Mortgage-Rate Report 4.625%


Mortgage rates have had a far worse week than than you’ve been told anywhere else, and today was even more freakishly destructive than the previous two days.

Taken together, this is the worst week for mortgage rates we have on record.

Today is one of two times in the past 10yrs where the average borrowing rate for top tier scenarios moved up by at least a quarter of a point.

A quarter of a point may not sound like much, but in terms of day-to-day movements in 30yr fixed mortgage rates, it’s catastrophic.  That leaves best-execution at a stomach-churning 4.625% today.

Squatters Rule

NORTH SACRAMENTO (CBS13) — Real-estate agents are trying find new ways to combat squatters they say are devaluing their properties.  Our CBS13 crew got a firsthand look as they discovered squatters staying in an empty home.

Re/Max real-estate agent Zack Alber toured the crew through a property on Thursday.

Just a few feet into the house, there were signs that someone had been living inside of the home. One of the squatters attempts to hide from our crew in the kitchen. Seeing the camera, they are quick to leave.

“I usually don’t go by myself, I come with a group of people,” Alber said.

Before entering the house, Alber offered to grab the nightstick he carries in his car to protect himself and the property. He’s been finding new ways to keep the squatters out.

“Sometimes we have security guards that sit in patrol cars at night so nobody breaks in,” he said.  It’s a big expense that real-estate agents weigh against the value of the home.

John Franks has been homeless for more than a year. We found him in the backyard with a loofah and some soap.  “I will not go inside a property,”  he said.  He says he just wanted to use the faucet and wash up and avoids going inside so he won’t get into trouble.

As we leave, Alber locks up the property, although it probably doesn’t matter.  “They’re gonna get in,” he said. (A few hours later, the squatters were back in the house).

Mortgage-Rate Trauma

Mortgage rates are reprising past trauma, now matching the scope of the late 2010 sell-off, with the past two days matching the scope of Black Wednesday’s sell-off.

“Selling” in this case, refers to the Mortgage-Backed-Securities (MBS) that most directly affect rates.  As MBS prices fall, rates rise.  The faster this happens, the worse it is for rate sheets, and despite the month and a half of selling, the past two days have been surprisingly abrupt for lenders.  Rate sheets have taken the most profound hits we’ve seen on back to back days (past examples were more concentrated on one of the two days).

Conventional 30yr Fixed best-execution is quickly up to a staggering 4.375%-4.50% (with no points) though we’d note that there’s even more variation between lenders as volatility magnifies the effects of different pricing strategies.

Today’s economic data had precious little effect on trading levels, adding to the sense that it’s going to take official employment data on July 5th, a change in tone from the Fed, or an unexpected tape-bomb style headline to convince markets that the Fed won’t begin curtailing asset purchases in September.  While that continues to be the case, interest rate movements continue to be a risk.

We’d like to say “we’ve moved high enough, fast enough that we’ll probably be able to dig in and hold some ground here,” but that’s not safe yet.

Market participants themselves, let alone mortgage lenders, are still feeling out the post-Fed-Announcement environment.  There’s no reason rates can’t go even higher just because they’ve moved so high, so fast.


“Lots of Showings”

lots of showingsBoth sellers and listing agents get over-zealous when they witness mobs of buyers flocking to see their new listing – it boosts their confidence that a retail (or retail-plus) sale is imminent. 

Question their price, and you’ll hear, “Well, we’ve had lots of showings!”, as if that means something in an environment of low inventory – of course you have had lots of showings, there isn’t anything else to see.

My old rule-of-thumb was that lots of showings but no offers meant that you were 5% to 10% wrong on price. 

But today’s buyers are looking at anything and everything that might be close – which means if you are selling and having plenty of showings but no offers, then you are probably closer to being 10% wrong on price.  (Or your local market is fading).

What else could it mean?

  • You have a significant defect that isn’t that obvious by looking at the listing.  If it is something you can fix (carpet & paint, etc.), you should fix, because buyers don’t mind paying retail for a retail product.
  • Agents are using your house to sell the house down the street.

How do you know which is which?

