Resets Peaking on Subprime Loans

The number of home owners facing an increase in their subprime adjustable-rate mortgage payments will peak this summer, testing the efforts of lenders and others to keep those people out of foreclosure and stabilize the housing market. The timing reflects the height of subprime lending in the summer of 2005 and 2006, when many borrowers secured loans scheduled to adjust in two or three years. For many, an adjustment means their interest rate will go up two to three percentage points. “The next six months, the industry, all of the folks that are out there trying to solve this problem, they are going to be very busy,” said Mark Fleming, chief economist for First American CoreLogic, a California research firm. “There are a lot of people facing their resets right now. A good share of them don’t have the refinance option.” Nationally, the number of subprime ARMs resetting peaked at 7.61% of the loans outstanding last month, according to data from CoreLogic. More than 300,000 such loans will adjust this summer. CoreLogic’s data covers about 80% of the mortgage market. ARMs facing resets drop off significantly early next year. By January, only 4.8% of subprime loans will face resets and by May that will fall to 1.94%. (www.washingtonpost.com)
Washington Post (7/1/08); Renae Merle

[Return to top]

Mortgage Rates Creeping Upward

With mortgage interest rates creeping back up, the wobbly real estate market could be losing one of its last pillars of support, and some experts say they are worried that rising rates threaten to prolong the housing crisis. The average rate on a 30-year fixed-rate mortgage edged up to 6.45% last week, according to Freddie Mac, compared with 5.48% in January. “For months, the only thing the housing market had going for it was that mortgage rates were low,” says Grey McBride, senior financial analyst at Bankrate.com. “With them going up to 6.5%, it’s like getting kicked when you’re down.” “In the next three months, I’d see rates rising only slightly, because the concern of inflation is already factored in to where they sit today,” says Cameron Findlay, chief economist at LendingTree. But in the next six months, Findlay cautions, rates could rise rapidly. “If we don’t have inflation under control by then, and there are still signs of inflation — the dollar’s continuing to be eroded, oil prices are still high — rates are going to be rising faster.” Still, Findlay and other experts suggest that home prices and credit availability will have more pull in drawing in buyers than mortgage rates will. Historically, he notes, even 7% is a relatively low rate. (www.usatoday.com)
USA Today (6/29/08); Anna Bahney

[Return to top]

Success in Being Small: Builders Stay Busy Despite Low Housing Market

A growing contracting business was the result of Josh Lessman, a former rodeo rider from Nebraska, and Kirk Ivankovich, a construction worker from Montana, being transplanted to Detroit Lakes, Minn. Six months after meeting each other about three years ago, they decided to go into business together as L.I. Builders, Inc. Their first project was a house on Cotton Lake in June 2006. Since then, they’ve continued to work on some custom homes, remodeling, garages and some commercial work. The upscale custom home market, however, is where they would like to find their niche. Lessman said they’re currently working on a custom home on Pearl Lake, and he’s been able to play “half-architect,” a job he says he enjoys. So how is their business, which has stayed busy through the last two summers and winters, flourishing with the recent downturn in the housing market? Detroit Lakes seems to be in a protected bubble, they said. Although they said they’re really only seeing new construction of custom homes from people “with money to spend,” the only thing that has really died is the developers and speculators that can’t sell the houses they build. Ivankovich said the up tick in business has been in remodels and additions. The two cite the benefits of being a small organization. They typically work with one other crew member and don’t have to worry about overhead management and can build closer relationships with clients. “We can handle the big jobs and we have what we need in equipment,” Ivankovich said. “We just don’t have the overhead.” (www.dl-online.com)
Detroit Lakes Newspapers (6/29/08); Courtney Sinner

[Return to top]

Housing Market Ripe for First-Time Buyers

The national housing market has been spewing bad news about foreclosures, dropping prices and a glut of homes on the market. But the bad news for the market could be good news for buyers, said Verna Saladino, a real estate agent with Coldwell Banker Success in Janesville, Wis. That’s especially true for first-time home buyers who don’t have to worry about selling their current homes. “There’s just great opportunities for a first-time home buyer in the area,” she said. “There’s great properties to choose from, and the interest rates are still phenomenal.” For buyers focused on foreclosed homes, Saladino cautions that while they might save some money, they probably will not get a bargain basement because banks know how much homes are worth, and while they want to sell the product quickly, they’re not looking to lose a lot of money. People who buy foreclosed homes should be prepared for some extra wait and work, she added. Banks have their own timetables, and they don’t have the urgency to close the deal that some sellers might have. And the bank doesn’t have the knowledge about the home that an owner would have. When you buy a foreclosed home, you’re basically buying it “as is,” she said. (www.gazettextra.com)
Janesville Gazette Xtra (6/29/08); Stacy Vogel

[Return to top]

Builders: Regulations Keep Suburban Home Prices Unreasonably High

Decades of regulations have smothered housing affordability. Cost estimates vary, but one study by Harvard’s Rappaport Institute for Greater Boston put the cost of regulation in Massachusetts at 30% of a home’s cost. In the past, when buyers wanted a certain type of home, developers built it, said Ed Goetz, professor of urban and regional planning for the Humphrey Institute of Public Affairs at the University of Minnesota. But now, thanks to regulations, they can’t. “This is not a free market,” said Goetz. Suburbs don’t respond to consumer demand because they fear density. Officials and voters see it as a step toward crowded, high-crime, inner-city neighborhoods. Instead, suburbs have building and zoning codes favoring large houses on large, expensive lots. In West Lakewood Township, Minn., for example, the average home sells for about $380,000, thanks in part to the requirement of multi-acre lots. “Go ahead. Ask around in the suburbs how much land they set aside for higher-density housing,” he said. “It will be in the single digits, if it’s there at all.” (www.twincities.com)
Twin Cities.com Pioneer Press (7/1/08); Bob Shaw

[Return to top]