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Existing-home sales jump 4.3% in January, inventory level dips

2012-02-22T07:55:00.000-08:00

By Kerri Panchuk

• February 22, 2012 • housingwire.com

Existing-home sales on all single-family homes, townhomes, condos and co-ops rose 4.3% during the month of January, making it the third sales increase in the past four months, the National Association of Realtors said Wednesday.

In January, home sales hit a seasonally adjusted annual rate of 4.57 million units, compared to a pace of 4.38 million units in December and 4.54 million units in the year-ago period.

As sales increased, inventory levels declined 0.4% from December with only 2.31 million existing homes on the market last month, representing a 6.1-month supply, down from the December inventory hold rate of 6.4 months.

“The broad inventory condition can be described as moving into a rough balance, not favoring buyers or sellers,” said Lawrence Yun, chief economist for NAR. “Foreclosure sales are moving swiftly with ready homebuyers and investors competing in nearly all markets. A government proposal to turn bank-owned properties into rentals on a large scale does not appear to be needed at this time."

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NAR said buying power — driven by lower prices and cheap interest rates — are pulling more buyers into the market, creating a dose of optimism before the spring homebuying season.

NAR remains cautiously optimistic as the real estate industry heads into the warm-weather selling season.

Meanwhile, sales prices are down 2% from January 2011, with the median existing home-price hitting $154,700 last month. Distressed homes made up of short sales and foreclosures accounted for 35% of January sales, up from 32% in December.

NAR also highlighted the role of investors, with investment-related buyers purchasing 23% of homes sold in January. That's up from 21% in December.

First-time homebuyer activity also rose to 33% of all activity, compared to 29% a year ago and 31% in December, NAR said.

January 2012 Foreclosure Rate Heat Map

2012-02-17T09:47:00.000-08:00

CoreLogic Records 4.7% Drop in Home Prices in 2011

2012-02-05T11:34:00.000-08:00

Year-end data from CoreLogic shows home prices fell by 4.7 percent over 2011. It marks the fifth consecutive year the company has recorded an annual decline in residential property values.

CoreLogic performed a separate calculation, which illustrates just how big an impact distressed sales are having on home prices. The company excluded all short sale and REO transactions from 2011 and found that when the distress factor is taken out, prices declined by just 0.9 percent.

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Commenting on the company’s latest results, Mark Fleming, CoreLogic’s chief economist said, “While overall prices declined by almost 5 percent in 2011, non-distressed prices showed only a small decrease. Until distressed sales in the market recede, we will see continued downward pressure on prices.”

Montana tops CoreLogic’s list of states with the highest appreciation last year (based on overall prices, including distressed sales). There, home prices rose 4.4 percent.

Rounding out the top five list for price gains are Vermont (+4.0 percent), South Dakota (+3.1 percent), Nebraska (+2.5 percent), and New York (+1.7 percent).

At the other end of the spectrum, Illinois takes the top seed for the highest level of depreciation in 2011 (also including distressed sales), with an 11.3 percent decline.

The hard-hit states of Nevada (-10.6 percent), Georgia (-8.3 percent), and Ohio (-7.7 percent) also landed on the list, with Minnesota (-7.5 percent) capturing the No. 5 spot for home price depreciation last year.

At the national level, CoreLogic says home prices ended 2011 down 33.7 percent from their peak in April 2006.

Here again, the company illustrated the weight of distressed sales, noting that when short sale and REOtransactions are factored out, the home price decline from April 2006 through December 2011 narrows to 24.0 percent.

The five states with the largest declines from the peak (including distressed transactions) are Nevada (-60.0 percent), Arizona (-51.9 percent), Florida (-50 percent), Michigan (-43.7 percent), and California (-43.5 percent).

BY: CARRIE BAY - 02/02/2012 - dsnews.com

Foreclosures for Sale: 34% Off

2012-01-26T07:51:00.000-08:00

BY: CARRIE BAY - 01/25/2012 - dsnews.com

Foreclosure homes sold for 34 percent less than the average price of a non-distressed home during the third quarter of 2011, according to new data released by RealtyTrac Thursday.

The average sales price of homes in the process of foreclosure or bank-owned was $165,322 over the July-to-September period last year.

RealtyTrac says third parties purchased a total of 221,536 residential properties classified as foreclosures or REO during the third quarter of 2011, representing just 20 percent of all residential sales during that timeframe.

The third-quarter share of distressed sales activity is down from 22 percent in the second quarter and down from 30 percent of all sales in the third quarter of 2010. At that time, a year earlier, the discount on a home in foreclosure or REO was averaging 37 percent.

“While foreclosures continue to represent an excellent bargain-buying opportunity for many buyers and investors, foreclosure sales accounted for a smaller share of the total market in the third quarter,” commented Brandon Moore, RealtyTrac’s CEO.

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Moore says he’s not too surprised by the numbers, given the ambiguity surrounding foreclosure procedures — and
the ripple effect that has on sales of foreclosed properties that might have been improperly processed.
“The sooner the market gets more clarity about accepted foreclosure procedures, primarily through the long-promised settlement between multiple states attorneys general and major lenders, the sooner the market can more efficiently dispose of these distressed properties,” according to Moore.

Even with the hurdles to selling foreclosures, distressed sales continue to represent a historically high percentage of all sales, Moore explained. He points to 2005 and 2006, when foreclosure sales accounted for less than 5 percent of all sales nationwide.

According to RealtyTrac’s analysis, a total of 92,824 pre-foreclosure homes – typically short sales – sold to third parties in the third quarter of last year.
Pre-foreclosures had an average sales price nationwide of $191,119, a discount of 24 percent below the average sales price of homes not in foreclosure. These properties took an average of 318 days to sell after receiving an initial foreclosure notice.

Pre-foreclosure sales increased sharply on an annual basis in Michigan (up 68 percent), North Carolina (up 44 percent), Ohio (up 43 percent) and Georgia (up 35 percent). RealtyTrac reports that pre-foreclosure sales outnumbered REO sales in several states in the third quarter, including Colorado, Florida, New Jersey, and New York.

A total of 128,712 bank-owned REOs sold to third parties in the third quarter, according to RealtyTrac’s report. They carried an average sales price of $146,437 – 42 percent below non-foreclosure prices – and had an average time-on-market of 193 days after being foreclosed.

Nevada, California, and Arizona posted the nation’s highest percentage of foreclosure sales during the third quarter.

New Aggressiveness Seen by Banks in Dealing With Mortgages

2012-01-24T11:43:00.000-08:00

A number of published reports during the past week have suggested that banks may be moving more swiftly in dealing with seriously delinquent mortgages and that such actions might lead to further price declines in many markets. Writing in the Los Angeles Times on January 12th, E. Scott Reckard reported on the likelihood that California and other states might see an “enormous wave” of foreclosure actions in 2012 which could lead to further price declines. Mr. Reckard cited RealtyTrac’s report that foreclosures were down by approximately one million in 2011 at approximately 1.9 million from 2010’s 2.9 million. Brandon Moore, CEO of RealtyTrac, is quoted in the article as saying that: "There were strong signs in the second half of 2011 that lenders are finally beginning to push through some of the delayed foreclosures in select local markets. We expect that trend to continue this year."

