Tuesday, February 3rd, 2009 at 10:46 AM
January Preview
The Pending Home Sales for December showed improvement, and Larry Yun at NAR mentioned how the best numbers were in the most affordable areas. He also said, “Significant uncertainty still clouds the housing market despite improved affordability conditions. For a sustainable housing market recovery and, hence, sustainable economic recovery, we need a significant housing stimulus and mortgage availability for qualified borrowers,” Yun added.
Apparently he and others have decided that their job is now to beg the government for handouts. He might get his government-sponsored lower mortgage rates, but do we need them?
I don’t think we do – I can live with 5.5% to 6% rates.
If Larry really wanted to have some direct impact on solving real problems, he’d be saying something about the jumbo financing – that’s where the trouble is brewing.
At least that’s what I thought before running the January numbers – here’s a preview of January’s closed sales of detached and attached homes in San Diego County, split into three categories; under $300,000, $300,000 to $600,000, and over $600,000:
(click on graph for clearer view)
The lower-end has been on fire lately, with sales under $300,000 almost tripling compared to January 2008′s number. Sales above $600,000 have continued their descent.
But an interesting uptick on the higher-end cost per square foot. I’m not sure exactly what to make of this, other than what’s selling are the most superior of the superior homes.
People with money are holding out for the very best, and though we may see the $-per-sf number somehow suffer along, the higher-end sales will be crippled without any change in the jumbo financing.
Larry, can you do something for us there? Can you pitch for the government to open up Fannie and Freddie to all loan amounts?
Posted on Tuesday, February 3rd, 2009 at 10:46 AM in Afternoon Data, Interest Rates/Loan Limits | 25 Comments » | 
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Sweet graphs.
I’m quite frankly glad taxpayers aren’t handing out loans for 600k+ properties. The 7% jumbo rates indicate the private sector knows how overvalued the high-end remains. If Fannie and Freddie jump in it will only delay the correction.
Jakob | February 3rd, 2009 at 11:08 amdelay the correction
I’m not sure about that – I don’t think today’s conservative buyers would buy a house just because loans might be a little easier to get. I think what we’re going through has left a real impression on buyers, and they’re only going to buy if they find the perfect match.
But if they find it, let the financing be available like it is for those around $417,000.
I’m fine if they do nothing, but they aren’t going to do nothing – they’re going to keep spending trillions like drunken sailors in hopes of landing the right fix.
If you’re going to spend trillions, at least use it where it can help, and it’s fair. The whole affordability thing appears to be working if sales have tripled and the average cost is $165/sf for houses under $300,000. But Yun keeps talking about affordability, and if anyone in the government is listening they might end up flooding the lower-end with help where the natural market appears to be doing it just fine.
Jim the Realtor | February 3rd, 2009 at 11:22 amJumbo Loans
While equities and the economy are reasons for slower sales, the rise in jumbo loan rates is another, says Greg McBride, Senior Financial Analyst at Bankrate.com. “More money down is the big reason people aren’t taking them out,” McBride says. “It takes good credit but you need 30 percent down or more and even those people are paying an interest rate of more than 7 percent.”
Bob Walters, Chief Economist at Quicken Loans also sees fewer jumbo loans being made. “Down payments have to be higher, credit scores have to be higher,” says Walters. People are getting hit hard from all sides and there’s less demand for more expensive homes.”
Real estate professionals agree that sliding markets and a ravaged economy are hurting prospective high-end buyers and sellers. And that means prices will likely decline even more before there is any recovery.
“Unless they are forced to move, they are staying put,” says Mary Cassidy, a licensed real estate broker in Bronxville, New York, a wealthy suburb of New York City that is home to many Wall Streeters. “People are not buying and people are not selling. When everyone’s uncertain as to whether they have a job, why go out and buy something?”
Nathan | February 3rd, 2009 at 12:22 pmI am against higher limits for Fannie and Freddie. I am still not convinced they have the fraud mitigation at acquisition to have tax dollars guaranteeing the loans.
Why in the world FNM and FRE do not create an appraisal team and make a rule, in order for us to buy the loan you need to use an appraiser randomly selected by the GSE is beyond me.
Further having the government buy down loans so rich people do not need to decide between a larger house payment and a new Lexus is not particularly appealing to me.
LV Renter | February 3rd, 2009 at 1:11 pmJtR, I love the blog and appreciate all the work you put into it. But I disagree with your thought on this one. 400k is more than sufficient for a starter home for first time buyers, even in very expensive areas. For the government to be subsidizing loan amounts any larger than that is just a giveaway. As a renter, I should not have to subsidize loans to people making three times my income on million dollar houses while I’m saving my pennies to buy a house in the 300k range. If people buying million dollar homes don’t have sufficient equity to make their loan amounts conform, they should be ok with paying rates a few points higher.
