Clint Hammond

Well, it was every bit as significant as we all thought it would be. Earlier in the day a lot of "bond friendly news" had little to no impact on our benchmark FNMA 4.5% bond. Housing starts and building permits for November came in as the lowest ever recorded. Pimco, the world's largest bond fund, said it's buying Mortgage Backed Securities in a huge way, more than they have in over 18 years. All of this should have seen our MBS prices gaining, and therefore dropping interest rates but trading was somewhat subdued by the looming Fed announcement at 2:15pm this afternoon. When the FOMC Press Release hit, it took everyone completely by surprise as they cut rates "1%-.75%" as they would have it floating in the 0%-.25% range rather than a set figure. Remember, Wall Street was looking for a 50bp cut and that was barley waived at on the way by. As a result the Dow blasted off, gaining 359 points on the day to close at 8,924, the S&P shot up 44 points to finish trading at 913 and the NASDAQ roared 81 points higher closing at 1,589. Though money did run like wild into stocks, the fact that The Fed's plan to purchase large amounts of securities issued by Fannie Mae and Freddie Mac (don't forget Pimco from earlier), sent our 4.5% FNMA bond on a rocket ride up and we gained 131bp to close at $101.94. This exploded through a very tough multi-year level of resistance. This reaction, I can only assume, is not only the impact of today's news but also some catch up work for "non-movement" in the past few months when all indications were pointing to a price spike. So we got it all at once. The impact of where this will take mortgage rates is yet to be seen, although some lenders did reprice for the better very late in the afternoon, all the players in the market almost seemed paralyzed and couldn't move on the news. Tomorrows rate sheet, by all intents and purposes should be significantly better as the news sinks in and is digested overnight. Pricing is in an unknown place and it seems that a new pricing model may have to be assumed. At least tweaks to current models is called for if nothing else.

Understand this too though, mortgage lenders across the board right now are understaffed on the heels of downsizing all year so processing and closing departments if not the entire company as a whole will be overwhelmed at first. Rates that we should be seeing tomorrow would in essence put every homeowner in a position to at least consider refinancing since we are going to certainly hit all time lows. Even at maximum capacity work force the looming volume would be a chore but with skeleton crews attempting to close smooth, on time, and with efficiency, get all loan applications in that much earlier. The quick close might not be the easiest thing right now and giving everyone time (don't forget, appraisers are operating leaner as are closing attorney's and everyone else so a huge influx of closings with limited staff can pose a problem). Signing contracts and locking in on 45 day locks and 60 day locks are honestly your best bet to make sure heartburn and headache aren't the norm. Everyone is working toward the same goal.

Get your buyers off the fence......because the Fed may have just torn the fence down completely. Take advantage and lets get to work.

The December Fed meeting got underway yesterday and today at 2:15pm a public statement is expected. This could be a huge day and we all need to pay close attention to what the Fed does. Most Wall Street firms are expecting a rate cut of .5% while some are forecasting as much as .75%. Remember, that is not referring to mortgage rates. We've had multiple Fed cuts this year and almost 100% of them have resulted in a short term spike in mortgage rates because it can create a rush into the stock market (out of the bond market) and it also has the ability to create inflationary fears which long term lending rates are not real fond of. So don't misunderstand what the rate cut may or may not be.

However, the flip side of that coin is that now unlike previous rate cuts, it's the recession has turned into a global downturn with weakness in Japan and in Europe so that helps keep the inflation in check a little. Hopefully this will act more as a catalyst to kick start the lending side again as it will increase the supply of money and the mental impact is much more substantial at this point than the monetary policy side of what actions are taken.

The other thing that will be interesting to pay attention to is what the Fed intends to do moving forward. Their ability to cut rates further is diminished as this will put discount rate at or near 0%. Can't go much lower than that. They could be releasing more details on their plan to purchase securities in markets that are in desperate need of liquidity, for our purposes, Mortgage Backed Securities. We're now tracking the 4.5% FNMA mortgage bond as our benchmark and since the first peeps of this plan to purchase large amounts of mortgage bonds, that 4.5% MBS has gone rocketing up by 680+/- bp and is now trading basically flat as the public statement draws closer. Rates have gone down substantially since early November as I had been calling for already, however we have the chance to now move even lower than I would've ever guessed pending this afternoons press release. Keep in mind, and making sure we don't over do our excitement, that chance of a large Fed cut could have the opposite impact on us not to mention if they scale back their securities purchasing game plan, that would cause a substantial and very swift change in mortgage rates and not a good change so we need to temper our enthusiasm.

