Mortgage Rates Plunging-what a gift to buyers

So, sales decline 75% at a time mortgage rates are at record lows...

then you know this market is ABSOLUTELY SCREWED.

I guess nothing can save it now.

Mortgage rates are at record lows as of this morning, in response to government policy announced this morning. The 75% decline in contracts signed hardly accounts for this. You should know better than that.

Buyer sentiment can turn on a dime once positive perception is initiated. This week and weekend will have every mortgage broker/loan officer on the phone soliciting clients with the "lowest rates in histroy" sales pitch. I know because banks have ramped up calling me this past week. Now forget about it.

What sucks is that rates really haven't fallen for NYC coop/condos...

Overpriced units aren't really selling, but nobody is really shocked there. Something that might have sold at 1600 psf a year ago is having price reductions to more sane levels. But the bread and butter apartments that have been priced right all along aren't seeing much movement. Will they soon? I don't have a crystal ball. But right now, they're not.

Rents have barely declined. These bread and butter 1 and 2 bedroom apartments are perfectly justified by rent vs. buy math. Rents will have to come down quite a bit more before those purchase prices follow. Can that happen? Again, no crystal ball.

Can purchase prices come down to irrationally low levels such that rent vs. buy math heavily favors buying? Sure, but such an unstable equilibrium won't last long, and won't worry me.

Cue nyc10022 telling me that I have to price in 30% declines to show that the rent vs. buy math doesn't work which proves the original 30% decline...

I don't know about all these formulas r v. b but I can tell you it is dead out there. I have some pretty big player r.e. broker friends who have never ever uttered one negative word about the market in 7 years...it was always "I just sold to such and such, I never made so much money" etc.. Quite a few have called me starting the conversation with "Wow it really sucks out there." That tells me we either are getting to a bottom or hold on Dorothy!

I think you are confusing me with... you.

So far the decline is "only" 15-20% though...

of course it's "dead" buyers and sellers are both waiting to see if things are getting worse or better. Only sellers who "must" sell are listing. Every buyer can hold off and just rent. That is why inventory is modestly increasing. The real volume is simmering on the sidelines.

burke...Broker's worst nightmare is a "dead" market because no transactions are happening. Evryone is waiting...so broker business falls of a cliff.

its completely dead. so is to a lesser extent the automobile market and I would suspect other big ticket items such as boats. Of course a home is the biggest ticket item and is suffering the worst. People don't have any money or they have money but are afraid to spend it. When the crisis passes volume will pick up, not saying prices won't decline, but the market is frozen with fear right now.

People still need to live somewhere. Until I see rents go down more than a trivial amount (what did the last reports say? 2% down YoY? yawn...) I'm not that worried about purchase prices for reasonable units.

I have a friend in the Trump organization and not one sale this year....... another friend is in the rental market in Astoria/LIC and as of last month the phones just went dead.............?????????

What did i tell you yesterday....

NEWS FLASH: 30 Year Rates Drop Almost 1% OVERNIGHT
I have just received notification from Dan Shlufman that the Fed cash infusion just caused 30 yr fixed rate loans to drop to 5.375%. He suggests that those buying or refinancing act fast since this is unprecedented and may go away quickly. If you currently have a rate over 6%, now is the time to refinance. Here is Dan's offer for TrueGotham readers:

URGENT-HUGE RATE DROP IN INTEREST RATES

Yesterday’s infusion of cash into the banks by the Federal Reserve has resulted in an immediate drop of almost 1% in the interest rate on 30 year fixed rate loans. As of this moment (which may change at any time due to market volatility), interest rates on a loan of up to $417,700 are 5.375%! This is the lowest they have been since 2005 and almost the lowest on record. If you have a loan of this amount or less and a rate of 6% or greater, it makes sense to consider refinancing. As this may not last long, I suggest that people act fast and LOCK the rate. Do NOT wait and see if rates will go lower. Though they might, these huge drops tend to be short-lived and only last a few days.

