Mortgage Market Explanations

Hello All! I wanted everyone to have this information, so that you can share it with your buyer’s and seller’s to hopefully add understanding and to show them that you are their trusted advisor. Good luck! I will keep you posted.

The Chinese have a proverb: “May you live in interesting times.” And we are living through interesting times indeed.

Whatever the political posturing regarding the current rescue plan, a plan needs to be passed. Credit markets are frozen and banks are going bust every day. This is not totally because of "toxic" mortgages. This has a lot to do with FASB 157, also known as "mark to market". Each day lenders must mark their assets to the marketplace. It's like you having to appraise your home everyday and if your neighbor was under duress because they got very ill, divorced, lost their job and was forced to sell their home quickly they may have sold it super cheap. Now, does that mean your house is worth that super cheap price? Clearly not. Why? Because you are not under duress. You have the time to sell your home and get a more normal price, which more accurately reflects true market conditions.

But "mark to market" does not allow for this, which creates a vicious cycle. Why is this so bad? Because as lenders mark down their assets, the amount that they have loaned previously becomes much riskier in relation to their assets. For example, say a bank has $1 million in assets and say they have $15 million in loans outstanding. Their ratio is an acceptable 15 to 1. But should they take a paper write down of $500 thousand due to "mark to market" requirements, their ratio suddenly changes to 30 to 1. This is because their assets are now only $500 thousand after taking the paper loss, while their loans outstanding are $15 million. And at 30 to 1 this bank is viewed as a risky investment. So the stock price starts to get hit, it becomes harder to borrow, and most importantly harder to make money. The bank is then forced to sell some of its loans to reduce its ratio...at cheap prices. And this makes the vicious cycle continue.

And a quick look at the holdings of these loans show that 95% are problem free. Additionally, the Credit Default Swaps (CDS) that are used with the pools of mortgages are relatively safe. But this requires a bit of understanding. You see, when a pool of mortgage loans is put together, it isn't just A paper or B paper etc….it's everything. It’s got some A paper, B paper, C paper…and even what looks like toilet paper. An "A" investor buys the whole pool but because they are an "A" investor their safety is greater because they can avoid the first 20% (an example) of defaults. So they own the whole pool but are sheltered from the first batch of defaults, and for this they get the lowest rate of return. As you can figure from here the more risk investors want to take, the higher the return. So the investments are relatively safe, but the accounting rules currently place undue pressure on the banking institutions.

Now add to all this, the opportunistic “shorting” done on the financial stocks, much of it illegal because those shorts did not legitimately borrow shares (called naked shorting), and you exacerbate this whole problem. Thank goodness for the recent temporary ban on shorting in the financial sector. As for the plan the government is the only one who can step in to do this. And they have to do this. And they will do this. The nauseating political posturing from both sides is just part of the process. This is not easy to understand for the general public. In fact most politicians don't get this either. That's why it is a difficult yet critical bill for them to vote on.Once this is done it will take some time but the markets will stabilize. As for the real estate and mortgage industries, it will take a bit of time but we will make it through this. Rates will remain attractive and the influx of credit availability will help the housing market gradually improve. This ultimately will be the medicine needed to improve the situation overall.

As always – please keep in touch, especially during these volatile times. I am here to help you in any way that I can.

Wishing you Abundance!

Nan

Mortgage Broker #72387
Abundance Home Mortgage LLC
12885 Research Blvd., Suite 102
Austin, TX 78750
512-335-7800 Office
512-335-7805 Fax
512-970-8617 Cell
www.nankirkpatrick.com

Value of Austin Homes Remains Stable

Value of Austin homes remains stable: Real estate market grows due to first-time buyers and young people in their early 20s

Despite home price depreciation around the rest of the country, Austin housing is holding its value. According to an Austin Board of Realtors study, the median price of single family homes is at $200,000, a 4 percent increase from last June. "Our homes are affordable in comparison. Less than $200,000 is amazing," said Socar Chatmon-Thomas, chairman of the board. "In most parts of the nation you can't buy anything as a first home for less than $350,000."Sales of single-family homes are coinciding more with national figures, as they have decreased by 20 percent since last June."

Austin is a vital and dynamic environment because of business growth," said Beverly Kerr, vice president of research at the Austin Chamber of Commerce. "We're a lot less expensive in terms of taxes and regulation than other tech industry centers and we're a great place for quality of life."

Forbes magazine ranked Austin as America's third-most "recession-proof city" in April. At 3.7 percent, Austin's unemployment levels are nearly 2 percent below the national average."Growth in Austin is really driven by the job market," said Chay Walker, senior agent manager at Austin's Uptown Realty.

