Despite differences in weekly surveys, the lending industry's consensus is that rates won't change dramatically soon.
By Mary Ellen Podmolik May 22, 2009
Are mortgage rates on the way up or down? It depends on whom you ask.Two groups came out with their weekly mortgage rate surveys Thursday, with nearly a half-percentage-point difference between their averages for traditional 30-year mortgages.
The good news, though, is that there seems to be consensus in the lending industry that mortgage rates aren't expected to change dramatically soon. Bankrate.com said its weekly national survey taken Wednesday showed an uptick in rates, with the average 30-year fixed mortgage rate rising to 5.24% from 5.21%. The average 30-year fixed-rate mortgage carried a 0.43 discount and origination points.The average 15-year fixed-rate mortgage inched down to 4.74% from 4.76% last week, Bankrate.com said.
Just to confuse things, Freddie Mac said its survey for the week ended Thursday pegged the average 30-year fixed mortgage rate at 4.82%, with an average 0.7 point, compared with 4.86% last week. In the same weekly period a year earlier, the average rate on a 30-year fixed-rate mortgage was 5.98%.Freddie Mac said the 15-year fixed-rate average also fell, to 4.5% from 4.52% last week.Looking beyond the weekly numbers, Bankrate's Rate Trend Index found that among analysts surveyed, 38% predicted declining rates in the next 30 to 45 days, while 55% said they expected rates to remain about the same as now."With the Federal Reserve buying large quantities of mortgage-backed debt and government bonds, that will keep a lid on mortgage rates for the balance of 2009," said Greg McBride, senior financial analyst for Bankrate.com."Mortgage rates have shown very little volatility in recent weeks as concern about the weak economy is balanced out by worries surrounding the supply of government debt. There's a little bit of a stalemate going on right now."
Podmolik writes for the Chicago Tribune.
Thursday, May 28, 2009
Sunday, May 10, 2009
House Hunting? It's Not A Buyer's Market Everywhere
By Chip Jacobs Los Angeles Times
The median price in Southern California may have plummeted, but in more desirable neighborhoods, home buyers are still engaging in bidding wars.
The confident smile Sam Rivero wore as he hunted for his first house had a lot to do with the buzz thumping in his ears. Ever since home values began sinking, pundits have touted the juicy opportunities for aspiring buyers priced out of the market before, and the young business-development executive heard that cue like a sonic boom. Out he ventured into Mount Washington, Glassell Park, Eagle Rock, Montecito Heights and other desirable middle-class communities northeast of downtown Los Angeles, searching for a bargain in the $400,000 range. Candidates came and went, and Rivero, who is getting married, was upbeat. Considering the pulverized housing values, with the median price of a Southland home today -- $250,000 -- at half of its 2007 level, the properties should come gift-wrapped, right?
As the Glendale resident and his fiancee, a makeup artist for the television show "Entourage," discovered, the supposedly wondrous buyers' market seems more consumer myth than easy pickings.They bid $50,000 over asking price for a "great" four-bedroom contemporary in Valley Village, only to lose out to one of the 16 other offers tendered, Rivero, 33, said. A North Hollywood house he had been eager to see attracted so many people walking around with sales fliers that he couldn't find parking and drove off from the "vultures" who got there first."Every open house I've been to has been a zoo," said Rivero, who has examined 35 properties during the last three months. "If you follow what the [general] media say, you'd think sellers are desperate to sell a house, but when you get there it's totally the opposite."
So what's going on? Real estate brokers and investors say would-be buyers misunderstand how the drop in housing prices has affected desirable neighborhoods. Just because an abandoned house in a troubled part of San Bernardino County might be going for $200,000, it doesn't mean you can get a nice place in Sherman Oaks for that amount -- or even twice that amount. House hunters are trying to pounce on deals from sellers they expected to be frantic -- if not curled in the fetal position. What they're finding instead are bidding wars as low interest rates and pent-up demand in traditionally stable or chic areas have kept prices up -- not as high as the market's peak, but not nearly as low as they had hoped. "The biggest problem," said agent Phyllis Harb, "is that people are overreacting to housing statistics, thinking they can come in and make an offer 20% below price." As sales figures and home buyers' anecdotes are underscoring, when the residential real estate bubble burst, it set off several distinct sprays that created false hopes and confusion. Though nearly 20,000 homes in Southern California sold in March, a 52% jump from a year earlier, a sizable number of those transactions occurred in Riverside and San Bernardino counties, where foreclosures exploded. In the region overall, foreclosure sales accounted for 55% of March's deals. Bank-owned or not, the cheaper properties are dominating the sellers' block in the notoriously expensive L.A. County real estate market. In March, 2,871 homes under $300,000 were sold compared with only 734 a year earlier, according to real estate information firm MDA DataQuick. At the higher end, just 202 homes priced above $1.2 million changed hands last month, compared with 354 in March 2008. Houses priced from $400,000 to $800,000 represented less than a quarter of the market in March, down from about 45%, meaning fewer offerings for would-be buyers in that mid-market or pickier sellers, according to DataQuick. Mark down Nicky and Bunny DeMarinis as frustrated. They offered about $1 million for a 3,300-square-foot traditional in the Los Feliz area. Though it boasted a magnificent view, the house was an ode to passe, with cheesy frescoes, gold trimming and 1970s-era kitchen appliances, they said. For all the updating it required, the owner came down only a fraction from his $1.7-million asking price and passed on the DeMarinises. The couple, who own Nicky D's Wood-Fired Pizza in Silver Lake, have seen about 50 houses so far. They don't know where to vent their anger: lenders demanding higher down payments and less-favorable terms, talking heads distorting the market with oversimplifications or listing agents itching for bidding wars. "You get out there and think you can grab something at a fantastic price, but that's not the case," Bunny DeMarinis said. "Each time we look at a house and see these inflated prices and our offer is rejected, we feel rejected too. We had an unrealistic portrait of what was really happening. It's disillusioning."It's becoming a populist theme among potential local buyers and a contentious topic on websites devoted to the post-bubble market. Real estate investor Burt Slusher said home shoppers should disregard the broad trends and focus instead on nuances and inventory in finely drawn areas. Take the 40% jump in L.A. County home sales in March compared with a year earlier. In studying the data, Slusher said, he found that a large batch of those deals transpired in Palmdale, Compton, Inglewood and other communities that suffered as a result of "treacherous subprime mortgages."
People interested in properties in coveted niche markets such as Pasadena, Culver City and Santa Monica have read or heard too much about frenzied activity in the bottom of the market, he said, without comprehending that it held little relevance for them. Slusher's advice is to muster patience, because he believes there's still an over-inventory of mid- and upper-priced properties that will drive overall prices down into 2011.
"Buyers hear about foreclosures and bank sales and a bad economy and think they can offer a beer price for a wine home," Slusher said. "But the market is not a homogenous place, where everything is the same."In classic economics, buyers should have a decided advantage in neighborhoods in which supply dwarfs demand. Where there's typically a six-month inventory of houses for sale in coveted Beverly Hills, Pacific Palisades and West Hollywood, for instance, there's a year to two years' worth today, agent Christopher Hain said. Hain has a theory about why all that supply hasn't translated into blocks full of delirious new homeowners. He calls it the "sucker syndrome," in which buyers are nervous about overbidding when nobody truly knows whether Southland home values have reached their bottom. Said Slusher, "Nobody wants to be the sucker who paid too much, so they combat that fear by offering unrealistically low amounts. But if you're trying to time the bottom, you're going to end up with junk. It's always the best houses and cheapest houses that sell first."More should be known about the market for more-expensive properties when "jumbo" loans -- ones exceeding $417,000 -- become available this summer, according to DataQuick. In a sign of how locked-up conditions are, jumbo loans represented 40% of all Southern California purchases in 2007. In March they accounted for 10% of the activity. On a recent Sunday, an open house for a vintage 3,159-square-foot Craftsman near Occidental College in Eagle Rock drew 105 people in the first hour despite sweltering temperatures, a Lakers playoff game and a list price of $699,000. Never mind the hilly curb appeal or the aroma of freshly baked cookies that listing agent Tracy King baked. There was plenty of head-shaking among would-be buyers about the absence of bargains. Jose Mares, 38, a Huntington Park police officer, said he'd been searching for eight years for a house. To him, the dark-shingled house needed too much renovation to justify the tab. He thinks he knows why it's priced where it is: There's not a glut of quality competition close by, and the owner and listing agent know their edge."Some want to charge $550,000 for a starter house," Mares said. King, the agent, said she'd heard earfuls about that, and noted that this was not your father's housing crash. Today, everyone is savvier, able to analyze properties with a few keystrokes or see a street view using Google. Instant information, though, also means fiercer competition and fewer hidden gems. As an example, King cited a 1,625-square-foot, midcentury-style fixer-upper in La Crescenta priced at $299,000. Forty people were standing on the front lawn within an hour of its listing, she said. Ultimately, there were 80 bids, 15 of them exceeding $400,000. The winning bid was $480,000."What I'm seeing is that perceived bargains are going in multiple offers for more than the asking, and buyers are very disappointed," King said. "Real estate is hyperlocal, so a [regional] $250,000 median price is meaningless here. "Predicting where values are headed is hardly a science either, no matter what the cable-TV experts or the galaxy of websites with every imaginable statistic say. For one thing, people selling costlier homes tend to have deep pockets buffering them from needing a fire sale to stay afloat. If they don't like the bids, they can pull their property off the market. Banks are an even bigger X factor, and not just because of their stricter lending requirements and bailout havoc. USC real estate professor Tracey Seslen said she'd heard that lenders were carefully timing the release of homes they'd repossessed to avoid further flooding the market and driving prices down more. Those institutions also know that a fresh avalanche of foreclosures from people with resetting loans may be looming."So the banks are playing this game too," Seslen said. "They're keeping prices artificially high."
