Month: July 2011

HOUSING PRICES TO INCREASE SAYS HUD…?


Newton, MA.  Realtor…not sure I agree with sustainable price increases beginning this fall.

Prices for U.S. homes may climb as soon as the third quarter, ending declines as foreclosures decline make more home available for sale, Housing and Urban Development Secretary Shaun Donovan said.

“It’s very unlikely that we will see a significant further decline,” Donovan said yesterday on CNN. “The real question is when will we start to see sustainable increases. Some think it will be as early as the end of this summer or this fall.”

Home sales have increased in six out of the past nine months and the number of property owners in default is declining, Donovan said on CNN’s “State of the Union” program. Housing prices will begin rising as the number of foreclosures declines, he said.

“In the long run, it’s a good time to buy,” Donovan said. “It’s so affordable today compared to where it’s been for generations.”

Contracts to buy previously owned U.S. homes rose 8.2 percent in May, following a revised 11 percent drop in the previous month, the National Association of Realtors said on June 29. A separate report by the Chicago-based group on June 21 showed sales of existing houses, which make up about 96 percent of the market, declined in May to a six-month low.

Home prices fell 4 percent in April from a year earlier, the biggest drop in 17 months for the S&P/Case-Shiller index of values in 20 cities.

An estimated 1.7 million U.S. homes were in the foreclosure process and expected to be put on the market as of April, down 18 percent from the peak, as fewer loans entered delinquency and more distressed homes were sold, CoreLogic Inc. said in a report on June 22.

Shadow Inventory

The so-called shadow inventory represented a five-month supply at the current sales pace, theSanta Ana, California- based real-estate information company reported. The inventory’s size is a barometer of housing-market health because foreclosed homes sell for lower prices and falling values discourage buying, said Sam Khater, CoreLogic’s chief economist.

Donovan said lenders are adding requirements “that don’t make sense” for risky borrowers after the government, through the Federal Housing Administration, raised the minimum down payments for a house purchase.

“We can’t over correct,” Donovan said. “We can’t go so far in the other direction that we cut off homeownership for people who really can be successful homeowners.”

Encouraging home ownership should avoid giving buyers an expectation of making $1 million overnight, Donovan said. “We can get back to the place where it’s a good investment and we will be able to make money over ti

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Newton Real Estate and New Mortgage Guidelines


Newton, MA.

The following article from the WSJ explains the new federal loan limits in MA.   Could we see negative implications regarding the real estate market?  Yes – high-priced communities such as Newton will suffer when the federal government lowers the loan limits they will guarantee to $523,000.00  While most jumbo loans in Newton are not currentlyFHA backed it may have a psychological effect on secondary mortgage lenders….stay tuned

The federal government is readying its first retreat from the mortgage market, with the size of loans eligible for government backing set to decline in October.

As an emergency measure three years ago, Congress raised to as high as $729,750 the maximum loan amount that Fannie Mae, Freddie Mac and federal agencies could guarantee.

That made it easier—and cheaper—for borrowers in pricey housing markets to obtain mortgages, because the government guarantees that investors receive payments on those mortgages even if homeowners default.

Now those limits are set to decline modestly in hundreds of counties across the U.S. as the government attempts to reduce its outsized footprint in the mortgage market and create room for private investors to compete. Government-related entities stand behind more than nine of 10 new mortgages, and taxpayers have sunk $138 billion into Fannie and Freddie, underscoring the eagerness to dial down the government’s share.

The new limits will vary widely by location, but will drop to $625,500 in top-tier markets such as New York, Los Angeles and Washington, D.C.

Even though the new limits won’t take effect until Oct. 1, some lenders are already warning borrowers that they will stop accepting applications for loans that exceed the new limits much sooner, to ensure the loans are funded before the cutoff date.

Industry groups are making the case on Capitol Hill that reducing current limits in some of the largest markets is “the exact wrong way to go,” said Jerry Howard, president of the National Association of Home Builders. But Obama administration officials say the limits should fall as scheduled, and Republican lawmakers have introduced measures to shrink the Federal Housing Administration’s reach more aggressively.

Had the lower limits been in place last year, Fannie and Freddie would have backed 50,000 fewer loans, according to the Federal Housing Finance Agency. The bulk of the affected loans —about 60%—are in California, with another 20% in Massachusetts, New York and New Jersey.

Parts of the country with less expensive homes also would be affected; their limits are scheduled to fall as low as $417,000 for Fannie and Freddie loans and as low as $271,050 for FHA loans.

Limits for Fannie and Freddie-eligible mortgages will fall in 250 counties, and FHA limits will drop in about 600 counties. While that is a fraction of the nation’s 3,000 counties, economists at the National Association of Home Builders say those densely populated areas account for 27% and 59% of the nation’s housing stock, respectively.

The possibility of lower loan limits is causing considerable anxiety in coastal California and other high-end housing markets that will serve as test cases for how the government’s withdrawal from housing will affect the market and local economies.

Homeowners whose mortgages are too big to qualify for a government-backed mortgage must seek a so-called jumbo loan, which often carry higher interest rates as well as larger down-payment requirements, sometimes more than 20%.

“Sellers are going to have to reduce their prices if borrowing costs rise,” said Scott Sheldon, a loan officer with First Cal Mortgage in Petaluma, Calif.

One of Mr. Sheldon’s clients, Ed Barr, has been pre-approved for a $662,000 loan backed by the FHA, the largest mortgage the agency can insure in Sonoma County, Calif. He is racing to close a sale before the limit drops to $520,950.

Mr. Barr, who owns a wine-making machinery company, said he has excellent credit but a recent divorce left him with little cash for such a purchase. “I don’t have any other alternative,” the 48-year-old said. Without the loan backed by the FHA, which allows for down payments as low as 3.5%, “the sale won’t happen.”

Scaling back loan limits underscores a broader challenge facing the government: It wants more private players to hold mortgage risk, but it doesn’t want to destabilize fragile housing markets.

Craig Van Sant is looking to pay $500,000 for a home with a $20,000 down payment in Rancho Cucamonga, Calif. Once the FHA limit drops to $335,000, he would need to more than double his down payment. The only upside, he said, is that “home values slide even more, allowing us to buy more house, if we can pull together all the cash.”

Investors and some academics say the government needs to shrink its footprint if private markets are to re-emerge, and that big loans for pricey homes are a reasonable place to start. “Credit unions, small banks, and hedge funds are all eager to buy these loans,” said Brian Brady, a mortgage banker at World Wide Credit Corp. in San Diego.

For now, interest rates for jumbo loans are relatively low, which could cushion the impact of changing loan limits. Rates on 30-year fixed-rate jumbos averaged 5.07% last week, compared with 4.62% on government-backed loans, according to financial publisher HSH Associates. The jumbo rates are near the lowest mark since HSH began its count in 1986, and the spread is the lowest since mortgage markets seized up four years ago.

But rates are only part of the equation. Because jumbos aren’t being securitized, banks must keep them on their balance sheets and are generally requiring larger down payments and stringent income qualifications.”It’ll be a real test of private lenders and their ability to fill the void,” said Mark Zandi, chief economist of Moody’s Analytics.

Write to Nick Timiraos at nick.timiraos@wsj.com