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Where’s the bottom? His crystal ball says it’s close

December 22nd, 2008, 3:00 pm · 6 Comments · posted by Marilyn Kalfus, real estate reporter

Mortgage broker Dennis C. Smith of Stratis Financial in Huntington Beach writes in his blog that he was asked to predict the future recently (probably by some pesky journalist. OK, guilty), but when he peered into his crystal ball, things were a bit murky:

He writes:

“My CB is usually a bit cloudy and this morning is no exception.  Let’s take a look at some economic fundamentals and what they may portend for the end of 2008 and into 2009. 

“Underlying the commentary is that as a rule what is bad news for the general economy is good news for lower mortgage rates.  Interest rates are tied to inflation, or the threat of inflation; if investors fear inflation is coming they will react in a way that causes interest rates to rise.  Why? Because they know the Federal Reserve will raise rates to keep inflation at bay …  Conversely when the economy is faltering or in recession the Fed will lower rates to stimulate borrowing and investment and generate economic activity. 
 
“With the current economic news one expects lower rates to spur investment and economic activity.  One problem here is that the Fed is “all in,” they have lowered their overnight discount rate to 0-0.25%; they cannot lower it any further.  So this puts the pressure on the private sector to lower rates and increase borrowing to stimulate investment and growth.  Problem is the private sector is not making a lot of loans at the moment-hence GM goes to Washington D.C. for a loan instead of Wall Street.  So the economics dictate lower rates, but what we do not know is if the markets will follow economic theory and produce lower rates.  
 
He writes a bit more, then concludes:

“So my Crystal Ball is telling me continued downward pressure on rates until some confidence enters the economy and jobs losses start to slow down, but, BUT (big but here) there is not too much lower rates can go, at some point there is a bottom and my belief is it cannot be too far from where we are today.
 
“My advice to those looking to buy is not to wait for lower rates to buy.  Take advantage of the rates today, buy while you can …. 

“My advice to those looking to lower their payments is if the math makes sense with today’s rates then don’t get greedy, take the lower payment and lock in your rate.  Also, give serious consideration to paying a half-point or point for an even lower rate … 

“Finally be patient!  The industry is getting flooded with refinance applications.”

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     6 Comments

    • Sam says:
      December 22, 2008 at 5:56 pm

      your crystal ball is broken.

      there are too many homes that were built to satisfy artifical demand. short of burning down neighborhoods inorder to bring qualified demand inline with supply we are facing a drop in home prices that has never been see before. if you are a mortgage broker telling people to buy you are simpy talking your book. lets be honest here. do you make money if people buy homes?

    • aksteve says:
      December 22, 2008 at 11:30 pm

      Fast forward that crystal ball to ‘09-10 when the second wave of ARM’s reset at the highest level ever. Then give another year or so at least to sift through the ashes. The bottom is not “close”.

      Also the our pal Hank Paulson says he will not encourage the lowering of Mortgage Rates to 4.5% and instead was inclined to allow housing prices to drop instead. Link: http://www.housingwire.com/2008/12/17/paulson-denies-treasury-action-on-rumored-45-mortgage-rate-initiative/

      Stratis Financial is a mortgage brokerage. Mortgage brokers will always tell you it is time to buy.

      This article is biased and is not “news”.

    • Liar Loan says:
      December 23, 2008 at 9:28 am

      Case/Schiller is predicting that OC will be the 6th worst housing market in the US for 2009. (LA took the #1 spot.) They predict OC will drop another 22% in the next year.

      http://finance.yahoo.com/real-estate/article/106346/10-Worst-Real-Estate-Markets-for-2009

      “My advice to those looking to buy is not to wait for lower rates to buy. Take advantage of the rates today, buy while you can …. ”

      Ummm… bad advice.

    • Buy the dip later says:
      December 24, 2008 at 3:14 pm

      his crystal ball is upside down.

      this drop in price has only begun. we saw our first wave of foreclosures and price depreciation. the next wave will hit next year, and more to come after.

      unless you like to lose money, don’t blindly buy into this housing market. we will have a very long L bottom, so there is no need to hurry. when prices stabilizes in 2010 or 2011, then you can consider buying a home then.

      this is typical talk from anyone in the real estate industry. trying to get more suckers to buy into this market so they can make their commission. we hear this nonsense every month, buy buy buy. Don’t be a sucker, do your homework before you buy. The pain has only begun. Alot pain still ahead for homeowners.

    • Foreigner says:
      December 29, 2008 at 12:39 pm

      Ask a mortage broker, like asking a real estate agent, and today, this moment, will always be a good time to buy. We heard this when prices were sky high, we hear it as prices decline. A self serving answer, shame on the paper for pandering to the real estate industry and presenting such a biased opinion.

    • jim says:
      January 2, 2009 at 10:15 am

      I will sell you a house and finance it for you at 0%, By the way the price is 1mill and it is worth 500k and sliding. But hey 05 is better than 5%. Unbelievable thinking by most RE dummies.