“What happens in Washington doesn’t stay in Washington.” And that was especially true last week, as the effect of Congress’ actions regarding the U.S. automakers rippled out into the markets.

Bonds and home loan rates spent last week testing their previous best levels of 2008, and finally rallied on Friday to reach their best levels not just of 2008 but of the last five years. Stocks, meanwhile, were under pressure throughout the week waiting to see whether Congress would approve emergency loans for GM and Chrysler. While the House of Representatives approved the measure Wednesday evening, the Senate rejected the $14 billion bailout for the US automakers on Thursday evening, citing a lack of wage concessions by the United Auto Workers (UAW). Friday, the White House announced that the government may be willing to use Troubled Assets Relief Program (TARP) funds to prevent an immediate collapse of the auto industry. One thing we can be sure of in this matter is that the volatility for both Stocks and Bonds will continue while this issue remains unresolved.

There were other important happenings in Washington to note last week. Five members of the House Financial Services Committee are sponsoring a bill that would force the SEC to reinstate the uptick rule. The uptick rule is a former rule established by the SEC that requires every short sale transaction to be entered at a price that is higher than the price of the previous trade. So what would the reinstatement of the uptick rule mean for Bonds and home loan rates? The reinstatement of the uptick rule would do a lot to quiet the excessive volatility in both Stocks and Bonds.

In other important news to note last week, the Retail Sales report for November showed that retail sales fell for a fifth straight month. Meanwhile, Initial Jobless Claims reached their highest level in 26 years. Both of these reports are indicative of the current economic climate, and given the events of the week in Washington, they had minimal impact on Bonds and home loan rates.

As mentioned above, Bonds and home loan rates rallied Friday afternoon to reach their best levels of the year. As a result, they ended the week .25 percent better than where they began.

Tuesday will be a big day this week as more news from Washington may rock the markets. First, the Fed will be holding another regularly scheduled meeting of the Federal Open Market Committee (FOMC). Look for the Fed to cut the Fed Funds rate (the rate for overnight loans between banks) by a half point, to 0.50 percent. While a cut by the Fed often causes home loan rates to rise (because a Fed cut can lead to inflation, which is the arch enemy of Bonds and home loan rates), the deflationary environment we are currently in may prevent home loan rates from worsening.

Another event to note on Tuesday is the release of November’s Consumer Price Index (CPI) Report. This widely watched inflation indicator tells us how much more expensive goods and services are this month over last month, and with recent concerns on deflation - this will be an important report to watch.

As you can see in the chart, Bonds and home loan rates ended the week at their best levels of this year and in over five years. Let me know if you want some more information about how you can take advantage of the current situation.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

Last week I was interviewed by Angela King at Q13 about current rental market conditions and it looks like it surfaced this morning- click here for the entire clip!

I am glad the interview came up when it did because our rental market has been severely impacted by the decrease in sales activity and financial crisis.  Hundreds upon hundreds of owners in the Seattle area have recently taken their condos and homes off the sales market and placed them into the rental pool in hopes of benefiting from our “stellar” rental market…but only to find out they are about 4-5 months too late.

Every Monday morning, SRG agents get together to discuss market trends/experiences and for the past 3 months, we have all been feeling the pressure of an oversupply, decrease in demand, and the dreaded reduction in rental rates.  I personally started to feel this crunch in August when there were a couple properties that just wouldn’t move- properties that would have leased for $2500 months prior (and in mere weeks) were below $2000 and still sitting.

Here are a couple issues that come up during our discussions, please feel free to comment or contact me with questions.

Tightened Pocketbooks: Due to the financial strain and economic state, renters have definitely been paying more attention to their bottomline and planning for the worst.  The most common scenario is that people are trying to consolidate and downsize in order to rent a 1 bedroom + den instead of needing a 2 bedroom or a townhouse instead of a home.  Renters are more price sensitive than ever and in some cases lower rental rates are the motivating factor rather than quality of building or home finishes- could come down to a difference of $50!

