Mortgage Rates Low, But Hard To Qualify For

Guest

Dean Foust, adjunct professor at Emory University

After the deadline passed to sign sales contracts and qualify for federal tax credits, the housing market faltered yet again. Not even near-record low mortgage rates could prevent the 30% slide from April to May — though some current homeowners are refinancing at the lower rates.

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NEAL CONAN, host:

This is TALK OF THE NATION. I'm Neal Conan, in Washington.

The recession is over - by some measures, we're told - but unemployment remains stubbornly high, credit tight, and the overall economic outlook, well, that can depend a lot on where you sit.

Today, we focus on two major economic sectors, later on how America's carmakers are emerging from major restructuring and, except from Ford, from huge taxpayer bailouts.

But first, the sector that most famously bubbled and burst, housing, and what seems by now an eternal question: Have we found the bottom of the market yet?

The answer will, as always, depend on location, location, location. But there are real concerns that some promising signs will not survive the expiration of the $8,000 tax credit.

While mortgage rates are very low, qualifying for one of those loans is not easy, and in way too many places, the news continues to focus on foreclosures and short sales.

If you're in real estate, housing construction, home loans, what's happening where you live? Give us a call: 800-989-8255. Email us: talk@npr.org. You can also join the conversation on our website at npr.org. Click on TALK OF THE NATION.

Joining us from member station WABE in Atlanta is Dean Foust. He teaches journalism at Emory University, formerly Atlanta bureau chief of Business Week. And Dean, nice to have you back on the program.

Professor DEAN FOUST (Journalism, Emory University): Oh, my pleasure, Neal.

CONAN: And how much of an effect did the end of that first-time homebuyer's tax credit have?

Prof. FOUST: It the end of the tax credit pretty much brought the housing market to a screeching halt, because a lot of activity that might have played out over the next year, everybody who had the wherewithal to buy a house pushed that activity. They all scrambled to get in under the wire before the tax credit expired.

CONAN: And that was at the end of April?

Prof. FOUST: At the end of April, yes.

CONAN: And you have some time yet to get the paperwork in, but if you didn't file by the end of April, you're out of luck.

Prof. FOUST: Exactly. There was hope in Congress and within the housing industry that it being an election year, that maybe they could sell members of Congress on a second stimulus plan, another round of tax breaks for homeowners. But I'm not sure that's going to happen because some of the members who really pushed that through the last time really had to sign their name in blood that they wouldn't come back a second time. And, of course, now there are members of Congress who have concerns about the deficit all of a sudden.

CONAN: And so they're up for reelection. Some of them still have primaries to go to, as well. In the meantime, you would've thought that mortgage rates - described today as the lowest since Fannie Mae has been keeping records, since 1971 - that that would stimulate a lot of house buying.

Prof. FOUST: You would think so. Rates right now, I think some of the national averages that you see quoted, around four and three-quarters for a 30-year fixed-rate mortgage, some of the in some markets, and if you have a pristine credit score, perfect credit, you can get rates, a 30-year fixed for as little as four and a quarter. But the catch is banks actually don't want to make those loans.

You have to really have great credit to get a mortgage these days, really good credit to get a mortgage because banks are you know, they've already been burned by their lending mistakes of the past.

They're looking across the Atlantic to all of the debt problems in Europe, and they're getting nervous about the global economy and the U.S. economy. And so they're really not being very aggressive on lending.

CONAN: And as we mentioned, it is all about location, location, location. The worst-hit areas in the months running up till now have been Florida, Nevada, California, Arizona. Are we still talking about those places primarily?

Prof. FOUST: We still are, and to quote that great real estate expert Charles Dickens, it really is a tale of two markets. Because if you look into the heartland, many states in the heartland, the Midwest, have stabilized. The real estate market never boomed there, so it didn't really bust as much. And sales activity and prices, valuations, are really starting to stabilize.

If you look at markets, select markets like Richmond, Virginia and Colorado Springs, they're seeing home prices rise this year by a nice clip. But again, if you look at the coastal boom states like Florida, California, New Jersey, those are really troubled markets. I mean, there are pockets in California and Florida where as much as one out of every two homeowners with a mortgage are underwater.

