MORTGAGE rates in 2010 were the lowest in six decades, but a recent and sustained increase may indicate that consumers can expect to pay more in the new year to buy or refinance a home.
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After hitting rock bottom in mid-November, fixed rates for 30-year mortgages, the most common type of home loan, have steadily risen.

With this year’s historically low rates, “there is a good chance that we have peaked, give or take a few basis points,” said HSH Associates, an independent publisher of mortgage and consumer loan information, in its most recent trends forecast. (One basis point is 0.01 percent.) According to Christopher J. Mayer, a senior vice dean and a professor of real estate, finance and economics at the Columbia University Business School, “The window of low rates could have left us.”

By Dec. 16, rates for a 30-year fixed loan rose for the fifth consecutive week, to 4.83 percent, up from 4.17 percent on Nov. 11, according to Freddie Mac, the government-controlled buyer of loans. Rates in the Northeast, which are often a tenth of a point or more above the national level, were on average the same as those across the nation. But by Thursday they had nudged downward, to 4.81 percent.

Mortgage rates typically track those of 10-year and 30-year Treasury and other government bonds. Yields, or interest rates, on those notes have been rising amid lender concerns that the White House’s deal with Congress on Dec. 7. to extend the Bush-era tax cuts and the Federal Reserve’s move in early November to buy back $600 billion in debt to stimulate economic growth will combine to fuel inflation and swell the budget deficit.

The 4.17 rate last month was the lowest since Freddie Mac began tracking rates in 1971 — as well as the lowest since World War II, according to Weiss Research, a financial analysis and publishing firm in Jupiter, Fla. The high point last year was 5.21 percent, in April.

So if you took out a 30-year fixed note for $400,000 at the recent 4.83 percent, you are paying $93 less per month than you would have in April — but nearly $157 more than you would have at the 4.17 percent benchmark.

Refinancing or buying a home is still more affordable, compared with the rates of 6 percent to 8 percent over most of this decade. (A table of historical rates is at http://www.freddiemac.com/pmms/pmms30.htm)

The Mortgage Bankers’ Association, a trade group, predicts that 30-year fixed rates will inch up to 5.1 percent by the end of 2011 and reach 5.7 percent in 2012. In a slightly more optimistic prognosis for homeowners or buyers, Frank E. Nothaft, the chief economist of Freddie Mac, wrote in an annual trend forecast on Dec. 6. that “while some rise in fixed-rates is expected, 30-year fixed-rate loans are likely to remain below 5 percent” throughout 2011.

Apart from rates, other factors may make it harder to buy or refinance a property in the coming year. Lenders of all stripes have significantly tightened their requirements and made it tougher than ever to qualify for a loan. And the real estate market is still depressed — only half of 109 housing economists polled in October by MacroMarkets, a financial technology company in Madison, N.J., expect housing prices to begin rising next year.

This year has been a boom time for refinancings — four out of every five single-family loan applications in 2010 was for a refinancing, according to Freddie Mac — and there is more demand yet to come from homeowners next year, Professor Mayer said.

If rates appear headed to rise later in 2011, it may be partly because of jitters about the effects on unemployment on the economy, said John Walsh, the president of Total Mortgage Services in Milford, Conn. Mr. Walsh said he thought the recent increase in rates was temporary. “We may come back down in the next 60 days or so,” he added.

A version of this article appeared in print on December 26, 2010, on page RE9 of the New York edition.

While Southland housing values overall have rebounded from recent lows, those in the upper end of the market may not yet have hit bottom. Some experts don’t see a turnaround for at least another year.

Author Anne Rice has reduced the asking price on her Rancho Mirage home by $350,000, to $2.95 million, because she wants a smaller residence. (Mariah Tauger, Los Angeles Times / November 19, 2010)

Photos: Author Anne Rice downsizing from luxury home
By Lauren Beale, Los Angeles Times

On its glittering surface, the Southern California luxury housing market still has plenty of pizzazz.

A 48,000-square-foot Versailles-style estate in Bel-Air that sold for $50 million is believed to be the highest-priced sale in the nation this year. Actor Sacha Baron Cohen spent $18.9 million on a Mediterranean villa in the Hollywood Hills, a record for that area.

