Rob Vaughan

Grab one now, or hope for lower rates?
Floaters got sunk this week. Anyone who is in the market for a new mortgage, be it a straight-up purchase or refinance, and was letting their rate float in hopes of locking in at a lower rate instead got smacked with a near quarter point rise in the 30-year fixed rate. According to Bankrate's latest weekly survey (conducted Wednesday morning) the 30-year fixed average was at 5.45%, up from 5.23% That's the highest level since February, and more than a half point above the 4.9% borrowers in early April could snag.

So what's a floater to do now? Well, if you've lost your betting mojo, lock in and be happy. Yes, happy. Let's remember that 5.45% is still seriously good. It was only one year ago that the average 30-year fixed rate was 6.1%. And long term, it is all but assured that a 5.45% fixed rate is going to look darn nice. It may take some time before the Fed gives up the fight and has to let rates rise to attract buyers for all the debt we now have to pay off, but it will happen. So while today's 5.45% is high relative to a month or two ago, it is likely to be one you will boast about in the coming years.

Okay, enough of the long-term perspective. What if you're still in betting mode and wondering about the next few weeks and months? Well, that's one big crap shoot. The recent spike has been caused by action in the 10-year Treasury market (the 30-year fixed rate tends to follow movements in the 10-year note.) Late last week the bond market started worrying about inflation and servicing the federal deficit, and one thing led to another and the 10-year Treasury yield shot from 3.4% last Thursday to above 3.7% during trading yesterday (Thursday) before closing lower at 3.67%. Plenty of market watchers are expecting the trend line on the 10-year Treasury to keep moving up. But here's where it gets interesting: there's not as clear a picture if a continued rise in the Treasury will automatically cause the 30-year fixed to also rise.

The big wildcard is Ben Bernanke and his merry band at the Federal Reserve. The Fed has been actively buying up long-term Treasuries and mortgage backed securities in an effort to help keep yields low. When rates started rising the past few weeks the Fed signaled it wasn't too concerned; in fact it seemed to be cheered by the notion that those slightly rising rates were a sign the economy was gaining a bit of strength. But now there's a sense that the continued rise-capped by the big spike this past Wednesday-could refocus the Fed's effort to push yields down; it has yet to use up even half the money it has allotted for the buyback programs, so it's got plenty of gunpowder ready.

That could be good news for rate floaters; assuming the Fed is still worried that rates rising too quickly and too far will put the kibosh on the already anemic credit market recovery, it's a decent argument to assume the Fed will soon ramp up its repurchases in an effort to push yields back down after their recent spike.

As David Rosenberg, the former Merrill Lynch economist now at Gluskin Sheff noted on Thursday morning:

"It's one thing to have a Treasury yield backup when mortgage rates are still declining, but that is no longer the case. The yield on the 30-year fixed-rate is already up 20 basis points from the lows; 1-year ARMs have jumped 17bps. This is not what the Fed wants to see."

Indeed, the recent rate uptick has sent a chill through the still frigid housing markets. According to the Mortgage Bankers Association, mortgage applications dropped 14.2% this week compared to a week prior.

The bet's yours, floaters: lock in now at what still qualifies as a terrific interest rate, or put your money on the Federal Reserve pushing yields down in the coming weeks. Which way are you leaning?

Thanks for checking out my blog If you know anyone that is facing a Hardship or they have questions about refinance solutions please contact me direct at (562) 673-1136

Robert Vaughan
Vice President
Affinity Lending Group

DataQuick reported that last month's sales jumped to 2,799 houses, condos and new residences, topping the July 2007 number by 408 units. The last time O.C. home sales exceeded the year-ago pace was September 2005.

The median price was $461,000 - down 28 percent in a year and the lowest median since President Bush was inaugurated for his second term.

Orange County's median - or price at the midpoint of all sales - has fallen $184,000 from the all-time high of $645,000 reached in June 2007. That's equivalent to a price drop of $431 per day for the past 13 months.

Agents said that kind of discounting helped break the sales slump.

"Houses are becoming a little more affordable (because prices) have dropped 20 to 25 percent," said Tom Moon of Pacific Moon Real Estate in Huntington Beach, a top agent in the sale of foreclosed homes. "There has been a pent-up demand. (Buyers) have been waiting to buy a house."

After nearly three years of consecutive drops, sales almost had almost nowhere to go but up.

In January, sales fell to 1,286 units, the lowest in DataQuick records dating back to 1988. That was down 72 percent from September 2005, the last month before the slump began.

"We've been on a winning streak since January," said Mike Hickman, president of Seven Gables Real Estate. "Pricing is finally reaching a level where there's a perceived value by the consumer."

Kerry Vandell, director of the UC Irvine Center for Real Estate, noted that in addition to first-time homebuyers, investors have been moving into the market, buying foreclosed properties at a discount, renting them out and waiting for prices to come back.

He added that President Bush's signature on housing legislation that provides government backing to mortgage giants Fannie Mae and Freddie Mac may have a bit of an impact, helping to increase somewhat the flow of cash to home borrowers.

"It's gradually going to come back if we can get through the (backlog of) inventory," Vandell said. "This is good news, but you have to drill down to see what's drawing it."

Vandell and others noted that while sales show signs of improvement, prices will continue to fall at least into mid-2009.

DataQuick reported that sales increased in 49 of Orange County's 83 ZIP codes, with sales up 215 percent in south Santa Ana's 92707.

First Team agent Connie Alonzo noted that most homes in that area are getting multiple offers.

"There are a lot of buyers for this area," she said of the ZIP code east of South Coast Plaza. "It's a nice part of Santa Ana."

I would just like to say thank you for reading. I have enjoyed the warm welcomes and continued support for my blogs. I believe in all the professionals on this site and could only hope to learn from them and offer the same great service and knowledge as you have. Take Care and have an amazing week

Robert A. Vaughan

Sr. Vice President

Affinity Lending Group