Continuing to examine and hold a lively discussion of the Northern Virginia Real Estate market.
Please post your local house search updates, MLS finds, on-topic ideas, and links here.
Interesting article in The Atlantic yesterday (2/3/11)"Ater an ugly housing market in 2010, 2011 doesn't look much better"Lots of discussion about DC. Good or bad news depending on where you sit.sorry no link (lame, lame, lame...)
WaPo Article: "Housing finance changes likely to mean less government backing for some buyers""In the District and most of its neighboring counties, home buyers have benefited from a temporary federal policy that has allowed mortgages up to $729,750 to receive government backing. Such home loans typically carry lower interest rates than those without government support, because investors are attracted by the official guarantee. The administration is now likely to suggest that Congress allow the policy to lapse as scheduled in September, lowering the loan limit to $625,500."I'll believe it when I see it. If it happens, it certainly won't help the market.
Thanks, Va_I, here's a link:Atlantic
Hmm, Mike, I'm not sure what effect it will have. I thought the original point of letting it go to $729K+ was to enable lenders to offer such loans at rates as low as those for smaller loan amounts, because of the FNM backing. But from what I can see, that didn't happen - lenders have charged a premium on loans between $417K and $729K all along (though not as big as that for loans over $729K). My guess is that banks were essentially pocketing the premium and people were trying to avoid taking out more than $417K where possible. I realize that the default rates might have been higher between $417K and $729K, making the higher loans riskier, but I would bet that is not true, empirically.
I thought you meant this one cherylBeyond Fannie/Freddie "here's also an emerging consensus about how this could be done. Last month, the conservative American Enterprise Institute put forward a plan (.pdf) to wean borrowers from Fannie and Freddie and foster private lending. It would do this by gradually lowering conforming loan limits and loan-to-value ratios, meaning that the mortgage giants would purchase ever smaller loans and require greater down payments. They would also start ratcheting up fees. Over time, Fannie and Freddie would purchase fewer mortgages and charge more to do so."if FHA were to be capped to 150K mortgages and Fannie/Freddie were to limit conforming to $429K which was the old limits, that would let Jumbo and the like become their own private market.Let the working poor, buy FHA at the bottom end, build some equity,and if their income increases they could move up.Higher debt limits just drove prices and shoved risk onto the taxpayers.
Ace: I’m not sure I understand what you mean when you say “I'm not sure what effect it will have.” I trust that you don’t think reducing the conforming loan limits will *help* this area’s market. Surely it will have some negative effect, or at least “not help” this area’s market, no?There may be a premium for loans between $417K and $729K today, but at least such loans are available. But, once you remove the guarantee for loans above $625K, will these loans be available at all? And, if they are available, what will they cost? Won’t these non-guaranteed loans require not only a substantial premium, but also a substantial down-payment (3.5% vs. 20%)? Won’t this necessarily reduce the pool of buyers? Remember, 95% of all mortgages today are Fed-backed. If there is a market for non-backed loans, it certainly is a small, expensive one. Having said all the above, let me say that I’ll be surprised if the loan limits are actually reduced. There are no doubt countless lobbyists (think NAR, NAHB) screaming bloody murder right now. The proposal’s fate will be determined by the great housing industrial complex that is our democracy.
Mike, It means, "I don't know what effect it will have." One possibility is what you mention--that it will have a negative effect and it could be a major one.But there is evidence that the change could have almost no impact at all, for the reason I gave earlier. You can get jumbo loans over $729K today, which aren't guaranteed, so why wouldn't it be reasonable to propose you could get them for over $625K if the ceiling drops? Just as importantly, or even more so, is that home prices have dropped substantially from peak in many areas around the metro area, though not in some neighborhoods, obviously. Since the median home price was the basis for the higher limit before, it stands to reason that fewer buyers will "need" such mortgages than during the bubble years. So I think "minimal impact" prediction is just as plausible as the significant negative scenario you described. And of course, "negative" is a relative term - if you are someone who owns a house that might be bought by someone who would like a cheap $728K loan, or if you are someone who wants a loan between $625K and $728K, the impact may be negative. How many people are in this category? And for everyone else, including those who believe that people shouldn't be encouraged to borrow that much money, and/or prospective buyers who believe that the availability of cheaper loans push prices upward, it may have what they consider a positive effect in keeping prices of higher end homes a tiny bit lower.
http://franklymls.com/DC7494378assessed at 349Ksells at 250K.