Luxury housing: In the Dec. 13 Section A, a graphic with an article about problems in the luxury housing market listed ZIP Codes for the highest-priced homes in Southern California. It showed two locations for Rancho Santa Fe on a map: the correct one in San Diego County and an incorrect one in Los Angeles County. —

These trophy deals, however, are masking a larger malaise in the luxury market. Most mansions put up for sale are lingering for months without nibbles from buyers, real estate agents say. And although Southland home prices overall have rebounded from lows hit last year, the luxury market is still trending downward.

The troubles at the top may seem small compared with the huge housing declines seen in areas such as the Inland Empire. But a turnaround in the luxury market was the first indicator of recovery in the 1990s down cycle. And many experts say the housing market won’t be healthy again as long as mansion prices are falling — which could be the case for at least another year.

“Good locations will be the first out, and luxury is generally in good locations,” said economist John Burns, who heads a real estate consulting firm in Irvine.

Why the continuing funk? Analysts say the foreclosures and short sales that depressed home prices in general are finally catching up with the high-end market. The day of reckoning just took more time.

“Formerly affluent people who borrowed far too much money” are running out of staying power, Burns said.

The Times examined monthly sales data in 20 Southland ZIP Codes with the highest home prices, from Beverly Hills to Solana Beach, using information provided by research firm MDA DataQuick of San Diego.

In 10 of those areas, home values are still lower than they were a year ago, suggesting that they have yet to hit bottom. Median prices were basically unchanged in five areas and showed modest gains in five. Overall, 19 of the 20 communities are still below their high points.

Anne Rice said she feels a little awkward complaining about the real estate market. As a bestselling novelist, she realizes she is far more fortunate than most.

Even so, Rice isn’t thrilled that she has had to reduce the asking price on her primary home in Rancho Mirage, near Palm Springs, by $350,000.

She hopes the new price of $2.95 million will attract a buyer, but it means taking a greater loss. Rice bought the six-bedroom, seven-bath home in gated Thunderbird Heights for $3.6 million in 2005.

“The market has been hard on us,” said Rice, who wants to downsize. “All my high-earning years, I invested in real estate…. I have lost money now on two — quite dramatically — selling an $8-million property in La Jolla for $6.5 million and a property in New Orleans for less than cost and improvements.”

Southland home values plunged 51% from 2007 to 2009. But they’ve shown steady improvement over the last 18 months, gaining back about 15%.

In contrast, home values at the upper end have not fallen as far but have shown few signs of recovery, according to MDA DataQuick figures.

There are 44 ZIP Codes in Los Angeles, Orange, Santa Barbara and San Diego counties where median prices exceed $1 million. Prices in these high-end communities dropped nearly 26% from their January 2008 peak to April 2010. They have gained back 5% since then.

Prices in Rancho Santa Fe, ranked by Forbes as the third most expensive community in the nation, have fallen nearly 31% since their 2005 peak, and they have yet to turn the corner.

Through October, Beverly Hills 90210 had the highest median of these top-priced neighborhoods at $2.7 million. That’s down a mere 18.7% from the 2008 crest, but it too has not shown any rebound.

While the overall drop in value has not been as severe as that at the lower end of the market, the fact that prices in many areas continue to fall acts as a brake on sales — as buyers hold off making purchases out of fear their investment will immediately decline in value.

Luxury real estate brokers are feeling the pinch, as fat commissions are fewer and further between.

“We’re seeing a lot more sales in the $1 million and below range,” said John McMonigle, president of McMonigle Group, an Orange County firm that specializes in selling luxury properties. “We had 121 homes close escrow in Newport Beach in September at an average of $1.15 million, but when you drill down, one thing is concerning: There was only one house over $5 million.”

Malibu’s Billionaires’ Beach enclave can boast of a $37-million closing in October, one of the highest prices there ever. But that and other marquee sales can’t make up for weakness elsewhere in the market.

“Malibu has taken the worst hit,” said Sandra Miller, an agent who tracks $1-million-plus sales on the Westside. Less than a third of listed properties are selling, she said, and median prices are down about 25%.

When will the market turn around, and what will it take?

Burns, the economist, believes that the housing market overall is headed back toward 2002 price levels, on grounds that the gains seen over the last year or so will be reversed as a new flood of foreclosures and short sales hit the market.

