We had some previous posts about the Fannie Mae approved list as well as some discussion about rates. Questions still exist so here is an explanation from Dave Reichert at PHH Mortgage that address some questions that have come up in recent agent meetings. This is good practical information.

After our investor sales meeting presentations I have had a couple of really great questions asked of me and both pertained to condominiums, and I wanted to cover them for the benefit of all.
 
Condo's that appear on the Fannie Mae Approved list are approved for PHH to lend on regardless of what a condo questionnaire might flush out making it ineligible for financing.  Those of you who have checked the list more than once have seen the list diminish in number of approved communities (some communities only have a couple of buildings on the list).  There is a way for us to tell how long a community may remain on the list.
 
In the far right columns is a date.  That date represents the expiration of the 1028 classification.  The 1028 is a certification that Fannie Mae uses to "grade" the community.  If you see that the 1028 is coming up for expiration within a short period of time there is NO guarantee that the community will be on the list at the close of escrow...thereby cancelling your transaction if financing is required.
 
This expiration date also is the reason a community is there one week and gone the next. If the community does not meet the 1028 criteria when their current 1028 expires that community is removed from the list and may apply again for the certification should the criteria that caused it to fall from the list is remedied.
 
The safest bet is to always check that list prior to showing clients who need financing for a condo.  With SFR prices where they are it is always safer to show a SFR as the criteria is not as stringent as it is for condominiums.  ALSO please note that a Townhome is considered an Attached Single Family Residence and does not require a certification.
 
Secondly; I had an agent ask "how can a condo qualify for Home Path financing in a community that isn't Fannie Mae approved?"  It's a great question and here's why.  That loan, through secondary market sale (Mortgage Backed Security) ended up in Fannie's possession.  The occupant defaulted Fannie foreclosed and now it's an REO in Fannie's portfolio.  The Home Path mortgage is a mortgage offered directly from Fannie Mae. "She" sets the guidelines rates and requirements and Fannie is not in the business of holding real estate she's into lending. SO that is why you can get a Fannie product in a community that is not Fannie Approved.
 
Remember Home Path: 3% down no appraisal and no mortgage insurance for primary residence and 10% down no appraisal no mortgage insurance for investors.  You can find Home Path approved properties at www.homepath.com
 
In closing; rates were hammered into the clouds on Tuesday and Wednesday due to a number of economic factors not the least of which was a glut of bond auctions that I wrote about last week that flooded the market and caused the price to decrease dramatically.  We are seeing slightly lower rates today; however, be advised there is some ground to cover before rates return back down to where they were.  Let's face it interest rates can only stay at historic lows for so long before the market does its thing and brings them back up.  Get your buyers off the sidelines now as there is no time like now to purchase with prices where they are and rates as low as they are now.

Dave Reichert CMP
Mortgage Advisor
PHH Mortgage

With talk in some parts of the country about preliminary signs of a bottoming in residential prices (we seem to have passed it in terms of the number of sales in Las Vegas) folks are pulling out their favorite index to try to prove the point. In a previous white paper, we discussed the difference between median indices, S&P Case-Shiller and the FHFA index. Altos Research also has a nice one for price per-square-foot. At the time we wrote about this, defenders of high prices were using their pet index to convince themselves that all was well and that their overleverage condition would be just fine. Almost one year later, the issue keeps bouncing back like a bad case of stomach flu. James R. Hagerty hits this topic today in the Wall Street Journal which is a pretty good description of the indices and their issue within the current scenerio.

For our reporting, we discuss the S&P/Case-Shiller and the FHFA. We also segment our median price indices by their square footage range in or order to avoid distortions through larger or smaller sized homes. We also elimate outliers such as really old homes or homes that appear to be stripped out boxes just begging for a rehab or teardown. When each of these indices are at least bouncing month-to-month (or quarter-to-quarter for the FHFA) between the positive and negative plains than at least we can say that it looks like a bottoming is occuring.

For now, with at least some respectability, we can say that prices for many home classifications in Las Vegas appear to be below long-run trend. Valuations in the smaller home sizes appear to be in the 1990's and in the early 2000's for larger homes.

Here is an interesting map of the U.S showing price re-set. You can see that the CTRL-ALT-DELETE buttons were pressed on many of these areas, re-booting to the 1990's. Many thought that you needed a 1985 Delorean, some enriched uranium and a flux capacitor to get back there...but we're back there. A new issue is, do you want to wait for further home price declines or further mortgage rate increases?

This map comes from Harvard's Joint Center for Housing Research. It employs NAR median prices.

We have been talking about the potential for inflation for some time. It really hasn't been a near term concern because a lot of prices were/are falling. Recent activity by the Federal Reserve have appeared to help keep the rates on long-term debt instruments relatively low. However, the more recent pop in rates on mortgages give us the feeling that low rates can't last forever. Sherry Cooper, at the Bank of Montreal states "if the Fed keeps the printing presses running for too long and if the federal government cannot find ways to rein in deficit spending, there is a real risk that by 2011 or 2012 inflation will be a problem." Others take a different view or see differences in the timing. Joe LaVorgna at Deutsche Bank believes "We think forecasters' inflation worries are premature," and that "Only when it appears the financial markets are on a self-sustaining recovery should we begin to worry about reducing the size of the Fed's balances."

