By Jeff Bater From The Wall Street Journal Online
Demand for previously owned homes tumbled in August to the lowest level in five years as mortgage market troubles hurt sales.
Separately, U.S. consumer confidence fell to a nearly two-year low in September, weighed down by a softening labor market and worries over volatility in financial markets and a weaker dollar, according to a report Tuesday from the Conference Board.
Home resales fell to a 5.50 million annual rate, a 4.3% decrease from July's unrevised 5.75 million annual pace, the National Association of Realtors said Tuesday.
The August resales level was in line with Wall Street expectations. It was the lowest pace since 5.36 million in August 2002. "The credit market freeze in August no doubt contributed to the sales decline," NAR senior economist Lawrence Yun said.
The median home price was $224,500 in August, up 0.2% from $224,000 in August 2006. The median price in July this year was $228,700.
In a separate report, Standard & Poor's S&P/Case-Shiller home price index fell in July as 16 of 20 major metropolitan areas saw a decline in annual growth rate.The 10-city composite index fell 4.5% in July from a year earlier, while the 20-city composite index was down 3.9%.
Mr. Yun said the unusual disruptions in the mortgage market, including a significant climb in jumbo loan rates resulted in a fairly high number of postponed or canceled sales. "Lower sales contributed to a buildup of unsold inventory," he said.
Inventories of homes rose 0.4% at the end of August to 4.58 million available for sale, which represented a 10.0-month supply at the current sales pace. There was a 9.5-month supply at the end of July, revised from a previously estimated 9.6 months.
Existing-home sales tumbled in all regions. Sales dropped 5.2% in the Midwest, 2.0% in the Northeast, 9.8% in the West, and 2.7% in the South.
The average 30-year mortgage rate was 6.57% in August, down from 6.70% in July, according to Freddie Mac.
Consumer Confidence Declines
The board's index slid to 99.8 from 105.6 in August, leaving it at its lowest mark since November 2005's 98.3.
Consumers' assessments of present-day conditions were also lower, dragging this index down to 121.7 in September from 130.1 in August.
The index measuring expectations for business conditions over the next six months also fell, to 85.2 in September from August's 89.2.
The confidence survey is based on polling of 5,000 U.S. households.
The cutoff date for the survey was Sept. 18, the day the Federal Reserve cut interest rates by surprising half-percentage point in an effort to rescue a sagging economy and restore confidence to shaky financial markets.
"Weaker business conditions combined with a less favorable job market continue to cast a cloud over consumers and heighten their sense of uncertainty and concern," said Lynn Franco, director of the Conference Board Consumer Research Center. "Looking ahead, little economic improvement is expected and with the holiday season right around the corner, this is not welcome news."
-- Dan Molinski contributed to this article.
Wednesday, September 26, 2007
Tuesday, September 25, 2007
Will The Sub-Prime Lending Problem Affect Your Home's Value?
Will The Sub-Prime Lending Problem Affect Your Home's Value?
By Marie de Espinosa
Easy Come, Easy Go?
RealtyTrac, a leading industry resource on foreclosure activity reports that one in every 316 homes in Colorado is now in foreclosure, up a whopping 11.25% in August from July 2007.
The supply of sub-prime easy money definitely helped to increase demand for housing here in Colorado: now that the faucet of easy credit is being turned down, the National Association of Realtors indicated in their latest report that pending home sales are down 20.7% in our sector of the country and predicts housing demand trends will continue.
The bottom line of slowdown in these lending practices— increased housing supply and reduced demand for homeownership— does not affect all Denver homeowners the same.
In fact, the more expensive your neighborhood, the better chance you have of not being affected at all.
It’s Still a Local Market
Premier Colorado Economist Tucker Hart Adams with US Bank expects that housing will continue to soften, a result of the number of new homes built exceeding demand. Adams notes that Denver’s “bubble” is “not nearly as large as it is nationally.”
A review of MLS statistics indicates that it is the homes closest to average home prices that are most affected by the increased supply and reduced demand. The Colorado Association of Realtors is reporting that median Colorado home price in the second quarter of 2007 fell to $225,000, down from $232,222 in 2006.
The good news for homeowners in this price range is that housing starts are down dramatically this year from their high in 2004 and the loan adjustments fueling mass foreclosures has a foreseeable end. According to the Adams Group, housing permits skyrocketed 17% in 2004 only to plunge 16% in 2006.
Furthermore, FHA limits are being reset in order to help those who want to keep or purchase homes. Conventional loan rates, including “jumbo” loan rates are still in the 6% range for those with good qualifications.
Your Personal Picture
If you are considering selling, buying or refinancing, take the time to get to know all the options available to you as far in advance as possible.
Sellers will want to be very sure of the lending position of anyone making an offer on their home.
The equity position of your home may have recently changed. Before you refinance, make sure you know the latest about home values in your neighborhood.
Buyers may spend more time negotiating with Lenders to ensure they are getting the best rates and fees available.
By Marie de Espinosa
Easy Come, Easy Go?
RealtyTrac, a leading industry resource on foreclosure activity reports that one in every 316 homes in Colorado is now in foreclosure, up a whopping 11.25% in August from July 2007.
The supply of sub-prime easy money definitely helped to increase demand for housing here in Colorado: now that the faucet of easy credit is being turned down, the National Association of Realtors indicated in their latest report that pending home sales are down 20.7% in our sector of the country and predicts housing demand trends will continue.
The bottom line of slowdown in these lending practices— increased housing supply and reduced demand for homeownership— does not affect all Denver homeowners the same.
In fact, the more expensive your neighborhood, the better chance you have of not being affected at all.
It’s Still a Local Market
Premier Colorado Economist Tucker Hart Adams with US Bank expects that housing will continue to soften, a result of the number of new homes built exceeding demand. Adams notes that Denver’s “bubble” is “not nearly as large as it is nationally.”
A review of MLS statistics indicates that it is the homes closest to average home prices that are most affected by the increased supply and reduced demand. The Colorado Association of Realtors is reporting that median Colorado home price in the second quarter of 2007 fell to $225,000, down from $232,222 in 2006.
The good news for homeowners in this price range is that housing starts are down dramatically this year from their high in 2004 and the loan adjustments fueling mass foreclosures has a foreseeable end. According to the Adams Group, housing permits skyrocketed 17% in 2004 only to plunge 16% in 2006.
Furthermore, FHA limits are being reset in order to help those who want to keep or purchase homes. Conventional loan rates, including “jumbo” loan rates are still in the 6% range for those with good qualifications.
Your Personal Picture
If you are considering selling, buying or refinancing, take the time to get to know all the options available to you as far in advance as possible.
Sellers will want to be very sure of the lending position of anyone making an offer on their home.
The equity position of your home may have recently changed. Before you refinance, make sure you know the latest about home values in your neighborhood.
Buyers may spend more time negotiating with Lenders to ensure they are getting the best rates and fees available.
Monday, September 24, 2007
Can't Get a Mortgage Loan? Try Your Credit Union.
Can't Get a Mortgage? Try Your Credit Union
By Amy Hoak From MarketWatch
As many mortgage lenders tighten loan underwriting standards and interest rates on jumbo mortgages rise, consumers may be able to find a friend in their credit union.
One reason: Many (although not all) of the mortgage loans made by credit unions are held in their own portfolios and therefore don't need to be sold to investors, said Bill Hampel, chief economist for the Credit Union National Association and Affiliates.
"A credit union considering a mortgage loan application doesn't have as many things to worry about as a mortgage banker that has to sell that to a secondary mortgage market," he said.
Selling nonconforming loans in the secondary market over the past few weeks has been a challenge, as the market has been repricing the risk associated with mortgage loans that aren't bought by Freddie Mac and Fannie Mae. As a result, some loan products have been removed from lenders' offerings, while lending standards have tightened on other products, perhaps requiring better credit scores or larger down payments from borrowers.
At credit unions, however, underwriting standards haven't needed to change, Hampel said.