Nevada, 60 - something like 65 percent or two-thirds of all home sales these days right now are either a sale from foreclosure by a bank that got the house back, or by a distress sale by a homeowner who's on the verge of being foreclosed on.

CONAN: And we're going to get calls in from people around the country to tell us what's going on where they are, particularly those of you listening who are in the real estate business or the house construction business or some part of this industry, 800-989-8255. Email us: talk@npr.org.

But Dean Foust, a lot of people hear that expression underwater, short sales - a quick explanation, if you could?

Prof. FOUST: Underwater simply means that you owe more on your mortgage than your house is worth, and that's a problem. Nationwide, about one out of every four homeowners who still have a mortgage are underwater. They owe more on their mortgage than their house is worth.

And we've seen, in the past year, an acceleration of people who have financial who are financially sound, are walking away from their house, mailing the keys to the bank because their house is now worth $150,000, in some markets, $200,000 less than their mortgage, and they just don't think it's a good bet to keep paying on a mortgage that they'll never make back. And one out of every...

CONAN: So even if they could sell the house, they're still going to owe $150,000 more than whatever they get for the price for it.

Prof. FOUST: Right. And they say, why keep paying on this mortgage for the next 20 years if I'm never going to break even again? So they're walking away, and it's become such a problem now that Fannie Mae has said that for homeowners who walk away from their house, they are going to freeze them out of the mortgage market for the next seven years. So you can't just walk across the street, rent for a year in an apartment and then, you know, buy a house.

CONAN: Let's get some callers in on the conversation. Our guest, again, Dean Foust, journalism professor at Emory University - 800-989-8255. Email: talk@npr.org. Ben's calling us from Denver.

BEN (Caller): Good afternoon.

CONAN: Afternoon, Ben. How's it there?

BEN: Well, it's like Dean is saying. It's a tale of two markets. In May, everyone heard last week, and it really - it bummed out the whole country that sales were down 30 percent nationwide in May. And in Denver, we were up 23 percent in May.

CONAN: Wow.

BEN: Right. And now showings did (technical difficulties) an indicator, you know, how many people are going to go look at our listings. They did really fall off a clip after April 30th, but they've rebounded, and buyers are getting very good deals because they're still looking for the $8,000-plus discount that they were getting by using the homebuyer's tax credit.

And I had one other quick point, which is I keep hearing people say that it's really hard to get a mortgage, and I am just not finding that. People who don't have very high credit scores are so easily able to get an FHA mortgage. Those of us who do have good credit scores are getting great deals right now on regular mortgages.

CONAN: And which end of the business are you in, Ben?

BEN: I'm a residential realtor. So I work with buyers and sellers with homes.

CONAN: Okay. And so it's - Denver market is really doing well, then.

BEN: I'd say it's doing - it's well. It's not at a 10, but it's also not down at a one. And when you listen to nationwide stories - and this goes for a lot of parts of the country - people will hear sales were down by 30 percent and they think, well, that means now is a bad time to sell, or now is a bad time to buy.

And you really have to look at what's going on in your individual city to know what the market is doing and ask your realtor exactly what it is doing, and they'll tell you.

CONAN: It sounds like - I'm just making an assumption. Do you think the market has hit bottom Denver, it's on the way back up?

BEN: I think that it's stabilized.

CONAN: All right, stabilized. Ben, thanks very much for the call. Appreciate it.

BEN: You're welcome.

CONAN: And let's go next to this is Doug, and Doug's calling us from Cleveland Heights.

DOUG (Caller): Hi. Yeah, I just wanted to call and make a correction. I live in Cleveland Heights, which is an inner(ph) suburb of Cleveland, and in Cuyahoga County, we've been having mortgage fraud here - terrible mortgage fraud problem. And the foreclosure rate, if you count from 2000, is much, much higher than the states that you've mentioned previously.

CONAN: Okay. So is this a particular part of Ohio, or Ohio in general?

DOUG: Well, I can only speak for Cuyahoga County, but I know that we've had in the tens of thousands of houses repoed just in the county.

