Myth: If I sell my home for more than I paid for it, I have to reinvest the proceeds in a new home with a certain time to get the most favorable tax treatment.
Reality: Wrong. Congress erased that law in the late 1990s.
If you sell your primary residence, you typically can exclude a gain of as much as $250,000 if you're single, or as much as $500,000 if you're married and filing a joint return. To qualify for the full exclusion, you must have owned the home -- and lived in it as your primary residence -- for at least two of the five years prior to the sale. Even if you can't meet these tests, you still might qualify for a partial exclusion if you had to sell for certain reasons, such as a job change or health.
Congress recently made another change that may help some widows and widowers. Under the new law, a surviving spouse who hasn't remarried still may qualify for the up to $500,000 exclusion if the sale of the home occurs not later than two years after the spouse's death, says Robert Trinz, senior tax analyst the Thomson Tax and Accounting in New York. This change, which became effective on sales or exchanges beginning this year, gives the surviving spouse more time to sell.
~~ from the Wall Street Journal
As always, consult with your tax advisor regarding the tax consequences for you and your particular situation. We are not tax advisors, and always recommend that you consult with qualified professionals regarding tax advice.
Wednesday, February 27, 2008
Decline in Home Prices Accelerates
Fed's Efforts Have Only Muted Effect On Mortgage Rates
By KELLY EVANS, SERENA NG and RUTH SIMON
Wall Street Journal
February 27, 2008; Page A1
The decline in U.S. home prices accelerated in the fourth quarter, according to two leading barometers, compounding two of the biggest threats facing the nation's economy: faltering consumer spending and tight credit markets.
The S&P/Case-Shiller national home-price index for the fourth quarter fell 8.9% from a year earlier, the largest drop in its 20 years of data. And the Office of Federal Housing Enterprise Oversight's index -- which tracks only homes purchased with mortgages guaranteed by home-loan giants Fannie Mae or Freddie Mac -- was down 0.3%, the first year-to-year decline in the measure's 16 years.
Lower home prices threaten the economy's growth by making consumers feel less wealthy and thus less willing to spend. They also curtail homeowners' ability to borrow against the value of their homes to finance other purchases. In addition, lower housing prices erode the value of banks' collateral, prompting them to tighten their lending standards, which further damps economic growth.
A top Federal Reserve official indicated the housing slump and its broadening impact on the economy probably would keep the central bank biased in favor of more interest-rate cuts. "It appears that the correction in the housing market has further to go," Fed Vice Chairman Donald Kohn said yesterday in a speech in North Carolina. Mr. Kohn said that the downturn, after being "contained" for nearly two years, "appears to have spread to other sectors of the economy." He added that if the housing market deteriorates more than expected, "lenders might further reduce credit availability."
The Fed's efforts so far to soften the blow of the housing slump with lower interest rates appear to be having a muted effect. Since September, the Fed has reduced its target for short-term interest rates by 2.25 percentage points to 3%. But some mortgage rates are actually rising, and those that are falling haven't fallen that much.
The average interest rate on a standard 30-year fixed-rate mortgage was 6.38% yesterday, little changed from September but up from 5.61% in late January, according to HSH Associates, a mortgage-data publisher in Pompton Plains, N.J. Interest rates on so-called jumbo mortgages -- those larger than $417,000 -- were at 7.35%, also close to their September levels.
There are two reasons mortgage rates haven't responded more to the Fed's rate cuts. One is that long-term Treasury yields, which are the benchmark for most mortgage rates, have risen recently, perhaps because of increased concern about inflation as the prices of oil and other commodities soar. The other is that the spread between mortgage rates and Treasury rates has widened as investors and banks become increasingly reluctant to make home loans.
Hoping to Refinance
William Zempsky, a pediatrician who lives in West Hartford, Conn., was hoping to refinance his adjustable-rate mortgage before the rate -- which had been fixed at 4.5% for five years -- jumps to 6% or so in March. "I started to put my stuff together to refinance, but before we could pull the trigger, rates bounced up again," Mr. Zempsky said. "It seemed that with the Fed dropping rates that things would stay low, but they haven't."
If Mr. Zempsky doesn't refinance, his monthly payments will jump by about $275 a month, says his mortgage banker, Michael Menatian, president of Sanborn Mortgage Corp.
The housing-market slump also is taking its toll on consumer sentiment, which could lead to further pullbacks in spending, depressing the economy. The Conference Board, a New York-based business-research group, said yesterday that its index of consumer confidence fell sharply to 75.0 in February from 87.3 in January. The index is closely watched because consumer spending drives much of the U.S. economy.
"Consumer spending is going to take a hit," said Patrick Newport, an economist at Global Insight in Waltham, Mass. "The hit will be bigger the more home prices drop."
A growing glut of homes for sale suggests buyers have little interest in snapping up houses at current prices. Buyers "are waiting for the bottom to be there," said Vicki Nellis, a real-estate agent at Re/Max Allegiance in Burke, Va. She said this is the worst market she has seen in her 25 years in the business.
Goldman Sachs Group Inc. estimates home prices ultimately will fall by 20% to 25% from the peak of the housing boom, while Merrill Lynch chief economist Dave Rosenberg says they could fall even further. According to the S&P/Case-Shiller national home-price index, prices have fallen 10.2% from their highs in the summer of 2006. In some areas, the declines have been much steeper. Prices in the Miami area were 17.5% lower in December than they were a year earlier, and prices in Las Vegas, Phoenix and San Diego have fallen by 15% or more.
There may be light at the end of the tunnel. As prices fall, potential buyers may be tempted off the sidelines. Economists agree the key to stabilizing prices is working off the huge inventory of unsold homes. Supply is shrinking: New-home construction has plunged dramatically. But demand has fallen just as much, leaving inventories high. Sales are now far below normal trends, and on Monday, an industry trade group reported a 0.5% increase in single-family home sales in January, the first in 11 months.
The S&P/Case-Shiller and Ofheo indices have important differences. The Ofheo index is less volatile because it only tracks the prices of homes purchased with mortgages guaranteed by government-backed agencies. That excludes jumbo mortgages, subprime mortgages and other riskier mortgage products.
One reason home prices are falling: Builders are trying to unload their unsold houses. Stuart Kaye, founder of Kaye Homes Inc. in Naples, Fla., has been offering discounts, including price cuts and other incentives, of 20% to 30% on about 50 homes in his inventory. He has sold 18 of them in recent months. "We want to be out from underneath this inventory, and we have made a commitment we will be through it in a 90-day period,'' he said.
But the interest-rate environment has brought a near halt to refinancing activity. P.H. Naffah, a musician in Goodyear, Ariz., has a roughly $415,000, 30-year mortgage with a fixed rate of 6.25%. He figures he could cut his mortgage costs by around $250 a month by refinancing into a loan with a 5.5% rate. "I'm waiting for the interest rates to go down," said Mr. Naffah, who added the savings "would be significant" because his monthly income as a musician fluctuates.
Other borrowers have been hamstrung by tighter credit standards as lenders eliminate programs and set tighter requirements, particularly in markets where home prices are falling. Steve Walsh, a mortgage broker in Scottsdale, Ariz., says his firm is originating about 300 loans a month, but closing only about 65. Mr. Walsh says that about 100 applications fell apart because of problems with appraisals. Another 100 loans didn't close because of rising mortgage rates.
