Expert Discusses Housing Market

Guy Cecala, publisher of the industry newsletter Mortgage Finance Insider, discusses the housing market and why low interest rates are having so little effect in boosting sales.

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RENEE MONTAGNE, host:

Now for a check on what's happening in the market for home buyers and home sellers, we called Guy Cecala. He's the publisher of Inside Mortgage Finance. Thank you for joining us.

Mr. GUY CECALA: You're welcome.

MONTAGNE: One thing that is remarkable about the current situation is that even though mortgage rates are at historic lows, people just are not buying. And traditionally it's been the case that when rates drop people buy or they refinance. Why aren't low rates encouraging people to do that now?

Mr. CECALA: I think because there are a lot of other problems in the economy, in people's personal situations and in the overall housing market in terms of uncertainty about where housing prices are going that are just making people think twice about taking on any big purchase, particularly a home.

MONTAGNE: So who is left then? What portion of the market that used to exist is still there?

Mr. CECALA: Well, one of the significant things is you hear the Obama administration and other people talk about the need to keep Fannie Mae and Freddie Mac around because they're supporting the housing market. And they are supporting the housing market to the tune of about two-thirds of all new loans being made or being financed by those two companies or agencies.

However, if you look at the type of business they're doing - average credit scores of 760, average down payments of 25 or 30 percent. That is not the average American. You know, the average credit score in this country has moved up, but it's still somewhere around 690.

And, you know, a 20 percent down payment on, let's say, an average mortgage of $200,000 is $40,000. There are not many people who are buying their first home have saved up $40,000, not including closing costs.

MONTAGNE: Are you seeing any regions where home sales are picking up significantly?

Mr. CECALA: Yes. We are seeing, you know, some of the hardest hit areas initially, the so-called sand states, have seen increases in activity. They were the first to bottom out more or less. But a lot of places are seeing an upturn in activity. But the bar was slow low before that it doesn't take much to clear that.

MONTAGNE: Over all, how long do you see this going on for?

Mr. CECALA: Well, we have a huge amount of backlog of delinquent, if not about to be foreclosed properties in this country, banks are sitting on a lot of properties and we have enough in the pipeline to really keep us flooded and hold down property prices at least through 2011. We're basically looking at 2012 at this point, where we might be able to see some sort of signs of a meaningful recovery.

The other issue we have is in the mortgage market. The U.S. government is basically running the whole mortgage market and it's essentially on life support. As I said, 96 percent of the mortgages being made in this country are being financed through the government.

It is not an easy way to talk about extracting the government, reducing Fannie Mae and Freddie Mac's presence, reducing FHA's activity until some fundamental improvement in the economy and investors become more comfortable with the idea of private banks making loans, guaranteeing them themselves but not just dependent on a U.S. government guarantee.

MONTAGNE: What would constitute a healthy housing market after what we've just been through?

Mr. CECALA: Well, certainly, you'd have to describe a healthy market as one not dominated by distress properties, more of what we call a normal market, where people are trading their homes up, getting the prices they think they need. But until we get through the backlog of foreclosed properties and basically the economy and unemployment improves, it's hard to imagine that we can eliminate that significantly and it just takes time to work through that.

MONTAGNE: Guy Cecala is the publisher of the industry publication Inside Mortgage Finance. Thank you very much for joining us.

Mr. CECALA: You're very welcome.

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