Mortgage rates soared in Cincinnati last week as mortgage markets experienced a 4-day freefall. 

By the end of the trading week, conforming mortgage rates had jumped by as much as 0.500 percent.

The spike in rates can’t be pinned on any one factor, but 3 contributing factors include:

1. The lingering impact of high energy prices on inflation
2. The ongoing weakness of the U.S. dollar
3. A rally in the financial sector, marking a return to risk-taking

Inflation and a weak dollar both devalue mortgage repayments, a well-chronicled relationship on this Web site.  In short, when mortgage bond investors find that their repayments are worth less, they demand a higher return.  This causes mortgage rates to rise.

But, it wasn’t inflation or the dollar that caused the majority of the damage to mortgage rates last week — it was the rally in the financial sector.

Rates had edged higher Tuesday on the inflation data but it wasn’t until Wednesday’s morning stronger-than-expected announcement from banking leader Well Fargo that mortgage rates really started to spike. 

In its quarterly report, Wells Fargo said that its balance sheet was strong and that it planned to increase shareholder dividends.  The rosy announcement sparked a strong demand for all things financial and — by day’s end — the sector scored a 12.3 percent gain on Wall Street. 

It was the largest one-day gain in financial stocks ever.

Then, following Wednesday’s rally, financials picked up additional momentum and ended up closing out the week higher by 21 percent. 

Unfortunately for mortgage rate shoppers, a large chunk of the money that fueled the rally came out of from the mortgage bond market. 

As investors looked for cash to buy financial stocks, many chose to sell mortgage bond holdings, creating excess supply.  More supply leads prices lower and, in the mortgage world, when prices fall, rates go up. 

Because mortgage bond prices fell a lot last week, mortgage rates rose by a lot.

This week, expect momentum to be The Big Story.  There is little data beyond Thursday and Friday’s Existing Home Sales and New Home Sales, respectively, and Friday’s Consumer Sentiment Index.  And only a few members of the Fed will be speaking in public.

The one bright spot last week was falling oil prices. 

After an 11 percent decline, Americans are waking up this morning to lower gas prices.  This is anti-inflationary and could help tug mortgage rates lower.

Mortgage rates fell slightly in a week that included a bank failure, more oil price spikes, and questions about the health of the nations’ mortgage market. 

Rates would have fallen more for Cincinnati residents if not for a late-Friday sell-off that added 0.125 percent to most products.

As financial markets fell under stress, most people missed the strong points that emerged about the U.S. economy last week:

• Fewer Americans filed for unemployment benefits
• Wal-Mart reported stronger-than-expected sales
• Consumer confidence rose for the first time in 7 months

And, also worth noting: homes under contract slipped but remained above the lowest levels of the year, suggesting a potential housing floor.

But, the biggest story of last week was the stock-price collapse and subsequent pressure on Fannie Mae and Freddie Mac.  It should be the biggest story of this week, too. 

So far, Fannie and Freddie’s issues appear to be more psychological in nature than fundamental, but to an already roiled market, negative perception can quickly become reality.  This is one of the biggest reasons why both the Federal Reserve and the U.S. Treasury made public statements Sunday in support of Fannie and Freddie, and in advance of the Asian markets’ opening.

Other events that may move markets this week include Retail Sales data on Tuesday, consumer inflation data on Wednesday and Ben Bernanke’s two-day testimony to Congress which takes place over both Tuesday and Wednesday.

It’s unclear in which direction mortgage rates will go, but because the markets are on-edge, expect rate movements to be sharp and quick.  In other words, if you’re in the market for a mortgage this week and you see a rate and payment you like, don’t mess around with it — just get it locked.

(Image courtesy: Wall Street Journal Online)

As foreclosed property sales continue to increase in Hamilton County there is one piece of advice that we have to give. Get new locks! We recommend this to all of our buyers but stress it even further with foreclosed and bank owned property.

When so many people have access to the home keys over the course of the numerous transaction it is important for the new home owner’s security. Moreover, some institutions have been known to key all of their properties the same to simplify their property manager’s job. One key - many homes.

