First Rung on Property Ladder Gets Harder to Reach
Headlines about skidding home sales and prices portray a buyer’s market for real estate. But for first-time buyers, the market is more challenging now than at any time since the early 1990s. Rising mortgage rates have eroded almost all the financial relief that buyers might have derived from the slight decline in prices in most areas. On top of that, lenders are now demanding that customers produce larger downpayments, more cash reserves in the bank, higher credit scores and less debt — all of which many first-time buyers lack, especially in high-cost states such as California, New York and Florida. As lenders raise their standards for borrowers, the squeeze on first-time home buyers is constricting the broader real estate market and slowing the recovery because about one in three homes sold last year went to a first-time buyer. As these first-timers are shut out of the market, sellers ready to move up to bigger houses have a harder time selling their homes. In Miami, for example, where the median-price home has catapulted from $155,000 to $400,000 since the beginning of 2003, the demand for starter homes has largely dried up. Even though for-sale signs are sprouting on lawns like dandelions after a summer rain, sales of single-family homes priced below $250,000 tumbled from March to May, compared with the same period last year, says Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors. (www.usatoday.com)
USA Today (7/16/07); Noelle Knox
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In Parts of the West, Housing Is Still Hot
While demand for homes has nose-dived from Florida to California, some smaller metropolitan pockets such as Salem, Ore.; Wenatchee, Wash.; and Provo-Orem, Utah continue to thrive and are among the few places in the country where housing prices are growing at double-digit rates. Population growth and job growth are two reasons, and most of these small to midsize cities weren’t a part of the original housing boom and speculation that followed, so many of them are playing catch-up. “The Pacific Northwest was a little bit late coming to the party,” said Andrew Leventis, a federal housing economist. “The extreme appreciation over the past five or six years in the country only just began in the Northwest a few years ago. In Wenatchee, Wash., a 30,000-resident town east of the Cascade Mountains, homes appreciated an average of 25% from the first quarter of 2006 to the first quarter of 2007, according to the Office of Federal Housing Enterprise Oversight. Fifteen of 20 metro areas with the highest rates of home appreciation in the country for this year’s first quarter are in Washington, Idaho, Utah, Oregon, Colorado and New Mexico. (www.indystar.com)
Indianapolis Star (7/22/07); Aaron Clark, Associated Press
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Housing Trends: Riskiest U.S. Housing Markets
Miami ranks first on Forbes magazine’s list of the nation’s riskiest real estate markets. The publication compiled the list by looking at the nation’s 40 largest metros and assessing which of them had the most strained lending conditions and were the most overvalued and likely to face downward price pressures. Following Miami are Orlando, Fla.; Sacramento, Calif.; and San Francisco. Many of the cities on the list — like San Francisco and San Diego — are traditional high fliers where speculators can still make money if they pick the right neighborhood or hit the price trough. Others, like Chicago and Phoenix, are generally stable markets that are currently under significant strains. Finally, some, like Cincinnati or Kansas City, are precariously teetering and not well equipped to handle further downturn. High adjustable-rate mortgage shares generally indicate unaffordable markets. The metros with the highest shares of ARMs, according to the National Association of Realtors®, are San Francisco, San Diego and Los Angeles, respectively. Loan-to-value ratios over 90% mean that buyers have little equity in their homes and are more likely to default or walk away from a mortgage. With a 39% share of mortgages with LTV ratios above 90%, Kansas City is particularly vulnerable. (www.forbes.com)
Forbes (7/17/07); Matt Woolsey
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Subprime Loans Kill Two Bear Stearns Funds
A meltdown in the subprime mortgage market has made the assets of two of Bear Stearns’ flagship hedge funds almost worthless. Both funds were squeezed after Bear Stearns made wrong-way bets on the home mortgage market and was caught as loans to risky investors began to default. The assets in one of the funds, which was worth about $638 million, are essentially worthless, while another at the end of April was worth 9% of its $925 million value in March, according to a document obtained by The Associated Press. The problems began when the funds’ assets — mostly securities backed by risky mortgages to investors with less than prime credit — lost value amid rising defaults in a persistent housing slump. Defaults have been rising quickly, and a large volume of subprime loans with variable interest rates are slated to reset at higher levels in the next two years. (www.usatoday.com)
USA Today (7/18/07); Joe Bel Bruno, Associated Press
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Making McMansion Owners Pay
At a July 10 meeting, county commissioners in Boulder, Colo. approved a system of development rights transfers designed to discourage the construction of McMansions. Residents planning to build or expand homes larger than recommended thresholds — 7,000 square feet on the plains and 5,000 square feet in the mountains — would be required to purchase additional development rights at prices determined by the market, which might be in the hundreds of thousands of dollars per property. Critical, aesthetic and media sentiment around the country has been against giant homes. Last month, Minneapolis approved caps on home sizes limiting them to 50% of the lot. (www.time.com)
Time (7/12/07); Rita Healy and P.G. Sittenfeld
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New Door Opens for Immigrants
The Hispanic National Mortgage Association is a major new funding channel connecting Hispanics and people from other communities with Wall Street and the global capital markets. Hispanic first-time buyers not only constitute a fast-growing segment of the market, but also can be among the most vulnerable to curveball pitches from subprime mortgage lenders and brokers. Many Hispanics, especially recent immigrants, have low credit scores — or not scores at all — and appear to be less creditworthy than they really are. They often don’t have credit cards or checking accounts. For many, their main credit-related activities — rent payments, utility payments, wire transfers to relatives in other countries — are never reported to the national credit bureaus. Loan officers often don’t look past the credit scores and tell applicants that the only way to buy a house is to sign up for a subprime mortgage with high fees, payment-shock rate resets and crushing prepayment penalties. The HNMA, which is based in San Diego and has joint venture-funding relationships with Deutsche Bank and Wells Fargo Home Mortgage, exists to change this pattern. It has funded about $300 million in new loans, and its target is $5 billion of nontraditional mortgages annually. (www.washingtonpost)
Washington Post (7/21/07); Ken Harney
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