Mortgage predicament hurts sellers

A late-summer spike in interest rates for buyers of luxury homes may be subsiding, but the upper end of the real estate market is still feeling the effects of the nation’s ongoing mortgage crisis.

A late-summer spike in interest rates for buyers of luxury homes may be subsiding, but the upper end of the real estate market is still feeling the effects of the nation’s ongoing mortgage crisis.

Appraisers have been taking more care in assessing home values, local observers said. And with overall sales slower, well-to-do buyers could have trouble unloading their existing houses before purchasing new ones.

“Sometimes, that’s harder to do, and they might have to make some price concessions on their house in order to sell it,” said Stan Custer Jr., president of Custer Homes Inc. in Susquehanna Township, Dauphin County.

For high-end buyers, slowing sales has had more of an impact than higher interest rates, Custer said.

Turbulence in the housing industry started in the subprime market, with a wave of mortgage foreclosures among people with spotty credit records.

The foreclosures alarmed investors who buy mortgages on the secondary market. In response, those investors grew suspicious of all nonconventional products, including so-called jumbo loans of $417,000 or more. The limit is set by Fannie Mae and Freddie Mac, two government-sponsored entities that underwrite conventional loans.

Unlike borrowers in the subprime market, people taking out jumbo loans tend to have good credit, local observers said. Investors simply began distrusting anything out of the ordinary.

“That whole pool of investors that were buying those other mortgages just dried up. It went away,” said Ken Pederson, branch manager at Fairway Independent Mortgage Corp. in Manor Township, Lancaster County.

As a result, interest rates on jumbo loans jumped to more than 8 percent this summer from a low of around 6 percent at the beginning of the year, Pederson said.

Rates have begun to fall lately as investors return to the market. Pederson is seeing rates of around 7 percent on 30-year, fixed-rate jumbo mortgages.

Adjustable-rate mortgages are in the mid 6 percent range, he said. Many buyers are choosing the adjustable rate and expect to refinance when rates stabilize in the next few years, he added.

As of mid-September, the average interest rate on a 30-year jumbo mortgage was 6.96 percent, according to Bankrate.com, an online service for financial data. Rates on traditional 30-year mortgages averaged 5.98 percent.

Investors, meanwhile, haven’t lost all caution. They are demanding extra attention on the home appraisals that are part of any sale, observers said. High-end homes, full of unique features and custom touches, already are tougher to appraise than lower-priced houses.

Investors want to make sure price comparisons to similar houses are up-to-date and that they reflect activity in the same neighborhood, said Lisa Cooper Cotter, owner and president of Cooper Custom Homes Inc. in East Hempfield Township, Lancaster County.

A seller asking $800,000 for a house, based on prices two years ago, might find the property appraised at $760,000 today, she said. The seller can either stick to the higher value or renegotiate with the buyer.

“They usually split the difference,” Cooper Cotter said.

Buyers also are more cautious than they were two years ago, local real estate agents said.

“People were definitely lining up to buy homes. Now the market has changed. It’s not like that anymore. It’s a buyers’ market,” said Tom Pendergast, an agent with Coldwell Banker HomeSale Services Group in West Manchester Township, York County.

High-end homes are selling well in the $600,000 to $700,000 range, Pendergast said. Homes priced above $1 million tend to move slowly.

“The people that can afford those, they’re pretty picky, and a lot of them may decide they want to build,” he said.

Among the concerns for buyers at the upper end is a home’s future resale value, said Jim Pappas, a Coldwell Banker agent in East Hempfield Township, Lancaster County.

“People should be concentrating on that rather than worrying about the jumbo mortgage situation,” Pappas said.

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