And while the rates on jumbo loans offered by many lenders went "haywire" over the past couple of weeks, at credit unions the rates on those loans haven't experienced a jump, Hampel said. Jumbo loans are those that exceed the conforming loan limit of $417,000 in most states.
"Many borrowers will find a credit union an easier place to get a mortgage right now than other lenders," he said.
And consumers seem to be discovering this, according to Steve VanSickler, chief lending officer at Red Rocks Credit Union in Highlands Ranch, Colo.
"Without a doubt, we are seeing increased traffic," he said.
Credit union mission
Even if it's a good time to head to the credit union for a mortgage, it's important to point out that these institutions are far from being risk takers. They're not-for-profit, co-op organizations that were founded with a main mission to serve members.
It's not that they "cherry pick" borrowers who are approved for a mortgage, VanSickler said.
"Credit unions still have higher approval rates to lower income borrowers," he pointed out.
But there's a more measured approach to how that mortgage works with the member's overall financial picture, since the credit union is often that borrower's primary institution, he added.
Plus, the majority of mortgage products at credit unions don't tend to be risky -- regardless of what is going on in the rest of the lending market, said Jay Johnson, executive vice president of Callahan & Associates, a national credit union research and consulting firm.
"They're not likely to get into exotic products and jump on the bandwagon," Johnson said.
Subprime loans never thrived in credit unions, Hampel said. And the Alt-A mortgages that require little documentation are used sparingly, he added, usually with members who are well known to the credit union and have belonged for a long time. That way, the credit union can confirm that a borrower has a steady history of income into a savings or checking account, he said.
As a way to address high-cost housing markets, credit unions have also offered 40-year mortgages and interest-only loans, Hampel said. But only if they fit the borrower's needs.
"We don't want to get members into a deal where they will likely lose their home," he said.
The approach tends to work: Last year, the net charge-off rate for credit union mortgages was 0.02%, he said. The net charge-off rate is the amount lost in default minus the amount the credit union is able to recoup through the sale of the property.
If the borrower does see trouble coming around the bend regarding a mortgage, credit unions can often address it before the payments are late, Hampel said. Many of them also partner with credit-counseling agencies to help borrowers in a pinch, Johnson said.
How to find a credit union
One of the tricks for consumers interested in working with a credit union for a home loan is finding one that makes them. There are about 8,000 credit unions throughout the country, but only 3,500 of those do first-mortgage lending, Johnson said.
In order to join a credit union, individuals must meet the institution's criteria. A credit union's "field of membership" can be an employer, a church, a school, a community or another subset, according to the Credit Union National Association's Web site.
The Web site has a searchable directory for consumers to find credit unions throughout the country. Visit the credit union search tool.
By Amy Hoak From MarketWatch
As many mortgage lenders tighten loan underwriting standards and interest rates on jumbo mortgages rise, consumers may be able to find a friend in their credit union.
One reason: Many (although not all) of the mortgage loans made by credit unions are held in their own portfolios and therefore don't need to be sold to investors, said Bill Hampel, chief economist for the Credit Union National Association and Affiliates.
"A credit union considering a mortgage loan application doesn't have as many things to worry about as a mortgage banker that has to sell that to a secondary mortgage market," he said.
Selling nonconforming loans in the secondary market over the past few weeks has been a challenge, as the market has been repricing the risk associated with mortgage loans that aren't bought by Freddie Mac and Fannie Mae. As a result, some loan products have been removed from lenders' offerings, while lending standards have tightened on other products, perhaps requiring better credit scores or larger down payments from borrowers.
At credit unions, however, underwriting standards haven't needed to change, Hampel said.
And while the rates on jumbo loans offered by many lenders went "haywire" over the past couple of weeks, at credit unions the rates on those loans haven't experienced a jump, Hampel said. Jumbo loans are those that exceed the conforming loan limit of $417,000 in most states.
"Many borrowers will find a credit union an easier place to get a mortgage right now than other lenders," he said.
And consumers seem to be discovering this, according to Steve VanSickler, chief lending officer at Red Rocks Credit Union in Highlands Ranch, Colo.
"Without a doubt, we are seeing increased traffic," he said.
Credit union mission
Even if it's a good time to head to the credit union for a mortgage, it's important to point out that these institutions are far from being risk takers. They're not-for-profit, co-op organizations that were founded with a main mission to serve members.
It's not that they "cherry pick" borrowers who are approved for a mortgage, VanSickler said.
"Credit unions still have higher approval rates to lower income borrowers," he pointed out.
But there's a more measured approach to how that mortgage works with the member's overall financial picture, since the credit union is often that borrower's primary institution, he added.
Plus, the majority of mortgage products at credit unions don't tend to be risky -- regardless of what is going on in the rest of the lending market, said Jay Johnson, executive vice president of Callahan & Associates, a national credit union research and consulting firm.
"They're not likely to get into exotic products and jump on the bandwagon," Johnson said.
Subprime loans never thrived in credit unions, Hampel said. And the Alt-A mortgages that require little documentation are used sparingly, he added, usually with members who are well known to the credit union and have belonged for a long time. That way, the credit union can confirm that a borrower has a steady history of income into a savings or checking account, he said.
As a way to address high-cost housing markets, credit unions have also offered 40-year mortgages and interest-only loans, Hampel said. But only if they fit the borrower's needs.
"We don't want to get members into a deal where they will likely lose their home," he said.
The approach tends to work: Last year, the net charge-off rate for credit union mortgages was 0.02%, he said. The net charge-off rate is the amount lost in default minus the amount the credit union is able to recoup through the sale of the property.
If the borrower does see trouble coming around the bend regarding a mortgage, credit unions can often address it before the payments are late, Hampel said. Many of them also partner with credit-counseling agencies to help borrowers in a pinch, Johnson said.
How to find a credit union
One of the tricks for consumers interested in working with a credit union for a home loan is finding one that makes them. There are about 8,000 credit unions throughout the country, but only 3,500 of those do first-mortgage lending, Johnson said.
In order to join a credit union, individuals must meet the institution's criteria. A credit union's "field of membership" can be an employer, a church, a school, a community or another subset, according to the Credit Union National Association's Web site.
The Web site has a searchable directory for consumers to find credit unions throughout the country. Visit the credit union search tool.
Saturday, September 22, 2007
Top Five Mistakes Home Buyers Make
Top Five Mistakes Home Buyers Make
By Stacey L. Bradford, SmartMoney
Looking for a new home? Well, you're in luck? sort of. First, the good news: Home prices are falling and buyers have more negotiating power than ever before. Now, the not-so-good news: Lining up financing has become much more difficult as droves of current homeowners default on their existing mortgages. This isn't to say you won't be able to secure the home of your dreams, but you will need to be a bit more cautious and conservative with your purchase.
Here are five mistakes to avoid when looking for a home in today's real estate market.
1. Waiting to Sell Your Home
Now that the housing market is slowing it's more important than ever to sell your existing home before you commit to a new one. Here's why. In the current environment, it's going to take you longer to find a buyer than it would have just a year ago. If you don't start showing your home until after you've signed a contract for a new place, you're taking on the added risk of carrying two mortgages for an extended period of time, warns Elaine Clayman, a real estate broker with Brown Harris Stevens.
Also, the only accurate way to know how much your home is really worth is to see how much someone else is willing to pay for it. "If for some reason you've overpriced the property you already own?you'll know that after the first 30 to 45 days it's on the market," says Peter Comitini, a real estate broker with the Corcoran Group. Once you have a realistic picture of how much your home will fetch, then you can adjust your budget for a new home accordingly, he says.
2. Ignoring Your Credit Score
Get a copy of your credit report as soon as you decide it's time to move. Nearly 80% contain some type of error and 25% of those mistakes are serious enough to drag down your credit score, potentially disqualifying you for the most competitive interest rate on a mortgage, according to U.S. PIRG, the federation of state Public Interest Research Groups. How much can your credit score affect your loan? Someone with a score of 630, for example, would pay one interest point higher than another borrower with a score of 730, says Geoffrey Sheerar, a mortgage broker with Apple Mortgage, a New York City-based mortgage brokerage firm.
