Media Advisory 5/15/08

Thursday, 15 May 2008

The Associated Press

Median prices drop in many cities

Two-thirds of the nation’s 149 metropolitan real estate markets experienced lower home prices during the first quarter of 2008 – the largest number of declines ever reported – and 46 states saw declining sales, according to figures issued Tuesday by the NATIONAL ASSOCIATION of REALTORS® (NAR). Nationally, the median price fell 7.7 percent to $196,300 in the first quarter, down from $212,600 a year ago, while sales fell 22.2 percent from the first quarter a year ago.

MAKING SENSE OF THE STORY FOR CONSUMERS

The slowdown is most pronounced in high-cost markets. In the West, which includes California, the median price was down 12.3 percent to $296,300 compared with a year ago. That’s due, in part, to the limited availability of mortgage financing in response to the subprime mortgage crisis. NAR believes recent increases in Fannie Mae/Freddie Mac loan limits to encompass jumbo loans will improve the situation somewhat in the months to come, although qualifying criteria will remain stringent.
Home price and sales declines vary dramatically by neighborhood and are largely based on the extent of a neighborhood’s exposure to subprime mortgages. Neighborhoods with a high percentage of subprime loans are experiencing a higher rate of foreclosures, which typically drives prices down.
NAR emphasized that the average buyer today intends to stay in the home they purchase for 10 years, which should position them to receive long-term benefits from home ownership. Homes purchased six years ago, for example, would have increased in value by 23.8 percent over that period, based on the difference in national median price between the first quarter of 2002 and first quarter 2008.

To read the full story, please click here:

http://ap.google.com/article/ALeqM5hL1BztOWFNmmcLQ6aOP-BAz9FlMgD90KSLC00

The Economist

Map of Misery: America may well be only halfway through the house-price bust

Colorful maps of the United States showing the change in home values, foreclosures and other economic measures by state paint a clear picture of where the housing market has suffered the most severe declines. It is more difficult to visualize the extent of further declines before prices begin to stabilize or improve.

MAKING SENSE OF THE STORY FOR CONSUMERS

The impact of the housing downturn varies dramatically by region, with California, Nevada, Arizona, Florida, Hawaii and portions of the Midwest among the states showing price declines or no change between the fourth quarter of 2006 and the fourth quarter of 2007, according to the federal Office of Federal Housing Enterprise Oversight (OFHEO). Even so, some 13 states in the nation’s center experienced price increases of more than 5.47 over the same period and another dozen states showed increases of between 4.17 and 5.47 percent.
Assessing future price declines is trickier. Based on prices of futures contracts linked to the Standard & Poor’s/Case-Shiller index, investors expect a 20 percent decline in home prices. And Goldman-Sachs expects another drop of 11 to 13 percent based on a model that looks at home prices, disposable incomes and long-term interest rates – although that model suggests the decline could be as much as 25 percent or more for six states, including California.
A new study from the University of Wisconsin suggests that home prices need to fall by between 10 and 15 percent over the next 18 months for another measure, the rent/price yield, to return to equilibrium. From 1960-1995, that measure, which compares annual rents as a percentage of home price, ranged from 5 to 5.5 percent, but fell to an historic low of 3.5 percent at the peak of the market boom.

To read the full story, please click here:

http://www.economist.com/finance/displaystory.cfm?storyid=11333030

Los Angeles Times

In mortgage market, “walkaway” homeowners may be urban myth

True or false: More and more homeowners who owe more than their house is worth are giving their house keys back to the bank? While anecdotal evidence suggests that mailing the keys back to the bank is occurring, there doesn’t appear to be any evidence that the practice has become widespread.

MAKING SENSE OF THE STORY FOR CONSUMERS

Data on the number of “walkaway” homeowners is lacking. The Mortgage Bankers Association and major banks believe the practice is increasing but don’t have any numbers to back up this supposition.
Lenders suggest the practice is more prevalent among investors and “flippers” than among homeowners who live in their home. Bankers confirm that most borrowers are interested in working out a solution when they fall behind in their payments or when their home value is “under water” or their interest rate is about to reset.
There is no sign that walking away from a mortgage obligation is becoming more “socially acceptable,” observers say. Homeowners historically have been known to do whatever it takes to avoid losing their home to foreclosure.

To read the full story, please click here:

http://www.latimes.com/business/la-fi-walkaway11-2008may11,0,1641820.story

San Francisco Chronicle

Jumbo mortgage rates becoming affordable

In the past week, jumbo conforming loans have become almost as affordable as standard conforming loans thanks to higher loan limits and a drop in bank interest rates. That’s good news for high-cost markets and homeowners with equity in their homes who may be able to refinance to a lower-cost standard conforming rate. However, borrowers still face tightened lending requirements.

MAKING SENSE OF THE STORY FOR CONSUMERS

Last week, a 30-year fixed-rate jumbo conforming loan with no points averaged 6.125 percent, compared with 5.875 percent for a standard conforming and 6.75 percent for a regular jumbo loan. Jumbo conforming loans are used for home purchases between $417,000 and $729,750, while standard conforming loans apply to homes with a purchase price below $417,000. Conforming loans are those that meet certain underwriting criteria and can be guaranteed by Fannie Mae and Freddie Mac. A lower rate could save borrowers several hundred dollars a month in mortgage costs.
Both Fannie Mae and Freddie Mac require jumbo loan borrowers to make a higher downpayment (in the 10 percent to 15 percent range); require higher credit scores; provide income documentation; and typically have lower debt-to-income ratios than standard conforming loans.
Congress recently increased the maximum loan amount to 125 percent of an area’s median home price up to $729,750. The new higher rates were intended to more accurately reflect home prices in high-cost markets and to stimulate housing market activity by allowing lenders to package more loans for sale to Fannie Mae and Freddie Mac.

To read the full story, please click here:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/13/BUBV10L0PG.DTL

In Other News…

The New York Times

Mortgage holders find it hard to walk away from their homes

To read the full story, please click here:

http://www.nytimes.com/2008/05/10/business/10housing.html?th&emc=th

Nightly Business Report (PBS)