With high water marks on the radar screen for 2011 (the end of the Treasury purchase program, Fed induced inflation measures, and employment/economic recovery concerns), we will be watching the early warning signs from the Federal Open Market Committee even more closely than we have in the past for indications of what’s to come and the Fed’s mindset on how they react.

On Wednesday, as expected, the first FOMC meeting of the year was uneventful but it still gave everyone in the press something to jabber about. The statement was almost identical to last month’s (which was identical to the month before). The Fed acknowledged stronger economic data and that commodity prices has risen (a new addition to the verbiage). The statement continued to reference that “[core] inflation is somewhat low” relative to the mandate and an unemployment that is “elevated.” The recovery is continuing, but remains “too slow to sufficiently improve the labor market.” Business spending in software and equipment is rising and household spending has increased. In addition, the “money statement” that the benchmark rate will be “exceptionally low for an extended period” remained in the verbiage as well.
The takeaways for our trading desk were as follows:
• Bottom line: No real surprise. The statement shows that the Fed has set a very high hurdle for conditions under which they would change their policy rhetoric and we’re still a long way from a “hawkish Fed”. Just see the opening sentence “economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions”

• Maintained rates unchanged 0% to 0.25%, unanimously 11-0 with no dissents (first time in a while there were no dissents)

• Maintained QE2 plan unchanged at $600B until June including MBS reinvestment (MBS reinvestment a key for our industry).

• Economy recovery is continuing but recovery has been “insufficient” to reduce joblessness

What this means to us? All in all, positive. Stay the course. Maintain interest rates. As the economy and employment improves and/or as inflation starts to ramp up, that is when we will need to watch closely to see how that impacts Fed decisioning, which in turn impacts interest rates.

To search every townhouse for sale in Montgomery and to see additional photos on this listing click here:

http://montgomery-townhouses-nj.com/montgomery-townhouses-for-sale.htm

There was a web based discussion a couple of weeks back; the talking points which were shared with me by trading partners on the street, which was entitled “Is Real Estate Finally a Good Investment”? Essentially, the moderators of the discussion pointed to three underlying reasons why Real Estate Investment, in certain scenarios, makes feasible sense right now (taking a traders mindset into account):

• Hatred of the “Asset”: Hatred of an asset is often the precursor to contrarian interest, and being contrarian is at the heart of many investment strategies. To paraphrase Warren Buffett, “be fearful when others are greedy and greedy when others are fearful”. Mr. Buffett backed that idea when he invested in the stock market in the teeth of the financial crisis in late 2008 and early 2009. Remember, Gold was hated for years (termed as “dead money”) before it recently became an attractive asset class once again and skyrocketed in value.
• Smart Money is Buying: John Paulson, the hedge fund manager who made $20 billion betting against the housing bubble in 2007-2010, stated in a speech late last year: “If you don’t own a home buy one. If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.” Why is Mr. Paulson so adamant? Because he believes long term interest rates are not going to get much lower. They have, in fact, risen since he gave that speech, but they remain remarkably low by historic standards. Low rates and the expectation that home prices will rise is his basis of this sound argument
• Demand is Coming Back: Supply isn’t as out of whack as it was at the height of the crisis. At the end of Nov, home builders reported 197K new homes on the market, the lowest level since 1968, according to Yardeni Research. The National Association of Realtors reports that the inventory of existing homes for sale fell 4% to 3.71M homes, which represents a 9.5 month supply at the current sales pace, down from a 10.5 month supply in October. And that timeline appears to be falling.

Albeit, no one will really know when the “best” point in time is/was to buy or invest until it has already come and gone. But with “value” inventory and low interest rates, more and more observers think the time is now.

As we enter the New Year, the two biggest questions we hear are “what will happen on the housing front in 2011” and “what are the expectations for interest rates”? There is a lot of chatter about this, not only in our industry, but in the broader markets as well.

