Is this the sweet spot?

Is this the sweet spot where both Phoenix home prices AND interest rates are excellent? I ask because I just received the email below about the possibility of increasing interest rates due to increasing federal government borrowing. That seems a very real possibility.

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Interest Rates

Mortgage rates continue to remain very attractive these days. However, the Treasury sold $94 Billion in 2 and 7 year Notes this week. This pattern is likely to continue as the government raises money to fund its spending. A by-product of this effort will likely be an upward trend in mortgage rates. It is unclear when and how much but most analysts believe it will happen and within months if not sooner. Note that 10 Year Treasury Yields have moved up to late November early December levels. So if you or your clients are waiting for rates to go down be aware that the risk is much more to the upside.

Interesting fact: Currently our external debt (what we owe other countries) is about 40% of Gross Domestic Product (GDP). According to Moody’s given the present environment the number could grow to 60% within 2 years.

Mortgage Industry Update

I have been asked by several people lately about Jumbo loans. So I thought it appropriate to offer an overview of the state of this loan product. Please note the following is a composite of several investors and for a specific transaction please give me a call.

• Rates: 30 year fixed high 6’s Arms mid 4’s to mid 6’s (includes interest only).
• Loan to Values: Typically 85 max but more likely below 80.
• Loan amounts: Generally to $650,000 but up to $3MM available.
• Credit: 650 score but suggest 680+ to get better pricing.
• Credit quality: NO bankruptcy or foreclosure history.
• Property types: Primary, second home and investment.
• General: Full doc loans and typically max debt ratio of 45.

Good News

FHA loan limits have been increased. For example, in Maricopa County the previous limit was $271,050 but the new limit is $346,250. Existing home sales were lower than expected but the standing inventory dropped to 9.6 months (compared to new construction’s 13 months!). This was the lowest number in two years! Earlier in the week the house was scheduled to consider the “cram down” legislation giving judges the ability to modify loans in bankruptcy. Today Senator Dick Durbin said that he was “listening” to the industry concerns that this only apply to sub-prime loans. Revisions to the Hope for Homeowner program are also included in the proposed legislation. Finally, if you want to track spending from the Stimulus Bill check out www.recovery.gov.

Burt Carlson
Mortgage Consultant
Smart Financial Mortgage
1715 W Northern Ave Suite 100
Phoenix, AZ 85021
(602) 803-9660 (cell)
(602) 889-2242 e-fax