Rivero, the soon-to-be-married business-development exec, wishes that weren't so, and hopes his tenacity pays off."We've learned not to get our hopes up because it sets us up for heartbreak," he said. "What's driving me is that I actually want a house." realestate@latimes.com
The median price in Southern California may have plummeted, but in more desirable neighborhoods, home buyers are still engaging in bidding wars.
The confident smile Sam Rivero wore as he hunted for his first house had a lot to do with the buzz thumping in his ears. Ever since home values began sinking, pundits have touted the juicy opportunities for aspiring buyers priced out of the market before, and the young business-development executive heard that cue like a sonic boom. Out he ventured into Mount Washington, Glassell Park, Eagle Rock, Montecito Heights and other desirable middle-class communities northeast of downtown Los Angeles, searching for a bargain in the $400,000 range. Candidates came and went, and Rivero, who is getting married, was upbeat. Considering the pulverized housing values, with the median price of a Southland home today -- $250,000 -- at half of its 2007 level, the properties should come gift-wrapped, right?
As the Glendale resident and his fiancee, a makeup artist for the television show "Entourage," discovered, the supposedly wondrous buyers' market seems more consumer myth than easy pickings.They bid $50,000 over asking price for a "great" four-bedroom contemporary in Valley Village, only to lose out to one of the 16 other offers tendered, Rivero, 33, said. A North Hollywood house he had been eager to see attracted so many people walking around with sales fliers that he couldn't find parking and drove off from the "vultures" who got there first."Every open house I've been to has been a zoo," said Rivero, who has examined 35 properties during the last three months. "If you follow what the [general] media say, you'd think sellers are desperate to sell a house, but when you get there it's totally the opposite."
So what's going on? Real estate brokers and investors say would-be buyers misunderstand how the drop in housing prices has affected desirable neighborhoods. Just because an abandoned house in a troubled part of San Bernardino County might be going for $200,000, it doesn't mean you can get a nice place in Sherman Oaks for that amount -- or even twice that amount. House hunters are trying to pounce on deals from sellers they expected to be frantic -- if not curled in the fetal position. What they're finding instead are bidding wars as low interest rates and pent-up demand in traditionally stable or chic areas have kept prices up -- not as high as the market's peak, but not nearly as low as they had hoped. "The biggest problem," said agent Phyllis Harb, "is that people are overreacting to housing statistics, thinking they can come in and make an offer 20% below price." As sales figures and home buyers' anecdotes are underscoring, when the residential real estate bubble burst, it set off several distinct sprays that created false hopes and confusion. Though nearly 20,000 homes in Southern California sold in March, a 52% jump from a year earlier, a sizable number of those transactions occurred in Riverside and San Bernardino counties, where foreclosures exploded. In the region overall, foreclosure sales accounted for 55% of March's deals. Bank-owned or not, the cheaper properties are dominating the sellers' block in the notoriously expensive L.A. County real estate market. In March, 2,871 homes under $300,000 were sold compared with only 734 a year earlier, according to real estate information firm MDA DataQuick. At the higher end, just 202 homes priced above $1.2 million changed hands last month, compared with 354 in March 2008. Houses priced from $400,000 to $800,000 represented less than a quarter of the market in March, down from about 45%, meaning fewer offerings for would-be buyers in that mid-market or pickier sellers, according to DataQuick. Mark down Nicky and Bunny DeMarinis as frustrated. They offered about $1 million for a 3,300-square-foot traditional in the Los Feliz area. Though it boasted a magnificent view, the house was an ode to passe, with cheesy frescoes, gold trimming and 1970s-era kitchen appliances, they said. For all the updating it required, the owner came down only a fraction from his $1.7-million asking price and passed on the DeMarinises. The couple, who own Nicky D's Wood-Fired Pizza in Silver Lake, have seen about 50 houses so far. They don't know where to vent their anger: lenders demanding higher down payments and less-favorable terms, talking heads distorting the market with oversimplifications or listing agents itching for bidding wars. "You get out there and think you can grab something at a fantastic price, but that's not the case," Bunny DeMarinis said. "Each time we look at a house and see these inflated prices and our offer is rejected, we feel rejected too. We had an unrealistic portrait of what was really happening. It's disillusioning."It's becoming a populist theme among potential local buyers and a contentious topic on websites devoted to the post-bubble market. Real estate investor Burt Slusher said home shoppers should disregard the broad trends and focus instead on nuances and inventory in finely drawn areas. Take the 40% jump in L.A. County home sales in March compared with a year earlier. In studying the data, Slusher said, he found that a large batch of those deals transpired in Palmdale, Compton, Inglewood and other communities that suffered as a result of "treacherous subprime mortgages."
