We Still Need Lower Rates

There's good news on the home sales front the past couple of days. New home sales in February were up nationwide and sales of California's previously-owned homes also increased. California homes averaged 6.7 months on the market in January compared with 16.6 months in Jan. 2008. In fact, nationwide, average time on market was 9.6 months. While prices are down form 2008, prices seem to have stabilized and may even be starting to show some signs of rising in our local markets for entry level homes.
Some analysts are saying that California may be leading the nation into and through the bottom of the housing slump. Sales news should remain positive for the next 30-60 days as pending sales in California were also up 13.5% in January from the same period in 2008 according to the National Association of Realtors.
Primarily most of these sales have been at the entry level; but keep in mind that back in 2005 this segment led us into the decline. Unfortunately many of the sellers in the entry tier have been short-sellers or have been foreclosed upon and thus are out of the housing market. This implies that "trade up" buyers for the middle and upper price tiers are still almost nil. The best way to generate "trade up" buyers is to lower interest rates so sellers who dont have to sell can survive a price haircut on the selling side and still be able to afford to buy a larger or more expensive home.
The following data illustrates the problem with interest rates and loan requirements today. The more progressive lenders that are offering jumbo loans typically are requiring a minimum of 35% down payment at $1M loan amounts rising to 45% at $2M and higher loan amounts. Couple these high down payment requirements with the prevailing rates on 30 year fixed jumbo loans which are averaging 6.65% (or about 1.8% higher than the lowest conforming rates), and then compare them to those on conforming loans (3% minimum down payment, 4.98% rate for a 30 year fixed -rate loan, and 1 point loan costs or PMI). The contrast makes clear why buyers at the upper tiers are simply staying out of the market.