By Matt Woolsey
Forbes.com

If you’ve got property for sale, chances are you’re in a bind: Nationwide, prices for existing homes keep on falling and new home constructions started a few years ago continue to roll off the conveyer belt, upping inventory.

On top of that, the fallout from subprime lending, the subsequent tightening of credit and lending standards, and the recent rise in long-term treasury yields has shrunk the pool of eligible buyers. Feel like you can’t catch a break? You’re not alone.

Not every market follows national trends and despite the industry’s overall problems, there are still cities where sellers have the upper hand.

In Pictures: Top Home Sellers’ Markets

The best way to judge a buyer’s vs. a seller’s market is a simple supply vs. demand analysis of housing stock: At the current rate of sales, how long would it take to sell off the inventory whether single family homes or condos? If that measure comes back high, houses sit on the market longer. If it is low, the market is tightening. This is good news for the seller.

The Methodology
To measure inventory glut, we used Moody’s Economy.com and National Association of Realtors data that tracked a market’s current sales rate by projecting the amount of time it would take to sell off the excess housing stock at the current rate of sales.

We also looked at the change in sales rate over the last year to measure the relative tightening or loosening of the market. Finally, a measure of price stability was applied so as to prevent the list from being a rundown of upstart markets.

The measurements left out a few cities that lacked comprehensive data. Seattle, for example, has incredibly strong market fundamentals–the lowest vacancy rate of major metros at 0.9% and is a small geographic area not conducive to overproduction. It is a good seller’s market, but for tracking what we were after, Seattle data was incomplete for our analysis.

Moody’s Economy.com chief economist Mark Zandi points out that the best-performing markets are those that had barriers to over production during the housing boom.

The Top Tier
In the case of San Francisco, which ranked second on our list, it’s an issue of geography: There is little space for growth or new development and the local government doesn’t do much to incentivize new construction.

Strong in-migration stemming from local economic strength is another good way to keep up demand here. New houses being built isn’t a problem if there are new people moving to town.

This scenario is also playing out in Raleigh, N.C., the No. 1 city on our list. Moderate growth and disciplined building over the last five years prevented the market from developing a significant glut. Additionally, a strong local economy has helped contribute to the city’s healthy 1.6% vacancy rate.

What’s more, the rate of home sales against home inventory was healthy in Raleigh; in this category, it ranked fifth best of big cities, according to Moody’s metrics. Even though the market has low vacancy to begin with and displayed strong construction restraint during the housing boom, Raleigh still has the eighth best rate of tightening.

Similarly, strong in-migration and local economic pop carried Austin as a seller’s market. It finished fourth overall in sales rate to inventory size and has had the fifth-best home price appreciation figures of the large markets Moody’s measured. Its mediocre 14th best market tightening ranking can be attributed, in large part, to its small inventory excess. A 1.5% vacancy rate, like Austin’s, is where the national average stood during the most recent housing boom. In other words, that low a vacancy rate indicates a housing market at close to full capacity.

While the market isn’t going gangbusters for investment, sellers in these markets are faring much better than their counterparts across the country.

In Pictures: Top Home Sellers’ Markets

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A look at where rates on home loans are headed in the new year.

Luke Mullins
U.S. News & World Report
January 15, 2009

It wasn’t too long ago that mortgage rates were expected to move sharply higher in the coming months thanks to rattled investors and mounting inflation. But while falling home prices and jittery financial markets have done little to assuage investor fears, a number of recent developments have combined to create a decidedly optimistic mortgage-rate outlook for 2009. “The preponderance of forces that would typically operate on mortgage rates — the economic backdrop, the inflation backdrop and, in this case, government policy — are all pointing towards lower interest rates,” says Mike Larson, a real-estate analyst at Weiss Research.

Rates have already become increasingly attractive. The average national rate for 30-year fixed mortgages fell to 5.57% in the week of Dec. 5, from 6.61% just seven weeks earlier, according to HSH Associates. Here’s a look at where mortgage rates are headed in the new year, the forces that will be influencing them, and how consumers can take advantage of the trends.

There are 3 main factors behind the outlook:

1. 2009 rate outlook: Thirty-year fixed mortgage rates should begin 2009 at around 5.5%, says Keith Gumbinger of HSH Associates. From there, they will “wax and wane” in the 5.5% to 6% range, before closing out the year somewhere between 6% and 6.25%. “That’s still very attractive,” he says. “There is no reason to think that rates are going to go up so substantially so as to erode the marketplace.” (However, should the economic outlook improve more quickly than expected, mortgage rates could trend higher, Gumbinger says. In addition, new government programs unveiled next year could alter the projection.)

