What's In The News

Jumbo mortgages, those in excess of $417,000 or $729,000 depending on the market, practically disappeared with the burst of the housing bubble, but now they are coming back with major lenders like Bank of America and ING putting some real effort into the segment. But that doesn’t mean people are actually buying homes that require jumbo mortgages, according to lenders. There is a jumbo REFI boom of sorts, but nobody seems to be buying big houses that aren’t short sales or foreclosures.

Jumbo mortgages have stringent requirements, including hefty down payments. Buyers are still waiting to see if the real estate market has bottomed out, and few people these days want to commit to a big down payment if it means selling securities that are already down..

Rates for 30-year fixed-rate jumbo mortgages have dropped from an average of 7.28 percent a year ago to 6.44 percent last week, the lowest since April 2007, according to HSH Associates, which tracks consumer loan information. Rates for smaller 30-year mortgages were averaging 4.97 percent last week.

Jumbo mortgages are those too large to be backed by the federal government through Fannie Mae and Freddie Mac. Mortgages that are under those limits — $417,000 or $729,000 depending n the market — are so-called “conforming” loans.

Jumbo rates are also higher because the secondary market — where mortgages are sold to generate new funds — has dried up. Now, lenders need to keep loans on their own books, assuming the risk themselves.

Keith Gumbinger of HSH, which is based in New Jersey, said the difference between conforming and jumbo mortgage rates used to run around one-fourth of a percentage point, or 25 basis points. “So if a conforming rate was 5 percent, a jumbo would be around 5¼. Right now, that gap is extraordinarily wide. Last week, it was exactly 150 basis points.”

The Federal Reserve’s influence to lower conforming mortgage rates has produced the larger gap, he said. “The gap remains extraordinarily wide, not because jumbos aren’t doing their part. They are. But because other prices have been artificially influenced lower.”

He advised anyone looking for a mortgage or to refinance to shop around more than ever. “Some lenders are in a better position to make you a competitive loan than others. You’ve got to go out and scour around your marketplace. Shop it effectively.”

Some large lenders, including Bank of America, are starting to promote jumbo rates below 6 percent.

In time the combination of falling home prices and lower mortgage rates will improve the affordability of higher-end properties and sales will start to rise. The concern about waiting for the bottom is the only way you know you’ve hit bottom is when it is on the way up.

The S&P Case-Shiller index data for February, 2009 show home prices continue to decline (20
city composite index is down 18.6% year-over-year), but the rate of decline did slow in most regions during the month. Home prices seem likely to fall further (future prices suggest another 10 percent or so this year for the 20 city index), but lower mortgage rates and improving consumer sentiment could help limit the declines, providing some additional support to the economy.

So here’s the big question: if home prices have only another five percent or so to drop nationally, is it still worth waiting to buy?  Clearly not if you are also selling in the same or a similar market, but it may still be worth waiting if you are a new buyer or new to the market and there seem to be a lot of available properties that meet your needs.

Another five percent drop in prices could have significant impact on your down payment.  Instead of putting-down $7,500 (five percent on a $150,000 home for a $142,500 mortgage) you could put down that same $7,500 (5.45 percent on a $142,500 home for a $137,500 mortgage) and save thousands in interest over the life of the loan.  For some purchasers, then, it may still be worth waiting, especially in distressed markets like Las Vegas and Miami.

The 20-city composite index showed a 2.2 percent decline from January (compared to a 2.8 percent decline in January and 2.55 percent decline in December). This index is now 30.7 percent lower than its peak level (July, 2006) and has fallen back to August, 2003 levels. While the year over-year-decline in for the 20-city composite at 18.6 percent is slightly lower than the 19 percent yr/yr decline reported in January, it is equal to December’s, the second largest ever. Since 2000, the index has now increased at a compound annual rate of about 4.05 percent.

The 10-city composite index was 18.8 percent lower yr/yr and 2.1 percent lower sequentially. It is 31.6 percent below its peak levels reached in June 2006. Over the past 10 years, despite the recent decline, this index has still risen at a compound annual rate of about 6.2 percent.

All 20 metropolitan areas showed a sequential and year-over-year decline in February. But for 16 the January/February percent change was smaller than the December/January decline.

The worst year-over year decline in January was in Phoenix (-35.2 percent y/y, -50.8 percent from peak) followed by Las Vegas (-31.7 percent y/y, -48.4 percent from peak) and San Francisco (-31 percent y/y, -44.9 percent from peak).

Several markets showed modest year-over year declines, including Dallas (-4.5 percent y/y, -11.1 percent from peak), Denver (-5.7 percent y/y, -14.3 percent from peak) and Boston (-7.2 percent y/y, -18.5 percent from peak). Along with

the 10 and 20 city composite indices, only Charlotte, Washington DC, Cleveland, and New York
experienced greater declines from January to February than from December to January.

FHFA’s (formerly OFHEO’s) purchase-only house price index (non-seasonally adjusted) increased
1.13 percent in February, but declined 6.43 percent from a year ago. The year-over-year decline in February was lower than that in January and December.

Data from the National Association of Realtors on existing median home prices showed a 2.1 percent
increase in February and 4.2 percent increase in March. Year-over-year declines were 14.1 percent in February and 12.4 percent in March.

Sales of existing homes in the U.S. rose in April as foreclosure auctions and cheaper prices spurred bargain hunters, butt those who think this signals a market bottom would be wise to also notice that inventories of unsold homes have gone up, portending more price drops to come.

Sales were still down 3.5 percent compared with a year earlier.

Purchases increased 2.9 percent to an annual rate of 4.68 million from 4.55 million in March according to the National Association of Realtors. The median price was down 15 percent from a year earlier, the second-biggest drop on record.

The average price of a U.S. home fell 7.1 percent in the first quarter, slower than the fourth quarter’s 8.3 percent drop that was the largest on record, the Federal Housing Finance Agency said in Washington.

A pick-up in sales may eventually help trim the glut of unsold homes and eventually stem the slump in property values. But the number of houses on the market climbed 8.8 percent to 3.97 million in April. At the current sales pace, it would take 10.2 months to sell those homes, up from 9.6 months in March.

Distressed properties accounted for 45 percent of all existing-home sales, but this was down a bit from March, the NAR report showed. First-time buyers accounted for about 40 percent of April sales, also down from March.

Foreclosure filings in the U.S. rose to a record in April for the second consecutive month, Realtytrac Inc., a seller of foreclosure data, said May 13, as the jobless rate climbed to its highest in more than a quarter century. Foreclosure filings jumped 32 percent from a year earlier, the group said.

Recent increases in mortgage rates have hurt owners looking to lower monthly payments. Mortgage applications declined 14 percent last week, led by a plunge in refinancing, a report today from the Mortgage Bankers Association also showed. Still, the group’s purchase measure rose 1 percent, indicating rates are still low enough to spur sales.

Lower mortgage costs are also helping to make buying more affordable. Rates on 30-year fixed loans fell to 4.78 percent in April, the lowest level since Freddie Mac began keeping records in 1972. Federal Reserve purchases of mortgage securities have contributed to bringing down rates, economists said.

“The housing market is beginning to stabilize,” Fed Chairman Ben S. Bernanke said in congressional testimony on May 5. “We continue to expect economic activity to bottom out, then to turn up later this year.”