“The FHA announced changes to its guidelines yesterday. It will raise the minimum down payment required for borrowers with credit rating scores below 580 to 10%, while the down payment for higher-ranked borrowers would stay at 3.5%. The up-front MI premium is also going from 1.75% to 2.25%. HUD is seeking congressional approval to allow it to raise annual mortgage insurance premiums — which are paid out by the borrower over the life of the loan — above the 0.55 percent maximum. Lastly, the FHA also said it was cutting the amount of aid sellers could provide buyers to 3 percent of the purchase price from 6 percent; a move it said could help lessen incentives to inflate appraised home values.”

“The patient is out of intensive care, but still has a very long road ahead to a clean bill of health.” 

by Rick Turley, Bay Area President, Coldwell Banker Residential Brokerage

Those were the words last week from Fannie Mae Chief Executive Officer Michael Williams.  The CEO went on to say, “Anyone looking objectively at the economy and the housing market sees hope.”

Another good solid indicator of what I’ve been saying in my weekly updates.  The U.S. housing market still has a long road ahead but we are making some definite moves towards a housing recovery.  So what’s the challenge?  Well for starters, rising unemployment numbers aren’t helping.  The United States Department of Labor reported in its September 4 Economic Situation Summary that the number of unemployed persons increased by 466,000 to 14.9 million and the unemployment rate rose by 0.3 percentage point to 9.7%.  Just to give you an idea, since the recession began in December 2007, the number of unemployed persons has risen by 7.4 million, and the unemployment rate has grown by 4.8 percentage points.

We also need to couple that with the challenges in the mortgage industry.  Bloomberg reported, “The mortgage market is still dependent on government-affiliated programs, with private banks providing just 10 percent of loan liquidity, down from about 60 percent in 2006.  Fannie Mae and Freddie Mac are responsible for about 70 percent of all new mortgages, while the Federal Housing Administration accounts for about 20 percent.”

Before we can be truly reformed, we need to get into a position where there is more of a balance between private bank loans and Fannie Mae and Freddie Mac loans.  In all actuality, we probably won’t see that for some time.

Having said that, U.S. mortgage applications surged last week with demanding rising to its highest level since late-May as consumers sought to take advantage of the lowest interest rates in months, according to Reuters.

The Reuters article reported, “While home refinancing loans dominated demand, the appetite for applications to buy a home, a tentative early indicator of sales, hit its highest level since early January.  The overall trend bodes well for the hard-hit U.S. housing market, which has been showing signs of stabilization.”

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications which includes both purchase and refinance loans, for the week ended September 4 increased 17.0 percent to 648.3, the highest level since the week ended May 29.

These are all very positive indicators that showcase that we are on the right track…it’ll probably be a slow track…but we’re on the right one.

Now let’s take a look at this week in real estate:

