If you’re looking for a new 30-year mortgage, last week’s events from the financial markets carry a very simple message: Get ’em cheap while you still can.
Rates on conforming 30-year loans jumped dramatically in just a few days, ending the week at an average of 5.27% according to Bankrate.com. That’s still OK by historic standards, but it’s a jump from the levels seen just a few weeks ago, when you could get loans at 4.75% or below.
The underlying cause isn’t hard to find. Rising government debts, and burgeoning hopes of an economic recovery, are pushing up long-term interest rates on government debt. The yield on the 10-Year Treasury, which was barely 2% near the end of last year, surged to 3.67% late last week before settling back slightly. And that, in turn, pushes up rates on other long-term loans.
What does this mean for you?
This surge in mortgage rates, if it continues, is ominous news all around. It’s bad for those trying to refinance an existing mortgage, those looking to buy a new home, and those looking to sell their home. For those trying to refinance: If you hadn’t locked in the rate already, you are probably out of luck. You may be stuck with higher rates.
For those looking to buy a new home: Be aware this rate hike — to 5.25%, from 4.75% recently — can add quite a bit to your expenses. It will cost an extra $50 a month for someone buying a typical $200,000 residence with an 80% loan.
Rates still look pretty reasonable, but now there’s an extra level of uncertainty in the process. Who knows where they will end up by the time you come to sign?
Some borrowers are now looking instead at adjustable rate mortgages, or ARMs. In some cases the initial rates are lower. Alas, we’ve seen this movie before. ARMs are high-risk and in most cases a terrible idea. They mean the lenders are transferring inflation and interest rate risk to you. In this environment both risks are substantial.
And if you were looking to sell a new home, bad news too: This rate jump adds about 10% to your potential customer’s financing costs. Cheap mortgage rates were one of the things tempting buyers into the market. That is now in peril.
Monthly Archives: May 2009
UPDATE: Then again, maybe Croatia’s safer. The founder of Black Swan seems to be a graduate of the Bernie Madoff School of Accounting.
I saw an article in the NYT today on this subject, touting it as a clever, crafty way to move your over-priced, unwanted pile of timber. I wasn’t going to mention it because I remain unconvinced it works but my real estate pal John Schneider in Tucson wasn’t so lazy. Not only isn’t he impressed, he’s got the figures to show why. I think you can put this one on the shelf of bogus ideas right alongside “green certification” for Realtors.
(From Tucson Foothills)
Does range pricing work?
When you see “ Seller will accept or counter offers between $599,000 and $669,000 “ you’re looking at a home that is range priced.
It’s a strategy that some agents believe will bring in more offers and also limit the bottom price that is offered, so it’ll discourage
I don’t know, and I’ve never seen any evidence, that range pricing actually encourages more offers than does a straight-forward well priced home. But looking at range priced homes that have sold, it’s obvious that range pricing is not very effective at limiting offers to the bottom end of the range.
And it seems to me that if it works at all, range pricing works better in a hot market where homes are flying off the shelf. In that case I think it would encourage buyers to at least consider offering more than the bottom of the range and could lead to a higher sale price.
But in the market we’re in, nah. Here are the range priced homes that’ve sold since Jan 1.
-SELLER WILL ACCEPT OR COUNTER OFFERS BETWEEN $200,000 & $215,000. SOLD $191,000
-Range priced $219,000-$239,000. SOLD $219,000
-SELLER WILL ACCEPT OR COUNTER OFFERS FROM 259,900 TO 299,000. SOLD $255,000
-Seller will accept or counter offers between $325,000 & $349,000
As I passed by 175 Round Hill Road yesterday I spied Walt Noel pushing a hand mower around the front yard. I stopped to greet him but when he saw who I was he looked stricken.
“Holy cow, Chris, if Monica sees you here – whoo boy! Let’s go over to the Club before she comes out.”
“I thought …” I said, but Walt quickly corrected me.
“That we were toast over there? Ha! You know how many Round Hill members can’t pay their dues these days? I’ve still got a pile of” – here he paused to make rabbit ears in the air – ” ‘investors’ money to spend and I’m doing it. They love me over there, at least until the annual meeting in September. Let’s go.”
Seated at the bar, Mojitos in hand, Walt began speaking.
“This is just such nonsense, Chris, I mean, we were the victims of a fraud so sophisticated that even the SEC couldn’t detect it. How were we supposed to know anything was wrong?”
“But what about conducting your own due diligence?” I asked.
