Mortgage rates plummit overnight?

I wonder what impact this could have on Manhattan real estate? I hope it doesn't impact the upcoming crash, I'm really hoping to pick up some investment properties for 50 cents on the dollar.

when the market is down, fed rates are down and the bond market is down ... mortgage rates follow. You may notice that the dow is down over 300 points today ... it was down yesterday too. Bonds have gone from almost 4.8% to 3.67% over the past few weeks (and it took a huge drop yesterday and today).

In the past you could follow the bond market, and while that is still true it is not as closely correlated as it used to be. We now have a huge number of lenders in trouble so even when the bond market drops, rates are not always impacted as much becasue there is too much incertainty.

lobo what is the 1 year tbill at?

That is what a lot of mortgages reset to.

"Toll, which said on Thursday that revenue for the current quarter would decline from the previous period, also sounded a note of cautious optimism, saying that cancellations were the lowest in more than two years.

"We believe that there is pent-up demand," said Chief Executive Robert Toll. "When we have held promotions, many more buyers than usual have come out and put down deposits."

UBS analyst David Goldberg, who rates Toll a "buy," said positive signs at the company did not indicate a broader trend."

http://www.cnbc.com/id/26544776/for/cnbc/

sorry, wrong thread

I guess if you can get a mortgage, it would be good news. However, since the banks have tightened to 20-30% down and credit a score of 750+, I'm sure it has eliminated thousands of buyers, almost overnight.

I thought ARMs reset to the LIBOR rate?

Actually no petrfitz. But it has much to do with the 3% decline in the US stock market and the news that the ECB has sharply increased haircuts for collateral lending. This should lead to further deleveraging of bank balance sheets (see LEH) and stricter lending standards. The FHA increased insurance premiums last week and FNM and FRE will again on Oct 1. Mortgage rates are getting dragged along in the flight to quality Treasury rally. Rates are down a bit but the price of mortgage money is really not the issue. This issue is it continues to get tougher to get a mortgage particularly a jumbo.

Take a look around the board. Oro in Brooklyn highlights the challenges that buyers of new condo develpments are facing:

* Prices are down since they signed their contracts.
* Lenders will no longer do 10% down loans
* Buyers have to come up with additional monies to get to 20-25% down and then deal with their unit not appraising out
* Some buyers will be forced to walk away and lose their deposit. This in turn creates additional problems for the developer.

Make no mistake this is catching and it will spread to Manhattan. And don't say foreigners. Dollar/euro is more than 10% off the peak and the trend is strong.

jake - to me (sitting on a ton of equity and cash) which allows me to buy a property without having to get a jumbo - this market is a huge opportunity.

Also the scenario you describe above only applies to a small minority of properties in Manhattan or Brooklyn prime. What percentage of all properties in Manhattan or Brooklyn prime were purchased in the past 2 years? I say probably less than 1%, it is only the properties purchased in the last year that could potentially be underwater.

tech guy the LIBOR is now between 2.5-3.1 if a mortgage resets against this most mortgages would be in the 4.5 to 5.1% range. Not a bad mortgage rate at all - better than what you can get on a new mortgage currently

> What percentage of all properties in Manhattan or Brooklyn prime were purchased in the past 2 years?
> I say probably less than 1%, it is only the properties purchased in the last year that could
> potentially be underwater

Purchased or refinanced.... and I have a funny feeling its more than 1%...

ok 2%?

and refinanced does not mean that the owners pulled out equity, they just refinanced to a lower rate.

jake - to me (sitting on a ton of equity and cash) which allows me to buy a property without having to get a jumbo - this market is a huge opportunity.

That's great petrfitz. Good for you. You don't have to be too specific but please let us know which opportunities you are in contract on and please share with us some of the opportunites you have closed on in the last quarter. I think unit size, neighborhood, coop or condo should suffice to help us out.

BTW, very few loans have 1 month libor as an index. Most of the LIBOR ARMS are 12 month resets with gross margins that are a minimum of 275 ( could be a lot higher) over 12 month libor which is 3.18 today. The resets are not onerous but they are more likely 6.25% not 4.5 to 5.1%. 12 month CMT is 2.67 today so resets off of t-bills would still be high 5s and generally gross margins on CMT are higher than on LIBOR.

A bigger issue is that many of these loans were IO that is interest only and in some cases negative amortization loans. At the reset they start to amortize and this is where borrowers face the onerous sticker shock of having a much higher monthly payment in order to amortize the loan over 25 not 30 years (in the case of a 5/1)on top of the higher interest payment due to the floating rate reset.

petrfitz - 6 month is at 1.82 and 2 year is at 2.17 .... you can easily track at many site:
http://finance.yahoo.com/bonds

either way, unless you are going for a very short term adjustable (5 years or less), then you should really be tracking the 10 year bond yields or 30 year.

