The View From the Fence...

"Bay Area home sales tumbled in February for the 11th month in a row and prices rose at their slowest clip in two years as the region's real estate market showed further signs of easing after several years of feverish activity."

"One of the surest signs of a changing market is the increase in unsold homes."

"With recent interest rate increases and a larger selection of homes for sale, housing experts say the market has entered a phase where buyers and sellers have equal leverage. Whether that stalemate will lead to a buyers' market and lower prices is the subject of continued debate. "

"A 1,000-square-foot condo on Hermann Street in San Francisco has been sitting on the market for about two months. A few weeks ago, listing agent Steven Bragg reduced the price from $679,000 to $649,000. Despite dozens of open houses, and the fact that the property is priced markedly below the $690 average per square foot sale price for condos in the city, there have been no offers."

"People believe that house values are going to drop so they're sitting on the fence waiting," said Bragg, an agent at Prudential in San Francisco.

"John Karevoll, analyst at DataQuick, said, "there's really a lot of uncertainty. Some think the market is going to settle in and do what it's been doing, and some think prices are going to go down 40 percent."


More Americans fell behind on their mortgage payments at the end of last year as they struggled in the face of hurricane damage, rising interest rates, higher gas prices and holiday credit card bills, the Mortgage Bankers Association said Thursday.

"DataQuick found the typical monthly mortgage payment Bay Area buyers committed to paying in February was $2,889 -- up from $2,460 one year ago and, on an inflation-adjusted basis, 16 percent above the peak of the prior housing boom in the early 1990s. "

"The Federal Reserve raised interest rates twice in the last quarter and once so far this year. Duncan expects the Fed to raise them again in two weeks and maybe once more this year. That could mean nasty surprises for the 25% of borrowers with adjustable mortgages."

"The percentage of Americans who were delinquent on their home loans rose to 4.7% in the fourth quarter, the highest level since mid-2003."

"About one in five mortgages in Louisiana and Mississippi was overdue. But "the results in those two states simply magnify the trend in the national data," said Doug Duncan, chief economist for the MBA."

"When someone loses a home through foreclosure, the consequences extend far beyond the homeowner."

"It's a domino effect," said Lorie Batdorf of Neighborhood Housing Services in Hamilton, Ohio, a non-profit group that helps low-income buyers. She notes that foreclosures often lead to abandoned homes, vandalism, increased police visits and a lower tax base. "The neighbors still there see a decrease in property values, so it affects everybody."

“Lenders are growing wary of the riskier yet more flexible mortgages favored in Silicon Valley, even as rising interest rates are making it tougher for buyers to afford the region’s high-priced homes. Behind the scenes, lenders, regulators and investors are making changes that could make it harder for borrowers to stretch into homes or refinance existing mortgages.”

“Also falling out of favor are so-called piggyback loans that add a second loan for buyers who need to borrow the down payment, said Anthony Hsieh. Some lenders now require borrowers to pay off or refinance the balance of the second loan within two years.”

“Industry experts are beginning to see additional changes that could affect borrowers who want to buy homes or refinance. Some lenders are less willing to let customers take out loans bigger than their incomes typically would justify. Some are shaving their predictions of how quickly rising home prices will provide equity that can cushion homeowners and lenders alike. There’s more wariness of stated-income loans, also known as ‘liars’ loans’."

"We have been expecting an uptick in delinquencies due to a number of factors: The seasoning of the loan portfolio, the increased share of the portfolio that are adjustable-rate mortgages and subprime mortgages as well as the elevated level of energy prices and rising interest rates," said Doug Duncan, the association's chief economist.

"The number of foreclosures is expected to rise this year. "This is evidence of a structural change - an economic chain reaction," Duncan said."

Rising interest rates can raise monthly payments for people on adjustable-rate mortgages. People who stretched financially to buy a home and have an ARM are more likely to feel the strain on their budgets from rising rates. Meanwhile, "subprime" borrowers — people with weaker credit records who are considered higher risks — also can face problems when rates rise and energy costs stay high.

The Federal Reserve has no intention of preserving all of the recent gains in home price values, said Federal Reserve board governor Donald Kohn on Thursday.

"If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,' Kohn said in a speech prepared for delivery to a European Central Bank forum in Frankfurt, Germany.