Subprime Reality Check
The subprime problem is certainly serious, but it is a short-term problem, mainly involving mortgages originated during 2004-2006 and playing out over the next two years or so.
This issue will be mitigated by public and private efforts to help the families in distress. There is no reason for it to spread to the prime market.
Lenders are trying to work out a modified repayment plan if there seems to be a realistic chance that the borrower can catch up. In the FHA's experience, about half the borrowers in the program do become current within a year. If the lenders and the regulators follow through, they can ease the problem substantially.
We have been here before, and not that long ago. Delinquencies and especially foreclosures on prime mortgages remained low during 2000-2002, consistently around 1% for serious delinquencies and 0.2% for foreclosures. The subprime spike had no impact on the prime market then. There is no reason to expect one this time. The delinquency rate has again been stable, so far, while foreclosures have edged up to 0.25% from 0.2%.
Loans originated in 2003 and earlier pose no unusual problem.
Homeowners who are able to make their payments are not going to lose their homes because other homeowners are losing theirs. The roof is not caving in on housing.
- “Desperate House Loans? (subscription required)” John Weicher, Wall Street Journal, Aug. 29, 2007.
Mortgage
Mortgage rates on 30-year fixed mortgages in the United States fell 4 basis points to 6.08 percent today, according to Bankrate.com's daily Your Best Interest report. The mortgages in the survey had an average of 0.63 discount and origination points. Bankrate.com, Aug. 29, 2007.
Foreign Investors, Immigrants Boosting the Market
“…more and more consumers from around the world are interested in purchasing a home in the United States for themselves, as an investment, or simply to enjoy a piece of the American dream.”
- Pat V. Combs, of Grand Rapids, Mich., NAR President and vice president of Coldwell Banker-AJS-Schmidt. “NAR Study Confirms: They Come To America – To Buy Homes" Iverson Moore, National Association of Realtors, July 30, 2007.
Amid slow demand from an aging and slow-growing native population, immigrants are fueling predictions of a rebound.
In California, nearly one-third of recent homebuyers were foreign-born. For New York, New Jersey and Florida, the figures were between one-quarter and one-fifth.
- “Immigrants Lift U.S. Housing Market,” Mark Jewell, Forbes.com, July 30, 2007.
Vacation-Home Buyers Going Strong
Forbes.com, Best Places to Buy a Vacation Home, Aug. 9, 2007:
If the sun is shining on the shore, or the powder's falling on the slopes, vacation-home buyers don't mind short-term market fluctuations very much. "The main thing motivating a vacation-home buyer is utility. They want to maximize their purchase around a recreational activity," David Hehman, president of EscapeHomes.com, a San Francisco-based second-home research site. As examples:
Northeast: Summer destination Water Mill, N.Y., in Bridgehampton appreciated fastest, with a median home price of $1.38 million, increasing in value at an average of 21% a year over the last five years.
Midwest: Victoria, Minn., which is surrounded by many of the state's trademark lakes, grew an average of 18% a year.
South: The north end of Key Largo, Fla., has appreciated at 27% a year, on average, according to NeighborhoodScout, making it the fastest-growing vacation spot in the South.
West: Moran, Wyo., situated between Grand Teton and Yellowstone National Parks, has seen 35% average increases in annual value since 2002.
Bright Spots in the Market – “Real Estate Oases”
Q. What types of neighborhoods are seeing strong activity?
A. Housing analysts say:
Real estate oases in most major markets whose local economies display moderate to strong fundamentals.
Established neighborhoods convenient to the urban center's employment and cultural attractions that don't require residents to make long commutes.
Above-median-income areas, often well above, with home prices to match. - “Bright spots in the overall gloomy market,” Kenneth R. Harney, Washington Post Writers Group, Aug. 26, 2007.
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