U.S. Treasury Bonds
Maturity Yield Last
Week		 Last
Month
5 Year 3.98 4.14 4.26
10 Year 4.34 4.49 4.63
30 Year 4.64 4.77 4.90

Treasury Market Summary:

 

10-year yields fell back 4.4% late last week with risk of more ugly economic news this week adding to the downward yield pressure.  The funds futures prices now reflect 25 bp Fed eases at both the Oct 31 and Dec 11 FOMC meetings.  To Briefing.com the market seems to be again running ahead of itself.  While the Fed may not be done easing policy we're currently siding with an on-hold response at next week's meeting as the dated Q3 GDP is expected to come in above 3%.  Risks and fear are driving the market as the Fed will take a harder look at the economy.  This week's reports may feed the frenzy as new and existing home sales are expected to continue lower. 

The longer term outlook depends on how the current economic problems evolve.   The problems surrounding higher short term credit costs as the housing sector continues to free fall lower.  But outside of housing, economic growth is strong enough to keep policy rates where they are.  The combined economic forces together with higher energy costs and the financial fragility may not bring another Fed ease over the rest of 2007 as the market prices in a pair by year end.  The key economic risk ahead is business confidence and its effect on business investment and the manufacturing sector.   The continued decline in housing should be considered a known until demand resurfaces and thins bloated unsold inventories.   We continue to expect moderate consumer spending and the increased export demand to keep the economy moving.  However, the market is unconvinced that the economy can carry through the housing and credit market risks.  We see a 4.3% to 4.8% 10-year yield range over the coming month.

 
 

Economic Indicators for this week that could impact the mortgage or real estate markets include...

 

Geological Hazards

 

When the subject of geology is brought up, the responses are often typical: "When the "Big One" comes, California is just going to fall into the ocean anyway" or "All of California is earthquake prone, and there is no easy way to tell if a property may have potential geologic hazards."
As for the first response, California's coastline is intact and rising out of the Pacific at a very slow rate. It is also physically impossible for California to "fall" as a state into the Pacific Ocean.
As for the second response, many home buyers may be unaware that official geologic and flood hazard maps have been developed by local, state, and federal agencies to delineate areas which may be subject to floods or geologic hazards.

Real estate brokers and agents in California have undertaken part of the responsibility of informing buyers about potential geologic hazards. This geologic disclosure is just one of the many services provided for buyers and sellers by their agent. As a result, buyers are able to make informed property decisions.

What Kind of Geologic Information is Available?
Your agent may provide information regarding faults, flooding or slope stability. In many cases, the terminology used to describe such hazards may appear to make them sound worse than they are. The following may help put some of this information in perspective.

Earthquake Fault Zones
Earthquakes occur when rocks fracture and break along faults. A tremendous amount of energy is released which we feel as shaking. In addition to shaking, the ground can also fracture or crack along the fault itself. Because of this potential for cracking (geologists call this type of cracking "surface rupture"), California legislation requires that zones at least 600 feet wide be delineated on both sides of known or suspected active faults. "Active" faults are defined as faults which have moved within the past 11,000 years.
Property in these fault zones are said to be within an "Earthquake Fault Zone."
Legislation requires that detailed geologic studies be undertaken before building within one of these zones. In this way, legislation helps prevent structures from being built directly on top of a fault trace. This legislation has been in effect since 1972.
It is important to remember that earthquake shaking can be as strong miles away from a fault as it is 50 feet away under certain geologic conditions; therefore, being in an Earthquake Fault Zone isn't necessarily more hazardous.

Flooding
Using topography and other data, the Federal government has delineated certain areas on special maps which may be subject to flooding from an extremely heavy storm or series of storms. Flooding this severe only occurs on the average of once every 100 years, therefore, these delineated areas are often called "100 year flood zones." Nature doesn't keep a timetable, however, and flooding may not occur for 500 or 5,000 years.
Flood control measures also help reduce flood potential.
The Federal Flood Insurance Administration requires that homes located partially or wholly within a delineated "100 Year Flood Zone" area be insured against flood damage. Lenders will require this insurance be purchased as a loan requirement.

Potential Landslide Areas
If your broker or agent discloses that your property is within a "potential landslide area", it does not necessarily mean that specific landslides exist or even that landsliding is imminent or probable. It does mean that home in hillside areas have a greater chance of slippage problems than homes on flat valley floor areas and this is just common sense. Homes in hillside areas may experience slippage problems if they were not properly designed or located relative to existing slope or other conditions on the property.
Even if a problem does exist, many landslides can be mitigated, The most desirable mitigation approach is to eliminate the landslide by removing the sliding soil and replacing it with properly engineered fill. Another approach is to use retaining walls or other structures. A licensed soils engineer should be retained in any case.
Such potential geologic hazards may seem to paint a grim picture of life for the homeowner in California, however, you don't have to move away to minimize hazards!

How Does Geologic Disclosure Help the Homebuyer?
Accurate geologic information is an important investment and provides the opportunity to investigate solutions. Insurance or other mitigation measures may be the answer.
For example, property in a "100 year flood zone" may be able to have the flood insurance requirement waived or modified if the lowest grade around the house is above the anticipated flood depth for that area. This may be due to a local high point or fill.
A licensed surveyor can determine if this is the case and complete an elevation certificate and other requirements for you to provide your lending institution.
Discuss your options with your broker or agent, they are professionals and can help.

One should consult with a qualified real estate planning professional prior to implementing any real estate planning strategies. If you are a mortgage planning, estate, insurance, financial or tax planning professional receiving this newsletter, please call our office and introduce yourself to us.  We are always seeking to grow our referral network and expose more service professionals to our client base.