Sep232013
realtors lament low demand, low supply, and collapsing first-time homebuyer market
The tax credit stimulus of 2009-2010 prompted many potential buyers to accelerate their plans to purchase homes to take advantage of the tax credits. Many people paid 5% to 10% more just to gain the tax credit that was a small fraction of the additional price they paid. When this stimulus was removed from the market, quite predictably, housing demand collapsed, prices rolled over, and we had 18 consecutive months of falling prices.
In 2011 and 2012 in response to the lack of demand, the federal reserve launched Operation Twist to drive down long-term rates with hopes of lowering mortgage rates further to stimulate housing demand. As a result of this temporary manipulation of mortgage rates, housing demand did increase, and when combined with lender can-kicking from loan modifications, the housing market bottomed. A few analysts mentioned the manipulation of the housing market was unstable, and most notably, Mark Hanson pointed out that the removal of the interest rate stimulus was likely to result in a collapse of demand similar to the expiration of the tax credits in 2010.
Apparently, Mark Hanson was right. Even realtors are worried as they noted a dramatic decline in buyer traffic in August.
The mini-boom in housing is already over: realtors
By Diana Olick | CNBC – Thu, Sep 19, 2013 11:30 AM EDT
U.S. home sales in August rose to their highest level in six years, even higher than during the recent home buyer tax credit. This news came on the heels of the Federal Reserve’s announcement that it would continue to fuel the mortgage market, keeping rates from rising dramatically. Still, Realtors were uncharacteristically pessimistic in their predictions for sales this fall.
The definition of a gaffe in politics is when a politician uncharacteristically tells the truth. The same is true of realtors. When even the slightest hint of market pessimism comes from the pathological liars at the NAr, you know the statement was both unintended and accurate.
“We are getting early signals from lock boxes that show a significant change in direction in August,” said Lawrence Yun, chief economist for the National Association of Realtors, referring to the small key boxes that hang on the doors of for-sale homes. The number of times they were opened in August dropped dramatically, signaling a big drop in potential buyer traffic.
I recently reported that it’s no longer a house seller’s market. I am shocked to see the NAr confirm my observations.
Yun claimed the jump in August sales was based on fear of rising rates. August numbers are based on closings for contracts that were likely signed in June. June saw the biggest spike in mortgage interest rates.
“That hurried people into making a decision,” said Yun. “It was the last hurrah for the next 12 to 18 months.”
And this behavior was loudly encouraged by realtors who told their clients they should buy now or be priced out forever.
This is one of my main complaints against the way realtors operate. Rather than telling their clients they don’t need to fear rising rates because it will cause sellers to reevaluate their asking prices, realtors tell buyers they need to act immediately to generate a sales commission. It is clearly a case where realtors put their own self interest above their clients. This was rampant during the tax credit boom, and many of the buyers that were manipulated by realtor false urgency found themselves underwater as prices fell for 18 months.
Realtors say home buying today is less about the interest rate and more about the ability to get the mortgage. Sales are also hampered by a severe lack of listings, down 6 percent from a year ago. Inventory shortages are nationwide with some markets seeing less than a month’s supply of homes for sale.
While sales may fall, it appears home prices will continue to gain, if at a slower pace than recent months. Fewer foreclosures and, again, the lack of inventory, will prevent prices from falling. Borrowers are falling behind less and actually changing their behavior when it comes to paying their mortgages.
This is my belief as well. After the tax credit of 2010 expired, prices fell for 18 months because there was still abundant must-sell inventory on the market. This time around, this inventory has been removed by lender can-kicking. That’s the only difference between then and now, but it’s a big difference. It will likely mean sales will decline but prices won’t.
“For the first time since the housing bubble, consumers with constrained liquidity are making their mortgage payments about as much as their credit card payments,” said Steve Chaouki, co-author of a new study from TransUnion.
With rising house prices and generous temporary loan modification terms, people are more motivated to make housing payments.
During the past five years, as home values plummeted, and borrowers found that they owed more on their mortgages than their homes were worth, they turned their attention, and their payments, to their credit cards. It was a switch from historical norms, when mortgages were somehow more sacred and home ownership was considered more of an achievement than an investment.
