Motivated folks only

More realty agents are refusing to cater to stubborn sellers and looky-loo buyers.
By Ann Brenoff: latimes.com
ATTENTION, you picky buyers who think you have all the time in the world to house hunt before you ink an offer. (And this goes double for those of you who think that a listing price is just some silly number pulled from the air and that you can offer 30% less.) Listen up: Agents are mad as hell and aren't going to take you anymore.

And sellers - those of you who don't believe that your palace won't fetch what the shack up the street sold for a year ago - you aren't making any agent's short list of whom to call back today.

Here's the realization that some agents and brokers are taking to heart: They have neither the time nor the money to waste on a lot of us.

They are done spending days driving buyers around who want to leisurely ponder whether House A's carpet is the right shade of beige or House B's basketball hoop will leave marks when the sellers take it down. And the real estate profession's once-popular practice of treating listings as a land grab - get as many as you can as quickly as you can because they pretty much sell themselves - has fallen by the wayside. Advertising those listings costs agents money, and payday doesn't come until the sale closes. Do the math: No sale, no payday. And who has thousands to throw away on homes that will never sell at the prices their owners think they are worth?

Walter Sanford - a top-producing realty sales agent for more than 20 years and today a sales-coaching guru - is brutally blunt on the topic.

In a down market like this, he tells agents, dump the buyers and spend your time and budget cultivating more listings of motivated sellers and only motivated sellers. It's a way for agents to avoid financial ruin.

"Buyers take longer to make decisions, they 'nibble' more, and they will actually eradicate your net profit if you continue to work buyers as a major part of your income flow," Sanford says.

He adds: Nothing saps an agent's time and energy or cuts into potential income like showing unmotivated buyers house, after house, after house, and still not making a sale. "So don't do it, is what I tell them."

Them's fightin' words.

Valerie Van De Zilver, broker-owner of the Zilver Realty Group in Tustin, shares the sentiment. If a buyer doesn't commit after being shown available properties, he or she is enrolled in Van De Zilver's automatic e-mail program. Those buyers receive instant messages about new listings on the market, price drops and changes of listing circumstance. This enables buyers to keep current on the sales inventory and ensures they won't miss out on a property they have their sights on. It also means they won't tie up Van De Zilver's time.

"If they see something they like," she says, "they call me." She has dozens of buyers on her e-mail program. "And it's working just fine."

Sanford has a multi-step process to help realty agents separate the serious buyers from the looky-loos. Only he doesn't call them "steps;" he prefers "hoops" -- and he expects buyers to jump through them.

The first hoop is a 35-question form that begins with a version of "How long have you been looking and why haven't you bought yet?" He builds up to requiring that buyers get pre-qualified for a loan - not pre-approved, which he says is just a meaningless letter from a mortgage broker saying everything looks rosy - but actually pre-qualified with a lender's commitment. If a buyer's credit is in need of repair, Sanford enrolls him or her in a budgeting or credit repair program with his lender. And somewhere along the way, he insists on a loyalty agreement, restricting the buyer from agent-hopping.

Sellers too - at least the unrealistic ones - are getting the same tough-love treatment.

"Sometimes," Van De Zilver says, "I have to tell a client that he just isn't going to be able to meet his price goal in this market and that maybe he should think about holding off on his plans to sell."

Other agents are turning down potential listings if they sense that the seller is inflexible in price.

"You can't waste time with cement-head sellers," is how Sanford, formerly of Long Beach and now based in Kankakee, Ill., puts it.

Sanford advises his disciples to do their best to talk current-market sense into the seller, but should the asking price remain unrealistic, he says, agents should lateral the listing to a newbie agent in the office, politely explaining to the seller that the new agent will have more time to try to help him or her meet those goals. And, he adds, the original agent will get a referral commission in the unlikely event that lightning strikes and the house actually sells.

By his estimates, 30% of experienced agents are walking away from overpriced listings. Florida Realtor Magazine reported that some sales associates said in the last year they've regularly refused one out of three listings because they believed them to be out of the ballpark.

Many agents entered the business during the flush times when listings flew off the shelves, Van De Zilver says, and they functioned pretty much as order takers.