“We did that,” he insisted. “We had a due diligencer – it was part of the Greenwich High School program where you take in a senior for the last month of the school year, you know? Every year, we’d bring a kid in, ask him to check out our investments, let us know if there was anything wrong. There never was.
“And we didn’t stop there, let me tell you. You know that we had over 120 people working at Fairfield Greenwich, right? Sure, most of them were salesmen, but we had a team that did nothing all day but scour Wall Street, looking for investment opportunities for our investors. Every day!”
“Yet you always ended up giving the money to Bernie,” I pointed out, “and never found a better or even a different investment.”
Walt took a long pull from his Mojito and signalled the bartender for another. Raising his famous caterpillar eyebrow (s?) he said, “what other investment let us skim off 1% of the assets invested plus 20% of the profits?”
“So that was the best investment for you,” I conceded, “but best for your clients?”
“Clients?” Walt spluttered. “You think Jamie Cayne ran Bear Stearns for the benefit of clients? You think he bankrolled every penny stock boiler room in the country for the benefit of some granny in Peoria? What, she needed to lose her life savings and Bear Stearns was just accommodating her? Where’s Jamie now? Safe in retirement, playing bridge with Bill Gates. And Dickie Fuld – he ran Lehman for its clients? Funny how he got rich, they got diddly-doo, isn’t it? Where’s Hank Greenberg today? Not sweating in depositions like I am, let me tell you Chris. All those guys cleaned up and got out of Dodge while I’ve got these bloodsuckers crawling all over me, trying to bring me down. Life is just gosh-darn unfair.”
“But Walt,” I tried again, “what exactly did you do for all that money you were pulling in? Hundreds of millions of dollars in fees?”
“We kept up appearances,” Walt said, “made people feel happy and secure. They’d come visit us in the City – you ever see that place? I could have used veneer – Andres begged me to, but no, I insisted on solid mahogany; that’s full quarter – inch wood on those walls, and genuine marble in the bathrooms. Top of the line computer stuff too. We replaced it every year. We didn’t need to – never used it – but it gave the clients confidence. We gave them a happy two decades, Chris; every month they’d get a nice statement, printed on expensive bond paper, telling them they were richer than they’d been thirty days before. That kind of peace of mind? Priceless. No, we earned our money alright, every penny of it.”
“Are you at all sorry that you’ve ruined your friends? That they’re penniless?
“Well of course I am. This threatens to ruin me too, or it would if I hadn’t worked with Andy and Mark to stash things away.”
“Andy and Mark Madoff?” I asked.
“Yeah. Remember the last weeks in December, after Bernie had been caught but before Picard, that son-of-a-gun, confiscated the jet? The boys flew all over the world, and I went with them. Almost missed the club’s Christmas party because of it – that was close. Boy, Monica would have been mad then, let me tell – ”
“So you won’t get harmed by all this?” I interrupted.
“Sure I will, and I’m very disappointed. The cottage has to go – say, you’re a realtor, what can I get for it?”
“Fire sale price” I said, “maybe three and a half.”
Walt shook his head. “Too little. I may have to talk to Ric Bourke – he’s got some deal going on with his own place, wants to get rid of it before his own trial ends – maybe his buyer will want my cottage for guests.
“But anyway,” he continued, “sure I’ve been hurt. Round Hill’s going, I don’t even want the Hamptons place anymore – between Bernie’s investors and mine, the beach might as well have sand fleas; one of the girls, I forget which one, has to sell off her Brownstone, and Mustique …. well my lawyer told me they have an extradition treaty with the U.S. I understand North Korea’s okay, but their winters are just horrible. So ….”
He glanced at his Rolex. “Holy cow, I’ve got to get back before Monica finds out I’m missing. She worries about me, you know.” He winked. “If even she thinks I’ve got Alzheimer’s, how’s anyone else to know different?”
“Anything you want to say to your clients, Walt?” I asked as we strolled back across Round Hill Road.
He paused in the road, forcing a pick-up truck filled with Colombian gunmen to swerve around us. “I told Andres not to crap in his own backyard,” Walt said, watching the truck disappear up the road. “I wish him luck, wherever he’s got himself to.” He turned to me at the entrance to his driveway, raised his finger skyward and said, “I’d tell them this: you had twenty good years with me, and then we all hit a little rough patch for a couple of months. All in all, is that so bad?”
