February 22, 2009:

• Yields fluctuate within a narrow range with mortgage money available with FNMA, Freddie Mac and FHA.
• Traders take profits on short positions on Real Estate Investment Trusts
• Gold hits old high
• High Yield Bonds are popular
• Websites are becoming the place to go to find property and agents
• $8000 tax credit available to families making $200,000 per year.
• 30 year fixed conforming rates dropped within the past week to 5.26%, 15 year at 4.86%, 5/1 ARM at 5.53%; 30 year jumbo at 6.96%, and 5/1 jumbo ARM at 5.93% per www.bankrate.com.

The Wall Street Journal was full of conflicting articles over the trend of rates. My analysis is that investor funds are beginning to travel away from US Treasury Bonds and bills toward “risk”. Money Market Funds have hit a new high in size. Junk Bond Funds have continued to see more investor demand for them. Their yields have dropped and their prices have risen from a dismal 2008 when yields on the Merrill Lynch High Yield 100 Index was 17% to 11% recently. Since November 2008 investors have poured $4 billion into mutual funds that hold these bonds, according to fund researcher EPFR Global.





Gold hit a new high of roughly $1005 from the old high of $1003.20 since July of 2008. Declines in the stock market, concern over the fate of the Euro, Asian Banks and Eastern Europe all added to the move toward hard assets.


The move to hard assets can be seen in Trader’s decision to cover their shorts and their bearish bets on the Real Estate sector represented by Real Estate Investment Trusts after President Obama announced a multibillion dollar plan to stabilize the housing market. The “Options Report” of the Wall Street Journal indicated that traders were expecting rebound after a year long decline in REIT values.

Real Estate buyers continue to move to the Internet to find homes and realtors says the Wall Street Journal. I have seen that occurrence over the past 4 years, as I have dedicated more of my advertising and listing information to various sites. Some very interesting trends have shown up.
• Buyers are more sophisticated and internet savvy.
• Buyers are seeing value for long term commitments in real estate
• Buyers are looking for second homes near their primary residence and places of work
• Buyers have some to the misinformation of the press and media confused with the strength and stability of “Bay Area” communities and locations.
• Buyers are looking at the Santa Cruz Mountains for primary residences and second homes.
• Buyers are looking at real estate for investment value first and residences second.
• Motivated sellers are not from financial stress but marital dissolution and death, or a change in work location.


The tax credit for new home buyers of $8000 is available to buyers making $200,000, buying a $1.2 million home IF

1. Self Employed
2. Paying alimony
3. Paying tuition
4. Funding an IRA
(See your tax advisor for more details on this)

The impact of this tax credit is said to add 500,000 in additional real estate purchases, which is a decrease of 10% of the present inventory. For those who are waiting for a bottom, YOU ARE HERE! To add to that FNMA stated real estate investors may qualify to have up to 9 existing mortgages on their schedule of real estate holdings to still obtain conforming loans on their next real estate investment. FNMA also announced the postponement of foreclosures until March 6, 2009.

FEDERAL HOUSING AUTHORITY has been a new area for my buyers to seek mortgages. For years many buyers have been directed to FNMA, Freddie Mac and various other types of conforming loans. While I am not a mortgage expert; I too rely on Mortgage Bankers for advice, but common sense tells me that this is an area buyers must look for the mortgage money. The following is from Eric Trailer of Absolute Mortgage, www.absolutemortgage.com, 1-800-517-LOAN.
• 102.5% financing on $650,000 purchase. That means 96.5% financing or a 3.5% down payment with 6% in closing costs added to the loan principal.
• Rates below 6% on 30 year fixed programs
• Low PMI, principal mortgage insurance, at .55% or .5% of loan amount. This is half of the normal PMI rate from public lenders.
• Down payment and reserves can be a gift of funds from family.
• Fees for FHA are 1% loan fee and an advanced payment of PMI of 2% of loan value.
• Approval is required of both borrower and property. This helps buyers in the contingencies based upon condition of the property. Condo’s not already approved
• Closings from 30-45 days.

For more details on FHA loans, let me introduce you to Eric. He is a wealth of experience and knowledge. What else would you expect from a former Investment Banker!

Other sources of financing should include state and local agencies, community banks and credit unions.
• Many buyers fail to look at state and county agencies that have funds for borrowers who qualify due to income or geographical limitations. Teachers, state and county employees can benefit form their pension funds and local agencies as well.
• Open accounts with community banks. They have been the bright spot in the banking crisis. Community banks, in general, did not have toxic assets and did not participate in the TARP program. Research this with local community bank before you open an account and apply for a mortgage. Again, generally, they do not use mortgage wholesalers for clients, but generate their portfolio of loans from depositors.
• Credit Unions are another source of mortgage loans. They too, in general, did not have toxic assets and did not participate in TARP. They hold their own loans and do not have “red tape” when dealing with loan staff.

Where to the direction of interest rates? Watch the auction next week of the massive US Treasury offering from the Stimulus Package. Germany, the strongest nation in the Euro, had difficulty raising money in their Euro Offering last week. So far, my discussions with Mortgage Bankers expect higher rates within a year.

Thank you for all your comments and continued encouragement, Gary