People interested in properties in coveted niche markets such as Pasadena, Culver City and Santa Monica have read or heard too much about frenzied activity in the bottom of the market, he said, without comprehending that it held little relevance for them. Slusher's advice is to muster patience, because he believes there's still an over-inventory of mid- and upper-priced properties that will drive overall prices down into 2011.
"Buyers hear about foreclosures and bank sales and a bad economy and think they can offer a beer price for a wine home," Slusher said. "But the market is not a homogenous place, where everything is the same."In classic economics, buyers should have a decided advantage in neighborhoods in which supply dwarfs demand. Where there's typically a six-month inventory of houses for sale in coveted Beverly Hills, Pacific Palisades and West Hollywood, for instance, there's a year to two years' worth today, agent Christopher Hain said. Hain has a theory about why all that supply hasn't translated into blocks full of delirious new homeowners. He calls it the "sucker syndrome," in which buyers are nervous about overbidding when nobody truly knows whether Southland home values have reached their bottom. Said Slusher, "Nobody wants to be the sucker who paid too much, so they combat that fear by offering unrealistically low amounts. But if you're trying to time the bottom, you're going to end up with junk. It's always the best houses and cheapest houses that sell first."More should be known about the market for more-expensive properties when "jumbo" loans -- ones exceeding $417,000 -- become available this summer, according to DataQuick. In a sign of how locked-up conditions are, jumbo loans represented 40% of all Southern California purchases in 2007. In March they accounted for 10% of the activity. On a recent Sunday, an open house for a vintage 3,159-square-foot Craftsman near Occidental College in Eagle Rock drew 105 people in the first hour despite sweltering temperatures, a Lakers playoff game and a list price of $699,000. Never mind the hilly curb appeal or the aroma of freshly baked cookies that listing agent Tracy King baked. There was plenty of head-shaking among would-be buyers about the absence of bargains. Jose Mares, 38, a Huntington Park police officer, said he'd been searching for eight years for a house. To him, the dark-shingled house needed too much renovation to justify the tab. He thinks he knows why it's priced where it is: There's not a glut of quality competition close by, and the owner and listing agent know their edge."Some want to charge $550,000 for a starter house," Mares said. King, the agent, said she'd heard earfuls about that, and noted that this was not your father's housing crash. Today, everyone is savvier, able to analyze properties with a few keystrokes or see a street view using Google. Instant information, though, also means fiercer competition and fewer hidden gems. As an example, King cited a 1,625-square-foot, midcentury-style fixer-upper in La Crescenta priced at $299,000. Forty people were standing on the front lawn within an hour of its listing, she said. Ultimately, there were 80 bids, 15 of them exceeding $400,000. The winning bid was $480,000."What I'm seeing is that perceived bargains are going in multiple offers for more than the asking, and buyers are very disappointed," King said. "Real estate is hyperlocal, so a [regional] $250,000 median price is meaningless here. "Predicting where values are headed is hardly a science either, no matter what the cable-TV experts or the galaxy of websites with every imaginable statistic say. For one thing, people selling costlier homes tend to have deep pockets buffering them from needing a fire sale to stay afloat. If they don't like the bids, they can pull their property off the market. Banks are an even bigger X factor, and not just because of their stricter lending requirements and bailout havoc. USC real estate professor Tracey Seslen said she'd heard that lenders were carefully timing the release of homes they'd repossessed to avoid further flooding the market and driving prices down more. Those institutions also know that a fresh avalanche of foreclosures from people with resetting loans may be looming."So the banks are playing this game too," Seslen said. "They're keeping prices artificially high."
Rivero, the soon-to-be-married business-development exec, wishes that weren't so, and hopes his tenacity pays off."We've learned not to get our hopes up because it sets us up for heartbreak," he said. "What's driving me is that I actually want a house." realestate@latimes.com
Monday, May 4, 2009
Bidding Wars Are Emerging On Foreclosures Prices Are Generally Falling, But A Few Markets Have Shortages of Midpriced Homes
By JAMES R. HAGERTY
Falling home prices are starting to ignite bidding wars in a few parts of the U.S. as first-time buyers compete with investors for the same foreclosed properties. In most of the nation, the supply of unsold homes continues to swamp demand. Home prices in many markets continue to fall, and foreclosures, which slowed in late 2008 as mortgage companies delayed taking action against delinquent borrowers, are picking up again. But real-estate brokers say multiple offers on certain homes have recently become more common in parts of California and Arizona and the Washington, D.C., and Minneapolis-St. Paul metropolitan areas.
Early Signs of a Turnaround?
Some home buyers are bidding against each other on foreclosures: The action is confined to certain markets, including parts of California, Arizona and the Washington, D.C., and Minneapolis-St. Paul metro areas. Many markets, including South Florida and New York City, remain glutted. The supply of bank-owned homes is expected to grow over the next few months.