Apartments vs Condos/Homes: We have two rental markets- the private market with individually owned condos and homes, and the apartment rental market.

One of the challenges the private market has in competing with the larger apartment buildings is the ability to offer specials like “1-2 Months FREE” or “waived security deposits.”  Private landlords have the flexibility to reduce the rental rates to compensate tenants for such specials but in no way should reduce standard security deposits as they take on more liability when renting their property.

Some advantages the private market has is that the monthly rental amount often includes utilities, parking and additional storage.  These items are covered in HOA dues and therefore passed down to the tenant in a lump sum or included in the monthly rental amount.  This is easily missed by renters when searching so be sure to clarify what is included!

Note: Over 6600 apartment units are supposed to come on the market in 2009 and even more in 2010- just one of the many items discussed at the IREM Forecast Breakfast last Friday.  One of the better Forecast Breakfasts I have attended!

Where Are All the Renters? What we could be experiencing right now is an extreme case of the cyclical blues in combination with all the above.  We are approaching the dead of winter and typically Spring and Summer are the most common months for moving- so lets just hope that activity bursts in March!  We are seeing signs of this and have been getting a lot of inquiries for Feb/March move-ins…just hoping that the properties available NOW, don’t have to wait that long.

So in short, we are advising all of our clients to be market sensitive and price aggressive.  Renters have been starting their searches a lot earlier than in the past (1-3 month prior to their desired move-in) and rental rate negotiations are occurring left and right.

I hate to be a total pessimist so I will depart on this note… although this all may sound grim, relative to other markets, Seattle is still amongst the top in the nation!

Last Week in Review
“I KNEW THE RECORD WOULD STAND UNTIL IT WAS BROKEN.” Yogi Berra. And while last week’s Jobs Report wasn’t the worst record breaker of all time, it showed a loss of 533,000 jobs during the month of November, which represented the most job losses the US has seen in 35 years. And adding more pain to the Report were heavy downward revisions for September and October, which erased an additional 199,000 jobs. In addition, last month was only the fourth time in 58 years that our economy lost over 500,000 jobs.

So what does this mean for Bonds and home loan rates? We first have to acknowledge that we are not in a typical trading environment, where weak or negative economic reports always lead to improved pricing for home loans and vice versa. The dynamics of hedge funds de-levering - where fund managers are selling all types of securities with whatever timing they need to, in order to raise capital - have caused unprecedented volatility of late, and it is not quite clear when that will end.

The Fed has indicated that they would like to be a buyer of Mortgage Bonds, which has resulted in attractive, lower rates right now. But as stated above, the trading environment is extremely volatile, and opportunities to capitalize on lower rates that make sense should be taken advantage of. There have been recent rumors of interest rates being brought down towards 4.5% by the Treasury. This irresponsible release included no definitive plan, no indication of who might qualify, or what the restrictions would be. Like many other recent legislative “solutions”, the restrictions might be very tight, with income limits set very low, and as a result, helping very few people. Remember, it may make sense for you to act now, and take advantage of current historically low rates…with the possibility of refinancing should rates decline further.

In other news to note from last week, the Bank of England and the European Central Bank both cut their key benchmark interest rates in an effort to revive their sagging economies. The reduction in rates was expected as part of a global coordinated effort, and our Fed is widely expected to cut its benchmark rate during its meeting on December 16. While a cut by the Fed often causes home loan rates to rise - because a Fed rate cut can lead to inflation, which is the arch enemy of Bonds and home loan rates - the deflationary environment we are currently in may prevent home loan rates from worsening significantly after the Fed cut.

Bonds and home loan rates tested their best levels of 2008 throughout last week, but could not improve beyond them. As a result, Bonds and home loan rates ended the week slightly worse than where they began…even in the midst of rumors of rates declining as mentioned above.

