The Auctions have come and gone with a total of 5 properties up for sale and a total of 0 sold!  They received only one bid out of all of the auctions; one bid on the very first house and it was on the starting price, which did not meet the reserve price.  The second home did not receive any bids.  They even tried to lower the starting price to entice someone to make a bid and that did not work.  As the day went on there was a crowd at each property but no bidders.  Ultimately the last 2 properties on the auction block were canceled.

In my opinion, this auction was doomed from the start for 2 reasons. One is the product itself is something that does not meet the high standard of quality that today’s market demands.  Two, this is a tough price range to get people to buy a house at auction.  I think that while people want to know if they are bidding against someone in any sale (auction or not) they do not necessarily want to do it in front of a large crowd.  These homes have a stigma attached to them and it just makes them that much harder to sell. Add a sales gimmick on top of that and you are doomed to fail.  I call this auction a sales gimmick because it was not the true form of an auction.  The reserve price was way to high as was the “buyers premium.”  When you do the math, buyers did not feel as though they were getting a good deal which is what a buyer wants and expects in this market, especially at an auction.

All of the 5 properties are back on the market now at a fairly attractive new price without the 7.5% buyers premium. I am familiar with the property on Faymont, which is at $1,499,000, and notes that it is subject to lender approval of a short sale.

It has been an interesting week.  We have seen some significant rate improvements, especially in the loan amounts below 417k.  You can get below 5% if you are willing to pay some points!

Another major headline that has been causing a great deal of excitement was the announcement that Treasury is now authorized to buy HUGE additional quantities of Mortgage Backed Securities (MBS), with an eye towards driving rates down to a target of 4.5%.

Let’s walk through the logic of this:  The idea is that treasury buys huge amounts of mortgages.  Then, the rest of the market is supposed to respond to this additional demand, and jump in to buy.

A quick sidebar – The more demand there is for MBS, theoretically, the lower rate investors will demand to be willing to buy them.  The safer an investment it is seen to be, the lower rates will go.

Okay, back to our story.  So, the government will buy all these MBS.  Then, the financial markets will get over their fear of MBS and the additional demand will create a world where MBS will be bought at 4.5%.

There is one flaw in this theory.  YOU CANNOT LEGISLATE MARKETS.  The government can try to keep the money moving, but rates will only come down when the financial markets get over their fear of mortgages as an investment.    In my mind, it is the same as the government saying “we are going to make GM design and build cars that people want”.  GM might figure that out on their own, but the government can’t force it.  Might rates come down over time?  Perhaps, but bear in mind that a rate of 4.5% is well into uncharted territory, so there will be some resistance to that kind of improvement.  All I am saying is things are never quite that simple.

What does this mean to people who are trying to decide if they should buy now?  Well, if they buy now, they are getting a great price, and a great rate.  If the governments plan doesn’t work, then they still got a great price and a great rate.  If it does work, and rates plunge, that will create a huge amount of buying demand, and home prices will bounce upward.  Then, those that bought low will have enough equity tor refinance into an even better rate.

To that point, in late day trading today, we have seen rates run back up just a tiny bit.  The rally that started late last week into this week has lost some steam, at least temporarily.  It may pick back up next week, but when you are out meeting folks this weekend it is good to let them know that rates are not in a total free fall.

It is hard to feel like too much of a bonehead taking a fixed rate loan around 5%!

Regards,

Doug Smith – Stratis Financial
Your Conventional, Jumbo, and FHA/VA expert since 1993

3625 Del Amo Blvd #220, Torrance CA 90503
Direct 310 697-7033     Cell 310 508-5832     Fax 310 371-7469

For all of those interested you can hear Listen to my thought now as well as read them.

Doug Smith and myself are now on a weekly radio show over the internet.  You can listen live every Thursday at 11 AM  by clicking on the link below:

LISTEN LIVE  go to this page and click on the “listen live” button in the middle of the page.

You can also listen to us anytime by playing our old shows on demand at, http://www.latalkradio.com/Recap.php

The show is about the real estate market, where its going, where its been, and where we are now.  How to deal with issues in a transaction and what do to to make the entire experience flow as smoothly as possible.  Our hope for this show is to enlighten you, share some knowledge, and to shed some light on the way things work in today’s world.

give it a listen and let me know what you think…email me at dan@oconnorproperty.com