In addition to inflation concerns, rates are rising because the market for mortgage-backed securities is in upheaval, thanks to rising mortgage delinquencies and the collapse of the high-risk subprime corner of the mortgage business.
Upward Pressure
Investors are demanding higher risk premiums for securities they buy with mortgages attached to them. And that is putting upward pressure on the rates charged to individuals. Even bonds backed by government-sponsored enterprises Fannie Mae and Freddie Mac -- which are considered safe triple-A-rated institutions -- have declined in value, pushing mortgage rates higher.
The difference between yields on some Fannie-backed mortgage bonds and yields on Treasury notes hit around 2.46 percentage points this week. This gap -- also known as the "spread" -- gets larger when investors become more risk averse and seek safety in Treasury bonds. It is up from 2.06 percentage points two weeks ago and has reached levels last seen during the 1980s savings-and-loan crisis, according to Bear Stearns.
Of course, mortgage rates would likely be even higher if the Fed hadn't moved aggressively in the past few months. But Fed officials seem mindful of their own limits. "Financing costs have risen, on balance, for riskier credits, and almost all borrowers are dealing with more cautious lenders who have adopted more stringent standards," Mr. Kohn said in his speech yesterday.
--Michael Corkery and Sara Murray contributed to this article.
By KELLY EVANS, SERENA NG and RUTH SIMON
Wall Street Journal
February 27, 2008; Page A1
The decline in U.S. home prices accelerated in the fourth quarter, according to two leading barometers, compounding two of the biggest threats facing the nation's economy: faltering consumer spending and tight credit markets.
The S&P/Case-Shiller national home-price index for the fourth quarter fell 8.9% from a year earlier, the largest drop in its 20 years of data. And the Office of Federal Housing Enterprise Oversight's index -- which tracks only homes purchased with mortgages guaranteed by home-loan giants Fannie Mae or Freddie Mac -- was down 0.3%, the first year-to-year decline in the measure's 16 years.
Lower home prices threaten the economy's growth by making consumers feel less wealthy and thus less willing to spend. They also curtail homeowners' ability to borrow against the value of their homes to finance other purchases. In addition, lower housing prices erode the value of banks' collateral, prompting them to tighten their lending standards, which further damps economic growth.
A top Federal Reserve official indicated the housing slump and its broadening impact on the economy probably would keep the central bank biased in favor of more interest-rate cuts. "It appears that the correction in the housing market has further to go," Fed Vice Chairman Donald Kohn said yesterday in a speech in North Carolina. Mr. Kohn said that the downturn, after being "contained" for nearly two years, "appears to have spread to other sectors of the economy." He added that if the housing market deteriorates more than expected, "lenders might further reduce credit availability."
The Fed's efforts so far to soften the blow of the housing slump with lower interest rates appear to be having a muted effect. Since September, the Fed has reduced its target for short-term interest rates by 2.25 percentage points to 3%. But some mortgage rates are actually rising, and those that are falling haven't fallen that much.
The average interest rate on a standard 30-year fixed-rate mortgage was 6.38% yesterday, little changed from September but up from 5.61% in late January, according to HSH Associates, a mortgage-data publisher in Pompton Plains, N.J. Interest rates on so-called jumbo mortgages -- those larger than $417,000 -- were at 7.35%, also close to their September levels.
There are two reasons mortgage rates haven't responded more to the Fed's rate cuts. One is that long-term Treasury yields, which are the benchmark for most mortgage rates, have risen recently, perhaps because of increased concern about inflation as the prices of oil and other commodities soar. The other is that the spread between mortgage rates and Treasury rates has widened as investors and banks become increasingly reluctant to make home loans.
Hoping to Refinance
William Zempsky, a pediatrician who lives in West Hartford, Conn., was hoping to refinance his adjustable-rate mortgage before the rate -- which had been fixed at 4.5% for five years -- jumps to 6% or so in March. "I started to put my stuff together to refinance, but before we could pull the trigger, rates bounced up again," Mr. Zempsky said. "It seemed that with the Fed dropping rates that things would stay low, but they haven't."
If Mr. Zempsky doesn't refinance, his monthly payments will jump by about $275 a month, says his mortgage banker, Michael Menatian, president of Sanborn Mortgage Corp.
The housing-market slump also is taking its toll on consumer sentiment, which could lead to further pullbacks in spending, depressing the economy. The Conference Board, a New York-based business-research group, said yesterday that its index of consumer confidence fell sharply to 75.0 in February from 87.3 in January. The index is closely watched because consumer spending drives much of the U.S. economy.
"Consumer spending is going to take a hit," said Patrick Newport, an economist at Global Insight in Waltham, Mass. "The hit will be bigger the more home prices drop."
A growing glut of homes for sale suggests buyers have little interest in snapping up houses at current prices. Buyers "are waiting for the bottom to be there," said Vicki Nellis, a real-estate agent at Re/Max Allegiance in Burke, Va. She said this is the worst market she has seen in her 25 years in the business.
Goldman Sachs Group Inc. estimates home prices ultimately will fall by 20% to 25% from the peak of the housing boom, while Merrill Lynch chief economist Dave Rosenberg says they could fall even further. According to the S&P/Case-Shiller national home-price index, prices have fallen 10.2% from their highs in the summer of 2006. In some areas, the declines have been much steeper. Prices in the Miami area were 17.5% lower in December than they were a year earlier, and prices in Las Vegas, Phoenix and San Diego have fallen by 15% or more.
There may be light at the end of the tunnel. As prices fall, potential buyers may be tempted off the sidelines. Economists agree the key to stabilizing prices is working off the huge inventory of unsold homes. Supply is shrinking: New-home construction has plunged dramatically. But demand has fallen just as much, leaving inventories high. Sales are now far below normal trends, and on Monday, an industry trade group reported a 0.5% increase in single-family home sales in January, the first in 11 months.
The S&P/Case-Shiller and Ofheo indices have important differences. The Ofheo index is less volatile because it only tracks the prices of homes purchased with mortgages guaranteed by government-backed agencies. That excludes jumbo mortgages, subprime mortgages and other riskier mortgage products.
One reason home prices are falling: Builders are trying to unload their unsold houses. Stuart Kaye, founder of Kaye Homes Inc. in Naples, Fla., has been offering discounts, including price cuts and other incentives, of 20% to 30% on about 50 homes in his inventory. He has sold 18 of them in recent months. "We want to be out from underneath this inventory, and we have made a commitment we will be through it in a 90-day period,'' he said.
But the interest-rate environment has brought a near halt to refinancing activity. P.H. Naffah, a musician in Goodyear, Ariz., has a roughly $415,000, 30-year mortgage with a fixed rate of 6.25%. He figures he could cut his mortgage costs by around $250 a month by refinancing into a loan with a 5.5% rate. "I'm waiting for the interest rates to go down," said Mr. Naffah, who added the savings "would be significant" because his monthly income as a musician fluctuates.
Other borrowers have been hamstrung by tighter credit standards as lenders eliminate programs and set tighter requirements, particularly in markets where home prices are falling. Steve Walsh, a mortgage broker in Scottsdale, Ariz., says his firm is originating about 300 loans a month, but closing only about 65. Mr. Walsh says that about 100 applications fell apart because of problems with appraisals. Another 100 loans didn't close because of rising mortgage rates.