Mr. Reckard noted that Realty Trac reported the average foreclosure took 352 days last year in California (a “non-judicial” state) versus 806 days in Florida and 1,019 days in New York, states which require judicial review of these matters. Links to the Los Angeles Times report and to RealtyTrac’s December 2011 U.S. foreclosure map are found here: Foreclosures Expected to Rise, Pushing Home Prices Lower

US Foreclosure Trends and Foreclosure Market Statistics – RealtyTrac

On January 12th, CNNMoney’s Les Christie discussed the report that last year foreclosures fell to their lowest level since 2007 and noted that “While the declines seem like good news for the housing market, where a flood of foreclosed homes has depressed home prices, much of it is due to processing delays…”

Earlier last week, CNBC’s Diana Olick discussed some of the governmental and private measures to deal with foreclosures and a link to this is found here: Realty Check – Bulk Foreclosure Sales Could Cause Bigger Bank Write-Downs

Writing in the New York Times on January 8th, Gretchen Morgenson noted that:
“The authorities have fallen silent lately about a possible settlement over foreclosure abuses at big mortgage servicing companies…That’s probably not a terrible thing. After all, no deal is better than a bad deal. State and federal authorities jumped into these talks without conducting serious investigations into foreclosure shenanigans. Why strike a deal-one that would, say, shield banks from new litigation over toxic loans…without knowing what happened?”

Ronald D. Orol, writing for MarketWatch on January 9th, noted that the Home Affordable Modification Program had passed the 900,000 mark in loan modifications, far short of the Treasury Department’s original goals of from three to four million when the program was launched in 2009. He also noted that a larger program which included Fannie Mae and Freddie Mac was needed and that many advocated the need for substantial principal reduction which was “…likely on the way.”

January 16th, 2012 by Sean Collins - appraisernews.com

December 2011 Foreclosure Rate Heat Map

2012-01-24T11:38:00.000-08:00

Some Recent Real Estate Reports

2012-01-06T10:55:00.000-08:00

Some Recent Real Estate Reports

www.appraisernews.com January 2012

The S&P/Case-Shiller Home Price Indices showed month to month declines in 19 of the 20 cities covered in the most recent monthly report released on December 27th. The 10 and 20 City Composites showed respective monthly declines of 1.1% and 1.2% month to month along with respective year to year declines of 3.0% and 3.4%. David M. Blitzer, Chairman of the Index Committee at S&P Indices, said that “There was weakness in the monthly statistics…” while noting “…the only good news is some improvement in the annual rates of change in home prices…”.

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Mr. Blitzer concluded his commentary by saying that: “Some of the other housing statistics posted relatively healthy figures for November, but it seems that most of the good news was confined to the multi-family sector. Existing home sales rose in November, but are still at a low annual rate of about 4.0 million. Single family housing starts also rose, but remain close to record lows and are still down about 1.5% versus October 2010.” A link to the entire Case-Shiller report along with graphic illustrations is found here: The Fourth Quarter Starts with Broad-based Declines in Home Prices According to the S&P/Case-Shiller Home Price Index

Writing for CNNMoney on the day the Case-Shiller report was released, December 27th, Les Christie noted that this was the sixth consecutive month of declines reported by Case-Shiller. He quoted Pat Newport, a housing market analyst for HIS Global Insight as saying that "The numbers are pretty bad and will get even worse over the next two years." Mr. Newport attributed the past and prospective declines to tight lending standards and the glut of foreclosed properties selling at distressed prices.
Bloomberg’s Timothy R. Homan discussed the Case-Shiller findings and their reporter Matt Miller interviewed Robert Shiller that day. Mr. Shiller found some positives amidst the negative data and suggested that the historically low interest rates suggest it “…might be a good time to buy” for those who will be staying put for a number of years and can weather some additional market declines in the next several years. Links to both Bloomberg reports are found here:
U.S. Home Prices Fell More Than Forecast

Yale's Shiller on U.S. Housing, Economy

Housingwire’s Kerri Panchuk reported on December 29th about a new Urban Institute study on foreclosure which quoted Leah Hendey, a research associate for the Urban Institute as saying that “The foreclosure inventory that is building up is going to take an incredibly long time for lenders to clear. At the current pace of foreclosure sales, we are looking at a process that could take decades to complete.”

International Business Times had an interesting report on December 22nd titled “10 Trends in U.S. Housing in 2011 and What to Look for in 2012” and a link to this is found here: 10 Trends in U.S. Housing in 2011 and What to Look for in 2012

Foreclosure sales still pummeling home prices

2011-12-23T14:03:00.000-08:00

By Les Christie @CNNMoney December 21, 2011

Five years after the subprime mortgage meltdown started to hit, foreclosure sales are still hurting the housing market.

NEW YORK (CNNMoney) -- Nearly five years into the crisis, foreclosures are still weighing heavily on home prices.

A whopping 46% of homes sold in November were either short sales or REOs -- as homes repossessed by lenders are called, according to a survey by Campbell/Inside Mortgage Finance.

One problem: Distressed homes sell for a lot less than homes sold by conventional sellers. The average price for a short sale (when borrowers owe the bank more than their homes are worth) was $209,000 in November. For a regular sale, the average was about $259,000.

The numbers are even worse for REOs, which averaged about $190,000 for properties in move-in condition.

For a damaged REO, the price was just $99,000. That's a common problem, since homeowners who've been foreclosed on don't typically devote resources to upkeep.

Delinquencies Still Falling but Foreclosures at an All-Time High

There is no shortage of distressed properties: More than 6 million borrowers are delinquent 30 or more days, according to LPS Applied Analytics. Two million are already in the foreclosure process, and most of these homes will be repossessed or sold as short sales.

"The huge glut of distressed properties coming to market is why there will be no home price rebound this coming year and maybe into 2013," said Guy Cecala of Inside Mortgage Finance, a publisher of mortgage information and news.

There's another problem: getting financing for REOs in poor shape can be difficult, according to Cecala. Lenders don't like to issue mortgages for homes in need of extensive repairs.

And in an insidious twist, as distressed properties are sold, they can also bring down the price of homes that aren't in trouble. That's because mortgage appraisers assessing a regular home's value typically compare it to short sales and REOs in the area.

How Appraisals Are Derailing Home Sales

Since distressed properties sell for so much less, using them as comparables drags the appraised values of regular homes way down.

"It's the No. 1 reason why transactions fall through," said Cecala. "If you can't get an appraisal to support the price, the deal will won't close."

National Association of Realtors Admits to Double Counting Some Home Sales Resulting in Overstated Sales Figures for Five Years

2011-12-20T10:39:00.000-08:00

December 20th, 2011 by Sean Collins - AppraiserNews.com

In a statement to Reuters last week, NAR spokesman Walter Malony reportedly stated that: “All the sales and inventory data that has been reported since January 2007 is being downwardly revised. Sales were weaker than people thought”.

On December 14th, the NAR posted a video and “Q and A on Re-Benchmarking of Home Sales” in which they discussed the matter. The video and Q and A discussed the problem of “data drift” and how “…there could be double or triple counting of a single home sale transaction” due to a single property being listed and sold on several Multiple Listing Systems. The NAR addressed some of the ways in which they would change their methods of collecting and processing information. They also seemed to be saying that the errors were not that important because the “trend lines” were the same as before and that “Like weather, the only thing that truly matters for consumers are outlooks on data from their local market area.”

After what appears to be an attempt to downplay the significance of the errors, the Q and A noted that: “The national data is important for policymakers to measure the broad strength and weakness of the housing market as they impact the national economy.”