2. Inflationary easing: With the global economy headed for what many expect to be a nasty recession, the inflationary pressures that looked so menacing in the summer have quickly dissipated. The government reported in November that the core consumer price index — a measure of inflation that excludes volatile food and energy prices — decreased by 0.1% in October from the previous month, a sharp decline from the 0.3% monthly increase posted in July. At the same time, crude oil has plummeted from more than $140 a barrel in the summer to less than $50 a barrel in December. When inflation eases, yields on government bonds—such as the 10-year Treasury note — tend to drift lower. And because 30-year fixed mortgage rates typically track the yields on 10-year Treasuries, the diminished inflationary outlook has helped pull rates down. “The sudden collapse in prices has changed things dramatically,” Gumbinger says. “That was really one of the linchpins as to why rates finally did fall.”

3. Recession: The National Bureau of Economic Research recently announced that the United States did indeed enter a recession in December 2007. While predictions as to the duration and depth of the recession vary, economists at Goldman Sachs recently revised their original forecast in the face of deteriorating economic news. “This deepens and extends the expected recession, bringing the drop in GDP close to the decline seen in 1982 (2.3% in our forecast versus 2.7% then),” the economists said in the report.

The recession is likely to put additional downward pressure on mortgage rates in two key ways. First, the economic contraction will work to stifle inflation. And second, it will support the ongoing “flight to quality,” whereby investors move cash from more risky investments — such as stocks — to ultrasafe government securities. Such forces are already bringing yields on government bonds sharply lower. Ten-year Treasury yields fell to 2.66% during the week of Dec. 5, from 4.02% just seven weeks earlier. “You are seeing nominal Treasury yields at new multidecade and, in some cases, all-time lows,” Larson says. “[This] should add downward pressure on mortgage rates as well.”

4. Government action: The outlook for mortgage rates has also been influenced by recently announced government initiatives. In late November, the Federal Reserve announced plans to buy up hundreds of billions of dollars in debt and mortgage-backed securities from government-controlled mortgage finance giants Fannie Mae and Freddie Mac. The plan is designed to reduce Fannie’s and Freddie’s financing costs, thereby enabling them to pass savings on to individuals in the form of lower mortgage rates. The Fed has since suggested it may begin buying long-term Treasury bonds, which could bring 10-year Treasury yields even lower. These announcements triggered an immediate drop in mortgage rates and could continue to keep rates low in the coming months. And while the massive bailout initiatives that governments around the world are now undertaking will undoubtedly lead to renewed inflationary pressures, this impact is unlikely to materialize until 2010, Gumbinger says.

5. Housing market turmoil: The decline in home prices, coupled with rising mortgage delinquencies and foreclosures, has prompted investors to demand higher returns on their investments in securities backed by home loans. As a result, the spread — or the difference — between the yields on 10-year Treasuries and 30-year fixed mortgage rates has widened significantly. This spread expanded to nearly 3 percentage points in the week of Dec. 5, from 1.5 percentage points in the first week of June 2007, before the credit crisis struck. And with home prices expected to continue falling throughout at least the first half of 2009 — and mortgage delinquencies accelerating — this “risk premium” should remain elevated. “We’re not going to get back to the same tight relationship between the 10-year [Treasury] bond and fixed mortgage rates any time soon,” says Tom Vanderwell, a mortgage lender from Michigan. But despite this upward pressure, Vanderwell says he expects mortgage rates to finish 2009 somewhere between 6% and 6.25%.

6. Lending standards: Although mortgage rates are likely to remain attractive next year, not everyone will be able to take advantage of them. Many homeowners with adjustable-rate mortgages who would like to refinance into more affordable, fixed-rate home loans have negative equity, meaning they owe more on their mortgage than their home is worth. As a result, they will not be eligible for refinancing. Meanwhile, those looking to purchase a home will face a credit environment that is significantly tighter than in the housing boom days. In order to access today’s most attractive rates, borrowers will have to be able to document their income, make a down payment and have good credit. Mark Hanson, a managing director who handles real-estate and finance research at the Field Check Group, says there aren’t a great deal of potential homebuyers in the market today “who have jobs, two years of tax returns, [who] are qualified, and have saved a large enough down payment.”