However, Walker said, Austin's 6 percent unemployment rates in 2001 and 2002 prevented the city's housing market from growing at 45 percent, the highest appreciation rate seen in some parts of the country, Walker said."Austin's real estate market stayed flat," Walker said. "When the rest of the country started having problems, our markets were just coming around." Austin builders responded to the crisis by scaling back production of new homes, Chatmon-Thomas said. Austin housing appreciation continues to hold steady at around 5 percent.Chatmon-Thomas said some of Austin's real estate growth stems from an influx of Asian-American and Hispanic first-time home buyers and younger buyers. "A lot more young people are buying homes in their early 20s," Chatmon-Thomas said. "I think it's that younger people realize the value of a home and realize that 'If I purchase this home now, I can use it as an investment property when I get married or change lifestyles or whatever.'"

By Mohini Madgavkar
The Daily Texas

Top 25 Markets Shake-Up

Top 25 Markets Shake-Up

The once top-rated housing market Yakima, Washington is beginning to run out of gas, and falls from the number #1 forecast position in Housing Predictor's Top 25 markets for 2008.

After years of strong sales and appreciation, the Yakima market is slowing and is forecast to slide over the rest of the year. A ripple effect of tighter mortgage lending standards and increasing inventory is beginning to impact the marketplace.

Biloxi, Mississippi all but destroyed by Hurricane Katrina, is in the number one position. A government sponsored program is helping the area rebuild what was once the second largest casino business in the country to Las Vegas.

The Top 25 with the highest forecast appreciation have the greatest probability of reaching their forecast of the more than 250 local housing markets Housing Predictor forecasts.

Conservative North Dakota with one of the strongest statewide economies nationally, and the lowest subprime mortgage activity in the country, placed three cities on the list. Four states each placed three communities on the list.

Interestingly, the top markets for 2008 are scattered throughout all parts of the U.S. from the west to the east and into the southern states. No particular region of the country was more dominate than another as more and smaller communities based on population made the Top 25, which have less appreciation forecast than earlier in the year.

Rank Real Estate Market 2008 Forecast

1. Biloxi, MS 4.9%
2. Salem, OR 4.7%
3. Bismarck, ND 4.6%
4. Spokane, WA 4.4%
5. Yakima, WA 4.1%
6. Austin, TX 4.0%
7. Grand Junction, CO 4.0%
8. Fargo, ND 4.0%
9. Mobile, AL 3.9%
10. Idaho Falls, ID 3.8%
11. New York, NY 3.8%
12. Glen Falls,NY 3.8%
13. Salt Lake City, UT 3.8%
14. Grand Forks,ND 3.8%
15. Pascagoula, MS 3.8%
16. Hattiesburg, MS 3.7%
17. Albuquerque, NM 3.5%
18. Kellogg, ID 3.5%
19. Boise, ID 3.5%
20. Provo, UT 3.1%
21. Ogden, UT 2.7%
22. Edmond, OK 2.6%
23. Oklahoma City, OK 2.5%
24. Amarillo, TX 2.4%
25. Lubbock, TX 2.3%

Austin Home Sales Gaining Strength

It's showing signs of a possible rebound, but the Austin home market remains sluggish.
Single-family home sales in the metro area totaled 2,154 in May, down 20 percent compared with May 2007, according to data from the Austin Board of Realtors. However, the May figure is the highest number of total sales the area has experienced in eight months.

Austin is not seeing the drastic price drops that many other markets around the country have experienced. The average price for a single-family home stood at $263,151 in May, up 5 percent from a year ago.

"Despite economic conditions across the nation, Austin continues to have a relatively low unemployment rate and cost-of-living index," says ABoR Chairman Socar Chatmon-Thomas. "While we're not enjoying the booming real estate markets of 2006 and 2007, we have seen steady increases in sales volume since January 2008."
Pending single-family home sales totaled 1,418 in May, down 55 percent from May 2007. New listings for the month were down 7 percent from a year ago.
Townhome and condo sales are also on the downswing. A total of 239 units were sold in May, a 24 percent decline from a year ago.

from: Austin Business Journal

50 Reasons to Love the USA: Austin Music!

Texas:

Because you don’t have to be 22 to get excited about Austin’s music scene. Known as a mecca for the indie–music set (thanks to the annual South by Southwest festival in March), Austin now has a venue for Bach, Mozart, and Stravinsky as well. On the edge of Lady Bird Lake, the Long Center for the Performing Arts (701 W. Riverside Dr.; 512/474-5664; thelongcenter.org) houses the city’s ballet company and symphony orchestra. The performance hall, designed by Nelsen Partners and Zeidler Partnership Architects, is in tune with Austin’s unconventional spirit—70 percent of the structure was made from recycled materials, including the gigantic concrete ring that encircles the central building like a halo. On the lineup this summer: Austin’s Chamber Music Festival, the Austin Shakespeare Festival, and free weekend symphony performances on the public terrace.

