Deaton Investment Real Estate & The Wake County Apartment Association

Thursday, March 19, 2009

Early April Fools from the Fed

Many folks, myself included, thought the Fed's announcement to buy Mortgage Bonds and Treasuries would cause interest rates to drop. Well that didn't happen. Want to know why? Mortgage expert Rich Paravella with Equity Services ( offers some insight:

"There was a large announcement yesterday that the Fed was stepping in to purchase Agency bonds. This was to bring interest rates down to the lowest rates ever - Oops - Didn't happen. Below is article explaining why. If you read no further, remember this: Don't always believe what you hear. Email me for a real world explanation or status of the mortgage environment.

"Big news hitting the wires yesterday afternoon, as the Fed made a blockbuster announcement that sent Mortgage Bonds into rally mode. The Federal Reserve announced that over the course of 2009, they will purchase an additional $750B of Mortgage Backed Securities in an effort to help shore up the housing market and keep home loan rates low. On the announcement, Mortgage Bonds exploded higher, leaving prices within whiskers of the best levels ever.

However, as we stated in yesterday's Alert to Float: Their actions may keep a lid on rates, but not necessarily push them dramatically lower. And due to the issue we've also discussed of lenders still working at max capacity, they are very likely not going to pass all the gains through to our rate sheets, as we are already hearing this morning. The good news is that perhaps this will help lenders feel more comfortable staffing up a bit, as this purchase program will certainly keep rates from moving significantly higher any time soon - and this will also give time for the new 105% refinance plan to work as well. Bottom line - although the media is already spinning it differently, this is still not a time for clients to stay on the fence, hoping and waiting for lower rates. Home loan rates remain within inches of all-time historic lows, but may not necessarily move significantly lower based on this purchasing plan - waiting is a very risky move.""

Monday, March 9, 2009

Trickle-Down Economics

A recent story from the News and Observer (which just announced layoffs) described the increased pressure many banks are applying to builders. This particular article highlights SunTrust and their demands for repayment or refinancing from one builder in order to avoid foreclosing on his homes. In the past, builders could refinance homes that stayed on the market longer than expected with a simple request. Now banks like SunTrust are increasing interest rates, requiring more equity in the deal or denying refinancing request altogether.

This lack of liquidity often puts the builder in a situation where he has to CHOOSE who gets paid. If he pays the bank, his contractors might not get paid, forcing them into financial harship. If he pays the contractor, the bank might foreclose and everyone could lose.

Basically, without the ability to refinance, the builder isn't the only one that stands to lose. Anyone who might have poursed resourced into the project could be stuck with unpaid debts. In fact, this trickle-down scenario has already caused many contractors to file bankruptcy.

Wednesday, March 4, 2009

Another TAX from the City

I know your budget is already tight, but if own rental property within the City of Raleigh you now have another expense, a.k.a tax to pay. As of March 1, 2009 all owners of rental property inside the Raleigh city limits must pay to register their property with the city. This ordinance was basically passed to fund the Probationary Rental Occupancy Permit (PROP) inspections team. However, the proceeds collected will far exceed these costs and thus be transfer to the general operating budget for the city.

The city wants you to believe they are trying to punish bad landlords and 'clean up' our neighborhoods, but the execution of this goal has been terrible. What the city has done is impose burdensome restrictions and fees on good landlords that must be passed on to the tenants in order for the owner's business to remain profitable. You could make the argument that the city wants to eliminate rental housing and renters altogether.