7. No rush: But even though rates may be low today, Larson says qualified borrowers shouldn’t feel pressured to see their lender immediately. “This is a lot less of a situation where you’ve got a temporary spike lower that if you don’t get out the door in 48 hours, these rates are going to be gone,” Larson says. “This is more of a longer-lasting trend where — sure, you will see some fluctuations — but that the trend in rates is probably lower for a number of months.”

It would be a big stretch to label housing the sunny side of the market at the moment, but there’s a lot more light there than in most other financial sectors because there is no shortage of money for home mortgages.

Kenneth Harney
Seattle Times

Credit squeeze, credit freeze, credit-system seizures: Everybody knows how severe and painful the global financial breakdown has been, with banks unwilling to lend even to other banks.

But what about mortgages and real estate? Can you still get a home loan with less than a 20 or 30 percent down payment? Or with a credit score below 720?

Absolutely. It would be a big stretch to label housing the sunny side of the market at the moment, but there’s a lot more light there than in most other financial sectors. Consider these facts:

• There is no shortage of money for home mortgages, no freezing of credit to purchase or refinance a house. Why? Because the mortgage market effectively has been federalized — at least for the time being.

More than 90 percent of new loans now are being made through the Federal Housing Administration (FHA) insurance program, plus Fannie Mae and Freddie Mac. FHA is owned by the federal government, and Fannie and Freddie are operating under federal conservatorship.

All three have unfettered access to global capital markets at rock-bottom costs because their borrowings are fully guaranteed by the Treasury.

Ginnie Mae, which is FHA’s pipeline to the bond market, recorded an all-time high of $29 billion in new mortgage-backed securities issued in August.

• Loan terms and credit underwriting standards have been toughened up, but you can still put down 3 percent (3.5 percent after Jan. 1) on an FHA-insured mortgage and 5 percent on certain Fannie Mae and Freddie Mac loan programs with private mortgage insurance.

FHA’s credit standards are generous and forgiving; the agency exists to help people with less-than-spotless credit histories. Fannie Mae and Freddie Mac have raised their credit-score requirements over the past year, but buyers and refinances with scores in the upper 600s can still qualify for loans having reasonable rates and fees.

• Despite the global financial system’s quakes, mortgage rates not only remain low by historical standards but have actually declined.

For the week ending Oct. 8, according to the Mortgage Bankers Association, average 30-year fixed rates nationally dropped to 5.99 percent, and 15-year mortgages averaged 5.71 percent. Freddie Mac said 30-year rates dropped to 5.94 percent.

• Maximum loan amounts through FHA, Fannie and Freddie in high-cost local markets on the West and East coasts, such as Seattle, continue to be $729,750 through December. In January, the high-cost maximum is projected to dip to approximately $625,000.

• Home prices — pushed by foreclosures and short sales — have rolled back to 2003 and 2004 levels or lower in many former boom markets.

As a result, buyers are coming off the sidelines, making offers and writing contracts. The pending home-sales index jumped by 7.4 percent based on purchase contracts signed in August, according to the National Association of Realtors.

The heaviest increases — pointing to higher closed sales in the coming two to three months — were in California, Florida, Nevada and the Washington, D.C., area.

Housing and mortgage leaders say consumer worries about the stock market have obscured positive developments in real estate, where pricing pain and downsizing have been facts of life for 2-½ years.

David Kittle, president and CEO of Principle Wholesale Lending and incoming chairman of the Mortgage Bankers Association, says, “the mortgage market has never shut down” despite the global financial crisis.

Money is “clearly available as long as you can qualify for it” with at least a modest down payment and decent credit history,” Kittle says.

Matt Vernon, a national retail mortgage-sales executive for Bank of America, said, “We’ve got more than enough liquidity” to handle mortgage demand. “We are open for business.”

Most of the bank’s production is now funded through FHA, Fannie and Freddie.

On the front lines, mortgage-company owner Jeff Lipes, president of Family Choice Mortgage near Hartford, Conn., says: “I don’t think consumers really know how free-flowing capital is right now in the residential mortgage market. There are no shortages, no breakdowns. People ought to be aware of that.”

Bottom line: Scary as the news has been about stocks and banks, this is not the case for mortgages.

Besides shopping at large national lenders, check with local banks and credit unions that may be originating loans for their own portfolios — not for Fannie, Freddie or FHA. Many of them are healthy, have cash to lend and may be surprisingly competitive on terms and rates with the big boys.

Kenneth R. Harney: [email protected]