The Mortgage Market

San Francisco real estate is not immune to the mortgage mess going on right now. The tug-of-war for the ultimate direction for mortgage rates continues, and with it, the overall direction of the local real estate market. After weeks of rising on inflation fears, the drag of a dispirited economy exerted greater leverage this week, pulling mortgage rates back from 10-month highs.

Let’s go over the facts: interest rates are moving up. This week's overall average for 30-year fixed rate mortgages declined by nine basis points (0.09%) to 6.91%, breaking a five-week string where rates rose by a full half-percent. Beginning in August 2007, mortgage rates have traveled a full-circle path, with rates just over 7% in the early stages of the credit crisis before sinking all the way down to just above 6% in January, and then ramping all the way up to an inflation-fear-goosed flat 7% last week.

For a number of different reasons, we've traveled this range for mortgage rates a number of times, and with the economy signaling weakness anew, we may just see rates settle back somewhat once again. The cost of mortgage money responds to the vagaries of growth and especially inflation, but it's also influenced strongly by investor demand for mortgage instruments. There continues to be a considerable lack of demand for certain types, and in order to attract even the meager amount of attention currently in evidence, mortgage debts need to pay higher yields to keep attracting money. Thus, mortgage rates remain not only higher than they would normally be (compared to risk-free investments) but remain stubbornly firm, too.

Conforming loans which can easily be sold to Fannie Mae and Freddie Mac continue to absorb much of the available investor dollars, and so those rates remain comparatively low relative to private-market jumbos. The average for a 30-year fixed-rate conforming loan slipped nine basis points this week, as did jumbo mortgages. Other products continue to offer little significant relief from elevated rates, with the popular 5/1 ARM standing at an overall average of 6.42%. At the moment, a weakening economy is pressing mortgage rates downward.

A lighter calendar of economic data is due out, and it's reasonable to expect that the markets will be fully in "summer mode" now that July is here. This argues for little significant change in interest rates next week, but mortgage rates may tick down a basis point or two.

I’ll keeping my eye open as far as what the mortgage mess means to the San Francisco market. Stay tuned…

The Market Softens

Well, I think that it has finally happened in San Francisco. The San Francisco market is following suit with the trend affecting many other parts of California.

I'm definitely seeing properties sitting on the market for longer periods of time. Moreover, I'm seeing properties experience price reductions. These are the same properties that would have quickly sold over the asking price last year.

There's a growing sense that buyers are sitting back and waiting things out. Buyers can be more finicky than ever. I've been able to get my buyer clients into great properties well under the asking price. Last year, that was a difficult task. But not so anymore. Plus, the summer malaise will probably help continue this trend...