Advisory 05-15-08
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- May 15, 2008
The
Associated Press
Median prices drop in many cities
Two-thirds of the nation's 149 metropolitan real estate markets
experienced lower home prices during the first quarter of 2008 the
largest number of declines ever reported and 46 states saw declining
sales, according to figures issued Tuesday by the NATIONAL ASSOCIATION
of REALTORS® (NAR). Nationally, the median price fell 7.7 percent to
$196,300 in the first quarter, down from $212,600 a year ago, while
sales fell 22.2 percent from the first quarter a year ago.
MAKING SENSE OF THE STORY FOR CONSUMERS
· The slowdown is most pronounced in high-cost markets. In the West,
which includes California, the median price was down 12.3 percent to
$296,300 compared with a year ago. That's due, in part, to the limited
availability of mortgage financing in response to the subprime mortgage
crisis. NAR believes recent increases in Fannie Mae/Freddie Mac loan
limits to encompass jumbo loans will improve the situation somewhat in
the months to come, although qualifying criteria will remain
stringent.
· Home price and sales declines vary dramatically by neighborhood and
are largely based on the extent of a neighborhood's exposure to
subprime mortgages. Neighborhoods with a high percentage of subprime
loans are experiencing a higher rate of foreclosures, which typically
drives prices down.
· NAR emphasized that the average buyer today intends to stay in the
home they purchase for 10 years, which should position them to receive
long-term benefits from home ownership. Homes purchased six years ago,
for example, would have increased in value by 23.8 percent over that
period, based on the difference in national median price between the
first quarter of 2002 and first quarter 2008.
To read the full story, please click here:
-
http://ap.google.com/article/ALeqM5hL1BztOWFNmmcLQ6aOP-BAz9FlMgD90KSLC00
The Economist
Map of Misery: America may well be only halfway through the
house-price bust
Colorful maps of the United States showing the change in home values,
foreclosures and other economic measures by state paint a clear picture
of where the housing market has suffered the most severe declines. It
is more difficult to visualize the extent of further declines before
prices begin to stabilize or improve.
MAKING SENSE OF THE STORY FOR CONSUMERS
· The impact of the housing downturn varies dramatically by region,
with California, Nevada, Arizona, Florida, Hawaii and portions of the
Midwest among the states showing price declines or no change between
the fourth quarter of 2006 and the fourth quarter of 2007, according to
the federal Office of Federal Housing Enterprise Oversight (OFHEO).
Even so, some 13 states in the nation?s center experienced price
increases of more than 5.47 over the same period and another dozen
states showed increases of between 4.17 and 5.47 percent.
· Assessing future price declines is trickier. Based on prices of
futures contracts linked to the Standard & Poor's/Case-Shiller
index, investors expect a 20 percent decline in home prices. And
Goldman-Sachs expects another drop of 11 to 13 percent based on a model
that looks at home prices, disposable incomes and long-term interest
rates ? although that model suggests the decline could be as much as 25
percent or more for six states, including California.
· A new study from the University of Wisconsin suggests that home
prices need to fall by between 10 and 15 percent over the next 18
months for another measure, the rent/price yield, to return to
equilibrium. From 1960-1995, that measure, which compares annual rents
as a percentage of home price, ranged from 5 to 5.5 percent, but fell
to an historic low of 3.5 percent at the peak of the market boom.
To read the full story, please click here:
http://www.economist.com/finance/displaystory.cfm?story_id=11333030
Los Angeles Times
In mortgage market, ?walkaway? homeowners may be urban
myth
True or false: More and more homeowners who owe more than their house
is worth are giving their house keys back to the bank. While anecdotal
evidence suggests that mailing the keys back to the bank is occurring,
there doesn't appear to be any evidence that the practice has become
widespread.
MAKING SENSE OF THE STORY FOR CONSUMERS
· Data on the number of ?walkaway? homeowners is lacking. The Mortgage
Bankers Association and major banks believe the practice is increasing
but don?t have any numbers to back up this supposition.
· Lenders suggest the practice is more prevalent among investors and
"flippers" than among homeowners who live in their home. Bankers
confirm that most borrowers are interested in working out a solution
when they fall behind in their payments or when their home value is
?under water? or their interest rate is about to reset.
· There is no sign that walking away from a mortgage obligation is
becoming more "socially acceptable," observers say. Homeowners
historically have been known to do whatever it takes to avoid losing
their home to foreclosure.
