Yield Curve Enters Kitchen Table Talk

August 12, 2005 | 11:57 pm |

According to Investopedia.com a yield curve is a “graphic line chart that shows interest rates at a specific point for all securities having equal risk, but different maturity dates. For bonds, it typically compares the two- or five-year Treasury with the 30-year Treasury.”



Yield curves have loudly entered the economic discussions. If you grab the red line [Note: Java] in the yield chart, you can see how short term and long term rates have changed in relationship to one another over time.

The traditional economic model for banks is being turned on its head. Banks typically borrow at lower short term rates and lend at higher long term rates, capturing the spread. Since the yield curve is flattening, there is little difference between both rates creating bottom line pressures for lenders.

However, in a recent article in American Banker [Note: Paid Subscription] suggests that the yield curve, when inverted, could actually spell lower mortgage rates next year.

John Herrmann, chief economist at Cantor Viewpoint, a unit of Cantor Fitzgerald …Mr. Herrmann’s outlook is somewhat contrarian. Most economists expect rates to rise as the economy strengthens. But Mr. Herrmann told MSN that mortgage rates could be headed lower – perhaps to 5.25% by the end of the year and eventually “grinding down to 5%” next year.

A deceleration of economic growth, competitive pressure in the mortgage industry, and a trend toward tying 30-year mortgage rates and hybrid loan rates closer to the five-year Treasury rate than the 10-year are all contributing factors, he said.

His reasoning? Without housing, economic growth is way below potential.

More on yield curves to come…


Phew! No Housing Bubble In Canada.

August 12, 2005 | 11:56 pm |

Canadian housing prices are on the rise, but the underlying conditions do not suggest the threat of a bubble similar to that of the late 1980s, according to the Bank of Montreal.

I would hope Bank of Montreal (BOM) learned their lesson from the late 1980’s when they were active construction lenders in the New York market with what appeared to be loose underwriting standards.

BOM says the same things that economists are generally saying in the US: a modest rise in mortgage rates will temper demand but there are concerns about affordability.

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Predatory Lending Results From Overzealous Efforts To Increase Homeownership

August 11, 2005 | 9:40 am | |


Predatory lending has run largely unchecked. Here’s one of the best articles I have seen written on the topic….Wolves in Small Print

excerpt…

Buyers aren’t the only ones screaming. Nationally and in Fort Worth, some of those working in the real estate and mortgage business are also coming forward to charge that the real estate lending business is fraught with fraud. Those professionals say that appraisals are being inflated to buoy up higher housing prices, bigger loans, and higher fees for the industry. First-time home buyers without down payments and with poor credit histories are being pushed through the mill, critics say, and come out the other side with loans they have little chance of repaying. That in turn is pushing foreclosure rates to alarmingly high levels.

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Making Sense of High Housing Prices

August 10, 2005 | 11:11 pm |

Here is an article written by an independent thinktank on public policy initiatives called oddly enough, The Independent Institute

“Making Sense of High Housing Prices” discusses the fact that once governments started adopting land use and urban growth controls, prices began to climb.

Economists Edward Glaser of Harvard and Joseph Gyourko of the University of Pennsylvania studied the effect government restrictions have on housing prices in a number of markets around the country. They found that 90 percent of the difference between physical construction cost and the price of new homes could be attributed to government restrictions on building. Only 10 percent of the difference was due to intrinsically scarce land.

In fact, Glaser & Co. did a study on Manhattan housing that asked the question “Why is Manhattan so expensive? (it also refers to a Miller Samuel / NYU research paper).


Besides Newspapers, Housing Bubbles Sell T-Shirts

August 10, 2005 | 10:54 pm |

Not everyone is taking a bath…

mrhousingbubble



Selling a house they didn’t own

August 10, 2005 | 9:17 am | |

2 sentenced for real estate scheme

In this case, its sounds like the appraiser was duped, but it is a scary thought. It makes for a good argument to get the sales contract on your transactions (besides other obvious reasons, like understanding the terms of the sale). We match up the seller with public record.