"Now, you really need an agent who knows what it takes to get the home sold," she says. "And if a seller doesn't want to hear it, there isn't much point in taking the listing because it won't sell."

Occasionally, she says, she'll take an overpriced listing anyway because she wants to put out her sign in a particular neighborhood. But by and large, she only deals with realistic sellers.

She recently declined to list a property when the owner wanted to put it on the market at $100,000 more than what he paid for it in January. He had painted the property and made minor cosmetic repairs. "I told him that this was perhaps not the best time to list the house if getting that price was his goal," she says. Another agent took over the listing; it remains unsold.

Lonnie Maples, who has been selling real estate for 29 years in inventory-saturated Riverside, says he too has turned down listings.

Over the summer, he had a listing appointment with a seller whose property had been in the Multiple Listing Service for more than a year. The owner had made several price reductions from it's original $1,095,000, and he was now ready to list at $895,000.

"I knew it wouldn't sell for even that," Maples says. "That house, in this market . . . $750,000 was more like it. I declined the listing because I didn't want to waste my time and money."

Maples says it would have cost him $100 a week just to advertise the listing in the local newspaper. Beyond that, there are fliers to have printed, lock boxes to install, mailings to send out.

"It all adds up to a big zero if the house doesn't sell," Maples says, adding that he would rather "catch the listing" on the second or third round, once it expires from its initial agreement. "Sellers get more realistic then."

Some agents are tempering the touchy situation by compromising. They'll agree to take a listing at the seller's desired price for 10 to 21 days if the seller agrees in advance to drop the price if it doesn't sell in that time frame.

And then there are those who say they never walk away from a potential listing.

Anthony Marguleas, broker with Amalfi Estates in Pacific Palisades, says he and his agents never turn down listings. Period.

The onus, he says, is on the agent to educate the client. "If all the comps show a house is worth $1 million and the seller wants $2 million for it, it's the agent's job to explain to him why that's not possible. We won't give up. We show the seller market analysis, comps of recent sales; we show him what else is currently on the market. It's our job to not let him make a mistake."

As for agents who sideline buyers if the buyers don't want to commit, Marguleas says that behavior is just plain "lazy."

"It's actually more than lazy; it's insulting," he says. "Buying a home is the largest investment of someone's life, and an agent doesn't have the patience or time to show them homes anymore? That's not right."

Marguleas says he's shown some clients more than 100 homes before they've made a successful offer.

"Some buyers look at five houses; others need to see more. That's what we agents do: show them houses."
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8 Tips for Investors Looking for Next Housing Gem

The Minneapolis-based Real Estate Investors Association, a club for people interested in real estate investments, isn’t discouraged by the state of the housing market.
By: Lynn Underwood: REALTOR® Magazine Online
Its members, who meet to ask questions and share advice, has grown from five to 100 over the last two years, despite the housing slowdown in some corners of the business.

"This is what buying low is all about," says Jason Cramer, a member who has turned his hobby into a career. He recently opened a business that buys and sells distressed properties.

Here’s some advice from club members for potential investors:

    • Buy in a familiar neighborhood, near where you live, work or go to college.
    • Research the area thoroughly, identifying potential properties and other
      business opportunities.
    • Observe trends, costs, vacancies, and potential appreciation.
    • Assess your own skills. If you have to hire out maintenance, costs will hit
      the bottom line.
    • Start small. A single-family home or a duplex is a good beginning. Plan to
      hold it for at least three years.
    • Avoid foreclosed properties. They are complicated to buy and they aren’t a
      guaranteed deal.
    • Be pre-approved for financing. Most investment property loans require at least
      10 percent down.
    • Remember, dealing with people is key, so hold onto your sense of
      humor.

Read more!

Mortgage Tips for a Tight Lending Market

Even home buyers with good credit may have trouble getting a mortgage these days.
By: Brad Reagan: REALTOR® Magazine Online
Here are three tips for home buyers in search of the best deal.

