South Orange County Blog from Bob Phillips

Explaining What The Federal Reserve Did In Plain English (April 29 2009 Edition)

Posted in mortgage rates, Real estate by southorangecounty on April 30, 2009

Parsing the Fed from the Wall Street Journal (April 29, 2009)

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today within its target range of 0.000-0.250 percent.  The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the economy may still be contracting, but that it’s not happening with the same speed as in prior months.  Household spending is stabilizing and financial markets are “easing”.

Nevertheless, threats to the recovery are everywhere with the following items on the Fed’s short list:

  • The growing ranks of unemployed workers
  • The reduction of housing wealth nationally
  • Reduced inventories and investment from business

Furthermore, the FOMC fingered today’s inflation levels as too low to support economic growth.  This justifies the Fed’s plan to hold the Fed Funds Rate near zero percent “for an extended period”.

For home buyers and refinancing homeowners, today’s press release was not favorable.

After the Fed’s announcement, stock markets rallied on the idea that the worst of the economy really is over and that led to a broad bond market sell-off.  Mortgage rates spiked in response, adding as much as 0.125 percent, in some cases.

The FOMC’s next scheduled meeting is June 23-24, 2009.

Parsing the Fed Statement
The Wall Street Journal Online
April 29, 2009

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What The Federal Reserve’s Meeting Today May Mean For Mortgage Rates

Posted in mortgage rates, Real estate by southorangecounty on April 29, 2009

The Fed Funds Rate since April 2007

The Federal Reserve adjourns from its two-day meeting this afternoon.  It’s one of 8 scheduled meetings each year for the Federal Open Market Committee.

Like all FOMC get-togethers, the purpose of the meeting is to discuss financial and economic conditions in the U.S., and to make new policy to stimulate or retard economic growth, when necessary.

The Federal Reserve’s main tool for reaching this goal is the Fed Funds Rate.

When the Fed lowers the Fed Funds Rate, growth is stimulated.  When the Fed raises it, growth is slowed.  The Fed has other tools at its disposal, of course, but the Fed Funds Rate is the most common and most well-known.

Fed meetings are highly anticipated events to markets because the central bank’s can change the course of the U.S. economy with just a statement.  As a result, traders tend to get jittery in advance of a Fed press release which often leads to erratic trading patterns.

With the economy continuing to teeter between growth and recession, the Fed has pledged to hold the Fed Funds Rate steady for as long as necessary.  Therefore, it won’t be what the Fed does that could move mortgage rates this afternoon; it’ll be what the Fed says. 

Post-meeting, the Federal Reserve will publish a press release summarizing the current economic conditions and the biggest longer-term risks that exist.  If growth and inflation are identified as threats for late-2009 and 2010, mortgage rates will rise.  This is because inflation is linked to higher mortgage rates.

The Fed’s press release hits the wires at 2:15 PM ET today.  If you’re the cautious type, consider locking your mortgage rate prior to the release.

Here’s an update as of 2:45 PM ET: By Greg Robb Last update: 2:16 p.m. EDT April 29, 2009

WASHINGTON (MarketWatch) — The Federal Reserve, as expected, did not make any “shock and awe” announcements following its two-day meeting Wednesday. The central bankers said that the economic outlook had improved over the last six weeks, but the economy was likely to remain weak for a time. The FOMC said that spending has stabilized and that the pace of the downturn appears to be somewhat slower. Fed officials made no changes to their plans to buy Treasurys and other securities to support the flow of credit to the economy. The vote was unanimous. Economists had expected the Fed to maintain the status quo because of the signs of improvement in the domestic economy.

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How Swine Flu Helps Mortgage Rates

Posted in mortgage rates, Real estate by southorangecounty on April 28, 2009

Swine Flu may be good for mortgage ratesMonday, mortgage markets improved with news of new Swine Flu cases

It’s a classic example of Safe Haven buying and today’s rate shoppers will see the benefits.

Mortgage rates improved about 0.125 percent Monday.

It’s not an official term, but “Safe Haven buying” describes the trading patterns in which large numbers of investors move money away from risky investments and toward safer ones.  As a general rule in Safe Haven buying, stocks sell off and bonds make gains, including mortgage-backed bonds.

