I’m often asked how I come up with my advice to lock or float the mortgage rate for the Phoenix Mortgage Rates Report. Well, I read a lot, that’s for sure. I read Bloomberg.com and the Mortgage Market Guide research which gives me access to real-time quotes of mortgage-backed securities. The charts I review, of mortgage-backed securties prices, give me an idea of what the short-term trend looks like.

Let’s look at today’s chart:

This chart show the prices of highly-traded mortgage-backed securities. I show it with permission from the Mortgage Market Guide.

There are two things that are worrying me right now:

1- Look at the green bar on the right; the price for the FNMA 6.0 mortgage bond closed below par (or 100). That means that the bond, issued at the beginning of the year, is worth less than the original issue price. While that means little fundamentally, it means a whole lot psychologically.

2- Notice that the price closed BELOW the blue line. The blue line is the 200 day moving average. This means that prices seem to be trending lower which means mortgage rates can rise.

Can prices bounce back? Of course they can. Friday is a big day, however. The retail sales’ figures are being released Friday. We’ll get a glimpse into the consumer spending behavior. If the consumer has been absent, the economy is softening which could mean more Fed cuts- that would be great for mortgage rates. If that number demonstrates that the consumer isn’t affected and has been buying plasma TVs at Costco, it’s a safe bet that interest rate cuts will have stopped.

The affect on the mortgage bond market could be brutal. Mortgage bonds are weak (they’re below the “par” pricing and below the 200 day moving average). One little hiccup and we could see prices drop all the way down to the red line. That drop in mortgage bonds could translate to a full .25% or .375% hike in mortgage rates.

Did I confuse you? I hope not. This is pretty boring stuff to the non-professional. Arizona home owners need a mortgage every 3-4 years at most, right? The important thing is that you deal with a mortgage adviser who has access to these tools and knows how to interpret them. You should be locking-in your mortage rate at application, at least until we see what the numbers look like on Friday.

How do I know this? Look at the chart ! Contact me for a better explanation. I’m happy to show you these charts online and talk you through it on the telephone.

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… here’s the latest from the winter lawn. First blades of grass appeared four days after the seed was down. Now it’s just a matter of filling in the patches.

Oh … and of fixing the leaking sprinkler pipe in the planter box I can’t get to because there’s seed on the ground.

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Last night I has a listing appointment in Goodyear’s Rio Paseo subdivision, just west of Palm Valley and just north of the new Goodyear Centerpointe shopping center. Beautiful home sitting on an oversized lot with tremendous upgrades throughout the interior … but no backyard landscaping.

Adding landscaping probably isn’t a viable option for a couple of reasons. First, the owners will never see the money invested in the landscaping when they sell. Second, many buyers would prefer to choose their own landscaping given the chance - as long as the house itself is viewed as a “deal.”

Discussions led to the concept of offering a landscaping allowance versus compensating for the lack of landscaping through the initial pricing. I’ve never been a big fan of allowances in general as they highlight immediately any challenges associated with a home. But even more importantly, when you consider how homes are being viewed most often these days, the allowance may never be seen.

Let’s say a potential buyer is looking for homes online, knowing they don’t want to spend more than $250,000. Odds are their search will look something like this …

… with a hard cap at $250,000.

Now let’s say you’re pricing your home. Recent sales indicate a best price of $255,000 … except the other homes have backyard landscaping, which would cost you $15,000. So you have two choices - price the home at $240,000 (the $255,000 less $15,000) or price it at $255,000 and offer an allowance.

Same difference, right? Well, not really.

Assuming an agent is searching on behalf of that buyer looking for a home at $250,000 or less, the allowance might work. Agents tend to run their searches a bit above the buyers’ maximum price knowing full well the price often can be negotiated below that maximum.

But as I said, this isn’t how buyers search (as last night’s sellers admitted as we discussed how they’re searching for their homes in Minnesota.) A buyer who doesn’t want to spend more than $250,000 is going to search up to $250,000 about 99 times out of 100.  And these buyers never will see the allowance being offered because they didn’t search quite high enough.

(Even if they do search high enough, most search sites don’t include the “public remarks” section of the MLS where the allowance would be listed, so they still won’t know it’s there.)

Most sellers opt for the higher price in fear that a buyer will try to negotiate the price lower. But the simple reality is buyers are doing that regardless of the original list price. And they’re less likely to look at a higher-priced home with cushion built in, knowing they have to negotiate further, than the “right-priced” home that they’ll still try to buy for less.

The key to selling your home is having it seen by ready, willing and able buyers. Pricing higher and offering an allowance rather than taking your medicine and lowering the price often will mean fewer of those buyers ever will know it’s for sale.

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… or whatever the sketchy thing’s called. After two weeks of stewing, I finally have found a use. And you’ll see that use later today.

(This is what’s known as a teaser in the biz …)

UPDATE: The dog ate my microphone. I’m not making this up. So we’ll go back to the old way for the time being.

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