Mortgage Rates to Rise, Sooner rather than Later

The Fed plans to stop buying mortgage-backed securities the end of March.

The general consensus among mortgage brokers is rates will have to rise to attract new buyers of MBS if the Fed does stop buying. After reaching a low last November, the rate for 30-year fixed mortgages has already risen .25%-.375% in anticipation.

The only MBS that are being sold right now are those that are backed by Fannie Mae and Freddie Mac because they are backed by the U. S. government, at least for loans up to $417,000 in our area.

The question becomes, who is going to buy MBS and at what price?

With money market and treasuries yielding between 1%-2%, MBS are looking much more attractive to Wall Street, private investors and foreign governments.

But, at some point, the Fed will have to start selling their MBS which will drive prices down and yields up.

Local mortgage brokers expect rates to rise one-half point fairly quickly after the Fed stops buying. Many think mortgage rates will hit 6% by the end of the year.

That said, the biggest problem facing the local market right now is lack of quality inventory: quality meaning priced right and in the best neighborhoods.

There is a lot of pent-up demand, especially in the entry-level market. Bank-owned property and private, re-sale homes properly priced are still receiving multiple offers.

The move-up tax credit of $6,500 has had little impact on the market because so few people can take advantage of it. First, anyone that is upside down on their mortgage won’t be taking a loss to gain only $6,500. Second, if you’re still working and have equity, why would you sell only to see your property taxes rise?

About the only people who will take advantage of this tax credit are seniors who are retired. They can take advantage of propositions 13, 60, and 90 to downsize yet retain their property tax base if they move within the same county or to a reciprocating county. For more information about eligibility and a list of reciprocating counties, see: http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm.

The high-end market has problems with appraisals, if you need a loan, and we’re beginning to see a few foreclosures in that market.

Remember, the real estate market is a matter of neighborhoods and houses. No two are the same. For complete information on a particular neighborhood or property, call me.

Home sales eked out a small gain in February, rising 2.8% from January. Compared to last February, home sales were off 6.6%.

We expect sales to be strong through the Spring selling season because of the extension of the first-time home buyers tax credit of $8,000 for buying a principal residence. First-time buyer is a buyer who has not owned a principal residence in the three-year period prior to the purchase. There are some income limits. For full information, see: http://federalhousingtaxcredit.com.

P.S. The tax credit expires April 30th. You need to have a signed contract by then and close the sale within 60 days to qualify for the credit.

The median price for single-family, re-sale homes was up 27.3% year-over-year in February. Sales were up 2.8% from January, but down 6.6% from February 2009. This is only the second month since March 2008 that home sales were lower than the year before.

The median price for the under $500,000 segment of the market fell 2.7% from January, but was up 16.1% year-over-year. This segment constituted 84.1% of sales last month compared to 84.2% of total sales in February.

By contrast, the $500,000 to $1,000,000 segment of the market was 10.4% of sales. The median price was up 1.6% month-over month.

The million dollar plus market was 5.4% of total sales in December compared to only 1.2% of total sales in February. The median price for this segment of the market was up 22.5%  month-over month. See our Annual Report for year-end numbers.

The condo market, which is highly seasonal and mostly located within country clubs, saw sales rise 52% year-over-year. This is the ninth month in a row condo sales have been higher than the year before. The median price for condos was off 26.5% compared to last February.

The graphs below show monthly prices and sales since 2003. We have used a three month moving average to smooth out monthly fluctuations yet retain seasonal flow.

These graphs are big. Please click on the graph to expand it. Then, use your back button to return to this page.

The sales price to list price indicator for single-family homes rose 2.4 points to 95.1%. The indicator for condos lost 1.5 points to 92.5%. Breaking the market down, the ratio for homes in the under $500,000 market was 97.4%. The ratio for the $500,000 to $999,999 market was 93.5%. The ratio for the over $1,000,000 market was 92.7%.

Days on market for homes fell one day to 95. Days on market for condos dropped eighteen to 95 days.

For full details see the tables below and the Monthly Trends section which breaks out each city's statistics. That menu is at the left.

Also, check out ourAnnual Trends section for charts and graphs for the past eight years.

If we can help you devise a strategy, call or click buyer or seller.  To keep on top of the market, subscribe to this report and you will be notified by e-mail when it is updated each month.

The Graphs

Trend charts for individual cities can be reached by clicking on the City Trends menu to the left.

For detailed information on a specific neighborhood or country club, give Greg Bauer a call at (800) 975-7720, or fill out the appropriate form:Buyers or Sellers.

For our opinion of what your home will sell for in today's market, call or e-mail us.