If you are getting repeat visits from the same buyers, then the price is close – hang in there until the better buys nearby are cleared out. 

If you are only getting the one-time hit-and-runs, then you have bigger problems.  But lowering your price will fix any and all of them!

Plateau/Stall Coming?

We’ve seen how buyers have reacted to the amount of inventory.

When there are plenty of choices, buyers are very deliberate in their hunt.  But when the inventory dries up, especially when (or because) prices AND rates go ultra-low, buyers lose their patience and start gobbling.

The shortage of new listings last year started in late spring – let’s compare to this year to see if there is an indicator of what to expect the rest of the year:

NSDCC New Listings Between May 1 – June 15

Avg LP/sf

We’ve had a few more listings this year, but, unlike last year, the 22% increase in average list-pricing will likely slow the buyer enthusiasm once school starts – if not sooner.

Extend Debt-Tax Forgiveness?

A tax provision that spares underwater borrowers from being penalized when they agree to a short sale is due to expire at the end of this year.  But two senators want to extend the Mortgage Forgiveness Tax Relief Act through 2015. 

Senators Debbie Stabenow, D-Mich., and Dean Heller, R-Nev., introduced the extension bill Wednesday.

“It is bad enough that so many families are faced with mortgages that now exceed the value of their home. But to add insult to injury, without this bipartisan bill, the IRS would once again require these families to pay hundreds or thousands of dollars in additional income tax when they sell or refinance their home. That’s just wrong,” Sen. Stabenow said.

Congress has provided this tax relief for underwater homeowners since 2008.  If it isn’t extended, more distressed borrowers will choose do go through foreclosure as opposed to a short sale or deed-in-lieu transaction. 

The Hope Now servicer alliance recently reported that 83,400 short sales were completed in the first quarter.

“If Congress does not act this year, then thousands of Nevadans who are underwater in their homes will be forced to pay a tax at a time when what they need is some relief,” Sen. Heller said. “This legislation is a common sense approach that will prevent Nevadans from being taxed on income they never received.”


Market Direction

Was last year’s end-of-summer pickup an abnormality that was driven by ultra-low rates and prices?

Or could the deep demand cause the market to keep cranking straight through, in spite of both rates and prices being much higher?

The next 4-6 weeks should be fairly predictable – hot, for those sellers who are priced within reason.

Then what?

Short-Sale Specialist’s Mentality

I had this email conversation with a short-sale realtor who had listed  a property for at least 10% under value last month, and marked it contingent immediately:

JtR:  I’m curious about the price.  With the reaction (she said she received a “bazillion” offers), it is obviously under value, and there are comps 10% higher.  Why don’t you try to sell these for market value?

SSS:  The short sale lender established the price – I am mandated by their program to advertise it, list it, amend my listing contract, etc at their approved list price, which is reflected as such.  It is what it is – I am not doing anything I am not instructed to do by the powers that be….and who pays the agents’ commissions!

There is no reason to sell a property for more than a short sale lender requires unless the seller has tax implications – which they don’t. I am actually netting the lender $30,000 MORE than their required net proceeds believe it or not….So, the buyer gets a great deal – one of the few left out there…

JtR:  No reasons? How about these:
1. The bank deserves full disclosure that their valuation is too low, and proper open bidding would attain a market-value sale.  Don’t the investors deserve the truth?
2. The neighbors deserve a realistic comp.
3. Other buyers deserve a shot to compete.
I’m not blaming you personally, it is the system that is flawed.  I’d love to see a short-sale agent address these reasons.

SSS:   At the time the appraisal was completed, (months ago) – this was the fair market value of the property (maybe $20,000 low). There was no “full disclosure” needed – there was a full appraisal completed – not just a BPO. It’s not secret that the market has skyrocketed – but we had an open escrow and a legally binding contract when they issued their price.

The sellers chose the offer – not me.

I am not going to debate this with you to be honest; I don’t need to. I was instructed to do something by the two parties in charge – the short sale lender and the seller. And I did my job.

Have a good week…..

I dropped it after that, but the next question would have been – Did you disclose to the lender that you found a buyer, created a legally-binding contract, and opened escrow prior to putting the property on the MLS?

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