LoanCentral's Real Estate Lending Blog

Housing Appreciation for 2007

Rollover the above image for a larger graph.
Click on the graph to download a "Printable Version"

Download a short presentation on this series of informative slides explaining the "Subprime Meltdown". This is the first of several presentations to give you the background behind the turbulance in the housing market and the effects of the subprime on our industry.

Click on the image above to download this months current interest rate history graph from LoanCentral. Rates are at a two year low!

It's important for prospective buyers and sellers to keep things in perspective. First of all, over the past year or two, the current housing pricecorrection is most pronounced in the super-heated markets in California, Nevada, Florida and Arizona  - not here in Seattle. In most other markets, price declines have been very modest.

In Seattle – the market has definitelyslowed down. BUT… do you know what the rolling 5 years appreciation rate is? Try 65.7%  !!! The average annual appreciation rate was 8.4% each year for the past 5 years. Putting it in perspective again… if you had bought Microsoft stock in the early 80’s, and sold it at the first sign of a price drop – how would you be feeling about that now?

Homeownership as a long-term investment has a track record that is virtually unmatched by any other investment. This is OPPORTUNITY TIME !

Here’s some good news for area homeowners and home buyers:

Seattle was recently ranked FIRST out of ten cities in a list compiled by Forbes.com of the most stable housing markets in America.

1.   Seattle, Wash.

Median home price: $395,000

Annual price change from 2006: 8.9%

Projected price change to 2008: 3.09%

Seattle continually bucks national housing trends. Price appreciation in the Emerald City has been strong over the last six quarters. Besides a very low unsold housing inventory and a strong sales rate, there are very few non-conforming loans, which lessens the chance of widespread foreclosures and delinquencies. While the market is slowing, the strong lending situation and sales rate bode well for the market.

2.   Pittsburgh, Pa.

Median home price: $123,500

Annual price change from 2006: 2.7%

Projected price change to 2008: 3.37%

Pittsburgh's growth has been steady over the last year, and with low foreclosure projections based on the state of the local lending market, very affordable housing stock and relativelylow inventory, it can overcome the fact that its sales rate is 30th out of the 40 markets measured.

3 Columbus, Ohio

Median home price: $153,900

Annual price change from 2006: -1.2%

Projected price change to 2008: 3.49%

Columbus, like many other cities in Ohio, has witnessed adeteriorating subprime lending situation. While things aren't going to turnaround instantly--projections list Columbus as the 17th worst market fordelinquencies (out of 40)--the city's sales rate is picking up. Based onMoody's Economy.com calculations, next year Columbus should boast the eighth-fastest sales rate of the 40 markets examined

Many mortgage lenders are tightening thier underwriting standards which can make it much more difficult for potential borrowers to get approval for loans.

The new standards fall into the following areas, according to Wells Fargo & Co. and other large lenders:

• Ability to repay. Buyers are no longer being qualified at the low initial rate. They must qualify for the loan payments at rates equal to what the loan would be if it reset at a higher rate.

• Down payment. Lenders want buyers to put some money down, even as little as 5 percent or 10 percent. Loans for 100 percent of the price are very hard to get. LoanCentral still has some 100% financing options available but many of our investors have stopped offering this program. 

• Credit score. Credit scores range from the high 300s to the low 800s. Borrowers with a credit score above 680 are likely to qualify for a reasonable deal. Between 660 and 680, they may qualify, but the deal could be pricey. Potential borrowers with a score of 620 or less need to raise their scores before they can qualify.

• Income and income verification. Producing proof that a borrower has a job is key; “stated income” loans are much more difficult to get. Also lenders are unlikely to approve a loan in which the home buyer will spend more than 45 percent of his gross income paying off debt, including paying the mortgage.

13.2% Jump in the sales of new single-family homes... Wow, whats the real story - is it that good? Take a look at the new homes sales price. This is a clear indication that Builders around the country are discounting their current inventory to get it sold, not a turnaround for increasing inventory some are experiencing around the US.

This 13.2% increase is the biggest increase we've seen since 1993.

The 11.1% DECREASE in Median prices is the largest single month decrease in history based on information from the US Commerce department. April's median home price declined to $ 229,100.

Seattle and Portland are doing well. You wouldn't think so if you read last Sundays headline on the front page of the Seattle newspaper... "Seattle real estate goes from Sizzle to Simmer..." I actually read the article, and in a nut shell, our Seattle housing appreciation rates have dropped from 16% all the way to 13%. Forgive me, but the Seattle and Portland markets are the only two double digit growth areas in the top 42 metropolitan markets in the United States. Enjoy the growth and let's try to keep this slight correction under control in the media.

New Homes Sales Drop to Lowest Level in Nearly 7 Years

New home sales dropped in February to the lowest level since June 2000.

Existing Home Sales Continue to Climb in February

Total Existing Home Sales grew in February 2007
Seasonally-Adjusted Annual Rate: 6.69 million units

One Month Change: Up 3.9%

One Year Change: Down 3.6%

Total Existing Home Inventory was up as well

One Month Change: Up 2.9%

Supply at Current Sales Pace: 6.6 months

FORECLOSURES Climb in latest report...

The Top Ten Foreclosure Rates:

1. Nevada
2. Colorado
3. Florida
4. Georgia
5. Michigan
6. Tennessee
7. Ohio
8. Texas
9. Arizona
10. Indiana.

The number of national foreclosure filings was up 4% in February as Nevada reported the highest state foreclosure rate for the second month in a row with a 24% monthly increase from January.


A total of 130,786 foreclosure filings were reported during the month of February, down 4% from January’s revised total but still up 12% from February 2006.

The national foreclosure rate stood at one foreclosure filing for every 884 U.S. households in February, according to the foreclosure tracking company.