We already have enough tax policies distorting housing prices in this country. Let’s not subsidize the mortgage market for the upper 10% of home buyers too.
uber_snotling | February 3rd, 2009 at 1:19 pm1.) re: price per sq. ft. on the high end: Is this the “bottom” dropping out of the top end of the market (poorly phrased, but maybe you get the idea)? We saw something analogous two years ago, when median prices were up, but sales were down. Maybe now the market is laddering down, with the “jumbo loanies” falling out of the market, while the “I’ll pay for that with cash from my trust fund” hanging on relatively stronger.
2.) I have been saying for a while that cutting the jumbo max was going to hurt. By “hurt” I mean help return home prices to reality, not Realty.
We STILL seem to have this pervasive attitude that prices belong up where they were (and that government should keep them there). This is socialism, literally. If homeowners cut home prices so that buyers could afford to buy them without jumbos, I can predict what would happen!
Rational Expectations
Rational expectations | February 3rd, 2009 at 1:46 pmOh, I had a conversation with a friend this morning about the multitudes of bailouts. We came up with this one:
Priced to politics.
The value of something is what someone (in government) will pay for it!
Rational expectations | February 3rd, 2009 at 1:48 pmInteresting perspective, uber_snotling.
Anonymous | February 3rd, 2009 at 3:51 pmI’m all for lower rates, as long as you have 20% + skin in the game. That should be the deciding factor of the interest rates as well as loan amount. Why not have a 700k loan and a 400k oan both at 5-6%. At lower rates the banks still make money, especially in the first 5-10 years of how a loan is amortized. All homeowners then have a little more cash in their pockets which still allows them to go out for pizza and beer and shop at Home Depot on weekends. Keeps all the wheels of or society churning along vs. stalled currently.
doughboy | February 3rd, 2009 at 4:09 pmI agree with Jakob.
I am a potential 600K+ buyer, and I want lower prices, not easy credit.
W.C. Varones | February 3rd, 2009 at 4:47 pmWork with me here – I said I’d rather not do anything too. It’s Rob Dawg’s idea, I just stole it from him.
But the government isn’t going to stop – so at least if they’re going to spend trillions, let’s at least have it go to something that might have a chance at working. And Yun should beg for something specific, otherwise all he’s going to get is bonus money for bankers, and we know how much help that’ll get us.
The train is leaving the station – here’s today’s update:
WASHINGTON (Dow Jones)–A key Senate Republican proposal aimed at the ailing
Jim the Realtor | February 3rd, 2009 at 4:59 pmU.S. housing market would direct Fannie Mae (FNM) and Freddie Mac (FRE) to buy
up new discounted loans offered by mortgage lenders in a bid to stimulate
demand to clear the backlog of properties and assist owners struggling to keep
up with payments, aides said. The plan would create a temporary window
during which a federally subsidized rate of between 4% and 4.5% would be
available to all qualifying borrowers, and homeowners looking to refinance.
Senate Republicans plan to introduce the idea as an amendment to the economic
stimulus plan, which they say does little to tackle the root cause of the
troubled U.S. economy – the housing market. It would save the average
prospective buyer and homeowner around $400 a month, Republican aides said,
and would be capped at a cost to the Treasury of $300 billion
(Dow Jones Newswires 02:09 PM ET 02/03/2009)
I believe the Republic sponsored bill Jim just mentioned would also include loans up to 625K. . .I read something about that yesterday.
Mark in San Diego | February 3rd, 2009 at 5:11 pmAnything above that, I am afraid, smacks of the “corporate jet” crowd. . . the people in the midwest (like most of my family) have NO sympathy for people buying 800K places, when 200K buys a nice place in most of the country.
I, on the other hand, can’t live with 5.5%-6% rates. If you buy a house and it depreciates 20% in a year, your cost of carrying the mortgage is 25.5-26%. That’s an enormous cost by any historical measure.
greenlander | February 3rd, 2009 at 5:30 pmI think the increase in $/sqft at the high end is a move away from cheaper inland McMansions to more reasonably sized homes in better locations.
W.C. Varones | February 3rd, 2009 at 6:35 pmI said I’d rather not do anything too. It’s Rob Dawg’s idea, I just stole it from him.
Yeah sure, blame it on the kid on all the meds.
Seriously though, there’s an other way to look at this. Instead of $0-3, $3-6 and $6+ slice the data into three equal segments.
Rob Dawg | February 3rd, 2009 at 6:40 pmW.C. – I think you’re on to something there, the McMansions are the ones that seem to be the toughest to sell – especially on the small lots.