Fears that a global Swine Flu outbreak would slow the global recovery is a major reason why mortgage rates improved Monday.

Dumping risk is a common reaction on Wall Street when unexpected events occur.  Because the future is uncertain, traders prefer to play it safe.  Hence the jargon-like term, “Safe Haven buying”.

If nothing else, Monday’s mortgage rate action reminds us that the biggest influences on the market are often not the events we can prepare for.  It’s the events we never saw coming.

This morning, with known Swine Flu cases spreading to Asia and a Phase 4 Alert from the World Health Organization, Safe Haven buying is continuing.  However, with the Federal Reserve meeting today and tomorrow, markets could be ripe for a correction. 

(Image courtesy: Niman and Google Maps)

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One Thing That Every Homeowner Should Have

Posted in Real estate, taxes by southorangecounty on April 27, 2009

There’s a right way and a wrong way to transfer a home posthumously.  The right way requires having a documented plan.  The wrong way could stick your loved ones with a tax bill so large they may have to sell the home just to cover it.

With just 4 minutes for the segment, The Today Show rushes through some very important estate planning considerations, but that doesn’t make the points any less relevant.

Among the estate planning tips:

  1. Even a simple will can big protection
  2. For multiple beneficiaries, consider a trust agreement
  3. Avoid taxes by “selling” your home to heirs while you’re still living

Estate plans are simple, are cheap, and affords protection from the state and the IRS. Every homeowner should have one. 

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The “Shadow Inventory” of upcoming foreclosures. Fact, or Myth?

Posted in Foreclosures, Real estate by southorangecounty on April 26, 2009

Here’s an excerpt from the latest Orange County Market Report from my friend Steven Thomas, of Altera Real Estate.  It addresses the so called “shadow inventory” of foreclosure properties.


“Isn’t there going to be a wave of foreclosures coming on the market? ( The “Shadow Inventory”)


I am often asked about a foreclosure moratorium or banks holding back on releasing foreclosures so that they do not saturate the market.  Distressed properties also include short sales, where a seller owes more to a lender, or lenders, than a home is worth. In the case of a short sale, even with a successful negotiation between a buyer and seller, the sale is still subject to the lender, or lenders’, approval. Lenders cannot prevent homeowners from placing their homes on the market as short sales, where they owe more than a home is worth. They can hold up the approval process, but they cannot stop a seller from trying to sell and submitting an offer for the bank’s consideration.


So, any moratorium or intentional, intermittent release of foreclosures, would only affect the number of foreclosures or investor bought foreclosures. Yes, investors have been buying, rehabilitating and flipping or buying, rehabilitating and renting, because the “numbers” look good again. Currently, only 15% of the active distressed inventory is a foreclosure. One year ago, it was at 20%. At its height, it was at 24%. Today’s active distressed inventory totals 4,006, a drop of 86 in the past two weeks. 613 of the 4,006 are foreclosures, meaning that the remaining 3,392 are short sales.


Let’s just assume that the rumors are correct and that there had been a moratorium and that lenders were intentionally holding off foreclosures from the market. Even if the total surpassed the record mix of foreclosures, 24%, and rose to 30%, the total would only rise to 1,201, almost doubling from its current level. Yet, what everybody has failed to realize is that there is major pent up demand for foreclosures. Just ask any real estate agent or buyer that has written an offer on a foreclosure. You will quickly find that the norm is multiple offers, accepted offers at or above the list price, and losing property after property due to the bidding wars.


This is a reality of today’s market that is most often misunderstood. When a buyers journey begins in today’s market, they have the expectations of isolating a foreclosure and getting a heck of a “deal” buy offering thousands, if not tens of thousands, less than the asking price. Buyers fail to consider that prices have already fallen between 30% & 40%. Almost all buyers have to learn the hard way about the realities of today’s market. There are 613 foreclosures in all of Orange County today and demand is at 938. The expected market time for foreclosures has dropped all the way down to .65 weeks, about a 19 day market, a deep, deep seller’s market.