I left him trying to start his mower and I didn’t have the heart to point out to him that it lacked an engine. In the background, I could hear Monica yelling for the Fabulous Five to exit the pool and come back to the house to finish packing.
The new Vanity Fair article on FGG and the Noels quotes an observer:
[A] well-known investor says, “These [F.G.G.] guys were just a marketing machine.… Walter was just really a customers’ man.… They didn’t even know what questions to ask. It’s malpractice. It’s gross negligence. It’s not criminal behavior, in my view. Nobody would do this. I mean, Walter wouldn’t ruin himself. Nobody would do this.… You can’t put amateurs in a world of grownups.… That’s really what this is. They are amateurs.”
The term “customers’ man” is rarely used these days for clueless stock brokers but my father (Yale 27 ; was that your class, Walt?) used to tell the tale of two former college classmates who encounter one another on the street. One asks the other how he’s earning a living and is told, “Oh, I’m a customers’ man, but please don’t tell my dear sweet Mama – she still thinks I’m a piano player in a whore house”. Tee hee.
California’s broke and can’t print money so spending cuts are on the way. One can quibble over some of them: closing 80% of the state’s parks doesn’t seem designed to save money so much as to inconvenience as many people as possible, but if the budget crisis accomplishes nothing else, it’s done this: forced a politician to tell the truth:
“Government doesn’t provide services to rich people,” Mike Genest, the state’s finance director, said on a conference call with reporters on Friday. “It doesn’t even really provide services to the middle class.” He added: “You have to cut where the money is.”
Our country’s been playing at class warfare for almost 100 years but for most of that time the middle class was suckered into believing that they were on the side of the poor and against “the rich”. In California, they’ve discovered the reality of the situation and have rebelled. It will be interesting to see what happens when that realization emerges in other states, too.
That question has automakers and the new owner of General Motors deeply worried,according to the NYT. Will there be pent-up demand once the recession ends or have Americans lost their taste for cars?
My money is on the latter – too bad my tax money is already bet on the former. The new CAFE standards and adoption of California’s air pollution controls will dictate tiny, expensive and underpowered cars in the future. That’s dull and boring and hardly likely to convince someone to go into debt to purchase one. I’m undecided whether to hang on to my 2003 Honda or buy a new one in a year or two before the new standards hit but I’m leaning toward buying one last normal car and hoping it lasts until my grandchildren take my keys away from me.
Yesterday I mentioned that 11 Quail Road, on the market since May, 2008, had dropped $2 million off its original asking price of $8.875 million. I wrote that it had been a 2004 spec house (built on land purchased for $2.9 million in 2002 – those were the days) that sold that year for $6.450 million. A reader corrected me and said that in fact it had been “bought” by its builder. The reader was exactly right.
The original owner in 2004 is listed as “Inwood Management” and the owner today as “Ernest Bello”. Googling the two together, we learn that they are one and the same. There’s nothing nefarious about this, but it does mean that we have no idea what the market price for the property was back then in 2004. Its 2004 value is pretty much irrelevant these days but nonetheless, let the buyer beware.
I suppose that since he was kicked out of Round Hill Club and is no longer welcome at the bar, Walt Noel’s stuck across the street in his cottage, prowling the internet for stories about himself But aren’t we glad he is, because he just alerted me that Vanity Fair, still trying to overcome its “Golden in Greenwich” 2002 profile of the Noel family, is out with an updated version. It’s not as complimentary.
I thought Original Walt was directing me to a parody site when he sent me this link, but it’s true:Fairfield Greenwich Group is suing Fairfield Sentry (or the other way around – who cares?) for failing to detect Madoff’s scam.
Bart: [low voice] Hold it! Next man makes a move, the nigger gets it!
Olson Johnson: Hold it, men. He’s not bluffing.
Dr. Sam Johnson: Listen to him, men. He’s just crazy enough to do it!
Bart: [low voice] Drop it! Or I swear I’ll blow this nigger’s head all over this town!
Bart: [high-pitched voice] Oh, lo’dy, lo’d, he’s desp’it! Do what he say, do what he say!
[Townspeople drop their guns. Bart jams the gun into his neck and drags himself through the crowd towards the station]
Harriet Johnson: Isn’t anybody going to help that poor man?
Dr. Sam Johnson: Hush, Harriet! That’s a sure way to get him killed!
Bart: [high-pitched voice] Oooh! He’p me, he’p me! Somebody he’p me! He’p me! He’p me! He’p me!
Bart: [low voice] Shut up!
