A post from my friends at Land Mortgage

So we'll start out by looking at the US economy at large.  Things began to slow down in 2006, which was not only needed after its former torrid pace, but also exactly what the Fed wanted to see happen.  A "soft landing" for an overheated economy is something you often hear the Fed wants, but rarely can achieve...yet so far, the cooling has indeed been gradual and orderly.  We expect more of the same in 2007 - a gradual cooling, without the economy crashing. 

Job growth will likely stabilize, and unemployment rates may click just very slightly higher as the economy cools.  Overall, the labor market in the US remains quite strong.  And this is good news for the housing market, since healthy job markets often help housing markets remain stable.  The more susceptible areas for increasing unemployment and flat or declining job growth are where manufacturing plays a key role in the local job scene, since the manufacturing sector never fully recovered as strongly as other parts of the US economy.

 "Central Bankers are paid to worry - every silver lining has a cloud."

                                                                                                Former Fed Governor, Dr. Edward Gramlich

The Fed finally did pause in June of '06, with a Fed Funds Rate of 5.25%.  This appears to be the top of the current hiking cycle - and in last years forecast, we had expected a pause slightly sooner at 5%.  So what will the Fed do in 2007?  The inflation-measuring Core Personal Consumption Expenditure (PCE) will need to be at 2% or less for two or three consecutive months, before the Fed starts to talk rate cuts.  Always wanting to remain ahead of the curve, and fully cognizant of the delay between Fed action and economic impact - the Fed will be worrisome that the economic decline will go too far.  So we anticipate a Fed rate cut cycle to start in 2007, but not until the summer or fall.

This will be some welcome news for individuals with Home Equity Lines of Credit.  And while it will eventually benefit those with ARM's, the damage has already been done for those expecting adjustments during the year.  And with $1.5 Trillion dollars of mortgage loans set to adjust during 2007, to significantly higher interest rates - we have an incredible opportunity to help our clients, gain new business, and increase our own production significantly.  But don't expect to have your phone just ringing off the hook - you'll have to be proactive in reviewing your database, personally contacting your customers to congratulate them on the interest saved by using an ARM, and determining if a different strategy may make sense for them at this time.  

"The rumors of my death have been greatly exaggerated."

                                                                                                Mark Twain   

Mark Twain might have coined the phrase when his death was reported while he was still alive and well...but it is also a rather fitting phrase for the housing market of 2006.  Many so-called "experts" had forecast a housing bubble bursting, a crash, big doom and gloom to grab headlines...the reality was an orderly slowdown, along with some price softening, which we see continuing in '07.  Last year, the softest areas included condos, investment properties and vacation homes, and as mentioned earlier, areas with weaker job markets.  These areas will continue to soften, but markets that are predominantly owner-occupied with solid employment have and should continue to hold up well. 

Reasonably priced homes continue to sell, although time on the market is longer than experienced a few years back - and this pace will continue this year.  But look at the bright side of this.  Remember how buyers complained that they could barely pull into the driveway of a house, let alone look around and think a few minutes, before having to write up an offer that was way above list price?  The cooling off of an overheated market allows buyers to make more reasonable decisions, without rushing into something that may not be right for them, their family...or their budget.

And to help listing agents move their inventory, offer the strategy of a seller-paid 2/1 buydown.  This offers a great way for a homebuyer to step into their house payment affordably, with the security of a Fixed Rate...and costs the seller less than a typical price reduction.  This won't be a "turnaround year" for housing, but it won't be too bad, and we'll expect to see a modest continuation of the slowdown.  The bottom has probably not been reached quite yet, but we feel that we're most of the way there.

Drum roll please...

And of perhaps the most interest - no pun intended - where do we see mortgage interest rates in 2007?  Last years forecast was incredibly accurate, which called for rates to be above 6% and below 7%, with an average between 6.25% and 6.625%...which is exactly how the year played out.  For 2007, we actually see interest rates slightly lower, within a range of 5.75% and 6.75%, with a sweet spot between 6.00% and 6.375%.

Questions Anyone?

For your courtesy, we assemble a pair of loan officers every weekend so that you always have a professional available to answer questions and assist you with obtaining financing for a client. 

If you have any mortgage needs over the weekend, contact one of our on-call weekend loan officers:

Contact Aurelius Sofia - 512-236-1399

Contact Donna Slade -  512 698-1501