Take Advantage Of The Subprime Meltdown

Prospective home buyers shopping for houses worth around $500,000 are taking advantage of rising interest rates caused by the ongoing subprime mortgage meltdown. Buyers and sellers alike are becoming increasingly mindful of one magic number: $417,000. Fannie Mae and Freddie Mac will only guarantee mortgages worth less, forcing some sellers to lower their asking price to accommodate buyers looking to avoid so-called jumbo mortgages. From the Wall Street Journal:

Alan Vallillo, a property manager, dropped the price of his three-bedroom, 2 1/2-bath condo in Trumbull, Conn., by $20,000 to $549,000 last weekend. The lower price will make it easier for a buyer with a down payment of roughly 25 percent to qualify for a conforming loan, says Mr. Vallillo’s broker, David D’Ausilio of Re/Max Heritage in Westport, Conn.

In addition, Mr. Vallillo, who plans to move into a new home in late September, is offering to buy down the interest rate on the buyer’s mortgage loan by two percentage points in the first year and one percentage point in year two. He says he hopes the interest rate buy-down will “spur (someone) to drop the price on their home so they can buy mine.”

Jason Godfroy, a teacher, recently set a $465,000 asking price for his four-bedroom colonial in Adamstown, Md., on the advice of his agent, John MacArthur. “To get people in, (they) had to be able to get a conforming loan” and not a jumbo mortgage, Mr. Godfroy says. With 10 percent down, “that puts you at $418,500.”

Some prospective buyers are turning to more creative tactics:

Jane Powers, a broker with Ewing & Clark Inc. in Seattle, says that one of her clients recently offered $1.7 million for a waterfront home listed at $1.995 million – and also asked the seller to provide financing. The buyer, who is self-employed, said that he was likely to need a loan that didn’t require him to document his income, which is getting tougher to find. “He was using it as leverage to try and get better terms,” Ms. Powers says. “It didn’t work.”

Though rates are beginning to creep northward, borrowers with good credit can still secure jumbo mortgages for 7 percent by shopping around.

Borrowers with good credit are paying higher rates [WSJ]
(Photo: AFP/Getty Images)


Edit Your Comment

  1. Nighthawke says:

    The article sums it up. Come two months, it’ll become a buyer’s market.

  2. Squeezer99 says:

    a teacher can’t afford a $465k house? no way! didn’t see that one coming

  3. GearheadGeek says:

    @Squeezer99: You missed it. The teacher is *SELLING* a house for $465k. It’s amazing to me that people pay this kind of money for a “regular house.” Granted, I don’t live on the left or right coast, but it’s amazing to me the portion of their income people are spending to have a house in some areas. I hope this mortgage market meltdown will adjust prices to a more realistic level.

  4. Buran says:

    @GearheadGeek: Here in the Midwest there’s an ugly house on the corner that looks like a big cube selling for a half-million dollars.

    In the Midwest.

    My little 780-sq-ft house across the street slightly up the block is worth $189,000. For a house built in 1927.

  5. Nilt says:

    My house in Seattle was built in 1939. My in-laws bought it for $18,000 25 years ago or so. Now it’s worth over $500,000 according to the “market”. The prices are absurdly high; a correction is overdue. It’s only a matter of time.

  6. Nilt says:

    I should know to proofread. That should have been “$18,000 35 years ago”. Meh.

  7. bigTrue says:

    You guys need to come up to Michigan. Sure, the economy sucks, but it should cycle around in five years or so. I live in Hazel Park, which could very well be the next hot housing area once things turn around. We’re right next to Royal Oak and Ferndale, both of which had huge housing booms in the last 10 years. Lots of hipster/creative/non-family oriented types moving here now because of the desirable location (next to progressive towns mentioned above, plus at the I-75 and I-696 Interchange, putting it 10-15 minutes from anywhere in the city or ‘burbs) and the fact you can pick up 1000-1500 sq foot bungalows, with work done already, garage and basement for 75K-150K without even looking hard. These are just things I see in the weekly Real Estate mailings that come with the junk mail.

    Downsides: Schools aren’t great, tiny lawns, still dealing with the redneck/white trash contingent which is slowly being pushed out as the good people move in and some people don’t like living in the first mile north of Detroit proper. Plus, you have to be able to find and keep a job in Michigan’s economy for the next five years and not feel squeamish as your neighbors move away to find manufacturing/factory jobs elsewhere in the country.

  8. armchairdj says:

    @BIGTRUE: >> “still dealing with the redneck/white trash contingent which is slowly being pushed out as the good people move in….” This is meant to be humor, correct? “The good people”?? Anyway, good luck with that Michigan econommy rebound. I know friends who bought in Detroit in the mid-90s who were hoping for the same. They’re still waiting, though their house is now worse less than they paid for it. Royal Oak and Ferndale are full of unsold new-construction condos. Something tells me that if developers can’t unload their wares, homeowners will have a hard time, too.