In addition to inflation concerns, rates are rising because the market for mortgage-backed securities is in upheaval, thanks to rising mortgage delinquencies and the collapse of the high-risk subprime corner of the mortgage business.
Upward Pressure
Investors are demanding higher risk premiums for securities they buy with mortgages attached to them. And that is putting upward pressure on the rates charged to individuals. Even bonds backed by government-sponsored enterprises Fannie Mae and Freddie Mac -- which are considered safe triple-A-rated institutions -- have declined in value, pushing mortgage rates higher.
The difference between yields on some Fannie-backed mortgage bonds and yields on Treasury notes hit around 2.46 percentage points this week. This gap -- also known as the "spread" -- gets larger when investors become more risk averse and seek safety in Treasury bonds. It is up from 2.06 percentage points two weeks ago and has reached levels last seen during the 1980s savings-and-loan crisis, according to Bear Stearns.
Of course, mortgage rates would likely be even higher if the Fed hadn't moved aggressively in the past few months. But Fed officials seem mindful of their own limits. "Financing costs have risen, on balance, for riskier credits, and almost all borrowers are dealing with more cautious lenders who have adopted more stringent standards," Mr. Kohn said in his speech yesterday.
--Michael Corkery and Sara Murray contributed to this article.
Monday, February 25, 2008
200 Posts and More to Come!
I've just noticed that I've posted 200 times on this blog.
It's a milestone, of sorts. Long-time readers know that I use a lot of sources of material, while also posting original commentary and observations about the market. In fact, I just received a comment from a reader (Hi, Garrett!) and I like to see my readers' comments here!
I'll keep providing material, some of which might be called 'timeless' in that I give tips on selling or buying that you can use whatever the market, and also commentary and articles about the current market conditions, which change all the time.
If there's something else that you would like to see here, just drop me an email with your request and direct it to: Ray@SCVhometeam.com
It's a milestone, of sorts. Long-time readers know that I use a lot of sources of material, while also posting original commentary and observations about the market. In fact, I just received a comment from a reader (Hi, Garrett!) and I like to see my readers' comments here!
I'll keep providing material, some of which might be called 'timeless' in that I give tips on selling or buying that you can use whatever the market, and also commentary and articles about the current market conditions, which change all the time.
If there's something else that you would like to see here, just drop me an email with your request and direct it to: Ray@SCVhometeam.com
Friday, February 15, 2008
Fannie, Freddie may have to tiptoe into 'jumbo light' market
Raising conforming loan limit not a simple task
Monday, February 11, 2008
By Matt Carter
Inman News
While Fannie Mae, Freddie Mac and the Federal Housing Administration will soon be allowed to dive into what until now has been the jumbo loan market, it remains to be seen how many borrowers will benefit.
Congress and the Bush administration have agreed to raise the $417,000 conforming loan limit until the end of the year, under a provision of the $150 billion economic stimulus package approved by Congress last week.
But the devil, as they say, will be in the details. The new formula for determining the conforming loan limit will allow Fannie, Freddie and FHA to guarantee loans of up to 125 percent of the median home price of an area.
While housing markets where the median home price exceeds $216,840 will benefit from higher limits for FHA loan guarantee programs, one analysis suggests Fannie and Freddie will be able to tiptoe into the jumbo loan business in only 19 metropolitan statistical areas (MSAs). [Our local area is at or very near the maximum loan limit of $729,750]
The first step to be taken to implement the changes will be determining median home prices. The Department of Housing and Urban Development has been given 30 days to publish median-home-price data once President Bush signs the stimulus package into law.
But where will HUD get the data? And with prices falling rapidly in many markets, will the data be updated monthly, quarterly or annually?
HUD spokesman Lemar Wooley said FHA will use a combination of existing government data sets and available commercial information to determine the median sales price. He said FHA loan limits are based on the county a property is located in, except when the county is part of a larger MSA, in which case the county with the highest loan limit determines the limit for the entire MSA.
Not only does HUD have to come up with median-home-price numbers for every housing market in America, but Fannie Mae and Freddie Mac will have to come up with credit guidelines for a class of loans that, until now, has mostly been off-limits. The government-chartered mortgage financiers will have to decide what their standards will be for the loans they will purchase, or securitize and guarantee.
As they venture into the jumbo loan market, Fannie and Freddie will have to decide if they need to be more cautious about the minimum down payments they will accept, borrower's credit histories, and the fees they charge for taking on more risk. The task will be complicated by the fact that the maximum loan size will vary from market to market, instead of the uniform $417,000 limit in place today in 48 states other than Alaska and Hawaii.
In high-cost markets, the $417,000 conforming loan limit for loans eligible for purchase or guarantee by Fannie and Freddie will be raised to 125 percent of the median home price, with an upper cap of $729,750. That formula means that the $417,000 conforming loan limit will remain in place in markets where the median home price is $333,600 or less.
While there's no time limit for Fannie and Freddie to publish guidelines for the new class of loans, the companies have promised to work with regulators to expedite the process. James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told members of the Senate Banking Committee Thursday that the process could take months.
The temporary increase in the conforming loan limit is likely to have a bigger impact on FHA loan guarantee programs, because the current limits for FHA are lower. In high-cost markets, the current ceiling for FHA loan programs is $372,790, and $200,160 in other markets.
The new ceiling for FHA loan programs in normal markets will be $271,050 -- meaning that even borrowers in housing markets where the median home price is below $216,840 may be eligible for FHA-backed purchase or refinance loans up to that amount. In areas where the median home price is above $216,840, the limit for FHA loan programs will be 125 percent of the median home price, all the way up to $729,750.
Fannie and Freddie will be allowed to buy and securitize jumbo loans originated any time between July 1, 2007 and Dec. 31, 2008. That means jumbo lenders may be able to sell some of the loans they've made in the last seven months to Fannie and Freddie, freeing them up to make more loans.
One reason Congress and the Bush administration agreed to raise the conforming limit, at least for now, is that Wall Street investors will no longer buy most mortgage-backed securities that don't carry the backing of Fannie, Freddie or FHA. That means borrowers are paying about 1 percent more for jumbo loans that exceed the $417,000 conforming loan limit. [In our area, the difference has been about 1.25%]
But there's no guarantee investors will accept the jumbo loans backed by Fannie and Freddie -- which are private, publicly traded companies that face potentially billions of losses in the current mortgage morass -- as safe investments. They may also need some time to familiarize themselves with how FHA is handling the larger loans, said Jaret Seiberg, an analyst with Stanford Group Co. who follows the secondary mortgage market.
"Investors understand the risk characteristics of conforming mortgages that are securitized by Fannie and Freddie, and they understand FHA-backed loans securitized through Ginnie Mae," Seiberg said. "But they don't have experience with jumbo loans coming out of those channels. In a market with so much uncertainty, it's a real question whether investors are going to have an appetite for a new product."
If Wall Street investors don't snatch up the larger loans backed by Fannie, Freddie and FHA after they are securitized, that would limit the benefits to the secondary mortgage market and do less to ease the credit crunch than backers of the move have hoped.
