Tag Archives: housing values

Mortgage interest rates may be really low but only a few will qualify

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You may hear a lot of ads for refinancing your mortgage because of historically low interest rates. But, only a small number of people searching for prime mortgages will qualify for the really low rates:

Have a look at a key detail about the criteria for mortgage quotes from which Freddie derives its weekly mortgage interest survey:

The survey is based on first-lien prime conventional conforming mortgages with a loan-to-value of 80 percent…

But the second criterion is even more significant. Let’s say that you have a house worth $200,000 and a mortgage balance of $175,000 that you want to refinance. Your loan-to-value ratio would be 87.5%, so you wouldn’t be included in this average. You might manage to achieve a low rate, but someone with so little equity shouldn’t expect to necessarily achieve rates near this average.

So those qualifying for these ultra-low rates must have pretty spotless credit histories and a pretty significant chunk of equity. That excludes anyone underwater or even slightly above water. And unfortunately, they’re the ones who would benefit most by refinancing. According to real estate analytics firm CoreLogic, about three-quarters of underwater borrowers have mortgage interest rates above 5.1%.

So the low interest rates only really help people who don’t need the help as much? Not much relief then for people looking to lower their payments and perhaps stay in their once-overvalued houses.

This reminds me of an issue that has kind of disappeared from the national news: what about plans to adjust mortgages? As long as the jobs situation remains difficult, have government programs and mortgage lenders made changes so that a good number of people can stay in their homes?

The “suburban depression”

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The ongoing economic crisis has hit a lot of sectors of American society. Some new data suggests the economic crisis has particularly hit the suburbs, the proverbial “land of milk and honey” in American life:

There has not been so large a portion of Americans in poverty since 1993. But this time the growth in poverty is different, hitting whites and suburbia harder than it did during the early 1990s slump…

The suburban poverty rate is 11.8 percent, a level not seen since 1967…

A key factor in the rise in suburban poverty may be the fact that the housing market has played such a central role in the economic slump.

Many suburbs have seen a vast amount of wealth erased by declining housing markets and mortgage foreclosures, resulting in a great deal of economic dislocation. Since white Americans are more likely to own homes than African Americans, this could also explain why whites have fared worse than they did in the 1990s while African Americans have fared better.

The interpretation here is that with homes losing a significant portion of their value, an investment vehicle that many suburbanites had relied on has proven to be a hindrance instead. I would want to see more data: how does the growth of the poverty rate in the suburbs compare to cities and rural areas? If you look at the Census 2010 figures, the poverty rate for central cities is 19.7% (14.8% for metropolitan regions) and it is 16.5% outside of metropolitan areas. While falling housing prices may be part of the problem, what about jobs – are a higher percentage of lost jobs suburban jobs? I haven’t seen anyone write about this jobs link.

This data also affects two other larger ideas narratives about suburbs:

1. Life in the suburbs is not supposed to get worse; rather, it is supposed to always get better. Have we simply reached the point where the standard of living and incomes simply can’t rise much more?

2. There is evidence from recent years that more poor people live in the suburbs than in cities. While the percentages of poor people are lower in the suburbs, the absolute numbers are higher. This is part of a growing trend: the suburbs aren’t just (and never totally were) where wealthy whites can live.

With banks and lending institutions owning so many homes, housing values will be lower for several years

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Foreclosures are not just an immediate problem; the New York Times reports that the number of foreclosed homes now owned by banks and mortgage lenders are likely to depress the housing values for years to come:

All told, [banks and mortgage lenders] own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months…

Over all, economists project that it would take about three years for lenders to sell their backlog of foreclosed homes. As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy.

Not good news for those who want to sell a home in the near future. It is interesting that we now hear very little about this at a policy level. There are certainly other important pressing issues in the world (jobs, gas prices, military actions, Republican candidates for President?) but housing values affect a lot of people.

At the same time, I have heard and seen new advertisements from the National Association of Realtors. I wonder why they are running these ads now: are they worried that more people will rent rather than buy? Is there an uptick in the number of people who are trying to combat lower housing values by selling the home on their own? Do they feel that there might soon be changes in public policies, perhaps through measures like limiting or getting rid of the mortgage-interest deduction, that would limit the government’s promotion of homeownership? And interestingly, these advertisements have stressed that homeownership helps create jobs.

Housing prices dropping in places where it wasn’t supposed to keep dropping (like Seattle)

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It has been well-documented that the housing crisis has had a strong effect on places like Las Vegas and much of Florida. But this report suggests the drop in housing prices has spread to places once thought to be immune to these drops, such as Seattle:

Now, though the overall economy seems to be mending, housing remains stubbornly weak. That presents a vexing problem for the Obama administration, which has introduced several initiatives intended to help homeowners, with mixed success.

CoreLogic, a data firm, said last week that American home prices fell 5.5 percent in 2010, back to the recession low of March 2009. New home sales are scraping along the bottom. Mortgage applications are near a 15-year low, boding ill for the rest of the winter.

It has been a long, painful slide. At the peak, a downturn in real estate in Seattle was nearly unthinkable.

In September 2006, after prices started falling in many parts of the country but were still increasing here, The Seattle Times noted that the last time prices in the city dropped on a quarterly basis was during the severe recession of 1982.

Two local economists were quoted all but guaranteeing that Seattle was immune “if history is any indication.”

A risk index from PMI Mortgage Insurance gave the odds of Seattle prices dropping at a negligible 11 percent.

These days, the mood here is chastened when not downright fatalistic. If a recovery depends on a belief in better times, that seems a long way off. Those who must sell close their eyes and hope for the best.

It doesn’t sound good for sellers in a lot of places.

It would be interesting to know more about why certain cities were thought to be immune. I can think of a few explanations off the top of my head: certain markets didn’t experience a big boom in prices in the 1990s-2000s so there wasn’t much room for prices to drop; certain areas attract jobs and employees so there will be more people always look for housing; and certain didn’t experience building booms so there isn’t a glut of houses or units to be sold. Does one of these explanations fit Seattle?