When housing became an investment, borrowers treated it as such. Many realized there was no point in putting good money after bad, so they quit making payments. As long as we continue to foster the idea that housing is an investment, strategic default will remain a problem for lenders.
As mortgage delinquencies fall and distress moves out of the housing market, sales will depend far more on traditional supply and demand. As of now, there isn’t much of either. The first-time home buyer market has “collapsed,” according to the Realtors, due to tight credit and weak employment, and millions of potential move-up buyers are still plagued by negative and near-negative equity.
It will likely take a few more years and a lot more jobs for those dynamics to improve.
(See: When will first-time homebuyers return to the market?)
What path do you see going forward?
We will likely see a very brief drop in mortgage interest rates due to the fed no-taper, but in my opinion, it won’t take long before the market starts worrying about when the taper will finally happen, and mortgage rates will resume their upward drift. The direction of mortgage rates will likely determine the strength of demand going forward because future housing markets will be very interest rate sensitive.
Supply will continue to come onto the market, but this will be can’t-sell cloud inventory rather than must-sell shadow inventory, so there will be more selection of houses nobody can afford. I believe that’s a recipe for low sales volumes and gently rising prices.
Anecdotally, I can tell you that over the last few weeks some buyers have resumed their search for homes. We had one of our astute observers recently go into escrow, and Shevy tells me that several buyers started making offers again. The buyers have adjusted to the change in the market, and they are being much more selective. The frenzy is over, but latent demand remains from those who didn’t get properties during the frenzy.
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[idx-listing mlsnumber=”NP13121126″ showpricehistory=”true”]
4615 WAYNE Rd Corona Del Mar, CA 92625
$2,095,000 …….. Asking Price
$2,185,000 ………. Purchase Price
5/12/2006 ………. Purchase Date
($90,000) ………. Gross Gain (Loss)
($167,600) ………… Commissions and Costs at 8%
============================================
($257,600) ………. Net Gain (Loss)
============================================
-4.1% ………. Gross Percent Change
-11.8% ………. Net Percent Change
-0.6% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$2,095,000 …….. Asking Price
$419,000 ………… 20% Down Conventional
4.87% …………. Mortgage Interest Rate
30 ……………… Number of Years
$1,676,000 …….. Mortgage
$434,035 ………. Income Requirement
$8,864 ………… Monthly Mortgage Payment
$1,816 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$436 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$96 ………… Homeowners Association Fees
============================================
$11,213 ………. Monthly Cash Outlays
($2,187) ………. Tax Savings
($2,063) ………. Principal Amortization
$784 ………….. Opportunity Cost of Down Payment
$282 ………….. Maintenance and Replacement Reserves
============================================
$8,029 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$22,450 ………… Furnishing and Move-In Costs at 1% + $1,500
$22,450 ………… Closing Costs at 1% + $1,500
$16,760 ………… Interest Points at 1%
$419,000 ………… Down Payment
============================================
$480,660 ………. Total Cash Costs
$123,000 ………. Emergency Cash Reserves
============================================
$603,660 ………. Total Savings Needed
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I am an on the fence buyer. Why? Because I can not find a decent property. I have been looking in Manhattan Beach, Hermosa Beach, South Redondo Beach, South Torrance, Newport Beach, and Corona Del Mar. There are a few decent properties that I ignore because the price tags are outrageous. I have a friend that is also looking for something and he has the same complaints.
This year, I was only able to get one purchase in before the prices surged. Glad I got the 1 in, but I wish I would have been more aggressive in several bidding wars. I could have nabbed a second in MB.
We are in the slow sales time of the year. If I see a significant price reduction back to May price levels, I will grab it. Otherwise, I will wait to see the spring action. If another buying party emerges, and I expect it will, I will hold my nose and pay someone their price, but only if it is a perfectly located property.
Dude, demand is being heavily subsidized for good reason. Enjoy!
The goal of monetary policy and ZIRP is to herd money into real estate, make people “hold their nose”, and force them to overpay.