As Fannie's and Freddie's losses mount and they bump up against minimum capital requirements, their capacity to purchase and guarantee loans is not unlimited. And as Lockhart noted, it takes three times as much capital to guarantee one $600,000 loan as it does one $200,000 loan.
While Seiberg is confident that HUD can implement higher loan limits for FHA programs, he said Fannie and Freddie have technological and capital issues to overcome before they become "meaningful players" in the "jumbo light" market.
As to which housing markets might benefit from higher conforming loan limits, Seiberg said Stanford Group used median-home-price data from the National Association of Realtors to analyze where Fannie and Freddie might be able to purchase or guarantee loans above the current $417,000 limit.
Stanford Group identified 19 markets -- more than a third of them in California -- where Fannie and Freddie could enter the jumbo light market.
Monday, February 11, 2008
By Matt Carter
Inman News
While Fannie Mae, Freddie Mac and the Federal Housing Administration will soon be allowed to dive into what until now has been the jumbo loan market, it remains to be seen how many borrowers will benefit.
Congress and the Bush administration have agreed to raise the $417,000 conforming loan limit until the end of the year, under a provision of the $150 billion economic stimulus package approved by Congress last week.
But the devil, as they say, will be in the details. The new formula for determining the conforming loan limit will allow Fannie, Freddie and FHA to guarantee loans of up to 125 percent of the median home price of an area.
While housing markets where the median home price exceeds $216,840 will benefit from higher limits for FHA loan guarantee programs, one analysis suggests Fannie and Freddie will be able to tiptoe into the jumbo loan business in only 19 metropolitan statistical areas (MSAs). [Our local area is at or very near the maximum loan limit of $729,750]
The first step to be taken to implement the changes will be determining median home prices. The Department of Housing and Urban Development has been given 30 days to publish median-home-price data once President Bush signs the stimulus package into law.
But where will HUD get the data? And with prices falling rapidly in many markets, will the data be updated monthly, quarterly or annually?
HUD spokesman Lemar Wooley said FHA will use a combination of existing government data sets and available commercial information to determine the median sales price. He said FHA loan limits are based on the county a property is located in, except when the county is part of a larger MSA, in which case the county with the highest loan limit determines the limit for the entire MSA.
Not only does HUD have to come up with median-home-price numbers for every housing market in America, but Fannie Mae and Freddie Mac will have to come up with credit guidelines for a class of loans that, until now, has mostly been off-limits. The government-chartered mortgage financiers will have to decide what their standards will be for the loans they will purchase, or securitize and guarantee.
As they venture into the jumbo loan market, Fannie and Freddie will have to decide if they need to be more cautious about the minimum down payments they will accept, borrower's credit histories, and the fees they charge for taking on more risk. The task will be complicated by the fact that the maximum loan size will vary from market to market, instead of the uniform $417,000 limit in place today in 48 states other than Alaska and Hawaii.
In high-cost markets, the $417,000 conforming loan limit for loans eligible for purchase or guarantee by Fannie and Freddie will be raised to 125 percent of the median home price, with an upper cap of $729,750. That formula means that the $417,000 conforming loan limit will remain in place in markets where the median home price is $333,600 or less.
While there's no time limit for Fannie and Freddie to publish guidelines for the new class of loans, the companies have promised to work with regulators to expedite the process. James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told members of the Senate Banking Committee Thursday that the process could take months.
The temporary increase in the conforming loan limit is likely to have a bigger impact on FHA loan guarantee programs, because the current limits for FHA are lower. In high-cost markets, the current ceiling for FHA loan programs is $372,790, and $200,160 in other markets.
The new ceiling for FHA loan programs in normal markets will be $271,050 -- meaning that even borrowers in housing markets where the median home price is below $216,840 may be eligible for FHA-backed purchase or refinance loans up to that amount. In areas where the median home price is above $216,840, the limit for FHA loan programs will be 125 percent of the median home price, all the way up to $729,750.
Fannie and Freddie will be allowed to buy and securitize jumbo loans originated any time between July 1, 2007 and Dec. 31, 2008. That means jumbo lenders may be able to sell some of the loans they've made in the last seven months to Fannie and Freddie, freeing them up to make more loans.
One reason Congress and the Bush administration agreed to raise the conforming limit, at least for now, is that Wall Street investors will no longer buy most mortgage-backed securities that don't carry the backing of Fannie, Freddie or FHA. That means borrowers are paying about 1 percent more for jumbo loans that exceed the $417,000 conforming loan limit. [In our area, the difference has been about 1.25%]
But there's no guarantee investors will accept the jumbo loans backed by Fannie and Freddie -- which are private, publicly traded companies that face potentially billions of losses in the current mortgage morass -- as safe investments. They may also need some time to familiarize themselves with how FHA is handling the larger loans, said Jaret Seiberg, an analyst with Stanford Group Co. who follows the secondary mortgage market.
"Investors understand the risk characteristics of conforming mortgages that are securitized by Fannie and Freddie, and they understand FHA-backed loans securitized through Ginnie Mae," Seiberg said. "But they don't have experience with jumbo loans coming out of those channels. In a market with so much uncertainty, it's a real question whether investors are going to have an appetite for a new product."
If Wall Street investors don't snatch up the larger loans backed by Fannie, Freddie and FHA after they are securitized, that would limit the benefits to the secondary mortgage market and do less to ease the credit crunch than backers of the move have hoped.
As Fannie's and Freddie's losses mount and they bump up against minimum capital requirements, their capacity to purchase and guarantee loans is not unlimited. And as Lockhart noted, it takes three times as much capital to guarantee one $600,000 loan as it does one $200,000 loan.
While Seiberg is confident that HUD can implement higher loan limits for FHA programs, he said Fannie and Freddie have technological and capital issues to overcome before they become "meaningful players" in the "jumbo light" market.
As to which housing markets might benefit from higher conforming loan limits, Seiberg said Stanford Group used median-home-price data from the National Association of Realtors to analyze where Fannie and Freddie might be able to purchase or guarantee loans above the current $417,000 limit.
Stanford Group identified 19 markets -- more than a third of them in California -- where Fannie and Freddie could enter the jumbo light market.
San Fernando Valley Sales Down 35%, While Prices Post a Modest Increase
[from the Southland Regional Association of Realtors]
Home sales in the San Fernando Valley during 2007 declined a record 34.9 percent from the prior year, while the annual median price posted its smallest increase in many years, the Southland Regional Association of Realtors reported.
A total of 6,271 homes closed escrow compared to the 9,632 sales of 2006. The peak of the recent boom came in 2003 when Realtors completed 13,878 sales, but the record high was set in 1988 with 15,263 single-family transactions. Annual home sales in the San Fernando Valley have been slowing since 2004.
Realtors managed and negotiated home and condominium sales during 2007 that generated $1.76 billion for buyers, sellers and the local economy. That figure does not include the added millions of dollars home sales yield for related services, such as contractors, landscaping specialists, home improvement companies and manufacturers of furniture and appliances.
"Sales are down and prices are soft, but people have to be shaken out of their attitude that prices will plunge dramatically," said Mary Funk, the 2008 president of the Southland Regional Association of Realtors. "I just do not think resale prices will go down nearly as much as some people believe. There is no bell that goes off when the market hits the top or the bottom of a cycle, so anyone who needs a home and is waiting to catch a steal may be disappointed and may miss an opportunity."