BUT! Keeping our enthusiasm in check does not mean we should fail to plan. Call list need to be at the ready so that you can get buyers off the fence, deals in process should be re-evaluated, call past clients about refinancing even if they just purchased this year. Lets also keep that ace in our back pocket for the hesitant first time home buyer and promptly remind the deal that is about to walk away that not only are rates at historic lows, but a $7,500 tax credit for 2008 is also on the table. Ridiculously low rates + $7,500 in cash come Spring of '09 + a deflated housing market = the best time ever to buy a home. Remind your clients of that and sell houses. We can make '08 into our best year and kick of '09 to be even better if we seize this opportunity rather than wallowing in self pity.

Call me if you need more details, I will update the events of the day this afternoon.

The days are much shorter, the night air a little crisper, the smell of a fire, Christmas music piped into every grocery store and gas station you walk into, and Philly Fed President Charles Prosser confirming the Fed's expected move to purchase Fannie and Freddie Mortgage Bonds. Takes me right back to childhood Christmas memories! Not to mention the fact we're finally getting that significant rate drop I've been screaming about being on the horizon for almost 2 months now. I'm not crazy after all......

The FNMA 5.5% mortgage bond, our new bench mark, suffered a little bit of a setback today losing 47bp to close at $101.56 while the stock market shook itself awake after the slaughter that we witnessed yesterday and rebounded from the 4th worst performance in history. The drop in mortgage bonds helped money into the stock market and the Dow picked back up 270 points after yesterday's disaster and closed at 8419, the broader S&P regained some of Monday's 9% loss (movement like that used to take YEARS....) to the tune of 32 points closing at 848, and the NASDAQ managed to end trading at 1449, 51 points higher on the day.

On the Fed Front, aside from Prossers speech at the University of Rochester, St. Louis Fed President James Bullard was also on the mike today. Bullard stated that further rate cuts were "off the table for awhile" and that he is "not a fan of cutting short-term rates any further." If his stance is adopted by the other FOMC members, this could be a great scenario for mortgage bond prices which will help hold rates down on longer term money and even possibly push them lower. If we get this scenario, it will certainly have a positive impact on the housing market and help the recovery process after this much needed correction we've been in the middle of lately. Remember, affordability of financing and availability of financing are much more important than the listing price is when buyers look for houses or when potential buyers are deciding to make a move. The sales price means nothing, buyers are driven by out of pocket to close and by out of pocket monthly, not on the price. Most buyers aren't aware of what "$250,000" means on a listing, however they do know what "$1,200/month" means. See what I mean?

Try a new approach on your next client. Rather than the "quick and dirty" method of emailing listings or the long and usually inefficient method of driving around town all day, call me (or whoever your lender of choice is, obviously not everyone is in Columbia, SC) and schedule a meeting. You, your client, and your lender all need to sit down and have an open and honest discussion of plans. Not of "house buying plans" or "what we're doing this afternoon" plans, real, relevant, long term financial plans. Hopes and aspirations. Goals and objectives. Philosophies on spending and on debt, career hopes, income and asset outlooks, the whole kit and caboodle so to speak. Lay it all out there and then and only then is it time to start talking about houses. Once a financial game plan is in place and financing is estimated and priced, you will then be able to put your expertise as a Real Estate Professional to work by finding the home that fits not just their square footage needs, but fits ALL the needs for your client and their family. This method may take just as long as the 'riding around town' method, but i guarantee you that you'll close a transaction in a considerably shorter period of time and with a higher percentage pull through of referral/incoming business to closed transactions. (Not just "to contract" because we all know that doesn't count!)

Hope that everyone had a wonderful Thanksgiving and was able to spend time with family and friends. I also hope that the long weekend has everyone rejuvenated and ready for the final push to close 2008 with a flurry of activity and business, not to mention getting a good solid game plan in place to attack 2009 and make it your best year yet.

