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Last night Congress passed an omnibus bill, which included an increase to the Federal Housing Administration (FHA) loan limit and extension of the National Flood Insurance Program. If the bill is signed by President Obama, the FHA loan limit will be increased to $729,750 for San Mateo and Santa Clara counties and the flood insurance program will be extended until December 16.
The bill, which passed by a 298-121 vote in the House and 70-30 vote in the Senate, did not include an increase to the conforming loan limit. The Fannie Mae and Freddie Mac loan limits for high cost areas will remain at $625,000.
The extension and increase would not have been possible without REALTORS®’ response to the Call For Action in contacting their members of Congress over the last several months. Thank you for your support!


California Association of REALTORS® Deputy Chief Economist Robert Kleinhenz echoed remarks C.A.R. Chief Economist Leslie Appleton-Young made at the C.A.R. EXPO in September and again at last week’s Los Gatos/Saratoga District – the economy has improved, and for a while, there appeared to be surge in the housing market, but wild cards in the domestic and international arena dampened consumer confidence and, as a consequence, recovery has stalled. The engine of growth must come from consumers; businesses won’t spend if consumers don’t, said Kleinhenz.

Kleinhenz presented SILVAR REALTORS® with performance targets which can help them gauge how good or bad the economy is doing. With these indicators in mind, he said REALTORS® can lay out expectations to clients so clients “have the appropriate expectations from the beginning and end up being satisfied in the end.”

  • GDP – The country needs GDP (Gross Domestic Product) at 3 percent or higher. C.A.R. only expects GDP to be at 1.7 percent by year-end and forecasts GDP will only be at 2 percent in 2012.
  • Unemployment Rate – The unemployment rate has got to come down to 6 percent at best, so consumer confidence can  rise. It’s at 9 percent nationwide and 12 percent in California. C.A.R. projects the national unemployment rate will be 9 percent by year-end.
  • Job Growth – The country lost 8.4 million jobs during the recession, and though it has gained back 1.1 million jobs, job growth needs to be at 3 percent or a gain of 400,000 jobs per month.
  • Home Sales – To be sustainable, statewide sales should be at 500-550,000 units per year. C.A.R. projects 496,000 unit sales in 2012.

Kleinhenz said California has had a decent level of sales and is seeing stability in its median price, expected to hit quicker than in other parts of the country. C.A.R. projects the median price to hit $296,000 in 2012. California’s median price bottomed in February 2009 at $245,230.

Kleinhenz is optimistic the market is slowly on the mend. “In California, we have our economic fundamentals that are carrying us through in the years to come,” said Kleinhenz.

He saidthe state’s assets continue to attract people and businesses. The best news of all is the Silicon Valley labor market has been the star of the California economy.

“The economy has shown marginal improvement with nuggets of good news, but it has taken us a lot longer to grow out of this recession because of the financial crises that have paralyzed several aspects of the economy,” California Association of REALTORS® Deputy Chief Economist Robert Kleinhenz told SILVAR members at the Silicon Valley Association of REALTORS® Economic Seminar and General Membership Meeting last week.

“Fundamentally, affordability hasn’t been as good as this in Santa Clara County and the state. Homes are at the right price with the right mortgage rates. The problem is consumers are so concerned about prices bottoming out they are losing sight of the opportunities,” said Kleinhenz.

Pictured left to right are past C.A.R. President Jim Hamilton, SILVAR President-elect Suzanne Yost, Los Gatos/Saratoga District Chair Doug Evans, C.A.R. Vice President and Chief Economist Leslie Appleton-Young, SILVAR President Gene Lentz, and Los Gatos/Saratoga District Co-chair Chris Rasmussen.

California Association of REALTORS® Vice President and Chief Economist Leslie Appleton-Young told SILVAR members at last Wednesday’s Los Gatos/Saratoga District tour meeting that while the worst is over, the market continues to struggle with not much relief in sight.

“The tide has turned for housing, but now it’s stuck,” said Appleton-Young.