As a service to True Gotham readers, and to protect the lowest rates, we will offer anyone who does a loan with us a free floatdown if they lock a rate and rates fall by another .25% after they have done so. This is a huge opportunity and the first good economic news in a long time!

You can reach Dan directly at www.fcmc.net or calling 973-574-0900.

what is this going to do? Jobs are being lost, negative wealth effect in place, buyer confidence is low, what is a 50-75 bps reduction in rates, IF IT LASTS longer than a month, going to do? Honestly. Sure this is nice to see, but it took 19 lending facilities, 525 bps of easing, multiple bailouts/rescues/nationalizations, and trillions of stimulus to get rates down 1%?

Wow, people still dont get it. Nationwide, this wont really help that much. Stop meddling with rates and the markets already. People cant refinance because alot of equity was lost as house prices declined. We need jobs and stable/rising incomes and this isnt happening! In fact the reverse is happening.

Fundamentally, fiscal measures should be focused on job creation, not lowering rates 3/4 of a point.

Do we really think buyers will JUMP IN because they can get a loan for a bit less now? If anyone makes a decision to buy only because the rate went from 6.5% to 5.875%, they need to re-evaluate why they are buying a home.

UD..Many people for whatever reason focus heavily on the rate as an incentive to buy. I guess they envision the rate being with them for 30 YEARS. They don't focus on price, as they should, because you can refi later on. This large rate reduction becomes a significant psycholigical stimulus for buyers. People love to comment on the rate they got as if it some sign of their business savvy. I think it is important.

urbandigs, I thought this whole financial mess was ultimately a credit freeze? Shouldn't any signs of credit ease be a good sign? Or are you saying the recent news is very unique to mortgages, and the rest of the credit market is still as distressed as it was 2 days ago?

stevef,

read your post again. you keep saying that other people find rates important, and focus on rates instead of prices "as they should." and then YOU YOURSELF say "i think it is important." which is it: other people are erroneously focused on what is basically a small rate decrease brought on by enormous fiscal stimulus, or YOU are erroneously focused on what is basically a small rate decrease brought on by enormous fiscal and monetary stimulus? you can't say that other people are wrong for thinking this is important, but that you are right.

BTW, I spoke to Dan (seems like a very nice guy) yesterday about a possible refi. Unfrtunately (and as I suspected), rates had not really changed for 30-year fixed jumbos which is the product I am currently in and would want to refi into. Given NYC prices, I am not sure how much impact changes to rates for conforming loans will have in Manhattan.

Actually, "easy money" a.k.a gov't mis-micromanagment of the economy, was the root cause of the financial mess we are in.

One (of the many) symptoms of "easy money" was the radical increase in real estate prices.

Now that there is no more "easy money", the symptoms of it are going away, one of which is decreasing real estate prices.

This is good for the economy, as it is taking the "medicine" it needs to heal itself.

However, the gov't is trying to out-do itself by mis-micromanaging the economy even more by attempting to AVOID taking the necessary "medicine" and adding more "easy money", which is how we got here to begin with.

So, instead of giving the heroin drug addict the necessary and painful "detox treatment" he needs to get better, they are trying to give even more heroin to make him feel better in the immediate term. Just... just.. one more hit... I promise... this will be the last one.. j-j-just one more...

As Noah correctly points out though- the heroin drug addict has taken so much of it already that by now, even HUGE hits don't do much to him anymore as his internal organs are all rotten... in fact, he needs to take such a HUGE hit that he might just O.D.

You better be prepared when he O.D.'s, because the government is absolutely committed to giving him more heroin instead of sending him to detox.

None of my buyers expressed any further motivation to buy now on this news. Zero. I have like 23 buyers. Only 2 are active now, while others are in wait mode. Even the 2 active clients take this rate cut with a grain of salt and havent expressed any rise in motivation to jump in.

Like the sideline money theory, I think any psychological force that lower rates has on buyers is minimal compared to the negative forces of job losses, negative wealth effect from stock selloff, catching a falling knife (herd like mentality to wait), etc..