Some of the properties listed for sale on the Multiple Listing Service operated by the Association are foreclosures owned by banks and short sales, Funk said, but the San Fernando Valley does not have nearly as many distressed properties as regions of Southern California that were hit harder by the sub-prime mortgage meltdown. Typically, the areas reporting the most problems had extensive new home construction and a high percentage of first-time buyers, unlike the San Fernando Valley which is a mature housing market with limited new home and entry-level sales.
"Sellers are finally accepting the new reality and those who are selling today are doing whatever it takes to complete a transaction," said Jim Link, the Association's Chief Executive Officer. "However, there are too many prospective buyers who think prices should be much, much lower, and think they can snag a super bargain. "But banks are not going to dramatically slash prices and take a huge loss," Link said. "Banks want to recoup their investment and that means they will list properties competitively at prices below comparable homes, but certainly not at fire sale prices."
Condominium resale activity throughout the San Fernando Valley during 2007 fell for the fifth consecutive year, down 33.2 percent drop to 2,443 condo sales. However, annual condo sales have been lower - below 2,000 transactions from 1993 to 1995, including the record low of 1,607 set in 1993. The record high of 5,041 transactions was set in 2002.
The annual single-family median price came in at $61 1,933 -the highest on record. The increase of 1.0 percent was the lowest gain on record with each year posting slightly smaller gains since the 26.3 percent increase of 2003. This year's annual median price beat the prior record of $605,917 set in 2006.
The annual condominium median price of $385,967 was down 2.3 percent from 2006 when the record high $394,917 annual condo median was posted. It was the first drop in the annual median since 1996. From 2000 to 2005 the annual condo median posted double-digit increases with the largest one of 28.7 percent coming in 2003.
"It's difficult to predict when this cycle will end and working out the limited number of local foreclosures may take some time," Link said. "Hopefully, by Spring we will see a market that is a little more predictable than today."
There were 5,671 active listings throughout the San Fernando Valley at the end of December, an increase of 8.8 percent over a year ago. At the current pace of sales, the inventory represents a 10.9-month supply - a buyers' market, but a clear improvement from recent months when it went as high as a 16-month supply. For perspective, the record high was a 23-month supply set in February 1993. A balanced market is in the 5- to 6-month range.
December single-family sales plunged 51.6 percent compared to the prior year while condo sales were off 55.6 percent. Declines in the median price of homes and condos were 12.4 percent for homes and 16.5 percent for condos. Prices are still sticky, not dropping nearly as fast as sales would indicate they should.
Home sales in the San Fernando Valley during 2007 declined a record 34.9 percent from the prior year, while the annual median price posted its smallest increase in many years, the Southland Regional Association of Realtors reported.
A total of 6,271 homes closed escrow compared to the 9,632 sales of 2006. The peak of the recent boom came in 2003 when Realtors completed 13,878 sales, but the record high was set in 1988 with 15,263 single-family transactions. Annual home sales in the San Fernando Valley have been slowing since 2004.
Realtors managed and negotiated home and condominium sales during 2007 that generated $1.76 billion for buyers, sellers and the local economy. That figure does not include the added millions of dollars home sales yield for related services, such as contractors, landscaping specialists, home improvement companies and manufacturers of furniture and appliances.
"Sales are down and prices are soft, but people have to be shaken out of their attitude that prices will plunge dramatically," said Mary Funk, the 2008 president of the Southland Regional Association of Realtors. "I just do not think resale prices will go down nearly as much as some people believe. There is no bell that goes off when the market hits the top or the bottom of a cycle, so anyone who needs a home and is waiting to catch a steal may be disappointed and may miss an opportunity."
Some of the properties listed for sale on the Multiple Listing Service operated by the Association are foreclosures owned by banks and short sales, Funk said, but the San Fernando Valley does not have nearly as many distressed properties as regions of Southern California that were hit harder by the sub-prime mortgage meltdown. Typically, the areas reporting the most problems had extensive new home construction and a high percentage of first-time buyers, unlike the San Fernando Valley which is a mature housing market with limited new home and entry-level sales.
"Sellers are finally accepting the new reality and those who are selling today are doing whatever it takes to complete a transaction," said Jim Link, the Association's Chief Executive Officer. "However, there are too many prospective buyers who think prices should be much, much lower, and think they can snag a super bargain. "But banks are not going to dramatically slash prices and take a huge loss," Link said. "Banks want to recoup their investment and that means they will list properties competitively at prices below comparable homes, but certainly not at fire sale prices."
Condominium resale activity throughout the San Fernando Valley during 2007 fell for the fifth consecutive year, down 33.2 percent drop to 2,443 condo sales. However, annual condo sales have been lower - below 2,000 transactions from 1993 to 1995, including the record low of 1,607 set in 1993. The record high of 5,041 transactions was set in 2002.
The annual single-family median price came in at $61 1,933 -the highest on record. The increase of 1.0 percent was the lowest gain on record with each year posting slightly smaller gains since the 26.3 percent increase of 2003. This year's annual median price beat the prior record of $605,917 set in 2006.
The annual condominium median price of $385,967 was down 2.3 percent from 2006 when the record high $394,917 annual condo median was posted. It was the first drop in the annual median since 1996. From 2000 to 2005 the annual condo median posted double-digit increases with the largest one of 28.7 percent coming in 2003.
"It's difficult to predict when this cycle will end and working out the limited number of local foreclosures may take some time," Link said. "Hopefully, by Spring we will see a market that is a little more predictable than today."
There were 5,671 active listings throughout the San Fernando Valley at the end of December, an increase of 8.8 percent over a year ago. At the current pace of sales, the inventory represents a 10.9-month supply - a buyers' market, but a clear improvement from recent months when it went as high as a 16-month supply. For perspective, the record high was a 23-month supply set in February 1993. A balanced market is in the 5- to 6-month range.
December single-family sales plunged 51.6 percent compared to the prior year while condo sales were off 55.6 percent. Declines in the median price of homes and condos were 12.4 percent for homes and 16.5 percent for condos. Prices are still sticky, not dropping nearly as fast as sales would indicate they should.
2007 SCV Home Sales off 31%
Annual Median Price Falls 5.4%
[from the Southland Regional Association of Realtors]
2007 was the third consecutive year that sales of existing single-family homes in the Santa Clarita Valley declined while the annual median price of homes fell for the first time on record, the Southland Regional Association of Realtors reported.
A total of 1,993 single-family homes changed owners last year, down 31.3 percent from the prior year. It was the lowest annual total since the association started keeping statistics in 1998. The record high of 3,869 home sales was set in 2004, the peak of the recent sellers' boom market.
Likewise, the condominium annual tally of 841 condo sales was the lowest on record. It dropped 32.5 percent from the prior year, with three of the last four years posting sales declines after six consecutive years of typically double-digit increases in sales.
Realtors managed and negotiated home sales in the Santa Clarita Valley last year that generated $1 -57 billion for buyers, sellers and the local economy. That figure does not include the added millions of dollars each sale yielded for related services, such as contractors, landscaping specialists, home improvement companies and manufacturers of furniture and appliances.