To read the full story, please click here:
http://www.latimes.com/business/la-fi-walkaway11-2008may11,0,1641820.story
San Francisco Chronicle
Jumbo mortgage rates becoming affordable
In the past week, jumbo conforming loans have become almost as
affordable as standard conforming loans thanks to higher loan limits
and a drop in bank interest rates. That's good news for high-cost
markets and homeowners with equity in their homes who may be able to
refinance to a lower-cost standard conforming rate. However, borrowers
still face tightened lending requirements.
MAKING SENSE OF THE STORY FOR CONSUMERS
· Last week, a 30-year fixed-rate jumbo conforming loan with no points
averaged 6.125 percent, compared with 5.875 percent for a standard
conforming and 6.75 percent for a regular jumbo loan. Jumbo conforming
loans are used for home purchases between $417,000 and $729,750, while
standard conforming loans apply to homes with a purchase price below
$417,000. Conforming loans are those that meet certain underwriting
criteria and can be guaranteed by Fannie Mae and Freddie Mac. A lower
rate could save borrowers several hundred dollars a month in mortgage
costs.
· Both Fannie Mae and Freddie Mac require jumbo loan borrowers to make
a higher downpayment (in the 10 percent to 15 percent range); require
higher credit scores; provide income documentation; and typically have
lower debt-to-income ratios than standard conforming loans.
· Congress recently increased the maximum loan amount to 125 percent of
an area's median home price up to $729,750. The new higher rates were
intended to more accurately reflect home prices in high-cost markets
and to stimulate housing market activity by allowing lenders to package
more loans for sale to Fannie Mae and Freddie Mac.
To read the full story, please click here:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/13/BUBV10L0PG.DTL
In Other News?
The New York Times
Mortgage holders find it hard to walk away from their homes
To read the full story, please click here:
http://www.nytimes.com/2008/05/10/business/10housing.html?th&emc=th
Nightly Business Report (PBS)
A tale of five cities: Silicon Valley, California
To read the full transcript, please click here and scroll down:
http://www.pbs.org/nbr/site/onair/transcripts/080508f/
San Francisco Chronicle
Timing may be right for real estate investors
To read the full story, please click here:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/09/BUOA10FFMO.DTL
San Francisco Chronicle
Brentwood the poster child for housing bust
To read the full story, please click here:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/11/MNGE1095FT.DTL
San Diego Union-Tribune
Analysts inching toward "R" word
Economic trends in county seen as recipe for recession
To read the full transcript, please click here:
http://www.signonsandiego.com/uniontrib/20080508/news_1b8econ.html
Victor Valley Daily Press
Single female homebuyers on the rise in Victor Valley
To read the full story, please click here:
http://www.vvdailypress.com/news/single_6305___article.html/valley_female.html
- Here's what to tell consumers
· Today real estate is less about "location" and more about "duration,"
according to a recent San Francisco Chronicle analysis based on the
Standard & Poor's Case-Shiller home price index. Californians who
bought their house two years ago face the reality that it may be worth
less than they paid, but those who bought four years ago probably are
not "under water." Those who bought eight years ago, in 2000, on paper
have made a tidy profit assuming they haven?t spent all the equity in
the meantime. For those who have forgotten that real estate is an asset
that matures in value over time, consider this: The recent nationwide
decline in home prices was preceded by a decade of year-over-year
increases. Nationwide, home prices in February 2008 were 75 percent
higher than they were in February 2000 and 15 percent above where they
were in February 2004. In the San Francisco Bay Area, prices are down
except in San Francisco year over year but up in all metro counties and
down slightly in outlaying counties compared with 2004. However, the
eight-year change skyrockets to a home price that is 94 percent higher
today in San Francisco than it was in 2000. Of the nine Bay Area
counties, the lowest eight-year gain was 48.8 percent in Santa Clara
County.
· Sacramento-based ForeclosureS.com reports a 5 percent drop in
foreclosures and a 7.52 percent drop in preforeclosures nationwide
between March and April. California recorded the highest number of
filings year-to-date with 6.2 per 1,000 households but ranked fourth
behind Nevada, Arizona and Florida in the number of preforeclosures
(13.9 per 1,000 households) and was down 17.58 percent from March to
April. Seventeen states recorded a drop in foreclosure filings between
the last quarter of 2007 and the end of the first quarter of 2008.
Nationally, 3.8 per 1,000 households have lost their homes to
foreclosure so far this year.
· For anyone questioning the role of Fannie Mae and Freddie Mac in
mortgage lending today and the urgency of protecting their financial
well-being, consider these facts from a recent New York Times article:
The two government-sponsored companies each year purchase more than 80
percent of all home loans made by banks and other lenders. As a result,
at the end of 2007 the two had chalked up more than $5 trillion in debt
and other financial obligations.
Questions? Comments? Contact MarketMatters@car.org.
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