The over-statement of sales by the NAR was substantial and appears to have continued for approximately five years, supposedly ending in October of this year. AppraiserNews.com is of the opinion that this is no time for the NAR to try to gloss over the extent of the problem, their credibility is truly at stake. If their data is to remain “important for policymakers” they will have to seriously address their deficiencies and make their chief economist, Lawrence Yun, choose whether he really is an economist and not a cheerleader whose commentary is not credible. In their video of December 14th, Mr. Yun starts to drift away into lala land with comments about “hopefully banks will start lending” and remarks about increased sales in 2012 along with a modest increase in values. The Q and A states:

“NAR takes its role as a leading source for housing information very seriously, and toward that end, NAR research will announce results of a year-long re-benchmarking process for existing-home sales on Wednesday, December 21.”

We shall see. A link to the NAR video and Q and A is found here: National Association of Realtors, Existing Home Sales Methodology, Benchmarking FAQ

Delinquencies Still Falling but Foreclosures at an All-Time High

2011-12-05T08:34:00.000-08:00

BY: CARRIE BAY 12/1/2011 DSNEWS.com

Data released by Lender Processing Services (LPS) Thursday shows mortgage delinquencies are continuing to decline, now nearly 30 percent below their January 2010 peak.

Loans in the process of foreclosure, on the other hand, are steadily rising. LPS says foreclosure inventories reached an all-time high at the end of October, making up 4.29 percent of all active mortgages.

The average days delinquent for loans in foreclosure extended as well during the month of October, setting a new record of 631 days since last payment, while the average days delinquent for loans 90 or more days past due but not yet in foreclosure decreased for the second consecutive month.

How Appraisals Are Derailing Home Sales

LPS says judicial vs. non-judicial foreclosure processes remain a significant factor in the reduction of foreclosure pipelines from state to state, with foreclosure inventory percentages in non-judicial less than half that of their judicial counterparts.

This is largely a result of the fact that foreclosure sale rates in non-judicial states have been proceeding at four to five times that of judicial, LPS explained.

Non-judicial foreclosure states made up the entirety of the top 10 states with the largest year-over-year decline in non-current loans percentages. Arizona led the way with a 23.9 percent annual drop in non-current mortgages. California wasn’t far behind with a 20.2 percent decline, and in Nevada, non-current loans are down 19.1 percent from a year earlier.

LPS’ October data also showed that mortgage originations are on the rise, reaching levels not seen since mid-2010. Mortgage prepayment rates have also spiked, as much of the new origination is related to borrower refinancing. LPS says loans originated in 2009 and later are the primary drivers of the increase in refinances.

While origination activity for Federal Housing Administration (FHA) loans is down, GSE and FHA originations still account for the vast majority of all new loans – nearly nine out of every 10 new mortgages, according to LPS.

October 2011 Foreclosure Rate Heat Map

2011-11-14T07:11:00.000-08:00

Scroll over map for details

Foreclosures on the rise again

2011-11-10T21:43:00.000-08:00

By Chris Isidore November 10, 2011 CNNMoney.com

NEW YORK (CNNMoney) -- The number of foreclosures climbed in October, as mortgage lenders started to work through the paperwork problems that had delayed new filings for much of the last year.

Foreclosure filings were reported on 230,678 properties nationwide in October, a 7% increase from September, reported RealtyTrac, an online marketplace for foreclosed properties. Despite the increase, filings were still 31% below year-earlier levels, though.

How Appraisals Are Derailing Home Sales

RealtyTrac said one in every 563 U.S. homes had either a default notice, a scheduled auction or a bank repossession filing during the month.

"The October foreclosure numbers continue to show strong signs that foreclosure activity is coming out of the rain delay we've been in for the past year as lenders corrected foreclosure paperwork and processing problems," said James Saccacio, RealtyTrac's CEO.

A year ago, several major banks -- including Ally, Bank of America (BAC, Fortune 500), and JPMorgan Chase JPM, Fortune 500) -- acknowledged problems with paperwork they were using to file foreclosure actions against delinquent homeowners. They announced various changes in practices and temporary moratoriums in new filings while they worked through the problems.

The states with highest foreclosure rates during the month were Nevada, California, Arizona, Florida and Michigan. Combined, these states accounted for 53% of the national total.

Las Vegas finally gave up its dubious title as the foreclosure champion, after leading all other metropolitan areas in the rate of new filings over the previous 22 months.

Is Las Vegas housing market ready for comeback?

New foreclosure filings in Vegas plunged 36% compared to September, caused primarily by an 80% drop in new default notices. The retreat in foreclosures took it down to fifth place nationwide, and turned Stockton, Calif., into the new foreclosure epicenter.

Still the improvement in the Las Vegas real estate market wasn't enough to topple Nevada from its status as the state with the highest foreclosure rate. Its pace of one filing for every 180 homes kept it ahead of No. 2 California for the 58th straight month.

Threat of downturn derails housing recovery: Fannie Mae

The best hopes for stopping foreclosures is an improvement in the overall economy, especially the battered real estate and labor markets. But with so many foreclosed homes weighing on the market, and with unemploymentstill at 9% and consumer confidence low, even mortgage rates near record lows aren't enough to fix the problems caused by the bursting of the housing bubble.

How Appraisals Are Derailing Home Sales

2011-11-07T08:13:00.000-08:00

New requirements are resulting in more cancelled or delayed contracts.

By ANNAMARIA ANDRIOTIS - Smart Money Nov. 4, 2011

Three months ago, real estate agent Gary Rogers says he was conducting a fairly routine home sale. Then he received the home appraisal's report, which valued the three-bedroom colonial in Waltham, Mass., at $430,000, rather than the $448,000 selling price the buyer and seller had agreed to. Unless the buyer agreed to put up more money, or the seller to lower the price, the deal was off. Fortunately, after nearly two weeks, Rogers says the two sides agreed to meet in the middle.

In the past, appraisals rarely disrupted a home sale. But realtors and housing experts say new requirements and a difficult housing market are doing just that. Year-to-date through September, one third of realtors have said appraisals resulted in buyers and sellers delaying or canceling contracts or renegotiating to a lower sales price, according to the National Association of Realtors. That's up from 29% in all of 2010 and up from less than 10% prior to 2009.

Indeed, lenders say they're requiring more thorough home appraisals. Appraisers determine the value of a home largely by reviewing the prices at which similar homes nearby sold for in recent months. During the housing boom, appraisers could cite as few as three recently sold homes; today, lenders are often requiring two to three times that, says David Stevens, president and CEO of the Mortgage Bankers Association. To meet that quota, appraisers say they sometimes have to use homes that aren't similar and may be foreclosures or short sales, though they are taking into account what this property would have sold for if it wasn't a distressed sale, says a spokesman for the Appraisal Institute, an association of real estate appraisers. "Appraisers have become much more cautious," says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla.

Homeownership Decline Outpaces All but Great Depression

To be sure, a more thorough appraisal process does have its benefits. It lets a buyer know whether they're offering too much to buy a particular home. "For buyers, the appraisal is a check and balance -- it's there to ensure the buyer isn't overpaying and the lender isn't over-lending," says McCabe.

It may also make houses cheaper for buyers -- though not without more hassle. If the appraisal value comes in below the agreed buying price, the lender will typically offer a smaller mortgage. For example, on the house that Rogers sold, the buyer would have gotten a mortgage for $358,400, or 80% of $448,000. But when the appraisal value came in at $430,000, the lender adjusted the mortgage amount to 80% of the appraisal figure, or $344,000. The contract the buyer and the seller had signed, however, stated the higher buying price of $448,000, and the buyer (and potentially the seller) had the option to decide if they wanted to make up the $18,000 difference.

