DEAN GRAZIOSI: DEAN GRAZIOSI REAL ESTATE – REAL ESTATE FEED BY DEAN GRAZIOSI

The unemployment crises in the United States has hit every economic level.  A new report form Trulia.com, a comprehensive real estate website, suggests that homeowners with jumbo mortgages, once the most credit worthy buyers in the country, are now failing at unprecedented levels.Borrowers with prime conforming loans are now experiencing the highest rate of foreclosure in history.  Since January 2008, foreclosure on prime conforming jumbo loans has increased by 420 percent.  Foreclosures on non-conforming loans have increased by a staggering 600 percent.

Jumbo loans are any mortgage loan that exceeds $729,750.  Conforming loans are eligible for purchase by Freddie Mac or Fannie Mae.  The original limit on comforming loans was $417,000 in the U.S.  In February 2008, President Bush increased the limit to $729,750.

Fannie Mae and Freddie Mac are not liable for any amount of a mortgage that exceeds the limit.  When the economy was running on all cylinders, Americans were qualified for large mortgages and with the high prices commanded by the market, jumbo loans were a way of life for high income families.

Trulia.com suggests that many of the foreclosures in this price range are strategic defaults.  Homeowners now realize that the home they spent $1 million to acquire has been discounted by as much as 30 percent.  Many high income homeowners are stunned that the amount of their jumbo mortgage now exceeds their property value.  These homeowners have determined not to put more good money into a bad situation and are allowing their mortgage to default.

Ironically foreclosures in some of the areas hit hardest by the recession are showing signs that they have peaked.  However, foreclosure in many of the nation’s metropolitan areas have continued to rise.

RealtyTrac confirms that in 154 or 206 metropolitan areas with populations of 200,000 or more, foreclosure filings continue to post year-over-year gains.  The Fort Lauderdale-Miami-Pompano Beach area leads the country with 94,466 foreclosure filings in the first half of 2010.  Investors have been hesitant to attempt short sales on jumbo mortgages but Fannie and Freddie have enacted legislation to halt strategic defaults.

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Unemployment and the abnormally high foreclosure rate continue to weigh heavily on a full-scale housing recovery, but there are signs of hope.  According to Lawrence Yun, chief economist of the National Association of Realtors, pending sales increased for the ninth consecutive month ion November.

Yun credits more determined short sale lenders, low interest rates and the extension of the 2009 Homebuyer Tax Credit with contributing factors.  The expansion of the tax credit bill to existing homeowners should spark even more sales.  Existing homeowners are still reluctant to carry two mortgages, but existing homeowners are helping to clear some of the abundant upscale housing inventory.

Yun also points to the availability of more qualified renters who are anxious to turn rent into equity and tax deductions.  Yun asserts that these buyers have been on the sidelines, waiting to find the bottom of the market.  The reality that they can now acquire more space than in the past ten years is certainly motivating a new wave of prospective purchasers.  With 15-year interest rates at the lowest rate since 1970, buyers are gaining confidence that the time is right.

Meanwhile, newly constructed home sales jumped by 6.2 % in November.  For existing sales, the northeast still remains the most stable area.  November existing sales increase by 20% in year over year comparisons.  The Midwest rose by 12 % and the south surprised with a 6% increase.  Only the west showed a November decline of 5%.

To add hope to a muddled picture, November layoffs decreased to 50,000 compared to 182,000 in November 2008.  With the Obama Administration aggressively tackling unemployment and willing to pump billions into employment initiatives, housing may begin to emerge in the spring of 2010.  That makes this a great time for investors to buy low with the idea of selling high in a relatively short time.      

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