Massive federal moves that are intended to stop the bleeding in the financial markets are impacting consumer confidence in the housing market, some real estate professionals report.

A Bush administration plan to buy hundreds of billions worth of mortgage-related assets will be tossed around by Congress this week …


By Glenn Roberts Jr. and Lai Saetern

Massive federal moves that are intended to stop the bleeding in the financial markets are impacting consumer confidence in the housing market, some real estate professionals report.

A Bush administration plan to buy hundreds of billions worth of mortgage-related assets will be tossed around by Congress this week (see Inman News report), and the few details and potentially far-reaching impact of the plan have reportedly made some prospective buyers hesitant to act.

The announcement of that plan on Friday followed days of Wall Street chaos during which Bank of America agreed to buy Merrill Lynch & Co., 158-year-old investment bank Lehman Brothers Holdings Inc. filed for bankruptcy, and the federal government announced a takeover of mortgage giants Fannie Mae and Freddie Mac (see Inman News).

The federal plan to buy up bad loans seemed to temporarily quell Wall Street unease, though the calm was short-lived as oil prices shot up $16.37 a barrel on Monday — a one-day record gain.

Sunil Sethi, a Realtor and mortgage broker in the San Francisco Bay Area, said the Wall Street shakeups have "spooked" some consumers.

"Every time the government acknowledges the housing valuation problem by instituting another action to remedy it, it scares people into thinking things will get worse."

He added, "Their actions should be aimed at making people believe the worst is over and prices will rise now but instead — the way they spin their bailouts — it comes out as, ‘We’ve plugged the leak here, but the dam may still collapse.’ "

Sethi said that strong schools in his core market areas of Fremont, Pleasanton and San Ramon, Calif., have held up the market there and inventory is still fairly tight. The federal moves could have a positive impact on the housing market "if the marketing is right and it convinces people that the bottom has been reached," he said.

"We don’t need to repeat this bailout every five years," he said, and mortgage lending should be based on solid fundamentals. "We need a catharsis. Some heads need to roll … to let people know the riff-raff has been ousted and it’s safe to come back in the water. Simply bailing out the banks isn’t enough."

In San Diego, Calif., the financial market troubles have made some buyers more hesitant, said Dan Melson, a Realtor and loan officer for Clarion Mortgage Capital.

The news of the final maneuvers have served to "scare the buyers who are out there, giving them one more excuse to hold off," Melson said. "San Diego’s market is ready to start recovery as soon as the psychology gets straightened out."

While the federal government faced some difficult decisions with the meltdown in the financial markets, "I would have been a lot happier with a more minimalist intervention," he said, "as the manner in which it was handled practically guarantees a repeat of this whole sequence of events a couple decades down the line. By bringing the burden of the bad loans onto the backs of the taxpayer, they encourage further bad behavior."

Mortgage underwriting needs to be kept "sane and balanced," he said, "neither nonexistent as it had been nor completely paranoid like it appears to be headed for."

Melson said he favors further expansion of the federal FHASecure program, which allows homeowners with adjustable-rate mortgages to refinance into lower-cost FHA-insured mortgages.

The real estate market may improve after the election, as the accompanying "feeding frenzy" of media coverage recedes, Melson said. "Now all we’re waiting for is the mass psychology to turn enough for the recovery to begin."

Real estate industry consultant and former eNeighborhoods executive Greg Robertson of Woolley Robertson Group in Boca Raton, Fla., also said he expects a post-election market stabilization.

"I’m afraid that the problem is so big that we have run out of any new approaches and are left with the current situation. The government should move in fast and then move out as fast as they can," he said.

In Portland, Ore., broker Becky Jackson of Realty Trust Group Inc. said that the instability in the financial markets has translated to more concerns about falling home prices and has led some prospective buyers back to the rental market.

"Buyers now are very nervous to invest when they fear that prices will be going lower, and that sentiment only reinforces the reality. We are in for a rough several years while this situation goes from very bad to enormously worse before it can begin to heal," she said.

"While something must be done to put a floor under the falling values, the nationalization of Fannie and Freddie (and other steps) will likely not stop the declines."

Jackson said she suspects the upheavals among the "financial titans" could lead to a steeper slowdown during the already seasonally slow winter months.

There is a bright spot in that there is money for mortgages available because Fannie and Freddie are still in operation, she said, though the risk remains that "over time Fannie and Freddie will cease to be anything like what they were, so the mortgage market will return to the tighter market that existed in the ’80s and early ’90s."

Derek Eisenberg, broker for Continental Real Estate Group Inc. in Hackensack, N.J., said there is a potential for the government to make money on the loans it plans to buy up. "As the market starts to restore itself, the feds may be able to sell many of the homes for more than the outstanding loan balances."

He added, "The fed is taking the right approach. The wrong approach would be to do nothing. Banks have no present way to get this bad debt off their books. The bailout allows them to take their losses and move on."

Like some other real estate professionals, Eisenberg said the Wall Street troubles brought the local real estate market "to a standstill. I think people are waiting to see how the federal bailout changes things. Some people believe prices may rise (as a result) and they are waiting cautiously and optimistically."

He also has an appraisal business, and he noted that refinance appraisals "surged" when the Fannie-Freddie takeover was announced because of subsequent rate drops.

In the Stockton, Calif., area, which has been a national foreclosure hotspot, Glenn M. Race of Prudential California Realty said that he has seen a slowdown in the response to buyers’ offers for bank-owned properties (REOs) that have completed a foreclosure process.

"It seems like (banks) are hedging their bets that the government will bail them out so they won’t have to go through the sales process," he said.

And there are prospective buyers who "seem to be overwhelmed with the bad news and fear has temporarily paralyzed them into waiting. Many buyers have said, ‘What’s next? Let’s hold off until we find out.’ "

The government intervention in the financial markets "opens up a very slippery slope for the future," Race added.

Jackie Colson-Miller, an international property specialist for the Toni Everett Co. in Tampa, Fla., also referred to a market paralysis. "The phones have been quiet as people seem to be ‘paralyzed’ by the news and seem to be taking a wait-and-see position," she said.

The market will likely stay quiet in the short term, Colson-Miller said, but she expects more activity at the low end of the market if price drops continue.

"I believe the best approach is allowing the theory of supply and demand to work itself out," she said. "I expect investors will swoop in and buy up as much as possible when they feel we have reached the bottom."

In the resort market of Crested Butte, Colo., Channing Boucher of Benson Sotheby’s said his market area is typically more insulated from financial crises and feels the impacts later than many other markets.

"Even in 2007 – when the mortgage meltdown was picking up momentum nationally – we still did $200 million in sales. We’ll be lucky to break $100 million this year and my forecast is more of the same into 2009," he said.

The federal response seems delayed, Boucher said. "The government needed to intervene years ago. Wall Street greed, mortgage banks and unregulated mortgage brokers created this mess by selling (adjustable-rate mortgage) loans to people with no docs, bad credit and little to no money down. Printing money and taking control of the banks and the real estate now is better than nothing, but I feel we are in the middle of a perfect storm," he said.

Austin, Texas, hasn’t felt the slowdown that has plagued many housing markets across the country, with broker Tom Polk of Stanberry & Associates saying, "There is so much real estate business going on that the bailout successes will be hard to track, at least by any honest tracker."

Average sale prices are rising in Austin, he said, which owe mostly to sales of more expensive properties.

"I think the housing market has been fixed already by the lending industry starting to make sound loans. It’s just going to take a while for the fix to take effect," Polk said.


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