Typical solutions include having the buyer paying that difference out of pocket or the seller lowering his price -- or both. And sellers often do lower their prices: For example, during the three months ending September, 13% of realtors reported contracts were renegotiated to a lower sales price, compared to 10% who said contracts were canceled and the 8% who said contracts were delayed, according to the NAR.

Here are ways to make the process easier, say experts, and how to deal with complications.

How sellers can prepare:

Before putting their home on the market, sellers should research what similar homes near them are selling for by looking at online listings, visiting open houses and speaking with realtors, says Rogers. "It's always good to get more than one opinion," he says. They can also ask for their own home appraisal, which could give them a sense of how close (or far off) the figures are. The cost of an appraisal varies but typically ranges from $250 to $600.

How to rescue the housing market: Foreclosures!

How buyers can protect themselves:

When buyers make an offer, they should include statements in the contract guaranteeing they'll receive their initial down payment (typically 3% to 5% of the agreed buying price of the home) back if full mortgage financing doesn't come through for the agreed price or the appraisal value is below the offer that's in the contract, says McCabe. Separately, the buyer (who's required to pay for the home appraisal) should ask for the appraisal report and look at what properties the appraiser used as comparisons, says Rogers. It should, he says, include homes that are in the same neighborhood and the same style. In other words, a colonial home shouldn't be compared to a ranch.

What to do if appraisal value comes in below the purchase price:

In this situation, experts say buyers have several options. If they're no longer interested in the home, they can walk away. (However, without a contingency clause -- see previous section -- they risk losing their initial down payment.) But if they still intend to buy the house and they can prove the report excluded similar, nearby properties or had some other issue, they can appeal or ask their lender for a second appraisal.

If those strategies don't work, the buyer and the seller can consider working out an agreement on their own. Lastly, to report a problem with an appraiser, consumers can contact their state's appraisal board.

Home prices heading for triple-dip

2011-11-01T08:16:00.000-07:00

By Les Christie October 31, 2011 CNNMoney.com

NEW YORK (CNNMoney) -- The besieged housing market has even further to fall before home prices really hit rock bottom.

According to Fiserv (FISV), a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.

Several factors will be working against the housing market in the upcoming months, including an increase in foreclosure activity and sustained high unemployment,explained David Stiff, Fiserv's chief economist.

Should home values meet Fiserv's expectations, it would make it the third (and lowest) trough for home prices since the housing bubble burst.

The first post-bubble bottom was hit in 2009, when prices fell to 31% below peak. The First-Time Homebuyer Credit helped perk prices up by mid-2010, but by the time the credit expired, prices fell again.

In the second dip, which was reached last winter, prices were down 33% before staging a mild rally that was artificially spurred as banks slowed the processing of foreclosures following the robo-signing scandal, which found that loan servicers were rapidly signing foreclosures without properly vetting them.

Now that the scandal is mostly resolved, lenders are speeding more cases through the foreclosure pipeline and back onto the market, weighing on home prices even further.

Earlier this month, RealtyTrac reported the first quarterly increase in foreclosure filings in three quarters. Even more discouraging: new default notices were up 14%.

Homeownership Decline Outpaces All but Great Depression

There's also a "shadow inventory" of homes in foreclosure that have yet to go back onto the market.

The specter that those foreclosed homes could flood the market at any time and drive prices significantly lower is a huge concern, said Mark Dotzour, an economist for Texas A&M University. "That's the elephant in the room," he said, noting that there are 6 million home currently in shadow inventory.

Biggest losers

Many of the regions that will be hardest hit were already beaten up during the previous two dips.

Naples, Fla., for example, is expected to take the biggest hit of any metro area, a price drop of another 18.9% by the end of next June, according to Fiserv. Home prices in the area have already fallen 61% from the peak.

Other cities expected to be hit hard include the not-so-lucky Las Vegas, which is expected to see home prices fall another 15.9% for a total loss of 66%; Riverside, Calif., is projected to fall another 14.8% (for a total decline of 61%); Miami is expected to decline by 13.2% (total loss: 57%), and Salinas, Calif. could drop by another 13% (for a total loss of 66%).

There will be some winners, however, led by Madera, Calif. and Carson City, Nev., which will each gain 15.5%. That's some consolation for hard-hit residents: The average home in each of these metro areas has lost more than half its value.

Other metro areas Fiserv expects to recover nicely are Yuma, Ariz. (up 9.5%), Yuba City, Calif. (9.2%) and Farmington, N.M. (8.3%).

Slow recovery ahead

Even after the housing market begins its comeback in mid-2012, the recovery is predicted to be modest at best. Nationwide, Fiserv is projecting that home prices will climb just 2.4% between June 2012 and June 2013.

A few individual metro areas will do better, with 31 of the 385 markets Fiserv monitors expected to pile up double-digit gains. Another 71 markets are expected to post increases of 5% or better.

Home prices rise for 5th straight month

Many of the markets that will record the biggest increases are vacation or retirement communities that had taken some of the biggest hits during the bust.

The biggest "winner" will be Ocala, Fla., with a 22.4% spike for the 12 months ending June 30, 2013. Ocala was one of the hardest hit communities in the U.S. over the past several years, with home prices falling some 50%.

Others anticipated gainers will be Napa, Calif., which Fiserv projects will improve by 20.9% over that same period; Panama City, Fla. (an estimated 18.2% jump) and Bremerton, Wash. and Carson City, Nev. (both expected to see home prices climb 17.9%).

Some cities will continue to fade, however. Fort Lauderdale, Fla.'s forecast is for a 9.2% drop through next June and another 6.7% the 12 months after that. Its neighbor, Miami, will endure 13.5% and 5.2% declines, respectively.

Home prices rise for 5th straight month

2011-10-25T09:05:00.000-07:00

By Les Christie October 25, 2011 CNNMoney.com

NEW YORK (CNNMoney) -- Home prices continued a winning streak in August, the fifth straight month of price gains, but remain lower on a year-over-year basis.

A gauge of home prices featuring 20 major cities, the S&P/Case Shiller index, reported Tuesday that prices rose 0.2% in August but were still down 3.8% year over year.

"Even though the [year-over-year] rates are improving, national home prices are still below where they were a year ago," said David Blitzer, a spokesman for S&P.

Overall, the market is treading water and there doesn't seem to be any reason to suspect that's going to change soon.

"As long as the economy remains weak, foreclosures are still a problem and lending standards stay stringent, we're not going to see much movement in home prices," said Mike Larson, a real estate analyst for Weiss Research.

"You just haven't gotten yet the rocket fuel needed to send housing soaring again," he said.

Among individual metro areas, Washington saw the biggest gain -- 1.6% in August. Detroit and Chicago were close behind at 1.4%. In the past 12 months, Washington prices have gone up 0.3%. In Detroit prices were up 2.4% since August 2010, more than any other area.

The Atlanta metro area recorded the steepest decline, down 2.4% for the month. Year-over-year prices were off 6.3%. Minneapolis home prices recorded the worst 12-month drop of 8.5%.

The home price report comes on the heels of changes in the Home Affordable Refinance Program (HARP) announced Monday by the Obama administration. The changes will enable many homeowners to refinance high-interest mortgages more easily, making their monthly payments more affordable. The plan should enable some to avoid default.

Ed Mermelstein, a New York-based real estate attorney, broker and developer, doubts that the HARP changes will have much impact on home prices or sales.

"The economy and jobs have to come back. That's what's going to help the housing market," he said.

Larson pointed out that even if they work as planned, HARP's main focus is helping existing homeowners stay in their homes; it won't spur new sales.