Tamby Leonard of Santa Ana, Calif., southeast of Los Angeles, says she has been outbid four times since January when trying to buy a home for her family of five. The more appealing bank-owned homes in her price range, around $300,000, tend to be sold quickly to investors who can pay cash. The market for homes in the Santa Ana area in that price range is "blazing hot," says Ed Mixon of Altera Real Estate, Ms. Leonard's agent. On Wednesday, the Federal Housing Finance Agency reported that home prices nationwide rose a seasonally adjusted 0.7% in February from January, led by gains on the West Coast. When compared with a year earlier, however, home prices were down 6.5%.
Bidding wars -- common during the housing boom -- had all but disappeared soon after the market peaked about three years ago. Even now, they remain the exception rather than the rule. The Wall Street Journal's quarterly survey of 28 major metro areas shows that there is still a glut of homes available in most markets. But the glut has shrunk, and some areas are running into shortages of moderately priced homes in middle-class neighborhoods.
Many housing economists expect the market to bottom out gradually over the next couple of years, with some parts of the country stabilizing well before others. California and Washington, D.C., for instance, are likely to recover faster than South Florida, which has an immense glut of vacant condominiums, and the New York City area, which has been hurt by Wall Street's collapse, says Kenneth Rosen, chairman of the Fisher Center for Real Estate at the University of California, Berkeley.
Across the nation, there is still a tug of war between bullish and bearish forces. On the bullish side, falling prices and the lowest mortgage rates since the 1950s have made homes far more affordable, luring shoppers like Ms. Leonard, who has been renting for years. Adding to the attraction, the U.S. government is offering tax credits for certain people who buy homes before Dec. 1. The credit -- equal to 10% of the purchase price, up to a maximum of $8,000 -- is available to buyers who haven't owned any other primary residence in the U.S. during the three years before the date of purchase.
On the bearish side, rising unemployment has knocked many people out of the housing market and made those who still have jobs skittish. Even those with secure jobs who want to buy can't always get loans on attractive terms because of today's tightened credit standards.
In addition, the supply of bank-owned homes is expected to grow over the next few months because many mortgage companies have ended moratoriums during which they refrained from proceeding with foreclosures. The moratoriums artificially reduced the supply of foreclosed homes listed for sale, says Chad Neel, president of LPS Asset Management Solutions Inc. in Westminster, Colo., which sells such properties for banks. Now "there's a flood about to come on the market," Mr. Neel says. Foreclosures are likely to weigh on the market for years as courts and mortgage companies struggle to catch up with huge backlogs of unresolved cases.
Foreclosures, though far above normal levels in most of the country, are heavily concentrated in a few states, including California, Arizona, Nevada, Florida and Michigan. In areas with large numbers of bank-owned homes, buyers are mainly concentrating on those properties. That leaves ordinary homes languishing as owners generally refuse to slash prices enough to compete with banks.
In the Sacramento, Calif., metro area, about two-thirds of all March sales were foreclosures, says Michael Lyon, chief executive of Lyon Real Estate. The supply of foreclosed homes currently listed for sale is enough to last only about a month at the recent sales pace, he calculates. But there are plenty of homes listed for sale that aren't bank-owned, enough to last more than eight months.
In West Sacramento, a buyer represented by Cherie Hunt of Prudential California Realty recently competed against two other bidders for a three-bedroom home built in 2001. Ms. Hunt's buyer won by agreeing to pay about $220,000, or nearly $10,000 above the asking price. But that's still way down from $405,000, the price at which the same home sold in 2005.
"I have 20 buyers looking desperately," says Ms. Hunt.
Frank Borges LLosa, owner of FranklyRealty.com, a real-estate brokerage in Arlington, Va., is advising clients that banks favor all-cash bids or offers from people who seem certain to qualify for financing. Sellers may well choose the offer least likely to fall through rather than the highest bid, he says. He and other brokers say banks appear to be deliberately setting asking prices low in some cases to provoke bidding battles.
"There are a lot of buyers who think they can lowball," says Connie Vaughn, an agent at ZipRealty in the Los Angeles area. But in some cases mortgage companies already have cut asking prices enough to generate multiple bids. One of her clients recently prevailed over more than 30 other bidders by offering about $86,000 -- or $20,000 above the asking price -- for a four-bedroom house in Adelanto, Calif., that had sold for $200,000 in 2004.
A mortgage company recently slashed the asking price on a two-family home in Norwich, Conn., to $73,900 from $144,900. That price cut prompted five offers that the company is now considering, says Linda Davis of Re/Max Realty Group, the listing agent. She says the price cut was unusually steep but adds, "At some point, [banks] just decide to let it go." That's encouraging, says Ronald Peltier, chief executive of HomeServices of America Inc. in Minneapolis, which owns real-estate brokerages in 19 states. "We do need to flush out the distressed inventory," he says, before the rest of the market can stabilize.