    • Conforming loans win. Keeping the loan below $417,000, the most that Freddie
      Mac and Fannie May will buy, saves big money since the rate on nonconforming
      loans is now a full point higher than for lesser loans. If getting the cash
      together is a challenge, Greg McBride, senior financial analyst with
      Bankrate.com, suggests taking out a small second mortgage or tapping an
      existing line of credit.

    • Don’t rock the boat. "Anything that might disrupt your credit history will be
      seen with a more jaundiced eye," says Keith Gumbinger, a vice president with
      mortgage research firm HSH Associates. He says avoid big credit card purchases
      or, if possible, major life changes.

    • Get multiple approvals. McBride urges borrowers to get advance approval from
      more than one lender, just in case the lender – not the borrower – goes
      under.

Read more!

When Will the Housing Market Finally Hit the Bottom?

The housing market is just getting worse. Home resales tumbled 8% in September to the lowest levels in this decade, prompting the obvious question: When will it all end?
By: Rex Nutting: RealEstateJournal.com
The honest answer is no one knows. Optimists have been saying for more than a year that the worst is behind us, while the pessimists have been saying recovery is still a year, or years, away.

So far, the pessimists have been right about the weakness in the housing market, but their forecast that the collapse in housing would lead to a general economic malaise has, at least so far, failed to pan out. The economy has slowed, but has not fallen into recession, as consumers and investors adjust to a world in which home prices don't automatically rise 5% or 10% a year.

The only thing that's clear now is that the housing market has gotten worse since the spring. The market was in a free fall in September. Sales of existing home fell 8%, while inventories of unsold homes rose to a 10.5-month supply. It could take 320 days for a home to sell. See full story.

Sales of existing single-family homes are down 20% in the past year, the fastest decline in 16 years.

Median prices have dropped 4% in the past year, in part because fewer expensive homes are being sold, but also because the typical home is worth less than it was a year ago.

Homes are only worth what someone is willing to pay for them, and right now, most homes on the market have no buyer in sight. Prices may have to fall much more to bring supply and demand back into balance, economists say.

Builders have almost no confidence. The home builders' index fell to a record low in October (the index dates back to 1985). New construction on single-family homes has plunged 31% in the past year, but still the inventory of new homes on the market, after adjusting for cancellations, is at the highest level since the early 1990s.

As if the fundamental sickness in the housing market weren't enough, a secondary infection has developed. The credit crisis in the mortgage market that erupted in the summer has left huge numbers of potential buyers without any access to mortgages.

The subprime sector has essentially died, with the newly reinvigorated Federal Housing Administration able to replace only a tiny segment of what was once a huge market of home buyers.

The top end of the market was also frozen out, as jumbo loans (those with mortgages above the conforming level of $417,000) became more expensive or completely unavailable.

The jumbo freeze-out devastated sales in pricey areas such as the San Francisco Bay area, where jumbo loans had accounted for about 52% of purchases in August, but just 39% in September.

There's some evidence that the jumbo market is slowly returning, but it's not functioning normally yet.

So where does the market stand now?

"We are seeing the first buds of spring" in the recovery of the jumbo market, said Stephen Stanley, chief economist for RBS Greenwich Capital. "It's a slow, glacial recovery."

Stanley believes home sales will be "really bad" for two or three more months, before the credit markets begin to function more normally. "It won't return to where we were six or 12 months ago."

At that point, the secondary infection would be gone, but the underlying illness would still be there. The market will really begin to recover only after sellers capitulate on prices.

And then home sales might level out, Stanley said, acknowledging that he's one of the more optimistic analysts.

Historically, housing corrections take a long time. After the market softened in the late 1980s, sales fell for five years, then took three more years to return to the peak level. Prices took just as long to recover.

Some analysts say the fundamentals will worsen in coming months. The main problem is that so many adjustable-rate mortgages will reset to a higher interest rate. The typical family with an ARM will see mortgage payments rise by $10,000 a year, according to Andrew Jakabovics of the Center for American Progress, a progressive Washington think tank.

Millions of these home owners will be unable to refinance their current loan and will either have to scrounge to make the payments, or lose their home through a fire sale or foreclosure. That would throw even more supply onto a saturated market.

