The New York Times-20080126-Is Housing Starting To Thaw- At Least a Bit-

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Is Housing Starting To Thaw, At Least a Bit?

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The temperature was in the single digits and the forecast for the real estate market was even chillier, but Fran and Mark Gable went out the other day to see about buying a four-bedroom house.

Blood in the streets! Ms. Gable said cheerfully. That's the best time to buy.

They are in their early 30s, expecting their first child, looking for something with a bigger family room that is also a little closer to Ms. Gable's job with Volvo Parts North America. We're willing to take a chance, she said.

With the goal of encouraging many others to make a similar gamble, various arms of the federal government swung into action this week. The Federal Reserve sliced interest rates by the largest single amount on record, while the House and President Bush forged a $150 billion stimulus plan. To prod the moribund housing market on the high-priced coasts, the aid package includes provisions that should make it easier for consumers to get mortgages up to $600,000 or more.

Susanne Cannon, the director of the Real Estate Center at DePaul University, said she was at a conference in Florida this month with other academics who specialize in housing. The informal consensus was that an awful lot of people have been waiting to buy a house because they want to see where the floor is, she said.

This week, the average 30-year fixed rate was 5.48 percent; the rate was approaching 7 percent as recently as last summer.

Now that lower rates are a factor, Ms. Cannon said, the question becomes: At what point will buyers be compelled to act, thinking they are getting a price they can live with and a rate they do not want to miss?

One indisputable effect of the Fed action is a rise in refinancing applications, continuing a trend that started late last year.

The New York Loan Exchange, a marketplace used by mortgage companies and the investment banks they sell loans to, experienced a big spike in activity starting Tuesday as loan officers logged on to see if they could get lower rates for borrowers.

John Alexander, president of the exchange, said the demand and his conversations with lenders indicated that many borrowers were hoping to refinance but had been unable to do so because lenders' credit standards had tightened significantly.

Purchase applications are a different story. The Mortgage Bankers Association said they rose a mere 7 percent in the two months leading up to the rate cut.

Kimberly Raber, a sales assistant at a pharmaceutical company, is doing her best to raise that number. She lives in a cramped apartment in Vista, Calif., with her fiance and their two children. For six months, they have been looking for a bigger place.

Ms. Raber liked a three-bedroom condo, but repeated negotiations with the seller yielded only a stalemate. He would not go below $377,000, and she could not go above $363,000.

Now that the rates have gone down, we're hoping to meet in the middle, said Ms. Raber, 36.

In Atlanta, Jerome Anderson, 43, said he saw on TV that interest rates were dropping and said to himself, Now's the time.

He said he planned to invest probably about $400,000 into three duplexes in the transitional neighborhood of Vine City. The rental market is very hot, he said. That's my plan -- to buy cheap, rent to families cheap.

Mr. Anderson's agent, Otha Greer with Coldwell Banker, said he was not alone.

The drop in rates has lit the fire in my business, Ms. Greer said. I actually had an investor that called yesterday and she's interested in buying five homes.

Among sellers, too, the cut is inspiring flickers of optimism.

Jody and Nicholas LeCursi tried to sell their home in Jackson, Mich., for two years. The initial price was $102,000, which produced no nibbles. Switching agents and lowering the price to $98,000 did not help.

In October, they took the home off the market so they could remodel a bathroom and bedroom. When the work is done, they said, they will try to sell the home again, probably at a lower price. They calculate that a buyer could pay as little as $700 a month.

Why would someone want to rent if they could own and pay the same thing? asked Ms. LeCursi, who works in rehabilitation at the University of Michigan in nearby Ann Arbor. People need incentive. Hopefully, that rate cut will supply it.

Such is the depth of the downturn, however, that for many, the incentives are not enough.

I don't have anyone interested in refinancing, said Patricia Nosan Bednarcik, an agent in hard-hit Cleveland. Dollars to doughnuts, most people probably owe more than what the house is worth right now. And that's a problem since housing prices will probably fall even more.

That is as much an article of faith in the current environment as was the conviction in 2004 that prices would never go down. Indeed, the forecasts now are getting bleaker.

A Merrill Lynch report this week said housing prices were likely to remain in free fall. The report predicted a drop of 15 percent this year, 10 percent next year and more depreciation likely beyond the forecast period -- despite an expected series of rate cuts.

In an uphill battle to combat such attitudes, the National Association of Realtors started a print, radio and television ad campaign this month that emphasizes real estate as an investment. If you purchase one of the millions of homes that will be sold this year, the National Association of Realtors wants you to know that you're making a good move, says one of the TV ads.

Jim Klinge, an agent in San Diego, said he began the week thinking he knew what the bottom would look like. People are going to be so freaked out, they won't buy no matter what the price is.

Right after the rate cut he got a call from a so-called bubble sitter -- a man who sold his house at the peak and started renting, convinced that he could sit out the downturn and buy again at the bottom.

The cut gave him a nice feeling, but it wasn't enough to get him to buy, or even get in his car to go look, Mr. Klinge said.

By Friday, however, Mr. Klinge had shifted his position. He appreciated how the Fed cut and the proposed changes in loan limits were attempts to improve sentiment.

Raising the loan limits is especially significant in high-priced California. As part of the stimulus legislation before Congress, lenders for a year would be able to sell much larger loans to the havens of Fannie Mae and Freddie Mac, the government-backed mortgage finance companies. The limit would increase from the current $417,000 to at least $625,500 and possible as much as $729,750. The exact amount is still being negotiated.

That should make refinancings easier, and would probably encourage sales activity, too. The same is true of another provision of the plan, to increase the limit on loans insured by the Federal Housing Administration to $729,750.

Mr. Klinge said he also realized something else. He was closing his fifth deal this month, a decided improvement from the 16 houses he sold in all of 2007.

It's very hard to find the right house at the right price, he said, but there's a strong undercurrent of very healthy demand.

[Illustration]PHOTO: A price drop on a home in Westerville, Ohio. Real estate agents say that buyers and sellers are beginning to react to lower interest rates. (PHOTOGRAPH BY GARY GARDINER/BLOOMBERG NEWS)(pg. C6)GRAPH: As Rates Fall, Homeowners Stir Mortgage refinancings have jumped recently as interest rates have fallen. Last week, even before the surprise Three-quarterpoint cut in the fed funds rate, refinancing applications had reached the highest level since March 2004. (Source: Mortgage Bankers Association, via Bloomberg)(pg. C1)