average price of orders combined for the period increased 0.2 percent to $831,000.

8/09/2006 08:10:00 AM  
Blogger grim said...

From Bloomberg:

Bernanke Puts His Reputation on the Line on Inflation

Federal Reserve Chairman Ben S. Bernanke put his inflation-fighting credibility on the line after barely six months in the job, leaving interest rates unchanged even as consumer-price increases quicken.

Bernanke led a majority vote yesterday to keep the benchmark lending rate at 5.25 percent, and the statement emphasized the outlook for prices rather than the recent pickup in inflation. In the process, he lost unanimity among policy makers as Richmond Fed President Jeffrey Lacker voted against the decision, preferring an 18th-consecutive increase.

The Fed said prices will ``moderate over time'' as the cumulative effect of prior rate increases, surging energy prices and a sagging housing market slow growth. Fed watchers said the strategy is risky because there's no sign inflation is abating, and failure may erode the credibility built up under former chairmen Alan Greenspan and Paul Volcker.

``The Fed is going out on a limb,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. ``Bernanke has given us a story: moderating economic growth will lead to moderating inflation. That is going to be the test of his credibility.''

8/09/2006 08:20:00 AM  
Anonymous Anonymous said...

Looking at the current state of the real estate market, I've come to one conclusion:

Buyers are:

Half uneducated
Half unrealistic
and one quarter just not very good with fractions...


8/09/2006 08:34:00 AM  
Anonymous Anonymous said...

A pause sends the wrong message.


8/09/2006 08:40:00 AM  
Blogger NJGal said...

"A pause sends the wrong message."

Amen. It's a mistake and prolongs the pain.

8/09/2006 08:45:00 AM  
Blogger Richie said...

To some people it sends the wrong message. To others it says; something's f'd up.

Inflation rising, energy prices rising... uhh

8/09/2006 11:43:00 AM  
Blogger grim said...

From The Street:

Toll Trims Estimates Again

``It appears that the current housing slowdown, which we first saw in September 2005, is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors," said CEO Robert Toll. "Instead, it seems to be the result of an oversupply of inventory and a decline in confidence: Speculative buyers who spurred demand in 2004 and 2005 are now sellers; builders that built speculative homes must now move their specs; and nervous buyers are canceling contracts for homes already under construction. The resulting excess supply has exacerbated the drop in consumer confidence, which first appeared last September, that was already a drag on new home sales."

8/09/2006 12:01:00 PM  
Anonymous Anonymous said...

8/09/2006 01:35:00 PM  
Anonymous Anonymous said...

Another article:,9171,1223356,00.html

8/09/2006 01:52:00 PM  
Anonymous Anonymous said...

Predictions are ugly things, but I'm going to go out on a limb.

This pause (and probably the one that's coming in September) are a nice set up for the sucker rally in housing and stocks that is going to take place in late Sept./October.


8/09/2006 04:51:00 PM  

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