"The mortgage crisis is neither wholly contained nor likely to abate in the near future," said Jakabovics. "Default and foreclosure loom ever more menacingly as borrowers are unable to find a reasonable payment option and unable to sell their homes."
Read more!

Refinance Applications Rise as Rates Decline

The number of applications to refinance homes rose 4 percent last week, as mortgage rates declined,
REALTOR® Magazine Online
according to the weekly mortgage applications survey by the Mortgage Bankers Association.

Overall, mortgage applications rose slightly on an adjusted basis from 656.3 to 656.5. On an unadjusted basis, they increased 11.2 percent compared with the previous week and were up 11.5 compared with the same week a year ago, an anomaly attributed to the Columbus holiday.

Mortgage rates fell slightly during the week:

    • 30-year fixed-rate mortgages decreased to 6.21 percent from 6.4 percent.
    • 15-year fixed-rate mortgages decreased to 5.86 from 6.09 percent.
    • 1-year ARMs decreased to 6.1 from 6.17 percent.

Read more!

Is this a good time to buy a house?

Also: How do I know if my 'credit counselor' is giving me good advice?
By: John W. Schoen: MSNBC
The ongoing slide in U.S. housing prices has scared some first-time buyers out of the market and kept them on the sidelines. While there’s always the risk that prices will fall further, young couples and growing families still need a place to live. And, if they do their homework, stick to a budget and shop carefully, this may be a great time to take the plunge.

My wife and I are currently in the market as first-time home buyers with excellent credit. We're not interested in flipping or land speculation, we simply want the little white-picket-fence home we've always wanted. Our worry is if we become homeowners and the housing market worsens even more that somehow we'll go down with it too. If we avoid the pitfalls of variable rate mortgages and make the "right" choices with quality lenders, are we naive to think that we might be resistant to problems if the market worsens?
— Bryan L. New Haven, Conn.

There are never guarantees in real estate, and there are plenty of signs that things may get worse before they get better. But no matter what kind of economic conditions prevail, life goes on. And so should yours.

If it’s time for you and your wife to buy a home – you’ve saved something for a down payment, you’ve found a part of the world you’d like to spend time in, you’re tired of paying rent – by all means this can be a great time to buy a home. In many markets, there are a lot more homes for sale than there are buyers. That means you should be able to negotiate a better price than if there were multiple buyers for each house for sale.

As for your risks as a borrower, if you stick with good lender, read every document carefully, ask questions until you’re convinced you understand the answers, you should be fine. If you think the lender or mortgage broker isn’t giving complete answers, go find another one. Good lenders are always looking for people with good credit. If you don’t feel you’re not able to sort out the documents to your satisfaction, you may want to hire a lawyer. A few hundred dollars in legal fees now could save you thousands in interest payments later if you don’t understand your loan.

The harder part is determining a reasonable price for your new home. Some sellers have still not come to terms with the recent drop in prices and are holding out for an asking price that’s too high. Others are pricing more in line with market demand. After you’ve seen a half dozen houses or so in your price range, ask to see examples of recent actual — not asking — sale prices of comparable houses. (You can also look up recent home sales online on sites like Zillow.com.) The only way to determine what the market is paying is by looking at actual sale prices. And the only way to determine the true price of a specific home is to make a bid. If the seller says no, move on to the next house on your list.

The risk that most buyers face today is paying too much for the property. It’s impossible to predict how much longer — or how much further — housing prices will fall. Let’s go over that one more time. Some of the same real estate agents who assured buyers during the boom that they needed “get in now” before prices rose further are now reassuring potential buyers, for example, that recent interest rate cuts mean the worst is over. The only honest answer to the question: “Have prices bottomed?” is “No one knows.”

You also need to keep in mind that the national statistics about home sales, median prices, and foreclosures are averages. Areas where the boom in housing sales and prices was the strongest (places like California, Florida, Nevada) are now seeing the biggest drops. In other areas, where price gains were not as rapid, the market has remained relatively stable. So your risk of further price declines in these areas is more limited.

Though national median price of an existing home was down 1.5 percent in the second quarter compared to a year ago, it was up 1.3 percent in the New Haven-Milford market. Some areas are seeing much bigger swings: the median price for the same period fell 11.3 percent in Sarasota, Fla. but rose 21.9 percent in Salt Lake city, Utah. (Here’s how other markets are doing.)

