REALTOR RUMINATIONS

If you are like me you read the headlines online and wondered how that news would affect Mortgage rates.  As many of you may know there are four major interest rates that are affected by the Federal Reserve.

1.  Discount Rate (currently at 5.25%) the rate that the banks pay if they borrow money from the Federal Reserve.  Very few banks currently borrow from the Feb choosing instead to use short term financing by either

• Issuing “comercial paper” that is purchased by Wall Street investors enabling them to get terms better than the Fed
• Borrowing from other financial institutions using the Fed Funds Rate which is usually better than the Fed rates

2.  Fed Funds Rate (currently 4.75%)  the rates that banks charge each other in the US.

3.  LIBOR Rate (Overnight LIBOR 4.94%) the London Interbank Offered Rate which is the rate that banks pay when they borrow money from other banks anywhere in the world.

4.  Prime Rate (currently 7.75%) the Fed Funds Rate +3 which is the base rate that is used for most consumer loans such as credit cards and home equity lines of credit.

On September 18, 2007 the Fed lowered both the discount rate and the Fed Funds rates.  This had the immediate effect of lowering the business and consumer-based interest rates of LIBOR and PRIME.  This will effect the home equity lines of credit based on the Prime rate or short term ARMs based on the LIBOR.

Generally fixed rate mortgages are not directly related to the Fed but are closely tied to the Mortgage Backed Securities that trade on the bond market.  I have heard two different comments about how the lowered rate will effect mortgage rates.  The first is that the market has already adjusted mortgage rates downward in anticipation of the rate reduction.  The second is that over the next several weeks we will see a downward move of mortgage rates to account for generally cheaper credit rates.

Like me, if you have specific questions about your indivdual rates or mortgage rates in general consult with a mortgage expert or e-mail me and I will put you in contact with the expert who furnished me with this information.

ru’mi-nate’  [<L ruminare ] 1 to chew a cud  2 to meditate

That is how Webster’s New World Dictionary defines it. 

A Student’s Dictionary fleshes it out a bit by adding “to ponder, to think about, to meditate” 

 I prefer the latter definition as it applies to this blog. 

 My intent here is to ponder, think about, and hopefully provide insights and information about the Denver Real Estate market.   You won’t get a lot of recipes and hints on how to organize your garage here; what you will get is information on what is happening in the Denver Metro market, hopefully, to help you make better real estate decisions. 

Foreclosures and mortgages are the two items that have dominated our market as of late.  Let’s look briefly at both of them to see how they impact our market.

Foreclosures

A recent Denver Post front page article posited that the impact was more by neighborhood than uniform across the region.  “Neighborhoods where the average home price is less than $250,000 are taking the worst beating, while higher-priced communities remain relatively unscathed.”  The article also stated that overall housing prices in the metro area had decreased by 1% - it did not say whether this was average or mean price or whether it was for all homes or just single family homes- and that 25% of sales in the region were a result of foreclosures.

My observations are that yes there are a lot of foreclosures - an estimate of 25,000 this year- but the banks are holding them close to the vest.  It takes a LONG TIME for most banks to make a decision on whether to accept an offer on a property and what price to counter the offer with.  The process takes patience and an experienced realtor.

What foreclosures have done is create a mindset with buyers that they can get any home at a bargain basement price making negotiations very difficult and killing many deals that could have been done even two months ago.  The effect has been to slow sales during the prime summer selling months.

Mortgages

The sub-prime debacle has made second mortgages and mortgages without a good credit score difficult if not impossible.  It has also added the cost of mortgage insurance to loans for many first time homebuyers - the ones that can least afford this increase in monthly payments.  Many smaller companies have closed their doors - usually because they could not sell their sub-prime loans to investors - leaving some buyers at closings without funds to close.

The “crisis” has created an air of uncertainty translating into much closer scruitny of lender pre-approval letters and has caused some sellers to require potential buyers to get pre-approved from a mortgage lender familiar and trusted by the seller.

So, you ask “What does all this mean to me?”  What it means in the short term is that all deals will be harder, will take longer, and may take more patience and tenacity than in the past.  The good news is that if you have good credit and are reasonable in your expectations you can get a quality home at a lower price than you could have six months ago.