Another comment. In this economy the job market is decent enough to support the housing market. Because of this, housing prices are sticky. They will stay right where they are during slow seasons, like fall, but should move higher when substantial buyer action occurs in the spring. In a normal real estate market, prices move in a stair step fashion. For price drop, we need a substantial job market collapse, which seems unlikely for now. Remember, homes are not for flipping. They are extremely long term investments. Be very selective in your purchase. Then plan to hold it at least 15 years. Best is to hold them for your entire life. People that try to trade them like stocks are fools.
You know, all the indicators I see, this scheme of Fed & Gov’t subsidizing housing is losing traction and the political cost involved is starting to enrage many voters in this country. I think the scheme is just about over, and the communities with the highest income/home price ratio are the ones that will feel the pain the most.
“In this economy the job market is decent enough to support the housing market.”
The evidence from the decline from 2010 through 2012 does not support this. During that entire period, unemployment was dropping, but so did prices.
What’s really supporting the market is the restriction of inventory by keeping people who are underwater from listing their homes. The inventory restriction is so acute that even the tepid demand from today’s diminished buyer pool is enough to support pricing.
For prices to drop, we don’t need any change in the job market. All it would take is an increase in must-sell inventory. However, it doesn’t seem very likely we will get that because banks will continue can-kicking and denying short sales to keep this inventory off the market.
That being said, I think your stair-step analogy is accurate. We will see the normal seasonal pattern in prices because the manipulation of the market through restricted inventory is working, and all signs are that it will continue to work.
During that entire period, unemployment was dropping, but so did prices.
Great pointing this out! I remember listing to the Bruce Norris “California Crash” CD in 2006. He talked about unemployment, migration and interest rates. Though Bruce is a very smart guy, he was wrong about much of the correlation with housing, local economy and interest rates. He was using information from prior housing cycles to determine his conclusion.
As we’re discovering right now in this new zombie economy, interest rates have a much higher factor to determine pricing & sales volume. I don’t care how many people are moving to OC, if mortgage rates triple, housing prices will be chopped in half.
I’m glad to see you giving Hanson his due. His analysis is first rate (as is yours!)
Mortgage rates will stay pretty much where they are for now. The Fed’s “non taper” has not had any real effect. Rates reset when the taper was announced and the market delivered its verdict. The Fed’s manipulation hasn’t changed that. Perhaps, Janet Yellen could promise to buy more MBS, but that might scare foreign investors of USTs who are getting skeptical about the garbage pile we call the Fed’s balance sheet—which is one big off balance sheet liability. China and Japan are not going to buy this crap forever, unless the Fed can articulate a clear path forward…which it hasn’t.
October is going to be a bloodbath for existing home sales feeling the whole impact of the rate surge, but it may not be as bad as Hanson anticipates. With 50% of sales going to investors, it all depends on what they do. If many of them bail out, then sales will drop and prices will follow. (It won’t take a year for prices to fall this time. The market is still volatile)
To large extent, the future of housing rests on October’s existing homes sales numbers, so beware of the propaganda trying to minimize its importance. Bill McBride has already started softpeddling the news to ease the impact. In truth, Oct data will show the real vulnerability of a manipulated market that was suddenly deprived of life-sustaining monetary stimulus. I expect sales to drop about 20%.
The Consumer financial protection bureau’s new easy lending standards may start another bubble in credit expansion, but that’s going to take a while, and frankly, I think it’s going to be very hard to do. The country’s attitude towards credit has changed. The same thing happened after the Great Depression when private banking didn’t recoup for nearly 20 years later.
This already reminds me of another Hanson term, phantom appreciation
Housing Analyst Raises Concerns of Artificial Price Appreciation
As home price appreciation continues at accelerated levels, John Burns Real Estate Consulting is warning clients in certain areas to keep in mind the artificial boosting effect that home “flippers” bring to the market.
“Home price appreciation has been so rampant, particularly in California and Florida, that flippers and get-rich-quick scam artists are flourishing again,” said Chris Cagan, VP at John Burns. “Just as in the mania of 2004-06, flippers make money when the party is raging, but inevitably, someone loses when the party is busted.”
Using anecdotal data for prices paid, repair costs, and selling prices for flipped homes across the nation, Cagan calculated an average net profit of 32 percent, “wildly [surpassing] the reality of the recovering market.”
