McLeod Law Offices

The news on the housing market is not cheery.

The FDIC reports that residential mortgage loan charge offs climbed to almost 200% during the 4th quarter of last year. The FDIC also reports that the number of deliquent loans at banking institutions is also on the rise.

The Japanese are getting concerned over increasing defaults in sub-prime mortgage loans here in the US. They are not the only ones. Freddie Mac today announced “today announced that it will cease buying subprime mortgages that have a high likelihood of excessive payment shock and possible foreclosure.”

So there’s all that news, and then we have today. Apparently tired of the cold winter weather, the stock market headed south. Marketwatch reports that todays drop (which included a 200 point drop in one minute) is the worst one-day drop since 2001. From Breitbart.com:

The housing market, which the Street had been hoping had bottomed out, also looked far from recovery after a Standard & Poor’s index indicated that single-family home prices across the nation were flat in December. A later report from the National Association of Realtors said existing home sales climbed in January by the largest amount in two years, but the data didn’t erase housing-related concerns, as median home prices fell for a sixth straight month.

Some argue that the drop is simply a long overdue correction. Others blame the Drudge Report.

All I can say is that these sure are interesting times.

In recent years, the Massachusetts housing market has been – in a word – ridiculous. Prices of modest homes have not been in line with income. In other words, owning a home in Massachusetts has been unaffordable for many. As a way around this, mortgage companies (and brokers) came up with creative mortgages. For example, a borrower could pay interest only for a few years, while paying nothing towards principal. The thought of getting a 100% mortgage did not seem so daunting at the time because homeowners have believed that they could refinance later when the values of their homes increased with the market. Those prospects are looking slim.

Home prices in Massachusetts are falling and 2006 saw the worst one-year drop in prices since 1993. As reported in the Boston Herald:

The median price — the point where half of homes sell for more and half sell for less — dropped 5.8 percent, from $345,000 in 2005 to $325,000 last year, according to a report by The Warren Group, a Boston-based publisher of regional real estate data and other financial information.
That price had grown 12 straight years, beginning in 1994.
“You have to realize that that was a wonderful decade,” said Timothy Warren, CEO of The Warren Group, referring to the last 10 years of home sales. “I think we have to take our medicine and realize that it can’t go up forever.”

For many (especially first time buyers) who bought in at the latter part of this “wonderful decade”, the medicine could be quite difficult to swallow. And even if you did not buy your home recently, you might be in a regrettable position if you refinanced into one of those creative mortgages and took some cash out.

A realtor told the Standard-Times that the market is not crashing at all. He “likened the market to being at the top of a pyramid, about to roll over into a plateau of moderation and consistency.” This is not a particularly good metaphor since the only pyramids I have ever seen with a “plateau” are those from the Mayan era, and what happened on those “plateaus” was rather heart-wrenching (pardon the pun). Also, I have noticed that the the other side of the “plateau” goes down.

Even though the articles end on an upbeat financially distressed homeowners need to be proactive. Contact a professional. Learn more about your options. Listen carefully and choose wisely. And don’t assume that because people are whispering things like “soft landing” and “plateau” that the news will be any better tomorrow.

Interest rates have pushed mortgage payments higher. The softening real estate market has made it difficult for homeowners to sell or refinance. And just in time for the holidays, Boston is increasing its residential tax rates…and for some, the increase is going to hurt even more. From Boston.com:

The annual tax bill for the average single-family house will increase from $2,755 this year to $3,093, starting in January. The estimated bill for the average two-family house will jump from $3,307 to $3,857, while the bill for the average three-family house is expected to increase from $3,725 to $4,309.

Meanwhile, in other news, some argue that the financial crisis facing homeowners is nothing like it was in the early 1990s. The Lowell Sun reports that might not be the case:

Massachusetts homeowners had 4,891 foreclosure actions filed against them during the third quarter of this year, 66 percent higher than the same period in 2005, according to ForeclosuresMass.com, a provider of such data. The most recent data indicates that foreclosure filings are on record pace, higher even than the dark days of 1991.

The Association of Community Organizations for Reform Now is concerned about the impact rising interest rates have on homeowners. From the Houston Chronicle:

ACORN also is worried that many of those with adjustable-rate mortgages, which made up three-quarters of all subprime, or nonconventional, loans in 2005, will find themselves saddled with debt as interest rates rise.