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Worst Week Followed By Best Day Ever

After the stock market’s worst week in history, it closed yesterday with the highest gain in history.

What a roller coaster ride for investors.  After a record for the largest 1 week decline ever last week, investors came back with a vengence yesterday to close the DOW up 936 points.  That makes yesterday the largest single day point gain in history, and the 5th largest perecntage gain ever.  Activity like this begs the question of whether we have found the bottom in the equity markets or not.

No one will know where the bottom is until we have already passed it, but the level of volatility and panic in the sell offs last week suggest that we are either there now, or at least we are close.  Since this blog focuses primarily on real estate and mortgages, how will this affect housing?

There is no direct connection between the stock market in general and the real estate market.  But, they are all slices of the same economic pie.  The typical bear market lasts 13 months with a resulting decline of 30% to 40% in the stock market.  Right now we are in the middle of the 12th month of market decline from its highs in October 2007, and the total point decline is around 41%.  Based on this information alone (and there are many more factors at play), it would signal that we are at the bottom, or at least close to it.

The bigger problem in the real estate market is inventory vs. willing buyers.  Because foreclosures are still coming on the market in record numbers, we will have to remove some inventory before sellers can really make up any ground.  But, for buyers, this is the best buying opportunity that has existed in decades.  Locally (in North Florida), home prices are back to 2003 levels, and the deals available to buyers are jaw dropping now.  Nationaly, the numbers vary by area, but there are tremendous buying opportunities across the country.

Lending standards have tightened, but there is still mortgage financing available (contrary to the inpression that you might get from the news).  For more information on the financing options available to you, go to, or call me at 888-257-8383.


Thursday June 12, 2008

If you are waiting for the bottom in the real estate market, you may lose out.

As we continue to see volatility in the financial markets, the question comes up about when is the right time to buy in today’s market.  Do you wait until the nightly news tells you it is time?  Do you listen to your real estate agent who clearly has a vested interest in the transaction?  Do you listen to the statistics reported for your local area?

Real estate is a highly localized market.  What is good in your backyard, very likely is not the same 100 miles down the road.  This fact alone should make you reconsider blindly following the talking heads on T.V.  That being said, there are more factors at play when purchasing property than just the market price as a whole, or where the “bottom” may or may not be.

In the Bond market today, we will very likely see the 25 day moving average cross over the 200 day moving average.  This is significant because it means that short term volatility is turning into a long term trend.  Historically, when the short term average moves over the long term average, the trend will continue to move in that direction.  Newtons law explains that “objects in motion tend to stay in motion”.  It is the same reason you wear a seat belt in a car, and the same reason that football players wear pads.  Over the last 2 years, every time the short term average has moved across the long term average, the trend has been in that direction for at least 3 months.  While we are living in a time that goes against the grain historically, certain truths still warrant discussion.

So what does that mean if you are looking to buy a home, and you are waiting for the bottom to hit in the market?  Here is an example:

If you get a 200,000 mortgage at 6.25%, your monthly payment would be $1231.43 (not including taxes and insurance and mortgage insurance).  If you continue to watch the market and the same mortgage comes down to $190,000, but at the same time rates go to 7.25%, your new payment would be $1296.13.  So congratulations, you got a better deal on the house only to have a payment that is $64.70 per month higher.

If you are paying cash, this example holds much less weight.  But in the real world where most people borrow money to buy a home, it is significant.

My point is, don’t watch the national news to get information about whether you should buy or not in your local area, it is just too general to be accurate.