Ace said: "You can get jumbo loans over $729K today, which aren't guaranteed, so why wouldn't it be reasonable to propose you could get them for over $625K if the ceiling drops?"Yes, you can get them and they cost much more than conventional loans and, according to the article I quoted, require a 30% down payment. Wouldn't it be reasonable to suspect that the same will happen to lower amount loans, once the guarantee is removed. And, isn't it reasonable to assume that once you raise the entry-fee from 3.5% to 30% and jack-up the cost of borrowing money, that demand will drop. I didn't think my statement ("it couldn't help the market") was controversial. I didn't necessarily predict a "significant negative scenario," but to me, it is unreasonable to say that lowering the conforming loan limits will have "almost no impact at all." It likely will have the effect of reducing sales (it certainly won't increase them) and that is why the NAR/NAHB will scramble to defeat the proposal.
AnonWhat do you think is going to happen with the large percentage of homedebtors who are underwater?DC apparently is not immune to thehomedebt bubble, so will they stay drowning in debt? Will they drain reserves to cover the mortgage?Will they walk?
mike said t is unreasonable to say that lowering the conforming loan limits will have "almost no impact at all." It likely will have the effect of reducing sales (it certainly won't increase them) I don't think the prices will be helped as people have to throw down more money, but, volumes will increase.
Well, Mike, then there seem to be a pretty large number of "unreasonable" people commenting at WaPo in response the story you linked. Check them out if you don't believe me.Since you have no data about what the future holds, you may want to try being more open minded about the logic driving alternative predictions, and about different views concerning what constitutes negative vs. positive consequences for the DC market.
for anyone interested, a link to the WaPo comments:proposed jumbo limit changes
Ace: I think I am being open-minded. Please cite one example where carrying costs were increased and the entry fee was raised and this resulted in increased sales. I'm at a loss to come up with one example. Perhaps you can do better.
One last time:1) Sales and/or price increases for houses priced over $629K plus down payment (e.g., ~$680K and well above) are NOT everyone's definition of a positive outcome. Maybe they are for Realtors, and maybe for bankers, but not for many others. Therefore, even if this reduction effect were certain to play out (and for other reasons I have articulated, I think that is possible but that other scenarios are also possible). MANY people with different values from you, the Realtors, the banks, etc., would say they DISAGREE that "surely it will have some negative effect, or at least 'not help' this area’s market, no?" Many people do not agree that anything that will help prop up sales and/or prices at whatever cost to taxpayers is a good thing. I say this as someone who owns such a house and in whose self-interest it is to be able to have lots of buyers who have access to cheap mortgages. I suspect your self-interest is blinding you to considering other possibilities.2) By definition, changing an upper limit from $729K to $625K will not affect people who want mortgages less than $625K. This is the *vast* majority of home buyers and who will NOT have higher "carrying costs" unless other factors come into play.3) You are ignoring the possible effects of "carrying costs" on housing prices (e.g., $500K), which tend to be inversely related to the "carrying costs" you mentioned. If you and other buyers can get an exotic mortgage that enables you to borrow 10% more at the same time, then I can probably charge you more for my house. Your net costs may end up about the same. There is debate in the literature about exactly how this relationship plays out, e.g., with time lags and other variables that have to be taken into account. But to the extent that the higher costs of borrowing exert downward pressure on prices in this high priced range, the net cost effect is minimal.4) Prices have dropped in the DC area since the peak (which is what justified the $729K temporary maximum). Have a nice day.
should have said "at the same time and at lower interest rates"
mike says"Please cite one example where carrying costs were increased and the entry fee was raised and this resulted in increased sales. "I can point to lots of examples,they all involve prices declining.Mike thinks declining prices is bad,I think it's good. If prices fell to 2.1X household Income, Men could buy houses, start families and not be impoverished.
http://franklymls.com/AR7519223bought by some spanish woman in 05 for 439K, sold a year later for 450Kto another spanish guy, i suspect he was on a 5/25 Option ARM, the Arm Recast and suddenly he can't pay the note.so it's up for short sale.The property is a 3/1 rerigged to 5/3 it's a huge set of code violations and a mess. The structural issues worry me a lot.
Pat Your comment about men being able to buy houses and start families is very odd in an era when most houses are purchased by both men and women, and the women are generally working. Even in my bygone generation, my wife worked throughout our marriage and we had 4 children along the way. I have often thought your opinions on housing and the economy were odd, but it seems that those are not your only opinions in need of updating.
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