Mortgage rates have dropped to a 50 year low this week. Locally, we have heard lenders lock in mortgage rates around the 4.75 percent mark for a 30-year, fixed rate mortgage. As recently as the summer of 2008, those rates were at or above 6 percent. On a $300,000 mortgage, the monthly savings is about $230 (comparing 6 percent to 4.75 percent).
This drop in rates is causing a flood of refinancing activity, with local lenders reporting a huge jump in the volume of calls they are receiving.
These rates may help some local borrowers control their costs as they look to refinance out of adjustable rate mortgages. And while mortgage lenders have returned to more stringent standards of loan approval, we are hearing lots of reports of successful refinances in the South Sound market.
But it isn't just refinancing owners cashing in, buyers are also taking advantage of these great rates. The combination of moderating home prices and these interest rates have more buyers venturing out to look for houses. The Mortgage Bankers Association's seasonally adjusted purchase price index rose 10.6 percent.
Wednesday, December 24, 2008
Tuesday, December 23, 2008
Mortgage Modifications are Happening not with the Intended Results
Federal regulators reported on Monday that many borrowers who went through a mortgage modification earlier this year still having trouble.
Mortgage modification is one of the techniques being pushed by members of Congress and some federal regulators to help stem rising foreclosures. The hope has been to offer more affordable rates to those who bought homes using adjustable rate mortgages. Those borrowers are now facing much higher interest rates than when they originally purchased.
The loan modifications are working to a degree, but the report shows that six months after modification almost 37 percent of those mortgages were 60 days or more delinquent.
This high rate of delinquency shows that the problem is more multi-facetted than regulators might have anticipated.
A straight mortgage modification might well work where the home owner purchased a home he or she could truly afford, in a market that has not rapidly declined. There are those situations out there.
There are also many circumstances where borrowers bought more than they could afford betting on appreciation that history shows we should not count on. Those people were having a tough time making payments even at the low teaser rates before the mortgages reset. In those cases, even a mortgage modification will not help.
In addition, some markets around the country have seen such significant reductions in home values. These were the markets that saw appreciation rates that were more than double the national average. They had nowhere to go but down after gains like that. Mortgage modifications there may help delay foreclosure, but many homeowners are asking why stay in a home that is now selling for 40 to 60 percent less than what they paid.
The defaults on loan modifications highlights one of the most overlooked problems with the bailout: prices on many homes in many areas simply need to come down. Any solutions that purports to address the housing crisis without facing this fact is igorning the laws of supply and demand.
Strangely, we do not hear regulators criticize the double digit percentage gains in prices that occurred during the boom years; yet they want to keep prices from coming down to a place where supply and demand intersect. This is happening in the face of price gains never before seen. History shows a decades long trend of steady but modest gains in home prices. Now that the free market is naturally working its way back to that trend line, regulators want to halt it progress. They clearly want to have all the benefits of a free market but none of the risks.
And even in markets where prices have have substantial reductions, the longer-term trend still shows nice, if more reasonable price gains. Given this fact, the risks are still relatively modest. See December 3, 2008 blog posting.
The reality is that individual consumers are much more powerful than regulators. They will dictate the pace of housing sales and the gathering recovery more than Washington insiders.
When consumers see value they are jumping. Well priced homes in the South Sound, for example, are selling in record times and for nearly full list price. See our blog article of October 29th. By the same token, overpriced homes are languishing on the market.
In California, sales are up 12 percent over last year mostly due to consumers reaction to price drops from 30 to 40 percent. These gains in sales are happening mostly without the aid of regulators. Instead, pricing that is appropriately addressing the supply and demand balance is the leading factor.
The good news in the Northwest and here in the South Sound continues to be that our prices did not inflate as rapidly as those other troubled areas in the country. That means we did not see as many subprime, adjustable or interest only loans. The combination of these two factors as helped our market experience a more measured return to sustainable prices. As a result, mortgage modifications may well prove to be success here. In the meantime, consumers will continue to look for value and act quickly as it presents itself.
Mortgage modification is one of the techniques being pushed by members of Congress and some federal regulators to help stem rising foreclosures. The hope has been to offer more affordable rates to those who bought homes using adjustable rate mortgages. Those borrowers are now facing much higher interest rates than when they originally purchased.
The loan modifications are working to a degree, but the report shows that six months after modification almost 37 percent of those mortgages were 60 days or more delinquent.
This high rate of delinquency shows that the problem is more multi-facetted than regulators might have anticipated.