So if you are planning on buying a bank owned or foreclosed house use some of the money you save buy new locks. We have done business in Cincinnati with Larry’s Lock and Acme Lock.

One of the most critical moments for any real estate transaction, or any real estate agent for that matter, is when buyer and seller begin to negotiate. The buyer, post inspection, understands the condition of the home and is willing to ask for some concessions based on their new more through understanding of the property’s condition.

As a seller it is a balance between getting the best end price for the property and not not scaring off the potential buyer. Real estate agents are invaluable resources in these situations when they are able to help both sides of the transaction put things into perspective and approach the deal with the big picture in mind. A recent post in a blog about negations reminds me about how delicate an art good negotiating is.

In a recent edition of Time magazine there is a featured article about some services that help home owners negotiate new rates with their banks, or even walk away from their homes.  Some of these services package information for local Cincinnati homeowners in distress and in some cases help advocate for the home owner.  Other services simply repackage and sell publicly available information.

Companies like the Walk Away Plan provide home owners who are in distress some counseling as well as assistance in negotiating with their bank for a new loan at a current interest rate, or renegotiating the loan all together. Other services, like Short Refi Me,  try to work with your bank to refinance your home based on current value.

A while back we wrote about the Humphrey Road Sidewalk project and are pleased to have an update to post here. Symmes Township has decided to move forward on the project and they began initial surveying Friday. We met with township Treasurer Phil Beck along Humphrey Road and talked with him about the direction of the project and the impact on the residents.

The direct impact on the local residents is undeniable. The sidewalk will provide easy and safe park access to upwards of 75 homes connecting families to each other in a pedestrian friendly way.

There is some good news recently put out by the Cincinnati Board of Realtors. According to the sales numbers the last 4 months have seen increasing home sale activity, a good indication that the Cincinnati housing market is beginning to recover. An even better secondary metric is that the overall inventory is dropping. This means that more houses are being sold than are being put on the market. Generally speaking a balanced market caries about 5 months of home inventory.

More sales and less inventory helps to return demand to a steady level. It is this relatively static demand that has given Cincinnati real estate has historically appreciated 2% each year. Although modest, it is steady and the recent positive changes in the short term market point to the fact that we will soon return to slow and steady long term appreciation.

Month 2008 Home Sales Inventory

January             1,130                    13.31

February          1,334                    11.32

March              1,557                      9.75

April                 1,636                      9.49

May                 1,913                      8.38

                                                          Do you have children going to college next year? If you do let them learn another lesson. Let them become property manager of their own building. That’s right. They can live rent free if you shop smart and make a good investment.

Think about it? If you have a child attending UC or Xavier you could buy a two or four family building in or around Clifton, North Avondale or Norwood. Your child could have free rent if they find 2 or 3 other students or friends to rent to.

If your total investment was $200,000. With FHA financing you only need 3% down payment. That would be $6,000.00. It will cost you about $2,000.00 closing costs and about $500.00 for inspections. Your total investment would only be approximately $9,000.00 - $9,500.00.

If you finance $194,000 at 7.5% interest your Principal & interest payment will be $1,356.48. Factor in estimated taxes at $200.00 per month and $100.00 for insurance.

If you have 3 other students pay $550.00 per month that will make your PITI (Principal, interest, tax & insurance) payments for you. Your child lives rent free and you have a nice future investment. Let your child collect the monthly rent and make the payments. You could even have the building put into their name. This is a great way for a young person to get a firm start in a future of real estate investing. They graduate and already have an income coming in not to mention the education they will learn by being a property manager for 4 - 5 years…through their college years.

The numbers used in this post are only for demonstration purposes. They are estimated and not intended to represent any firm real prices or terms. The examples used in this post are just that. They are examples, not to say the example used couldn’t become a reality.

CNN Money reports about the US subcommittee efforts to bring together a relief package, or legislation reform to help the ailing housing market in Ohio and other states. The article sites some numbers from Realtytrac and some are good for Ohio, and some are not so good.

Across the country foreclosures surged 48% in the month of May which is not encouraging. However Ohio saw a 7% drop in foreclosures compared to the same month in 2007. Hopefully this is the beginning of the reversal of a trend that sees Ohio’s foreclosure rate growing every year since 2000.