Yesterdays article in the Wall Street Journal Online summarized some of this debate well. Because of the jumping yields on government debt, folks have rekindled interest in the inflation-deflation debate. Lately, there are fewer transactions and the velocity of money is weak enough that there have been little measurable effects of inflation due to the Fed's quantitative easing. As quoted in the WSJ article, Economists often linked to particular political affiliations have different views on inflation. Paul Krugman states that we are in a liquidity trap and that "a rise in the monetary base does not lead to inflation." Further, he believes that although government borrowing is massive it does not counter the weak private borrowing. Arthur Laffer on the other hand believes that what he calls "panic-driven monetary policies" may have brutal consequences. This entails rapidly increasing prices, high interest rates and output and employment similar to the 1970's. Laffer also believes that the Fed will not do what is required to stay away from inflation.

A lot of folks are still reeling from the past couple of years. Many feel that Bono's lyric in the song One, "you gave me nothing now its all I got" is speaking about their relationship to the government, banks and many other entities. But one needs to think strategically. While I am not certain about the inflation-deflation debate, I think that the probability of inflation in the next few years, combined with the havoc that it can cause tells me that I should try to hedge against it. While gold is sometimes seen as a throwback device from caveman days, it has appeared to be a good hedge. More recently, instruments such as Treasury Inflation-protected securities (TIPS) may also help you guard against inflation. But I want to live large. If I think inflation is probable, taking on fixed-rate debt and paying it back with cheaper dollars might be pretty fun.

One way to do this is with housing. With still reasonably low levels when looking at mortgage rate histories, I am happy enough to lock into a rate for a home now. In the low-tier price range I am looking at, which appears to be below  trend (excluding the absurd bubble levels), I am comfortable enough without having to time the market "bottom." While I like the shininess of gold and that only a combination of sulfuric and hydrochloric acid can destroy it, I still need a place to live. TIP's while something that sounds like part of a well balanced breakfast may be a good component of a portfolio, I can hardly entertain guests with it. Yes, there are psycic benefits along with financial ones...

Sources:

Lately we have been dealing with developers eying Las Vegas for their long-term plans. Yes, a business freindly environment does matter and after working in other states, I am happy to say that the Las Vegas area is one of the lower cost places to do development.

We aren't the only ones seeing this, as the Las Vegas Sun reports in this article. This is to take place in the Southwest part of the Valley, which has undergone a lot of growth in the past few years. Its a pretty easy trip from the Airport or the resort corridor so that helps immensely.

The June report is out from Altos Research which summarizes April data (it takes a long time to compile). Las Vegas is still on the lower end of the days on market spectrum due to solid sales, especially for bank owned homes. This measure appears to use complete days on market (can substantially differ from DOM), which tracks the whole time a particular home has been on the market even if listing agents removed the home from the MLS for a while and then re-added it with a price change.

Interestingly, Miami is still showing the weakest turnover and not suprisingly, Detroit is still in the top five. By this one measure, Las Vegas is fairing a little better than its closest comparison city, Phoenix, which has experienced a similar pattern in inventory build up and price decline. Lately we have been finding that some of the nicer homes that are priced with the market have been going to contract in less than 30 days. A few of the ones I was looking at myself went into contingent status with cash in less than two weeks.

Source: Altos Research.

People continually ask us, what are the home prices out there in Las Vegas? Here we post some general statistics to quench at least a portion of the thirst for Las Vegas area housing statistics. Please keep in mind that some of these figures can shift a lot month-to-month due to the different types and sizes of homes sold in the comparison periods. Further, short sales, REO's and owner occupied sales each act a little differently. This really shows up in the days on market numbers. Nevertheless, this will give you a general snapshot of last month.

Here is an interesting article by CoStar regarding commercial real estate and the disconnect between buyer and seller mentalities. I excerpted Ron Opfer's quote from the piece since I think it expresses todays concerns well.

Ron Opfer, CCIM, a broker with Coldwell Banker Premier Realty in Henderson, NV, said all asset types are attractive right now from a buyer point of view.

"You just have to use real numbers in your math and make some sort of adjustment for a market that is continuing to fall," Opfer added. "Our investors chop the reported lease rates by 25% to 35%, apply a higher than reported vacancy rate, and use a cap rate that truly reflects the current risks associated with commercial real estate. No longer can you associate the same risks with commercial real estate as you would with a money market account. From an investor point of view, the days of artificially low cap rates are gone."

"It is absolutely essential step to recovery that the CRE assets re-set at current market rates. There are CRE assets all over the country that simply cannot re-lease due to the fact that current market lease rates do not pay the mortgage. These mortgage values have to be re-set in order for the assets to offer the necessary pricing," Opfer said.

The Disconnect: Seller Side

The sellers mind set still appears to be to try to hold on and ride out the volatility until things stabilize. Or as Opfer put it, "banks are having trouble pronouncing the word 'loss.'" Thus buyers are finding it extremely hard to negotiate a deal with banks.

With prices sliding for housing it may be hard for some to jump into housing market. I would not encourage anyone to impulse purchase a house even while contingent offers are locking up a lot of the Valley's well priced housing options. I would encourage a schooled approach based on the variables we understand today. Mortgage interest rates have been very low compared to most historical data points. We have seen rates jump in recent days and are not certain where they will go. So, if you are looking for homes, the rate increase is one thing you may want to consider strongly as those payments may offset what you think you will save by waiting. Go with what you know, not with what you hope will happen.

A further discussion of recent rates is offered by Bloomberg. Interestingly, the Fed may be in a "do nothing mode" as according to the article, "Bernanke and other Fed officials say the improved economic outlook and rising federal budget deficit are the catalysts for higher borrowing rates, and see no need to increase purchases of bonds." The essential meaning for us is that if the Fed does not keep purchasing MBS's, rates could continue higher. Based on the uncertaintanty the Fed is facing, I opt for looking for homes in the lower price ranges which we have seen cash flow as rentals and getting the deals done sooner rather than later.