Interest Rate Hikes, Local Inventory Levels, and Subprime Fraud Lip Service

Yes, the picture to the left is as accurate a depiction of how us real estate folks feel after the week we just endured.

Let's see what I can isolate as the 3 biggest issues that have come onto my radar screen for this second week of June...

Mortgage interest rates. UP, UP, and AWAY!!!

UP to 6.5 percent for conforming mortgages this week, even as high as 6.75% at one point. Good luck getting that quote to stick for more than a couple of hours.

UP again, for Jumbo Mortgages (over $417,000 of loan amount), reaching as high as 8.675 or higher. Jumbo's affect the luxury housing market in Chicago's far western suburbs, the Tri-Cities of St. Charles, Geneva and Batavia, certainly. They also affect modest dwellings in the nearer suburbs, like Oak Park or Arlington Heights (to stab blindly), where prices are substantially higher. The crowd of buyers that can afford a half-million dollar mortgage at close to 9% interest is an understandably small one, and they expect a lot more for their money nowadays.

Rates have been attributed to tough talk about inflation from the U.S. Federal Reserve. As I look at overall economic news, I start to wonder if housing isn't a small problem in the macro-picture. It seems that Ben and friends thought the same thing, and it caused a small ripple in the mortgage bond market, as concerns that bond values would drop in the face of higher rates (impacted by rate hikes at the Fed) over the next few months.

And AWAY! Away with mortgage perps'. Good to see that they've nabbed every last mortgage fraud'ster. 400 of our "finest" real estate practitioners were hauled off to jail for inflating stated incomes, misleading values or uses for properties, and other fraudulent tactics used to secure for loans. As the AP line depicts, the real victims in the subprime mess is "consumers" and "lenders." Consumers are the everyday folks who never fibbed on their stated incomes, source of funds (gifts depicted as savings, etc.), or never really heard or understood that their loans were adjustible. Lenders, we are told, were blissfully unaware of the sources of their record crushing revenues. The next step is arresting oil company executives, and then our ever-benevolent government will likely give us free gasoline out of the goodness of their hearts.

Looking at the data for housing inventory levels, locally, I am not yet inspired to announce the end of the housing downturn. Taking a closer look at our months' supply of inventory in the Tri-City area, you'll note that we are well above last year's inventory level, caused by fewer sales and more homes listed for sale. Foreclosures, of limited importance last spring and summer, are taking a heavier toll on the local market, along with short sales. Failed rehabs and new construction gluts, however, are far less prevalent this time around.

One, Two, maybe Three Items for Your Review...

When I first started clicking off rather incidental messages on Twitter.com I didn't see how it would really apply to a Realtor. A mortgage lender, sure, or a high school student, TOTALLY, but what is there for me to offer that would really seem relevent to the public? It took me a little while, but I think I know what it is. HOTSHEETS. The number of homes that have come onto the market, reduced price, gone under contract, cancelled/expired from the MLS, or closed, is actually a very base way to tell the direction of the market. For me, it's actually helpful to spit that kind of data out more often, and for the reader, I think it's in the same ballpark as the graphs that I try to showcase here on a weekly basis. If you live in the Tri-City or Fox Valley area, you might find that this is something worth watching.

NEXT. Interested in moving to Morrocco? As a Baird & Warner agent who has had many properties featured in the Luxury Portfolio Fine Property Collection, this caught my eye this week. It's not my listing, fyi.

LASTLY. Do you use Realtor.com for your casual property searches? Well, I happened upon a very fresh podcast from NAR's CEO, Dale Stinton (my childhood best-buddy's dad, as odd as that sounds. That's a true fact.). Go here to see a sneak peak at The New Realtor.com.

Are 1st Floor Master Bedrooms Any HOTTER than the Rest of the Market?

The real estate market has benefitted from the Baby Boomer generation since their births caused the great housing boom after World War Two. As they've grown up and had families, they've been the largest economic catalyst in the modern era, with their luxury home, vacation home, and investment property purchases spurring the most recent boom. Experts have been predicting since well before the boom that the housing market would begin to pick up a trend of ranch homes, and first floor master bedroom homes, townhomes, and condos. With the first "official" baby boomers reaching the "senior" age range (62) this year, the purchase preferences of these buyers is more forward looking than ever. Empty nesters are often looking to move on from their 2 story home to downsize into something that gives them everything they want in terms of upgrades and ammentities, but with more lifestyle flexibility.

Now that the boom of housing has moved to what everyone hopes is the trench of it's decline, let's take a look at what many expect will be the economic engine of real estate's recovery: The 1st Floor Master Bedroom Home and Townhome [FFMH & FFMT]. By comparing the inventory level of these properties, with those of non-1st floor master properties [NFFH & NFFT], we'll be able to see if the trend is emerging, or if the experts' predictions are wrong. For the purpose of this analysis, we'll be examining the Tri-City area: St. Charles, Geneva, and Batavia, Illinois.

Looking at Figure 1, below, inventory levels and sale levels for NFFT's, with FFMT's below them. We can clearly see that at the present moment, the experts' predictions are not yet materialized. Townhomes are seen as more a promising housing sector for baby boomers, with the appeal of reduced maintenance, and lower expense during retirement years. Here, however, the number of homes on the market exceeds the prior six months of sales and contract activity by almost 5 to 1 for 1st Floor Master Bedroom Townhouses. Meanwhile, the general marketplace for townhomes over $300,000 is only a 4 to 1 balance between supply and demand. 1st Floor Master Bedroom Townhomes are presently demanded less than conventional townhomes that have 2 stories, with a master bedroom up at least 1 flight of stairs. We have seen townhomes inventory overall in check, but the over-$300,000 price range is clearly still in a strong buyers market.

Figure 1

On the other side of the coin, in Detached Homes, the entire market has been far from in-check during the market's decline. As seen below, in Figure 2, the FFMH and NFFH markets are at 4 to 1 and 3 to 1 ratios of inventory to demand. With a gross 798 actively for-sale homes of the NFFH variety, and 166 with first floor masters, buyers are in the drivers seat of the entire detached home marketplace.

Figure 2

Why is this the case? Are the experts wrong? I believe it is less to do with the preferences of baby boomers, as it is the effect that the housing market has had on their ability to execute purchases of homes that meet their evolving needs. Given the challenge they face in selling their existing homes, this trend is going to continue to lay in waiting for the boomer buying boom to come.