[Bart places his hand over his own mouth, then drags himself through the door into his office]
Bart: Ooh, baby, you are so talented!
[looks into the camera]
Bart: And they are so *dumb*!
Or so some London real estate “experts” say. Prices for luxury homes off only 20% from this time last year which, believe it or not, is a good sign.
The average value of houses and apartments costing more than 1 million pounds ($1.6 million) in the most expensive neighborhoods gained 1.6 percent from April, the London-based property broker said in a statement today.
Prime residential properties have lost value on an annual basis for 11 straight quarters and won’t recover until the second quarter of 2010, according to Knight Frank. Prices will probably fall by a total of 30 percent from the market’s peak in March 2008, the broker estimates.
“We are approaching the back end of the price declines,” said Liam Bailey, Knight Frank’s head of residential research, by telephone. Property values won’t return to the levels reached last year until 2014 at the earliest, he said.
Here in Greenwich, while it may be true that the prices of houses actually selling are approaching the bottom, the price of our unsold inventory still has a long way to fall.
That’s the question posed by the NYT’s Floyd Norris on his blog yesterday. Good question, but I wonder what Mr. Norris would think of 44 Close Road,built in 2002 and never occupied, or 21 Cornelia Drive, built in 2004 and still vacant and advertised as “new construction”. Cornelia’s builder at least has cut his price as his dreams have faded, from a preposterous $11.7 million to a still preposterous $6 million. 44 Close has defied all market signals and sticks at $10 million, perhaps hoping that we’ll get that Zimbabwe-like inflation some people (but not Paul Krugman) are worried about. Eight Copper Beech is three years old, and North Street has so many three and four-year-old houses we should start a nursing home for them. Beechcroft, Dingletown, Byfield, Baldwin Farms, Doverton, Dairy, Clapboard Ridge, Keoffram, Sound Beach Avenue and so on – aging “new” homes litter the landscape and none of them are growing more valuable – just older. Whoo boy.
Greenwich’s own Frederic Bourke’s bribery trial starts Monday in Manhattan. His pocket book partner, Peter Dooney, isn’t expected in the court room to cheer him on – Dooney, after Bourke charged he was trying to inject him “with a harmful substance”, said he hadn’t spoken with Bourke in years. Perhaps he’ll show up for the sentencing, if there is one.
Another rude, obnoxious tennis player who squeals like a pig. I gave up watching girls tennis when they began grunting and over the years, it seems that grunting keeps hitting new crescendos. Simply obnoxious and unwatchable.
This “almost entirely new’ house sold in October, 2002 for $3.459 million. After enjoying it for four years but doing nothing to it the owners put it back up for sale for the remarkable price of $6.750 million. The buying public apparently didn’t perceive the doubling of value that this listing broker did so it hasn’t sold. Today, after three price cuts, it’s down to $4.7 million. That may still not be sufficient, but a $2 million cut at least indicates a seriousness on the part of the seller that was lacking before.
I haven’t run the numbers, but I have a sense that Belle Haven may have taken even more of a hit than some other neighborhoods this past year. I’ll check that over the weekend.
This is a perfectly acceptable house – it has a back lot feel going on (probably because it’s on a back lot) but that’s improved since the owner screened off the neighbors. It sold direct (and oh, how we hate when that happens) for $6.450 million in 2004 and came back on for sale in May, 2008 for $8.875 million. I rather thought at the time that we were below, not above 2004 values but the owner didn’t ask me and there the house sat. It eventually, and gradually, dropped to $6.875 in January but still didn’t sell. Yet, the listing was renewed today at … $6.875! I still think we’re below 2004 and I’m befuddled at what these sellers think may have improved since January but there you have it. It’s still a nice house and at some price, I’m sure it will sell. At some price.
This house on Silver Beech was badly in need of modernization back in 2005 when it was listed for $695,000. Naturally a bidding war erupted and the current owners ‘won” with a bid of $727,778. They proceeded to do a very nice renovation and in 2008 they put it back on the market at $845,000. Not an unreasonable price but the market was gone by then and the house sat. In response, the sellers sliced the price repeatedly by tiny, incremental amounts until they finally reached $750,000 in March and, today, it went to contract, probably for just about what they first paid for it. I don’t blame a homeowner for trying to preserve his capital and this poor guy certainly will lose money n the sale, but that was inevitable, really, when he first listed it for sale. A hefty price cut then would have spared him all the agony of keeping his house on the market for over a year, subject to inspections by strangers every day of the week.