Real estate rates fall after Fed official drops 'bomb': But more rate hikes expected

Monday, June 06, 2005
By Lou Barnes / Inman News

A peculiar confluence of weak data and goofy Fedology suddenly knocked the 10-year T-note below 4 percent, which in turn took mortgages under 5.5 percent.

The rate slide started on Tuesday with the newest drop in the purchasing managers' index, down in a straight line for a year from healthy-pink 60s to 51.4, perilously close to the economic stall marker at 50. Weekly filings for unemployment insurance have popped to 350,000; the Challenger layoff forecast has sharply deteriorated, especially in IT; and this morning's payroll gain for May was an anemic 78,000, less than half the forecast.

The lousy payroll number "should" have taken rates even lower, but by Friday rates had fallen so far that lousy wasn't enough; we needed awful.

Enter the peculiar parts. The economy does not appear to be all that weak – feeling the effect of global competition, but not in a stall. Example: U.S. auto sales slumped 8 percent in May – "U.S." as in GM, Ford, and DaimlerChrysler. Foreign-made cars, or cars made here under foreign management, did fine. Ford takes 37 hours to build a car; Toyota less than 28.

Foreign competition hurts wages and employment, but it has also slammed the lid on the inflation that $55/bbl should have brought. Should the Fed tighten more, into a low-inflation, sluggish-employment, and slowing economy?

Managing the economy is serious business, but last week's Fed follies were full-on black comedy. Wednesday morning, wearing a big grin on CNBC, the rookie president of the Dallas Fed, Richard Fisher: "We've gone through eight innings here, 25 basis points an inning. The next meeting in June is the ninth inning."

The 10-year T-note instantly fell from 4 percent to 3.9 percent on the assumption that the Fed would stop after a hike to 3.25 percent on June 30. Nine and done.

The Fed has only one rule for its senior officers – unspoken because nobody dumb enough to break it is ever supposed to become an officer: Thou shall not ever appear to leak a policy announcement unless the Chairman asked you to. You may blab all you want about risks and this and that, but you cannot say something that will alter the market's expectation of the Fed, not without permission.

Fed officials often stumble into rule-breaking ("But, I didn't mean it that way!"). The Fed repairs a stepped-in-it by applying quick, public and understated disagreement from two or three same-level officials, the unseemly affair beneath the public notice of the Chairman, the offending official then gagged for a year or two.

This time, for two days after Fisher's Bomb, no Fedder said a thing, thereby adding authenticity. Nor did anybody pay attention to his other lines: "We may have to go into extra innings in this contest against inflation. The economy is strong. It's inflation that's still at risk." The Chairman may have figured that listeners should have paid attention to those sentences instead of the first, or that anyone paying attention to a Fed rookie deserves what he gets.

In any event, the only post-Bomb word from the Fed came Friday from old-timer Lyle Gramlich, dead-pan, face as straight as Rushmore: "I don't know what inning we're in. Period."

I think the following: you won't hear again soon from Mr. Fisher. The Fed will not stop at 3.25 percent on the 30th. A global savings glut and demand drought is causing long-term rates to fall, and the Fed must keep raising to offset the stimulus from the drop in long-term rates, and intercept a deeper drop. There is no housing bubble, but no free pass from the Fed, either. Bonds and mortgages are vulnerable.

Historically, high short-term rates coupled with low long-term ones has been a recession precursor; I think not this time. As in the U.K. since last fall, we could have an extended period of flat or inverted yield curve, but the economy is OK.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo.

***Copyright 2005 Lou Barnes

Home buyers: Do not disturb home seller without an agent

By: Dian Hymer / Inman News

Recently, a home seller who valued her privacy was unpleasantly surprised when she found a prospective home buyer in her backyard. The buyer was not accompanied by a real estate agent. The seller was very upset. She had listed her home for sale with a real estate agent because she didn't want to interact directly with prospective buyers.

Even after the "Do Not Disturb Occupant" sign went up, some buyers attempted to gain access to the house without an appointment. The seller kept track of these people and vowed not to sell to any of them.

HOUSE HUNTING TIP: It's natural to be excited when you hear about a new listing. But, showing up at the front door unannounced is usually not the way to win a seller's heart. If the house is shown by appointment only, make sure that your agent calls the seller in advance. Adhering to reasonable home buying etiquette will go a long way to convince the sellers that you're a buyer they'd like to work with.

Buyers with small children can have difficulty finding a sitter on short notice so that they can take a look at a new listing. In most cases, it's fine to bring children with you to a property showing, although you may find it distracting. But, if you do, be sure to keep your children in tow.

One seller returned home after his home was shown and found his children's toys strewn all over the house. He called his listing agent and complained bitterly. The incident left a bad impression in the seller's mind.

Home buyers shouldn't have to keep their real estate agent in line. However, it's wise to make sure that your agent's behavior doesn't reflect poorly on you. One agent who couldn't find a sitter for his own children brought them along when he showed a listing to his client.

Another real estate agent who was showing the listing at the same time reported back to the seller's listing agent that the children ran around the house and yard unsupervised. This created a nuisance and a very unpleasant environment for showing the listing. The listing agent was livid.

In another case, an agent who was showing a hot new listing refused to let other agents and their buyers into the house. She even went so far as to tell the other agents that the listing was already sold, which was not true. This unethical behavior didn't endure the agent to the listing agent. Ruthless and unprofessional tactics usually don't gain favor with the listing agent, whose opinions can have a big influence on the seller.

Buyers are often confused when they call a real estate office and have a hard time making an appointment to see a listing. Knowing a little bit about how the real estate business works may help you the next time you find yourself in this situation.

In most real estate offices, agents take turns answering calls. So, unless you specifically ask to talk to the listing agent, you're likely to reach an agent who's covering calls in the hope of generating business.

Real estate agents usually work on commission. If you already have an agent, another agent will be less than enthusiastic about showing you a listing. There's nothing in it for him. Proper protocol would be to ask your own agent to show you the listing.

If you don't have an agent, don't be offended if the agent you talk to on the phone requires that you meet at her office rather than at a vacant property. The agent has no way to know who you are.

THE CLOSING: This is done as a security precaution.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

***Copyright 2005 Dian Hymer