Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Wednesday, March 29, 2006

Time to DisARM

"U.S. mortgage applications rose for the first time in three weeks, reflecting a modest increase in home purchasing loan requests before the Federal Reserve's widely expected interest-rate hike, an industry trade group said on Wednesday."

"The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended March 24 rose 1.2 percent to 571.7 from the previous week's 565.0, its lowest level so far this year."

Read that again... mortgage applications rose for the first time in three weeks... but they didn't rise to previous year levels... they didn't rise implying an increase in demand... they simply rose 1.2% above the previous week. Remember, the week that was the third week of declining mortgage applications?

"Douglas Duncan, the MBA's chief economist, attributed the slight uptick in demand to this week's Fed meeting."

"An increase in applications is typical ahead of a Fed meeting," he said. "People are aware that rates are going to rise, so they lock in ahead of time."

"In the first meeting since Ben Bernanke took over as Fed chairman, the policy-setting
Federal Open Market Committee raised its federal funds rate by a quarter-percentage point to 4.75 percent on Tuesday, as expected. It was the U.S. central bank's 15th straight rate hike since June 2004."

"Historically low mortgage rates have fueled a five-year housing boom, helping support the U.S. economy's recovery from recession despite uncertain business investment. Most analysts contend that mortgage rates are on the rise. While they may differ on whether or not there is a housing bubble, most agree that the market is cooling off from its record run."

"The ARM share of activity rose to 28.7 percent of total applications from 28.3 percent the previous week. Refinancings fell as a percentage of all mortgage applications, falling to 37.3 percent from 38.1 percent, the MBA said."

"Bob Walters, chief economist at Quicken Loans, an online mortgage lender, said long-term fixed rates are still attractive.

"And while the Fed indicated it may raise rates the next time it meets, long-term rates will continue to appeal to those in the market to buy a home or homeowners looking to disARM," he said."

"The MBA data is seen as an indicator of latest trends, following what were mixed signals on housing tendencies from other sources earlier this month."

"Last Friday, the U.S. government reported that sales of new U.S. homes took their biggest plunge in February in nearly nine years, while prices fell and the number of homes for sale hit a high, signaling significant slowing in the housing market."


At 3/29/2006 10:28:00 PM , Blogger Out at the peak said...

Cool title.
I would agree and think people are trying to change that ARM to fixed. It might save some people. However, this index doesn't consider denied applications and things of that nature, correct? So it would be interesting to see stats on application approval rates.

At 3/30/2006 12:50:00 AM , Blogger Athena said...

right... I think this first wave are those that smell the end of the bubble and know they have high enough credit scores to refinance now into a fixed loan.

I bet these are not the majority of who bought in the last year to two years when the ARMs increased dramatically.

At 3/31/2006 01:40:00 PM , Anonymous tom stone said...

last year the average down payment was 2% in california,and at least 70% of purchases in our county were arms.the firs (small) wave of hybrid,fixed to variable loans became variable in february this year.there a lot more resetting starting june,our current inventory is largely speculators getting out just past the peak.refinancing now takes more income,and a home that has not lost all its equity...not just a 720 + fico,when the first real distress sales happen "values" will be driven down,making a refi harder,a downward spiral results.splat

At 3/31/2006 06:48:00 PM , Blogger Matt Norris said...

"But think of all the purchase loans I can fund on those cheap sales of foreclosures and depreciated properties!"

^^^ Now you know what the lenders who provide dumb mortgage programs are thinking. As long as they can ride out the wave of foreclosures that hit them and claim "it's not my fault" when the government investigates their lame mortgage programs, they'll be in business to reap the rewards...

At 4/01/2006 12:11:00 PM , Blogger Athena said...

Matt... but they are going to say it wasn't their fault because all they did was present the loan products and the client made the decision.

But what is that client going to say? My bet is they will say the broker recommended that product and they were unaware of a better product.

At 4/02/2006 03:29:00 PM , Blogger Matt Norris said...

"Matt... but they are going to say it wasn't their fault because all they did was present the loan products and the client made the decision.

But what is that client going to say? My bet is they will say the broker recommended that product and they were unaware of a better product."

You are correct about that. Unbelievably, there is a substantial portion of brokers and lenders who carry an "anything to get the deal done" attitude. This attitude fuels fibbed incomes, creation of bad loan products to facilitate individuals who shouldn't be purchasing a home in the first place, etc.

I wonder what will happen in the next couple of years with this? Actually, the better question is: "I wonder if somebody will even try to fix this in the next couple of years".

It's basically going to be a battle between consumer advocates plus some level-headed law enforcement agents vs. banking and mortgage industry lobbyists.


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