Housing Boom 2.0 – How It Could Happen

August 27th, 2006 • Business, Finance, Real Estate

There are several signs that affordability could increase rapidly in the coming months.

• Falling Interest rates – According to the National Association of Realtors a 1% drop in interest rates increases buying power by 10%. In the last 3 months interest rates have dropped .32% – theoretically a 3.2% increase in buying power.
• Inflation appears to be contained. Treasury bulls are betting big on it. Consumer prices appear to be in decline globally as well.
• Some markets are still appreciating rapidly.
• Even in the face of rising interest rates home have been holding their values
• Some analysts are predicting an additional 28 bps drop in the 10 Year’s yield which would increase the downward pressure on interest rates significantly.
• The US central bank has pursued a policy of “asset targeting” since 1999, adjusting short term interest rates in response to movements of stock market indexes and housing prices. This is further evidence that the Fed could start lowering rates soon as more news of a slowdown in the stock market and housing continue.

Homeowners rush into fixed-rate mortgages

August 24th, 2006 • Finance, Loan Programs, Real Estate

Yesterday I wrote about interest rates for 30 year fixed mortgages dropping for four weeks in a row. Lo and behold the public has noticed:

U.S. homeowners continue to rush to refinance their mortgages, as interest rates have fallen back to a five-month low, data from the Mortgage Bankers Asssociation showed Wednesday.

The number of applications for mortgages filed at major U.S. banks rose 0.1% last week on the increase in refinancings, the industry group said.

It’s a modest gain to be sure but expect more gains as this is a lagging indicator. The yield on the ten year held steady today at 4.81 and all signs point to no big changes tomorrow. If Bernanke listens to the Asian markets, the trend may continue.

Interest rates dropping! Homeowners let out collective sigh

August 16th, 2006 • Finance, Real Estate

Everyone knows the stock market is in bull mode but one of the pieces of news getting lost in the shuffle is that this isn’t hurting the housing markets. Over the last month I’ve watched the yield on the ten year note drop from 5.13 to 4.87. Here was today’s activity:

What does this mean for interest rates? A drop from roughly 6.375% as a par rate to 5.875%.

This number doesnt exactly correlate to an APR as a lender will assess some points and fees and of course their are always closing costs which will increase the APR of the loan, but this is good news for people looking to purchase a home or refinance out of their existing ARM’s.

National Association of Realtors: biggest lobbying group in all of DC

August 15th, 2006 • 2 comments Politics, Real Estate

I came across an interesting piece on the Department of Housing and Urban Development’s website. Apparently the bureaucrats in HUD have no idea how the mortgage process works and are completely unaware of the DOJ pressing their anti-trust case against the NAR. From their publication entitled Looking for the best mortgage they state:

Whether you are dealing with a lender or a broker may not always be clear. Some financial institutions operate as both lenders and brokers. And most brokers’ advertisements do not use the word “broker.” Therefore, be sure to ask whether a broker is involved. This information is important because brokers are usually paid a fee for their services that may be separate from
and in addition to the lender’s origination or other fees. A broker’s compensation may be in the form of “points” paid at closing or as an add-on to your interest rate, or both. You should ask each broker you work with how he or she will be compensated so that you can compare the different fees.

But, the mortgage broker has to be making their money somehow right? You might reasonably believe HUD when it tells you that the cost has to be passed on to the customer right? Wrong. This myth has propagated from the fact that while both direct lenders and mortgage brokers are governed by the same laws, there is one distinction. A posting on Wikipedia might help clear up the confusion:

The difference between the “Broker” and “Banker” is the banker’s ability to use a short term credit line (known as a warehouse line) to fund the loan until they can sell the loan to the secondary market. Then, they repay their warehouse lender and obtain a profit on the sale of the loan. The borrower will often get a letter notifying them their lender has sold or transferred the loan.

Brokers must also disclose Yield spread premium while Bankers do not. This has created an ambiguous and difficult identification of the true cost to obtain a mortgage. The stricter Broker disclosure requirements, especially the Good Faith Estimate, can often create the illusion that they are charging more to obtain the exact same mortgage when compared to a Banker, when in fact they may cost the same or the Brokers offer may even be less costly.

Anyone that has worked on both sides of the lending business understands that both retail lenders and brokers, who sell their loans to the wholesale divisions of those same direct lenders, are regulated by Section 32 of RESPA governing acceptable fees charged to the customer. These fees combined cannot exceed 6% of the total transaction. Real estate agents on the other hand regularly charge 6% of total fees on EVERY transaction yet they are given a rousing endorsement on their website here

Choosing the right person to sell your home is one of the most important steps of selling.

Could this have anything to do with the NAR being the number one PAC in terms of campaign contributions? They come in even higher than the trial lawyers according to OpenSecrets.org

Now why would a mortgage broker be held to such stringent laws while direct lenders are given a pass? Let’s follow the money. On OpenSecrets.org we find that the commercial banking lobby ranks 9th among all lobby groups in total donations to political candidates.

Commercial Banking interests contributed $30 million in the 2004 election cycle. The National Association of Mortgage Brokers reports that mortgage brokers have only contributed $1.9 million since 1999.

Realtors higher paid than Attorneys

August 14th, 2006 • Real Estate

David Liniger, the founder of RE/MAX, is delusional. In recent statements made to CNET, Liniger responds to the ongoing Department of Justice case involving anti-trust charges. The DOJ states:

“NAR’s policy prevents consumers from receiving the full benefits of competition and threatens to lock in outmoded business models and discourage discounting,” the department said.

The department contends that using the Internet to deliver real-estate services “gives Web-savvy consumers more control over their search for a home” and should lead to lower prices, as it has in other sectors such as stock trading, insurance and air travel.

The biggest tangible benefit to using a licensed real estate agent is having your property listed on the MLS, or being able to browse listings offered on the MLS. This listing on the MLS notifies other NAR licensed real estate agents of the availability of the home for sale. Currently the MLS has a stranglehold on this information and actively discourages forward minded agents from innovating new ways of disseminating this information to the public that could result in cost savings. How does the NAR accomplish this? By allowing ertain brokers to discriminate against other brokers that offer innovative web based business models from viewing their listings. According to a Department of Justice Press Release, the NAR knew this policy would be “abused beyond belief”. The end result: higher costs to the consumer. How is this being evidence in the market?

From C|NET

The Internet “has not put us out of business,” said David Liniger, founder and chairman of Re/Max International, the largest real estate agency in the United States and Canada. “It will not put us out of business.”

Liniger, who founded Re/Max in 1973 and became wealthy enough to try adventures like flying a balloon nonstop around the world, said the average annual income of a Re/Max agent was $112,000 as of 2002. Today, he said, the average income has climbed to $130,000.

“People not in the real estate business think we’re overpaid–in reality we’re not,” Liniger told an audience of hundreds of real estate brokers. “You think we’re overpaid? Let’s start investigating attorneys.”

Apparently real estate agents are now underpaid because of their grueling two month course and deserve more compensation than an attorney which goes to schools at least 7 years. According to Salary.com, the national average for an intermediate Attorney is $107,523. Mr Liniger states in this article that the average salary for a realtor ™ has climbed to $130,000. Could these recent gains have anything at all to do with the NAR’s anti competitive practices?