I am amazed how many real estate brokers have said to us that we are the first firm to actually ask for a copy of the contract.

Its a USPAP standard as part of the appraisal licensing requirement [i-2e(iv)]

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Housing appraisals – bloated appraisals cause borrowers to over leverage

August 9, 2005 | 10:54 pm | |

The article in Consumer Reports describes appraisal inflation as a potential…

Watch out for the bloat!

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Indicted for $400 appraisals

August 9, 2005 | 5:10 pm | |

Appraiser gets $350 to $450 per report, his clients get $3M: yet all 3 indicted

Here’s another typical story, this time on Long Island…Appraiser does report, client steals $3.1M

Yet another…Appraiser does report, client steals $800K

Over and over we see appraisers being indicted and their appraisal fees are nominal, yet they are indicated alongside those who stole millions from lending institutions.

Q: What does it say about appraisers who get into trouble selling their soul for a few hundred dollars and their clients reaped millions [albeit all parties are indicted]?

A1: They do it with such frequency, they can’t keep track of ethical and unethical appraisals.

A2: They don’t see anything wrong with what they are doing since they aren’t charging a premium for these reports.

A3: They don’t see the value of the service they are providing to the criminals [sorry, thats a stretch] 😉

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Picture Perfect

August 9, 2005 | 2:02 pm | |

As seen in Valuation Review When are comps picture perfect? [Note: Subscription]

Call me old fashioned but we always take photos of the interior unless we are forbidden by the occupant…then we inform the client and note it in the report.

I am amazed how many times a real estate broker has mentioned to one of my staff, “You take photos? I have never seen an appraiser take photos before (as well as “You actually take measurements? I have never…”)” You get the idea 😉

The photos are more for our use – to review the property if a question comes up, to prove we were there, to protect us, etc.

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10’s the Charm?: The Fed raises the rate by 25 basis points to 3.5%

August 9, 2005 | 1:50 pm |

FRB: Press Release–FOMC statement and Board discount rate action–August 9, 2005

The Fed does it again. It was surprising to me that they still used the phrase “with robust underlying growth in productivity” since productivity cooled off in the second quarter [Note: Subscription]. However, jobs data improving, it seems more likely that the Fed will continue to raise rates.

However, this doesn’t seem to mean much higher mortgage rates are imminent. The demand for bonds has kept bond prices high and yields low [Note: Subscription] (which most mortgage rates are tied to).

All this ties to real estate through mortgage rates. More on the yield curve to come…



Housing Boom Squeezes Low-Income Workers: Study

August 9, 2005 | 1:22 pm | |

According to a study released Tuesday by the Center for Housing Policy

Surging housing prices are putting the dream of a home beyond the reach of middle and low-income workers in many cities around the country

The center is an advocate for affordable housing.

Home ownership has seen significant expansion over the past 10 years with Fannie Mae now claiming that 69% of Americans own their homes.

Wages have held flat for community workers and aren’t likely to rise in the near future. The median home price is consistent with that of the National Association of Realtors [Note: PDF].


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Economically Speaking, Its Beige

August 9, 2005 | 1:01 pm | |

What is the Beige Book and why is it Beige? Prior to 1970 it was red and not intended for public reporting. Perhaps the color was not considered neutral enough for economic reporting – beige seems to be about as neutral as you can get. In 1983, the Beige Book became a public report.

More digging to do on the latter, but here’s the latest…well, not exactly hot off the presses¦Federal Reserve: Beige Book–New York–July 27, 2005

Basically, economic expansion is now more moderate than earlier this year, including retail sales and labor costs and productivity. It is interesting that one of the items that has kept mortgage rates (long term rates) in check for so long has been the fact that productivity has outpaced economic growth. As a result, large corporations have been more likely to refrain from hiring new employees. The limited growth in employment has kept long term rates in check as investors are less concerned about the threat of inflation.

Construction and real estate were robust across the region, but the rate of price increases has slowed. This doesn’t mean prices are falling, it means that the rate of appreciation is slowing.


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