Has the Mortgage Crisis Finally Peaked? E-mail
In recent months, mortgage issues have been a main force hampering home sales but, according to a new report from the National Association of Realtors, mortgage availability is finally improving—even as home sales continue to slide. 

The rate of existing-home sales dropped 8% in September to a seasonally adjusted annual rate of 5.04 million units from a downwardly revised rate of 5.48 million in August, according to the NAR study released Oct. 24. The national median price of existing-homes sold in September fell 4.2% year-over-year, to $211,700. September, 2007, marked the seventh consecutive month in which existing-home sales decreased.

This continuous decline in home sales has been predictable, to put it lightly. After existing-home sales fell 4.3% in August, the NAR advised realtors and homeowners to expect "similar results" in September and cited "temporary mortgage problems" as the main reason for poor home sales in August.

Jumbo Rates Down

A significant rise in jumbo loan rates resulting in a high number of postponed or cancelled sales was a particularly strong disruption to August home sales, according to NAR senior economist Lawrence Yun. On Aug. 15 the 30-year fixed jumbo mortgage rate hit 7.43%, according to data from Bankrate.com.

But now those "temporary" mortgage problems may have subsided. As of today, Bankrate.com reports that the jumbo mortgage rate is down to 6.59%. "Mortgage problems were peaking back in August when many September closings were being negotiated, and that slowed sales notably in higher-priced areas that rely more on jumbo loans," said Yun in a release. "The good news is that mortgage availability has markedly improved in recent weeks with interest rates on jumbo loans falling, and more people are applying for safer and conforming FHA mortgage products."

The bad news is that home sales are still dropping sharply in the wake of July and August's credit market turmoil, as existing-home sale figures typically reflect credit conditions during the month or two before closings. The September drop in homes sales and the median home price "left a report for the month that managed to prove even weaker in all respects than the market feared," said Mike Englund, chief economist at Action Economics.

More Resets On the Way

And, while it's possible that mortgage availability is improving as you read this, it's also possible that the credit situation could still get worse. "Compared to August, yes, the availability of mortgages is probably a little better now," said Moody's Economy.com (MCO) housing economist Celia Chen. "But I wouldn't say that mortgage problems peaked [in August] because there are still a lot of people with subprime mortgages facing resets right now."

But in some ways, the mortgage market's future is looking a little less grim. Some banks are even starting to help out borrowers in trouble. Major mortgage lender Countrywide Financial (CFC) said on Oct. 23 that it has come up with a new refinancing plan to help homeowners avoid foreclosure. The company has created a special finance unit of 2,700 employees that will work with borrowers who are likely to have difficulty making payments once their adjustable mortgages reset.

When will the bleeding stop? Mortgage problems will likely weigh heavily on October home sales, but the NAR's prediction may turn out to have some truth in it after all. "Sales in October may be as ugly as September's," said Global Insight economist Patrick Newport, who expects housing activity to hit bottom in mid-2008. "Afterward, the drops will be smaller."

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