“No place will be immune”

From Bloomberg:

New York, California Metro Home Prices May Fall as Rates Climb

Anna Morita, a neuropsychologist in the San Francisco Bay Area with near-perfect credit, was certain she could get the loan of her choice to buy an $880,000 three- bedroom house.

Morita, 34, with more than $300,000 for a down payment and a credit score of 825 out of a possible 850, was banking on a 30-year loan with interest-only payments for 10 years. That mortgage became too expensive when her lender quoted a rate of 7.6 percent. She’s now applying for another mortgage.

From buyers who can’t afford costly loans to homeowners who can’t find a buyer, the mortgage market is a mess. Home-loan defaults are at record levels and analysts predict property prices in the most-expensive metropolitan areas of New York, California and Washington, D.C., will fall in the next year in the broadest decline since 1995. Prices already have dropped in a third of U.S. markets tracked by the Chicago-based National Association of Realtors.

“No place will be immune,” said Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California in Berkeley. “Inventory is increasing and the demand side is falling off. The psychology has become negative.”

Home values in America’s ritziest areas may decline by as much as 11 percent in the next 3 1/2 years, said Mark Zandi, co- founder of Moody’s Economy.com, an economic forecasting agency and unit of Moody’s Corp. in New York. The last time these markets fell was a dozen years ago when the Federal Reserve raised interest rates seven times in 11 months.
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New Jersey to California

Home prices will decline 5 percent to 10 percent from last year’s peak in New York and San Francisco, and by more than that in Washington, said Rosen of the Fisher Center. Prices in second-home markets, including the Hamptons in New York, and Aspen, Colorado, also may fall, depending on the size of this year’s Wall Street bonuses, he said.

Prices may start to drop in the New York City metropolitan area beginning in the fourth quarter of this year and continue falling 1 percent to 7 percent per quarter through 2008, according to estimates from Zandi.

Prices started to drop in Orange County, California, as early as the third quarter of 2006, said Zandi. The median price in the Boston area fell 2 percent during the past quarter, according to the National Association of Realtors. In the San Francisco Bay Area, Zandi forecasts a decline of 3 percent in the last quarter of this year and subsequent drops of 4 percent to 6 percent for the following three quarters.
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In Montclair, New Jersey, the median price of a home sold in August fell 7.3 percent from a year earlier to $677,340, according to Prudential Zinn Associates Realtors. By contrast, the median price of a home in the hedge fund haven of Greenwich, Connecticut, is holding steady at about $1.9 million, said Barry Rosa, vice president of Prudential Connecticut Realty.
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For those who need financing, it’s a different picture. Qualification standards at banks including Countrywide Financial Corp. in Calabasas, California, and Seattle-based Washington Mutual Inc. have become stricter for loans of more than $2.5 million even for buyers with down payments of 25 percent, said Suzanne Bach, senior vice president at New York-based mortgage broker Guardhill Financial Corp.

Meghan Fajardo of New York City ran through two mortgage brokers and multiple lenders as interest rates rose to more than 7.25 percent from 6.25 percent for her $680,000 condominium in the Windsor Terrace section of Brooklyn, New York.
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“It was a shock to me,” she said. “I wasn’t really following the market that well.”
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Four business days after the loan closed, the same mortgage Fajardo got from Countrywide had a rate of more than 8.5 percent, said Robert Raush, her broker at Icon Funding Group in Manhattan.