That would mean a small retreat for the general market, in which prices are now at 2003 levels. It would be a more dramatic downturn at the high end, where prices are about where they were in 2005. He predicted they won’t hit bottom till 2012.

Real estate agents say one reason the high-end market has taken longer to reach bottom can be summed up in one three-letter word: ego. Wealthy sellers may not need the money and refuse to reduce their price for fear they’ll look like they are in financial trouble, said Bob Hurwitz of Hurwitz James Co. in Beverly Hills.

The message he tries to hammer into unrealistic sellers these days: “You wouldn’t buy this house for this price yourself.”

Holding firm on an asking price keeps up the illusion that the house is worth more, Hurwitz said. “Some sellers are dreaming.”

Southern California’s posh neighborhoods are littered with examples of properties stuck at outdated prices. The most noticeable on the landscape is Fleur de Lys, a 12-bedroom estate in Holmby Hills that was listed at $125 million for 940 days before being pulled off the Multiple Listing Service late last year. The French Beaux Arts mansion on 5 acres is still being marketed on agents’ websites.

By comparison, its competition — the nearby $150-million Spelling estate — has been on the market only since March 2009. There has been no price drop on this 56,500-square-foot manse either, however.

The moneyed market of the Palos Verdes Peninsula is no different. Linda D’Ambrosi of Keller Williams had the listing on a turn-key ocean-view house that lingered on the market for more than a year with nary a price cut. Home prices on the peninsula are down 12.9% from their 2008 peak.

“The seller,” she said, “just couldn’t come to terms with today’s value.”

lauren.beale@latimes.com
Copyright © 2010, Los Angeles Times

Make sure that you pay careful attention to this… MID Has Boosted Homeownership. Chairs of the President’s Deficit Reduction Commission recently leaked a draft of suggestions for reducing the deficit. Among the many proposals are recommendations that would reduce or eliminate the Mortgage Interest Deduction. This could negatively impact real estate transactions. The leaked draft was intended to show that drastic changes are needed if the deficit is to be reduced. The leaked draft is NOT the Commission’s final recommendation. A formal report is expected on December 1. Recommendations in it will become formal only if 14 of the 18 commissioners vote in favor of the proposal. Etc.

Deficit Commission Chairs Release Draft MID Proposal

The concepts in the draft range from full repeal of the MID to other, various reductions. One proposal would reduce the cap on interest deductions from its current level of $1 million of mortgage debt to $500,000 of debt. The MID for home equity lines would be repealed, and the deduction for second homes would be repealed. Another version does not target MID specifically, but would rather reduce all itemized deductions by a fixed percentage. For example, if an individual’s combined MID, state and local taxes and charitable contributions were $15,000 and a 20% reduction was imposed, that individual would be permitted to deduct $12,000 ($15,000 x 0.8). A third group of proposal would retain the MID and some benefits for low-income families.

The revenues derived from cutting or eliminating the MID would facilitate the reduction of tax rates from its current 35% top rate to top rates of 23 – 26%, depending on the depth of the MID reduction. NAR and PWR will continue to monitor this situation as it develops and the full Committee report is released. We strongly oppose any changes to the MID or any plan that makes it more difficult for people to achieve the American dream of homeownership.

It also varies depending on which of the three main credit repositories you check. Each has a different scoring formula and different information in its files. – By Lew Sichelman – October 24, 2010 – Reporting from Washington —

Here is a scenario that happens all too frequently: A would-be home buyer applies online to obtain his all-important credit score. It comes back at a healthy 720, good enough to qualify for the best rate in the mortgage market. But then, when he applies for a loan with a local lender, his score is much lower. So low, in fact, that he might not qualify, even at less favorable terms.

What gives? How can your credit score be one number on one day and a different figure the next? And why does your score vary from one company to another?

A lot of things could be at play here. Let’s start with the basics.
A credit score is a three-digit number that is considered an accurate predictor of whether you will make your house payments on time every month. The higher the number, the safer the bet that you will repay.

But your score is based on the information contained in your credit record. And because what’s in your file is fluid, so is your score.

“Credit is dynamic information,” says Greg Holmes, national director of sales and marketing at Credit Plus, a Salisbury, Md., company that serves the mortgage business. “It’s constantly changing. It’s up and down and constantly moving.”