  9. LibidinousSlut says:

    My parents own a modest three bedroom attached house in Queens. They paid $100k for it in 1984, they could sell it for 565,000. School district is AWESOME.

  10. timmus says:

    What Bigtrue said is fine by me. What’s desirable about white trash? White TRASH. I don’t think anyone wants the 3 am front yard fights and weekly sheriff visits. And as far as rednecks, quite honestly, that culture is a celebration of noise… ATVs, guns, beer, dogs, loud diesel pickups, and NASCAR.. if it’s your cup of tea, more power to you.

    Maybe the “desirable people” Bigtrue alludes to is not the snooty nouveau riche and HOA nazis… maybe he means the friendly working class folks, the senior citizens, and the tech guys who just bum around at home. That’s alright by me.

  11. EtherealStrife says:

    @bigTrue: My relatives are redneck Michiganians you insensitive clod.

    They’re still building new houses out here on the coast, and houses are sold shortly after the plans and permits are drawn up. Sight unseen (obviously).
    I guess all those folks selling their houses are moving coastal. Manifest Destiny and all that.

  12. @Buran: My parents are in the midwest, bought 18 years ago for $250-something (IIRC). Now they live in an $800,000 TEARDOWN. The LOT is worth $800,000 with the understanding that you’d have to tear the house down and build something bigger. Because obviously 5 bedrooms & 4 bathrooms is not nearly enough space for a family of three.

    The actual McMansions in the neighborhood are going for like $1.2 million. It’s absurd. We’re not talkin’ Winnetka here!

  13. bigTrue says:

    Um, undesirables include – racists, people with cars on the front yard, homophobes, trashy types who spend no money to fix the house and people who leave Christmas lights up year round.

    Basically, there’s a book out now (the name escapes me, I saw the author on The Daily Show a few weeks ago) stating that the first step to bringing an area around is to bring in creative, artsy types, intellectuals, gays, etc. Basically, the Burning Man type crowd. We buy low, fix the place up, and once we put our spaces together, we’re not looking to immediately jump ship to the next step up. While there, we invest back into the community, through volunteer work and beautification projects with community parks and friendly atmosphere.

    The people who have 6 kids, no money to put a fresh coat of paint on the house, drunken arguments being broken up by the cops, sitting in the driveway with the rusted van doors open listening to country music and NASCAR reports drinking Budweiser in camo coats (honest to god, it happened at a friend’s house three blocks over from mine. These people moved, thank somebody!).

    Look at the Castro in San Fran. Used to be a complete ghetto, then the artists and gays moved in, and it’s one of the more desirable places to live. Trashy, semi-industrial areas that want to come up need to court the bohemian mindset, because we’re the ones who aren’t so uppity that we turn our noses up at a trashy area for a good price. Once there, we actively work to make it better.

    I stand behind what I said. Trashy, unintelligent and close-minded people are NOT good neighbors.

  14. Techguy1138 says:

    BigTrue I can shorten your argument to it core.

    Poor people suck.

    People with high disposable income rock.

    Lucky for us people with high disposable income move in to less advantaged neighborhoods and slowly force the poor people out. Then they can make it nice.

    For the record anyone can be an ignorant, loud crappy neighbor. Even people who have a nice non-rusted car and no kids.

    Living nears artists can suck. A pile of rusted iron in the front yard, sculpture. A constant smell of pot, inspiration. Parties till 2am on work nights, just another Tuesday.

    As a hint, gay people are just like other people but get this , they are gay. That means they can be just as bigoted and crappy as anyone else.

    Sometimes you need to look past the group to realize that not every poor person is also an awful person.

  15. bigTrue says:

    Um, I am poor. I’m on unemployment at the moment. My girlfriend is going to school and working part time, I’m about to start school and a part time job, once I find one that pays more then 9 bucks an hour.

    So, no, your argument holds no water. I don’t mind poor people, I mind close-minded, trashy types. The current trend in Hazel Park, MI is us open minded types moving in and forcing out the trash. We might not have much money, but we spend it on improving things.

  16. Techguy1138 says:

    Just because you are poor doesn’t mean that the argument doesn’t hold water.

    But in this case I don’t think that is what you meant but it is what you said.

    I’m glad that you are intent on moving into a community and helping to improve it’s quality. Just don’t peg bad manners so closely to cash on hand.

    I guess the same can be said for wishing an army of gay interior designers and contractors attack your neighborhood choice using their special gay powers to magically overnight transform it into a tasteful neo-bohemian retreat.

    Actually no That would be kind of cool even if I have to listen to all of those ‘breeder’ comments.

  17. rhombopteryx says:

    ” With 10 percent down, ‘that puts you at $418,500.'”

    Which is not equal to, but is in fact more than, $417,000 – the magic number that is the whole point of the article.

    I feel so safe knowing this guy is teaching impressionable young minds.