10 Reasons The Housing Market Will Begin to Recover In The 2nd Quarter 2008

I thought that you would find this bit of news extremely interesting. This is the perspective of a lender who has been in the business for over 30 years. He is evaluating this market compared to the market of 1980-1981 and 1990 to 1994 when we also had major real estate slumps.

1. The Federal Open Market Committee (FOMC) Will Continue to Lower Interest Rates - This will continue to stimulate the economy, keeping unemployment low in addition to helping ARMs reset at lower interest rates.

2. The Economy is Creating Jobs and Unemployment is Low - During the last two housing downturns reasons were directly related to recessions in the U.S. economy.

3. Lenders are Helping Homeowners with Loan Modifications on ARM Resets - This will decrease the number of home buyers needing to sell or going into foreclosure.

4. Subprime ARM Resets Peak in 1st Quarter 2008 with Minimum Resets By Year-End - The credit markets froze in fear of these resets. Once past, more credit markets will make money available.

5. Home Builders are Dumping Standing Inventory to Remove Inventory Off The Books By Year-End - The competition to the resale market will be greatly reduced.

6. Sellers of Existing Homes Will Take Their Homes Off the Market At Year-End That Don't Need to be Sold - Combining this with those that need to sell and lowering their sales prices during the holiday slow period, will cause the months to sell inventory to come down. During the downturn in the 90's there was a 27-month inventory whereas in today's market we only have a 10-month inventory.

7. Credit Markets for Jumbo Financing are Opening Up - The spread of interest rates between conforming and jumbo loans has been greatly reduced. Many programs are now available making it easier for buyers to qualify.

8. The Fires in Southern California Will Create Construction Jobs and Help Supporting Industries - California has been losing jobs in this area. This in and of itself will keep a cap on the unemployment rate. Furniture, appliances, landscaping, architects, etc. will benefit.

9. Real Estate Investors are Stepping Up and Making Offers - Mostly absent in 2007, real estate investors are stepping up to take advantage of the foreclosures and lowered prices.

10. Buyer Sentiment of Those Waiting Will Change as Foreclosure Reporting Lessens - There are so many buyers just waiting for a sign as they fear prices will continue down. The sign will be decreasing foreclosures and inventory time to sell will be reduced and reported by the media.

Some Interesting Proposed Legislation to Provide Relief to the Housing Market

There are a number of bills on Capitol Hill that are looking at providing homeowners with some relief. One we desperately need here in California the the Federal Housing Administration Modernization Act, which would raise loan limits in high-cost areas such as California and parts of the East Coast and cut down payments. By some it is considered a crucial relief measure for homeowners who need to refinance out of adjustable rate loans into lower-cost, fixed rate mortgages. The Senate Banking Committee approved the bill back in September, but we haven't heard anything about it in the past month.

Another bill, the Home Ownership Mortgage Emergency Act, would allow certain homeowners who are 60 days or more behind on their payments to withdraw up to $100,000 penalty-free from their retirement accounts. The funds could be used to bring their loans current or refinance into a more affordable mortgage. Under this bill, homeowners would avoid the usual 10% federal tax penalties on early pension distributions as long as they paid back the withdrawn amounts within three years. The bill does restrict this benefit to taxpayers with maximum adjusted gross incomes of $166,000 for joint filers or $114,000 for single filers. It would only apply to owner-occupied properties and it would terminate in 2009.

A new piece of legislation introduced earlier this month is aimed at fixing the mess in the mortgage market. The Escrow, Appraisal and Mortgage Servicing Improvements Act would ban all forms of lender or broker interference in appraisers' valuations and would require high-cost, sub-prime mortgages to carry escrow accounts for property tax and insurance payments. The bill would impose penalties of up to $20,000 per violation on anyone who intimidates, threatens, bribes, or otherwise attempts to influence an appraiser's valuation of a home. It also guarantees buyers access to all appraisals performed on the property, not just the highest one the loan officer uses to close the deal.

These still seem a long way off, but for those of you in trouble relief is attempting to come your way. There are some things that can be done locally to try to get your property moving if it is on the market now. Give me a call and we can discuss what your options are.

Financing Update

This week Countrywide Financial announced that they will restructure or refinance $16 billion in adjustable-rate mortgages that have recently reset to higher interest rates or will reset by the end of next year. Some feel that this proactive move is a little late, while others are appaulding Countrywide. The plan which was outlined to the media would accomplish the following:

Homeowners/borrowers that are in default on their loans because of an interest-rate reset in the past few months, will receive a letter offering to roll back their rate to the previous, lower level. Countrywide expects to modify 10,000 of this type of loan totalling $2.2 billion, by the end of this year.

Homeowners/borrowers that are likely to have difficulty affording an upcoming rate increase and are unable to refinance, Countrywide will modify the loan to a rate that will keep the borrower in their home. They expects to modify 20,000 loans totally $4 billion through the end of next year.

Homeowners/borrowers that had subprime credit, but have been making payments on time, Countryside will offer to refinance them into a lower interest "prime" loan, or a mortgage insured by the FHA, Fannie Mae, or Freddie Mac. The expect 52,000 borrowers would qualify for a new loan and expect to refinance $10 billion in mortgages. These borrowers will have to pay the fees to refinance their loans.

With this relief in sight for some homeowners, Wall Street did not take kindly to this announcement and Countrywide's stock fell considerably. As an agent out there trying to help people, it is positive to see the leadership role that Countrywide has taken on this matter.

Where To Go With South County Real Estate

I have taken some time off from blogging to try to figure out where and what I wanted to do with this website blog. I have decided to change direction and spend some time over the next few weeks, updating what is really going on in the local real estate market.

For instance, today I received an email from a local area lendor sharing a survey that was completed this past July, 2007 as to what the primary reasons are for borrowers to fall behind on their home loan payments. Approximately 80% of the respondents to this survey were borrowers who were facing foreclosure. Of these borrowers, the most common reasons they were facing financial difficulties were:

Curtailment of income - 58.3%
Illness/Medical reasons - 13.2%
Divorce - 8.4%
Unable to sell/investment property - 6.1%
Low regard for home ownership - 5.5%
Death - 3.6%
Payment adjustments - 1.4%
Other - 3.5%

I am sure most of you knew the top two or three reasons, but what surprised me was the low regard for home ownership. People will never cease to amaze me!

Here are some fast facts FYI:

The median home price as of August 2007 in California was $588,970.

First time buyer affordability index for the second quarter of 2007 was 24%


Mortgage rates for the week ending 10/4/07:

30 year fixed: 6.37% fees/points: 0.5%

15 year fixed: 6.03% fees/points: 0.5%

1 year adjustable: 5.58% fees/points: 0.7%

More later...