Fed Help Not Really Enough For King County….

 Daniel Billett of Response Mortgage in Seattle plans to refinance as soon as the new loan limits are confirmed.

The Saturday Seattle Times featured a cover story by Katie Hafner of the New York Times concerning the Federal stimulus packagerecently signed into law. (For some reason, the Seattle Time’s on-line version is not available, so this link takes you to the NY Times site.) While the story reveals that the new maximum limits for “conforming” loans may be as high as $729,950, it also explains that the limits are set in accordance with regional median sales prices. That means that our new local conforming loan limit will be about $544,000. It will help, but not nearly enough for the many homeowners sitting on 3 to 7 year adjustable rate mortgages in excess of $600,000. And there are a lot of them. The King County market needed a boost in the conforming limit to at least $650,000 on order to avert a looming meltdown in what I call the “upper tween-er market”: homeowners that earn enough to support properties valued from $700,000 to $1M, but are not liquid enough to reduce i.e., pay down their respective loan amounts to get under the conforming limit and refinance before their current jumbo ARM resets or expires.

Builders face a similar problem. With finished building lots coming on line at between $225,000 and $350,000 each, builders generally need to build finished homes worth between $750,000 and $950,000. The new conforming loan limit of $544,000, by itself, is not going to be sufficient to finance this type of product.

Since it has taken sine June of ’06 to get this much help from the Feds, waiting for additional, or increased, assistance isn’t going to be practical for many homeowners and builders. I think it is more likely that the higher jumbo loan (non-conforming) rates will have to be endured for the foreseeable future. With those rates exceeding conforming rates by 1-2%, and fewer buyers willing to pay those rates, there will be downward pressure on prices of properties in the upper tween-er market.

(Note: I refer to this price range as the tween-er market because owners and buyers in the market above $1.2M generally have enough liquidity that they are comparatively immune to interest rate variances on this scale.)