Mortgage rates were virtually unchanged over the past week. There was a mixed bag of news which led to a stabilization on the bond pricing front. The CPI came in and showed that while inflation still continues to be a concern, it was in line with expectations. The Fed released their meeting minutes, confirming that they are indeed concerned with inflation. We should certainly expect another rate hike on March 28th at the next meeting. This will affect home equity lines and loans, but the increase has already been factored into long bond prices.
Internationally, there appears to be some destabilization in many of the oil producing nations. Iraq seems on the verge of civil war, an attempt was made in Saudi Arabia to destroy an oil refinery, and Nigeria continues to see a great deal of violence. This could be bad news both for oil prices and in turn for inflation.
We see that many of our customers here in Atlanta are nearing the end of the fixed rate period of their hybrid ARMs right now. In 2003 many of them refinanced into 3/1 ARM's and they are about to see a signifigant increase in rates within the next few months. Fortunately most 3/1 ARMs have a 2 point cap on the first adjustment, however, this is still going to put many at or above the current rate on a 30 year fixed. And of course in another year, there is the possibility for another 2 point increase.
Now is the time to refinance into a 30 year fixed rate mortgage. Amazingly, rates are still extremely low on the 30 year fixed mortgage. If you are in a 3 or a 5 year ARM, or worse yet in a Pay Option ARM, we highly recommend moving into a fixed rate loan right now.
After several weeks of trading lower, bonds finally moved upward last week. With the new fed chairman Ben Bernanke reporting that the economy looks stable for the near future, bonds reacted with a rally. Bernanke did indicate that we are in for at least one and possibly two more rate hikes before the Fed takes a break.
In other news for the week, there were huge numbers both in retail sales and housing starts. Retail sales surged 2.3 percent in January, nearly triple the expected increase and the largest gain since May 2004. Construction starts were at a level of 2.276 million (annualized), up 15 percent from December's revised 1.988 million and the most since March 1973. This data is spurring a debate between economists as to whether the housing bubble - which has been reported for nearly 4 years now - is real or just a media myth. Some economists attribute this record housing start number to the warmest January in recorded history. Others dismiss that belief.
Regardless of what the economists say, no one can deny that the media has been playing up the "housing bubble" since early in 2002. Yet, if you had listened to these reports, you would have missed out on some of the highest annual gains in the history of real estate. When will the bubble pop? The first question that needs to be answered is this: Is there a bubble at all? We believe that there are pockets where a bubble does exist. Areas of coastal California, coastal Florida, the Phoenix and Washington DC metro areas come to mind. However, for Atlanta and all of Georgia, there is no bubble. We continue to see appreciation in the 3% to 8% range annually. Slow, but steady gains.
Keep in mind that if these pockets of astronomical returns continue in areas as close to us as Florida, it will become difficult for real estate investors to find a positive cash flow in those areas. When that happens, many will cash out and look for other opportunities - bargains. Atlanta will likely be a prime target and should see some nice gains if this plays out. Do you want to be on the sidelines when this occurs? If you have been waiting for the "bubble" to burst before making your real estate purchase, wait no more……
It was a fairly quiet week in the bond market last week. Prices in bonds declined slightly resulting in about a 0.125% increase in Atlanta mortgage rates over the past week. Without much economic news to drive the market, bonds were left to the old supply and demand model to set pricing. With an influx of new paper into the market in the form $48B in new debt for the US, absorbing this new debt into the bond market resulted in a softening of prices.
There was some good news over the past week, however. There has been some concern recently that foreign interest in purchasing our bonds had waned somewhat. Last week's data shows that there is still healthy interest on the part of foreigners with 65.1% of the new 30-year treasuries being sold to foreign investors.
This week shows a full docket of financial data with Retail Sales, the Manufacturing Secotr, and Housing Starts. A strong downward trend in the bond market since January 23rd means that it will take signifigantly weak financial data to break out of the current trend.
In Atlanta, Georgia Mortgage and Atlanta, Georgia Real Estate news:
Builders appear to be going after baby boomers here in the Atlanta market. Atlanta has recently become one of the top markets to attract retiring baby boomers. The ARC (Atlanta Regional Commission) is predicting that Atlanta will have a population of nearly 1.2 million people over age 60 by 2030. This means serious demand for builders catering to the lifestyles of the aging baby boomers and increased demand and appreciation to continue for the Atlanta and Georgia regions.
Last week was a busy one for news impacting financial markets. The Fed raised short-term interest rates for the 14th consecutive meeting - dating back to June of 2004. That sets the prime rate now at 7.50% which is weighing heavily on some homeowners who have Home Equity Lines. If you are among that group, now would be a great time to convert the HELOC to a fixed rate second - or possibly to roll in the balance of your HELOC with your first mortgage. Give us a call for details.
Looking to future Fed meetings, the previous feeling was that this may have been the last of the rate hikes for the time being. However, recent financial news shows that wages are rising and that the unemployment rate is now at 4.7% which is the lowest in 5 years. These are both inflationary indicators and it now seems very likely that Bernanke will raise rates in March and then possibly again in May. Let me stress again that now is the time to get that HELOC locked into a fixed rate second mortgage.
As far as isssues impacting longer term bonds which have more of an impact on 1st mortgage rates…. There is much going on there as well. First of all, the government is in the process of selling another $188B in bonds to fund shortfalls in Medicaire and Medicaid. The President last week asked for another $120B to fund the war on terror. And, finally, the 30-year treasury bond comes out of hibernation this week for the first time since 2001.
There is a lot of talk out there that the new 30 year bond will compete with mortgage bonds for new money and in turn cause a decline in price of the 30 year bond and a subsequent increase in mortgage rates. There may be some truth to this, but the small size of the new offering (about $15B) will likely be absorbed by the market with little impact to long term interest rates.
This week's calendar is light:
Wed. February 08
09:30 Crude Inventories
Thu. February 09
08:30 Jobless Claims (Initial)
Fri. February 10
08:30 Balance of Trade
