Wednesday, June 24, 2009

Credit Crunch in Jumbo Loan Market Stalls Home Sales

Limited availability of jumbo loans and unusually high interest rates for these products are hurting the rest of the housing market, according to just-released research from the NATIONAL ASSOCIATION OF REALTORS®.

The ongoing credit crunch in the jumbo mortgage market has stalled home sales of high-priced homes, despite some recovery taking place in some mid- and low-priced home markets.

The national share of home sales above $750,000 has fallen from 4.4 percent in 2007 to approximately 2.3 percent in 2009, and the months’ supply of inventory has risen from 18.7 months to 41.1 months during that same period.

The mortgage market has three primary types of loans. Loans up to $417,000 are considered “conforming,” loans between $417,000 and $729,500 are “conforming jumbo,” and loans over $729,500 are “super-jumbo.” Although conforming mortgage rates are at 50-year lows, jumbo loans in general continue to remain very costly.

“Lenders are keeping credit standards overly stringent for borrowers at the higher end of the market, and are increasingly reluctant to make jumbo loans,” said NAR Chief Economist Lawrence Yun at the 2009 REALTORS® Midyear Legislative Meetings in Washington, D.C. “The interest rate spread between 10-year treasuries and jumbo loans has also substantially increased, making jumbo loans much more costly than has previously been the case.

Jumbo Loans Not Just for the Rich

He says many people believe that the jumbo market is for the very rich, but in reality, in many areas of the country, middle-class families need these loans to buy a median-priced home.

States that have the highest percentage of jumbo mortgages include Hawaii (43 percent of all loans are above $417,000), California (41 percent), the District of Columbia (30 percent) and New York (22 percent). In eight more states, jumbo mortgages comprise 10 percent or more of all loans in those states (New Jersey, Maryland, Massachusetts, Virginia, Connecticut, Washington, Nevada, and Florida).

“REALTORS® are telling us that some lenders are treating jumbo loan buyers who have very high credit scores and a substantial downpayment as higher risks than conforming loan buyers who have lower credit scores and less money for a downpayment,” said Yun.

As a result, more buyers of high-priced homes are resorting to cash purchases, while the bulk of potential buyers remain sidelined and unwilling to take out mortgages that carry interest rates much higher than those on conforming mortgages.

Refinancing Also Impacted

The resulting increased inventory of homes for sale has already doubled defaults from one year ago and will hamper a broader housing market recovery, which in turn will limit economic recovery. This also affects refinancing activity.

“The inability of home owners to refinance their jumbo loans is holding back potential consumer spending for the overall economy,” Yun said. “If they had the opportunity to refinance into historically lower mortgage rates, many current jumbo mortgage holders could save $6,000 to $15,000 in annual interest costs.”

To resolve these issues in the jumbo mortgage market, NAR advocates that Congress and the administration make permanent the current rules for determining limits that apply in 2009, use the Term Asset-Backed Securities Loan Facility (TALF) to buy jumbo loans, and increase lender competition by loosening warehouse line of credit.

Source: NAR

Should you Buy a Foreclosed Properties?

Many households say that foreclosures are a bargain and are increasingly eager to buy them, according to a Harris Interactive survey conducted for Trulia.com and RealtyTrac.

The survey found that 55 percent of U.S. adults are at least somewhat likely to consider purchasing a foreclosed home, up from 47 percent who answered the same question in November 2008.

But buyers aren’t na├»ve about the hassles involved with purchasing foreclosed property. About 85 percent said that they could identify negative aspects, up from 80 percent who felt the same way last November.

  • 71 percent were concerned about hidden costs;
  • 46 percent believe the process is risky;
  • 31 percent fear the property will lose value.

Buyers of foreclosures also expect hefty discounts – at least 25 percent.

Source: RealtyTrac.com and Trulia.com (05/20/2009)

Saturday, June 20, 2009

California Real Estate Fast Facts



  • California median home price - April 09: $256,700 (Source: C.A.R.)