GAS PRICES SURE HIT A RECORD EARLIER THIS YEAR, BUT NOW THAT THEY HAVE IMPROVED, THE IRS HAS ISSUED NEW MILEAGE RATES FOR 2009. SEE THIS WEEK’S MORTGAGE MARKET VIEW FOR ALL THE DETAILS!

Forecast for the Week
We will likely see another volatile Friday this week, with the release of several important reports at 8:30am ET. First we have the Producer Price Index, which measures inflation at the wholesale level. Given the recent whispers of deflation, this will be an important report to watch. Consumer Sentiment will also be released?but given the state of the economy, the results likely won?t be much of a surprise.

In addition, we?ll get a read on consumer spending patterns with November?s Retail Sales Report. This Report is a measure of the total receipts of retail stores from samples representing all sizes and kinds of business in retail trade throughout the nation. Black Friday kicked off the holiday shopping season last week and the National Retail Federation amazingly estimated that shoppers spent 7.2% more than last year?but this is likely a result of the deep discounting seen by retailers, and it could well be that many shoppers who normally wait until December to get started on holiday purchases went out early to take advantage of the sales. Don?t be surprised if this is a horrible report, as not only have the holiday shopping lists become shorter, but the amount spent for each individual has likely been reduced. In any event, it will be important to see what the report reveals, as a lousy report should be friendly towards home loan rates.

Remember, as Bond prices move higher, home loan rates move lower. And as you can see in the chart, Bonds have stalled out in their improving direction for the time being, after making some great gains over the last month. Home loan rates currently stand at historic lows.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

This past Sunday, The Times featured a worth-mentioning piece on the stalled condominium and apartment buildings downtown Seattle and Bellevue.  With over 23 projects in Seattle alone, the lack of construction financing is the number one contributing factor for the dead sites. 

1. 151 John Street (17 Apartments, 1st & John)
2. Icon (283 Condominiums, 6th & Denny)
3. Insignia (646 Condominiums, 5th & Battery)
4. 2030 8th Ave (230 Condominiums, 8th & Lenora)
5. Stewart & Minor Lofts (150 Apartments/160-Room Hotel)
6. 7th & Westlake (365 Condominiums/342,000 SF Office)
7. 1800 Terry Ave (261 Retirement Apartments, Terry & Howell)
8. 2nd & Bell (102 Apartments)
9. 2700 Elliott Ave (100 Condominiums, Elliott & Cedar)
10. The Martin (170 Condominiums, 5th & Lenora)
11. AVA (236 Condominiums/190-Room Hotel, 8th & Pine)
12. 1519 Minor Ave (80 Condominiums, Minor & Pine)
13. Art House (140 Condominiums, Elliott & Battery)
14. Western & Blanchard (113 Condominiums)
15. Heron & Pagoda Towers (400 Condominiums/200-Room Hotel/267,000 SF Office, 5th & Virginia)
16. 2000 3rd Ave (441 Apartments/40-Room Hotel, 3rd & Virginia)
17. 1915 2nd Ave (175 Condominiums, 2nd & Virginia)
18. 1 Hotel & Residences (51 Condominiums/44 Suites/192-Room Hotel, 2nd & Stewart)
19. SkyGarden (116 Condominiums, First Hill)
20. 5th & Columbia Tower (760,000 SF Office)
21. Colman Center (170,000 SF Office, Pioneer Square)
22. Smith Tower Condo Conversion (12 Condominiums, 2nd Ave & Yesler)
23. 200 Occidental Ave S (62 Condominiums/130,000 SF Office, Pioneer Square)

The total is close to 4,200 residential dwellings! Click here to read more.

This week, several scheduled items could cause some more manic movements in the markets…and the biggest of all could be the Fed Policy Statement and Rate Decision that will come on Wednesday, following the wrap of the Fed’s regularly scheduled Federal Open Market Committee meetings. Remember: The Fed joined with other central banks from around the world and cut their benchmark Fed Funds Rate earlier this month to help restore confidence to the financial markets. The Fed is widely expected to cut its benchmark rate again this week, and some people are wondering if the Fed could go where it has never gone before and bring the rate below 1%.