Lets not forget, so many brokers claimed that if Manhattan fell 5% or 10%, tons of sideline money will come in and scoop up the deals. They used that broker babble to seal the deal for buyers worrying that they were paying near peak prices, before they signed, to put a floor on how low prices in Manhattan may go

tech guy - yes that was originally what started this mess. The secondary markets seized up, those holding toxic assets couldnt sell, writedowns started as price discovery came in, the domino effect began, capital raising, etc...that led to a credit freeze.

If you look, credit indicators came in a lot compared to 6-7 weeks ago, when they were nutz. Yet, stocks are still pressured? Why? Because earnings estimates are still out of whack and corporate bond distress got worse, not better over this time.

Credit ease is a good sign, but it doesnt mean banks are lending freely again. They still are hoarding cash to repair their balance sheets. The fed/fdic/treasury seems to think they can stop house prices from falling and that by injecting banks with capital it will stimulate lending. This was proven very wrong, the markets will do do what they will do. As for lending, the banks are still undercapitalized and why lend when macro fundamentals on the consumer and for assets are deteriorating? Certainly credit quality has not improved? So why lend to shady consumers? You cant force banks to lend. You cant force buyers to buy, and you cant force house prices to rise.

But we can address the aging infrastructure of this country, and we can create new jobs. So far, we spent trillions, and no jobs were created. To hear that rates dropped, finally, 75 bps and that this is the cure all, is rather silly. In my opinion of course. Its nice, yes, but it only helps those on the sidelines that may or may not buy, and doesnt really solve the problem.

happy...i'm saying that such a large rate reduction is important to discuss because of it's psychological impact on buyers.

Urban Digs you have 23 sideline buyers waiting for the right time to buy. On that statement, how many potential listings or sellers do you have? In other words, owners who are holding off for better conditions to sell.

I have 0 sellers right now! And I have zero sellers who reached out to me telling me they are going to wait, and list later for hopefully a better market.

I may have one new listing come in, but besides that, the buyers I have are a collection from like the past 6-8 months. Some buyers that were serious say 3-4 months ago, are now waiting. The rest told me originally they 'intend' to buy, that they expect better value in the near future (6-12 months), and are looking now to get an idea of how the market changes, as it changes. Most keep tabs on properties, and see how long it is on market for and how many times the price is reduced. I wouldnt be surprised if I do only 1 or 2 deals in the next 5-6 months. We'll see. Its up the buyers.

ps: who knows how many of those buyers will not end up buying! In this business, nothing is certain, especially in times like these. You could work months with a buyer that decides against buying. Im certainly not putting any weight or expectations on these buyers ultimately converting into a deal. Leads are great, and its nice having a steady stream, but these are crazy times and who knows how a buyers life/confidence may change in 6-12 months.

I have fewer buyers than Noah, but the two most active ones are cash buyers, so the news doesn't affect them particularly. But I hope it does bring more buyers back into the market - there's a lot of nice property sitting on the market, much of it susceptible to lowball offers. I know people are waiting for prices to drop, but active buyers can have their pick of the litter right now.

tina,
i am a potentially active buyer, but why should i wade in while the market is completely frozen and prices have yet to fall to a level where they attract buyers back in? that's called "catching a falling knife." much better to let if fall and then pick it up off the floor.

> Until I see rents go down more than a trivial amount (what did the last reports say? 2% down YoY?
> yawn...)

8%. Observer had the article.
And that was pre-panic....

Not sure if its yawning time anymore...

And, generally, rents should be pushing up if folks aren't buying...

> urbandigs, I thought this whole financial mess was ultimately a credit freeze? Shouldn't any signs
> of credit ease be a good sign?

It in of itself is not a bad sign, but you can lower rates all you want, its not going to bring back bonuses and income from the dead in this town.