"I truly do not expect resale prices to go down all that much," said Doreen Chastain-Shine, president of the Association's Santa Clarita Valley Division. "Still, sellers don't want to believe what's happening, that the market has shifted in favor of buyers. Sellers are still not being realistic."
Chastain-Shine and Jim Link, the Association's chief executive officer, said that while it will take some time to work out problems related to foreclosures and short sales in the area, the problem is not severe enough to dramatically impact resale prices.
However, the market is at stalemate because sellers cling to boom market expectations and buyers incorrectly believe they can purchase a home at a dramatically reduced price. But even foreclosed properties listed for sale by lenders are not being priced with large discounts as lenders want to recoup their investment.
"While we're seeing the effect of the subprime crisis in the overall market," Link said, "we are not in a price free fall like what might be happening in market with large amounts of new home construction and a high percentage of first-time home buyers."
The statistics for 2007 support that view: The annual median price of the 1,993 homes sold last year was $570,658, down 5.4 percent from the record high of $603,492 set in 2006. It was the first drop in the annual median since the association began keeping statistics in 1998.
The condominium annual median price of $353,333 was down 7.2 percent from the record high of $380,583 set in 2006. Just like single-family homes, the condo annual median posted the first decline on record. From 2001 to 2005 the condo annual median price posted double-digit gains with 2003 and 2004 at 28.3 percent and 28.7 percent respectively.
There were 2,100 active listings throughout the Santa Clarita Valley at the end of December, up 9.4 percent from a year ago, but down 10.3 percent from the November tally. At the current pace of sales, the inventory represents a 12.7-month supply - clearly a buyers' market, but not as large as the 15.7-month supply reported in November.
"The mind set that real estate values never go down simply is not true," Link said. "Like any commodity, real estate has it's peaks and valleys, but over time owning a home in California has always been a solid investment that continues to increase in value."
[from the Southland Regional Association of Realtors]
2007 was the third consecutive year that sales of existing single-family homes in the Santa Clarita Valley declined while the annual median price of homes fell for the first time on record, the Southland Regional Association of Realtors reported.
A total of 1,993 single-family homes changed owners last year, down 31.3 percent from the prior year. It was the lowest annual total since the association started keeping statistics in 1998. The record high of 3,869 home sales was set in 2004, the peak of the recent sellers' boom market.
Likewise, the condominium annual tally of 841 condo sales was the lowest on record. It dropped 32.5 percent from the prior year, with three of the last four years posting sales declines after six consecutive years of typically double-digit increases in sales.
Realtors managed and negotiated home sales in the Santa Clarita Valley last year that generated $1 -57 billion for buyers, sellers and the local economy. That figure does not include the added millions of dollars each sale yielded for related services, such as contractors, landscaping specialists, home improvement companies and manufacturers of furniture and appliances.
"I truly do not expect resale prices to go down all that much," said Doreen Chastain-Shine, president of the Association's Santa Clarita Valley Division. "Still, sellers don't want to believe what's happening, that the market has shifted in favor of buyers. Sellers are still not being realistic."
Chastain-Shine and Jim Link, the Association's chief executive officer, said that while it will take some time to work out problems related to foreclosures and short sales in the area, the problem is not severe enough to dramatically impact resale prices.
However, the market is at stalemate because sellers cling to boom market expectations and buyers incorrectly believe they can purchase a home at a dramatically reduced price. But even foreclosed properties listed for sale by lenders are not being priced with large discounts as lenders want to recoup their investment.
"While we're seeing the effect of the subprime crisis in the overall market," Link said, "we are not in a price free fall like what might be happening in market with large amounts of new home construction and a high percentage of first-time home buyers."
The statistics for 2007 support that view: The annual median price of the 1,993 homes sold last year was $570,658, down 5.4 percent from the record high of $603,492 set in 2006. It was the first drop in the annual median since the association began keeping statistics in 1998.
The condominium annual median price of $353,333 was down 7.2 percent from the record high of $380,583 set in 2006. Just like single-family homes, the condo annual median posted the first decline on record. From 2001 to 2005 the condo annual median price posted double-digit gains with 2003 and 2004 at 28.3 percent and 28.7 percent respectively.
There were 2,100 active listings throughout the Santa Clarita Valley at the end of December, up 9.4 percent from a year ago, but down 10.3 percent from the November tally. At the current pace of sales, the inventory represents a 12.7-month supply - clearly a buyers' market, but not as large as the 15.7-month supply reported in November.
"The mind set that real estate values never go down simply is not true," Link said. "Like any commodity, real estate has it's peaks and valleys, but over time owning a home in California has always been a solid investment that continues to increase in value."
Friday, February 08, 2008
New Laws in 2008 Affect Realtors and Consumers
As 2008 roles in, several new laws are taking effect that are significant to real estate professionals and the general public. Here is a brief summary of a number of these new laws.
Mortgage Forgiveness Debt Relief Act: This new federal act will help some taxpayers caught in the sub-prime mortgage calamity. Under this act, taxpayers may exclude up to $2 million in income of qualified principal residence indebtedness for discharges sustained during a three-year window (January 1, 2007 through January 1, 2010). This includes obligations incurred from acquisition, construction or substantial improvement of an individual’s principle residence. Refinancing is also encompassed so long as the amount refinanced does not exceed the amount of the indebtedness. California, however, does not automatically observe the provisions of this bill. Therefore, income from forgiveness of debt still must be reported as earnings for state tax purposes. Still the act does free homeowners from a staggering and depressive federal tax obligation possibility, provides a way to sell their homes for less than what is owed on them and avoids having a foreclosure placed on their records.
Cell Phone Usage: This new state law affects every driver. As of July 1, 2008, all motorists will be required to use hands-free devices when using a cell phone while driving. Violators will face a $20 fine for the first offense and a $50 fine for each subsequent breach. The only exception is when contacting a law enforcement agency or public safety entity for emergency purposes.
Anti-Discrimination: Landlords and their agents, as of January 1, may no longer legally inquire into the immigration or citizenship status of an existing or prospective tenant.
Real Estate Appraisers: A licensed appraiser’s compensation can no longer be dependent upon or affected by the value conclusion generated by an appraisal for a real property purchase, transfer, sale, financing or development. In addition, any party with an interest in a real estate transaction is barred from influencing or attempting to influence the appraisal process for a mortgage loan.
New Disclosure for Private Transfer Fees: Beginning January 1, a seller who must provide a Transfer Disclosure Statement is required to concurrently furnish a disclosure statement of private transfer fees, if applicable. Transfer fees include any payment that must be paid upon transfer of real property as imposed by a deed, CC &Rs or other documents. The statement must include a notice that payment is required, the amount of the fee and name of the entity that is to receive payment.
Recording Private Transfer Fees: As a condition of payment of the fee, any person or entity imposing a private transfer fee must record the instrument creating the fee and a separate notice of Payment of Transfer Fee Required. Both must be simultaneously recorded at the county recorder’s office for which the property is located.
Loan Regulations: As of January 1, each of the agencies governing residential loans (all under the purview of the California Secretary of Business, Transportation and Housing) will have the authority to adopt guidelines that provide more stringent provisions on residential loans on one-to-four unit family residences for interest-only, negatively amortized and adjustable mortgage loans. We expect these new guidelines will require lenders to verify that consumers can repay their loans and will demand clearer statements concerning the likelihood that future payments will be made. Criminal penalties for failing to do so are likely to be considered. This new law also brings certain private lenders under the influence of the Department of Real Estate.
