Michael Cordle
Mortgage Consultant
The Real Estate ReportNovember 25, 2008
• Economic Commentary
• Weekly Interest Rate Overview• Real Estate News
Clarion Mortgage
Capital
225 Union Blvd., Ste. 150
Lakewood, CO 80228
303.670.3996 Office
303.600.9871 Fax
We help our clients successfully manage their home financing. In addition to performing the duties of a traditional loan originator, my goal is to help integrate the loan that you select into your overall long and short-term financial and investment plan to increase liquidity, safety, rate of return, and tax deductions.
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Rates Are Down... For Some Things
In the past several weeks we have continued to harp on the battle between lower rates due to a shrinking economy and higher rates because of the government’s need to borrow more money. As we surmised, lower rates are winning out at the present time. The news on the economy has gotten so severe that it is a foregone conclusion we are in a severe recession. Just this week we had a host of negative reports, including record low housing starts, a significant drop in the index of leading economic indicators and a retail sales report showing that consumers are not buying going into the holiday season.
Some of this bad news will be good news in the long run. Lower housing starts will help us absorb the back-log of unsold homes more quickly. The slower economy is bringing down the price of gas sharply and inflation is no longer a concern. All this bodes well for a drop in rates, but another question that many are asking is why the drop has not been as precipitous for mortgages. This is because the present decrease is being fueled by a slow economy and a "flight to quality." With the stock market and even commodities plummeting, investors are purchasing safe government bonds. Mortgage instruments are not considered safe investments right now because the level of defaults are too high. We need the spread between Treasuries and mortgages to narrow as well – and that will take time. Everyone benefits from lower rates, including a government that needs to finance the huge national debt. Lower consumer rates are the key to a faster recovery from this morass and we must hope rates stay low and mortgages drift even lower.
Weekly Interest Rate Overview
The Markets: Rates fell moderately again in the past week but this data was released before the full effect of lower Treasury rates were felt in the markets. Freddie Mac announced that for the week ending November 20, 30-year fixed rates averaged 6.04%, down from 6.14% the week before. The average for 15-year fixed fell to 5.73%. Adjustables fell as well with the average for one-year adjustables decreasing to 5.29% and five-year adjustables falling to 5.87%. A year ago 30-year fixed rates were at 6.20%. "Long- and short-term rates fell for the third consecutive week amid continuing signs of a slowing economy," said Frank Nothaft, Freddie Mac vice president and chief economist. "Retail sales fell for the fourth straight month in October and consumer sentiment remained near a 28-year low in November. In fact, the Federal Reserve during its October 28-29 committee meeting lowered its economic growth forecasts for 2008 and 2009, according to its minutes released this week."
Current Indices For Adjustable Rate Mortgages
Daily Value
Monthly Value
Nov. 20th
October6-month Treasury Security
0.52%
1.23%1-year Treasury Security
0.87%
1.42%3-year Treasury Security
1.20%
1.86%5-year Treasury Security
1.94%
2.73%10-year Treasury Security
3.10%
3.81%12-month LIBOR–WSJ
3.824% (Oct)12-month MTA
2.256% (Oct)11th District Cost of Funds
2.769% (Sept)Prime Rate
4.00% October
Real Estate News
Farmland is hot property these days. Nationwide, it is up nearly 9 percent from a year ago. Iowa farmland has increased in value 18 percent. South Dakota’s value has risen 21 percent. The rise reflects rising profits from agriculture. The use of corn to create ethanol has driven up the price of corn and beef cattle that feed on corn. The U.S. Department of Agriculture estimates that farmers will earn a record $95.7 billion this year, 10.3 percent more than last year and 57 percent more than the 10- year average of $61.1 billion. While some wealthy landowners celebrate this, average farmers and young people who want to own their farms are shut out. "There are a whole lot of young people wanting to farm – both children of farm families and young people from cities and suburban towns who want to farm," says Teresa Opheim, executive director of Practical Farmers of Iowa. "The price of land is making it very, very difficult for them to get started, even to come up with a business plan that’s viable." Source: The Christian Science Monitor
The economic downturn will slow commercial real estate markets into 2009, according to a forward-looking index for the commercial real estate sectors published by NAR. Lawrence Yun, NAR chief economist, said all components of the Commercial Leading Indicator for Brokerage Activity were down, with the exception of personal income. “Aside from weakening conditions in the index variables, the commercial mortgage-backed securities market is all but frozen, making it very difficult to roll over existing debt that is coming due,” he said. “It is encouraging to hear the U.S. Treasury Department is considering using the Troubled Asset Relief Program to help revive the commercial real estate debt market, but time is of the essence, and it must be implemented immediately.” Source: National Association of Realtors
