The Skinny

Let's Not Bash the Media Today, Okay?

For those that complain that we only hear negative news from the media, I offer this:

A big shout-out to Jim Tice who answered the call for TV time and to the homeowner who spoke directly to our talking points without any coaching from us (promise!).

FOX-9 TV kind of outdid itelf last night, continuing their lead-off 10 o'clock coverage of the real estate market with an informative piece on home loans. Check it out:

Leading off the nightly news with more than five minutes of real estate information that may actually be helpful to consumers? Not terrible.

The Hipponary Effect

With mortgage rates in serious decline and flirting with 50-year lows, there has naturally been an upswing in new mortgage and refinancing applications from consumers.

From a recent AP story on the subject:

Applications surged earlier this month to the highest level since July 2003, when refinancing activity boomed at the peak of the housing market.

More than 80 percent of applications came from borrowers looking to refinance at more affordable rates, the trade group said.

While only 20 percent of this recent upswing in applications has been caused by actual home purchases, we've seen a noticable bump in new pending sales since rates first dropped in early December. December's pending sales were up 21 percent over the same time last year, as our soon-to-be-released Monthly Indicators will tell you and our weekly numbers have been telling you.

Whether they're purchases or refinances, one thing is for certain: mortgage bankers are a lot busier this month than they'd anticipated. The always-great Alex Stenback from Behind the Mortgage chimes in with a new catch phrase for this trend:

There are fewer loan officers, loan processors, appraisers, title closers/examiners, underwriters, mortgage closers, than there were the last time we saw rates at these levels.  Documentation requirements are more strict, and every loan is subject to a higher level of scrutiny.  There is much fallout, which consumes already scarce “processing” resources.

This, of course, translates into increased turn times for newly originated applications.  And it will probably get worse.  Every day rates stay at these levels the number of days that elapse between the moment an application is completed and a loan is prepared to close goes up.

Anyway, we need a term for this.  We’re calling it the Hipponary effect, in that the lending industry right now has the mouth of a Hippo, and the digestive system (a$$) of a Canary.

So there you have it.

Alex will be a part of tomorrow's huge Residential Real Estate Summit we're co-hosting with the other three metro realtor associations begin held at the Earle Brown Heritage Center in Brooklyn Park. Don't miss it.

Register here or when you get there in the morning. See you tomorrow.

Mortgage What?

While speaking with the local media last week about our most recent press release, Kevin Knudsen, our 2008 President, informally asked the reporters he spoke with if they believed that current mortgage qualifying standards make it difficult for prospective buyers to purchase a home. Overwhelmingly, they responded "yes," with some believing a downpayment of at least 20 percent was an absolute necessity.

If the press believes mortgages are that difficult to obtain, the general public may likely (erroneously) believe this as well. REALTORS® must continue to promote the wide variety of mortgage options available to home buyers in this market to combat this misperception. Click here for an excellent post on the subject from local mortgage blogger, Alex Stenback.

Wall Street Journal: One in Six Homeowners "Under Water"

Here's some more great news for your Friday, as if this wasn't enough: one in six homeowners in the U.S. now owes more on their home than it's actually worth.

From a fascinating WSJ article:

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com.

The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."

This unfortunate trend is the likely culprit for the recent downturn in "traditional" listings (i.e. those offered by home sellers that aren't foreclosures or short sales). When your're fairly certain that selling your house will not only be difficult, but financially disastrous, you're more likely to hold off on trying to sell, no matter how much you might want to move.

It's hard to tell how dramatic the picture is locally, as the data for the Twin Cities "underwater" figure in the WSJ article simply says "NA." We can, however, take a look at the interactive map included to get a feel for the geographic picture. The entirety of Southern California and Southeastern Florida falls within in the  SCARY RED THINGS ARE TERRIBLE swatch, while Minneapolis is more like a slight orange hue things are pretty bad but could be worse vibe.

Graphic by WSJ.

The Future: A Total Crapshoot

Pending sales in the Twin Cities housing market have showed a year-over-year increase for two straight months—a notable and positive achievement that we've pointed out in a few spots before.

The question for today is whether or not this is going to continue through the remainder of 2008. Will sales remain robust, fall a bit, or fall a lot in the next 4 months?

Anyone who purports to have an exact answer to that question is trying to sell you swamp land. There are a ludicrous number of uncertainties swirling in the marketplace, perhaps historically so, which prevent anyone from being able to gauge with a high level of certainty where the housing market is headed in the near-term future.

For good measure, here is a list of all the current questions the housing market must contend with:

• How much impact has the sunsetting of the FHA seller-funded downpayment assistance program had on "last call" buyers? In other words, how much of the recent upswing is due to home buyers trying to take advantage of the waning days of The Last Zero-Down Loan Program Available? We should reasonably expect there to be some level of decline in sales when the program finally disappears on October 1st, but the question is how much.
• Are buyers taking advantage of the new $7,500 homebuyer tax credit? How many? Will the benefits of that program help pull in extra buyers this fall?
• Then there's that small little matter of The Economic Hiccup, and now the impending bailout of Wall Street. Needless to say, this has got consumers and investors a little shook. Consumer psychology will undoubtedly trend towards conservatism in the months ahead, as people look to protect their nest eggs rather than risk them. You better believe this will have some effect on whether or not first-time home buyers take the plunge into home ownership.
• Will the tumbling finance sector cause mortgage standards to tighten even further? There's some who say that's proved to be more myth than truth so far, but who knows what the future may bring if banks continue to pile on heavy losses.

All of this is simply to say that the crystal ball on Twin Cities home sales this fall is decidedly cloudy at the moment. Feel free to share your opinion on whether or not sales will continue their nice little streak in the comments section.

Mortgage Standards Continue to Tighten

A phenomenon that consumers, lenders, bankers and Realtors alike are experiencing on the ground gets a 10,000 mile view from the Strib, along with the requisite human interest angle:

...so when they backed away from a complicated deal in which they tried to buy a house from a borrower who owed more than the house was worth, they thought that getting a mortgage on another, less-expensive house would be a breeze, as they had already been approved.

They were wrong. Between canceling that deal and finding a new house in Golden Valley, the mortgage markets continued to unravel, access to credit tightened and the lender who had approved them several months earlier was now asking for a bigger down payment and more detailed documentation, including photocopies of their Social Security cards.

"I was almost on my way to the doctor to get a finger pricked to give blood," Jeff Prottas said.

Obviously, the tightening of lending standards and new restrictions to that "giant pool of money" we all used to so happily wallow in are going to have some significant short-term effects on the housing market. Recent policy changes like FHA's forthcoming removal of seller-funded down-payment assistance on October 1st will have consequences on buyer activity and home sales.

Some argue that at a crucial turning point in the market where prices are falling low enough to finally encourage some buyers to enter the market, this is exactly the type of change we don't need.

Others argue that it's about freakin' time that lenders and consumers once again approach their two-way financial tango with some legitimate fear of risk.

What do you think?