Travel & Leisure's state-by-state guide to fun summer travel.
updated 8:43 a.m. CT, Thurs., June. 19, 2008

Best Cities to Live, Work and Play

These ten great places will only get better.

Our approach this year to picking the ten best cities in which to live and work was simple: Look for places with strong economies and abundant jobs, then demand reasonable living costs and plenty of fun things to do. When we ran the numbers, some of the names that popped up made us do a double take at first. So we hit the road to meet movers, shakers and regular folks, experience the ambience and take in the sights.

We discovered that our numbers guru, Kevin Stolarick, hadn't steered us wrong. Stolarick, research director at the Martin Prosperity Institute, a think tank that studies economic prosperity, says: "Our formula highlights cities not just with strong past performance, but also with all the ingredients for future success." One key to a bright future is a healthy shot of people in the creative class. People in creative fields -- scientists, engineers, architects, educators, writers, artists and entertainers -- are catalysts of vitality and livability in a city.

The cities that made our list also represent larger surrounding areas. And because we understand that city living isn't for everyone, we've highlighted some great suburbs, too.

Pack a bag and join us on a tour of the Best Cities for 2008 and prepare for some surprises.

1. Houston
Population: 5,542,048
Population Growth Since 2000: 14.9%
Percentage of Workforce in Creative Class: 31.3%
Cost-of-Living Index: 88.1 (100 being national average)
Median Household Income: $50,250
Income Growth Since 2000: 13.1%

2. Raleigh
Population: 995,662
Population Growth Since 2000: 19.9%
Percentage of Workforce in Creative Class: 36.1%
Cost-of-Living Index: 99 (100 being national average)
Median Household Income: $56,150
Income Growth Since 2000: 10.3%

3. Omaha
Population: 821,356
Population Growth Since 2000: 6.6%
Percentage of Workforce in Creative Class: 30%
Cost-of-Living Index: 89.4 (100 being national average)
Median Household Income: $51,627
Income Growth Since 2000: 15.1%

4. Boise
Population: 568,086
Population Growth Since 2000: 18.2%
Percentage of Workforce in Creative Class: 33.2%
Cost-of-Living Index: 95.5 (100 being national average)
Median Household Income: $49,833
Income Growth Since 2000: 16.6%

5. Colorado Springs
Population: 600,444
Population Growth Since 2000: 10.5%
Percentage of Workforce in Creative Class: 34.1%
Cost-of-Living Index: 95.3 (100 being national average)
Median Household Income Since 2000: 53,486
Income Growth Since 2000: 16.1%

6. Austin
Population: 1,506,425
Population Growth Since 2000: 17%
Percentage of Workforce in Creative Class: 36.5%
Cost-of-Living Index: 92.8 (100 being national average)
Median Household Income: $52,882
Income Growth Since 2000: 12.2%

7. Fayetteville
Population: 419,455
Population Growth Since 2000: 17.3%
Percentage of Workforce in Creative Class: 31.4%
Cost-of-Living Index: 90.4 (100 being national average)
Median Household Income: $42,267
Income Growth Since 2000: 17.6%

8. Sacramento
Population: 2,067,117
Population Growth Since 2000: 13.1%
Percentage of Workforce in Creative Class: 34%
Cost-of-Living Index: 121.7 (100 being national average)
Median Household Income: $56,953
Income Growth Since 2000: 19.1%

9. Des Moines
Population: 532,425
Population Growth Since 2000: 9.6%
Percentage of Workforce in Creative Class: 32.1%
Cost-of-Living Index: 90.6 (100 being national average)
Median Household Income: $53,384
Income Growth Since 2000: 16.3%

10. Provo
Population: 474,351
Population Growth Since 2000: 20.6%
Percentage of Workforce in Creative Class: 32%
Cost-of-Living Index: 97.7 (100 being national average)
Median Household Income: $50,583
Income Growth Since 2000: 12.2%

Wednesday, June 4, 2008, provided by www.kiplinger.com

31 Places to Go This Summer

1. TEXAS HILL COUNTRY
“Who needs Europe? The Texas Hill Country, west of Austin and north of San Antonio, might be the next best thing to crossing the Atlantic. The region is lush, colorful and, unlike much of the pancake-flat state, dotted with beautiful green hills that are evocative of Tuscany or the south of France. Moreover, the region is speckled with 22 wineries (http://www.texaswinetrail.com/) that buzz with food and music festivals year round. And towns like Fredericksburg offer a taste of the Old World, with German-style biergartens and schnitzelhäuser.”

New York Times: 6/1/2008