Other important reports to note this week include Wednesday’s Durable Goods Orders, which is a measure of how many “durable” or non-disposable goods have been purchased during the previous month, and Thursday’s Gross Domestic Product (GDP) Report, which is the broadest measure of economic activity. Also, on Friday we will get the details on the Fed’s favorite gauge of inflation, the Core PCE (Personal Consumption Expenditure) data, from the Personal Income report. Each of these reports will be telling, given the growing talk of recession.

Before all of this, there will also be housing news in store with Monday’ New Home Sales Report. Last week, we learned that Existing Home Sales jumped to a thirteen-month high as foreclosures continue to drive down home prices, and it will be important to see if a similar trend is occurring with New Home Sales.

If the economic news this week is dismal, Bonds and home loan rates may be the beneficiary and find some improvement…but the words and actions of the Fed are likely to be the primary driver for interest rate action this week. As always, I will be watching closely and would welcome your calls with any questions you may have on your own situation, and how the changes of the week may impact you.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

Thanks Em!

Vulcan plans a 330-unit apartment building on most of the block in South Lake Union between Harrison and Republican streets and Pontius and Yale Avenues North. The century-old Supply Laundry building, also on the block, will be preserved and renovated as part of the project.

Click here to read more from the Times and DJC!

Tomorrow, Club Cielo at Escala will be hosting a sneak preview event for media members…AND I wouldn’t miss it!  I am really curious to see how everything is coming along and will definitely report my findings. 

For those of you not familiar, Club Cielo is a 25,000-square-foot private city club located at the soon-to-be Escala condominiums (4th and Virginia).  When it opens in 2009, it will be Seattle’s only full-service private social club and the only membership club to have opened in Seattle in more than two decades.  Club Cielo will feature a fitness center with state-of-the-art equipment and two resistance pools, a spa, steam rooms, massage therapy, exercise classes and personal trainers.

Club members will also have access to a private theater and a signature restaurant and bar, as well as to a members-only wine cave with an event space for up to 20 guests along with controlled-climate wine cellar with storage for more than 9,000 bottles.  The Club will also offer unique culinary, wine and travel programs.

Last Week in Review

“THERE IS NOTHING WRONG WITH CHANGE, IF IT IS IN THE RIGHT DIRECTION.” Winston Churchill. And the housing and mortgage industries experienced a great change in the right direction last week, as the Federal government moved to support Fannie Mae and Freddie Mac, causing Bonds and home loan rates to improve significantly and end the week around .25 percent better than where they began.

So why did the Federal government take action? Fannie Mae and Freddie Mac both have issued many Bonds which over time mature, and Fannie and Freddie need to pay back the principal on the maturing Bonds. The way they raise capital to pay these maturing Bonds is to issue new Bonds, which happens every month. And as long as Fannie and Freddie can sell new Bonds this system works well.

But the problems in the mortgage industry have reduced investor appetite to purchase these Bonds. Without the ability to sell new Bonds, Fannie and Freddie are less able to meet the capital requirements to pay off the maturing Bonds. And if Fannie and Freddie were to default and become insolvent, the mortgage and housing industries…and homeowners across our nation… would face even more struggles than we are seeing now.

So the government’s decision to back Fannie Mae and Freddie Mac is great news for homeowners, because it ensures the continued liquidity of conforming loans nationwide and it ensures that buyers of this type of Bond have a safe investment going forward.

In other Bond-friendly news, we saw good news on the inflation front last week. Overall Import Prices declined for the first time since December, thanks in part to the recent plunge in oil and gas prices. And Wholesale Prices, which help measure inflation, fell in August for the first time this year.