This is also your chance to discover and settle any delinquent accounts. "I've seen a client get a worse credit score than he should have over a $40 doctor bill that went to collection that the person didn't even know about," says Sheerar. Keep in mind, once you find a problem, it can take several weeks and a bit of leg work to have the black mark taken off of your credit report.
3. Skipping the Mortgage Preapproval Process
The days of easy money and low teaser rates are over. In this tight lending environment, it's important to shop around for a mortgage and get preapproved by a lender before you even start visiting open houses. While borrowers, even ones with very low credit scores, had hundreds of options just a couple of months ago, that's simply not the case today. Many lenders have stopped underwriting riskier loans in favor of more traditional fixed rate mortgages, says Keith Gumbinger, vice president with HSH Associates Financial Publishers, a Pompton Plains, N.J.-based mortgage research firm.
By getting preapproved, you'll not only get a realistic idea of the type of financing available to you, but you'll also have a better idea of what your interest rate will look like. Scanning the newspaper for prevailing rates isn't all that helpful since lenders will adjust your rate based on how risky a borrower they feel you are. At the moment, someone with excellent credit could qualify for a 7.5% interest rate on a $450,000 loan and another buyer with a closer to average credit score could get charged 8% or 9%, says Gumbinger. Rates are certain to fluctuate as you shop for the perfect home. But once you have a ball-park figure, you can plug it into a mortgage calculator to see how much home you can afford to buy.
4. Not Budging on Your Budget
As we mentioned earlier, buyers have more negotiating power than ever. So don't be afraid to make an offer that's well below the asking price. That said, once you find a home you really love and you're negotiating on price, you'd be foolish to walk away from that property over just a few thousand dollars, says Brown Harris Stevens' Clayman. That's especially important if you're borrowing the money to buy that home. Think of it this way: On a monthly basis, an extra $10,000 (on a loan valued less than $417,000) will cost you just $63.
5. Signing a Contract with Contingencies
Unfortunately, it isn't enough to secure financing and find a place that you're comfortable calling home. You also need to find a seller who's ready to move quickly. That means avoiding folks who want to include all sorts of onerous contingencies in the selling contract that would allow them to stay in their house for an extended period of time. One situation you want to avoid, for example, is when the sale is dependent on the seller finding a new home first, warns Corcoran's Comitini.
The risk here is that you wait around for months only to watch the interest rate lock on your mortgage expire, thus forcing you to spend more money for the same home. Or, the deal could fall apart entirely, putting you back at square one with the real estate listings spread out on the kitchen table.
By Stacey L. Bradford, SmartMoney
Looking for a new home? Well, you're in luck? sort of. First, the good news: Home prices are falling and buyers have more negotiating power than ever before. Now, the not-so-good news: Lining up financing has become much more difficult as droves of current homeowners default on their existing mortgages. This isn't to say you won't be able to secure the home of your dreams, but you will need to be a bit more cautious and conservative with your purchase.
Here are five mistakes to avoid when looking for a home in today's real estate market.
1. Waiting to Sell Your Home
Now that the housing market is slowing it's more important than ever to sell your existing home before you commit to a new one. Here's why. In the current environment, it's going to take you longer to find a buyer than it would have just a year ago. If you don't start showing your home until after you've signed a contract for a new place, you're taking on the added risk of carrying two mortgages for an extended period of time, warns Elaine Clayman, a real estate broker with Brown Harris Stevens.
Also, the only accurate way to know how much your home is really worth is to see how much someone else is willing to pay for it. "If for some reason you've overpriced the property you already own?you'll know that after the first 30 to 45 days it's on the market," says Peter Comitini, a real estate broker with the Corcoran Group. Once you have a realistic picture of how much your home will fetch, then you can adjust your budget for a new home accordingly, he says.
2. Ignoring Your Credit Score
Get a copy of your credit report as soon as you decide it's time to move. Nearly 80% contain some type of error and 25% of those mistakes are serious enough to drag down your credit score, potentially disqualifying you for the most competitive interest rate on a mortgage, according to U.S. PIRG, the federation of state Public Interest Research Groups. How much can your credit score affect your loan? Someone with a score of 630, for example, would pay one interest point higher than another borrower with a score of 730, says Geoffrey Sheerar, a mortgage broker with Apple Mortgage, a New York City-based mortgage brokerage firm.
This is also your chance to discover and settle any delinquent accounts. "I've seen a client get a worse credit score than he should have over a $40 doctor bill that went to collection that the person didn't even know about," says Sheerar. Keep in mind, once you find a problem, it can take several weeks and a bit of leg work to have the black mark taken off of your credit report.
3. Skipping the Mortgage Preapproval Process
The days of easy money and low teaser rates are over. In this tight lending environment, it's important to shop around for a mortgage and get preapproved by a lender before you even start visiting open houses. While borrowers, even ones with very low credit scores, had hundreds of options just a couple of months ago, that's simply not the case today. Many lenders have stopped underwriting riskier loans in favor of more traditional fixed rate mortgages, says Keith Gumbinger, vice president with HSH Associates Financial Publishers, a Pompton Plains, N.J.-based mortgage research firm.
By getting preapproved, you'll not only get a realistic idea of the type of financing available to you, but you'll also have a better idea of what your interest rate will look like. Scanning the newspaper for prevailing rates isn't all that helpful since lenders will adjust your rate based on how risky a borrower they feel you are. At the moment, someone with excellent credit could qualify for a 7.5% interest rate on a $450,000 loan and another buyer with a closer to average credit score could get charged 8% or 9%, says Gumbinger. Rates are certain to fluctuate as you shop for the perfect home. But once you have a ball-park figure, you can plug it into a mortgage calculator to see how much home you can afford to buy.
4. Not Budging on Your Budget
As we mentioned earlier, buyers have more negotiating power than ever. So don't be afraid to make an offer that's well below the asking price. That said, once you find a home you really love and you're negotiating on price, you'd be foolish to walk away from that property over just a few thousand dollars, says Brown Harris Stevens' Clayman. That's especially important if you're borrowing the money to buy that home. Think of it this way: On a monthly basis, an extra $10,000 (on a loan valued less than $417,000) will cost you just $63.
5. Signing a Contract with Contingencies
Unfortunately, it isn't enough to secure financing and find a place that you're comfortable calling home. You also need to find a seller who's ready to move quickly. That means avoiding folks who want to include all sorts of onerous contingencies in the selling contract that would allow them to stay in their house for an extended period of time. One situation you want to avoid, for example, is when the sale is dependent on the seller finding a new home first, warns Corcoran's Comitini.
The risk here is that you wait around for months only to watch the interest rate lock on your mortgage expire, thus forcing you to spend more money for the same home. Or, the deal could fall apart entirely, putting you back at square one with the real estate listings spread out on the kitchen table.
Tuesday, September 18, 2007
Credit (Only) Where Credit is Due
Credit (Only) Where Credit Is Due
By Terri Cullen WSJ Real Estate Writer
Mortgage-lending giant Countrywide Financial rattled Wall Street Wednesday by announcing it was bowing out of the subprime mortgage business. The move comes as dozens of lenders and mortgage companies have gone out of business or filed for bankruptcy amid the deepening credit crisis.
Many investors like me wondered what, if any, long-term damage this might inflict on their portfolios. But to homeowners and homebuyers, a more urgent question might be: What affect is the credit crunch going to have on my ability to get a mortgage or home-equity loan?
For now, it appears homeowners with good credit still have access to relatively low-cost financing. The average rate for a 30-year fixed rate mortgage stands at 6.27%, while the rate on a $50,000 home-equity line of credit averaged 6.52%, according to Bankrate.com.
If my experience is an indicator, lenders are becoming even more aggressive in seeking out homeowners with good credit and substantial home equity. Lately my husband Gerry and I have been bombarded with home-equity loan and line of credit offers from our bank ("Get $40,000 for as little as $283 a month") and our credit-card company ("As low as 6.84%, guaranteed for life!"). Our credit union sent a letter recently noting that we hadn't borrowed on the account recently and offering a lower rate of interest if we borrowed a minimum of $25,000.
