Tell us: will the cord snap?

Are bargain hunters creating demand in your market? When they find the house they want, are tightened lending standards keeping them from closing the deal?

For all the headlines about problems in subprime and Alt-A lending, there's some good news for those who qualify for prime loans, Inman News columnist Lou Barnes writes today. A stampede by investors to securities backed by prime mortgage loans has pushed down rates on 30-year fixed-rate loans.

There's also a glimmer of hope in a First American CoreLogic report out today. House price acceleration continues to inch back up from negative territory toward zero, an indication that demand for housing is rebounding -- at least when you look at the numbers at the national level. Prices are declining in 70 of the 381 markets monitored in the report, and appreciating by less than 5 percent in the vast majority (205).

But the fact that house price acceleration -- the rate of change in home price appreciation -- is bouncing back after 18 months in decline is evidence that prices at the national level are reaching their bottom, the report concludes.

Think of a bungee jumper leaping off a bridge. In the graph accompanying the report, (hit continue reading to see it), the jumper's descent begins at the end of 2005. Home price acceleration heads deeper and deeper into negative territory, peaking at around -6 percent in the third quarter of 2006. Since then, the bungee cord's been tightening, and the rate of change in home price appreciation has been slowing. In other words, the jumper (home price appreciation) is still falling, but not nearly as fast as before. The trend in acceleration suggests that the bungee cord is getting stretched taut, and that the jumper will soon be yanked back up.

But that assumes that the cord doesn't snap. While demand for housing may return as home buyers seek out bargains, will they still be able to finance their purchases? In the last few months, lenders have sharply curtailed the use of "affordability products" like 2/28 adjustable-rate mortgages and zero-down loans that helped fuel the boom years.

The National Association of Realtors last year estimated that 45 percent of first-time homebuyers purchased their homes with no money down. That's no longer an option for many folks now, with more lenders requiring buyers to bring at least some of their own money to the closing table. New federal guidance advising lenders qualify subprime ARM borrowers at the fully-indexed rate -- assessing their ability to make payments after their interest rate resets -- means that even if you can find somebody making these loans, you won't be able to buy as much house with them.

Tell us what you are seeing. Is the cord getting taut? Will it hold, or could it snap under the weight of the subprime meltdown?

Source: First American CoreLogic Core Mortgage Risk Monitor Q3 2007.

All rights reserved. This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this content without permission is a violation of federal copyright law.