Overall, the good inflation news and the Fed’s decision about Fannie and Freddie should lead to improving Bond prices and home loan rates in the long-term. With home loan rates at such low levels, it’s a great time to review your mortgage situation and make sure you have the rate and program that best suits your current financial needs. I’d be glad to do a quick review for you - and your friends, family members, neighbors or coworkers as well - so just give me a call or email, I’ll look forward to hearing from you!

Forecast for the Week  

This week several important economic releases will arrive, and the flavor of these headlines will help determine if things can continue to move in an improving direction. Tuesday’s Consumer Price Index (CPI) report will show us inflation at the consumer level - that is, how much more expensive goods and services are for consumers this month over last month. If CPI brings more good news on the inflation front, Bonds and home loan rates may add to their improvements from last week.

Also on Tuesday, the Fed will release their latest Policy Statement and Interest Rate Decision. It is widely believed that the Fed will keep the Fed Funds Rate at 2% given the lessening concerns over inflation, but it will be important to see if the Fed’s statement gives us a hint as to what their plans are for the near future.

Later in the week, we will get a read on the housing market via the Housing Starts and Building Permits Report on Wednesday, as well as a look at the manufacturing sector via the Philadelphia Fed Report on Thursday. This monthly survey of manufacturing purchasing managers conducting business around the tri-state area of Pennsylvania, New Jersey, and Delaware is one of the most highly watched manufacturing reports. If manufacturing appears to be getting stronger in this region, Stocks could move higher at the expense of Bonds and home loan rates.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. As you can see in the chart below, Bonds and home loan rates have improved significantly over the past month, but got stopped in their tracks last week by a technical “ceiling of resistance”. I will be watching closely to see if Bonds and home loan rates can break this barrier and find more improvement in the weeks ahead.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

We will likely see another volatile day on Friday this week, with the delivery of two high impact reports with the potential to shake things up. Both set for release at 8:30am ET, we will see the wholesale inflation measuring Producer Price Index, as well as the Retail Sales Report. It will be important to see if the recent drop in oil prices has made an impact on either the cost to manufacture (PPI) or if it has invigorated retail purchases due to the savings in the cost to fuel vehicles.

Inflation at any level remains a strong concern, so the Producer Price Index will be of high interest to many, including the Fed. On the Retail Sales Report, remember that a strong Report would be good for the Stock market - which stands to reason, as it would indicate continued consumer confidence and dollars being poured into the economy. But stronger economic news and higher stock prices will likely worsen Bonds and home loan rates. The aforementioned 200-day Moving Average, seen below in blue, is an important threshold in determining the direction of home loan rates in the coming weeks. A convincing move above this line would be good news for Bonds. Let’s watch this closely, as it may represent some opportunities ahead.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. As you can see in the chart, Bonds and home loan rates managed to stay above the 200-Day Moving Average. I will be watching closely to see if Bonds and home loan rates can remain above this important level.

As you know, Treasury Secretary Paulson and Federal Housing Finance Agency Director Lockhart announced that “FHFA has placed Fannie Mae and Freddie Mac into conservatorship.”  The government (FHFA) will now be managing Fannie Mae and Freddie Mac for the foreseeable future.
 
A leading Washington DC firm provided an analysis of possible implications of this event. Here are some excerpts:
Overview:
To stabilize and to stimulate the housing and financial markets, the Federal Government is taking the following key steps.
- The GSEs will be allowed to increase their MBS portfolios through the end of 2009
- Treasury will be initiating a program to purchase GSE mortgage-backed securities (through December 31, 2009)
- Treasury has established a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac and the Federal  Home Loan Banks
Short term impact:
For the housing industry, the short-term impact of the Government takeover appears to be positive.
- Mortgage rates should decline
- Liquidity should be increased
- Some housing experts feel house price may stabilize sooner and the level of further house price decline will be moderated as a result
Potential Impact:
- There could be a mini-refinance boom if the rate decline materializes.
- Hedging of servicing portfolios and pipeline problems will have to be addressed
- FHA appeared on the way to 50% market share later this year.  

More to come!

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com