Finance news

PREDICTED cuts in interest rates will not be enough to stop the Welsh housing market grinding to a halt next year, experts say.

The prolonged housing boom has come to a halt this year amid rising interest rates, the ongoing credit crunch and the introduction of home information packs – bringing an end to around 10 years of fairly unfettered growth.

But, despite further cuts expected next year in the current interest rate of 5.5%, there are no signs that the market’s current mire will shift in 2008.

There was more evidence of a cooling housing market yesterday after mortgage lending slowed further in November, said the British Bankers Association.

The UK’s main high street banks lent £4.3bn on mortgages in November – £500m less than the previous month.

While the number of mortgage approvals recovered 4% to 44,811 from a record low in October, the figure was almost 44% below the level of approvals a year earlier.

BBA statistics director David Dooks said, “Mortgage activity is notably lower than this time last year. Judging by the significantly lower number of mortgage approvals in October and November – partly resulting from lower demand, partly from tighter supply – the market is likely to continue slowing in the coming months.”

Melfyn Williams, former president of the National Association of Estate Agents, says although the market has improved on October and November, it will be sluggish for much of next year.

And Mick McGuire, chair of the Council of Mortgage Lenders in Wales, has predicted prices will fall by around 6%.

But both believe the trend is good news for first-time buyers, who have been priced out of the market after almost a decade of double-digit increases in house values. They say a flat market will allow salaries to catch up with house prices and enable first-time buyers to gain a foothold.

Mr Williams, a director of North Wales estate agents the Property People, said, “Prices will be static for the next 12 months. It’s not going to go up much and it’s not going to go down much.”

He expects properties to be on the market for around four months next year.

Though this is much longer than the average sale time sellers experienced during the recent boom years, it does not compare to the waits endured just after the recession of the early 90s.

“If you go back to the period between 1993 and 1997, before it really started hotting up, we were putting properties on the market and people were asking, ‘Do you think we’ll sell in 12 months’?”

Several housing market surveys have all shown a slow down in the market over recent months.

Most recently, property website Rightmove said prices in Wales fell by 2.5% compared to last month, placing the average cost of a home in Wales this month at £180,409, down almost £5,000 from November’s £185,072.

Mr McGuire said even though interest rates should come down next year, the only question is whether homeowners will have a “soft landing” with falls of around 6%, or if the market will go into free-fall.

“Is it going to be a dramatic correction like we had in the early ’90s when house prices reduced by 20% to 25% in four years?”

Mr McGuire, who is also director of business development for the Principality Building Society, said “something had to give” after years of unsustainable house price rises.
Sorse

Lenders keep trying to suck my family into a vortex of debt.We’re standing firm.

Just as President Bush was announcing a deal with the mortgage industry to freeze adjustable rates for up to five years in some cases, Countrywide was aggressively marketing a $365,382 cash-out refinance to my family.

We don’t want it. We can’t afford it. If anything, we’re anxious to dump our 30-year, 6.5% fixed-rate mortgage for a shorter-term loan.

Just after hearing from Countrywide, we were also pelted with “convenience checks” for two MBNA credit cards and a solicitation to open yet another. Nearly every store where we shop has its own credit card with an enticing deal.

The Gap (GPS - Cramer’s Take - Stockpickr) offered us 5% in rewards for every dollar we spent on the store’s card, plus free shipping from Gap.com. We recently booked a vacation through AAA, which tried to tempt us into opening a credit card that offered 2% off our trip.

A friend recently told me that he never stops hearing from Capital One these days. He said he opened a card with the company last year, but stopped using it after being continually deluged with solicitations to borrow even more money.

The greed never seems to stop.

Debt is the root of the country’s present economic woes. Americans are losing their homes because many signed on for adjustable-rate mortgages that they ultimately couldn’t afford — loans that were often aggressively marketed. Home-equity lines of credit also tempted homeowners whose property values were skyrocketing. However, the adjustable rate associated with many such loans made the payments harder to stomach as the interest rate increased. Declining property values have left many homeowners who borrowed too much equity with a shortfall on selling.

