While mortgage credit conditions in the U.S. remain “generally tight,” and applications for purchase mortgages remain “tepid,” according to the Fed, signs of easing continue to emerge, including indications of “a net easing of banks’ credit standards for home-purchase loans to prime customers in the first quarter.”
The Fed’s summary of the nation’s housing market, the market for which most participants in the Fed’s latest meeting noted a “continuing weakness” in activity:
The pace of activity in the housing sector remained soft, as real expenditures for residential investment decreased again in the first quarter. Starts of new single-family homes increased in March. However, permits for single-family homes–which are typically less sensitive to fluctuations in the weather and a better indicator of the underlying pace of construction–remained below their fourth-quarter level and had not shown a sustained improvement since last spring, when mortgage rates began to rise. Sales of both new and existing homes decreased in March of this year, but pending home sales rose.
Currently averaging around 4.2 percent, Freddie Mac is forecasting that the average rate for 30-year fixed mortgages will end the year at “around 4.6 percent.” The yield on the 10-year treasury ticked up a few basis points after the Fed’s notes were released, a move which should send mortgage rates up a few basis points over the next week.
Big Benny recent comments in the NY Times today:
““At those dinners he gave credence to the idea that the Fed believed in lower potential G.D.P. and lower potential inflation,” Mr. Novogratz said.”
This is the next logical step. The first leg of the housing recovery has run its course thanks to investors, and since the US Gov is still very careful about controlling the deficit to push the economy (at least until the mid-term elections) the only leeway is lending standards. Get the individual buyer into the game. The question is: will we stop short of the previous insanity? The mid Nought bubble didn’t learn from the S&L debacle, under the assumption that this time was different.
What I see around me is people frustrated about high prices/low ROI in the BA. They’re hungry for deals and the banks are not helping. Yet.
Relaxing landing standards will make the Oklahoma Land rush look like a lawn bowling tournament. Any chance it will end well this time around?
Yay! Makes it easier to obtain prime bank loan for my next acquisition. Good to move fast and secure those assets as prices in SF skyrocket.
You are starting to sound like a bubble layer P.A.M. Don’t get yourself overleveraged!
As I said a few days back, you should include a disclaimer saying you are all invested in SF RE. In the BV some would call it speculation, since you are betting on future gentrification.
Personally I think the rest of the country has tried to play catch-up with prime areas like SF, but couldn’t because of stagnant income and poor wealth distribution. I am not sure these 2 elements will change in the next 5 years. The last resort to pump some life into the flyovers is to go back to the old tricks that we know work, until they don’t.
Cash is King!
NVJ and fonzi, what do you guys consider over leveraged? (Seriously.) Presently my portfolio of RE is only 39% in debt, using today’s RE values. I just brought 1 triplex and I’m at 44%. I do have access to a steal on a bank foreclosed duplex that would put me at 49%. Each project is 4-6 month turn around (deal with current tenants, rehab, then re-rent.) I prefer doing one, stabilizing it, than buying the next. But as you know, true RE deals in SF are rare, and if a solid one comes along (truely a good deal, not smoke and mirrors) then it is tempting to secure it. I can’t rehab both at once, so second one would sit around for 4-6 months until first is completed. But if I get it at a true bargain, the $20-30k holding cost is peanuts. So what’s the prognosis? Is this balls or bubbly 🙂
It really depends on the scale and your lifestyle. Someone who makes 50K and is at 44% is overstretched. Someone who makes 400K at 44% is more than OK if he has a decently conservative lifestyle.
RE for me has been the shifting of luxuries towards investments. At least it was the goal of the first 15 years. We are past that phase and now use the proceeds of our RE to pay solely for more RE without touching the incomes of our day jobs.
Are you buying more RE strictly for investments? I thought the European prop you’re looking at is for vacationing?
FWIW I’m also not focusing on the luxury aspects. I’m keen to build up my portfolio of income producing investments. I know the SF market well, and now is the time to strike if you find a unique deal, and if you know what yore doing. Then in a few years I will probably shift to lifestyle purchases.
25% personal use, 75% seasonal rental for now. Then in a few years turn the tables. But it is financed solely with existing RE income. It is also an investment in the sense that it is 30% cheaper than 2 years ago and the area is moving from second homes for the middle class to luxury nth residence for the rich.
Was quoted 2.5% for a JUMBO 5/1 ARM from Citibank. Not bad.