Portland Real Estate Update by Janeese Jackson » bond market

Higher Interest Rates to Come?

Janeese Jackson — Fri, 07 Aug 2009 21:03:14 +0000

Over the last 7 business days, the Bond Market (where Mortgage-Backed Securties are sold) has taken a significant drop. Not quite as big as the drop that followed Memorial Day Weekend, but it seems to be heading in that direction. As Mortgage-Backed securities (MBS)decline in pricing, rates tend to go up. Around Memorial Day, the Federal government slowed down its purchases of MBS, which earlier in the year was artificially propping up the pricing and helping rates. Plus, there started to be an over-supply of new debt being sold. In simple terms, all these stimulus programs bring debt for the country. That debt is sold on the Bond Market. When there is more to sell that there are buyers, the basic supply-and-demand rules take effect. Too much debt to sell equals lower price which means higher interest rates! This may continue as the economy is showing signs of recovery. Today’s jobless rates came in better than expected and some sectors are showing profit gains. So, it’s a mixed bag of news, as our economy recovers we may experience the pain of higher interest rates for homes.

Hopeful Signs for the Economy Emerge in Latest Data!

Janeese Jackson — Fri, 05 Jun 2009 19:51:10 +0000

Are we seeing signs of life in our overall economic picture? And, how will this affect our local housing market? Could these signs be some indicators that we are near the “bottom”? This week several factors emerged that could signal a market change. The stock market showed improvement with the exception of Wednesday’s dip, the bond market fell which contributed to interest rates creeping up. The bond market is where debt is sold. Home mortgages, which are packaged together as Mortgage-Backed Securities (MBS) and US Treasuries/Bonds are sold to major investors. Basically it functions similar to the traditional stock market, with the variant being in terms of what is sold. Instead of buying shares or “ownership” in a specific company (like stock), the investors are buying the debt, and the right to collect on the debt, plus interest. If the bond market drops (high supply of debt and low demand) then mortgage rates will rise to make the MBS more attractive.

We’ve had a marked improvement in the number of homes shown in April & May. The majority of the movement in the housing sector was in the 1st-time buyer price range with smart first-time buyers taking advantage of the $8000 credit, increased inventory and lowered prices. But, this could initiate a trickle up effect into the higher price ranges. Housing in the Portland metro area was at its most affordable point since December 2004 and inventory dropped to 11 months in April (down from 19.2 months in January). See the full report at http://bit.ly/LocalMarketStats

Pending sales in Portland have continued to rise (13.6% in 2009 vs 6.8% in 2008 and -2.3% in 2007). See graph at: http://bit.ly/PendingSales

The Associated Press released this article earlier in the week touting a trio of reports which they believe gave Wall Street a lift, with manufacturing activity shrinking at a slower pace in May, new orders with US factories rose 51.5% in May, construction spending rose .8% in May plus consumers trimmed spending slightly less than forecast. Check out the entire article at http://bit.ly/Xe1P4

We still have an inventory of short-sales and foreclosures that are affecting the pricing in our local Portland Oregon real estate marketplace and unemployment remains an issue! The higher interest rates are probably here to stay and are hovering right above 5%, but still historically VERY low!!

Interest Rates Rise!

Janeese Jackson — Fri, 29 May 2009 03:55:50 +0000

After what seemed last endless stability of our interest rates as they hovered at and just below 5%, the last two days have seen a rise in rates. The Portland real estate market was loving those interest rates and coupled with the first-time buyer tax credit, we saw an increase in sales in the lower end of our market.

What’s caused this to happen? Inflation and debt fears by major investors have made the bond market nervous. On Wednesday, the bond market was down 159.37 bps (basis points). This is the bond equivalent to a 500+pt drop in the stock market. Typically, the bond market fluctuates anywhere from 0-15 bps on an average day. If the market loses 12+ bps, you will see mortgage rates rise slightly. Rates started moving up that morning and increased 0.625%. They increased again today. Are the days in the 4%’s gone? Nobody knows for sure. But, we do know that low rates boost activity in the housing sector. And, we definitely know that “interest rates trump price” in the housing market (see my earlier blog on “To Buy or Not to Buy”).