And if my neighborhood is an indicator, we're not alone. As I mentioned in a past column, home construction in my neck of the woods is booming. New homes are being built and McMansions are rising where small bungalows once stood. The renovations are so extensive it's unlikely they're being paid for with cash savings, so clearly the credit spigot hasn't been turned off.
So who's in trouble if they need to get a mortgage? Borrowers with bad credit will find it extremely difficult to get a loan right now, says Fritz Elmendorf, spokesman for the Consumer Bankers Association. "Unless you're looking for a conventional loan with good credit there aren't too many out there willing to lend right now," he says. And, needless to say, anyone walking in with no documentation expecting to get a loan will be out of luck, he says.
Another casualty of the credit crunch? "Piggyback" loans. "This type of loan has almost completely disappeared," Mr. Elmendorf says. Piggybacks combine a first mortgage that covers 80% of the home's price and a second mortgage to cover the remaining 20%. The loans came into favor in the last decade as a way for borrowers to avoid paying for private mortgage insurance (PMI), which protects lenders in the event of a default. Going forward, he says, homebuyers will need to come up with at least some portion of the 20% downpayment in cash and pay PMI.
My sister Melissa and her husband Joe got their piggyback just before lenders soured on the loans. The couple purchased their first home this spring for $270,000. Eighty percent of the home's price was covered by their low-rate first mortgage, and the remaining 20% on a higher-rate 15-year balloon loan. Melissa says they're managing the monthly payments and since they have a cushion of savings she's not worried about making the mortgage.
What's keeping her up at night is home prices. She's become addicted to monitoring the same real-estate and foreclosure sites she used to find her home. She estimates home prices in her area are down about 10% from where they were just six months ago. More troubling: The number of foreclosures is up, which means price are likely to sink even lower.
The couple had hoped that in a few years their home would appreciate enough to allow them to refinance the two loans into a single lower-rate mortgage, but that scenario now seems highly unlikely. They'll need to stay in their home and continue paying the two loans for at least five years, though likely more. If they get into a financial crisis anytime soon, it's very possible they won't be able to refinance because they'll have negative equity, meaning their mortgage will be greater than the value of their home.
Anyone in the market for a home with no downpayment will need to rent a little longer to build up their savings. Homeowners looking to refinance and would-be home buyers will need to work at boosting their credit scores before applying for a loan. Homeowners who are in my sister's situation -- underwater on their mortgages -- should cut back on spending as soon as possible and start funding a rainy day account to provide a cushion in the event of a financial emergency.
If you're already experiencing one, your options are limited. Some lenders are helping borrowers modify their loans to prevent them from defaulting. But financially distressed homeowners are often paralyzed by fears of losing their home, and wait until the last minute to try and work something out with the lender. At that point, the loan is so delinquent that lenders are unwilling to negotiate. So if you're in trouble, contact your lender as soon as possible and try to work something out.
The pendulum has definitely swung hard to more conservative lending practices -- and ultimately that's a good thing for borrowers who won't be allowed to get themselves too deeply in debt.
By Terri Cullen WSJ Real Estate Writer
Mortgage-lending giant Countrywide Financial rattled Wall Street Wednesday by announcing it was bowing out of the subprime mortgage business. The move comes as dozens of lenders and mortgage companies have gone out of business or filed for bankruptcy amid the deepening credit crisis.
Many investors like me wondered what, if any, long-term damage this might inflict on their portfolios. But to homeowners and homebuyers, a more urgent question might be: What affect is the credit crunch going to have on my ability to get a mortgage or home-equity loan?
For now, it appears homeowners with good credit still have access to relatively low-cost financing. The average rate for a 30-year fixed rate mortgage stands at 6.27%, while the rate on a $50,000 home-equity line of credit averaged 6.52%, according to Bankrate.com.
If my experience is an indicator, lenders are becoming even more aggressive in seeking out homeowners with good credit and substantial home equity. Lately my husband Gerry and I have been bombarded with home-equity loan and line of credit offers from our bank ("Get $40,000 for as little as $283 a month") and our credit-card company ("As low as 6.84%, guaranteed for life!"). Our credit union sent a letter recently noting that we hadn't borrowed on the account recently and offering a lower rate of interest if we borrowed a minimum of $25,000.
And if my neighborhood is an indicator, we're not alone. As I mentioned in a past column, home construction in my neck of the woods is booming. New homes are being built and McMansions are rising where small bungalows once stood. The renovations are so extensive it's unlikely they're being paid for with cash savings, so clearly the credit spigot hasn't been turned off.
So who's in trouble if they need to get a mortgage? Borrowers with bad credit will find it extremely difficult to get a loan right now, says Fritz Elmendorf, spokesman for the Consumer Bankers Association. "Unless you're looking for a conventional loan with good credit there aren't too many out there willing to lend right now," he says. And, needless to say, anyone walking in with no documentation expecting to get a loan will be out of luck, he says.
Another casualty of the credit crunch? "Piggyback" loans. "This type of loan has almost completely disappeared," Mr. Elmendorf says. Piggybacks combine a first mortgage that covers 80% of the home's price and a second mortgage to cover the remaining 20%. The loans came into favor in the last decade as a way for borrowers to avoid paying for private mortgage insurance (PMI), which protects lenders in the event of a default. Going forward, he says, homebuyers will need to come up with at least some portion of the 20% downpayment in cash and pay PMI.
My sister Melissa and her husband Joe got their piggyback just before lenders soured on the loans. The couple purchased their first home this spring for $270,000. Eighty percent of the home's price was covered by their low-rate first mortgage, and the remaining 20% on a higher-rate 15-year balloon loan. Melissa says they're managing the monthly payments and since they have a cushion of savings she's not worried about making the mortgage.
What's keeping her up at night is home prices. She's become addicted to monitoring the same real-estate and foreclosure sites she used to find her home. She estimates home prices in her area are down about 10% from where they were just six months ago. More troubling: The number of foreclosures is up, which means price are likely to sink even lower.
The couple had hoped that in a few years their home would appreciate enough to allow them to refinance the two loans into a single lower-rate mortgage, but that scenario now seems highly unlikely. They'll need to stay in their home and continue paying the two loans for at least five years, though likely more. If they get into a financial crisis anytime soon, it's very possible they won't be able to refinance because they'll have negative equity, meaning their mortgage will be greater than the value of their home.
Anyone in the market for a home with no downpayment will need to rent a little longer to build up their savings. Homeowners looking to refinance and would-be home buyers will need to work at boosting their credit scores before applying for a loan. Homeowners who are in my sister's situation -- underwater on their mortgages -- should cut back on spending as soon as possible and start funding a rainy day account to provide a cushion in the event of a financial emergency.
If you're already experiencing one, your options are limited. Some lenders are helping borrowers modify their loans to prevent them from defaulting. But financially distressed homeowners are often paralyzed by fears of losing their home, and wait until the last minute to try and work something out with the lender. At that point, the loan is so delinquent that lenders are unwilling to negotiate. So if you're in trouble, contact your lender as soon as possible and try to work something out.
The pendulum has definitely swung hard to more conservative lending practices -- and ultimately that's a good thing for borrowers who won't be allowed to get themselves too deeply in debt.
Sunday, September 16, 2007
Investor's Rental Home Soars In Value to Over $1 Million
Investor's Rental Home Soars In Value to Over $1 Million
By Jane Hodges
The investor: Jacqueline Janssen, 61, began investing in real estate in 2000 to reduce her holdings in the stock market. The executive recruiter has purchased eight properties in northern California and Hawaii over the years. She lives in Marin County, Calif.
The property: The octagonal home is in Dillon Beach, Calif., and was built in 1976. It's on a bluff with ocean views. The residence has three bedrooms, three bathrooms and a fireplace. The house includes a 400-square-foot garage for two small cars. Dillon Beach overlooks Tomales Bay and is popular with seasonal and full-time renters. The community is about 30 miles from Petaluma, Calif.
Purchase price: $450,000. Ms. Janssen bought the property with her son, Evan Blacksea, now 25, in 2000. She placed a 20% down payment and financed the purchase with a 30-year fixed-rate mortgage.