Your record changes every time the company that has your car loan reports an on-time payment — or more important, a missed payment that’s now more than 30 days late. It changes each time your credit card balance changes. It changes every time you apply for new credit. And it changes when an old bankruptcy finally falls into the abyss, never to be reported again.

Because a credit record is a moving target, shifting on a daily or even hourly basis, your credit score is nothing more than a numerical snapshot of your file at the moment it is calculated. As such it can change from one moment to the next.

“It depends on how much information is coming and going in and out of that credit report,” Holmes says. “It’s whatever time of day and month you pull the report. There’s even a difference between an account that’s less than six months old and one that’s older.”

If you asked someone to pull your credit score today, exactly six months and 29 days after you closed a department store account, for example, the number would be different than if you asked tomorrow, when it has been seven months since the account was shut down. Maybe not by much, but perhaps enough to alter your chances to obtain financing.

But there’s more to your score than what’s in it. Another big factor is what’s not in it. Not every creditor reports information to each of the three main credit repositories.

Say your auto lender is a local bank that reports only to Experian because Experian has a bigger presence in your state. In that case, neither TransUnion nor Equifax will know whether you are current on your car payments. They wouldn’t know about your car loan at all. As a result, a credit score based on your Experian file will be different from one based on the records maintained by the other two big bureaus.

Also, each repository has its own credit-scoring formula. A Minneapolis analytics company known as FICO (formerly Fair, Isaac and Co.), from which the term “FICO score” comes, created all the formulas. But the algorithm used by each credit bureau is slightly different based on factors that each believes to be a more or less important component of risk.

So not only is TransUnion’s score different from Equifax’s and Experian’s because it is based on information only in its records; it’s also different because it uses a different analytical model. And even if each depository maintained the same files, their scores would be different because they use different formulas.

Next, it’s important to know that the mortgage industry isn’t the only business to use credit scoring to rate potential borrowers. Actually, housing finance came somewhat late to the technique. The insurance business has been grading potential customers for decades, and now auto lenders, finance companies, banks, employers and dozens of others use credit scoring to make decisions.

The key is that each business has its own scoring formula. And a score that may be acceptable to, say, the finance company offering to lend you $5,000 for a new roof probably won’t be acceptable to a mortgage company trying to decide whether to lend you $500,000 to buy a new house.

So if you received your score from one of the Internet sites that provide a free score — but try to hook you into paying a monthly fee to monitor your credit file — it’s a safe bet that the number, accurate or not, won’t be worth much if you are in the market to buy a house.

If you’re buying a house, you’ll want an industry-specific mortgage score. No other score will do.

“Anybody can calculate a score,” Holmes says. “Who accepts it is what really matters. Even the scores used in the mortgage industry wouldn’t mean anything if Fannie Mae or Freddie Mac didn’t accept them. Or if JPMorgan Chase or Wells Fargo or Bank of America didn’t accept them.”

You can obtain a free copy of your credit record from each of the three major credit bureaus at http://www.annualcreditreport.com. The law entitles you to one free report every 12 months from each repository, but there’s nowhere I know of to obtain a free credit score.

Many outfits offer “free” credit scores, but in most cases, you have to sign up — for a monthly fee — for a credit-monitoring service. You usually can opt out of the service after a trial period. But the companies are hoping that you won’t, or that you’ll forget and won’t pay much attention to your credit card bill when it arrives in the mail.

But remember, not every score is acceptable to mortgage lenders. I’m aware of only one online service that fits the bill: http://www.myfico.com. But even then, you’ll have to sign up for the Score Watch monitoring service that FICO offers in conjunction with Equifax. You’ll just have to remember to cancel the service before the free trial period runs out.

Beyond that, would-be home buyers can obtain meaningful credit scores by applying for a mortgage, either directly with a lender or with a broker who deals with several lenders. Once you apply, lenders are obligated by law to share the score they used as a basis to decide whether you qualify.

And once you obtain a satisfactory credit score, make sure that you don’t do anything credit-wise that will change it, at least not until after the loan closes. Remember, a credit score is a moving target, so if you run out and buy new furniture using credit, your score will suffer, and you may no longer qualify for a mortgage to buy your house.

lsichelman@aol.com – Distributed by United Feature Syndicate. Copyright © 2010, Los Angeles Times

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