This week has had a lot of people in a panic. The San Francisco Chronicle ran a front page article about the Mortgage Crunch that’s occurring in the real estate financing market right now. But all is not as hopeless as it seems. Dan Anderson of New Source Financial was kind enough to give me a run down on the current state of the mortgage market in light of the rapid changes in interest rates that have taken place over the last week.
As expected we have continued to see volatile markets in both stocks and bonds. Every piece of news that comes out causes large amounts of variations in our markets. The most recent news involves an influx of liquidity from both the US and European monetary policy boards. The reason they are doing this is to make sure that banks have enough money to honor their commitments. Some see this as a harbinger of worse times ahead, although there is so much uncertainty that any firm conclusion drawn is more opinion than fact.
There are also rumors that the fed will indeed lower rates at their next meeting. This opinion has been priced in the rate futures at a probability of over 50%. Given their last statement it is hard to draw any strong conclusions. The last statement commented that inflation is their primary concern and the mortgage industry will be watched.
Our jumbo loan rates, any loan over $417,000, are still high. At the end of the day this means that the cost to finance a loan over $417,000 has increased. It does not mean that loans are not available nor does it signal any reason that we should stop doing business. The increase in cost can be easily addressed through a seller concession. In this case the seller will provide some of their proceeds from the sale in order for the buyer to obtain a lower rate. We still have one lender who has not raised their rates. I donâ€™t have a good explanation as to why; however this can be saving grace should you be facing any financing difficulties due to rate increases.
Change is always unsettling and this case is no exception. The cost to finance has increased, however this does not mean our market is tanking. Our current market requires a little more due diligence but this is no reason to expect our market to disintegrate.