Strictly speaking from a market perspective, there are five general factors that appear to be driving how the housing market will develop in 2011:

• Employment:Certainly, it stands to reason that the higher the employment rate in this country, the healthy the housing market will be with new, willing entrants. Today’s employment data report was a good start to the year, with the headline unemployment rate dipping down to 9.4% (down 0.4%). Some noise in the data release, but hopefully a positive sign of things to come.

• The Foreclosure Process: How long it will take to process, list, sell, and clear all the pending foreclosures will have a direct impact on the housing sectors inventory level. “Robogate” stalled the process in 4Q10, but with foreclosures once again being processed at the beginning of the year, the sooner we clear the existing inventory of foreclosures, the quicker we normalize the housing market.

• Regulatory Changes:The future of Fannie/Freddie, the Dodd/Frank Act, Risk Retention, Compensation Rules -> all items that you may have heard about directly or on the periphery that will shape the way business is conducted and will indirectly impact the Real Estate sector in the year ahead.

• Underwriting Guidelines: 90+% of production is now connected to some type of government agency. In order for that to change, private lenders are going to have to step up lending within (or outside) the existing box we now work within.

• Interest Rates: A lot of interest rate projections are based on what the economy does in 2011, and there is an inverse relationship between the recovery in the market and rates. Most economists project that if the economy stays cool, interest rates will trend lower. The hotter/quicker the economy recovers, the more interest rates will rise. The important takeaway is that rates are still at historical lows, with Fixed Rates loans starting with a 4 in many cases, and hybrid ARM’s still in the 3+% range.

To search every townhouse for sale in Montgomery and to see additional photos on this listing click here:

http://montgomery-townhouses-nj.com/montgomery-townhouses-for-sale.htm

An exciting year, as rates declined to historical lows, and then began to climb a touch the last 45 days of the year (albeit, still low compared to historical benchmarks).

So what does 2011 have in store? There will be a new regulatory environment. There is anticipated to be volatility in the Fixed Income market to start the year. There will be some short sales and foreclosures (hopefully, the tail end).

And there will also be what there always is: buyers…and sellers. People will move, trade up, trade down, get married, look at investment properties, look at vacation homes…and we will be here, as always, to help!

Merry Christmas and Happy New Year from the Weichert Financial Services Secondary Marketing team! All the best.

As the market selloff continues, rates have retraced
sharply in recent weeks from their record low trough in
October this year.

According to the Freddie Mac Weekly Primary Mortgage
Market Survey (PMMS), the average rate for a 30 year
mortgage jumped, at the beginning of the week, to 4.83%
from 4.61% last week. This rate reflects what lenders say
they were offering to well qualified borrowers with 20% down
who paid 0.7% of the loan amount in upfront fees (i.e. -
points). And we have trended even higher than that as the
week has progressed.

Additionally, 5/1 Adjustable Rate Mortgages (ARMs)
jumped to 3.77% from last week’s 3.60%, which is the
highest 5/1 ARM rate since mid July.

This is the fifth week in a row that rates have gone up,
fueling speculation that 4-handle 30 year mortgage rates
may potentially be a thing of the past, and as the new
normal for 1Q11, will see 30 year mortgage rates hover in
the 5.0% range. However, that is all based on supply and
demand, and if the buyers come back to the market as the
New Year rolls in.

This recent climb in mortgage rates is driven by a few
factors: riding the continued news of positive economic
growth, spurring investors to move out of bonds and
securities as Treasury yields surge. In November, retail
sales growth, excluding automobiles, was two times higher
than forecast. Also, the Thomson Reuters/University of
Michigan Consumer Sentiment Index rose to a six month
high in December. And industrial production showed
promising signs of recovery with the biggest gains since
July.

Put simplistically, the extremely sharp uptick in rates is
driven by a number of different variables, but the main driver
is supply and demand. There is ample supply (sellers), but
literally very little/no demand. And what we remember from
Eco 101: when there are significantly more sellers than
buyers, prices fall (fast), and corresponding yields increase.
Is this a year end phenomenon, or will the trend continue
into 2011….time will tell.

5/1 ARM rates at 3.49% – rates are still low. Let us help!