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.