So, throw in even double the current number of active foreclosures and they will quickly be eaten up by the insatiable appetite for foreclosures. Given current demand, doubling the foreclosure inventory will increase the expected market time to 1.28 months, about 5 weeks, still a major seller’s market. The real story is that short sales are currently more successful than they were a year ago. Today there are 3,392 short sales on the active market and demand is at 1,106, representing an expected market time of 3.07 months. One year ago there were 4,379 short sales on the market and demand was at 444, representing an expected market time of 9.86 months. Some conclusions can be made based upon all of this data: foreclosures are hot; short sales are hot; expect a lot of competition; and, any increase in foreclosure activity will just help relieve current pent up demand.”


End of this excerpt of Steven’s latest market report.  Here’s a link to his complete report:


Here’s MY take on the “shadow inventory”.  I firmly believe that the figures thrown about are from outdated graphs and charts, and that much of what some pundits are anticipating is already being mitigated by efforts by lenders and borrowers to modify existing loans, reducing oncoming foreclosures, plus the huge influx of buyers mentioned above.  In my humble opinion, it is this year’s version of the Y2K scare of a decade ago.  Remember the “disaster” that wrought?  How about nary a poof?  If you would like to talk about this situation, or anything else to do with Orange County real estate, please get in touch with me.  See you again soon.

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Finding Yourself In A Multiple-Offer Situation? You’re Not Alone. And Here’s Why.

Posted in Real estate by southorangecounty on April 24, 2009

Existing Home Sales data for March 2009The days of rock-bottom housing prices may be reaching an end.

According to the National Association of REALTORS, the number of Existing Home Sales fell by a modest 140,000 units last month. It’s the fifth straight month in which home sales straddled the 4.5 million mark.

The national housing inventory is down 900,000 from its July 2008 peak.

These are two encouraging signs.

Meanwhile, in a separate report, the Commerce Department said the supply of newly-built homes for sale is at a 7-year lowThis, too, is a positive signal for housing.

Home values are based on supply and demand.  If the number of homes for sales falls while the number of buyers stays constant, home prices will rise.  This is because the same number of buyers are competing for fewer properties.  It’s basic economics and that may be what we’re seeing right now in the marketplace.

But the balance could shift further.  Remember: the March housing data doesn’t account for first-time home buyers that used the $8,000 First-Time Homebuyer Tax Credit.  Because the stimulus package didn’t pass until February, buyers on the program likely hadn’t closed on their respective homes before March data was released.

There’s a big piece of the demand side of the equation unaccounted for, in other words, and if you’re an active home buyer now, you’re probably hearing a lot about multiple-offer situations and seeing this action first-hand.

Data from the housing market hasn’t been outstanding, but it’s definitely not looking worse.  Sales levels, inventories and home prices appear to be leveling off nationally and the number of active seems to rising.

Overall, it points to higher home values ahead.

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Someday Soon, It May Be Easier To Get Approved For A Conforming Mortgage

Posted in home affordability, mortgage rates, Real estate by southorangecounty on April 23, 2009

The Home Price Index from January 2005 to February 2009If falling home values is what prompted Fannie Mae and Freddie Mac to tighten mortgage guidelines in 2007 and 2008, America’s mortgage applicants may get their long-awaiting loosening within the next 18 months.

According to a government report, the values of homes financed with conforming mortgages rose for the third straight month in February.

This is an important piece of data because as values rise on the homes against which conforming mortgages are made, Fannie Mae and Freddie Mac’s respective loan portfolios get less risky.

With less risk related to home values, there’s an opening for the agencies to assume more risk on individual borrowers. 

A guideline loosening would help home loan applicants that currently find themselves ineligible for conforming mortgage financing — often the least costly source for mortgage money.

Pressed for profitability, it’s unlikely that Fannie Mae or Freddie Mac will loosen their respective guidelines prior to 2010, but if the Home Price Index continues to show improvement, it’s good news for the agencies which, in turn, is good news for people in want of a home loan.

HPI shows February 2009 home values on par with the values of April 2005.

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Don’t Lump Your Real Estate Research With The 128,203,000 Other Homes In America

Posted in Real estate by southorangecounty on April 22, 2009

Real estate is localNational real estate data helps economists identify trends in the housing market. It shapes policy and influences markets.

For active home buyers and home sellers, though, national real estate data is irrevelant.  This is because national data says nothing for the factors determining home prices in any given zip code.

See, national real estate news is mash-up of data.  It’s 128,203,000 homes from all 50 states.  Each of these states has its own economy and there are different factors that drive home values in each

Most Americans understand this.