At some point all of the adjustable rate mortgages will have reset and the home owner will either refinance a fixed rate they can afford, negotiate with the bank, sell their home, or foreclose. The question we in the real estate and mortgage profession is when will we hit bottom, when will we have moved past a point when all of the crisis mortgages have been flushed from the system and we can slowly begin to rebuild the housing industry based on sound lending principals and appropriate risk / reward tolerances. The end goal is to attract investors to buy up relatively bland, and previously dependable residential mortgage backed securities. Only then will we know the depth of the damage to the reputation of the housing industry as an investment vehicle.

Mortgage rates moved higher in Cincinnati last week on lingering concerns about inflation, the fourth straight week in which rates rose.

Mortgage rates are now as high as they’ve been since October 2007.

Because inflation devalues mortgage bonds, market players are quick to unload them when signs of inflation are present.  

Last week, there were several such signs:

1. The American Consumer is spending undettered despite economic uncertainty
2. The Cost of Living is rising faster than expected
3. The Federal Reserve reports that some business are passing higher costs on to consumers

Hence, the higher mortgage rates.

This week, only Tuesday registers as a “big data day” with reports on housing, productivity, and Producer Price Index — the “Business Cost of Living” report.  

There will be four members of the Federal Reserve speaking, though, and that will add some volatility to the market.  Fed Chairman Bernanke is among the speakers, addressing Congress this morning at 10:00 A.M. ET.

So, expect mortgage rates to continue to jump and dip in the Queen City this week, taking their cues from inflation.  More inflation means higher rates and a slowing economy should cause rates to retreat. 

(Image Courtesy: LA Times)

There was no rest for the mortgage-rate weary last week. 

As mortgage bonds sold off early in the week, sharp rate hikes followed. A steady stream of better-than-expected economic reports had re-ignited inflation fears, drawing money from the bond market.

On Friday, however, the money flow reversed on a triple threat to the U.S. economy:

1. The Unemployment Rate took its biggest one-month jump in 22 years
2. Oil made its biggest one-day gain
3. The U.S. dollar lost a lot of value

By themselves, each of these events normally would be bad for mortgage rates but the Friday combination of all three led to a huge stock sell-off and renewed demand for bonds — including the mortgage-backed kind. 

Despite Friday’s reversal, mortgage rates were higher on the week, overall.

This week, there won’t be much economic data this week but there will be six Federal Reserve members making speeches to the public. 

The most anticipated of the set is Fed Chairman Ben Bernanke’s address Monday evening on the topic of “inflation”.  Markets will be closed when Bernanke speaks so expect a delayed market reaction Tuesday morning.

Throughout the week, markets should continue their long-standing battle between the fears of inflation and the fear of recession.  It’s the same back-and-forth that we’ve seen since late-2007.

It’s also the primary reason why mortgage rates rarely stay still anymore.

(Image courtesy: The Wall Street Journal Online)

We have written here about the changes in Cincinnati’s property values over the last two years. A part of the real estate downturn that is being overlooked is the assessments for property taxes. Locally we have seen our home value decline between 5% and 11% depending on where we live but it has not been as bad as California. Their property value has declined so much that there is now a company that will help homeowners obtain a break on their property tax reasons.

Prop8.org takes advantage of a California proposition that allows for homeowners to get a reduction in their property taxes. Prop8.org charges a fee to help homeowners navigate the legal paperwork, and submit the necessary papers. We do not have this luxury in Cincinnati but it is important that the next time your property is assessed that you pay attention and gather the recent sale data for your neighborhood so you understand you new property assessment.

Last weekend Dan and I attended a cooking demonstration and dinner on Saturday night at a business called Garnish Catering in Blue Ash, Ohio. We went with a group of people and had a wonderful time. Garnish caters to a unique local market by providing not only catering services, but cooking demonstrations and classes for adults and children, as well as gourmet carry out meal preparation.

Kim Baretta owner of Garnish publishes the prepared meal menus on a weekly basis and will email them to people who opt in to her mailing list. The facility is an ideal location for shower events, small parties, and other events.