Easy access to credit-card financing — which lenders perpetually market to families like mine through seemingly endless snail-mail solicitations — makes it easy for people to get in over their heads. A quick fix, such as refinancing to adjustable rate mortgage, may take the heat off for a while, the thinking goes.

But as we’ve all learned from recent turmoil in the housing and financial markets, what happens when borrowers can’t pay the piper. Homeowners and their mortgage lenders aren’t the only casualties. UBS (UBS - Cramer’s Take - Stockpickr) announced this week that it’s taking a $10 billion writedown tied to the subprime mortgage debacle and selling off part of the company to investors in Singapore and the Middle East. The news followed equally troubling write-downs by Merrill Lynch (MER - Cramer’s Take - Stockpickr)and Morgan Stanley (MS - Cramer’s Take - Stockpickr).

So, why are lenders still aggressively hawking so much debt to homeowners and consumers?

My family was in the unenviable situation of owning two homes for six weeks this past summer — our current home and the one we were trying to sell. We purchased our new home through a scary, but short-term, approach to financing: We borrowed equity from the old home as a down payment and then obtained an additional mortgage to cover the difference.

On one hand, I’m grateful that lenders were willing to take on our risk — and they earned a lot of fees and interest. But I was also surprised by how easy it was to borrow so much cash. Having good credit certainly helped — but that credential also seemed to cast us as prime targets for future debt solicitation by lenders.

The mortgage on our new home was ultimately assigned to Countrywide. A customer-service representative informed me during my first phone call to the company that we were eligible for $100,000 home-equity loan. She asked if I wanted to apply.

I needed more debt during those six weeks as much as the Atlantic Ocean needs more water.

We finally sold the other house, and I placed several calls to Countrywide about the procedure for paying down the existing mortgage with proceeds. Each time, a customer-service representative asked if I wanted to apply for a home-equity loan.

I’ve also received email, snail mail and announcements that accompany my monthly mortgage statements, all conveying the same message: “In appreciation of the exceptional way in which you have managed your mortgage loan, you may be eligible for a Countrywide home-equity loan in the amount of up to $100,000.” I received the first such mailing Aug. 29 — about seven weeks after I closed on the property, before my first payment on the loan was even due.

The recent offer for a $365,382 cashout refinance arrived as an “expedited delivery letter” in an envelope that looked like an important overnight mailing. The notice directed me to call that Saturday for my “exclusive customer discount.”

We’re now refinancing my home — but through a different lender who offered a better rate with fewer points. We also have no intention of taking equity out of our house. In fact, we’re planning for the future, instead of cashing in on the present, by refinancing to a 15-year fixed loan at 5.25% (with a half point), so we can pay off our home as we near retirement.

I understand though, how many families can get caught in a pattern of borrowing too much on credit cards and using their homes as a piggy bank to foot the bill.

But the vicious cycle might end if lenders stopped tempting strapped families with easy — and excessively large — sums of cash.

Sourse

Rate Probability: Volatile

Last week, rates ended higher than where they began.  The anticipated Jobs Report showed that 94,000 jobs were added in November- but prior month’s revisions took back 48,000 jobs previously counted in September and October.   This week is shaping up to be another blockbuster, with the Fed’s Open Market Committee meeting on Tuesday.  So where will rates end up?

The week ahead will in all likelihood be as volatile if not more volatile than last week, with the headline economic event coming on Tuesday, when the Fed’s Open Market Committee is expected to lower rates yet again.  The big question on everyone’s mind is whether the Fed will make a 25 or 50 basis point move. 

Remember, a cut by the Fed makes many borrowing rates lower - like Home Equity Lines, credit cards, and other consumer loans - but can often have the exact opposite impact on fixed rate home loan rates. Why? Because a Fed cut often drives inflation, since spending by consumers and businesses generally picks up in light of lower financing rates. As you may recall, inflation is the number one enemy of bonds, which provides a fixed rate of return and is diminished by inflation.

The bottom line: After the Fed announcement rates are likely to be volatile depending on the amount of the interest rate cut and the wording in the fed’s statement.  Hold on to your hats!

Sourse