Mortgage-Rate Hike May Impel Buyers

A spike in mortgage interest rates that’s putting new pressure on home owners with costly subprime loans may also bring an unexpected boost to the market as buyers rush to beat more rate hikes. “Some people have been on the sidelines waiting for rates to start rising or waiting for home prices to drop,” said Keitaro Matsuda, senior economist at Union Bank of California. For “people who have the means to be in the housing market but have chosen not to,” numbers from Freddie Mac showing an upward surge in mortgage rates two weeks ago may prompt them to re-enter the market, he said. But some real estate agents say it is a buyer’s market, with housing inventories high and interest rates still near historical lows and they don’t expect consumers to be scared by a quarter-point increase in mortgage rates. At a recent open house in Rancho Peñsaquitos, for example, shoppers were calm and unhurried. “Our time is flexible because we’re renting," said Iwan Thomas, 31, of University City, Calif. “We’re hoping to find something in the next two or three months, but we can wait that much or longer.” Checking out a 1,160-square-foot restored Craftsman-style home in Normal Heights, Calif. priced at $570,000, Rich Guerena, a 28-year-old architect, said that he and his wife were “not desperate” and could delay a purchase “even if it takes till the end of the year for the right price and value.” Rising interest rates are prompting him to consider fixed-rate loans with 100% financing, as long as the monthly payment stays close to $3,000. (www.signonsandiego.com)
San Diego Union-Tribune (6/20/07); Emmet Pierce and Roger Showley

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Out of Touch With Realty Reality, Most Americans Don’t Seem to Believe There’s a Serious Housing Slu

In a nationwide telephone poll conducted by The Boston Consulting Group, a business and management strategy firm, 55% of those surveyed were confident that their home continued to increase in value compared with a year ago, although that doesn’t jibe with the findings of most home-price indices, which point to about a 2% decline nationwide in median single-family prices. “Americans are positive about their homes’ value and believe in a bounce-back in residential real estate overall,” said Michael Silverstein, a senior partner at the company. Seventy-four percent of the survey respondents said they were confident that they could sell their home within six months at the price they think it’s worth. Looking ahead, 85% said they believe their home will rise in value during the next five months, and 63% believe a house is a good investment. Most home owners (76%) said they have not pared back their consumer spending in response to current market conditions, and a majority — 52% — said the current housing slump would end within two years. (www.cnnmoney.com)
CNNMoney (6/21/07); Les Christie

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Reality Check: U.S. Subprime Woes May Hit New Home Sales, Builders Say

Amid the rash of subprime mortgage defaults, lenders have begun to tighten credit terms for alt-A and prime loans, said Bernard Markstein, NAHB’s senior economist, and potential new-home buyers who had shopped on the basis of a pre-approved loan amount now often find that their formal mortgage applications are approved only for lesser sums or at higher interest rates. The result is that potential buyers either walk away from purchases or sign deals for less expensive homes. Contract cancellations as a percentage of backlog had improved slightly just prior to the subprime crisis, he said, then stalled at a high level. “The Fed’s point of view is that it’s well-contained,” Markstein said of the subprime effect elsewhere in the housing market and the economy. “We’re not so sure of that,” he said. John Johnson, chief executive of Houston-based national builder David Weekley Homes, said tightening credit has begun to affect all of the company’s markets, and the subprime ripples of more inventory and fewer buyers have broadened as the year has progressed. Johnson described what he called a “domino effect” of the subprime situation. Stricter lending requirements have hampered some customers’ ability to buy new homes and to sell their existing homes, while defaults and foreclosures have resulted in higher inventory overall. “In both ways, it’s extending the oversupply for longer than we had thought.” Weekley is seeing flat or falling sales in Florida, Denver, Dallas, Atlanta and Phoenix. Bright spots include the Texas markets of Houston, Austin and San Antonio; Raleigh and Charlotte, N.C.; and Charleston, S.C. (www.marketnews.com)
Market News International (6/15/07); Claudia Hirsch

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Construction Job Losses May Be Understated

In a report from the Anderson Forecast at the University of California, Los Angeles, economist Jerry Nickelsburg points to a statistical anomaly in which employment in residential construction appears not to be falling in the midst of the current industry downturn. The most likely explanation is that the data is missing the unemployed workers, the report says, and that the hidden, undocumented workers who have been an important force are not appearing in the data. At the Pacific Coast Builders Conference in San Francisco last month, panelists focused on the importance of immigrant laborers to the home building industry. “In California, Nevada, Arizona, Colorado, Texas, Georgia, Florida and Illinois, immigrant labor (overwhelmingly Hispanic) represents anywhere from 30% to 50% of the construction workforce,” said one speaker. “As Congress considers legislation that could dramatically disrupt immigration flow, the potential consequences are enormous — shrinking the labor pool, driving up wages and reducing demand for new homes.” (www.inman.com)
Inman News (6/21/07); Glenn Roberts, Jr.

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Passing the Sniff Test; What You Can’t Smell Can Sour a Deal for Buyers Who Can

How a place smells is not usually at the top of house-hunters’ minds, but when they detect an odor they don’t expect, don’t like or don’t recognize, it can alter their mood and influence their buying decisions. In an unscientific National Association of Realtors® survey a few years ago, agents cited the smells of tobacco, mildew and decay among the top deal-wreckers. About 60% of them singled out pet odor as the one most likely to kill a transaction. Pamela Dalton, a research scientist at the Monell Chemical Senses Center in Philadelphia, said that cat urine is especially difficult to remove because it contains sticky sulfur molecules that are easily embedded in floors, wallboards and other surfaces. “The holy grail of odor counteraction is how to get rid of cat urine, especially from male cats,” Dalton said. “Their urine is much smellier.” (www.washingtonpost.com)
Washington Post (6/23/07); Dina ElBoghdady

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Mortgage Forms Sow Confusion

In a study involving 819 recent prime and subprime mortgage customers in 12 locations around the country, the Federal Trade Commission found that, using current truth-in-lending and good-faith-estimate disclosures: nearly nine out of 10 borrowers could not identify the correct amount of upfront charges on the loan; four out of five had trouble understanding why the stated interest rate on the loan note was different from the annual percentage rate highlighted in the truth-in-lending disclosure; two-thirds did not spot a substantial penalty for refinancing within the first two years of the loan; and nearly a quarter could not correctly identify the total amount of settlement costs. Many borrowers had loans that were significantly more costly than they believed, the researchers said, and borrowers often had no idea of their loan costs or terms until they went to closing. The bottom line is that “current mortgage disclosures fail to convey key mortgage costs and terms to many consumers, leaving them susceptible” to bad deals, overcharges, loan payments that explode on them and “deceptive lending practices,” the authors wrote. (www.washingtonpost.com)
Washington Post (6/23/07); Kenneth R. Harney

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