CONAN: And when you say mortgage fraud?

DOUG: We have people going to jail for doing things like selling houses to people for and having the house appraised for more than it's worth. A mortgage broker will then turn around and sell the mortgage. Then the person will abandon the house. The broker goes away with the commission for the...

CONAN: The sale.

DOUG: The sale, and then the bank is held - holding a house that is worth less than it lent on.

CONAN: I understand. All right, Doug. Thanks very much for the call, appreciate it.

DOUG: Thank you.

CONAN: Bye-bye. And Dean Foust, a tale of two markets, there you go.

Prof. FOUST: There are pockets of mortgage that are being hit by mortgage fraud. I think I saw estimates at the height of the boom that somewhere between 10 and 20 percent of all mortgages had some degree of fraud now.

You know, let me stop here and say that, you know, a big chunk of that could be what we might generously call benign fraud, where someone with - perhaps with the knowledge of their broker - you know, inflates or pads their assets or wherewithal to pay so they can stretch and get in a house.

But there was an awful lot of mortgage fraud, and that's one of the reasons that we have the problem that we do. Right now, banks in this country own one million houses that they're sitting on. And if you that they're keeping off the market right now because they don't want to dump these one million homes on and then lower valuations and create problems for the rest of their borrowers.

It's going to, by some estimates, take eight years for the banks to be able to slowly work those houses back into the market. So that's a problem that the banks are going to have to work through for almost the next decade.

CONAN: We're talking about the sorry state of the housing market in most markets and what you need to know if you're thinking of buying or selling. More with Dean Foust in a moment.

A bit later in the program, we're going to switch economic sectors and talk about American carmakers. If you're in the housing business right now - in sales, construction, home loans - what's happening where you live, 800-989-8255. Email: talk@npr.org.

If you're in the auto business - as in the manufacturing or the sales of those things - you can send us email now. We'll take calls on that later. So stay with us.

I'm Neal Conan. It's the TALK OF THE NATION, from NPR News.

(Soundbite of music)

CONAN: This is TALK OF THE NATION. I'm Neal Conan in Washington. One way to measure the health of the housing market is to look at foreclosure numbers. RealtyTrac recently put out a report that showed foreclosed homes made up nearly a third of all residential sales in the first quarter of this year. And as you suspect, they sold for much less, on average, than other houses.

Nevada, California, Arizona saw the most foreclosure sales. Ohio, Kentucky and Illinois felt the deepest discounts because of foreclosures in those states. As we mentioned, though, a handful of other areas have actually seen increases in home values in recent months.

We're trying to get a better understanding today of the housing market in general. If you're in real estate, house construction, home loans, what's happening where you live and work? 800-989-8255. Email us, talk@npr.org. You can also join the conversation on our website. Thats at npr.org. Click on TALK OF THE NATION.

Our guest, Dean Foust, who teaches journalism at Emory University, we've spoken with him many times about the economy, when he was Atlanta bureau chief for Business Week.

Let's get another caller on the line, and this is Vivian(ph), Vivian with us from Naples in Florida.

VIVIAN (Caller): Yes, hello.

CONAN: Hi, go ahead, please.

VIVIAN: Yes, our sales in Naples, Florida, on single-family homes are actually up 50 percent, year to date. We're starting to see an uptick on the single family home price value. Our condo market is obviously very slow. Thats where our problem area is.

But we also, with the tax credit going away, it does impact it in the fact that people in the Midwest are possibly not buying a home because they need that tax credit in order to qualify. And so that does not free up someone to come down here and repurchase. But that's only been in the last month. Lots of our sales, also, are cash sales.

CONAN: Cash sales?

VIVIAN: Yes. We do a lot of cash sales. In fact, my last eight sales have been cash.

CONAN: Someone comes up to you and says, I want to buy a house for I'm just guessing a number here - $350,000, and they pay you in cash?

VIVIAN: Oh, absolutely, absolutely. It's a common phenomenon in Naples. In fact, up until about 2002, I want to say about 60 percent of our sales were cash sales because people realized cash value out of the properties elsewhere and retired down here with that cash.

