Another Nail in the Real Estate Coffin!
Thursday, February 21, 2008 | Ethan Roberts Is this Spam?My friend, a mortgage company owner, called me yesterday to lament about the latest trouble in his industry. "We're off another three-eighths today,” he said. Translation: "Interest rates have risen another .375 today" So if the 30 year fixed was 6.0% yesterday, today it would be 6.375%.
He also told me that the mortgage interest rates right now are HIGHER than before the FED started lowering the FED Funds and Discount Rate several months ago. So much for stimulating the economy to help consumers. This may surprise you, but, I repeat, the interest rates are now HIGHER, not lower, than they were before all of the cuts.
But you wouldn't know that from the commercials that bombard you daily from the radio, TV, and Internet. "Interest rates at historic lows!" screams one. Another one proclaims, "The FED has just lowered rates again. Now is the best time to refinance with us before rates go back up!" Obviously, these ads are less than forthright.
My friend said that recently when people call him for a refinance or new loan, they expect to hear rate quotes in the low 5% range, but instead he has to tell them that the rates are now over 6%. This is bad for his business, because people think that he is not being honest with them. And, unlike many who have recently come to light in a negative way, my friend has always been a person of integrity in the mortgage business.
So hammer another nail into the Real Estate market's coffin, as higher oil and commodity prices, and a declining faith in the whole system of mortgage insurance, have the bond market running scared. And when bonds do poorly, mortgage interest rates rise.
As if things weren't bad enough, CNBC.com is reporting this morning that U.S. home mortgage demand plunged last week, and demand was the lowest since early January 2008, due to rising interest rates. This was the second consecutive week of declining applications for new purchase loans and refinances.
Failing to hear anything from President Bush that sounds like real leadership, I am anxiously waiting to hear something out of the three Presidential candidates on how they are going to fix this mess. Barack Obama says we need change, but gives new meaning to "The Emperor's New Clothes" by never defining what he will do to change anything. Hillary Clinton wants to extend the term of teaser rates to the homeowners who bought homes with "bad" loans, as if that is going to solve the mortgage insurance crisis. And I don't think I have heard John McCain say anything about how to solve our economic problems. Maybe he can ask his buddy, Ted Kennedy, for some advice.
It is easy to point fingers at and rehash how these problems were created, but now the time has come to put that behind us and set a course of action that will both calm the world's financial markets and restore the consumer's confidence and ability to pay for their home.
In other words, somebody in Washington needs to step up and step up fast, or fairly soon we could all be singing that great but forgotten depression tune, "Brother Can You Spare a Dime?"
