Archive for March, 2008

“Over Built. Building like crazy. Who is going to buy them all? Too much inventory. Prices going down.” This is what I hear all the time from people I run across and I tell them that I’m a Realtor that focuses just in the Minneapolis condo and loft market.

I would like to address all the “So called Minneapolis Condo Hype” with the facts about the market. Now lets take these facts below and see if all the noise in the market is opportunity is knocking!

In the Downtown Journal which is the local Minneapolis newspaper that publishes a section called the “Condo Watch” in every issue. This pipeline has 44 projects in the pipeline which may to some seem like a lot and to some might not but the BUZZ in Minneapolis Real Estate is that this market is over built, to many condo project, etc…. The True reality is that out of the 44 listed projects 17 of them aren’t even built or there is fabulously no momentum in being built. 21 out of the 44 are projects that I can bring a buyer in and they can move in with in 120 or sooner. But the big message that I want to get across is that out of the 21 in the pipeline there are 9 projects that have less than 10 units remaining. So in roughly the 3rd quarter of 2008 all of them should be closed out. Which that will leave roughly 12 projects left for buyers to choose from! Yes new projects will pop up here and there but this is also great for the re-sale market that has been hurt that last few years!

Downtown Minneapolis has still been a very active market compared to the rest of Minneapolis.

• Closed sales are up 105% YTD form 07 to 08
• Percent of Original List Received: YTD for 01 96.2% / 99.1% +3.0%
• Condo Inventory: Feb 07 543 units and Feb 08 502 -7.6%
• Average Days on Market: 210 days
• Average sales Price: $293,440 4th highest in the city

After reviewing Fannie Mae’s and Freddie Mac’s Jumbo Conforming loan guides, it appears that they have come up with an extremely cautious plan to administer the new Jumbo Conforming limit increase. Let’s be clear, this is not what Americans thought it was going to be. (Fannie Mae Guides & Freddie Mac Guides)

The GSE’s have created a new hybrid program for consumers. It is not a Conforming loan. This new program is purely and simply all but a symbolic gesture of help. It is tailored to dissuade refinances through ultra-tight underwriting guidelines while being some-what attractive to new home buyers, assuming you have perfect credit and a 10-25 percent down payment.

Unfortunately, many of the loan origination calls coming into lenders for this new loan product are for refinances. These consumers just cannot qualify. Of course you would assume they do not qualify because of income or debt ratios, but loan originators do not even need to get that far into the loan application process to decline these borrowers. In most cases their first mortgage exceeds 75% of the value of the home. The deal is immediately dead.

As far as rates are concerned, the rates follow closely to the normal conforming products. So a relative thumbs up with respect to rates. The new Jumbo Conforming product is about .125%-.375% higher in rate compared to the old standard conforming loan across different lenders. Below is a quick rate comparison based on today’s rates.

Conforming 30YR Fixed
5.75% / 0 points

Jumbo Conforming 30YR Fixed
6% / 0 points

So if you were applauding this portion of the stimulus package, I would not applaud quite yet. This new hybrid, conforming product may not have the impact on the economy lawmakers may have suggested. Not surprising as we have seen this occur on some of the initial consumer foreclosure bailout policies rolled out early in the credit crunch.

One quick side note: I do want to applaud Freddie Mac for at least offering a refinance cash-out option as Fannie Mae did not. Although the guidelines are tight, they did put it in the guides.

Please feel free to put your loan scenarios in the comments so we can illustrate some of the challenges loan originators face with the new Jumbo Conforming product.

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