Record number of loans made despite Asian & Russian flu.

Taking a tally of the business that has passed through our office, we have closed a record number of loans in the Third Quarter of 1998. Our volume is up by 50 percent over the same quarter of 1997. While this is indicative of a combination of the real estate market's boom, mortgage applications written in the prior quarter and some refinancing activity, it is also a reflection of our own company's growth.

As more and more buyers have been scurrying to buy, purchase money mortgage transactions have gone through more quickly, and at a higher volume than in recent history. For each of the last 6 to 9 months, origination volume had been increasing by between 3 percent and 8 percent per month. If this trend continues, mortgage brokers will perhaps have had a year that matches Mark McGuire's record.

As for the stock market swings, at time of writing, the Dow is hovering around the 8,100 mark, effectively recouping about a third of late August's losses. The current mortgage market is still brisk, though the trend in predictable monthly increases in volume has slowed slightly, with steady volume levels and no drop-off from late August through September.

Asia and Russia Having More Psychological Than Practical Effect

While Asia and Russia have had some effect on the mortgage market, it is not substantial. Its most significant effect has been on the mood of the borrower. Prior to the collapse of these economies, there seemed to have been a euphoric, caution to the wind, financing frenzy. At that time, we had seen a higher than typical number of homeowners taking "cash-out refinances" in order to obtain funds to acquire more real estate or to put money into the stock market. Now, though volume remains steady, the buyers/borrowers seem to be acting more cautiously. We can see this in the way the time period has increased between initial contact with a prospective borrower and the actual taking of an application. Before the market's recent frenzied period, there would be a courtship of a client. But over the last six to nine months, that had changed to a rapid-fire "How ya doing, when can we close?" We seem to be back to the more normal "Give me some time to think about it" mentality, which in the long run is better for stability. It will be interesting to see if the frenzy resumes now that Wall Street, up another 110 points as of today's writing, has proven that it's not going to go the way of the Ruble - at least not yet.

New Developments Add to Lending Volume

As many who are familiar with the New York City market are aware, new projects are happening everywhere. Though it's not as overwhelming as the late '80's, and it is coming off a long void in new development, it is still remarkable to see so much happening at once. Luxury condominium projects are going up all over town and even in downtown Brooklyn. 99 Jane Street, a 70+ unit, high-end Rockrose Development project in the West Village nearly sold out in a matter of weeks. The same holds true for The Ariana, a condominium conversion on Tiffany Place in Brooklyn. And though the last handful of units are selling slower than the first, it is not clear if the market is the cause.

Other projects still under construction are the real question mark. It is my opinion that if the Dow holds steady and Greenspan cuts rates by the .5 percent that were hearing about, the buying will continue - at least that's the read we are getting from our borrowers. We have noted on some of the larger loans for which we have obtained financing, that buyers have expressly remained in the real estate market despite the ups and downs of the Dow, while the incidences of clients pulling out of the real estate market are few.

Long Bond Nearing 30-Year Low

Notwithstanding any fluctuations in the strength of the purchase market, a special opportunity may be approaching for mortgage brokers in the refinance arena. As in 1992-93, the long bond is nearing a 30-year low. Even a .5 percent drop in mortgage rates may make sense to many consumers, providing closing costs are kept low. This means that we may very likely see a proliferation of refinance transactions.

In sum, while there are problems in other parts of the world that definitely need to be addressed, the U.S. economy is proving resilient and holding its own, which will probably instill confidence in fence-sitters. The lenders are still as hungry as ever to lend, and seem prepared to handle the volume. And now, with Wall Street's appetite for mortgage product, the popularity of high risk loans, like the 125 percent LTV loan, is higher than ever. Does this mean that banks don't see a decline in values on the horizon?

One interesting note, though. As the long bond yields drop, we are not seeing a commensurate drop in mortgage rates. Maybe lenders are still waiting to see if the drop is just a blip era more long-term state of affairs.

My advice to buyers is move cautiously, but remember real estate is cyclical. And just like if you had bought in 1989 and had taken a beating, you'd be okay if you hung in there. So despite the volatile market, real estate is still a sound investment and has intrinsic value. (Or you can buy Yahoo at 300 times earnings.) Realtors need to understand what drives buyers' decisions and not push. Education and information are powerful selling devices. And finally, banks can help the situation by keeping their lending criteria reasonable.