Property Tax Reassessment: As of January 1, any transfer of real property made from January 1, 2001 through January 1, 2006 between registered domestic partners is retroactively exempt from property tax reassessment. The recipient of the real property transfer must submit an application by June 30, 2009 to reverse the reassessment.
Mortgage Forgiveness Debt Relief Act: This new federal act will help some taxpayers caught in the sub-prime mortgage calamity. Under this act, taxpayers may exclude up to $2 million in income of qualified principal residence indebtedness for discharges sustained during a three-year window (January 1, 2007 through January 1, 2010). This includes obligations incurred from acquisition, construction or substantial improvement of an individual’s principle residence. Refinancing is also encompassed so long as the amount refinanced does not exceed the amount of the indebtedness. California, however, does not automatically observe the provisions of this bill. Therefore, income from forgiveness of debt still must be reported as earnings for state tax purposes. Still the act does free homeowners from a staggering and depressive federal tax obligation possibility, provides a way to sell their homes for less than what is owed on them and avoids having a foreclosure placed on their records.
Cell Phone Usage: This new state law affects every driver. As of July 1, 2008, all motorists will be required to use hands-free devices when using a cell phone while driving. Violators will face a $20 fine for the first offense and a $50 fine for each subsequent breach. The only exception is when contacting a law enforcement agency or public safety entity for emergency purposes.
Anti-Discrimination: Landlords and their agents, as of January 1, may no longer legally inquire into the immigration or citizenship status of an existing or prospective tenant.
Real Estate Appraisers: A licensed appraiser’s compensation can no longer be dependent upon or affected by the value conclusion generated by an appraisal for a real property purchase, transfer, sale, financing or development. In addition, any party with an interest in a real estate transaction is barred from influencing or attempting to influence the appraisal process for a mortgage loan.
New Disclosure for Private Transfer Fees: Beginning January 1, a seller who must provide a Transfer Disclosure Statement is required to concurrently furnish a disclosure statement of private transfer fees, if applicable. Transfer fees include any payment that must be paid upon transfer of real property as imposed by a deed, CC &Rs or other documents. The statement must include a notice that payment is required, the amount of the fee and name of the entity that is to receive payment.
Recording Private Transfer Fees: As a condition of payment of the fee, any person or entity imposing a private transfer fee must record the instrument creating the fee and a separate notice of Payment of Transfer Fee Required. Both must be simultaneously recorded at the county recorder’s office for which the property is located.
Loan Regulations: As of January 1, each of the agencies governing residential loans (all under the purview of the California Secretary of Business, Transportation and Housing) will have the authority to adopt guidelines that provide more stringent provisions on residential loans on one-to-four unit family residences for interest-only, negatively amortized and adjustable mortgage loans. We expect these new guidelines will require lenders to verify that consumers can repay their loans and will demand clearer statements concerning the likelihood that future payments will be made. Criminal penalties for failing to do so are likely to be considered. This new law also brings certain private lenders under the influence of the Department of Real Estate.
Property Tax Reassessment: As of January 1, any transfer of real property made from January 1, 2001 through January 1, 2006 between registered domestic partners is retroactively exempt from property tax reassessment. The recipient of the real property transfer must submit an application by June 30, 2009 to reverse the reassessment.
Thursday, February 07, 2008
Economic Stimulus Package Goes to President for Signature
[Just in from the California Association of Realtors...]
Thanks in part to lobbying by C.A.R. and NAR members, the Senate passed their version of an economic stimulus package today, Thursday, February 07, 2008. The Senate version expands rebate checks for seniors and disabled veterans and includes the same increases to the conforming loan limits for both GSE and FHA found in the House stimulus package. The House just passed the Senate version of the bill and it will now be sent to the White House. The President is expected to sign the legislation by the end of next week, ahead of the Congressional self-appointed deadline of February 15th. The increase in the conforming loan limits will last through 2008, but C.A.R. and NAR continue to lobby for FHA and GSE reform, making these increases permanent.
The U.S. House of Representatives passed a stimulus package last week that raised the FHA and conforming loan limits to as high as $729,750 in high-cost areas. By increasing the loan limits, borrowers will see immediate relief with new liquidity in the mortgage market and the nation will see an additional 300,000 home sales. Research shows that an increase in the FHA limit would enable an additional 138,000 Americans to purchase homes, and 200,000 families to refinance their homes safely and affordably.
Increasing the FHA loan limits is critical to bolstering California’s housing market. Current law restricts FHA loans to levels well below the median home price in many areas of the country and caps loans in high cost states at $363,790. These limits are preventing many homebuyers from using FHA to purchase or refinance their loan. The proposed provision will increase FHA loan limits nationwide by raising the floor to $271,050 and the limit to 125% of local median home prices.
Additionally, raising Fannie Mae and Freddie Mac’s (GSEs) conforming loan limit will provide immediate relief to borrowers and alleviate downward pressure on current housing markets. For instance, increasing the GSE loan limit could result in more than 300,000 additional home sales and strengthen current home prices by 2-3%.
The critical role that GSEs play in providing liquidity to the mortgage market has never been more evident than it is today. The national subprime meltdown has had a dramatic impact on both the cost and availability of mortgages in many markets. Since August 2007, the interest rates for jumbo borrowers have been more than 1 percentage point higher than conforming loans, which can cost homeowners up to $400 month in higher interest payments.
Thanks in part to lobbying by C.A.R. and NAR members, the Senate passed their version of an economic stimulus package today, Thursday, February 07, 2008. The Senate version expands rebate checks for seniors and disabled veterans and includes the same increases to the conforming loan limits for both GSE and FHA found in the House stimulus package. The House just passed the Senate version of the bill and it will now be sent to the White House. The President is expected to sign the legislation by the end of next week, ahead of the Congressional self-appointed deadline of February 15th. The increase in the conforming loan limits will last through 2008, but C.A.R. and NAR continue to lobby for FHA and GSE reform, making these increases permanent.
The U.S. House of Representatives passed a stimulus package last week that raised the FHA and conforming loan limits to as high as $729,750 in high-cost areas. By increasing the loan limits, borrowers will see immediate relief with new liquidity in the mortgage market and the nation will see an additional 300,000 home sales. Research shows that an increase in the FHA limit would enable an additional 138,000 Americans to purchase homes, and 200,000 families to refinance their homes safely and affordably.
Increasing the FHA loan limits is critical to bolstering California’s housing market. Current law restricts FHA loans to levels well below the median home price in many areas of the country and caps loans in high cost states at $363,790. These limits are preventing many homebuyers from using FHA to purchase or refinance their loan. The proposed provision will increase FHA loan limits nationwide by raising the floor to $271,050 and the limit to 125% of local median home prices.
Additionally, raising Fannie Mae and Freddie Mac’s (GSEs) conforming loan limit will provide immediate relief to borrowers and alleviate downward pressure on current housing markets. For instance, increasing the GSE loan limit could result in more than 300,000 additional home sales and strengthen current home prices by 2-3%.
