SubscribeEconomic Forecast, Extending the Tax Credit and the Golden Window for Buyers
October 20, 2009
On October 12, I attended a SILVAR sponsored economic update and forecasting presentation by CAR EVP Joel Singer, and I thought you might find the following summary and comments beneficial:
- As we all know financing is the primary key to housing stability, and Singer is 100% confident that both tax credits and the $729,750 conforming limits will be extended into 2010—both of which are keys to continued recovery
- 40% of first-time buyers for 2009 bought because of the tax credit
- The Feds are on track to extend the credit, maybe even improve it, so let’s keep our fingers’ crossed
- The CA State Senate already approved the extension of the state $10,000 tax credit, and it should pass Assembly this week—yeah!
- Food for thought: before the competition increases due to formalizing the tax credits, first-timers should make their move sooner than later
- The move-up market here is the most impacted, but will improve as financing does; as such, he feels as though there will be some level of government involvement to stimulate the secondary market for non-conforming loans
- Right now, inventory levels for $750k-$1mm are at 6.1 months, which is healthy; inventory levels for $1mm+ are at 12.8 months, which signals a clear buyers’ market
- With government support, non-conforming lending will ease, but not necessarily cause rates to be lower—current margins are already at all-time highs primarily due to risk—by stabilizing the system and improving liquidity, risk is reduced, savings rates increase and rates remain about the same
- Futures point to a Fed funds rate rise of .500% to .750% and conforming 30-year fixed mortgages at 5.6% in Q2 2010
- As such, this gives anyone needing a conforming loan about 5 months before both rates and prices are up significantly
- And if you missed the headline on September 24th about the Fed easing their policy of keeping mortgage rates low, you’ll want to know that they are almost cutting in HALF the the effort– $14B versus $25B
- The overall number of homes/units sold next year will be down, but that’s only because we had a record number of units sell already this year—foreclosures will be DOWN relatively significantly
- Activity will still be high and it’s likely the $1mm+ segment that will provide buyers with the best value
- The “second wave” of foreclosures due to rate adjustments is a farce—many people, like myself, are looking forward to loans adjusting at lower rates, which is precisely what the majority of those loans will do
- 2010 will be a growth year with GDP expected at about 1.9%
- Great news for the economy, but growth causes higher prices and higher rates—
- The population of CA will grow another 1.1%, so that’s about $370,000
- We’ve added about 600k people per year since 2000, and about 500k babies are born in CA each year, so I guess that means there will be more demand on housing, which is also good news
- Unemployment may be 12% in CA, but that number is tied mostly to construction-related industries.
- With High Tech, Finance, Exports and Travel all on the rise for the Bay Area, our property values and local economy should benefit significantly
The Latest on Rates and Activity
Even with the incredible rates that continue to drive the refinance market, over 50% of the transactions that we closed in September were purchase transactions. Also of importance is the fact that of those purchase transactions, 35% were financed using “JUMBO” loans! Jumbo 30-year fixed loans are running about 5.75% and that jumbo 5/1’s are around 4.50%. And if you have a $417k conforming loan, 5/1’s are available at 3.75%!!
According to the MBAA, last week’s applications were down, but the four week moving average is up, along with interest rates (albeit slightly). We’re seeing the opposite effect locally, but it’s likely due to the many move-up buyers looking to take advantage of the $1mm+ market through Winter.
Is it just me, or does it genuinely feel like the golden window of opportunity for buyers right now..?
A great success story for us lately included funding a loan for a borrower who had a 63% debt-to-income ratio. We have also bridged three separate transactions that allowed buyers to move up without having to sell their current home first. And finally, we improved a client’s credit score by 100 points and saved them over $8,000 by having an erroneous collection removed from their credit record. So even with all the news headlining the challenges in the mortgage world, at least some great success stories continue to be made.