Additional investment: $150,000. Ms. Janssen "totally gutted" the property immediately after buying it and tacked on an 800-square-foot addition with two bedrooms and two bathrooms. The property has new plumbing, electrical systems and walls, and expanded window and deck space with views of Tomales Bay.
The strategy: "I try to make sure my properties break even," says Ms. Janssen, referring to her average yearly cash flow (the profit from rental income after factoring in mortgage payments, mortgage interest, taxes and insurance). She alternates between renting the property out monthly and leasing it to vacationers on an even more short-term basis. She made a monthly profit of $800 (after paying her mortgage, taxes and insurance) during a two-year period when the home was fully rented and broke even during intermittent periods of short-term rental, she says.
Pitfalls: Renting to both short-term vacationers (typically with a three-night minimum) and long-term tenants was a strategy that worked for a while for Ms. Janssen, but she shifted her focus in 2005 to mostly annual renters. Using her home as a short-term vacation rental seemed potentially more profitable, but she found that overseeing the property (and hiring maid service, etc.) was more time intensive. "Short-term renting can be more lucrative if you have the time to stay on top of it," she says.
The transaction: Ms. Janssen plans to keep the home, even though its market value has surpassed $1 million -- a bench mark at which she'd consider selling in the past. The combination of cash flow and her home's price appreciation make the property a solid investment, she says. The house is now worth $1.2 million (or 166.7% more than its value at the time of her purchase) per a local real-estate agent, and is valued at $1.05 million, or 133% more than its value at purchase, per Zillow.com. Marin County water-view property is popular, and her house's proximity to a deer nature preserve would hinder additional residential construction that would obstruct the home's view, Ms. Janssen says. Despite some price fluctuations, home values in Marin County have steadily increased over the past year -- even now when California's housing market is seeing volatility.
By Jane Hodges
The investor: Jacqueline Janssen, 61, began investing in real estate in 2000 to reduce her holdings in the stock market. The executive recruiter has purchased eight properties in northern California and Hawaii over the years. She lives in Marin County, Calif.
The property: The octagonal home is in Dillon Beach, Calif., and was built in 1976. It's on a bluff with ocean views. The residence has three bedrooms, three bathrooms and a fireplace. The house includes a 400-square-foot garage for two small cars. Dillon Beach overlooks Tomales Bay and is popular with seasonal and full-time renters. The community is about 30 miles from Petaluma, Calif.
Purchase price: $450,000. Ms. Janssen bought the property with her son, Evan Blacksea, now 25, in 2000. She placed a 20% down payment and financed the purchase with a 30-year fixed-rate mortgage.
Additional investment: $150,000. Ms. Janssen "totally gutted" the property immediately after buying it and tacked on an 800-square-foot addition with two bedrooms and two bathrooms. The property has new plumbing, electrical systems and walls, and expanded window and deck space with views of Tomales Bay.
The strategy: "I try to make sure my properties break even," says Ms. Janssen, referring to her average yearly cash flow (the profit from rental income after factoring in mortgage payments, mortgage interest, taxes and insurance). She alternates between renting the property out monthly and leasing it to vacationers on an even more short-term basis. She made a monthly profit of $800 (after paying her mortgage, taxes and insurance) during a two-year period when the home was fully rented and broke even during intermittent periods of short-term rental, she says.
Pitfalls: Renting to both short-term vacationers (typically with a three-night minimum) and long-term tenants was a strategy that worked for a while for Ms. Janssen, but she shifted her focus in 2005 to mostly annual renters. Using her home as a short-term vacation rental seemed potentially more profitable, but she found that overseeing the property (and hiring maid service, etc.) was more time intensive. "Short-term renting can be more lucrative if you have the time to stay on top of it," she says.
The transaction: Ms. Janssen plans to keep the home, even though its market value has surpassed $1 million -- a bench mark at which she'd consider selling in the past. The combination of cash flow and her home's price appreciation make the property a solid investment, she says. The house is now worth $1.2 million (or 166.7% more than its value at the time of her purchase) per a local real-estate agent, and is valued at $1.05 million, or 133% more than its value at purchase, per Zillow.com. Marin County water-view property is popular, and her house's proximity to a deer nature preserve would hinder additional residential construction that would obstruct the home's view, Ms. Janssen says. Despite some price fluctuations, home values in Marin County have steadily increased over the past year -- even now when California's housing market is seeing volatility.
Investor's Rental Home Soars In Value to Over $1 Million
Investor's Rental Home Soars In Value to Over $1 Million
By Jane Hodges
The investor: Jacqueline Janssen, 61, began investing in real estate in 2000 to reduce her holdings in the stock market. The executive recruiter has purchased eight properties in northern California and Hawaii over the years. She lives in Marin County, Calif.
The property: The octagonal home is in Dillon Beach, Calif., and was built in 1976. It's on a bluff with ocean views. The residence has three bedrooms, three bathrooms and a fireplace. The house includes a 400-square-foot garage for two small cars. Dillon Beach overlooks Tomales Bay and is popular with seasonal and full-time renters. The community is about 30 miles from Petaluma, Calif.
Purchase price: $450,000. Ms. Janssen bought the property with her son, Evan Blacksea, now 25, in 2000. She placed a 20% down payment and financed the purchase with a 30-year fixed-rate mortgage.
Additional investment: $150,000. Ms. Janssen "totally gutted" the property immediately after buying it and tacked on an 800-square-foot addition with two bedrooms and two bathrooms. The property has new plumbing, electrical systems and walls, and expanded window and deck space with views of Tomales Bay.
The strategy: "I try to make sure my properties break even," says Ms. Janssen, referring to her average yearly cash flow (the profit from rental income after factoring in mortgage payments, mortgage interest, taxes and insurance). She alternates between renting the property out monthly and leasing it to vacationers on an even more short-term basis. She made a monthly profit of $800 (after paying her mortgage, taxes and insurance) during a two-year period when the home was fully rented and broke even during intermittent periods of short-term rental, she says.
Pitfalls: Renting to both short-term vacationers (typically with a three-night minimum) and long-term tenants was a strategy that worked for a while for Ms. Janssen, but she shifted her focus in 2005 to mostly annual renters. Using her home as a short-term vacation rental seemed potentially more profitable, but she found that overseeing the property (and hiring maid service, etc.) was more time intensive. "Short-term renting can be more lucrative if you have the time to stay on top of it," she says.
The transaction: Ms. Janssen plans to keep the home, even though its market value has surpassed $1 million -- a bench mark at which she'd consider selling in the past. The combination of cash flow and her home's price appreciation make the property a solid investment, she says. The house is now worth $1.2 million (or 166.7% more than its value at the time of her purchase) per a local real-estate agent, and is valued at $1.05 million, or 133% more than its value at purchase, per Zillow.com. Marin County water-view property is popular, and her house's proximity to a deer nature preserve would hinder additional residential construction that would obstruct the home's view, Ms. Janssen says. Despite some price fluctuations, home values in Marin County have steadily increased over the past year -- even now when California's housing market is seeing volatility.
By Jane Hodges
The investor: Jacqueline Janssen, 61, began investing in real estate in 2000 to reduce her holdings in the stock market. The executive recruiter has purchased eight properties in northern California and Hawaii over the years. She lives in Marin County, Calif.
The property: The octagonal home is in Dillon Beach, Calif., and was built in 1976. It's on a bluff with ocean views. The residence has three bedrooms, three bathrooms and a fireplace. The house includes a 400-square-foot garage for two small cars. Dillon Beach overlooks Tomales Bay and is popular with seasonal and full-time renters. The community is about 30 miles from Petaluma, Calif.
Purchase price: $450,000. Ms. Janssen bought the property with her son, Evan Blacksea, now 25, in 2000. She placed a 20% down payment and financed the purchase with a 30-year fixed-rate mortgage.
Additional investment: $150,000. Ms. Janssen "totally gutted" the property immediately after buying it and tacked on an 800-square-foot addition with two bedrooms and two bathrooms. The property has new plumbing, electrical systems and walls, and expanded window and deck space with views of Tomales Bay.
