Headlines – Week of March 7, 2010

March 14, 2010

Best Locations for 2nd Homes

According to an article in Barrons, prices for primary residences, which plunged at least 20% from the peak in 2007, appear to have bottomed out. The article states that in some of the high-end locations, scattered bidding wars are breaking out and prices are turning upward.

Barron’s sized up the market for upscale second homes, one of the greatest luxuries in residential real estate. Prices are way down — 40% off the peak in some locations

Barron’s has selected the 10 best places in America for second homes; however, their selections are very subjective, the prices cited are based mainly on conversations with locals, not hard data and they admit that in many locations, the homes take some time to rise in value.

Here are their top ten markets for second homes:

Location Drop From Peak
1. Maui  27%
2. Kiawah Island, S.C.  21%
3. The Hamptons  30%
4. Park City, Utah  45%
5. Aspen, Colo.  6%
6. Pebble Beach, Calif. 20%
7. Palm Beach, FL  11%
8. Captiva/Sanibel Island, Fl  40%
9. Asheville, N.C.  38%
10. Gasparilla Island, Fl  18%

 Full Article

 It’s Not If Interest Rates Will Rise But When

According to Dr. Mark Dotzour, chief economist for the Real Estate Center at Texas A&M University, mortgage interest rates are low right now but don’t expect that to last.

Currently, Mortgage rates are currently at their lowest in the past 40 years. A review of average mortgage rates over the past four decades illustrates just how affordable current rates are.

Average Mortgage Rates

Average Mortgage Rates

Dotzour says that mortgage rates were low at the end of 2009 for two reasons.  First, the global consensus among bondholders appears to be that inflation will remain low in the United States for an extended period of time. This caused the ten-year U.S. Treasury rate to fall to between 3.2 and 3.6 percent for much of the second half of 2009.

Second, in 2009, the Federal Reserve Bank began an unprecedented purchase of nearly all the mortgage-backed securities issued by Fannie Mae and Freddie Mac in 2009 totaling more than $1 trillion for the year.  This program has only been extended through the end of March 2010.

As a result, when the Fed terminates its buying program many experts think that rates could move up one-half to 1 percent.

Full Article 

Rising Loan Defaults Challenge FHA

According to an article published in the Washington Post, the share of borrowers who are falling seriously behind on loans backed by the Federal Housing Administration jumped by more than a third in the past year, foreshadowing a crush of foreclosures.

The agency’s figures show that about 9.1% of FHA borrowers had missed at least three payments as of December, up from 6.5% a year ago.

The problems are rooted in FHA mortgages made in 2007 and 2008. Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made.

According to the article, if the trend continues and the FHA’s cash reserves are exhausted, the federal government would automatically use taxpayer money to cover the losses.  This would be a first for the agency, which has always used the fees it charges borrowers to pay for its losses.

Agency officials have announced higher qualifying fees for borrowers and the agency projected that the fees should generate $5.8 billion in fiscal 2011, up from $2 billion this year. That would help the FHA to cover unexpected losses.

Just about every major measure of the agency’s financial health is worsening as the number of loans in foreclosure were up 26 percent in the last quarter of 2009 from a year earlier.

Plunging home prices have exacerbated matters by leaving some FHA borrowers unable to sell or refinance their homes because they owe more than their homes are worth. Yet with unemployment running high, many borrowers can’t afford to keep up their payments.

Adding to the trouble was a previous FHA program that enabled sellers to cover the down payments of buyers. This meant many borrowers had no skin in the game and were more likely to walk away at early signs of trouble. The program resulted in excessive defaults before it was ended in late 2008, and it is projected to cost FHA an additional $10.5 billion in losses.

A recent audit, released in November 2009, found that the cash the FHA set aside to pay for unexpected losses had dipped to historic lows, well below the level required by law. As of September 2009, those reserves were estimated at $3.6 billion, down from nearly $13 billion a year earlier.

Last year, the agency banned 268 lenders from making FHA loans, more than double the total terminated in the previous eight years.

Full Article

Posted by Scott R. Lodde

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