Mr. FOUST: Well, that was my question, whether these are people who already live in Naples and are just wealthy enough to be able to pay cash for a new home or whether these are retirees from another part of the country who see this as a once-in-a-lifetime chance to buy into...

VIVIAN: Yeah, we also have overseas purchasers who come in and can't obtain mortgages because the banks are making it very difficult for a foreign purchaser to purchase a second family home down here.

So what's happening is, those people either arrange financing in their own country or they have the cash on hand.

CONAN: Call me a cynic, but sometimes somebody walking around with that much cash, you really wonder where it came from.

VIVIAN: No, no, no, I'm not talking about we're not talking about dollar-bill cash. We're talking about, you know...

CONAN: Oh, writing a check from the bank.

VIVIAN: Yeah.

CONAN: Okay, all right. So they're not opening a suitcase and saying...

(Soundbite of laughter)

VIVIAN: No, no, it's not in money form.

CONAN: Okay, that makes a little bit more sense. In any case, is it fair to describe Naples, Florida, as an upscale part of the state?

VIVIAN: Yes, it is, and we have the highest per-capita in Naples, Florida.

CONAN: The highest per-capita income?

VIVIAN: Yes.

CONAN: Okay. But you're saying single-family homes there are seem to be, at least, on the uptick.

VIVIAN: Yes.

CONAN: All right. That's all very interesting. Thanks very much, and Dean Foust, Florida, not necessarily Naples, but Florida, a disaster area in terms of housing.

Mr. FOUST: Oh, it is a disaster area. Naples is affluent and it did get hammered by a lot of speculative building of luxury golf resort communities by the builders, a number of which went under. So, yes, I imagine there are incredible bargains.

You know, Florida's an interesting state in that you have this glut of condo towers in some areas, particularly in south Florida, in Miami, and there you have the local governments in south Florida who are coming in and buying these condo towers that were originally luxury condo towers but repurposing them for low to moderate-income apartments.

And I know that Mayor Bloomberg is trying to do the same thing in New York with some of the speculative condo towers that are just sitting there empty.

CONAN: Let's go next to Dustin(ph), Dustin with us from the other coast, San Francisco.

DUSTIN (Caller): Hi. I actually just became a realtor, and what I'm noticing in San Francisco, which is unique, is that I'm not really encountering a lot of foreclosures. What I'm noticing is that houses that are really in demand maybe while in the hot market a few years ago, they were going 200,000 or 300,000 over asking, now they're going maybe at asking or close to asking. Or a house that maybe was 14 million in the hot market is selling for 11 million now.

So, I mean, they're still selling. Compared to the rest of the country, I feel like it's still going.

CONAN: The real estate market in San Francisco, real estate there has always been very, very dear.

DUSTIN: Yes, yes, indeed. And it's scarce, as well.

CONAN: And it is moving quickly, though? You're not having houses sitting on the market for a year or more?

DUSTIN: Well, like a house, for example, I know one house which was up for 13 million, it ended up selling for 11 million, I think almost all in cash, maybe five months. It took five months to sell, whereas maybe a few years ago, it wouldve sold in the first month.

CONAN: And property values there are high, but even for high property values, you're talking about the high end of the market there.

DUSTIN: Yeah, but I mean, within the city, I mean, you can't really get much for under a million, if you're talking a house. And a house thats at a million to two million sells even faster. That'll sell, you know, in two months.

CONAN: Dustin, thanks very much, and continued good luck to you. We appreciate the optimism of somebody getting into the real estate business at this point.

DUSTIN: Yeah, I know, thanks.

CONAN: And Dean Foust, California, most of the problems there, am I correct, Southern California?

Mr. FOUST: Southern California. There are pockets like San Francisco proper where the high-tech industry is still doing relatively well. And a number of other affluent markets around the nation, Sag Harbor, New York; Greenwich, Connecticut, where values are doing quite well, and sales remain brisk.

You know, all those areas around metro New York, where Wall Street traders, you know, the investment bankers at Goldman Sachs, who are still doing quite well, they're still buying 5, $10 million houses.