• East  Bay—Berkeley reported a slow week compared to our brisk start to September.  Castro Valley reported our local micromarket is full of challenges.  Not enough inventory, hungry buyers with lots of cash, Agents who must navigate the challenges of appraisal problems, short sale bank frustrations and stiff competition for limited inventory.  We are seeing more listings out there.  They are selling quick, though, often within a week or so of listing.  Danville reported a spurt of activity the first week of September and then it got quiet.  Inventory and sales activity is down both in our office and in our service area.  Fremont reported it seems that the recent Wall Street financial information has made buyers more comfortable and motivated to purchase now that prices are starting to increase and the first time buyer program is ending in November which is another motivator.  Walnut Creek reported sales activity has really slowed down.  Fewer REOs coming on the market though there is an increase of short sale listings.  Multiple offers on most every sale. Orinda reports lower attendance at recent open houses, but the Buyers who do show up are more serious and ready to make offers.
• Monterey County—REOs and Short Sales are continuing on at steady pace, but we are seeing more “traditional” sales than over summer.  We’re getting lower on inventory in the hot REO market of Seaside; however, we keep hearing that the release of a large number of REOs there is imminent.  With Labor Day holiday last week, our closings were weak, though had one over $1 million and one over $2 million, but had good week for new escrows.
• North Bay—Petaluma reported lots of movement in the $500,000 and above range. Under $300,000 continues to be a frenzy with double digit multiple offers. Cash is king.  Santa Rosa concurred noting, too, that cash was king though the Sonoma County market did also note that open houses weren’t as well attended last week as they have been in recent weeks.  Sebastopol reported lots of folks out despite the weather.  Good attendance in all price ranges but most offers remain in the low end.  San Rafael reported the market has slowed in the past few weeks.  Inventory is still low.  78 people came through a new listing held open for the first time in Novato in the mid $700s.  An offer came in the next day.  Greenbrae reported (San Rafael & Corte Madera) had two $1 mil properties come on for the first time last week and had multiple offers by Monday.  Activity not as robust as we hoped but lots of new properties coming on the market so perhaps buyers need a chance to digest the new investors.
• Peninsula—Menlo Park El Camino reports Agents are busy.  The job of being a real estate Agent right now is very hard but the Agents see some deals are being made.  Big loans are still like apparitions.  Menlo Park Santa Cruz Avenue reported good activity following the Labor Day Holiday.  One Hillsborough listing ($6,500,000) was ratified after one week on the market!  Redwood City-San Carlos reported open house activity has definitely picked up.  Buyers seem more ready to make offers.  Woodside reported Woodside and Portola Valley are extremely difficult markets (especially Woodside).  The price point is so high that buyers will not buy and those who are selling are only selling because they have to.  EX: just closed a house at $5.6 mil that the owners paid $13 million for in yr. 2000.  Very few homes on the market representative of the usual Woodside market.
• San Francisco—Lombard reported the number of houses going pending look OK but mostly entry level prices. Labor Day listing surge is happening in the City: 165 new listings entered. The lower the price the more offers. One REO we got in Hayward yielded 33 offers.  The Market Street office reported open house activity was brisk last weekend with 60 groups going through a listing in District 5.  2/3 of the ratified offers were for new construction where good deals are still to be had.  This week the only multiple offers came in on a short sale.  Prices varied from $300K to $940K.  The Noriega office reported Agent activities are high but it’s tough to get deals ratified.  Even after deals are ratified, it takes a lot of work and negotiations afterward to keep the deal alive.
• Santa Cruz—August was slower than 2008 in terms of number of sales and overall prices have dropped within the office about $100K since last year at this time.  Open house activity is still good and there continues to be a pent up demand for properties as the inventory levels remain low.
• Silicon Valley—Cupertino reported it’s busy and an ever increasing challenge getting those deals closed.   Los Altos reported activity is picking up as we head into the normal fall home buying season.   San Jose Willow Glen reported things are slowing up a bit. Open houses still draw a lot of crowds. A couple of the sales that have been turned in, have sold over the asking and it appears that the listing prices were set low to attract buyers.  Saratoga reported  a steady increase in average sales prices over the last six months. Instead of the sales consisting of REOs and Short Sales we’re seeing brisk sales activity up to two million.
• South County—Hollister reported we are seeing great opportunities in establishing client relationships with office floor calls and walk ins this past week.  Inventory is still low and first time homebuyers are struggling trying to secure a contract.  Some REO Listings have received up to 20 offers.  Morgan Hill reported the South County market continues its same scenario–lots of potential buyers and very low inventory.  This week the number of total listings in all of Morgan Hill fell to 125 units–an all time low.  Employing simple “supply and demand” economics, this situation should result in prices beginning to rise–though none of us has witnessed this phenomenon yet.

Friday, February 13, 2009 – Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®

Dear C.A.R. Member:
Late this evening, the U.S. Senate passed the American Recovery and Reinvestment Act of 2009 by a 60 to 38 vote. Earlier today, the stimulus package passed the U.S. House of Representatives in a 246 to 183 vote. Today’s votes followed several days of negotiations by the House, Senate, and White House, with the final tab for the stimulus bill coming in at $787.2 billion.

On the housing front, the good news is that the legislation resets the conforming loan limit cap at $729,750, up from $625,500. Numerous counties in California experienced a marked decrease in their conforming loan and FHA limits on Jan. 1, and the stimulus bill reinstates 2008 loan limits through Dec. 31, 2009.