Part of the growth in flipping activity, he remarked, stems from its growing popularity in the media.
“Flipping has moved beyond a segment of professionals working with undervalued and distressed properties; seminars, tours, and television shows encourage people to invest with flippers or to flip homes themselves. As in the boom of the previous decade, many people see easy money to be made,” he said.
Another silly idea. Flippers don’t create artificial price appreciation, they respond to it. The artificial price appreciation is created by artificially low interest rates. Flippers merely take advantage of the rapid appreciation caused by the low rates to make a buck.
The true professional flippers aren’t dependent on rapid appreciation to make a living, although they obviously benefit when there is appreciation. They are providing a service to the market by fixing up junker homes and making them livable again, something that many retail buyers don’t have the capital or patience for.
In the complex where my condo is located, there are only 2 listings, both purchased in late May, and now trying to turn around and sell for 20-30% higher. The problem is recent comps only justify a 2-4% max increase from that time. Both properties were rehabbed, so adding in transaction costs, these flippers are going to take a bath. My first thought was they probably came from the HGTV school of flipping.
The true pros look to pay no more than 65-70% of the final resale value when they acquire a property (not including appreciation). Unfortunately, these two paid closer to 95% of final resale when they acquired, and they will be learning some expensive lessons.
One classic sign of an overheated market is retail flippers. Anyone who pays full retail price cannot possibly make a profit from flipping unless the market bails them out. Professional flippers are almost always cash buyers at auction, or they are buying properties so distressed on the MLS that they are not eligible for financing.
Getting rid of the 30-year fix rate mortgage would be counter to the bank’s objective to prop up prices and manage cloud inventory.
Rethinking Fannie, Freddie—and the 30-Year Mortgage
Washington is finally talking seriously about how to replace Fannie Mae FNMA +3.76% and Freddie Mac, FMCC +2.33% the mortgage-finance juggernauts that the government was forced to rescue five years ago. Just don’t expect quick action.
The firms are proving to be as difficult to shut down as the U.S.-operated Guantanamo Bay prison in Cuba. Republicans and Democrats are deeply divided over what to do. On the surface, the disagreements concern what role the government should play in the mortgage market.
But the real debate boils down to this: Should all Americans continue to have relatively easy access to the pre-payable, 30-year, fixed-rate mortgage?
American homeowners love the 30-year mortgage, which isn’t available in most other countries. It provides payments that are stable for the life of the loan, which makes finances easier to manage. In many other countries, homes are financed with adjustable-rate mortgages, where payments rise and fall with prevailing interest rates.
The real housing debate boils down to this: Should all Americans continue to have relatively easy access to the pre-payable, 30-year, fixed-rate mortgage? Nick Timiraos reports. Photo: AP.
The government plays an unusually large role in the U.S. mortgage market because banks don’t like holding 30-year mortgages. During the 1980s, many savings-and-loan associations failed when rates jumped because the interest they had to pay to depositors soared above the payments they received on those 30-year mortgages. This is known as “interest-rate risk.”
Enter Fannie and Freddie. They don’t make loans. Instead, they buy them from lenders, package them into securities, and sell those to investors. They promise to make investors whole when mortgages default. In other words, they take the credit risk.
The idea that 30-year mortgages will go away is nonsense. They may become more expensive if risk is currently mis-priced, but the loan will not go away. Lenders can still originate these, package them up, and sell them into the secondary market. Investors in the secondary market will evaluate the risks and returns and bid accordingly. The value of these MBS packages will determine what interest rates banks have to charge at origination.
The threat of making these loans go away entirely is a red herring used by people who want to keep the GSEs in place and pass all the risk onto the government. Making the GSEs go away will not spell an end to the 30-year mortgage.
from the piece…..
”The government plays an unusually large role in the U.S. mortgage market because banks don’t like holding 30-year mortgages. During the 1980s, many savings-and-loan associations failed when rates jumped because the interest they had to pay to depositors soared above the payments they received on those 30-year mortgages.