I spoke with a listing agent today who confirmed that her seller based his price strictly on his needs. He paid $1.25 in 3/08 and put in another $185,000, so he wants $1.4-something or he’s not selling. He’ll be lucky to get $1.2, but if some nut submitted a $1.3 offer he’d be dismissed as a lowballer.
It’s really sad that the level of agent competance is a regular deal-killer. I lost a $1.2 deal this week over $2,500. The seller had held out repeatedly on price, and when my buyer asked for a $5,000 credit in lieu of repairs, they COUNTERED with $2,500, and then added that they were going to take the flat screen TV that was attached to the wall.
We walked instead, and the listing agent can’t understand what happened.
Jim the Realtor | February 3rd, 2009 at 8:24 pm… especially on the small lots.
Ding, ding, ding! Tiny and/or overdeveloped properties are the new white elephants. Use caution going forward with $/sf.
… the listing agent can’t understand what happened.
Take a breath and understand that CDD (clue deficit disorder) is ultimately a self correcting syndrome. I’m actually more optimistic than I’ve been in a long time. We are finally in an environment where there are consequences.
Rob Dawg | February 3rd, 2009 at 8:59 pmI’m with you on cautiousness about $/sf, but the median price is worse, and the MLS won’t allow for any more detailed analysis.
The three equal segments is a nice idea, but I’d have to do it all manually – I don’t think they even allow for downloads.
I’m optimistic too, but feel sorry for the clients getting bad advice. This is a seller that was within two weeks of closing above $1.2 million, and last week a bigger house listed on the street for $1.099. He probably just saw $100,000 fly right out the window, but at least he still has his TV!
Jim the Realtor | February 3rd, 2009 at 9:22 pm1. Agree with W.C. Varones on the price/s.f. trend. As homes get larger, the price/sf tends to move lower (all else being equal).
I’m guessing people are foregoing the 4,000 sf McMansion on a 5,000 sf lot (and the high HOA and Mello-Roos fees with which they tend to be burdened), and instead buying the ~2,800 older-style homes in custom/superior tract neighborhoods with 1/4+ acre lots. This would likely make the price/sf trend rise.
2. Let’s assume the govt is going to artificially suppress mortgage rates (even more than they are already doing through the Fed’s qualitative and quantitative easing); for how long will they continue to throw taxpayer’s money at the already-bloated mortgage market?
What happens when (IF???) the govt steps out of the market and rates begin to rise? Prices (of debt and debt-dependent assets) and rates tend to move inversely.
This can’t be said enough: we need to get through the period of asset repricing/debt default as quickly as possible, or we will lengthen the duration of the recession, making a true depression much more likely.
CA renter | February 4th, 2009 at 1:53 amTo #5 above… The “rich” subsidize the hell out of everything else for those in lower income brackets. Remember who really pays the taxes.
Aztec | February 4th, 2009 at 10:23 amJust a note on the on fire less than $300K market. I have seen the same in LV and it was less than a year ago. If a 1,600+ sq ft home was less than $250K in Summerlin last Spring it received multiple offers.
Today that same home needs to be below $175 to receive multiple offers.
I also know of Realtors (Sorry your associated Jim) who amazingly have not run out the HELOC that are buying some of these low priced properties to flip. They are using their HELOC to pay cash, thinking they are getting a deal and they will find someone who needs financing and make a quick profit.
I do not know how much of that behavior is happening, but if it is looks like inventory will continue at elevated levels and prices will continue to fall.
LV Renter | February 4th, 2009 at 11:01 am“To #5 above… The “rich” subsidize the hell out of everything else for those in lower income brackets. Remember who really pays the taxes.”
Only the little people pay taxes.
BGinRB | February 4th, 2009 at 1:48 pmhttp://blogs.wsj.com/wealth/2009/02/04/only-the-little-people-pay-taxes/
Call it the “Bill Gates” phenomenon. Bill’s extraordinary wealth shifted the nation’s mean income for non-high school grads.
The current ebb tide simply amplifies the difference between real wealth and “apparent” wealth. Real wealth is not having to worry and buys what and when it wants, skewing statistics. Apparent Wealth are frauds now worrying much over their slapped together crapshacks (oops, McMansions) that never were worth the Alt-A loan they lied to obtain.
I expect the +$600k trend you observe will grow during 2009 as the market reveals who had real wealth and who was faking it.
Mike_S | February 4th, 2009 at 2:49 pmMake that non-college grads
Mike_S | February 4th, 2009 at 3:25 pmGovernment Loans…
Do you know if there are any other pages similar to this one?…
Government Loans | February 15th, 2009 at 7:56 pm