One positive trend is affordability. A family earning the national median pretax income of $52,800 a year needs to spend 25% of that income to buy a median-priced home, down from 44% in mid-2006, according to John Burns, a real-estate consultant in Irvine, Calif. For the Los Angeles metro area, that ratio has dropped to 45% from 102%. In Phoenix, it is down to 19% from 46%. Among the markets Mr. Burns expects to recover earliest are the metro areas of Washington, D.C.; San Antonio; Raleigh, N.C.; Denver; Sacramento; and San Diego.
Write to James R. Hagerty at bob.hagerty@wsj.com
Falling home prices are starting to ignite bidding wars in a few parts of the U.S. as first-time buyers compete with investors for the same foreclosed properties. In most of the nation, the supply of unsold homes continues to swamp demand. Home prices in many markets continue to fall, and foreclosures, which slowed in late 2008 as mortgage companies delayed taking action against delinquent borrowers, are picking up again. But real-estate brokers say multiple offers on certain homes have recently become more common in parts of California and Arizona and the Washington, D.C., and Minneapolis-St. Paul metropolitan areas.
Early Signs of a Turnaround?
Some home buyers are bidding against each other on foreclosures: The action is confined to certain markets, including parts of California, Arizona and the Washington, D.C., and Minneapolis-St. Paul metro areas. Many markets, including South Florida and New York City, remain glutted. The supply of bank-owned homes is expected to grow over the next few months.
Tamby Leonard of Santa Ana, Calif., southeast of Los Angeles, says she has been outbid four times since January when trying to buy a home for her family of five. The more appealing bank-owned homes in her price range, around $300,000, tend to be sold quickly to investors who can pay cash. The market for homes in the Santa Ana area in that price range is "blazing hot," says Ed Mixon of Altera Real Estate, Ms. Leonard's agent. On Wednesday, the Federal Housing Finance Agency reported that home prices nationwide rose a seasonally adjusted 0.7% in February from January, led by gains on the West Coast. When compared with a year earlier, however, home prices were down 6.5%.
Bidding wars -- common during the housing boom -- had all but disappeared soon after the market peaked about three years ago. Even now, they remain the exception rather than the rule. The Wall Street Journal's quarterly survey of 28 major metro areas shows that there is still a glut of homes available in most markets. But the glut has shrunk, and some areas are running into shortages of moderately priced homes in middle-class neighborhoods.
Many housing economists expect the market to bottom out gradually over the next couple of years, with some parts of the country stabilizing well before others. California and Washington, D.C., for instance, are likely to recover faster than South Florida, which has an immense glut of vacant condominiums, and the New York City area, which has been hurt by Wall Street's collapse, says Kenneth Rosen, chairman of the Fisher Center for Real Estate at the University of California, Berkeley.
Across the nation, there is still a tug of war between bullish and bearish forces. On the bullish side, falling prices and the lowest mortgage rates since the 1950s have made homes far more affordable, luring shoppers like Ms. Leonard, who has been renting for years. Adding to the attraction, the U.S. government is offering tax credits for certain people who buy homes before Dec. 1. The credit -- equal to 10% of the purchase price, up to a maximum of $8,000 -- is available to buyers who haven't owned any other primary residence in the U.S. during the three years before the date of purchase.
On the bearish side, rising unemployment has knocked many people out of the housing market and made those who still have jobs skittish. Even those with secure jobs who want to buy can't always get loans on attractive terms because of today's tightened credit standards.
In addition, the supply of bank-owned homes is expected to grow over the next few months because many mortgage companies have ended moratoriums during which they refrained from proceeding with foreclosures. The moratoriums artificially reduced the supply of foreclosed homes listed for sale, says Chad Neel, president of LPS Asset Management Solutions Inc. in Westminster, Colo., which sells such properties for banks. Now "there's a flood about to come on the market," Mr. Neel says. Foreclosures are likely to weigh on the market for years as courts and mortgage companies struggle to catch up with huge backlogs of unresolved cases.
Foreclosures, though far above normal levels in most of the country, are heavily concentrated in a few states, including California, Arizona, Nevada, Florida and Michigan. In areas with large numbers of bank-owned homes, buyers are mainly concentrating on those properties. That leaves ordinary homes languishing as owners generally refuse to slash prices enough to compete with banks.
In the Sacramento, Calif., metro area, about two-thirds of all March sales were foreclosures, says Michael Lyon, chief executive of Lyon Real Estate. The supply of foreclosed homes currently listed for sale is enough to last only about a month at the recent sales pace, he calculates. But there are plenty of homes listed for sale that aren't bank-owned, enough to last more than eight months.
In West Sacramento, a buyer represented by Cherie Hunt of Prudential California Realty recently competed against two other bidders for a three-bedroom home built in 2001. Ms. Hunt's buyer won by agreeing to pay about $220,000, or nearly $10,000 above the asking price. But that's still way down from $405,000, the price at which the same home sold in 2005.
"I have 20 buyers looking desperately," says Ms. Hunt.