———————————————–
The next leg down will be inexorable
IR uses 4.87% interest rate in his calculation. For good credit, I see Wells Fargo listing a 4% interest rate for 30-year jumbo. Yes, jumbo rates are lower than Fannie/Freddie owned mortgages. Irvine SFR’s of 2100+ square feet are now in jumbo loan territory (after 20%) down – but with a 4% interest rate, I still see owning at a (small) discount to renting. And with an improving job market, there is no serious threat to house prices currently.
Market Slowdown Spin: It’s “Healthy” for Sales to Plummet
Earlier this year home prices were rising at an unsustainably fast pace, so it’s important to remember that even with the recent modest price slowdown, prices are still rising at more than a 10% annualized rate, explained Trulia chief economist and vice president of analytics Jed Kolko.
“Our Bubble Watch metric shows that price levels nationally are undervalued by 5%, which means only small further price gains are needed to get prices national back at normal historical levels,” Kolko stated.
He continued, “We are not at risk of a bubble today, but if prices rose 10% a year for the next three years, we’d all be calling bubble.”
On a similar note, National Association of Realtors chief economist Jed Smith is confident the slowdown is healthy for the market so housing does not hit a bubble.
“It’s the normal market reaction to getting back to a normal market,” Smith explained.
The majority of the country continues to remain affordable, with the average home price coming in at $231,000, up 8.7% from year-ago levels — only 14.7% from the June 2006 peak level of $270,000, according to LPS.
All five of the largest states and metropolitan areas saw the pace of price growth decrease month-over-month.
California experienced the most marked change, with the pace of growth down to 0.5% in July from 1.6% in June.
Additionally, Los Angeles posted the biggest drop, with growth down 0.3% in July compared to 1.2% in June, respectively.
On the reverse side, Texas posted an impressive uptick in home prices.
Of the 40 largest metro areas, Austin, Dallas, Houston and San Antonio continued their upward trajectory, marking new home price highs in July.
The overall point is that while data seems to fluctuate, the majority of the information concludes that the housing recovery is still a local phenomenon.
Going forward, home prices will continue to slow for three reasons: more housing inventory, higher prices are turning investors off and rising mortgage rates.
“Rising rates is probably the least important of the three reasons past trends show that prices tend not to suffer as much as mortgage rates rise,” Kolko said.
He concluded, “Other factors, like a slowly strengthening economy and expanding mortgage credit, should give prices a tailwind and prevent them from slowing sharply.”
Is it healthy for
salesfor the velocity of money to slow down?Is Richmond’s mortgage seizure scheme even legal?
The possibility of using eminent domain to reduce underwater mortgage debt in the city of Richmond California survived several tough challenges a week ago. As Lydia DePillis reported, the City Council decided to go ahead with the process after a long hearing that could have possibly derailed it. Meanwhile an attempt by Wells Fargo and Deutsche Bank to have the action shut down even before it properly started was tossed out by a U.S. District Court (Judge: “Isn’t this, as we say in the trade, a no-brainer?”).
The arguments will now proceed to the two parts of eminent domain law: demonstrating public purpose for the takings and offering fair-value. Since this is the furthest an eminent domain case has made it, it might be useful to step back and walk through the arguments. If the case succeeds, it is likely other cities, which have been hesitant, will consider going forward.
“Supply will continue to come onto the market, but this will be can’t-sell cloud inventory rather than must-sell shadow inventory, so there will be more selection of houses nobody can afford. I believe that’s a recipe for low sales volumes and gently rising prices.”
There are always motivated sellers in any market, at any point in time — it’s just a matter of numbers. In our case, we found a baby-boomer seller that was looking to downsize. They had already found their replacement home and needed to sell this house, and right quick. Since we were the ONLY buyer making an offer, they took a huge price cut from their delusional asking price. We didn’t get a great deal, but we certainly got a fair deal, which is an about face from 6 months ago.
If there are enough discretionary sellers hiding in the cloud prices, we may see a pullback over the fall and winter. You found the niche for getting a good deal in this market. Kudos.
Congratulations Russ!
The sheer number of tapering articles coming out today is incredible. They are pro, against, October, December, Yellen, Budget and larbor base. I don’t want to post them it would be just over whelming.
Bernanke said that policy would remain accomodative until unemployment was 6.5%. How much more clear can he be? Does anyone think unemployment will reach 6.5% by December? Does it really matter what Bullard says about December?
