Help from the Government?

President Obama has proposed some new rules that would allow homeowners to refinance in many cases where that has not been possible up until now.  The main hurdle has been the appraisal--often, homeowners who have the ability to pay have not been able to take advantage of lower rates, because their homes are "underwater" (worth less than the mortgage, or worth less than the amount that they could refinance for).  His proposal would allow homeowners who are current on their mortgages, and have been for the last six months, to refinance without an appraisal (it does say "in most cases", and I'm not sure what that means).  His stated goal is to lower people's monthly payments and free up the extra cash to circulate into the economy and improve sales of other goods and services.

I see two problems with this.  One is that such homeowners would be allowed to convert their loans, at their option, into 15-year mortgages.  Since such a move would raise, rather than lower, their payments, I fail to see where the extra cash goes into anything except a different loan.  Secondly, the idea that banks are being told to refinance without qualifying appraisals seems ironic.  Isn't that supposedly how we got into this recession in the first place?  So, we tell them to make loans that don't meet the criteria that we just tightened?  And, if those loans go bad, and we can't blame the banks and their greed, whom do we blame?

It's clearly frustrating for good credit risks to lose out on lower rates because they are paying their mortgages regularly, and I understand that.  Somehow, though, the whole program has the ring of having started with some White House staffer complaining about not being able to refi his/her house, and then letting policy people hash out a compromise so that the banks would be happy with the result.  It seems to me that we have done that too often already.

Mortgage Woes

There has been a lot of talk about how low mortgage rates are today--the lowest in memory--but much less talk about how hard they are to get approved.  We have found that buyers may wait for weeks with promises of commitment, only to be told after a long period of time that they are being denied.  The annoying part--actually, make that one annoying part--is that the denial is frequently for something that you would have thought that the bank had known all along.  This is true of delays as well.  We have had closings delayed multiple times, with some delays being for things that should have been settled well in advance. 

I suspect that some of the problem lies in confusion at the banks, and probably understaffing.  The bigger issue may be that no one has the authority to pull the trigger on anything, so things have to wend their way up a ladder of approvals.  Just to be clear, all of the blame does not belong with the banks.  Governmental changes in policy have caused all kinds of changes, and sometimes at the last minute.  The feds are always trying to protect us against the last problem, so many of the rules seem largely unnecessary.  This is one of the situations where we can groan when we hear that "we're from the government, and we're here to help you."

Buyers can contribute to the delays also.  Anyone who has gotten a loan in prior years may be amazed at how much information is demanded on today's applications.  Some people waste time trying to argue their way out of requirements.  Since most are imposed on the banks, as opposed to by the banks, this is a delay not worth taking.  The one I hear frequently is this:  "I don't need to get a loan.  I could pay cash.  If they just look at my bank balance, they won't ask for all this paperwork."  Not true.  Get over it, or go ahead and pay cash.

The statistics from the CT Multiple Listing Service show closing times of around 60 days.  That's not so far from the 30 to 45 days of the past, but should be noted, especially as almost 40% of sales are for cash these days, and therefore have no delays.  The time frames may get worse as we near the holiday season, so plan ahead to avoid disappointment. 

Financing Woes

There has been plenty of discussion about what's wrong with the real estate market. We've been through a few years where the focus was on what was wrong with the banks, and the government put in a lot of money to make sure that the problem got fixed. Somehow, the banks are now rolling along with big profits. It would be too much to say, however, that they are rolling along just as they did before. There are numerous new rules and regulations, intended to prevent the same thing that happened before from happening again. This time, though, it is the same taxpayers who paid the bill for the last fiasco who are being harmed. The banks are passing the consequences of those new rules along to the consumers. I'm not saying that this is necessarily wrong, but what's happening is that real estate is suffering, perhaps disproportionately, for what went on with the banks in 2008 and 2009. Where before people could, and did, finance 97% of the purchase price of a home (yes, that was the median financing amount in the boom years), now they have to put down 20% in many cases. So, of course, real estate sales have slowed.

The answer is not that we should all go back to financing the whole cost of a real estate purchase. However, our economy will clearly not recover until people have jobs and until real estate, which represents the biggest asset class most people own, bounces back to normal. Not where it was before, but to normal--that's all we're asking. In order for that to happen, we cannot spend all of our time trying to fix the last problem, and we may have to put in some money and effort to boost sales through this period. It's not enough for banks to make money again. The whole system is bogged down, and it has to be jump-started. Now.

Housing Market Latest Reports

The year 2010 saw a real estate boom but the beginning of 2011 shows that the market again towards a downtrend. Update on the situation.

The balance of the year 2010 was marked by a strong rebound in property prices. A rebound confirmed by data from notaries in France. Thus on average, house prices have risen more than 8% in France.

These data continue to be analyzed and gives new information especially on the situation in the third quarter of 2010.

Location of apartment prices

For this period and year over year, home prices marked a rise of 8.5% yoy in the third quarter. But be careful, the situation is heterogeneous between a province sees increase its rates by 5.2% and peers more than 12.2%.

Location of house prices

As so often, the house price reacts differently collective dwellings. This is the case once more. Houses rose by 8.7% on average nationally, but with a nice 9.1% in the provinces against only 7.6% in Ile de France.

These data are interesting and clearly shows the interest of looking at the data in detail. In the case of a national average slightly lower parts of the country have been in sharp decline and others increasing.

The year 2011 marks the beginning of change

While statistically the price of housing in France is generally increasing (mainly due to the Paris region), some regions have already begun a process of decline. This is the case of Upper Normandy who comes in the last three months show a decline of more than 2%.

In addition, the real estate trend could change more broadly at the national level, leaving only the Paris region to rise. The first factors are expected to decline already at the rendezvous. For example, the return of higher mortgages. Loan brokers are finding that credit rates have already risen by more than 0.45% over the last two months. Some even predict an increase in appropriations of 0.5% in the next six months. The situation tends to the housing market nationally.

Factors of decline in the property market

Add to that a very unfavorable economic conditions with unemployment on the one hand that reaches just to stabilize at 9.7% in the third quarter of 2010. And above all, inflation is rising to iron some of which believes it will reach 1.5% in 2011. An optimistic forecast given the surge in raw materials such as grain or oil.

This inflation will also serve to strengthen the higher credit rates . Indeed, the governor of the European Central Bank (ECB), Jean-Claude Trichet, monitors inflation and could quickly increase the rate of the ECB to limit it. Must remember, this rate determines the cost of borrowing money from banks to the same central bank. The commercial banks will pass on the increase so future borrowers.

Finally, another negative factor is the reduction of the tax exemption Scellier which should slow down a bit more buyers.

Finally, 2011 should advertise the market hard and the balance of the year will be in the best conditions, probably a slight decline in prices and volumes. In a more pessimistic, some already announcing an upcoming real estate crash .