The strategy: "I try to make sure my properties break even," says Ms. Janssen, referring to her average yearly cash flow (the profit from rental income after factoring in mortgage payments, mortgage interest, taxes and insurance). She alternates between renting the property out monthly and leasing it to vacationers on an even more short-term basis. She made a monthly profit of $800 (after paying her mortgage, taxes and insurance) during a two-year period when the home was fully rented and broke even during intermittent periods of short-term rental, she says.
Pitfalls: Renting to both short-term vacationers (typically with a three-night minimum) and long-term tenants was a strategy that worked for a while for Ms. Janssen, but she shifted her focus in 2005 to mostly annual renters. Using her home as a short-term vacation rental seemed potentially more profitable, but she found that overseeing the property (and hiring maid service, etc.) was more time intensive. "Short-term renting can be more lucrative if you have the time to stay on top of it," she says.
The transaction: Ms. Janssen plans to keep the home, even though its market value has surpassed $1 million -- a bench mark at which she'd consider selling in the past. The combination of cash flow and her home's price appreciation make the property a solid investment, she says. The house is now worth $1.2 million (or 166.7% more than its value at the time of her purchase) per a local real-estate agent, and is valued at $1.05 million, or 133% more than its value at purchase, per Zillow.com. Marin County water-view property is popular, and her house's proximity to a deer nature preserve would hinder additional residential construction that would obstruct the home's view, Ms. Janssen says. Despite some price fluctuations, home values in Marin County have steadily increased over the past year -- even now when California's housing market is seeing volatility.
Saturday, September 15, 2007
1/3 of Purchase Loans Originated by Mortgage Brokers Failed to Close Last Month - National Realty News
1/3 of Purchase Loans Originated by Mortgage Brokers Failed to Close Last Month Says Survey
Thursday, September 13, 2007 - By Staff Writer, The National Realty News
WASHINGTON, DC – About 33% of home purchase closings of loans originated by mortgage brokers were canceled during August, according to a new national survey, which also found that 57% of brokers’ customers could not refinance adjustable rate mortgages (ARMs) that had resetting interest rates.
The survey of 1,744 brokers, conducted August 23-31, provides one of the first quantitative measures of the major disruptions in the mortgage originations market which started in early August. The survey was conducted by Campbell Communications of Washington.
The survey found that home purchase closings were more often canceled for homebuyers with subprime credit. Fifty-six percent of subprime homebuyers in August had canceled closings while 21% of homebuyers seeking prime conforming mortgages had canceled closings. In another survey of real estate agents taken by Campbell Communications back in 2004, respondents indicated that only 4% of home purchase closings failed in that timeframe for mortgage-related reasons.
Thomas Popik, designer of the survey, noted that the reasons for canceled closings were different depending on credit class and product category. Prime conforming homebuyers were more likely to withdraw from the transaction while subprime homebuyers were more likely to have problems getting mortgage approval, he said.
“The survey found that both prime and subprime homeowners are having trouble refinancing adjustable rate mortgages,” Popik said. “Sixty-four percent of subprime homeowners could not refinance while 50% of homeowners seeking prime conforming mortgages could not refinance. Subprime homeowners most commonly had issues with subprime loan programs no longer being offered and FICO scores. Those seeking prime conforming mortgages most commonly found appraised property values and loan-to-value (LTV) ratios as impediments.”
Other product categories covered in the survey were Alt A loans and prime jumbo loans. Alt A loans have lower documentation requirements for borrower income and assets. Jumbo loans have a loan amount greater than the Fannie Mae and Freddie Mac conforming limit of $417,000. Throughout the tabulated survey results, prime conforming, prime jumbo, Alt A, and subprime product categories are separately presented.
Mortgage broker survey respondents indicated that the maximum acceptable LTV for prime jumbo production has tightened substantially and now averages 90%, the lowest of any of the four product categories surveyed. For prime jumbo loans, the minimum acceptable FICO score now averages 679, the highest of the four product categories surveyed.
The survey found substantially reduced mortgage broker production in the month of August 2007 as compared to August of last year. Production of prime conforming loans was down approximately 20% while production of Alt A loans was down nearly 50%.
Survey results indicated that a substantial number of commitments by lenders to fund loans are not being met. Another common term for funding commitment is “fully-approved loan.” Twenty percent of commitments to fund subprime loans through mortgage brokers were not met during the month of August.
The survey asked mortgage brokers for their most frequently used lenders for prime conforming, prime jumbo, Alt A, and subprime production during the month of August. Survey respondents indicated that one-third of their most frequently used subprime lenders in August are no longer accepting applications or funding loans. For prime jumbo lenders, approximately 15% are no longer accepting applications or funding loans.
The survey also asked mortgage brokers to specify the lenders they are most likely to use going forward. For prime conforming production, Countrywide was most often selected as the most likely lender going forward. For subprime production, First Franklin, a unit of Merrill Lynch, was most often selected.
The survey found that mortgage brokers are submitting identical applications for the same borrower to multiple lenders. Reasons for submitting multiple identical applications include rate shopping, uncertainty regarding mortgage approval, uncertainty regarding prevailing underwriting guidelines, and concern that lenders will not honor funding commitments. While mortgage brokers more often submit multiple applications for subprime and Alt A borrowers, this practice has become more prevalent for prime credit applicants as well. On average, mortgage brokers are currently submitting 1.7 applications for prime conforming loans; another Campbell Communications survey of mortgage brokers in 2006 found only 1.2 applications submitted on average for prime conforming loans.
“There is very little hard data available about what is currently going on in the mortgage originations and home sales markets,” Popik noted. “The Mortgage Bankers Association weekly application index is likely being skewed by mortgage brokers submitting multiple applications.
The National Association of Realtors Pending Home Sales Index does not account for sales that will fall through because of mortgage issues. Our survey shows that the number of home purchase transactions falling through due to the mortgage market disruption was substantial for the month of August. Mortgage originations statistics for the month of August from government registries of deed and industry surveys will not become available for another 60-90 days. To the best of my knowledge, we have the most current and actionable data available on the wholesale mortgage market and on homebuyers served by mortgage brokers.”
Thursday, September 13, 2007 - By Staff Writer, The National Realty News
WASHINGTON, DC – About 33% of home purchase closings of loans originated by mortgage brokers were canceled during August, according to a new national survey, which also found that 57% of brokers’ customers could not refinance adjustable rate mortgages (ARMs) that had resetting interest rates.
The survey of 1,744 brokers, conducted August 23-31, provides one of the first quantitative measures of the major disruptions in the mortgage originations market which started in early August. The survey was conducted by Campbell Communications of Washington.
The survey found that home purchase closings were more often canceled for homebuyers with subprime credit. Fifty-six percent of subprime homebuyers in August had canceled closings while 21% of homebuyers seeking prime conforming mortgages had canceled closings. In another survey of real estate agents taken by Campbell Communications back in 2004, respondents indicated that only 4% of home purchase closings failed in that timeframe for mortgage-related reasons.
Thomas Popik, designer of the survey, noted that the reasons for canceled closings were different depending on credit class and product category. Prime conforming homebuyers were more likely to withdraw from the transaction while subprime homebuyers were more likely to have problems getting mortgage approval, he said.
“The survey found that both prime and subprime homeowners are having trouble refinancing adjustable rate mortgages,” Popik said. “Sixty-four percent of subprime homeowners could not refinance while 50% of homeowners seeking prime conforming mortgages could not refinance. Subprime homeowners most commonly had issues with subprime loan programs no longer being offered and FICO scores. Those seeking prime conforming mortgages most commonly found appraised property values and loan-to-value (LTV) ratios as impediments.”
Other product categories covered in the survey were Alt A loans and prime jumbo loans. Alt A loans have lower documentation requirements for borrower income and assets. Jumbo loans have a loan amount greater than the Fannie Mae and Freddie Mac conforming limit of $417,000. Throughout the tabulated survey results, prime conforming, prime jumbo, Alt A, and subprime product categories are separately presented.