A straight mortgage modification might well work where the home owner purchased a home he or she could truly afford, in a market that has not rapidly declined. There are those situations out there.
There are also many circumstances where borrowers bought more than they could afford betting on appreciation that history shows we should not count on. Those people were having a tough time making payments even at the low teaser rates before the mortgages reset. In those cases, even a mortgage modification will not help.
In addition, some markets around the country have seen such significant reductions in home values. These were the markets that saw appreciation rates that were more than double the national average. They had nowhere to go but down after gains like that. Mortgage modifications there may help delay foreclosure, but many homeowners are asking why stay in a home that is now selling for 40 to 60 percent less than what they paid.
The defaults on loan modifications highlights one of the most overlooked problems with the bailout: prices on many homes in many areas simply need to come down. Any solutions that purports to address the housing crisis without facing this fact is igorning the laws of supply and demand.
Strangely, we do not hear regulators criticize the double digit percentage gains in prices that occurred during the boom years; yet they want to keep prices from coming down to a place where supply and demand intersect. This is happening in the face of price gains never before seen. History shows a decades long trend of steady but modest gains in home prices. Now that the free market is naturally working its way back to that trend line, regulators want to halt it progress. They clearly want to have all the benefits of a free market but none of the risks.
And even in markets where prices have have substantial reductions, the longer-term trend still shows nice, if more reasonable price gains. Given this fact, the risks are still relatively modest. See December 3, 2008 blog posting.
The reality is that individual consumers are much more powerful than regulators. They will dictate the pace of housing sales and the gathering recovery more than Washington insiders.
When consumers see value they are jumping. Well priced homes in the South Sound, for example, are selling in record times and for nearly full list price. See our blog article of October 29th. By the same token, overpriced homes are languishing on the market.
In California, sales are up 12 percent over last year mostly due to consumers reaction to price drops from 30 to 40 percent. These gains in sales are happening mostly without the aid of regulators. Instead, pricing that is appropriately addressing the supply and demand balance is the leading factor.
The good news in the Northwest and here in the South Sound continues to be that our prices did not inflate as rapidly as those other troubled areas in the country. That means we did not see as many subprime, adjustable or interest only loans. The combination of these two factors as helped our market experience a more measured return to sustainable prices. As a result, mortgage modifications may well prove to be success here. In the meantime, consumers will continue to look for value and act quickly as it presents itself.
Wednesday, December 3, 2008
Home Prices Around the Country
Federal Housing Finance Agency recently released pricing data for 292 metro markets around the country. The data reveals the price changes over three periods, including the latest quarter, the last year, and the past five years.
Of the 292 markets, Olympia ranks number 12 for price gains over the past 5 years. According to the study, our market stands at nearly 61 percent appreciation over that time. Six of the top 15 best markets are from Washington State (Wenatchee, Bellingham, Mount Vernon, Spokane, Bremerton, and Olympia).
On the other end of the spectrum, only 3 of the top 50 worst markets over the last year are outside the states of California, Nevada, Florida, Arizona and Michigan. Yet even with these poor markets, the average appreciation over the past 5 years in all markets combined is still a healthy 27 percent.
And this is with many of the worst markets are now bouncing from their bottoms (as evidenced by the pace of sales escalating). California, for example, which has many of the worst price performing markets over the past 12 months, has seen sales increase 12 percent year over year.
This report is fascinating in that it shows not just the bad with each market (253 of 292 markets lost value in the 3rd Quarter of 2008), but some of the good each has to offer. For instance, many news reports speak to how much California prices are falling. Bakersfield is, in fact, down almost 29 percent over the past year. That is not great. However, the market is still up 32 percent over the past five years. That is not bad. In real numbers, this would mean that a home purchased for $400,000 in the fall of 2003 is now selling for $527,000. This translates to a 5.7 percent annual appreciation. This level of appreciation is right in line with historical gains seen in most parts of the country (our market averaged 5.9 percent gains prior to our hot sellers market from 2003-2006).
However, facts like these are generally lost on the media. Instead, they report that the same house sold for $742,000 a year ago. And while this number is not to be trivialized, as many bought or refinanced with those inflated numbers, the majority of folks are nicely ahead of where they started (the average length in a home is 6 years, according to the NAR Survey of Home Buyers and Sellers, and 30 percent of homeowners have no mortgage at all).
As for Olympia, the fact that we rank so high on the report tells me at least two things. First, we did not fly as close to the sun. Our appreciation from 2001-2006 was 71 percent, while much of California, Nevada and Arizona were closer to 90-100 percent. As a consequence, our downward correction has not and should not be as sharp.
