Your Handy REAL ESTATE Update
1. NY Times Doing its Best.
2. NY 3rd Qtr Home Prices Held Up Better Than Most.
3. Mortgage Rate Trend Turning?
4. Primary Mortgage vs Home Equity Lines
5. My Big Decision
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1. The NY Times is doing everything it can to keep the local real estate bubble from popping.
– Earlier this week:
“WOMEN UNAFRAID OF CONDO COMMITMENT — By Christine Haughney
While some men wait for deals, women spend, especially in Brooklyn. And word of mouth is a powerful tool. One friend talks to another, who in turn talks to another friend, who …”
This story focused on single women buying new luxury condos in DUMBO, where you hear and perhaps feel the subways rattle across the Manhattan Bridge every six minutes. The developer selling the units declared himself “Amazed!” at recent displays of femme financial fortitude.
– And now today:
“BUYING AS A TEAM — By Amy Gunderson
Mixing friends and real estate has its share of risk, but splitting a property among multiple owners often makes financial and practical sense.”
Go team go. Buy con-dos.
2. The NYC area is one of the few nationwide showing median price growth from 3rd Quarter 2005 to 3rd Quarter 2006. See attached PDF, from the Nat’l Assoc of Realtors.
No doubt sales volume decreased (our co-op here in Brooklyn certainly has seen fewer sales this year). But price, the NAR says, has been holding on.
How long, Adonai, how long?
3. Mortgage Rates. I am calling a mid-term bottom. Locked my refinance today at 6.0%.
Rates for NYC apartments peaked around 7% in May or so, have been coming down since August. Dipped last Tuesday to 5.875, just for a day. Flat 6.0 since. My best guess now heading back up, after a bad day at black rock.
The charts for the 10-year Treasury (best proxy for mortg rates, or rather, for the Residential Mortgage-Backed bonds that are the basis of the mortgage business) are horribly conflicted — strong trend lines pointing both up and down, depending on parameters chosen.
Meanwhile the fall’s stream of poor economic news (good for bonds usually) has been marred the past week and again today by signs of economic life (wages, service-sector “growth”, today retail sales and crude oil drawdowns). So the bond traders are selling, and their measurable hopes for Fed rate cuts have been pushed back from early 2007 to June or so.
Today eg the Treasury tried to sell more November 2016 bonds and got a poor response. And so tomorrow the new December 10-years look to get same treatment. Reflected in the TNX chart, which you can access here. Use the stock symbol “TNX” to get a chart of the yield on 10-yr U.S. Treasuries, which tracks mortgage rates pretty well. See the abrupt upward shot today, which seems likely to follow thru. (As the purchase price of a bond goes down, its effective yield goes up, since you’re paying less for the same amount of interest.)
4. Rates on Mortgages and Home Equity Lines Move Differently.
As said, primary mortgage rates float with the bond market.
(The whole biz is based on the banks’ ability to sell the mortgages they lend out into trusts that in turn issue & sell mortgage-backed bonds, thus distributing the risk of lending to dubious characters like me among the global institutional investing public. So if the bond market gets tight, the mortgage banks feel the lack of buyers and tighten up on new lending.)
But rates on Home Equity Lines (even though these home loans also get routinely securitized and sold as bonds to the public) float not with the bond market but with the Prime Rate.
And the Prime Rate almost never changes unless the Fed changes the limits on the two short-term banking rates that it regulates.
(Yesterday the Fed met and made no change. Increased rates 17 times/months in a row since 2004, then stopped earlier this year. People now waiting for a decrease since recession seems all but certain soon.)
So — all this fall we had mortgage rates coming down because the bond market was going up, because the bond traders saw poor economic performance in the weekly and monthly data.
But the Fed hasn’t yet budged on the same data. And so the Home Equity Line rates are as high as they were in March.
And now (as said) the bond market seems to be tanking a bit, and so mortg rates will start rising.
5. And So — What to Do If One Is Looking to Sink Oneself into the Mire of Home Debt?
The Home Equity Lines will get cheaper if the Fed ever lowers rates. Meanwhile primary mortgages got cheaper all fall, but, if I’m right, they’re about to start getting more expensive.
A fortiori: If new war breaks out in the mideast — between Iran and Israel/US, I mean — then it seems oil will skyrocket and that’ll really scare the bond traders (higher primary mortg rates) and probably forestall any Fed decrease for foreseeable future (no Home Equity rate decrease).
Even without new war, oil has been going up since the elections from its odd dip this fall to 54 or so. (I think Exxon wanted you to vote Republican.) Think it closed around $62 today. $74+ the high earlier this year.
And OPEC meets tomorrow. General expectation is for production cuts, which will increase oil price. (But, as chatted earlier this week, there are jokers in the woodpile and a chance of no cuts, either to make things easier for the fat-assed American Christmas, or perhaps for the coming war.)
All of which to explain why I locked my 6.0% refinance of my primary mortgage today. Seems better than using a home equity line, despite the flexibility of the latter. (Actually I’ll probably use a little of both, in the end.)
Funds to be used to make a movie. Nothing better to do.