The bill also increases the first-time home buyer credit from $7,500 to $8,000, and removes the requirement that the credit be paid back if the buyer stays in the home for at least three years. It also extends the expiration date for the credit from July 1 to Dec. 1, 2009.  Homebuyers must have purchased a home after Jan. 1, 2009, and before Dec. 1, 2009, to be eligible for the $8,000 credit.

C.A.R. and NAR have long advocated for higher conforming loan limits. The conforming loan limit provisions and other housing elements in the stimulus package are a step in the right direction for our industry and all Californians.

The stimulus package also contains $308.3 billion in appropriations spending, including $120 billion on infrastructure and science and more than $30 billion on energy-related infrastructure projects. It also allocated an additional $267 billion for direct spending, including increased unemployment benefits and food stamps; and provides $212 billion in tax breaks for individuals and businesses.

Now that the stimulus package is approved and is on its way to President Obama for signature, it is our hope that Congress will turn its attention toward helping homeowners remain in their homes and will take immediate steps directed specifically at stemming the ongoing foreclosure crisis.

We’ll keep you updated on today’s news as more detailed information becomes available.

Sincerely,

James Liptak
2009 President
CALIFORNIA ASSOCIATION OF REALTORS®

For more on the changes in conforming loan limits, check out the following from Inman News:

Highlight: The loan limits for Fannie Mae, Freddie Mac and FHA loan guarantee programs, which were bumped back down to $625,500 in high-cost areas on Jan. 1, were restored to the temporary $729,750 approved by Congress a year ago in the Economic Stimulus Act of 2008.

Fannie and Freddie’s conforming loan limits — which began 2008 at $417,000 — were allowed to stretch to 125 percent of the median home price in high-priced housing markets for much of last year. That was intended to be a temporary measure to address the high cost of non-conforming “jumbo” loans after the collapse of the private-label secondary mortgage market in August 2007.

The $729,750 limit expired on Jan. 1, and Fannie, Freddie and FHA are currently permitted to guarantee loans of up to 115 percent of the median home price in high-cost markets, with a cap of $625,500 (that’s 150 percent of the $417,000 conforming loan limit). HR 1 will restore the limit to 125 percent of median home price in high cost markets, up to $729,750, for the remainder of 2009.

FHA began 2008 with a $200,160 “floor” loan limit in normal markets and a maximum loan limit of $362,790 in high-cost markets. As part of the Economic Stimulus Act, Congress increased FHA’s floor limit to $271,050 in normal markets and the upper limit in high cost areas to $729,750. That move helped increase the Federal Housing Administration’s share of purchase mortgage originations from less than 4 percent in 2006 to 21 percent in September.

Click here for complete story.

Watching the recent financial turmoil of Fannie Mae, Freddie Mac, AIG, Lehman Brothers and a few others has been unsettling, to say the least. On Friday President Bush proposed a comprehensive approach to stabilize the credit markets, including $700B for the purchase of existing mortgages from banks and other financial institutions, in an effort to shore up the economy. Additionally, the Federal Reserve and central banks worldwide have rapidly and radically expanded liquidity of the money supply. These actions are sending a powerful signal to investors in our financial markets that liquidity is not a problem!

There are now approximately 5 million homeowners delinquent on their mortgages or in foreclosure. With the government takeover of the largest holder of home mortgages, we (the U.S. taxpayers) now own Fannie and Freddie. In order to reach a stable housing market, lending at reasonable rates will most likely continue through 2009.

Is this the end of the crisis? No. But it is likely the beginning of the end.

The stock, bond and credit markets will remain volatile as the implementation of the government bailout is specified, agreed to by congress and acted upon. These actions are necessary to resolve the current financial crisis and begin building toward a stable and prosperous financial future.

It’s always interesting to learn the views of other real estate and mortgage professionals that are in the trenches of this challenging market. Learn more about Andy Block here.

http://online.wsj.com/article/SB121865515167837815.html?mod=djemWMP