Mortgage Mania 11 - With bated breath . . .

September 14, 2007

It seems the whole country is waiting for the announcements following next Tuesday’s FOMC meeting, and whether The Fed will cut rates, and by how much. I was told this morning that the Vegas odds are 90% for a 1/4 point cut, and 65% for a 1/2 point cut.

The Federal Funds Rate isn’t directly linked to mortgage rates, but there is a correlation, and I’m sure there are a lot of homeowners out there who are hoping that a correlating drop in the Prime Rate and by extension their adjustable rate mortgages is in the offing.

In other Credit Crunch news, Countrywide secured $12 Billion (yes, with a B) in funding, so they are back in the mortgage business, but are still laying off 10,000 employees just in time for Christmas. I remember a similar market reaction in 2001 when the housing market swooned, reminding us that the housing market, like all markets, is cyclical, and major lenders like Countrywide staff up when the market is hot, and cut when the market is slow.

Locally, transactions in Santa Clara County are off about 25% relative to last year, even though median home prices are flat or up depending on neighborhood (your mileage may vary). In Palo Alto and the adjacent communities of Los Altos, Menlo Park and Mountain View, the market continues to be constrained by the supply of homes for sale, so prices continue to rise. If you are curious about market trends in your area, Altos Research has a number of free charts on their website (shameless plug).

 Interestingly, most of the activity in Palo Alto is in the upper and lower quartiles of the market (under $2M and over $4M), while the “in-between” homes are languishing a bit. I’m speculating that this a a ripple effect of the existing credit crunch. It’s easy for Buyers with strong cash flows and good credit to get loans up to about $2M, and most people shopping in the $4M+ range are using stock or other forms of cash, making them immune to credit worries. The ones getting punished are those who are moving up, and have equity or other cash, but still need financing.

Empirically, I have had a lot of interest in my latest listing in Los Altos Hills, a great piece of property with views, that happens to have a house on it. The land is priced at $2,249,000, and the house is free. To rebuild a home that will get the value out of the property, you are looking at about a $4M project and a year or so, putting it on the bottom of that top rung of homes for sale. So far, about 75% of the people coming through have that kind of money, and a bulldozer they are dying to use. The other 25% are considering remodeling. It’s open this Sunday from 1:00 - 5:00, so come on by and bring your hard hat.

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Written by Chris Iverson, Realtor · Filed Under Real estate 

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One Response to “Mortgage Mania 11 - With bated breath . . .”

  1. Yahoo Finance » Blog Archive » Mortgage Mania 11 - With bated breath . . . on September 15th, 2007 6:01 pm

    [...] Mortgage Mania 11 - With bated breath . . . It seems the whole country is waiting for the announcements following next Tuesday’s FOMC meeting, and whether The Fed will cut rates, and by how much. I was told this morning that the Vegas odds are 90% for a 1/4 point cut, and 65% for a 1/2 point cut. The Federal Funds Rate isn’t direc… [...]

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