Newport said he thinks that housing market weakness will continue improving.

How to rescue the housing market: foreclosures

"The key reason is that more distressed homes are coming onto the market and will be selling," he said. "That tends to drag home prices down."

Fiserv, which provides real estate financial analytics to industry, is projecting a further home price decline of 3.6% through the end of June 2012.

If that forecast comes true, it would mean home prices will plumb a new, post-bubble bottom over the next nine months, down 34% from the mid-2006 peak.

September 2011 Foreclosure Rate Heat Map

2011-10-17T11:51:00.000-07:00

September 2011 Foreclosure Rate Heat Map

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1 in every 605
housing units received a foreclosure filing in September 2011

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Homeownership Decline Outpaces All but Great Depression

2011-10-10T12:22:00.000-07:00

Carrie Bay - DSnews.com 10-7-2011

The national homeownership rate fell by 1.1 percentage points between 2000 and 2010. The U.S. Census Bureausays it’s the steepest drop since the period from 1930 to 1940, when the rate plummeted by 4.2 percentage points.

Housing woes are, without question, taking a bite out of the American Dream.

Unprecedented levels of foreclosures have forced more than 3 million homeowners out of their homes over the past four years. And with $7 trillion in home equity wiped out since 2005, many are leery of putting their hard-earned dollars toward an investment that is still depreciating.

The Census Bureau said in its report released this week that the U.S. homeownership rate slipped to 65.1 percent in 2010. Even with the sharp decline over the previous 10 years, that rate is the second highest on record since homeownership data collection began in 1890, behind only the year 2000.

All but one metropolitan area had more homeowners than renters in 2010. With a homeownership rate of 49.5 percent, Manhattan, Kansas, was the only metro where renters outnumbered homeowners.

While homeowners were the majority in most of the nation’s metro areas, they were outnumbered by renters in many of the country’s largest cities, including the four most populous cities. Last year, New York renters made up 69.0 percent of households, followed by Los Angeles (61.8%), Chicago (55.1%), and Houston (54.6%).

The national housing inventory increased by 15.8 million units, or 13.6 percent, from 2000 to 2010. While housing supplies increased in all states during the decade, they grew fastest in the South and West.

According to the 2010 Census, there were 131.7 million housing units in the United States. Of these, 116.7 million had people living in them. The remaining 15.0 million units — 11.4 percent — were vacant.

New Foreclosure Actions Jump Nearly 20% in August

2011-10-04T21:23:00.000-07:00

By: Carrie Bay - 10/3/2011 - DSNEWS.com

Data released by Lender Processing Services (LPS) Monday shows that foreclosure starts were up in August by 19.7 percent when compared to the previous month.

However, LPS noted in its report that the 247,957 foreclosures initiated in August represents a 12.2 percent decline from a year earlier.

At the same time, of the approximately 4 million loans that are either 90 or more days delinquent or in foreclosure, the number in the 90-plus day delinquency bucket – 2,148,179 – has contracted to levels not seen since 2008, according to LPS’ study.

That’s not the only indicator of improvement LPSdocumented for problem loans. The company’s latest report also showed that, of loans that were current six months prior, 1.4 percent had become seriously delinquent by August.

LPS says that percentage is less than half the rate seen in 2009, when the loan deterioration rate peaked at 2.9 percent.

At the same time, “first-time” delinquencies – new problem loans that had never been delinquent before – accounted for approximately a quarter of all new delinquencies, another sign of an improving trend for problem loans, according to LPS.

The company points out, however, that 23 percent of the nearly 46 million loans that were current as of the end of August were still at risk as a result of negative equity – a leading indicator of a borrower’s propensity to default.

LPS’ analysis of mortgage performance data at August month-end showed an all-time high in the number of loans shifting from foreclosure back into delinquent status, suggesting that process reviews and potential loss mitigation activity are continuing.

As a result, the company says foreclosure timelines continue to increase, with the average loan in foreclosure having been delinquent for a record 611 days.

Average delinquencies in non-judicial states continue to be about six months shorter at the time of foreclosure sale when compared to their judicial counterparts, where
LPS says backlogs continue to be extremely high.

Zillow: Case-Shiller 20-city housing index likely rose in July

2011-09-26T08:32:00.000-07:00

by LIZ ENOCHS - http://www.housingwire.com - Friday, September 23rd, 2011

The Standard & Poor's/Case-Shiller 20-city composite home price index, which will be released on Tuesday, likely rose 1.2% in July from the previous month, a Zillow Inc. (Z: 25.75 -4.17%) forecast showed.

The Case-Shiller, a key housing price index that covers 20 U.S. metropolitan areas, likely fell 4% in July from the year-ago period, Zillow said.

The S&P/Case-Shiller 10-city index is expected to show the same month-over-month increase compared to June, while also registering a decline of 3.4% from a year earlier.

"The market is full of conflicting signals right now with August consumer confidence down by 25%, July pending homes slipping, and the four-week moving average of mortgage applications also dipping," said Zillow Chief Economist Stan Humphries in a statement.

Humphries' expectations for the Case-Shiller index were initially much weaker, but were bolstered recently by two indicators.

The Zillow home value index, a key factor in its Case-Shiller forecast, rose 0.12% in July, and August home sales rose 7.7%, well ahead of expectations.

Still, uncertainty is plaguing the market and will exert a drag on housing, according to Humphries.
"I still believe that the continued fears about a Greek default, weak employment growth and low consumer confidence will ultimately translate into weaker housing performance in the back half of this year," he said. "Looking ahead, expect fading monthly momentum in Case-Shiller."

Threat of downturn derails housing recovery: Fannie Mae

2011-09-20T07:51:00.000-07:00

By Kerri Panchuk - HousingWire.com - Sept. 19, 2011

The threat of another economic downturn is stalling a housing recovery, Fannie Mae said in a report Monday.

The economy remains in a fragile state and is highly susceptible to additional shocks that could further erode economic growth, according to a study provided by the government-sponsored enterprise's Economics & Mortgage Market Analysis group.

Fannie pointed to a stubborn unemployment rate that's expected to remain above 9% throughout 2012, making individuals more likely to become renters than homeowners.

"The weakening economic backdrop, a persistently high unemployment rate, and fear of a double-dip recession are casting a shadow over the housing market," Fannie Mae Chief Economist Doug Duncan said. "In turn, respondents to the Fannie Mae National Housing Survey indicate a continued shift of sentiment toward renting and away from ownership, at least in the near term."

"In the second quarter, 26% of Americans were worried about their job stability. When combined with the 9% of unemployed households, you have more than one-third of the potential workforce worried about their employment status. This is hardly a strong support for housing demand," he said.

Duncan's latest statement comes as Fannie Mae economists predict slugglish GDP growth of less than 2% throughout 2012.

Existing-home sales fell in July along with single-family construction spending, while multifamily construction spending began to rise after attracting the attention of large investors, Duncan said.

Mortgage default warnings surged in August

2011-09-15T10:39:00.000-07:00

Alex Veiga, AP Real Estate Writer, September 15, 2011

LOS ANGELES (AP) -- Banks have stepped up their actions against homeowners who have fallen behind on their mortgage payments, setting the stage for a fresh wave of foreclosures.

The number of U.S. homes that received an initial default notice -- the first step in the foreclosure process -- jumped 33 percent in August from July, foreclosure listing firm RealtyTrac Inc. said Thursday.

The increase represents a nine-month high and the biggest monthly gain in four years. The spike signals banks are starting to take swifter action against homeowners, nearly a year after processing issues led to a sharp slowdown in foreclosures.

