Additional Indications that Housing Slump May be Leveling Off

Excerpts from The Daily Breeze Business Section Article 12/29/06″

“EXISTING HOUSE SALES TURN AROUND: Signs of the home market’s comeback may tie in with the increased consumer confidence.”

“The U.S. economy is ending the year with a hopeful set of reports showing that consumer confidence soared in December and the worst of the downturn for the battered housing market may be over.” Consumer confidence levels were only slightly below last April’s figures, which were the highest in four years. “The National Association of Realtors reported that sales of existing homes edged up 0.6 percent in November . . . after a 0.5 percent rise in sales in October.” This “followed news Wednesday that sales of new homes rose 3.4 percent last month.”

“The better-than-expected showing for both new and existing home sales could be signaling that this year’s severe slide in housing is starting to bottom out analysts said.” Prices are expected to continue to move downward over the next few months, however “A lot of people who had been sitting on the sidelines are beginning to move back into a buying mode. . “.

Interest Rate Update from HSH Associates

Excerpts from HSH Associates newsletter for week ending 12/22/06:

Mortgage interest rates nudged higher this week, as the average for the benchmark 30-year fixed rate mortgage (FRM) climbed by four basis points (.04%) to finish the nation’s leading mortgage pricing survey at 6.25%. Hybrid five-one ARMs bumped higher by five basis points, closing the week at an average 6.09%. Both rates remain comparable with those seen at the beginning of 2006 — no mean feat considering the upward pressures on rates for at least half of the year.

A weakening economy with softly waning inflation pressure is to thank for the easing in rates for the latter part of 2006. As well, appetite for mortgage and Treasury bonds from investors served to continue the conundrum of why short- and long-term interest rates remain so near one another. That flat yield curve has given many holders of adjustable rate mortgages at least a reasonable opportunity to refinance away from higher interest rates and payments into products more suited to their budget.

We are closing the year in typical fashion, with muted moves for mortgage rates. That will continue next week, as thinly-populated markets and holiday cheer continue to move markets to the back burner. Some additional data concerning manufacturing is due out, as are home sales numbers, but it’s unlikely that anything will be sufficient to move rates to any great degree. The upward pressure of the past two weeks seems to be largely realized, so next week might see rates move just another basis point or two upward.

                                                          Fixed Rate               Variable

Survey Area	15 Year	30 Year	Composite	1 Year	Composite
NW/National	5.97%	6.25%	6.11%	5.87%	6.07%
CA/Statewide	5.99%	6.31%	6.17%	5.86%	6.02%

Data above include both conforming and jumbo loans for “A” credit borrowers and include a wide range of LTV and discount structures.

Optimism is Rising on Housing Market

Excerpt from Los Angeles Times article in Business section 12/1/06:

Data have a growing number of analysts saying the worst may be over for the sector. Although data released Thursday showed U.S. homes prices making their smallest quarterly gain in eight years, some forward-looking indicators point to a stabilizing residential market. “While this real estate cycle has yet to play itself out, we are skeptical of the dire warnings of pundits.” Zachary Karabell and Daniel Chung, analysts at investment firm Fred Alger & Co., sayd Wednesday in a client note.

They joined a small but growing chorus — including Federal Reerve Chairman Ben S. Bernanke and his predecessor, Alan Greenspan — in saying the sector might have bottomed out. Recent drops in bond yields, which in turn have lowered mortgage rates, are helping to keep the housing sector from free-falling, some analysts say. The average rate on a 30 year fixed-rate mortgage in the U.S. fell to 6.14% according to mortgage giant Freddie Mac, which was the lowest rate in 10 months, and below the year ago rate of 6.26%.

“The transition from sizzling markets to normal or weak markets has been orderly so far, and recent drops in interest rates lessen the likelihood that precipitous changes will occur,” said Patrick Lawler, chief economist of the Office of Federal Housing Enterprise Oversight.

In California, prices in the third quarter rose 10.2% year over year, making it the 16th best performing state for home values, said the federal housing office, … and prices ticked up a scant .62% (over the previous quarter).

Interest Rate Update

Excerpts from HSH Associates Newsletter for the week ending 11/24/06:

Little fresh economic data, left mortgage rates little changed at the close of this shortened week: the average 30-year fixed rate mortgage (FRM) shedded three basis points to close the nation’s leading survey of mortgage pricing at 6.30%. Hybrid five-one ARMs declined by a like amount, finishing the poll at an average 6.12%. The economic data that became available this week failed to have any significant impact on markets as none of it fell outside of expectations and changed little from their previous readings.

                                                               Fixed Rate               Variable

Survey Area	15 Year	30 Year	Composite	1 Year	Composite
NW/National	6.00%	6.30%	6.16%	5.87%	6.07%
CA/Statewide	6.08%	6.36%	6.23%	5.96%	6.06%

Data above include both conforming and jumbo loans for “A” credit borrowers and include a wide range of LTV and discount structures.