By Dina ElBoghdady
Washington Post Staff Writer
Thursday, September 25, 2008
D.C. real estate agent David Crossland can tick off a list of clients who have gotten cold feet as the turmoil in the financial markets has worsened.
There's the District lawyer who decided to sit it out because "he's strapping in for a recession," Crossland said.
There's the young couple who were itching to buy on Capitol Hill but decided against it. "They're convinced times will get worse."
He said, "It's kind of a bummer."
No kidding. Yesterday the National Association of Realtors released a new round of glum numbers about home sales. The Mortgage Bankers Association said home loan applications have dropped. And interest rates have moved back over the symbolic 6 percent level.
Even the head of the usually gung-ho Realtors group raised doubts that the Bush administration's proposed Wall Street bailout would enable major financial institutions to lend more freely and thus help the battered housing market.
"There is a serious question as to whether a cash infusion by the U.S. Treasury into Wall Street would help consumers by improving mortgage funding," said Richard F. Gaylord, the group's president.
Patricia Cook, a stay-at-home mother who was hoping to buy her first place in a few months, has her doubts, too.
"We're going to delay because there's too much uncertainty," said Cook, who is watching the drama unfold on Capitol Hill. "I'm watching the hearings. I'm watching the stock market. These are things I never used to do. . . . I'm anxious."
The country's economic troubles are rooted in a housing crisis that started more than a year ago when subprime borrowers with poor credit or little cash started defaulting on their mortgages at an alarming pace. Since then, the number of foreclosures has mounted, and home sales and prices have plummeted.
Yesterday, the National Association of Realtors reported that the median sale price on existing homes tumbled to $203,100 in August, down 9.5 percent from a year earlier. The median is the point at which half of buyers paid more and half paid less. That's the biggest drop since the group started tracking the numbers. The volume of sales fell 2.2 percent from the previous month, to a seasonally adjusted annual rate of 4.91 million units.
With prices down, Cook thought it might be a good time for her growing family -- she and her husband have two boys and another on the way -- to buy a place larger than their two-bedroom Fauquier County rental. Now she's thinking 2010 might be better. Several local real estate agents said she's not alone.
"People are telling me they want to wait until after the election to see who gets in and what actions will be taken to settle the market," said Maggie DelGallo of Home Buyers Guardian Metro Realty in Reston.
College professor Mine Senses stopped house-hunting this month when she and her husband sensed the economy was souring. "After last week, we feel extremely lucky that we didn't buy anything," said Senses, who was looking at the Adams Morgan and U Street neighborhoods in the District. "I feel the economy is going into a recession, and that's not the time to buy."
These sentiments could easily shift if policymakers work out a plan. Already, consumers have proved to be a fickle bunch.
The drop energized would-be borrowers. The week after the Sept. 7 takeover, home loan applications from borrowers eager to refinance shot up 88 percent and rose 5 percent from people looking to buy.
But since the global financial markets went haywire, mortgage applications have dropped, and interest rates are on the rise. Applications last week fell 10.6 percent from the previous week, according to the Mortgage Bankers Association.
Yesterday, the average rate on a 30-year fixed-rate mortgage was 6.24 percent, said Keith Gumbinger, a vice president at research firm HSH Associates. The rates have been trending up since talk of a government bailout started.
That's because the rates Fannie Mae and Freddie Mac have been paying to borrow have climbed back to where they were before the intervention. The two companies, which are responsible for funding about 75 percent of mortgages, take out short-term loans and lend the money for mortgages at higher rates.
The rising rates underscore how the takeover has not fully boosted confidence in Fannie Mae and Freddie Mac. Even though the government pledged to pay the companies' debts, investors are still requiring the companies to pay a higher rate.
All of this adds to the angst of the average potential buyer, said Mike Larson, an analyst at Weiss Research in Florida.
"There's a lot of worry. Look at what's happening with unemployment and the broader economy and the housing market," Larson said. "They don't know where things are headed."
The only bright spot for the housing market is that the excess supply of homes got a tad smaller last month, mostly because prices have fallen so low that buyers are snapping up deals in some places.
In August, there was a 10.4-month supply of existing homes for sale nationwide, down from 10.9 months' worth in July, the National Association of Realtors reported.
Real estate agent Barbara Nowak, for instance, sees no hesitation from value-hungry buyers interested in the foreclosed-on homes she's selling. "I've got two appointments for home tours on Saturday and two on Sunday," she said. "The first quarter, I was lucky if I had one or two appointments in a week."
Staff writer Zachary A. Goldfarb contributed to this report.