  • California highest median home price by C.A.R. region April 09: Santa Barbara So. Coast $840,000 (Source: C.A.R.)


  • California lowest median home price by C.A.R. region April 09: High Desert $106,530 (Source: C.A.R.)


  • California First-time Buyer Affordability Index - First Quarter 2009: 69 percent (Source: C.A.R.)


  • Mortgage rates - week ending 6/4/09 30-yr. fixed: 5.29% Fees/points: 0.7% 15-yr. fixed: 4.79% Fees/points: 0.7% 1-yr. adjustable: 4.81% Fees/points: 0.6% (Source: Freddie Mac)

What steps to take before disputing a credit error?

Credit scores and reports continue to be one of the most important factors in determining whether consumers are extended lines of credit, and the amount they are offered. Credit reports provide lenders with a consumer’s credit history, including missed or late payments. Consumers concerned about errors in their credit reports should contact the three major credit bureaus to dispute the inaccuracies.

MAKING SENSE FOR MY READERS

  • Not all lenders report to the three major credit bureaus – Equifax, Experian and TransUnion – which means a mistake could appear on one, two, or all three reports. Rather than calling or mailing a dispute letter to one central agency, the errors must be disputed separately with each bureau. Consumers may obtain free copies of their credit reports once a year at http://www.annualcreditreport.com/. This report will only show credit history, and not credit scores. To obtain a credit score, consumers can visit www.myfico.com.
  • To dispute an error, consumers first should contact the lender that reported the information to the credit bureaus. Next, contact the credit bureaus using the numbers listed on the credit reports. This also can be done online at http://www.transunion.com/, http://www.equifax.com/, or http://www.experian.com/. If the report is more than 60 days old, consumers should obtain a new report, which may have a new phone number. Also, if the report was obtained from a third-party site rather than directly from the credit bureau, consumers may have to order a report from the bureau to begin the dispute process.
  • Bureaus typically have 30 to 45 days to “resolve” disputes. If it’s a simple factual error that is acknowledged by the lender, it could take as little as two weeks. Either way, consumers are notified of the bureau’s decision via regular mail or e-mail.

Mortgage Rates Continue to Fall

Freddie Mac reports a drop in the 30-year fixed mortgage rate to 4.82 percent during the week ended May 21 from 4.86 percent the prior week. Meanwhile, the 15-year fixed mortgage rate dipped to 4.5 percent.

The Federal Reserve is working to hold down rates by purchasing upwards of $1.25 trillion in mortgage-backed securities and $300 billion in Treasuries. Mortgage rate premiums have declined substantially over the last couple of months even as Treasury yields climbed.

Source: Investor's Business Daily (05/22/09)

A battle plan for refinancing your mortgage


Homeowners seeking to refinance their mortgages may be surprised by the amount of paperwork required. During the “easy credit” years, some lenders did not require proof of income or documentation. Nowadays, most lenders require borrowers to provide pay stubs, banks statements, brokerage statements, and possibly tax returns. Self-employed individuals may be asked for a profit-and-loss statement. Those relying on bonus income should expect that most lenders will assume this year’s bonus will be a lot less than last year’s, which could make securing approval more difficult.

Determining the amount of equity in the home is key to being approved for a new loan. Homeowners whose mortgage obligations are less than 80 percent of the home’s value are more likely to have refinancing options available to them. Other homeowners who are current on their mortgages, owe 80 percent to 105 percent of the home’s value, and have a loan owned by Fannie Mae or Freddie Mac may be able to refinance under the government’s “Making Home Affordable” program.

Other factors to take into consideration when refinancing are the property’s appraised value, the homeowners’ credit score(s), whether or not the property has a second mortgage, and the length of the original loan.