Mortgage Mania – Part 14, Dubious Fees
November 6, 2007
My favorite online news source, The New York Times, ran a story today “Dubious Fees Hit Borrowers in Foreclosures” in which the writers interviewed Katherine M. Porter, associate professor of law at the University of Iowa. In a review of many loans that are now going into foreclosure, Porter found that questionable practices among lenders are leading some experts to contend that lenders are taking advantage of higher-risk borrowers and those facing foreclosure.
“Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.
Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.
“Regulators need to look beyond their current, myopic focus on loan origination and consider how servicers’ calculation and collection practices leave families vulnerable to foreclosure,” said Katherine M. Porter, associate professor of law at the University of Iowa.”
You may be asking what this means to you in Palo Alto, happily making your payments on your $1+ million mortgage on your $2.4 million median priced home (no, that isn’t a typo!). As Mortgage Manics have heard me say before (OK, read), national lenders use a mostly one-size-fits-all approach to lending, meaning that practices and guidelines that are developed and applied to home buyers in Iowa, Tennessee and Colorado are also applied to us here in Silicon Valley. As a result, if you are reading about unscrupulous practices and excessive fees by national lenders that are being exposed in areas with high foreclosure rates, you may want to check the fine print on your mortgage and see what you are paying for in addtion to PITI.
In addtion, Porter found that lenders didn’t provide accurate payoff amounts for their loans to consumers, with one claiming they were owed $1,000,000 when the actual payoff amount was $60,000. That must be that fuzzy math stuff . . .
Countrywide was recently sanctioned by a court in Pittsburgh for losing or destroying over $500,000 in checks between December 2005 and April 2007 for homes in foreclosure. These are the companies holding the title to our homes, so we need to keep an eye on them.
You can read the full text of the article here.
On that happy note, have a great week, and thanks for reading.
Mortgage Mania Part 13 – A Halloween Story
October 31, 2007
Dsiclaimer: The following post is based on a presentation by Christopher Thornberg, an economist at Beacon Economics, that I attended last night, courtesy of my accountant, Tom Wagstaff of Petrinovich, Pugh and Co. This is a departure from my normally upbeat view of the local economy, and fortunately they re-opened the bar following the presentation for all the Realtors in the audience to drown their sorrows.
Economist Chris Thornberg showed some pretty convincing evidence for his expectation that housing prices will fall between 20% and 25% over the next couple of years, primarily because the ratio of home prices to incomes is higher than anytime in history, almost double the peaks in previous economic cycles. Gloom and doom for an hour, ah it brought tears to the eyes of many a Realtor in San Jose. Smugly I said, ” . . .but I live and work in Palo Alto, land of Stanford, Venture Capital, Facebook and Google! Sushi on every table and a BMW in every driveway! We are our own little world here, so we don’t have to worry about the housing market meltdown in Nebraska, or even the East Bay.”
Not so fast. The lastest housing boom has been driven by increasing housing prices, driven in part by cheap credit and loans. More people got these loans, bought more expensive houses, so the demand for these loans went up, and the cycle accelerated.
Now the appreciation is going the other way (flat to negative), and the equity that has driven consumer spending over the last few years (cash out refi = new boat), has gone away (bye, bye boat, and house!). Thornberg forecasts that the subprime meltdown will be followed by Alt – A defaults (already happening) which will pull down the high-end markets from below (that would be Palo Alto, Los Altos, etc.). Even if the Fed were to reduce interest rates to 0%, it wouldn’t fix this mess. Much like last night’s temblor in San Jose, Palo Alto will be on the periphery of this shakeup. We won’t be knocked flat, but we will rock and roll a bit, and not in the fun way. Sigh . . .
To add to the gloom, I have been attending recent forums for candidates for Palo Alto City Council. Whether the topic is Palo Alto’s aging libraries, or green initiatives, the same topics keep coming up: Infrastructure, Schools, Tax revenue.
If you live or work in Palo Alto, I highly recommend you take an interest in the upcoming City Council race and the issues the candidates are raising. You can learn more about the issues and candidates on the Palo Alto Weekly website.
Happy Halloween!!
