Market conditions reverse recent trend

MORTGAGE rates were moving down this week, pushed by mixed economic signals as mortgage experts cautioned consumers to lock in a mortgage rate and avoid the mistake many made waiting for the mortgage rate market bottom late last year.

Bankrate.com had mortgage rates at 6.5 percent and falling the morning of Jan. 15, following a bond market upturn which pushed yields down and mortgage interest rates too.

"The lock-in issue is critical. Don't make the same mistake twice. You don't have to have the lowest rate in 50 years to make your decision about a loan. Maybe you can trim your expectations and try to get something that's good. Rates are very good right now," said Earl Peattie, president of Morro Bay, CA-based Mortgage News Co.

Rates trended down much of last year and by Nov. 8, Freddie Mac reported a national average mortgage rate at a record low of 6.45 percent. The record vanished in hours, with upward movement as high as a half point in a single day. Rates soon settled in around 7 percent.

"People were floating without a lock and all of a sudden, whoosh, they were gone and the whole thing was over in a couple of days. Even some people who were watching interest rates missed it. The lock-in issue is critical," Peattie said.

A mortgage rate lock -- in writing from the lender, rather than the broker -- guarantees the rate and terms of a loan for a specified period.

In recent days, a number of conditions have converged to help push rates back down to a point where borrowers should now lock hard if they need to refinance, take out a second mortgage or buy a home

Market, seasonal factors converge

HERE'S another reason to cash in on suddenly lower mortgage rates -- the housing market appears poised for a spring bounce, even if the rest of the economy remains limp from recession.

Recent reports reveal a housing market that continues to weather the recession better than other economic sectors. And, if the reports are accurate, home prices could take off this spring buoyed by savvy consumers looking to real estate to shelter their families and to provide some financial protection against the Wall Street bear.

Factor in the effects of the traditional seasonal push and it's probably a good idea to get off the fence and try to beat the rush.

With mortgage rates suddenly lower in recent days -- down to 6.47 nationwide, Bankrate.com said Jan. 16 -- procrastinating buyers should take a good hard look at their local market conditions.

"The nation has been in a recession since March 2001, yet the average home price rose in all 50 states in the fourth quarter, and it increased at an annualized rate exceeding 5 percent in 47 states," said Neil Siegel, a senior market analyst at Mortgage Guaranty Insurance Corp. a Milwaukee, IL-based private mortgage insurance provider.

"It is still a buyers' market in most of the markets we research. As a result, we don't foresee home price deterioration to be a factor in 2002 unless there is a deepening and extension of the recession beyond the mid-year recovery anticipated by most economists," Siegel added.

That could happen.

Federal Reserve chairman Alan Greenspan recently indicated the economy may not be strong enough for renewed growth as soon as expected by the second quarter.

"(The) impetus to activity will be short lived unless the demand for goods and services itself starts to rise. On that score, despite a number of encouraging signs of stabilization, it is still premature to conclude that the forces restraining economic activity here and abroad have abated enough to allow a steady recovery to take hold," Greenspan said before the Bay Area Council Conference, in San Francisco last week.

Premature because the nation's 8.3 million jobless workers aren't likely to shell out cash for what's likely the largest purchase they'll ever make until they obtain job security.

MGIC recently put its national Market Trends Index (MTI) 6.90 for the fourth quarter of 2001, compared to 7.25 in the third quarter and 7.36 in the fourth quarter of 2000. The 6.90 reading is the lowest for the index since the first quarter of 1996.

The rating reflects the impact of the national recession on single-family real estate markets in 73 Metropolitan Statistical Areas (MSAs). Readings range from 1.00 to 10.00 with 1.00 indicating an anemic market with no signs of improvement and 10.00 indicating a strong market with no signs of deterioration.

MGIC, however, says the current reading is near enough to 7.00 which indicates a stable market with no signs of imminent change.

With such a reading, the large majority of the 73 MSAs studied have a balance between home buyers and sellers. Though there is evidence that most states are in or near recession, home prices are still growing because the month's supply of homes on the market remains at an acceptable level in many of the 73 major MSAs, MGIC says.

By region, the South continued is three-quarter run on the nation's highest rating at 7.41, compared to 6.76 in the West, 6.69 in the Midwest, and 6.23 in the Northeast.

"Over the past year or two, the Richmond (VA) market and surrounding areas have seen a significant seller's market. Even after the event of 9-11 the market still remains strong, although there has been a slight shift toward a buyer's market," Richmond, VA agent Stanton Thalhimer with RE/MAX Commonwealth reported to RealtyTimes.com's Richmond Market Conditions Report.

MGIC said the strongest markets were Dallas, TX; Orlando and Tampa FL and San Diego, CA. The weakest markets were in Buffalo, Rochester and Syracuse, NY; Cleveland, OH; Honolulu, HI; Philadelphia, PA.; and San Jose, CA (Silicon Valley).

But even the tech-sector depressed real estate market in Silicon Valley was showing signs of recovery, according to the local Silicon Valley Real Estate Report.

"Most of our indicators turned around in December. First, home sales increased from the month before by 17 percent. Second, home sales increased year-over-year for the first time since October 2000 by 3 percent. Third, the selling price to listing price ratio rose for the first time since October 2000. Fourth, the Days of Inventory ratio hit 88.5, well within the stable market range of 80 to 100 days. Finally, inventory is lower than it has been since January 2001 and is half of its peak reached in May," said the report's author, Elea Raiswell, with Alain Pinel Real Estate in Saratoga, CA.

"I think the pent-up demand for housing is breaking loose. The escalating prices of 1998 and 1999 stopped many people from buying. Then, the rapid drop in prices since the Spring of 2000 had people waiting for a bottom. We may be near that now," Raiswell said.

New home confidence up

Confidence among new home builders was also up, rising four points to 61 this month, a point above where it was in August 2001 -- before terrorists attacks on America exacerbated a slowing real estate market and the economy.

"This substantial gain, coming on the heels of an eight-point rise in December, indicates that builders' confidence in the single-family market has fully rebounded in the wake of Sept. 11 and the signs of economic weakness that were emerging at that time," said Bruce Smith, National Association of Home Builders' president and a home builder from Walnut Creek, CA.

Smith attributed the swift recovery from a 47 reading in October of 2001 to improving consumer confidence, favorable interest rates on home mortgages, and the solid investment aspects of home ownership. He noted that this improvement is a good sign for the overall economy, since housing and related industries account for a substantial portion of the Gross Domestic Product (GDP) -- a measure of all the goods and services produced in the nation.

"Some of the markets that had in recent quarters been rated 'soft' or 'weak' in the Northeast have started to show signs of stabilizing," said Siegel.

"Also, relative to the rest of the nation, the current conditions in the Northeast are fairly stable and that is helping the single-family housing markets there continue to stabilize," he added.

Several real estate agents in Rochester, NY reporting to RealtyTimes.com's Rochester Market Conditions Report gave their market solidly to sellers.

"The ratio of sale price to asking price of homes remained constant between the years 2000 and 2001. The average days on the market for Monroe County for 2001 was 69 days," said Art Tuite, a broker with Nothnagle Realtors in Rochester.