"This is really the first time we've seen a significant increase in the number of new foreclosure actions," said Rick Sharga, a senior vice president at RealtyTrac. "It's still possible this is a blip, but I think it's much more likely we're seeing the beginning of a trend here."

Foreclosure activity began to slow last fall after problems surfaced with the way many lenders were handling foreclosure paperwork, namely shoddy mortgage paperwork comprising several shortcuts known collectively as robo-signing.

Many of the nation's largest banks reacted by temporarily ceasing all foreclosures, re-filing previously filed foreclosure cases and revisiting pending cases to prevent errors.

Other factors have also worked to stall the pace of new foreclosures this year. The process has been held up by court delays in states where judges play a role in the foreclosure process, a possible settlement of government probes into the industry's mortgage-lending practices, and lenders' reluctance to take back properties amid slowing home sales.

A pickup in foreclosure activity also means a potentially faster turnaround for the U.S. housing market. Experts say a revival isn't likely to occur as long as there remains a glut of potential foreclosures hovering over the market.

Foreclosures weigh down home values and create uncertainty among would-be homebuyers who fret over prospects that prices may further decline as more foreclosures hit the market. There are about 3.7 million more homes in some stage of foreclosure now than there would be in a normal housing market, according to Citi analyst Josh Levin.

"This bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery," Levin said in a client note this week.

Banks have been working through a backlog of properties that first entered the foreclosure process months, if not years ago. But the August increase in homes entering that process sets the stage for a host of new properties being targeted for foreclosure.

That's bad news for homeowners who may have grown accustomed to missing payments for several months without the threat of foreclosure bearing down on them. In states such as New York and Florida, for instance, processing delays have helped some homeowners stay in their homes for more than two years before banks got around to taking back their properties.

In all, 78,880 properties received a default notice in August. Despite the sharp increase from July, last month's total was still down 18 percent versus August last year and 44 percent below the peak set in April 2009, RealtyTrac said.

Some states, however, saw a much larger increase.

California saw a 55 percent increase in homes receiving a default notice last month, while in Indiana they climbed 46 percent. In New Jersey, where last month a judged ruled that four major banks could resume uncontested foreclosure actions in the state under court monitoring, homes receiving a default notice increased 42 percent.

Despite the increase in new defaults, the number of homes scheduled for auction and those repossessed by banks slowed in August.

Scheduled foreclosure auctions declined 1 percent from July and fell 43 percent from a year earlier, RealtyTrac said.

Auctions increased from July levels in several states, including Colorado, where they rose 51 percent, and Arizona, where they grew 20 percent.

Lenders repossessed 64,813 properties last month, a drop of 4 percent from July and down 32 percent from a year earlier. Home repossessions peaked September last year at 102,134.

Banks are now on track to repossess some 800,000 homes this year, down from more than 1 million last year, Sharga said.

The firm had originally anticipated some 1.2 million homes would be repossessed by lenders this year.

In all, 228,098 U.S. homes received a foreclosure-related notice last month, a 7 percent increase from July, but a nearly 33 percent decline from August last year. That translates to one in every 570 U.S. households, said RealtyTrac.

Nevada still leads the nation, with one in every 118 households receiving a foreclosure-related notice last month.

Rounding out the top 10 states with the highest foreclosure rate in August are California, Arizona, Georgia, Idaho, Michigan, Florida, Illinois, Colorado and Utah.

Distressed Real Estate Makes Its Way Into Obama's Jobs Plan

2011-09-12T08:03:00.000-07:00

In addition to refinancing assistance for mortgage holders, President Barack Obama’s proposed American Jobs Act includes a handful of elements that relate to the distressed real estate market, all part of what the administration has labeled Project Rebuild.

The new $15 billion program is based on the Neighborhood Stabilization Program (NSP).

NSP1, part of the Housing and Economic Recovery Act (HERA) of 2008, provided grants to all states and select local governments on a formula basis. NSP2, part of the American Recovery and Reinvestment Act (the Recovery Act) of 2009, provided grants to states, local governments, nonprofits, and a consortium of nonprofit entities on a competitive basis.

The new Project Rebuild will attempt to connect Americans looking for work in distressed communities with jobs needed to repair and repurpose residential and commercial properties.

for work, especially in the construction industry, where more than 1.9 million jobs have been lost since the beginning of the recession in December 2007.

White House officials note that in the same communities experiencing large numbers of foreclosed homes and businesses, there are also large numbers of people looking

Federal funding will be used to establish property maintenance and redevelopment programs and to mitigate what the administration calls “visible scars” left by vacant and abandoned properties.

The Project Rebuild section of the American Jobs Act explains that many regions of the country with concentrated home foreclosures also have high concentrations of commercial foreclosures.

These vacant commercial properties create an obstacle for an area’s economic recovery because they depress property values and make it less likely that new businesses will locate in the area. The vacant properties also invite increased crime.

Project Rebuild will attempt to address this issue by providing grants to rebuild and repurpose the distressed commercial real estate.

The program will also increase support for land banks, which will buy, hold, and redevelop distressed properties.

The inclusion of land banks will help communities and private sector interests leverage their own efforts in handling distressed properties, according to the administration.

In addition to community involvement, the program will include collaboration with for-profit entities, non-profit organizations, developers and other private interests.

The program will rely on federal funding to support for-profit development that “is consistent with project aims.” Any funding going to for-profit developers will be subject to strict oversight.

By: Phil Brit - Sept. 12, 2011 DSNEWS.com

How to rescue the housing market: Foreclosures!

2011-08-31T21:14:00.000-07:00

By Tami Luhby August 31, 2011 - money.cnn.com

NEW YORK (CNNMoney) -- If the Obama administration really wants to save the housing market, it should speed up the foreclosure process -- not prolong the inevitable, experts say.

Four years into the housing crisis, the real estate market is still teetering on the edge. The Obama administration has tried one program after another to stem the tide of foreclosures with limited success. And it is continuing to look for ways "to ease the burden on struggling homeowners," though no new initiative is imminent, the White House said this week.

But some housing experts argue that the administration should go in a different direction than it has in the past. Instead, they say it's time to focus on pushing many of those delinquent borrowers through the foreclosure process and putting foreclosed properties back into use.

While some of the 2.2 million loans in foreclosure can still be saved, many are too far gone, they say. Some 37% have not made a payment in more than two years, while another 34% have not made a payment in 12 to 23 months, according to Lender Processing Services.

"Loans enter into foreclosure, but never come out," said Thomas Lawler, founder of Lawler Economic & Housing Consulting. "If this keeps going on, you have a continual overhang that never goes away."

Delaying foreclosure increases the percentage of homeowners who'll likely never catch up, Lawler said. In 2009, only 6% of delinquent borrowers were more than two years behind. And it means vacant properties still in limbo could fall even further into disrepair, hurting the value of the surrounding housing market.

Lawler is not the first to warn about the consequences of slowing the foreclosure process. Since the housing crisis began, several experts cautioned that foreclosure prevention efforts may only prolong the pain.

Accelerating foreclosures is tricky, however, especially since it is largely the purview of the states. But the administration could work with state officials to speed the process, especially on vacant homes, he said.

The push would come at a time when many mortgage servicers have slowed foreclosure efforts as they resolve shoddy paperwork practices.Foreclosure filings in July dropped to their lowest level since November 2007, due to processing delays and foreclosure prevention measures, according to RealtyTrac.