Frank Borges LLosa, owner of FranklyRealty.com, a real-estate brokerage in Arlington, Va., is advising clients that banks favor all-cash bids or offers from people who seem certain to qualify for financing. Sellers may well choose the offer least likely to fall through rather than the highest bid, he says. He and other brokers say banks appear to be deliberately setting asking prices low in some cases to provoke bidding battles.
"There are a lot of buyers who think they can lowball," says Connie Vaughn, an agent at ZipRealty in the Los Angeles area. But in some cases mortgage companies already have cut asking prices enough to generate multiple bids. One of her clients recently prevailed over more than 30 other bidders by offering about $86,000 -- or $20,000 above the asking price -- for a four-bedroom house in Adelanto, Calif., that had sold for $200,000 in 2004.
A mortgage company recently slashed the asking price on a two-family home in Norwich, Conn., to $73,900 from $144,900. That price cut prompted five offers that the company is now considering, says Linda Davis of Re/Max Realty Group, the listing agent. She says the price cut was unusually steep but adds, "At some point, [banks] just decide to let it go." That's encouraging, says Ronald Peltier, chief executive of HomeServices of America Inc. in Minneapolis, which owns real-estate brokerages in 19 states. "We do need to flush out the distressed inventory," he says, before the rest of the market can stabilize.
One positive trend is affordability. A family earning the national median pretax income of $52,800 a year needs to spend 25% of that income to buy a median-priced home, down from 44% in mid-2006, according to John Burns, a real-estate consultant in Irvine, Calif. For the Los Angeles metro area, that ratio has dropped to 45% from 102%. In Phoenix, it is down to 19% from 46%. Among the markets Mr. Burns expects to recover earliest are the metro areas of Washington, D.C.; San Antonio; Raleigh, N.C.; Denver; Sacramento; and San Diego.
Write to James R. Hagerty at bob.hagerty@wsj.com
Rates On Bigger Mortgages Finally Should Come Down
By Kathleen Pender
Thursday, April 23, 2009
Home loans from $625,500 to $729,750 in high-cost regions, including most of the Bay Area, should get cheaper in the next few weeks. To make bigger mortgages cheaper, the economic stimulus act passed in February increased the conforming loan limit in high-cost regions to a maximum of $729,750 from $625,500 for single-family homes through the end of this year. The conforming-loan limit is the biggest mortgage that can be purchased by Fannie Mae and Freddie Mac. Anything over the limit is called a jumbo loan, and they cost considerably more than conforming loans because Fannie and Freddie can't buy or guarantee them.
Raising the limit should bring down the price of loans between $625,500 and $729,750. But more than two months after the stimulus bill was signed, loans in that zone are still being priced like jumbo loans. Why? Lenders say they couldn't lower their rates until Fannie and Freddie issued underwriting criteria. Fannie issued its criteria March 30 and Freddie on April 16. Both will start buying loans of up to $729,750 from lenders on May 4.
That opens the door for lenders to begin making them. Wells Fargo says it will start making conforming loans of up to $729,750 on Monday. Bank of America will begin making them "by mid-May," says Vijay Lala, a product executive with the bank. As they and other lenders start making these loans, the price should come down. By how much remains to be seen.
Before last year, the conforming loan limit was the same across the continental United States.
Last year, Congress pegged the limit to median home prices in each region, with a minimum of $417,000 and a maximum of $729,750 for single-family homes. Later in the year, Congress changed its formula for calculating the regional limit, which dropped the maximum to $625,500 after the end of 2008. (Different limits apply to homes with two to four units.)
This has created two tiers of conforming loans. Those below $417,000 are true conforming; those above are often called super-conforming. Super-conforming loans have always cost a bit more than true conforming loans, partly because an industry group has decided that certain securities backed by conforming loans can't have more than 10 percent super-conforming.
The interest rate on a super-conforming loan is typically one-fourth to one-third of a percentage point higher than the rate on true conforming loans, says Keith Gumbinger, a vice president with HSH Associates. But Dick LePre, senior loan officer with RPM Mortgage, says super-conforming rates are "gigantically volatile from day to day."
It's not clear whether banks will price loans between $625,500 and $729,750 the same as loans between $417,000 and $625,000 or create a third tier of conforming loans. Brad Blackwell, national sales manager for Wells Fargo Home Mortgage, says his firm will price them the same.
On Wednesday, Wells was charging about 4.75 percent on a true conforming loan below $417,000, 5 percent on a super-conforming loan up to $625,500 and 6.25 percent on a jumbo loan above $625,500. If the new conforming loan up to $729,750 had come out the same day, it also would have been at 5 percent, Blackwell says. (All rates are for 30-year fixed-rate mortgages.)
Bank of America's rates for a 30-year fixed-rate loan were 4.875 percent for true conforming, 5.25 percent for super-conforming up to $625,500 and 6 percent for jumbos over $625,500. Lala also says BofA will price loans between $417,000 and $729,750 the same. Even if they are priced the same, it could be harder to get a conforming loan up to $729,750 than one up to $625,500.