Credit itself might be improving, but the damage is already done.

happyrenter - I'm not suggesting you fork over asking price for an overpriced apartment. But I think that in this particular nanosecond, precisely because the market is frozen, buyers have more leverage than they will when it starts to loosen up again. The key to getting a great price right now is the fact that there are very few active buyers in the market. There are distressed sellers who need to get out now, and are willing to deal with anyone crazy enough to buy. If no one is bidding against you, you are in a very strong position. (I'm talking about resale, here, naturally.) I'd like to see more buyers exercising their strength right now.

Incidentally, I've been kinda bearish on real estate since 2005. Weird, since my job is to sell real estate. I've regularly advised buyer clients to hold off. But I'm excited by the new resale inventory - panicky sellers are flooding the market. The people who don't feel serious pressure to sell are waiting for the Spring. So it just feels right to me. There are lots of folks waiting to pick that knife up off the floor - if you're crafty, you can catch it by the handle before it hits.

tina,

i guess the relevant question is how low a bid is too low? i am following a bunch of apartments in the village, some of which (30 5th avenue, 45 christopher) have come down a lot--as in 40% or more from their original asking prices. but i still think they are significantly overpriced. certainly there is SOME price at which i would buy these apartments, but is it ever worth it to make asking prices that are not remotely in the same ballpark as the asking prices?

excuse me, read "make bids that are not remotely in the same ballpark as the asking prices?"

Do you mean make *bids* that are not in the same ballpark? Well, yes. And I think right now is a brilliant time for it. Sellers are experiencing the same psychological effect the economy is having on buyers. Many of them are totally freaked out and will jump at an offer - any offer. I can almost assure you the seller will counter even an insulting offer. And who knows - you could reach a number you feel satisfied with.
In a hotter market, I would not suggest it. And some sellers won't budge, for whatever reason. But don't wait for the asking price to drop to where you want it to be. Chances are, someone else is tracking that apartment as well, and then you'd have to compete with another buyer.

What does more credit do in a market where salaries of a huge chunk of buyers basically got cut in half?

More likelihood to buy at half price?

"I can almost assure you the seller will counter even an insulting offer."
What does this mean?

happyrenter - those are solid buildings, with manageable maintenance despite the size of the apartments (even the combined units). Does $900/sf make sense to you? Bid $850/sf and see where it takes you. You never know.

"'I can almost assure you the seller will counter even an insulting offer.'
What does this mean"

In a seller's market, a seller may not even respond to a low ball offer. I'm suggesting that sellers will counter your bid, even if it's very low. Say the apartment is priced at 2.4M. You bid 1.6M. In a seller's market (such as we had for a while there), the seller would likely have ignored your offer altogether. What we're seeing now is counteroffers that frequently spilt the difference between asking price and bid.

Not in all cases, of course. But if they have nothing else to go on - no other bidders - they will certainly take you seriously.

tina - I am catching up on various threads, and just realized you've already made the point here that I made on another thread happyrenter started. I agree with you. If you see an apartment you really like, and get the right body language from the selling broker, why not put in an insulting lowball offer? I think of it as getting 2010 prices today.

MMAfia - best description of the government's policy that I've heard yet.

a real gift to buyers: once home prices drop 30% more (50% in nyc). it'll happen as the economy is going to get super nasty. roubini might end up proven an optimistic guy.

record surge in mortgage applications...is just what the doctor ordered.....now all the boastful borrowers will tell their friends and so on...

Surge from what 0 to 3 a day?

Will mortgage rates continue to decline into early 2009?

I'm inclined to think that the mega-discounted price drops (i.e., 70%+) will be most likely if mortgage rates increase significantly. Time to save up for the all-cash offers....

Bill Gross predicts the 30yr fixed mortgage rate will fall 50 to 100 basis points more, possibly to 4.5%.

LICComment, if that's true, I think a LOT of people will refinance. Myself included.

steveF, it's actually quite funny how you continually try to bring back the buyer hype of the go-go 2006 bubble days. every one of your posts has a title that is reminiscent of variations of the "buy now or be priced out" or "never a bad time to buy" themes. i understand where you're coming from, being an owner and all. but your efforts are really more like a guy in a rowboat saying "what a beautiful day to be out" just as a 60 foot tsunami hits.