Getting rid of the glut

Another key to helping the housing market is facilitating the resale of homes that have already been foreclosed upon, experts said. This glut of vacant properties will continue to weigh on home values until they are sold.

"They can't be a glacier hanging over the market with everyone waiting for it to fall," said Jim Gaines, research economist at The Real Estate Center at Texas A&M University. "Those properties have to clear the market."

A first step could be to sell off the foreclosed properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration. Collectively, they own 248,000 homes, about 31% of the foreclosure inventory.

The administration and the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, are already looking for ways to unload these foreclosed homes. Earlier this month, they put out a request for ideas, including possible bulk sales of inventory. Also, they are interested in turning many of these properties into affordable rentals, which are sorely lacking in many communities. Experts interviewed agree this would be a good move for the market.

To entice investors to purchase these homes, as well as other foreclosed properties owned by banks, the administration could advocate for changes to the tax code, Gaines said. For instance, more favorable capital gains or depreciation rules could attract buyers.

The case against foreclosure

Of course, not everyone agrees that pushing people through the foreclosure process is the best solution to the housing crisis.

David Min, associate director for financial markets policy at the Center for American Progress, argues that there are many homeowners who can be saved if their payments can be adjusted to affordable levels or if some of their principal is forgiven. This particularly applies to those who are only a few months behind.

Foreclosure is very costly for servicers, homeowners and neighborhoods, he said.

"There are a lot of other options that make more sense" than foreclosure, Min said. "It's just so destructive to value. We should be pulling every lever we can."

Mediation, for instance, could help some homeowners avoid foreclosure, he said. Some 23 states and the District of Columbia currently have programs that require mortgage servicers to sit down with borrowers and discuss the homeowners' options, though many began only in the last year. More than 70% of mediations end in a settlement, often restructuring the mortgage to a sustainable level, according to the center.

Helping those still current with their payments can also give the housing market -- and the economy -- a lift, albeit a somewhat marginal one, experts said.

For instance, the administration could revamp its refinancing program aimed at allowing underwater homeowners to take advantage of today's lower interest rates. Improvements could include reducing some of the upfront costs and underwriting requirements.

Lowering borrowers' monthly payments would give people more money to spend. And, for those on the edge, it could make it more likely that they will stay in their homes.

"It would be helpful to some borrowers with high rates," Lawler said.

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2011-08-25T13:00:00.000-07:00

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Analysts: Home sales going nowhere fast

2011-08-24T07:03:00.000-07:00

Tuesday, August 23rd, 2011, by JON PRIOR - HousingWire.com

Analysts reacted to the July new home sales decline Tuesday with dread, saying the housing market has years of stalled recovery ahead.

The Commerce Department reported the seasonally adjusted rate of new home sales in July declined 6.8% from one year ago, coming in below analyst expectations. Sales slumped back below the 300,000 market and sit not too far from the low of 278,000 units in August 2010.

"Sales of new homes are going nowhere fast," said Celia Chen, senior director at Moody's Analytics. "An economy hampered by political wrangling over the budget deficit and the sovereign debt crisis in the euro zone is weighing on job growth and consumer confidence. Demand for homes remains very soft despite mortgage interest rates that are falling to new lows."

New home sales have to compete with a flood of distressed and previously foreclosed properties. The Commerce Department estimates roughly 165,000 new homes for sale on the market, roughly equal to a 6.6-month supply. However, the shadow inventory of distressed property ranges as high as 4.5 million properties, according to the Mortgage Bankers Association.

Standard & Poor's recently said the market would need 44 months to work through the shadow inventory supply.

Chen said job creation will remain weak for the rest of the year, keeping new home sales at this bottom lull before picking up in 2012.

"To be sure, new-home demand still faces many obstacles, and the risks to this outlook are decidedly on the downside," Chen said.

Paul Dales, a senior economist at Capital Economics, said the July figures are actually worse than they look. Taking into account the 3.5% drop in existing home sales in July, reported by the National Association of Realtors, the annualized rate of home sales dropped to 4.98 million in June.

"Home sales are no higher than three years ago and a new downward trend now appears to be in place," according to Dales. "Even if the economy were to avoid another recession, a prolonged period of weak economic growth will mean that there will be no real recovery in home sales for a few years yet."

Shadow inventory improves but still threatens housing recovery

2011-08-22T12:17:00.000-07:00

By Les Christie August 22, 2011NEW YORK (CNNMoney)

An ominous cloud is hanging over the housing market: Millions of distressed properties could be put up for sale at any moment, potentially adding to the glut of unsold homes that are already on the market and depressing home prices even further.

But there is one glimmer of hope in this otherwise ominous scenario. A recent report from Standard & Poor's found that the time it would take for banks to purge all of this so-called "shadow inventory" from the market (through foreclosure sales, mortgage modifications and other measures) shrunk to 47 months during the second quarter, a significant drop from the 52 months it estimated for the first quarter of this year.

The report also found that the total dollar value of the loans on these properties -- known as non-agency loans because they are not backed by Fannie Mae, Freddie Mac or the Federal Housing Administration -- also fell to $405 billion at the end of June from $433 billion three months earlier.
"It's good news that things are starting to slow down and we're getting closer to the end of the problem," said Diane Westerback, Managing Director of Global Surveillance Analytics for S&P. "It could mean a gradual recovery for the market."

S&P said the decline was helped by stabilizing liquidation rates and by fewer borrowers falling behind on their mortgage payments as the economy slowly recovered during the quarter. The firm also said tightened lending standards over the past several years has helped reduce the likeliehood of defaults among recent homebuyers.

Yet, the housing market still has a long way to go. S&P estimates that there are still a total of between 4 million and 5 million homes, including those with agency-backed loans, in shadow inventory, an amount that continues to jeopardize the housing market's recovery, according to Westerback.

When all of the shadow inventory finally makes it to market, it will likely do so at a deep discount, weighing on overall home prices and depressing values further, said Westerback.

As many recent foreclosure reports have warned, many homes that should currently be going through foreclosure aren't doing so because banks have been slow to process the paperwork or initiate the proceedings following the robo-signing scandal. As a result, many homeowners who are delinquent on their mortgage payments have been able to stay in their homes.

"There's a big asterisk on shadow inventory numbers," said Anthony Sanders, director of real estate entrepreneurship at George Mason University. "In many states, the banks have slowed foreclosure filings to a crawl."

The first filings issued to delinquent borrowers may come many months after they stop making their regular mortgage payments. RealtyTrac, a marketer of foreclosed homes, analyzed all the initial notices of default filed in California this year and compared them with filings from 2007.

The total of missed payments for the recent filings came to an average of $78,000 per borrower, up from $17,000 four years earlier. To RealtyTrac spokesman, Rick Sharga, that indicated that banks were postponing the notices for many more months than they used to.

Out of the shadows

Homes fall out of shadow inventory when banks repossess and resell the homes, when their owners sell them, or when they're cured, that is, when borrowers catch up on their mortgage payments and remain up-to-date.

Since borrowers with cured loans often redefault, S&P counts 70% of all cured loans as part of the shadow inventory.

Although the S&P data only covers non-agency loans, the authors said similar dynamics apply to loans held by the government-sponsored mortgage giants, Fannie Mae and Freddie Mac.

The difference is that, since Fannie and Freddie absolutely dominate the mortgage lending market today, and have done so since the bust, much of their portfolios are in recently-issued loans, which were very strictly underwritten. As to be expected when the banks are being far more careful in who they lend to, the default rates for recent loans is much lower and so the government agencies have a lower percentage of their loans in shadow inventory than do the banks.