Mortgage broker survey respondents indicated that the maximum acceptable LTV for prime jumbo production has tightened substantially and now averages 90%, the lowest of any of the four product categories surveyed. For prime jumbo loans, the minimum acceptable FICO score now averages 679, the highest of the four product categories surveyed.
The survey found substantially reduced mortgage broker production in the month of August 2007 as compared to August of last year. Production of prime conforming loans was down approximately 20% while production of Alt A loans was down nearly 50%.
Survey results indicated that a substantial number of commitments by lenders to fund loans are not being met. Another common term for funding commitment is “fully-approved loan.” Twenty percent of commitments to fund subprime loans through mortgage brokers were not met during the month of August.
The survey asked mortgage brokers for their most frequently used lenders for prime conforming, prime jumbo, Alt A, and subprime production during the month of August. Survey respondents indicated that one-third of their most frequently used subprime lenders in August are no longer accepting applications or funding loans. For prime jumbo lenders, approximately 15% are no longer accepting applications or funding loans.
The survey also asked mortgage brokers to specify the lenders they are most likely to use going forward. For prime conforming production, Countrywide was most often selected as the most likely lender going forward. For subprime production, First Franklin, a unit of Merrill Lynch, was most often selected.
The survey found that mortgage brokers are submitting identical applications for the same borrower to multiple lenders. Reasons for submitting multiple identical applications include rate shopping, uncertainty regarding mortgage approval, uncertainty regarding prevailing underwriting guidelines, and concern that lenders will not honor funding commitments. While mortgage brokers more often submit multiple applications for subprime and Alt A borrowers, this practice has become more prevalent for prime credit applicants as well. On average, mortgage brokers are currently submitting 1.7 applications for prime conforming loans; another Campbell Communications survey of mortgage brokers in 2006 found only 1.2 applications submitted on average for prime conforming loans.
“There is very little hard data available about what is currently going on in the mortgage originations and home sales markets,” Popik noted. “The Mortgage Bankers Association weekly application index is likely being skewed by mortgage brokers submitting multiple applications.
The National Association of Realtors Pending Home Sales Index does not account for sales that will fall through because of mortgage issues. Our survey shows that the number of home purchase transactions falling through due to the mortgage market disruption was substantial for the month of August. Mortgage originations statistics for the month of August from government registries of deed and industry surveys will not become available for another 60-90 days. To the best of my knowledge, we have the most current and actionable data available on the wholesale mortgage market and on homebuyers served by mortgage brokers.”
Thursday, September 13, 2007
NAR: Mortgage Problems to Dampen Home Sales in the Short Term
Mortgage Problems to Dampen Home Sales in The Short Term
WASHINGTON, September 11, 2007
Tighter credit for home mortgages will measurably dampen home sales in the short term and postpone an expected recovery for existing-home sales until 2008, according to the latest forecast by the National Association of Realtors®.
Lawrence Yun, NAR senior economist, said unusual disruptions in the mortgage market are dampening the outlook for home sales, notably for August and September. “There’s been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans, with many potential buyers on the sidelines.
“However, the jumbo loan market is now beginning to settle, and FHA-insured loans are helping to fill the subprime vacuum. The volume of existing-home sales this year will be better than 2002, which was the second year of the housing boom.”
Existing-home sales are projected at 5.92 million this year and then rise to 6.27 million in 2008, compared with 6.48 million in 2006. New-home sales should total 801,000 in 2007 and 741,000 next year, below the 1.05 million in 2006.
“A sharp production pullback by homebuilders deep into 2008 is a healthy trend that will help trim down housing inventory,” Yun said. Housing starts, including multifamily units, are expected to total 1.37 million this year and 1.26 million in 2008, compared with 1.80 million in 2006.
“The mortgage markets will calm further in the months ahead, but it’s important to underscore the fact that conventional loans – the vast majority of available financing – are available to creditworthy borrowers,” Yun said. “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”
Existing-home prices are likely to slip 1.7 percent to a median of $218,200 this year before rising 2.2 percent in 2008 to $223,000. The median new-home price is estimated to drop 2.2 percent to $241,100 in 2007, and then increase 1.7 percent next year to $245,100.
The 30-year fixed-rate mortgage is projected to average 6.4 percent for the balance of the year and then edge up to the 6.5 percent range in 2008. “We expect the Fed to cut rates two times before the end of the year, which will lower interest rates for prime borrowers and FHA-insured loans,” Yun said. “FHA modernization could buffer the fallout of subprime loans, which would raise our sales forecast in the future.”
Growth in the U.S. gross domestic product (GDP) is forecast at 2.0 percent in 2007, below the 2.9 percent growth rate last year; GDP will probably grow 2.7 percent in 2008.
The unemployment rate should average 4.6 percent for 2007, unchanged from last year.
Inflation, as measured by the Consumer Price Index, is estimated to be 2.8 percent in 2007, compared with 3.2 percent last year. Inflation-adjusted disposable personal income is likely to increase 3.6 percent this year, up from 3.1 percent in 2006.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
WASHINGTON, September 11, 2007
Tighter credit for home mortgages will measurably dampen home sales in the short term and postpone an expected recovery for existing-home sales until 2008, according to the latest forecast by the National Association of Realtors®.
Lawrence Yun, NAR senior economist, said unusual disruptions in the mortgage market are dampening the outlook for home sales, notably for August and September. “There’s been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans, with many potential buyers on the sidelines.
“However, the jumbo loan market is now beginning to settle, and FHA-insured loans are helping to fill the subprime vacuum. The volume of existing-home sales this year will be better than 2002, which was the second year of the housing boom.”
Existing-home sales are projected at 5.92 million this year and then rise to 6.27 million in 2008, compared with 6.48 million in 2006. New-home sales should total 801,000 in 2007 and 741,000 next year, below the 1.05 million in 2006.
“A sharp production pullback by homebuilders deep into 2008 is a healthy trend that will help trim down housing inventory,” Yun said. Housing starts, including multifamily units, are expected to total 1.37 million this year and 1.26 million in 2008, compared with 1.80 million in 2006.
“The mortgage markets will calm further in the months ahead, but it’s important to underscore the fact that conventional loans – the vast majority of available financing – are available to creditworthy borrowers,” Yun said. “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”
Existing-home prices are likely to slip 1.7 percent to a median of $218,200 this year before rising 2.2 percent in 2008 to $223,000. The median new-home price is estimated to drop 2.2 percent to $241,100 in 2007, and then increase 1.7 percent next year to $245,100.
The 30-year fixed-rate mortgage is projected to average 6.4 percent for the balance of the year and then edge up to the 6.5 percent range in 2008. “We expect the Fed to cut rates two times before the end of the year, which will lower interest rates for prime borrowers and FHA-insured loans,” Yun said. “FHA modernization could buffer the fallout of subprime loans, which would raise our sales forecast in the future.”
Growth in the U.S. gross domestic product (GDP) is forecast at 2.0 percent in 2007, below the 2.9 percent growth rate last year; GDP will probably grow 2.7 percent in 2008.
The unemployment rate should average 4.6 percent for 2007, unchanged from last year.
Inflation, as measured by the Consumer Price Index, is estimated to be 2.8 percent in 2007, compared with 3.2 percent last year. Inflation-adjusted disposable personal income is likely to increase 3.6 percent this year, up from 3.1 percent in 2006.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
Wednesday, September 12, 2007
Housing Market Poised for Steep Downturn
Housing Market Poised For Steep Downturn
By Rex Nutting From MarketWatch
The U.S. housing industry is in for a much deeper downturn, the National Association of Realtors said Tuesday as it slashed its forecasts for home sales and construction for this year and next.
Tighter credit conditions will likely postpone the recovery even further, said Lawrence Yun, senior economist for the real estate trade group.
In their monthly forecast, the realtors cut their estimates for all housing-related indicators for this year and next year compared with last month's forecast. The group expects housing starts and sales of new homes to continue falling through 2008, but forecasts a mild recovery in sales of existing homes next year.