Above all, figure out how much you can afford, and don’t get talked into a bigger house by real estate agents, mortgage brokers or builders who tell you the “guidelines” say you can afford a bigger mortgage. No one knows how much you can comfortably afford by you. So make a sensible budget, decide how much you can spend and stick to it.

And don’t forget to budget for a bucket of fresh, white paint for that picket fence.

My friend was told by a "debt counselor" that he should keep his credit utilization ratio at about 30 percent because having it too low would hurt his score. I dispute this notion. My (credit ration) generally sits between 1 and 4 percent based on monthly purchases (paid in full) during a statement period. Can you settle this dispute?
- John R., Phoenix Ariz.

In general, making generalizations about credit scores is not a good idea.

According to the people who created the scoring system, a lower credit utilization is usually gives you a better score. That's why closing credit accounts without paying down debt on open accounts can lower your score. By reducing your total credit limit without a corresponding drop in your debt balance, you raise the ratio of debt to credit limit.

Still, your score is based on a complex formula that takes a number of factors into account. For more on how it works, check out the Fair Isaac & Co (FICO) Web site. They used to be fairly secretive about how the scoring works, but these days they’re happy to share the criteria with the public.

As for your friends “credit counselor,” in my opinion many of those holding themselves out as counselors are simply selling more credit. The common scam is to consolidate loans into a new one, charge a higher interest rate and then stretch out the term for many more years to lower the monthly payment. Since most people are so fixed on monthly payments they go along with this. But they end up paying much more interest before the loans are paid off.

The only credit counselors we believe to be legit are those certified and affiliated with the National Federation of Credit Counselors. You can find one in your area by going to www.nfcc.org.
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Treasury Secretary urges action on housing downturn

Paulson says correction is 'most significant current risk' to economy
Inman News
Treasury Secretary Henry M. Paulson on Tuesday called for aggressive action to work through the current housing correction that he says will continue to adversely impact the U.S. economy and struggling homeowners for some time.

"The ongoing housing correction is not ending as quickly as it might have appeared late last year," Paulson said in remarks to students at the Georgetown Law Center this morning.

Despite strong economic fundamentals in the current economy, the secretary views the housing downturn as "the most significant current risk to our economy. The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth," he said.

In his most sobering view of the housing downturn to date, Paulson said the government and financial industry need to act to minimize the impact on the overall economy. He called on the financial industry to help as many borrowers as possible stay in their homes, but warned against relieving investors of the "costs of bad decisions."

"I have no interest in bailing out lenders or property speculators," Paulson said.

The secretary also called for public policy changes that would reduce the chances of a similar situation building up in the future, while maintaining access to credit for able homeowners.

Paulson's speech came a day after officials from three of the nation's largest banks announced a plan to establish a multibillion-dollar investment fund aimed at lessening the credit crunch by providing up to $100 billion in liquidity for mortgage securities and other investments.

The Treasury department facilitated the discussions leading up the announcement, but no government resources have been pegged for it.

Federal Reserve Chairman Ben Bernanke also spoke on the housing slump Monday, saying the situation will continue to drag on the U.S. economy at least through early 2008.

While the housing market "is likely to be a significant drag on growth" over the next several months, Bernanke added, "it remains too early to assess the extent to which household and business spending will be affected by the weakness in housing and the tightening in credit conditions."

The Fed in September cut its target for the federal funds rate by 50 basis points in response to tightening credit conditions brought on by troubles in the mortgage lending market.

The September reduction in the federal funds rate, to 4.75 percent, was the first rate cut since June 2003. The Fed had raised the rate 17 straight times from June 2004 to June 2006.
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NAR: Mortgage Conditions Bode Well for Housing

Ample availability of financing and advantageous pricing create conditions for improved sales in 2008.
NAR: REALTOR® Magazine Online
Conditions in the mortgage market are improving for consumers, which should help to release some pent-up demand in early 2008, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.

