Real Estate Report - September 18, 2007

Real Estate Report

September 18, 2007

Economic Commentary

Don't Expect Too Much
It seems that for months we have been talking about the Federal Reserve Board lowering rates. Now the time has come and whether they stand pat (not likely), lower rates by 1/4% (more likely), or lower rates by 1/2% (less likely)-do not expect miracles. Not only will the real estate market not come back overnight, rates will not come down automatically because of the Fed action. Short-term rates have already fallen by close to one percent, with one-year treasuries moving from over 5.0% to just over 4.0%. This is in anticipation of a slower economy and of the Fed lowering rates. In other words, the markets have already anticipated these moves. The National Association of Realtors has moved their forecast for the rest of 2007 down even further with just about everyone not expecting a recovery until the latter half of 2008. What the Fed can help with is wording-wording that will calm the credit markets. While short-term rates have fallen, the rates on adjustables have gone up because of the collapse in the secondary markets. Subprime programs have gone up in rate even further or disappeared and jumbo loans (above $417,000) are now a full percent in rate above conforming loans while the spread used to be closer to1/4%. The Fed must do its part to help restore confidence in investors who are purchasing mortgages and that does not happen overnight. Rates are already low and if the markets calmed down while the spreads returned to "normal," we could see the recovery process in motion before many are predicting. Hopefully, this week starts the process.

Weekly Interest Rate Overview

The Markets. Mortgage rates fell significantly in the past week in the aftermath of the weak employment report. Freddie Mac announced that for the week ending September 13th, 30-year fixed rates averaged 6.31%, down from 6.46% the previous week. One year ago 30-year fixed rates stood at 6.43%. The average for 15-year fixed rates fell to 5.97%. Adjustables also fell with the 5-year moving to 6.17% and the 1-year decreasing to 5.66%. "Interest rates on prime conforming loans fell across the board in the past week, with rates on 30-year fixed mortgages averaging 0.15 percentage points below the previous week's level", said Frank Nothaft, Freddie Mac vice president and chief economist. "The drop in mortgage rates may give some relief to borrowers who are looking to refinance or purchase a home. "As a matter of fact, all the mortgage products in Freddie Mac's survey this week were lower than they were at the same time last year."

Current Indices For Adjustable Rate Mortgages
Updated September 14, 2007
Daily Value Monthly Value
Sept. 13 August

6-month Treasury Security	4.27%	4.55%
1-year Treasury Security	4.20%	4.47%
3-year Treasury Security	4.11%	4.34%
5-year Treasury Security	4.22%	4.43%
10-year Treasury Security	4.49%	4.67%
12-month LIBOR-WSJ		5.1847% (Aug)
12-month MTA		4.9325% (Aug)
11th District Cost of Funds		4.277% (July)
Prime Rate		8.25% (June, 2006)

Real Estate News

Office rents have jumped an average of 3.1 percent nationwide during the second quarter, up from gains of 2.8 percent in the first quarter and 2.1 percent in the year-earlier period, according to real estate research firm Reis Inc. This was the largest quarterly increase since the third quarter of 2000, before the combined effects of the technology-stock bust and the Sept. 11, 2001 terrorist attacks caused office vacancies to rise and rental rates to fall. In cities like New York and Washington, growing businesses are hiring more people and fueling demand for space. In Boston and San Francisco, investment companies are acquiring property and pushing up rents. In the strongest markets, which include Seattle, west Los Angeles, New York, and Washington, fewer new office buildings are being built because of a scarcity of land and rising construction costs. Rents aren't high everywhere, particularly in the Midwest. For example, in Chicago, they're slightly below what they were in 2000 because there are so many new office buildings seeking tenants. Source: The Wall Street Journal

Pools can be "a double-edged sword" when it comes to a home's resale value, says Walter Molony, spokesman for the National Association of Realtors®. "For people who like them they are a plus, but for families with small children it may discourage them from a purchase," he says. After reviewing almost 30,000 home sales in Philadelphia from 1996 to 2003, NAR reported in 2004 that property values jump about 8 percent because of in-ground pools and fall by roughly 2 percent because of above-ground pools. Will those numbers affect home owners' decisions to install a pool or not? Experts say no, as most people add pools for relaxation and entertainment purposes, not to boost property value. Also, the value of a pool can differ from community to community. For example, in a neighborhood of million-dollar homes, a property without an in-ground pool can be difficult to sell, real estate professionals say. Source: PhillyBurbs.com

Paul Gifford
PrimeLending, A PlainsCapitalCompany
104 West Bahama St., Suite A
South Padre Island, TX. 78597
pgifford@primelending.com
(956) 551 - 2587

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