The mortgage rates are not going to be resetting to 4.5 / 5.1% anytime in the next many years (my opinion) with new lending fees and regulations, I think that we will be extremely lucky if we see rates under 5.7% (just my opinion).

If you are looking for a mortgage, I would aim for 6% and I think that you can feel confident that you are getting a good deal.

Also, to find a flat 6% with no points right now in NYC is still very difficult.

oh my, $/EUR down another big figure in the tokyo morning.

Jake - I am in the market for 2 prime brooklyn brownstones, currently looking at Cobble Hill and Park Slope. I have sold a building (tenement) in the Lower East Side in the past year. Need anymore info?

Perfect petrfitz. Thanks. But I thought you said you had taken advantage of the buying opportunity. I guess the only "huge opportunity" that you have actually capitalized on and realized was selling in the Lower East Side. Where do you think you could buy that building back today relative to your sales price?

On your other point, I do not think it is the static housing stock that impacts prices but the behavior of buyers and sellers motvivated enough to make a transaction that impacts prices. Of the real estate motivated to change hands at present what % is higher leveraged new development condos versus older lower leveraged established coops. It is clearly much larger than 1%.

Per streeteasy this morning there 4,949 coops for sale in NYC and 8,939 condos for sale. In Manhattan, there are 5,999 condos for sale and 4,129 coops for sale.

That is a good point. 100% of buyers in some buildings bought in the last 2 years, and we're talking about record construction. So what happens when a few buildings start to struggle...

jake - is aid "to me (sitting on a ton of equity and cash) which allows me to buy a property without having to get a jumbo - this market is a huge opportunity." I did not say that I have bought a property.

I have capitlized by selling a property that was upzoned to larger unbuilt FAR, and now looking to buy another building that is already built in the East Village (with lower built and unbuilt FAR)

In essence I am trading larger unbuilt FAR that I dont want to develop myself for lesser built FAR in a different neighborhood. That is how I am "buying back" and proof that there is always opportunity if you can think differently than the naysaying herd.

and to your other point, it is the static housing stock that actually does set the true value of properties in that static properties are by far the majority, and the units for sale currently are temporal in that their owners are effected by the current market situation. Most owners - probably 90+% in Manhattan dont have to sell now nor want to sell so they and their properties are not effected by the short term.

RE is a long term investment.

NYC - when a few buildings start to struggle, they get sold at a loss or at foreclosure then some lucky SOB goes in and buys it below market value. He or she then sits on it and when the short term market corrects they are sitting on a fortune. I dont think that a few buildings in trouble in a certain area effect the value of other buildings in that area.

Does a Burger King on Park Ave effect the price of dinner at Grammercy Tavern?

> Does a Burger King on Park Ave effect the price of dinner at Grammercy [sic] Tavern?

Does the price of medicine at one pharmacy affect the price of sugar at the supermarket? Thats quite a stretch.

Even if you leave out the jump from prices in a retail establishment to prices of the underlying real estate....

Not sure all the new condos are quite "burger king", especially when they're selling for more than the Gramercy Tavern for the same burger...

Though, if everyone's salary gets cut 30%, burger king prices will probably hold better than Gramercy. Wal-Mart seems to be doing well nationally...

thanks for the clarification petrfitz. I agree with you that most owners are not sellers and are not concerned with the short term day to day changes in the unrealized value of their apartments. But in both the short run and in the long run prices are impacted by supply and demand. The static ownership of an apartment is not supply. The number of apartments for sale is supply. New condo developments are supply. The ratio of sellers to buyers has an impact on the direction of prices. You have illustrated the point very nicely - Long term owners who are not selling and are not buying do not impact supply or demand and have very little if anything to do with the current clearing prices of apartments.

And isn't the market price the market price. If IBM closed at 116 yesterday and I bought some today at 112 am I a lucky SOB? The market value at the time of purchase is the purchase price. The lucky SOB in your example is not paying below market value - when a property trades at a price that is the market value. And while you petrfitz are very sharp and have done well in real estate and I compliment you on your success you are not alone. The NYC real estate market is highly efficient with frequent transactions, good information and data to draw upon (and streeteasy). There may be more opportunites currently to take advantage of the misfortune of others but the market always has the last say on value. Is the SOB "lucky" because another got out over their skis with leverage and you did not?