This website makes use of Macromedia(R) Flash(TM) software.
Your current version of Macromedia Flash Player cannot display this site.

Downloading the latest version is free and will only take a moment.
Be sure to come back and explore our site when you are finished.






Source: http://www.focuspub.com/
Volume 10, Issue 36 For the week of October 02, 2006

A CASE FOR LOWER RATES

The GDP

The economy is slowing in part because housing is contracting. In 2Q06 housing impacted GDP - 0.7 (26.7 percent weight) resulting in a 2.6 annual rate of growth. Housing will carry a much heavier impact on the GDP over the next two years.
A sharp decline in the housing industry, including new home construction, has the potential of crippling the economy. Lower interest rates could prop up the housing industry and help facilitate a soft landing for the greater economy.

Housing Affordability & Wages

Recent years have drained spent-up housing demand well into the future. Modest job growth and small wage increases due little to help either existing or newly created households to qualify for mortgages at current home prices.
Lower mortgage rates will open another "affordability" opportunity for those remaining households who can qualify for purchase mortgages under more restrictive lending guidelines.

ARM Adjustments

Approximately $400 to $500 billion dollars in ARM loans are up for their first rate adjustment over the next three months alone. This does not take into account the two trillion plus that will adjust through 2008.

Historic Precedent

The benchmark 10-year note yield is almost 70 basis points below the fed funds rate. The last time this occurred the FOMC began a series of rate cuts within five months.

What If?

Each quarter point drop in rates will open up refinancing options, (predominantly to fixed-rate-mortgages) for thousands of ARM households facing certain financial disaster if this situation is not addressed.
To avoid a serious economic disaster the Fed will need to both lower rates and keep them down for a sustained period of time to match the wave of first adjustments already on calendar.
However, this refinance boom will differ from earlier "cash-out" booms as most of these homeowners have marginal to nil lendable equity. They will be fortunate to get through by the skin of their financial teeth, but will be spared foreclosure and loss of their homes. However, a substantial number who bought their home using "creative" programs and underwriting will see few financial alternatives as lenders tighten standards.
Fed funds futures traders and Fed watchers are increasingly weighing in for the Fed to lower rates in early 2007.

 
Diverse Solutions -- Real Estate Websites