Fannie and Freddie will, in some cases, buy true conforming loans for up to 95 percent of the home's value, but on loans up to $625,500, the loan-to-value ratio can't exceed 90 percent.
On loans up to $729,750, Fannie will go up to 90 percent loan-to-value but Freddie will only go as high as 80 percent. Fannie and Freddie will require a "field review" by a second appraiser on loans that are greater than $625,500 and more than 80 percent of value. John Abraham of Redwood City is eagerly awaiting the new loans. The rate on his $690,000 loan has been fixed for almost six years, but it will start adjusting in a year or so and he's very worried.
He would like to refinance into a fixed-rate loan. All he can get now is a jumbo at close to 6 percent, which would make his payments soar. If he got a conforming loan around 5 percent, he could afford the payments and relieve a major source of stress. "Our main objective is to create long-term stability for our family," he says.
Thursday, April 23, 2009
Home loans from $625,500 to $729,750 in high-cost regions, including most of the Bay Area, should get cheaper in the next few weeks. To make bigger mortgages cheaper, the economic stimulus act passed in February increased the conforming loan limit in high-cost regions to a maximum of $729,750 from $625,500 for single-family homes through the end of this year. The conforming-loan limit is the biggest mortgage that can be purchased by Fannie Mae and Freddie Mac. Anything over the limit is called a jumbo loan, and they cost considerably more than conforming loans because Fannie and Freddie can't buy or guarantee them.
Raising the limit should bring down the price of loans between $625,500 and $729,750. But more than two months after the stimulus bill was signed, loans in that zone are still being priced like jumbo loans. Why? Lenders say they couldn't lower their rates until Fannie and Freddie issued underwriting criteria. Fannie issued its criteria March 30 and Freddie on April 16. Both will start buying loans of up to $729,750 from lenders on May 4.
That opens the door for lenders to begin making them. Wells Fargo says it will start making conforming loans of up to $729,750 on Monday. Bank of America will begin making them "by mid-May," says Vijay Lala, a product executive with the bank. As they and other lenders start making these loans, the price should come down. By how much remains to be seen.
Before last year, the conforming loan limit was the same across the continental United States.
Last year, Congress pegged the limit to median home prices in each region, with a minimum of $417,000 and a maximum of $729,750 for single-family homes. Later in the year, Congress changed its formula for calculating the regional limit, which dropped the maximum to $625,500 after the end of 2008. (Different limits apply to homes with two to four units.)
This has created two tiers of conforming loans. Those below $417,000 are true conforming; those above are often called super-conforming. Super-conforming loans have always cost a bit more than true conforming loans, partly because an industry group has decided that certain securities backed by conforming loans can't have more than 10 percent super-conforming.
The interest rate on a super-conforming loan is typically one-fourth to one-third of a percentage point higher than the rate on true conforming loans, says Keith Gumbinger, a vice president with HSH Associates. But Dick LePre, senior loan officer with RPM Mortgage, says super-conforming rates are "gigantically volatile from day to day."
It's not clear whether banks will price loans between $625,500 and $729,750 the same as loans between $417,000 and $625,000 or create a third tier of conforming loans. Brad Blackwell, national sales manager for Wells Fargo Home Mortgage, says his firm will price them the same.
On Wednesday, Wells was charging about 4.75 percent on a true conforming loan below $417,000, 5 percent on a super-conforming loan up to $625,500 and 6.25 percent on a jumbo loan above $625,500. If the new conforming loan up to $729,750 had come out the same day, it also would have been at 5 percent, Blackwell says. (All rates are for 30-year fixed-rate mortgages.)
Bank of America's rates for a 30-year fixed-rate loan were 4.875 percent for true conforming, 5.25 percent for super-conforming up to $625,500 and 6 percent for jumbos over $625,500. Lala also says BofA will price loans between $417,000 and $729,750 the same. Even if they are priced the same, it could be harder to get a conforming loan up to $729,750 than one up to $625,500.
Fannie and Freddie will, in some cases, buy true conforming loans for up to 95 percent of the home's value, but on loans up to $625,500, the loan-to-value ratio can't exceed 90 percent.
On loans up to $729,750, Fannie will go up to 90 percent loan-to-value but Freddie will only go as high as 80 percent. Fannie and Freddie will require a "field review" by a second appraiser on loans that are greater than $625,500 and more than 80 percent of value. John Abraham of Redwood City is eagerly awaiting the new loans. The rate on his $690,000 loan has been fixed for almost six years, but it will start adjusting in a year or so and he's very worried.
He would like to refinance into a fixed-rate loan. All he can get now is a jumbo at close to 6 percent, which would make his payments soar. If he got a conforming loan around 5 percent, he could afford the payments and relieve a major source of stress. "Our main objective is to create long-term stability for our family," he says.
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