Three people have already sent me copies of the N. Y. Times’ article on lower loan amounts.

We’ve already covered it here, but let’s look at a simple comparison, using WFB rates at 1 point cost:

Monthly payments on $697,500 at today’s 4.625% super-conforming rate = $3,586/mo

Monthly payments on $697,500 at today’s 5.125% jumbo rate = $3,798/mo

Difference = $212 per month.

The actual difference is never mentioned in the article.  Instead, David the reporter (who I like a lot) published interviews with the typical bimbos.  Examples:

1.  “We’re looking at more price drops, more foreclosures,” said Rick Del Pozzo, a loan broker. “This snowball that’s been rolling downhill is going to pick up some speed.”

2.  Even those who bought ahead of the changes, scheduled to take effect Sept. 30, worry about the effect on values. Greg Peterson recently purchased a house in Monterey for $700,000. “That doesn’t get you a palace,” said Mr. Peterson, a flight attendant.  He qualified for government insurance, which meant he needed only a small down payment. If that option is not available in the future, he said, “home prices all around me will plummet.”

3.  “Reducing the limits will put more downward pressure on prices,” said the N.A.R. president, Ron Phipps. “I just don’t think it makes a lot of sense.” But he said that in contrast to last year, when a one-year extension of the higher limits sailed through Congress, “there’s more resistance.”

4.  Heidi Daunt, with Treehouse Mortgage, said loans too large for a government guarantee currently carried interest rates of at least 6 percent, more than a point higher than government-backed loans.  “That can definitely blow a lot of people out of the water,” Ms. Daunt said.

Blow a lot of people out of the water? 

It’ll cost them $212 more per month, or buyers can lower their purchase price by $40,000 and have the same payment as before.  If $212 per month ‘blows them out of the water’, then they shouldn’t be looking in that price range anyway!

Sellers aren’t going to care about lower loan amounts, they’ll shrug it off as nonsense.  When they really want to sell, then they’ll knock off the 10% to 20% extra pad in their list price that they’ve been sitting on all year. 

Of course, that’ll cause the pundits to race to the podium to declare victory once again, and point out that they predicted it.  But the main problem in real estate today is that the list prices are too high – not loan limits, weakening demand, or unemployment.

I spoke with Eric Wolff yesterday at the North County Times, and was reminded what all reporters are up against.  They want and need entertainment and sensationalism, because that’s what sells.  David’s quotes above sound a lot sexier than reporting a measly $212 per month difference, and the real estate ‘profession’ is happy to oblige with idiotic ramblings.

So to assist reporters with searching for the truth, here is the media press-kit guide to determine if a realtor qualifies to be quoted in the article being written:

1. Have you ever sold a house before?

2. Do you make a living by selling houses?

3. How many sales did you close last year? (62)

4. How many sales have you closed this year? (23)

5. Are you on the front lines talking to buyers and sellers every day?

For buyers and sellers who are searching for qualified realtors who can assist them with pertinent, valuable advice – use the same questions.

P.S. Here’s JtR’s rule-of-thumb: Buy at a price point where you are very comfortable financially, and can afford to spend an extra $500 to $1,000 per month on the house.  If you don’t spend that much some years, great, put it in savings.  But some years you will spend $6,000 to $12,000 on repairs, maintenance, and improvements, because there are no perfect houses.