Monday, April 21, 2008

Dégringoler

During French class Saturday, I discussed an article that was in the WaPo's real estate section that day and learned a new verb: dégringoler, which can mean "to tumble" [a reputation], "to tumble down" [a person], or "to collapse" [price]. The verb comes to mind when considering the consequences of the actions reported in the article.

According to the WaPo, effective May 1 AIG United Guaranty, which sells PMI insurance, "no longer will write coverage on condominiums in hundreds of Zip codes across the country that it designates as having "declining" market conditions, including some in the Washington area." I went to AIG's website and downloaded their "declining markets" tool - every zip code in the District is classified as being in a declining market.

Several mortgage companies, e.g., GMAC and TB&W, have already announced they'll require buyers in declining markets to put more money down towards a purchase. Both firms list all District zip codes as being in a declining market. Basically, if you want to buy a home/condo in a declining market, you'll have to make a minimum 10% down payment.

So, if it's harder to get a first loan and impossible to get PMI coverage in the District, what do you think will happen to the District's condo market?

Je dégringole, tu dégringoles, le marché dégringole...

7 comments:

Anonymous said...

Insanity. Self-fulfilling prophesy. Or an opportunity for local lending institutions who want to hold loans the old fashioned way to gain market share. But thank goodness I have no plans to sell my 20005 condo -and can't wait to get rid of the PMI. Maybe I'll teach them a lesson and pay down the mortgage another 10 percent over the 10 percent I put down, and get rid of the damn payment. They won't make any money then

Anonymous said...

I concur with DC now being rated as a "declining" market. I was told this by a mortgage broker when I went to get a loan for a Dupont condo. Since it's a declining market, you have to put at least 10% down. I decided to wait because I didn't quite have 10% and also, why buy into a declining market?

Anonymous said...

Buying into a declining market means you are buying at a discount and especially somewhere like DuPont it is safe to assume that the "decline" is in the short term... this only matters of course if you have the downpayment.

Anonymous said...

where can i get a list of DC foreclosed property for sale

it's time to see if there are good deals

Keith said...

Google's your friend - search on something like "DC foreclosure" and you'll get tons of links. I've mentioned RealtyTrac in the past. Any site you go to will charge a fee so be prepared.

Keith said...

Buying in a declining market means you're buying in a geographic area where prices are falling. That's all it means.

It does not equate to a discount, which implies that "normal" prices have been reduced for some reason.

"Dupont Circle: 20% off this weekend only!"

Also, I don't know whether anyone can safely assert that the decline is short term. If that were the case, then how can you explain the mortgage industry's skittishness in making long-term loans? They obviously feels there's a risk that the property supporting the mortgage will lose value, hence they prefer not to make the loan.

You may be buying at a discount to overinflated prices, but is that a true discount? I suspect prices are reverting to the historic mean so it may be better to measure how the price of a property compares to where it should be in relation to that metric.

Sweth said...

The mortgage industry actually isn't skittish about making long-term loans; long term rates right now are still at historic lows, because lenders are eager to make those loans. What they ARE skittish about is leveraging themselves in order to make those loans, and they are returning to the traditional level of skittishness for higher loan-to-value loans. Neither of those is a bad thing; it reduces the number of extremely high-LTV loans somewhat, but the MI companies have been tightening their offerings in areas like DC for months now, so most lenders have already factored that into their lending guidelines.

(FHA loans are still around, BTW, and when structured right can go up to 100%. And for the first anonymous commenter: unless you've got "Lender-Paid MI", your lender isn't making money off of your PMI--that money goes to the MI companies; if you do have LPMI, paying down your balance won't make it go away--you'll have to refinance.)