C.A.R.’s chief economist explained that the economy started to gain a bit of traction and seemed to be moving forward at the beginning of this year, but things happened one after another – Japan’s earthquake and tsunami, oil price spikes, uprisings in the Middle East, stock market volatility, the U.S. debt and the debt crisis in the euro zone. As a result, the housing market that appeared to be recovering is now stalled.

Lenders aren’t lending and consumer and entrepreneurial confidence continue to be low. As long as the jobs problem continues, she doesn’t expect consumer spending to improve by much. Mortgage rates have experienced a historical drop, “but you can’t push on a string. You can’t make people borrow; you can’t make lenders lend,” she said.

The good news is Santa Clara County is doing better than most parts of the state with just a 9.6 unemployment rate. In Santa Clara County, 35 percent of homes that closed escrow in September were distressed, but this is a far cry from places like Solano County, where in September 73 percent of homes that closed escrow in September were distressed sales.

The Bay Area has the best economy in California, in terms of income and job growth. “Companies in this valley are in the cutting edge, leading growth in the economy,” said Appleton-Young.

September single-family home sales were at 487,940 units. Absent more wild cards that could upset the economy, C.A.R. expects 491,000 unit sales by year-end and 496,000 unit sales in 2012, just a 1 percent increase from this year. California’s median price was $287,440 in September, down 8.3 percent from September 2010, but way above from when it bottomed in February 2009 at $245,230. C.A.R. expects the median price to hit $291,000 by the end of 2011 and to increase 1.7 percent to $296,000 in 2012.

Troubles are ahead because all levels of government will have to wrestle with issues of pensions and cost of health and other benefits for public employees. Appleton-Young said ultimately, everyone will have to answer for the deficit.

“It’s hard to do when in some places, the coffers are empty. You can’t spend more than you take in, even if you are the U.S. government. Everyone is going to have to give up something in the end,” she said.

Appleton-Young said in 2012, REALTORS® will need to watch the following federal issues closely – the future of Fannie Mae and Freddie Mac, changes in the tax treatment of real estate, including the definition of the QRM (Qualified Residential Mortgage), which could mean purchasing a home will be even more difficult and costly for consumers.

The restoration of the FHA loan limits is vital to both home ownership and our economy. On October 1 the mortgage loan limits declined in 669 counties in 42 states. This immediately reduced mortgage liquidity and home buyers’ ability to obtain a mortgage. The House and Senate are now deciding whether or not to restore the loan limits. The restoration of the loan limits to their prior levels has been included in an Appropriations bill being deliberated by Congress this week.

Your Senator is a member of the group of Congressional leaders who will decide whether Congress will restore the loan limits. This is why they need to hear from you today.

Why is this so important? Without the restoration of the loan limits the availability of safe, affordable, reliable mortgage financing will continue to diminish. If this happens, many potential home buyers run the risk of being priced out of the American Dream of home ownership. Even worse, this could hold back the housing recovery.

In the Silicon Valley region, the conforming loan limits of $729,750 were reduced by $104,250. This means buyers who need mortgages for more than $625,500 are now forced into the jumbo market, which means they would be paying higher interest rates, or unable to buy a home.

The California Association of REALTORS® (C.A.R.) estimates more than 30,000 California families now face higher down payments, higher mortgage rates, and stricter loan qualification requirements with conforming loan limits on mortgages backed by FHA, Fannie Mae, and Freddie Mac now reduced. In Santa Clara County, C.A.R. estimates nearly 8 percent of potential home sales would be rendered ineligible under the lower GSE loan limit, and 12.2 percent would be deemed ineligible under the lower FHA limit. 

“The loan limits provision is fully paid for, and won’t cost taxpayers a dime. If families cannot obtain financing to buy, home prices will continue to fall. This will further erode the wealth of families in our community and across the country, and will prolong the nation’s economic recovery,” said Lentz. “As individuals and families everywhere are trying to gain a foothold in these trying times, we need to give them the resources to do so.”

November 2011


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