RealtyTrac considers default notices, auction sale notices and bank repossessions as foreclosure filings.

"Based on our numbers for the first two months of 2007, foreclosure activity is running at a rate that would project to a 33 percent increase over 2006," said RealtyTrac.

"It appears that as subprime and FHA loans default at higher than anticipated rates, and lenders tighten their underwriting standards, we're going to continue to see a spike in the number of homeowners facing foreclosure."

A 24% increase in monthly foreclosure activity kept Nevada in place as the nation's highest state foreclosure rate with for the second month in a row with foreclosure rate of one foreclosure filing for every 278 households

In February, Nevada reported 3,124 foreclosure filings, up 77% from February 2006.. Colorado followed with one foreclosure filing for every 345 households in February, a 9% month-to-month increase with 5,310 total foreclosure filings.

Florida foreclosures skyrocketed more than 63% with 19,144 foreclosure filings – the most of any state - reporting one foreclosure filing for every 382 households.

Did You Get Your Tax Deduction???

You don't know what you don't know", a saying popularized by Douglas Andrew of Missed Fortune fame says a lot. It is especially important with the tax professional-client relationship. If the client does not offer the information, the tax professional does not know to include the information in plans and if the tax professional doesn't know what the client's plans are he (or she) cannot help with the planning.

Specifically I am writing about the tax deduction for deferred interest in a paid-off Option ARM mortgage. This happens when the client pays less than the interest-only payment and the difference is added to the balance owed. I have been told by tax experts that this deferred interest is tax deductible when paid off on a refinance or a sale of the home. Obviously every situation is different and you should always speak to your tax professional to its applicability to your situation.

If the client does not tell the tax professional that the home has been sold or refinanced, the financing tool used was an Option ARM - AND the client made less than the interest only payment the tax deduction might be missed. A scenario that I ran recently for a client was that his $300,000 loan at 7.5% for 30 years with a minimum payment of 1.25%. The difference between the interest only payment and the minimum payment over 36 months was $31,508. This makes for a potential healthy lump sum interest deduction for the client if the tax professional only knew. The tax advisor is your friend - give them the tools that they need to help you. For more information on LoanCentral's "Tax Deduction" paper - click here.

Mortgage Fraud: $4 Billion and Rising

The FBI's estimate that mortgage fraud costs lenders $1.2 billion a year is off the market by more than $3 billion. And others say the cost could be even higher. Lew Sichelman takes a look at the numbers and the scams behind them. Full Story: Fraud: $4 Billion and Rising

From my perspective, the article is refreshing in that it does not lay all the blame for the current level of mortgage fraud at the feet of the lending or appraisal industry.

Ronald Frazier, president of LSI, and Arthur Prieston, chairman of the Prieston Group, give their thoughs on the causes of the unprecidented rise in mortgage fraud by title companies, commissioned loan officers, builders, and scammers.

Click here for the full story: Fraud: $4 Billion and Rising

NAHB Study Sheds New Light on Life Expectancy of Home Components

By any reckoning, a home is expected to last many years and serve several successive generations.

But what about the individual components that comprise the house?

How many years of service can a home owner reasonably expect from a roof or a door, a window or a whirlpool tub?

A new NAHB study takes some of the mystery out of the subject with the caveat that numerous factors, including use, maintenance, climate, advances in technology and simple consumer preferences can have a dramatic effect on product longevity. Go to the study (pdf format).

Economists See Possible Subprime Spillover
Wall Street Journal (03/16/07) P. A4 ; Izzo, Phil

A new WSJ.com survey of 60 economists reveals that 32 of the respondents believe that it is "very" or "somewhat" likely that the problems in the subprime-mortgage market will spread to the rest of the home-finance market.

However, by a 4-to-1 margin, the economists agree "that the worst of the housing bust is behind us;" and only 22 percent say the subprime problems have led them to lower their economic forecasts. "The underlying problem is not the subprime market perse, but the reset of large quantities of adjustable-rate debt--some of which is classified as subprime, some as prime--to higher interest rates in an environment of flat or falling house prices in most of the United States," writes Jan Hatzius, chief U.S. economist at Goldman Sachs, in a research note.

About 10 percent of homeowners could have ARM problems, data from the government's 2005 American Housing Survey indicates.

Wall Street Journal (03/19/07) P. A9 ; Hagerty, James R.

Looking at 8.4 million adjustable-rate mortgages written between 2004 and 2006, First American CoreLogic expects about 13 percent of them, or 1.1 million, to enter foreclosure once their interest rates reset.

While lenders stand to lose about $113 billion, analysts do not anticipate any harm to the national economy, as it will take six years to seven years for the scenario to play out. His estimate climbs to 1.9 million foreclosures in the event that the average home price falls 10 percent from its December 2006 level and drops to 489,000 foreclosures if the average home price jumps 10 percent.

The most vulnerable loans had initial "teaser" rates of less than 4 percent, with analysts expecting a 118-percent surge in monthly payments on those loans when interest rates adjust.

The Times stated that Fremont, a subprime mortgage lender has told 2,400 employees that they will lose their jobs in the next two months; and another struggling subprime lender, Ameriquest Mortgage Co., says it has returned baseball stadium naming rights to the Texas Rangers and that the facility will no longer be known as Ameriquest Field.

Subprime lenders continue to scale back their operations, shut down, or announce that they are up for sale; and more layoffs are expected in the near future, with New Century Financial, considered a likely candidate.

The Federal Reserve met and voted to leave the key federal funds rate at 5.25 %.

This important rate has remained unchanged now since last June. (6th time in a row)

Bernanke states the reason is weaker economic performance and higher inflation pressures. As it has at previous meetings, the Fed said it was more worried about the risk of inflation than weak economic growth. But this time it dropped language that talked solely about the possibility that interest rates would be increased in the future.