CONAN: Nelson(ph) emails from Las Vegas: My wife and I are currently in escrow, waiting for an appraisal for a home in northwest Las Vegas. It is a bank-owned home, and these bank-owned homes are going almost as fast as the banks are putting them up. Competition was pretty fierce on getting a winning offer and there are plenty of cash buyers, investors looking to capitalized on these homes.

That's not the impression I had of the market in Las Vegas.

Mr. FOUST: I think if I'd have to know a little bit more about what type of sales volume we're talking about here because I'm a little dubious, as well.

But, you know, if you're a liquid buyer, meaning you have you can write a check, this is a good time to buy. But again, it's a good time to buy if you buy for the right reason. I think you have to you know, two things everyone has to have, you got to eat and you got to have shelter.

And if you look at a house as shelter, that you're going to pay rent one way or the other, you've got pay for a place. And if you look at a house as shelter for your family, then and if you don't overpay, and you work it in your finances that way, then it's good time to buy. Just dont think of a house as an ATM. Don't think of it as the card table at the casino because I think the days of doubling and tripling, those are over.

I think our children are going to look back in 20 years and maybe wonder why this generation thought of housing as a great investment, like buying stocks.

CONAN: James(ph) in Tallahassee emails: I just sold my house in Sarasota, Florida. They bought it for $350,000 cash, a check, he says, for a timeshare location, just to confirm what the woman from Naples had to say.

Okay, let's go next to Shane(ph), and Shane's with us from Crow Wing County, Minnesota. Is that right?

SHANE (Caller): Crow Wing County.

CONAN: Crow Wing County, okay, two words.

SHANE: I'll just make a quick statement about the residential building here. Guys that I know, say a half-dozen contractors that would be residential builders, maybe build one, two homes, they're small companies, are all doing remodels now, and they have for the last two years.

There's still some building going on but I would reckon it's maybe a tenth that it was just a few years ago.

CONAN: And this is the home-building season there, I would assume.

SHANE: Exactly. And there's chunks where they would buy up 80 or 160-acre parcels, throw in a road and then, you know, plan on building 20 houses. They sit empty and there's vacant places like that all over our county. And that's my only comments, I guess, here.

CONAN: So are you in the construction business?

SHANE: Actually, I'm in commercial construction. And right now, I've been unemployed for five months.

CONAN: That's tough, boy.

SHANE: Yeah.

CONAN: All right. We wish you the best of luck there, Shane.

SHANE: Thank you very much, and you have a fine day.

CONAN: Appreciate it, you, too. And Dean Foust, the construction business, the home construction business, not to mention the commercial construction that we were just hearing about, too, that was so much of a part of the economic boom and so much a part of the economic bust.

Mr. FOUST: It was, and that's the question I have going forward because if anyone wants to know, you know, how is the housing market going to do over the next one year, two years, five years, tell me about the job market. The answer is we've got to have employment. We've got to have unemployment go down. We've got to have incomes rising because, ultimately, that's going to be the determinant as to how the housing market does.

And, you know, right now, unemployment rate is still high, which is -the question is what's going to be the next big thing for the economy? High-tech and - was the - and the Internet was the big thing that carried the economy in the '90s. In the past 10 years, it was housing. What's the next big thing that drives employment and income?

CONAN: And have we reached the bottom of the market yet? What do you think?

Mr. FOUST: Again, I think, to quote Charles Dickens, you know, it's a tale of two different markets. And I think, you know, the other old saw is that all real estate is local, and I think it depends on the local economies. We talked about Denver and Colorado Springs and Richmond. There are many pockets where employment is strong. They are good, strong - Silicon Valley, San Francisco, where there are good, strong employment hubs. If you're in markets like California, Florida, some of those bubble markets, it's going to take a long time to work its problem - to work the problems out.

CONAN: Dean Foust, thanks very much for your time today.

Mr. FOUST: Oh, my pleasure.

CONAN: Dean joined us from WABE, a member station in Atlanta. He's a journalist and professor at Emory University, formerly Atlanta bureau chief for BusinessWeek magazine.

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