I’m starting to believe the no Taper crowd.
Welcome. Even if they did taper, it would be temporary because a rise in interest rates will make it clear we are still in Great Depression 2.0.
Since using a debt instrument to pay off a debt merely transfers the debt, smart money will focus on reality, NOT the illusion. The physical wealth is the illusion, which is temporary. The inextinguishable debt is the reality.
When I first began doing rent versus own analysis, I was fixated by rental parity. At some point, it became apparent that rental parity was not the complete answer. The historic relationship of prices to rental parity was.
The flaw in Trulia’s reasoning — and it’s a big one — is that just because owning is less expensive than renting that markets are undervalued. Some markets are always cheaper to own than to rent. My studies of the Inland Empire show they are stable at a 25% discount to rental parity. Trulia’s assertion that markets are undervalued can’t be taken seriously until they solve this problem.
Despite Rate Hikes, Owning Still Cheaper than Renting
Despite rising interest rates, owning a home is still significantly cheaper than renting at a national level and in most large metropolitan areas, according to Trulia’s Summer 2013 Rent vs. Buy Report.
While rising interest rates are closing the gap between renting and owning, owning is still 35 percent cheaper than renting nationally. A year ago, the difference was 45 percent.
“Recent mortgage rate and home price increases have made buying significantly more expensive than last year, but not enough to tip the math in favor of renting,” said Jed Kolko, chief economist for Trulia.
“This is because rates remain well below historical norms, and prices are still slightly undervalued, too,” he said.
With rents and home prices remaining constant, mortgage rates would have to enter the double-digits—about 10.5 percent—before renting became the better bargain, according to Trulia.
However, while owning remains more affordable than renting in all 100 of the nation’s largest metros, the threshold is closer in some markets.
Renting would become cheaper than owning in San Jose, California; San Francisco, California; and Honolulu, Hawaii, before mortgage rates reach 6 percent, according to Trulia.
The threshold for Orange County, California, and New York are 7 percent and 7.5 percent, respectively.
Of the top 100 metros, those where owning is most affordable compared to renting are Detroit, Michigan (65 percent); Gary, Indiana; (58 percent) and Memphis Tennessee (55 percent), respectively.
Mortgage rates would have to reach 32.8 percent for renting to be cheaper than owning in Detroit. They would have to reach 20.6 percent and 19 percent, respectively for the same to be true in Gary, Indiana, and Memphis, Tennessee.
While Trulia’s report offers market-level data, Trulia also offers an online Rent vs. Buy Calculator for consumers. Individuals can enter the prices they encounter in their local markets and the mortgage rate for which they qualify, along with a few other data points to determine the best path for them, personally.
that 25% is because of the commute costs… to work places.
There is some truth to that. However, as businesses continue to relocate out there in search of lower costs for property and labor, that will change.
Prior to the first housing bubble of the 1970s, even coastal California housing markets used to trade at a discount to rental parity. The restrictions on growth ushered in with CEQA, and lasting kool aid intoxication drove most of those markets to rental parity or a premium.
Most of the country is discounted about 25% from rental parity. It’s close to another important measure — payment parity. If you strip away the adjustments to the cost of ownership from tax breaks and such and simply compare PITI to rent, that’s the price level where most markets find their equilibrium.
Two years ago much of coastal California was trading at a discount to rental parity, excluding maybe the top 20% of the market. There are still opportunities to buy at rental parity in starter neighborhoods, but that opportunity is diminishing.
Mello Roos was the first to point out that lenders are responding to the decline in refinance activity by lowering standards to get more borrowers. With the looming threat of put-backs from the MBS pools if loans go bad, the pendulum probably won’t move too far in the loosening direction any time soon.
Signs of an easing of credit requirements are surfacing
WASHINGTON — Could the end of the refinancing boom be stimulating slightly more favorable mortgage terms for home buyers? The latest comprehensive study of activity in the market suggests the answer could be yes.
Ellie Mae Inc., a mortgage technology firm in Pleasanton, Calif., conducts a survey involving a massive, nationally representative sample of loans closed each month. Its August findings point to a gradual easing on credit scores for borrowers.