Lawrence Yun, NAR vice president of research, notes that widening credit availability will help turn around home sales. “Conforming loans are abundantly available at historically favorable mortgage rates. Pricing has steadily improved on jumbo mortgages since the August credit crunch, and FHA loans are replacing subprime mortgages,” he said.

Yun said it’s important to place the current housing market in perspective, and that 2007 will be the fifth highest year on record for existing-home sales. “Although sales are off from an unsustainable peak in 2005, there is a historically high level of home sales taking place this year – a lot of people are, in fact, buying homes,” he said. “One out of 16 American households is buying a home this year. The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains.”

He emphasized all real estate is local with naturally large variations within a given area. “Markets like Austin, Salt Lake City and Raleigh have been outperforming recently and will continue to do well next year,” Yun said. “Other areas like Denver and Wichita will likely move up in the price growth rankings due to very positive local economic developments.”
Existing-home sales are expected to total 5.78 million in 2007 and then rise to 6.12 million next year, in contrast with 6.48 million in 2006. New-home sales are forecast at 804,000 this year and 752,000 in 2008, down from 1.05 million in 2006; a recovery for new homes will be delayed until next spring.

“A cutback in housing construction is a positive sign for the market because it will help lower inventory and firm up home prices,” Yun said. Housing starts, including multifamily units, are likely to total 1.37 million in 2007 and 1.24 million next year, down from 1.80 million in 2006.
NAR President Pat V. Combs, from Grand Rapids, Mich., and vice president of Coldwell Banker-AJS-Schmidt, said, “Housing is still a good long-term investment, and we’ll be seeing a broad, modest improvement in home prices in 2008. With widely varying conditions, the best advice for consumers is to consult a REALTOR® in their area to learn about local market conditions because supply and demand can change from one neighborhood to the next.”

Existing-home prices will probably slip 1.3 percent to a median of $219,000 in 2007 before rising 1.3 percent next year to $221,800. The median new-home price should drop 2.1 percent to $241,400 this year, and then increase 1.0 percent in 2008 to $243,900.

The 30-year fixed-rate mortgage is expected to average 6.4 percent for the next two quarters and then edge up to the 6.6 percent range in the second half 2008. Additional cuts expected in the Fed funds rate will help to keep mortgage interest rates historically favorable.
Growth in the U.S. gross domestic product (GDP) is estimated at 2.0 percent this year, below the 2.9 percent growth rate in 2006; GDP is likely to grow 2.7 percent next year.

The unemployment rate is forecast to average 4.6 percent this year, unchanged from 2006. Inflation, as measured by the Consumer Price Index, is expected to be 2.8 percent in 2007, compared with 3.2 percent last year. Inflation-adjusted disposable personal income will probably increase 3.6 percent in 2007, up from 3.1 percent last year.
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Risk of house-price declines falling in many areas

Drop in PMI risk index does not indicate market has hit bottom
By: Matt Carter: Inman News
Declining home prices boosted affordability during the second quarter, reducing the risk of price declines in 28 of the 50 largest metropolitan areas, according to an analysis by PMI Mortgage Insurance Co.

PMI said its U.S. Market Risk Index - which takes into account economic factors like home-price appreciation and volatility, affordability and employment - fell for the first time in 2 1/2 years during the second quarter.

While that's an encouraging sign that housing markets are beginning to correct, it's not evidence that they've hit bottom. Scores in many areas remain elevated, and risk remains high nationwide, said Mark Milner, PMI's chief risk officer.

"We have seen a significant slowdown in price appreciation nationwide, and appreciation has gone negative in some areas," Milner said. "That's improved affordability, which is being reflected in the risk scores. But risk is still high and it's way too early to say we're at an inflection point."

The average risk score for the 50 largest metropolitan statistical areas (MSAs) remained near an all-time high of 329, which translates into a projected 32.9 percent chance of price decline in those areas during the next two years. That's down from 346 during the first quarter (see Inman News story), but still well above the national average of 289 for all 381 MSAs studied.