Second, we still have some price adjusting to do. Places like Bakersfield have normalized back to sustainable levels of price appreciation. Olympia still averages 8.75 percent annual appreciation over the past 5 years (our average price in 2003 was $188,870 and is now $286,187). So while we are close to normal, we are still a few ticks above our market's historically steady and sustainable levels of price appreciation. Once we get back to those levels, our sales overall will see a bounce.
In fact, we are seeing pockets of well priced homes move nicely. Comparing the 3 month periods ending October 31, 2008 and 2007, sales are up 17 percent in homes priced under $200,000. As I shared with you last week from a Real Trends article, "Any strong housing turnaround will start with recovery with entry-level buyers." History has proven this theory and we are starting to see it here. As a consequence, we are now seeing well priced homes in the trade-up price ranges sell. As more of those homes adjust their prices to better reflect the supply-demand balance, we will see even more of them sell -- just as we are seeing at the lower end of the market.
And while this discussion is about market-wide averages, it is important to remember that each home is unique and well priced homes in all price ranges are still moving. See our 10/29/2008 blog article for more information on that topic.
For a complete details of the FHFA market report, or any of the Coldwell Banker Evergreen Olympic Realty South Sound market reports, please feel free to contact us.
Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.
Of the 292 markets, Olympia ranks number 12 for price gains over the past 5 years. According to the study, our market stands at nearly 61 percent appreciation over that time. Six of the top 15 best markets are from Washington State (Wenatchee, Bellingham, Mount Vernon, Spokane, Bremerton, and Olympia).
On the other end of the spectrum, only 3 of the top 50 worst markets over the last year are outside the states of California, Nevada, Florida, Arizona and Michigan. Yet even with these poor markets, the average appreciation over the past 5 years in all markets combined is still a healthy 27 percent.
And this is with many of the worst markets are now bouncing from their bottoms (as evidenced by the pace of sales escalating). California, for example, which has many of the worst price performing markets over the past 12 months, has seen sales increase 12 percent year over year.
This report is fascinating in that it shows not just the bad with each market (253 of 292 markets lost value in the 3rd Quarter of 2008), but some of the good each has to offer. For instance, many news reports speak to how much California prices are falling. Bakersfield is, in fact, down almost 29 percent over the past year. That is not great. However, the market is still up 32 percent over the past five years. That is not bad. In real numbers, this would mean that a home purchased for $400,000 in the fall of 2003 is now selling for $527,000. This translates to a 5.7 percent annual appreciation. This level of appreciation is right in line with historical gains seen in most parts of the country (our market averaged 5.9 percent gains prior to our hot sellers market from 2003-2006).
However, facts like these are generally lost on the media. Instead, they report that the same house sold for $742,000 a year ago. And while this number is not to be trivialized, as many bought or refinanced with those inflated numbers, the majority of folks are nicely ahead of where they started (the average length in a home is 6 years, according to the NAR Survey of Home Buyers and Sellers, and 30 percent of homeowners have no mortgage at all).
As for Olympia, the fact that we rank so high on the report tells me at least two things. First, we did not fly as close to the sun. Our appreciation from 2001-2006 was 71 percent, while much of California, Nevada and Arizona were closer to 90-100 percent. As a consequence, our downward correction has not and should not be as sharp.
Second, we still have some price adjusting to do. Places like Bakersfield have normalized back to sustainable levels of price appreciation. Olympia still averages 8.75 percent annual appreciation over the past 5 years (our average price in 2003 was $188,870 and is now $286,187). So while we are close to normal, we are still a few ticks above our market's historically steady and sustainable levels of price appreciation. Once we get back to those levels, our sales overall will see a bounce.
In fact, we are seeing pockets of well priced homes move nicely. Comparing the 3 month periods ending October 31, 2008 and 2007, sales are up 17 percent in homes priced under $200,000. As I shared with you last week from a Real Trends article, "Any strong housing turnaround will start with recovery with entry-level buyers." History has proven this theory and we are starting to see it here. As a consequence, we are now seeing well priced homes in the trade-up price ranges sell. As more of those homes adjust their prices to better reflect the supply-demand balance, we will see even more of them sell -- just as we are seeing at the lower end of the market.
And while this discussion is about market-wide averages, it is important to remember that each home is unique and well priced homes in all price ranges are still moving. See our 10/29/2008 blog article for more information on that topic.
For a complete details of the FHFA market report, or any of the Coldwell Banker Evergreen Olympic Realty South Sound market reports, please feel free to contact us.
Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.
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