Housing starts are now expected to fall 24% this year and an additional 8% next year to 1.26 million, about 10% less than the realtors' forecast from just a month ago. That would be the lowest since 1992.
Starts of single-family homes are projected to fall 26.5% this year and an additional 11% next year to 954,000, about 11% less than last month's forecast. It would be the lowest total since 1991.
New home sales are projected to fall 24% this year and an additional 7.4% next year to 741,000, about 13% less than the forecast a month ago. That would the lowest since 1995.
Existing-home sales are projected to fall 8.6% this year and rise 5.8% next year to 6.28 million, about 2% less than last month's forecast.
The median price for existing-homes is expected to fall 1.7% this year to $218,200 and rise 2.2% next year to $223,000.
By Rex Nutting From MarketWatch
The U.S. housing industry is in for a much deeper downturn, the National Association of Realtors said Tuesday as it slashed its forecasts for home sales and construction for this year and next.
Tighter credit conditions will likely postpone the recovery even further, said Lawrence Yun, senior economist for the real estate trade group.
In their monthly forecast, the realtors cut their estimates for all housing-related indicators for this year and next year compared with last month's forecast. The group expects housing starts and sales of new homes to continue falling through 2008, but forecasts a mild recovery in sales of existing homes next year.
Housing starts are now expected to fall 24% this year and an additional 8% next year to 1.26 million, about 10% less than the realtors' forecast from just a month ago. That would be the lowest since 1992.
Starts of single-family homes are projected to fall 26.5% this year and an additional 11% next year to 954,000, about 11% less than last month's forecast. It would be the lowest total since 1991.
New home sales are projected to fall 24% this year and an additional 7.4% next year to 741,000, about 13% less than the forecast a month ago. That would the lowest since 1995.
Existing-home sales are projected to fall 8.6% this year and rise 5.8% next year to 6.28 million, about 2% less than last month's forecast.
The median price for existing-homes is expected to fall 1.7% this year to $218,200 and rise 2.2% next year to $223,000.
Tuesday, September 11, 2007
Schumer to Seek Boost In Mortgage Funding
Schumer to Seek Boost In Mortgage Funding
By Damian Paletta From The Wall Street Journal Online
Amid a worrisome slump in the U.S. housing market, Democrats are stepping up efforts to increase the flow of funds into home mortgages by expanding the authority of Fannie Mae and Freddie Mac, despite White House efforts to limit the companies' roles.
The latest move comes today, as Sen. Charles Schumer plans to introduce a bill that would temporarily loosen growth constraints on the two government-sponsored investors and increase the size of mortgages they can purchase in high-cost areas.
"This is what Fannie and Freddie were designed for," the New York Democrat said. "To have the public purpose and use private-sector knowledge and dollars."
Prospects for Mr. Schumer's bill would have been slim several months ago, but credit-market turmoil has led many Democrats and some Republicans to call for the companies to step up their activities as worries about defaults and a weak housing market keep other investors on the sidelines. Fannie and Freddie buy mortgages and repackage them as investment securities, but are bound by limits on size and types.
The Bush administration has opposed changes similar to those proposed by Mr. Schumer, but White House and Treasury officials have been under growing pressure to address the market turbulence. Last week at a hearing in the House of Representatives, Democrats repeatedly challenged the Treasury undersecretary for domestic finance, Robert K. Steel, to reverse the administration's stance regarding the companies.
Mr. Schumer's bill would raise the portfolio caps at each company by at least 10% for one year, while requiring Fannie and Freddie to devote half of that increase -- roughly $73 billion combined -- to helping borrowers with certain high-risk adjustable-rate mortgages refinance into more-affordable products.
Because of past accounting problems, Fannie and Freddie aren't allowed to expand their portfolios beyond strict limits set by their regulator, the Office of Federal Housing Enterprise Oversight, until they finish overhauling internal controls. Fannie's portfolio is capped at $727 billion, and Freddie's at $728 billion, though Freddie Mac can increase its portfolio 2% a year.
Mr. Schumer's bill would also allow the companies for one year to purchase loans of as much as $625,000 in high-cost areas. Currently, they aren't allowed to purchase mortgages above $417,000. Democrats have argued that Fannie and Freddie should be allowed to purchase more-expensive mortgages to provide liquidity to a broader group of housing markets.
It is unclear how Senate Banking Committee Chairman Christopher Dodd (D., Conn.), and House Financial Services Committee Chairman Barney Frank (D., Mass.) feel about Mr. Schumer's proposal. But the two chairmen have argued that Fannie and Freddie should begin playing an expanded role in mortgage markets immediately.
Last week, Mr. Frank said he planned to introduce an amendment that would also dramatically raise the loan limit. He said the amendment would be attached to a bill, supported by the White House, that would give the Federal Housing Administration more flexibility as an insurer of mortgage loans.
Some Republicans argue that allowing Fannie and Freddie to purchase high-cost mortgages would distract them from their mission to support affordable housing.
The House passed a bill earlier this year that would revamp oversight of both companies. It would also allow the companies to purchase more expensive mortgages in high-cost areas of the country, though not by as much as Mr. Schumer has proposed.
By Damian Paletta From The Wall Street Journal Online
Amid a worrisome slump in the U.S. housing market, Democrats are stepping up efforts to increase the flow of funds into home mortgages by expanding the authority of Fannie Mae and Freddie Mac, despite White House efforts to limit the companies' roles.
The latest move comes today, as Sen. Charles Schumer plans to introduce a bill that would temporarily loosen growth constraints on the two government-sponsored investors and increase the size of mortgages they can purchase in high-cost areas.
"This is what Fannie and Freddie were designed for," the New York Democrat said. "To have the public purpose and use private-sector knowledge and dollars."
Prospects for Mr. Schumer's bill would have been slim several months ago, but credit-market turmoil has led many Democrats and some Republicans to call for the companies to step up their activities as worries about defaults and a weak housing market keep other investors on the sidelines. Fannie and Freddie buy mortgages and repackage them as investment securities, but are bound by limits on size and types.
The Bush administration has opposed changes similar to those proposed by Mr. Schumer, but White House and Treasury officials have been under growing pressure to address the market turbulence. Last week at a hearing in the House of Representatives, Democrats repeatedly challenged the Treasury undersecretary for domestic finance, Robert K. Steel, to reverse the administration's stance regarding the companies.
Mr. Schumer's bill would raise the portfolio caps at each company by at least 10% for one year, while requiring Fannie and Freddie to devote half of that increase -- roughly $73 billion combined -- to helping borrowers with certain high-risk adjustable-rate mortgages refinance into more-affordable products.
Because of past accounting problems, Fannie and Freddie aren't allowed to expand their portfolios beyond strict limits set by their regulator, the Office of Federal Housing Enterprise Oversight, until they finish overhauling internal controls. Fannie's portfolio is capped at $727 billion, and Freddie's at $728 billion, though Freddie Mac can increase its portfolio 2% a year.
Mr. Schumer's bill would also allow the companies for one year to purchase loans of as much as $625,000 in high-cost areas. Currently, they aren't allowed to purchase mortgages above $417,000. Democrats have argued that Fannie and Freddie should be allowed to purchase more-expensive mortgages to provide liquidity to a broader group of housing markets.
It is unclear how Senate Banking Committee Chairman Christopher Dodd (D., Conn.), and House Financial Services Committee Chairman Barney Frank (D., Mass.) feel about Mr. Schumer's proposal. But the two chairmen have argued that Fannie and Freddie should begin playing an expanded role in mortgage markets immediately.
Last week, Mr. Frank said he planned to introduce an amendment that would also dramatically raise the loan limit. He said the amendment would be attached to a bill, supported by the White House, that would give the Federal Housing Administration more flexibility as an insurer of mortgage loans.
Some Republicans argue that allowing Fannie and Freddie to purchase high-cost mortgages would distract them from their mission to support affordable housing.
The House passed a bill earlier this year that would revamp oversight of both companies. It would also allow the companies to purchase more expensive mortgages in high-cost areas of the country, though not by as much as Mr. Schumer has proposed.
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