But, if we dig deeper, we see that within those states, there are more than 19,000 incorporated cities — plus thousands of unincorporated ones.  And like the 50 states, city-to-city home values vary by economy, too. 

Furthermore, each city is comprised of areas, and those areas can be broken down into neighborhoods and then sub-divided again into streets, with blocks.

It’s apparent that a random home in Alabama can’t be compared to a random home in California.  Yet, that comparison is exactly what you’re getting with national real estate data and why we can’t rely on it to say “values are up” or “values are down”.

Values depend on what’s happening locally.

For buyers and sellers, the underlying goal is to meet at “the right price”. To reach that sort of price discovery, you have to look local.

It’s not as easy as it sounds.

Local real estate trends is a topic that’s too narrow to be covered by the national press.  It’s even too narrow for local papers.  Therefore, buyers and sellers have two places to turn:

  1. A general real estate website
  2. A practicing real estate agent

Using both sources for local data is common among today’s buyers and sellers. 

National real estate news offers little value with respect to home price negotiation.  Because all real estate is local, your real estate data should be, too.

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Predicting The Federal Reserve’s Next Move : April 2009 Edition

Posted in home affordability, mortgage rates, Real estate, Refinances by southorangecounty on April 21, 2009

The Fed Fund Futures predict that the Fed will leave the Fed Funds Rate unchanged at its April 2009 meeting

The Federal Reserve meets next week for a policy-setting meeting. 

It’s one of 8 scheduled Fed meetings this year in which the Federal Open Market Committee votes on whether to raise, lower, or leave unchanged the Fed Funds Rate.

Based on data compiled by the Federal Reserve Bank of Cleveland, Wall Street’s expectations of the Fed Funds Rate post-meeting are as follows:

  • 97 percent probability that the Fed Funds Rate holds at 0.000 to 0.250%
  • 3 percent probability that the Fed Funds Rate is raised to 0.750%.

There is no expectation for a 0.500% Fed Funds Rate.

The Fed Funds Rate influences the economy by changing borrowing costs for banks, businesses, and consumers.  When the Fed Funds Rate is lowered, “cheaper money” is meant to speed the economy forward.  When the Fed Funds Rate is raised, by contrast, costly borrowing tends to slow the economy down.

Changes to the Fed Funds Rate do not directly correlate to changes in mortgage rates.

Because Wall Street is nearly unanimous in its Fed Funds Rate prediction, though, expect the market’s FOMC focus to be on what the Fed says rather than what it does. 

If Ben Bernanke & Co. express concerns about long-term inflation and the need to contain growth, mortgage rates will rise in response.  On the other hand, if the Fed says that growth is expected to be within a tolerable range, mortgage rates should idle. 

In other words, there’s little benefit in waiting for the Fed’s meeting to make your “Float or Lock” mortgage rate decision.  In a worst-case scenario, mortgage rates rise.  In a best-case scenario, they likely stay the same.

The Fed’s two-day meeting adjourns Tuesday, April 29 at 2:15 PM ET.

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Home Safety : An Easier, Better, Cheaper Fire Extinguisher

Posted in Disaster preparedness, Home safety, Real estate by southorangecounty on April 20, 2009

Handheld, aerosol fire extinguishing spraySure, you’ve got a fire extinguisher at home, but if you ever had a fire, would you know what to do with it?

Like any tool, reading the directions can only get you so far.  If you’ve never “pulled the pin” and discharged a fire extinguisher before, fighting an actual fire can be a frightening intiation.

For non-firefighters, there’s an alternative. It’s an aerosol spray from the First Alert company called the Tundra Fire Extinguishing Spray and it’s billed as an intuitive fire safety product.

According to a First Alert product fact sheet, aside from its ease-of-use, the Tundra product boasts several advantages over traditional fire extinguishers:

  1. Tundra sprays for 32 seconds — double a traditional fire extinguisher
  2. Tundra spray covers 3 times more surface area than a traditional extinguisher
  3. Tundra cleans up with a damp sponge

The Tundra Fire Extinguishing Spray is recommended for cooking fires, electrical fires and household fires involving wood, paper and fabrics.  You can buy it at most hardware stores or for cheap at

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