During the second quarter, 11 MSAs had risk scores of 500 or above, correlating to an estimated 50 percent or greater chance of price declines in the next two years, compared with 15 MSAs in the first quarter. The 11 MSAs were:

    • Riverside-San Bernardino-Ontario, Calif. (608)

    • Las Vegas-Paradise, Nev. (587)

    • Santa Ana-Anaheim-Irvine, Calif. (579)

    • Phoenix-Mesa-Scottsdale, Ariz. (575)

    • Los Angeles-Long Beach-Glendale, Calif. (536)

    • West Palm Beach-Boca Raton-Boynton Beach, Fla. (532)

    • Sacramento-Arden-Arcade-Roseville, Calif. (522)

    • San Diego-Carlsbad-San Marcos, Calif. (521)

    • Oakland-Fremont-Hayward, Calif. (516)

    • Ft. Lauderdale-Pompano Beach-Deerfield Beach, Fla. (507)

    • Orlando-Kissimmee, Fla. (506)

Dropping off the list of MSAs with risk scores of 500 or higher were Miami-Miami Beach-Kendall, Fla. (466), Tampa-St. Petersburg-Clearwater, Fla. (462), Boston-Quincy, Mass. (400) and Washington, D.C.-Arlington-Alexandria, Va. (439).

Boston, Phoenix and West Palm Beach, Fla., saw the largest quarter-to-quarter drop in risk scores, although all three cities remained well above the national average. Boston has seen price declines in four of the last five quarters, helping the city shave 101 points from its risk score, while West Palm Beach (down 75 points) and Phoenix (down 71 points) saw improvements not only in housing affordability, but employment.

Housing affordability, which improves when income growth outpaces home-price appreciation, showed gains in 297 MSAs, or 78 percent of all of those studied. In the top 50 MSAs, all but two saw improvements in affordability. Some areas, such as Phoenix, saw affordability gains even as prices appreciated modestly during the second quarter, because income growth outpaced home-price appreciation.

The MSAs that saw the largest improvements in affordability were in areas that were already at low to moderate risk of price declines. On average, MSAs in the Western states scored the highest for risk (451), followed by the Northeast (273) and the South (243). MSAs in the Midwest had the lowest average risk score (187).

Risk scores are generally low in the Midwest because the region did not experience the rapid and sustained price appreciation places such as California, Nevada and Florida saw during the boom years, said LaVaughn Henry, PMI's director of economic analysis.

"Our model is fundamentally based on price volatility, and much of the Midwest and areas of the South have had low price volatility, and didn't participate in the rise in prices we had" during the boom, Henry said, attributing much of the rise in delinquencies and foreclosures in the Midwest to increased unemployment.

While PMI found weakening employment was not a significant issue for most of the 50 largest MSAs, nine of the 25 MSAs with the largest increases in unemployment were in Ohio (seven of the top 25 MSAs) and Michigan (two). California (seven) and Louisiana (five) also had a large proportion of the 25 MSAs experiencing the largest increases in unemployment.

Home-price appreciation, which peaked in the second quarter of 2005, has been "decelerating" in seven in the last eight quarters. In other words, while prices are still going up on average, they are not going up as fast. Homes with conforming mortgages appreciated at a rate of 3.2 percent per year during the second quarter, compared with 4.5 percent in the first quarter.

Prices were actually falling in an increasing number of MSAs during the second quarter, with 28 percent of the 50 largest MSAs seeing price declines, compared with 16 percent of the remaining 331 MSAs.

The fact that large MSAs were more likely to experience price declines in the second quarter - a reversal of past trends - indicates that price declines are starting to take hold even in more populated areas where prices and employment are typically more stable, the report concluded.

In an attempt to help prospective home buyers decide whether it's a good time to buy, PMI's fall 2007 Economic Real Estate Trends report also looked at how those who bought homes during the three worst downturns in the last 25 years fared.

That analysis, which assumed the average homeowner made a 20 percent down payment, found that home ownership produced a positive return on investment 98.9 percent of the time over 10 years. In the worst of the three scenarios studied - Houston's housing downturn during the 1980s following layoffs in the oil industry - it took homeowners who bought at the peak of the cycle 15 years to show a positive return.

