Times Are Changing

Remember the old saying "what goes up must come down." Well, the U.S. housing market is getting set to experience the credibility of said adage. Many analysts believed the record setting levels at which the housing market was growing and the torrid pace at which homes were appreciating would eventually reverse itself and come crashing down. Guess what, that time is now. With housing bubble proclimations being reported as early as 2002, people grew comfortable ignoring those claims as rubbish. Why not, for so long all we heard about was the "bubble" and how it would soon "pop" leaving people upside down and the market flooded with listings, when in reality the housing sector did nothing but produce. With the market cooling considerably these past couple of months, and supply beginning to far exceed the current demand, our housing sector seems headed for rough times. Sadly, those bleak claims that were once premature and shallow now look to be real warning signs knocking on the front door. This is not to say real estate will no longer yield any type of return because there will always be pockets of growth that perform well regardless of market conditions. However, the time has finally come for the housing market to touch down and face the piper; one thing is for certain, I doubt reality will encompass the same double-digit gains on appreciation we once grew accustom to.

Weekly Outlook

Current Trend: Trying to break through the 200 day moving average
Risks Favor: Locking
Current Price of FNMA 6.0% Bond: $99.94, + 3bp

With no economic news scheduled to be released today or tomorrow bonds will more than likely remain flat. However, bonds are currently a little overbought and investors could start unloading some of their gains. If that is the case, prices will fall quickly.

Wendesday & Thursday will be a good indication as to where the Housing Sector sits. Existing Home and New Home Sales will be released and watched carefully by economists. The same downward trend should be expected due to certain regions of the country cooling off considerably.

Lastly, the Durable Goods Orders is scheduled for Thursday. This report is reflective of manufacturing activity and consists of items expected to last longer than three years; it could have the greatest impact this week on the bond market and rates. From a technical standpoint bonds are overbought so keep that in the back of your head when deciding whether or not you should lock or float.

August 23  Existing Home Sales         Moderate
August 23  Crude Inventories             Moderate
August 23  Durable Goods Orders       Moderate
August 23  Jobless Claims (Initial)      Moderate
August 23  New Home Sales              Moderate

The Downside To Adjustable Rate Mortgages

Using an adjustable rate mortgage to qualify for more home is a poor decision too often made by borrowers these days. A large percentage of borrowers have developed a mindset that is only concerned with the now, giving little regard to what may happen in the future. Unfortunately, for those who adopted this mentality a couple of years back, their ARM's have already or will soon adjust to a level dramatically higher in rate and steeper in payment. Read the warning signs, heed the instruction of your mortgage advisor and carefully determine a strategy for each property you purchase, this will help avoid the concerns and mistakes many now face. Here are a couple of articles that discuss the dilemma many are currently experiencing.

Market Watch: Painful ARM Twisting
US News & World Report: A Reckoning With Risk
US Today: Some homeowners struggle to keep up with adjustable rates