Consider these hard numbers provided by Ellie Mae Chief Operating Officer Jonathan Corr:
•Last month, 30% of all successful applicants for home mortgages had FICO credit scores less than 700, compared with 15% a year earlier. That doubling in just 12 months is significant and tells prospective buyers: Just because you don’t have stellar scores, you can still be approved if your application shows compensating strengths such as steady income, solid recent payment performance on credit accounts, moderate household debt loads and adequate financial reserves in case you run into a rough patch. (FICO scores run from 300 to 850; higher scores signify a lower risk of default for the lender.)
•Average FICO scores are down across the board. Conventional Fannie Mae-Freddie Mac scores for approved applicants dropped a point from July to August to 758. That’s still high in historical terms but down from 764 in November. Federal Housing Administration-insured loans for buyers continued their slow decline, hitting 695 last month versus 702 in April 2012. The biggest drops in scores have been on Fannie-Freddie refinancings as recent interest-rate jumps have scared away applicants. Approved borrowers in August had average scores of 737 compared with 746 in July.
Corr said in an interview that many lenders are seeing refi applications decline sharply, and this may be pushing them to be more flexible and competitive on loans for home purchases.
Lagging data. August closings still represent credit conditions as they existed in May/June. You’ll see more easing over the coming year, with some exceptions, like the disappearance of interest only loans and the tightening of DTI’s across the board to 43%.
Rising real estate prices cause creditors to let their guard down. This is a temporary phenomenon, both rising prices and loosening standards.
A big “macro” problem is that the economy is not as strong as the unemployment rate would suggest. The decline in labor force participation and the huge number of part time jobs created have resulted in a very distorted unemployment rate. A lot of purchasing power has left the economy in this recession and has not come back. Moreover, the uncertainty factor is huge – the people who are working are afraid of losing their jobs and the people who are out of work aren’t succeeding in finding new work.
Definitely. I have neighbors that have been unemployed for the four years that I have lived there. They have given up on looking for work and just do odd jobs here and there to make ends meet. The only good thing is two of them are great guys and keep watch over our street all day.
Living in a neighborhood like that in my situation is a bit odd. They know I have a job and can support the whole family. They give me a lot more respect than I deserve, calling me sir when I’m younger than them.
We’re in escrow (again) at a fair price considering how this market has turned dramatically. I think we finally found the right price for the right time. We started in June with an insane price because that’s where the market was heading and everything in our neighborhood was selling within weeks. We dropped the price a few times since, but never enough to match the rapidly changing market.
I’m going to keep this all in perspective – If you’d offered me the price at which we’re currently in escrow at any point between 2008-2012, I would have been extremely happy to sell it to you. It just doesn’t feel like a high price today, after the market we saw in April – June 2013…
That’s great news! Good for you! One thing that should give you some comfort is that prices won’t be rising rapidly after you sell. Everyone wants to time the top tick of the market, but selling too early can be even more frustrating than selling a bit too late.
Both buyers and sellers have adjusted to the new market dynamic. Buyers are writing offers again, and reasonable sellers are taking these offers to make a deal happen. For about 6 weeks, sellers were clinging to their delusions, and buyers simply stopped trying.
I’m noticing a lot of houses lowering their listed price this weekend and today. Hope the trend continues. I got two offers out for review but I was eyeing a 2008 constructed townhome in a decent area that may soon be within my budget. Rather get the townhome than a 60 year old house.
I’m noticing a lot of new price signs and priced to to sell aside from all the for sale signs popping up like weeds …..open houses everywhere with no foot traffic like a desert waste land LOL!
You were clearly right about what would happen to demand when the interest rate stimulus was removed.
One of my comments successfully posted. When I went to post a second comment the page froze up and not only did it not post, but the first post disappeared as well.
Cancel that. Now both comments have reappeared.
I am doing some back-end work on the site in preparation for a major upgrade. Sorry for the inconvenience.
Interesting!
Simple to rosland capital keep track of, American Eagles are tied to the value of gold and silver?
[…] analysts agree that rising interest rates will reduce the buying frenzy. That much is clear (See: realtors lament low demand, low supply, and collapsing first-time homebuyer market). However, analysts are divided on the long-term impact of rising […]
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