Milner said the analysis demonstrates that "home ownership is a good way to build long-term wealth, and that (home buyers) shouldn't panic when we are going through a phase like that."
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Come on, the mortgage industry isn't that bad

The term "mortgage meltdown" has become so commonplace that borrowers might assume that this is a tough time to get a mortgage.
By: Kenneth R. Harney: latimes.com
But the reality is starkly different: Mortgage money is plentiful, the majority of mortgage products remain relatively unaffected by troubles in the sub-prime segment, and interest rates for 30-year fixed-rate loans remain in the low 6% range for people with reasonably good - not necessarily perfect - credit backgrounds.Before text or link:
Even interest rates on jumbo loans over $417,000 have fallen after spiking this summer.

The main change over the last several months, in the words of Ted Grose, president of Los Angeles-based 1st Mortgage Advisors Inc., is that "the products and underwriting that allowed people to buy houses they couldn't afford have disappeared."

Nonetheless, say lenders and brokers, there is a widespread and persistent belief by consumers that the entire mortgage market is in crisis.

Kit Crowne, a loan officer with Right Trac Financial Group in Manchester, Conn., said even sophisticated homeowners with high incomes are under this impression. He recently handled a relocation financing for a professional couple moving from New Jersey to Connecticut. During the initial discussion, according to Crowne, one spouse said, "I'm really not sure that we're going to be able to even qualify for a mortgage. We've got a lot of graduate and dental school loan debt, and I hear it's a terrible time in the mortgage market."

Crowne checked the couple's credit, verified assets and put them into a cream-puff fixed-rate first mortgage at 6.25% for 30 years. "You'd be amazed," he said, "at how often we run into this" pessimistic attitude, despite the fact that rates are lower than they were in midsummer.

Jumbo mortgages, which always have carried higher rates than "conforming" loans eligible for purchase by Fannie Mae and Freddie Mac, have recently been in the low 7% range, according to Crowne, down from the 8% and higher levels of a couple of months ago.

In Everett, Wash., Jim Brown, chief executive of Veteran Mortgage, agrees that "the 'mortgage meltdown' idea is way overstated." Even in his part of the country, where home prices are rising, "a lot of people think that the mortgage market is in much worse shape" than it actually is.

"Other than sub-prime and high LTV (loan-to-value) stated-income" programs, he said, "we've got pretty much everything now that we did before. We've got a lot of outlets." For example, Brown's company offers buyers with limited resources five different loan programs that allow zero down payments and fixed rates around 6% to 6.25%.

Most lenders and investors are quick to note that while mortgage money is plentiful, underwriting standards are stricter than they were a year ago. Jumbo loans, for example, often require two appraisals - one by an appraiser selected by the lender and the other by the investor.

"And they better line up," said Crowne, or they won't do the deal.

Similarly, FICO score standards generally are higher than a year ago, stated-income mortgages with no verifications are hard to find, and major investors are on the prowl for anything hinting at fraud. Lenders and investors are especially wary of excessive "layering of risk" - combining low down payments with marginal FICO scores and high debt-to-income ratios - in markets where prices are trending lower.

A major legislative development underway on Capitol Hill could expand consumers' range of good mortgage choices even further: Congress appears to be on the verge of transforming the once-stodgy Federal Housing Administration program into a competitive home loan option nationwide, with lower minimum down payments and maximum mortgage amounts generous enough to fund loans even in pricey California.

Under a bill passed by the House on Sept. 18, FHA loans could go as high as 125% of an area's median home price or 175% of the limit for loans purchased by Fannie Mae and Freddie Mac. In California, where the statewide median is in the mid-$500,000 range, that could mean FHA-insured mortgages well above $600,000. A companion bill approved by the Senate Banking Committee would cap FHA loans at the Fannie Mae-Freddie Mac limit, currently $417,000.

A key strength of the FHA that many borrowers may not know about is that its funding base is virtually bulletproof: Its mortgages are pooled into federally guaranteed bonds issued by the Government National Mortgage Assn. (Ginnie Mae) and are considered nearly as safe as Treasury securities. Better yet, FHA loans are consumer-friendly: no prepayment penalties, flexible and generous for consumers with past credit challenges, but old-fashioned strict about documenting income and assets.
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