Supply and demand. Anyone who has ever even half way paid attention in economics or just half way paid attention to the world around you knows that supply and demand are the primary driving force in prices. Obviously breaking that down further gets into the advanced courses so to speak, but for the most part it always comes back to supply and demand.

Knowing that higher prices on mortgage backed securities equates to lower yield and therefore lower interest rates on home mortgages, we like to see our FNMA MBS heading up because that lowers the prices of houses, lowers interest rates on refi's, etc., and helps kick start a housing industry that has really only been kicked this year. Today, the Federal Reserved announced it's intention to purchase mortgage backed securities to the tune of $600 billion dollars. That, obviously is a considerable amount of supply that is being "swept out" by this unprecedented move. It sparked a ridiculous rally in the bond market and although late in the day, traders took profits and sold off the close out which dropped prices but we still finished up 85bp on the day at $102.16 for the FNMA 6% MBS, currently our benchmark. (Prices earlier in the day actually reacted by moving as much 150bp up on the day with a intra day high of $102.78. The late day sell off and a limited number of traders involved thanks to the holiday shortened week helped things remain in that state of volatility that we've come to appreciate all to well....) This helped home loan rates significantly improve throughout the day although some lenders did reprice very late this afternoon. I hope and expect the rally to continue at more reasonable pace moving forward as the last month of 2008 begins on a "regular week" next week. We'll see.

Now, more than ever, is the time to make sure you close this year out strong. This info when passed along to buyers is more than enough incentive to move them off the fence, get them back into play, take advantage of the marketing potential here to make your listings more attractive, etc. However, as much as anything else, this provides a reason for you to pick up the phone and just have a conversation with the people that help you succeed in your business. People are anxious, nervous, scared, depressed, etc., because they don't know what is going on. Often times the holiday's can make that worse so it's an especially good time to do your part in making your clients realize how important they are to you by just calling and catching up. In the meantime, you might just accidentally pick up a couple more transaction that you wouldn't otherwise have closed this year, who know?

I'll get another up here tomorrow to close us out for the week and get everyone geared up and informed for December. Take care and call anytime!

I've had that "a watched pot never boils" feeling lately with this looming market adjustment that I've been calling for. Well, wouldn't you know that today, the first day I've taken a little bit of a break from my O.C.D.-esque monitoring is the day that we're seeing my prediction sprout some legs!

Here's a brief summary of what we're looking at for right now. Economy....still not good. Jobs report from last week.....hasn't changed and still not good. The problem is that it hasn't impacted the bond market and therefore mortgage rates the way that it "was supposed to impact them." Today, Stocks took a serious beating from the word go and oil fell below $58/barrel. So poor performance in equities helps out, lower oil prices eases some inflationary fear, both of those are good news for bonds and today money started to move into bonds. As the day progressed, a $20 billion 10 yr T Note auction took place at 1pm showing decent demand for bonds. That helped extend the rally and the FNMA 6% mortgage bond, our current benchmark, picked up 44bp on the day to close at $101.44. This also triggered an afternoon reprice by most lenders, we re-priced for the better around 2:15pm and the difference was significant for sure. Hopefully, by closing above the 200 day moving average, this is signaling a boost in momentum and we will see MBS fall in line with the rest of the market and that will mean substantially lower interest rates. This means that if you haven't already, you need to get out our phone lists and start calling those buyers that have been on the fence, I know there are a ton out there! This is also the exact type of shift that can help you move some of those listings. Remember, if interest rates fall as much as 1/2 a percent, that is equivalent to what your "price reduction" WOULD'VEbeen assuming everything else stays static and you were trying to move the property. Using market knowledge to sell your listings and move your buyers off the fence is unfortunately grossly underused among Real Estate Agents. Get in the habit of doing it and you will certainly separate yourself from your competition. Call me if you want to get more in detail or just better educate yourself on what's going on. Don't forget, I'm also more than happy to help market your listings and calm the fears of your buyer, an email or a phone call is free so why turn down the resources that you have at no cost to you or your client? Just keep your fingers crossed that this is a trend and not one time deal. I feel strong about it, so much so that the closings I have this month have all been floating so I can now show my borrowers a substantial and exact dollar figure that I have saved them just by staying on top of the market in these crazy and uncertain times. You can bet my Realtors are doing the same.

As Benjamin Franklin once said: "An investment in knowledge pays the best interest."