Friday, June 19, 2009

UCLA forecast: Budget crisis will impact California's Recovery from recession


The UCLA Anderson Forecast (June 16, 2009) upgraded the condition of the national economy, moving it out of "intensive care" while noting that it is still "very sick." Nationally, the recovery will be slow due to recession-scarred consumers who will focus on their savings, and the dramatic adjustment in financial services, the automotive industry and the retail sector, according to the forecast. The recovery also will be inhibited by the financial excesses of 2003 to 2007 in the form of millions of foreclosed homes and a plague of "upside-down" mortgages.

“What we are perhaps most concerned about is not the timing of the recession's end, but rather the shape of the recovery to come," said UCLA Anderson Forecast Senior Economist David Shulman. "We are forecasting the weakest economic recovery of the postwar era with real growth on the order of 2–3 percent."

In California, the worst of the recession is beginning to ease, but any optimism must be tempered by the specter of a state government poised to contract at the worst possible time, the report said. According to UCLA Anderson Forecast Senior Economist Jerry Nickelsburg, there is nothing happening in California that will help pull the state out of recession in advance of the nation. "California is in for a continued rough ride for the balance of 2009 and is not going to see economic growth return until the end of the year, shortly after the U.S. economy begins to grow," he said. The dire conditions surrounding the state budget will contribute to prolonging tough conditions in California, according to the report.

Overall, the forecast for California is for a very weak first two quarters of 2009, to be followed by very little growth in the last six months of the year, according to the report. The economy will begin to pick up in 2010 and return to more normal levels of growth in 2011.

10 Most Undervalued U.S. Cities

Housing research organization IHS Global Insight estimates that the average U.S. home is undervalued by 12.2 percent, and many previously pricey communities are undervalued by considerably more.

A recent study released by IHS used home prices, interest rates, area incomes, population density, and historic premiums and discounts to analyze housing values. It examined 330 markets and found homes are underpriced in 248 of them.

Despite the high percentage of undervalued areas, IHS says "it is too early to call a bottoming," as "job losses continue, housing inventories remain elevated, and consumers remain wary in light of economic uncertainty."

Here are the 10 most undervalued areas:
  1. Vero Beach, Fla., -42.5 percent
  2. Houma, La., -41.4 percent
  3. Las Vegas, -40.9 percent
  4. Merced, Calif., -40.1 percent
  5. Cape Coral, Fla., -39.1 percent
  6. Houston, -36.9 percent
  7. Midland, Texas, -34.8 percent
  8. Lafayette, La., -34.4 percent
  9. Vallejo, Calif., -34.3 percent
  10. Stockton, Calif., -34.3 percent

Source: CNNMoney.com, Les Christie (06/04/2009)

Homes are most affordable in 200 Years!

According to several recent studies, homes are more affordable nationwide than they have been in many years, enabling many buyers who previously might have been priced out of the market to become homeowners.

MAKING SENSE FOR MY READERS

  • Nearly 73 percent of all homes sold in the U.S. during the first three months of 2009 were considered affordable, according to a quarterly market analysis by the National Association of Homebuilders and Wells Fargo Bank. That was the highest percentage ever reported by the 18-year-old Housing Opportunity Index.
  • According to the Index, a home is deemed affordable if a family making the median national income of $64,000 is able to purchase the property and devote no more than 28 percent of their income toward housing costs.
  • The percentage of households that could afford to buy an entry-level home in California stood at 69 percent in the first quarter of 2009, compared with 46 percent for the same period a year ago, according to the CALIFORNIA ASSOCIATION OF REALTORS®’(C.A.R.) First-time Buyer Housing Affordability Index (FTB-HAI). The FTB-HAI measures the percentage of households that can afford to purchase an entry-level home in California.
  • The minimum household income needed to purchase an entry-level home at $213,040 in California in the first quarter of 2009 was $38,090, based on an adjustable interest rate of 4.96 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $1,270 for the first quarter of 2009.
  • At $38,090, the minimum qualifying income was 42 percent lower than a year earlier when households needed $65,030 to qualify for a loan on an entry-level home. Recent decreases in home prices and mortgage rates have brought affordability into better alignment with income levels of the typical California household, where the median household income is $61,030.