The critical role that GSEs play in providing liquidity to the mortgage market has never been more evident than it is today. The national subprime meltdown has had a dramatic impact on both the cost and availability of mortgages in many markets. Since August 2007, the interest rates for jumbo borrowers have been more than 1 percentage point higher than conforming loans, which can cost homeowners up to $400 month in higher interest payments.
Friday, February 01, 2008
I'm from the Government and I'm here to help you
Raise and raise again
As I predicted months ago, our elected officials in this pre-election season will be coming up with all kinds of 'solutions' to the problems in the housing market. Freezing mortgage interest rates, state bonds to bail out homeowners whose monthly payments get too high to pay, giving judges the ability to change loan terms, raising the loan limits on FHA Fannie Mae and Freddie Mac loans, pumping liquidity into the system (printing mo' money!), lowering the Fed interest rates, and sending out checks to everybody are some of the latest proposals. The only things missing are declaring California, Nevada, Arizona, and Florida Federal (housing) Disaster Areas and dropping money out of helicopters.
People in the real estate business are pumped up... so is Wall Street since the financial stocks have gotten their bail outs between the Federal Reserve and Sovereign Funds. We can all party some more while kicking the can down the road, to be dealt with at some undetermined point in the future.
If you are getting the idea that I don't think this is good policy making, you would be right. However, I don't determine macro-economic policy and neither do you. Both of us are subject to these factors that are way beyond our control, and to the extent that we can make our own way for ourselves and our families, we do our best.
Between the stimulus package and all the rest, it is lining up as a terrific buying opportunity until the election in November. With four year lows in mortgage rates for conforming loans (now with an upper limit of $417,000 but soon to be raised above $700,000), this will provide a decided boost in our local area. However, the rise in the conforming limit may only last until the end of the year, as part of the temporary stimulus package now winding its way through Congress. Concurrent with this development is a tightening of credit guidelines, which will limit the numbers of people who can get the loans. The third factor to affect our housing market will be a second look at risk factors by the folks with the money. As the risk factor for lenders goes up, so do interest rates. Flooding the market with cash also tends to raise inflation and inflation fears, which also increases interest rates.
In my opinion, nobody really has a good handle on what should be done to minimize the effects of the downturn in the housing market on the rest of the economy, but the cure may be worse than the disease.
That said, we have a narrow window for action while interest rates are low. It's a buying opportunity, and for many people, it may not be this good for years. As interest rates rise as I expect they will, many will be priced out of the market with credit restrictions. For sellers who need to sell... sell. Price the home right and it will sell. However, the last call for high prices happened a couple of years ago. Expect a lower price, but if you can make it work for you, take it.
For those who want to stay in your homes and weather this storm, know your loan terms. If you have an adjustable loan or any of the exotics, you have to know what the worst case scenario is for the adjustments. Can you keep your home if the worst case happens? If not, get yourself into a fixed rate loan while interest rates are low. If you can't do that, you should consider getting out of the house by selling it before you get into trouble.
With dropping sales prices do you now owe more than your home is worth? This upside-down condition is becoming more and more common, and you may have some options than you are aware of here too. Give us a call.
For those in way over your heads (and increasingly you know who you are), give us a call at 661-287-9164 today. Our Foreclosure Avoidance Team can help you find the right solution for your particular circumstance, and the solution is certainly not 'one size fits all'. But let's start from where we are and help get you to where you want to go.
Buyers: just call us now. There are deals out there, and we know where they are. For those who choose to work with us, you will get a screamin' deal. Just call now.
In this market turmoil there is opportunity. You can miss it, or you can profit by it. For some of you, our best strategy would be to work to minimize loss. However, our training and experience is exactly tuned to this kind of market. Do yourself a favor, and let's begin right now, from where we find ourselves.
On behalf of the SCV Home Team at Keller Williams Realty, we all look forward to working with you!
~~Ray
As I predicted months ago, our elected officials in this pre-election season will be coming up with all kinds of 'solutions' to the problems in the housing market. Freezing mortgage interest rates, state bonds to bail out homeowners whose monthly payments get too high to pay, giving judges the ability to change loan terms, raising the loan limits on FHA Fannie Mae and Freddie Mac loans, pumping liquidity into the system (printing mo' money!), lowering the Fed interest rates, and sending out checks to everybody are some of the latest proposals. The only things missing are declaring California, Nevada, Arizona, and Florida Federal (housing) Disaster Areas and dropping money out of helicopters.
People in the real estate business are pumped up... so is Wall Street since the financial stocks have gotten their bail outs between the Federal Reserve and Sovereign Funds. We can all party some more while kicking the can down the road, to be dealt with at some undetermined point in the future.
If you are getting the idea that I don't think this is good policy making, you would be right. However, I don't determine macro-economic policy and neither do you. Both of us are subject to these factors that are way beyond our control, and to the extent that we can make our own way for ourselves and our families, we do our best.
Between the stimulus package and all the rest, it is lining up as a terrific buying opportunity until the election in November. With four year lows in mortgage rates for conforming loans (now with an upper limit of $417,000 but soon to be raised above $700,000), this will provide a decided boost in our local area. However, the rise in the conforming limit may only last until the end of the year, as part of the temporary stimulus package now winding its way through Congress. Concurrent with this development is a tightening of credit guidelines, which will limit the numbers of people who can get the loans. The third factor to affect our housing market will be a second look at risk factors by the folks with the money. As the risk factor for lenders goes up, so do interest rates. Flooding the market with cash also tends to raise inflation and inflation fears, which also increases interest rates.
In my opinion, nobody really has a good handle on what should be done to minimize the effects of the downturn in the housing market on the rest of the economy, but the cure may be worse than the disease.
That said, we have a narrow window for action while interest rates are low. It's a buying opportunity, and for many people, it may not be this good for years. As interest rates rise as I expect they will, many will be priced out of the market with credit restrictions. For sellers who need to sell... sell. Price the home right and it will sell. However, the last call for high prices happened a couple of years ago. Expect a lower price, but if you can make it work for you, take it.
For those who want to stay in your homes and weather this storm, know your loan terms. If you have an adjustable loan or any of the exotics, you have to know what the worst case scenario is for the adjustments. Can you keep your home if the worst case happens? If not, get yourself into a fixed rate loan while interest rates are low. If you can't do that, you should consider getting out of the house by selling it before you get into trouble.
With dropping sales prices do you now owe more than your home is worth? This upside-down condition is becoming more and more common, and you may have some options than you are aware of here too. Give us a call.
For those in way over your heads (and increasingly you know who you are), give us a call at 661-287-9164 today. Our Foreclosure Avoidance Team can help you find the right solution for your particular circumstance, and the solution is certainly not 'one size fits all'. But let's start from where we are and help get you to where you want to go.
Buyers: just call us now. There are deals out there, and we know where they are. For those who choose to work with us, you will get a screamin' deal. Just call now.
In this market turmoil there is opportunity. You can miss it, or you can profit by it. For some of you, our best strategy would be to work to minimize loss. However, our training and experience is exactly tuned to this kind of market. Do yourself a favor, and let's begin right now, from where we find ourselves.
On behalf of the SCV Home Team at Keller Williams Realty, we all look forward to working with you!
~~Ray
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