Nevertheless, Fannie and Freddie are looking to rid themselves of a large percentage the shadow inventory they do have -- and quickly. Earlier this month, the Federal Housing Finance Agency (FHFA), the Treasury Department and the U.S. Department of Housing and Urban Development were seeking suggestions on how to dispose of the 92,000 repossessed homes now owned by Fannie Mae, Freddie Mac and the Federal Housing Administration in a way that would benefit local communities.

Getting rid of the government's shadow inventory in a way that won't further depress home prices will be tricky, however. And the government's homes are only a fraction of the shadow inventory out there.
As long as homes remain in the shadows, the housing market will have a hard time recovering.

"The big issue is that homebuyers understand that there's a backlog of houses that could flood the market at any time," he said. "I could buy a home in Las Vegas and the banks could release a lot of repossessed homes back on the market and drive down prices 10%."

That lowers confidence for many potential homebuyers to the point where they are hesitant to pull the trigger on home purchases.

"Homebuying is scary enough already these days," said Sanders. "Throw in the shadow inventory and it's pretty darn grim."

Poll: In your opinion what year will housing rebound and prices start go up?

2011-08-20T11:18:00.001-07:00

Poll: In your opinion what year will housing rebound and prices start go up?

Homeownership: Still the American Dream

2011-08-17T08:59:00.000-07:00

by The KCM Crew on August 16, 2011 ·

Yesterday, Fannie Mae released their National Housing Survey for the second quarter of 2011. They survey the American public on a multitude of questions concerning today’s housing market. Each quarter, we like to pull out some of the findings we deem most interesting. Here they are for the most recent report:

Most Important Reasons to Buy a Home

When we talk about homeownership today, it seems that the financial aspects always jump to the front of the discussion. However, the study shows that the four major reasons a person buys a home have nothing to do with money. The top four reasons, in order, are:

It means having a good place to raise children and provide them with a good education
You have a physical structure where you and your family feel safe
It allows you to have more space for your family
It gives you control of what you do with your living space (renovations and updates)

The Home as an Investment

Though most people purchase a home for non-financial reasons, everyone realizes there is a money component to homeownership. Here is what they said on this issue:

65% of the general population (and 67% of homeowners) believe that homeownership is a ‘safe’ investment.
56% believe that homeownership has more potential as an investment than any other traditional asset class.
69% think that now is a good time to buy a home (this number has increased in each of the last two quarters)

Rent vs. Buy

We are always interested in the difference people see in renting vs. owning.

63% of renters have aspirations to someday own their own home
72% of renters think that owning is superior to renting
95% of homeowners see homeownership as a positive experience (4% see it as a negative experience) while 82% of renters see renting as a positive experience (17% see it as a negative experience)
96% of homeowners live in a single family residence while 46% of renters live in a multi-unit building

Bottom Line

Even in difficult times, Americans still realize the value of homeownership.

5 Real Estate Headlines You’ll See in the Next Six Months

2011-08-03T20:43:00.000-07:00

by The KCM Crew on July 6, 2011 ·kcmblog.com

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Making predictions can be the ‘kiss-of-death’ for a blog. Even if we get four out of five correct (80%), there are those in the industry who will kill us on the one we got wrong. We believe strongly that when making a real estate decision for you and your family you must look forward and take into consideration how the housing market may change.

For this reason, we are willing to take on the possible wrath of our counterparts by sticking out our necks and predicting these will be the major real estate news stories from now until the end of the year.

Interest Rates Rise

Many, including us, have been surprised that rates have not risen already. However, the next several months are going to see three distinct changes that will propel rates upward.

As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate.
In many higher priced markets, rolling back Conforming Loan Limits means that rates for the mortgages on these properties will resort back to the rates on private jumbo loans. The FHFA informed us that last year, the difference between mortgage rates for jumbo loans and jumbo-conforming mortgages has varied between about ½ and ¾ of a percentage point.
As the economy gets better (and we believe it will), the pressure to keep rates low to stimulate growth will abate.

Some Loan Requirements Tighten but More Can Now Get a Loan

Lending institutions have already started to introduce stricter mortgage guidelines. Whether the Quality Residential Mortgage (QRM) requirements are instituted as originally proposed or eased somewhat, there is no doubt that guidelines will continue to tighten as we work through the year. However, we believe the private sector will again start introducing alternative mortgage financing but at a greater expense to the consumer. You WILL be able to get a mortgage. It will just cost you more.

Housing Sales Increase

Contracted sales have shown consistent improvement over the last six months and we feel this will continue and actually begin gaining even greater momentum. We believe there is a ‘pent-up’ buying demand caused by the volatility of the market over the last several years. When interest rates start to move upward and alternative financing becomes more available, these buyers will start to jump off the fence. We believe there will be a major upswing in sales over the next six months.

Distressed Properties Increase Markedly

More people are paying their mortgage on time and that is great news for housing in the long term. However, the numbers of distressed properties currently in the foreclosure process is still very swollen. These properties will begin coming to the market in the second half of the year as short sales and foreclosures. The numbers will be staggering in some areas.

Prices Continue to Soften in Most Markets

The current housing inventory for sale and the distressed properties about to come on the market will vastly outnumber the increased supply of purchasers we will see over the next six months. There will be more houses for sale then there will be buyers purchasing them. That oversupply will continue to put downward pressure on prices through the rest of this year and into 2012.

You now know what we believe will take place in real estate between now and the end of the year.

Homeownership Rate Drops to 13-Year Low

2011-08-01T21:07:00.000-07:00

The nation’s housing crisis has forced unprecedented numbers of homeowners out of their homes, made for a difficult homebuying environment, and tainted many Americans’ ideal of owning a home. These factors are taking their toll on homeownership in this country.

The Census Bureau says homeownership in the United States has fallen to its lowest level in more than 13 years.

The nation’s homeownership rate dropped to 65.9 percent in the second quarter. That’s a full percentage point lower than the second quarter of 2010 and a half a percentage point below the rate recorded in the first quarter of 2011.

Paul Dales, senior U.S. economist with the research firm Capital Economics says the increase in the homeownership rate seen during the housing boom has been more than completely wiped out by the bust.

And the decline is not even over yet, according to Dales. He says the poor economic climate, the double dip in house prices, the high number of foreclosures, and tight credit

conditions are all reasons why the homeownership rate will continue to fall.

“With another 3 million foreclosures in the pipeline and no sign of a major improvement in credit conditions or the labor market, demand for owner-occupied housing is likely to remain weak for some years yet,” Dales said.

The flipside will be a further surge in demand for rented accommodations, Dales notes, which will boost rental rates and bodes well for the multi-family sector, in particular.

In line with the steep declines seen in homeownership, the share of all households renting increased to a new 13-year high of 34.1 percent in the second quarter, Dales explained. That’s up from 33.6 percent in the first quarter.

The rental vacancy rate has fallen to 9.7 percent from a peak of 11.1 percent in 2009, which has driven a recovery in rent prices. Dales says investors in the residential rental market could see rental yields of more than 5 percent over the next few years.

Data from the Census Bureau also showed that the homeowner vacancy declined from 2.6 percent in the first quarter to 2.5 percent in the second.

Still, Dales notes that the numbers reflect there are 1.9 million homes up for sale that are still sitting empty. He says another 3.9 million homes are empty but, for one reason or another, are being held off the market.

The excess supply of housing remains high, and Dales stressed that the combination of weak demand and high supply almost certainly will not translate into higher house prices any time soon.

By: Carrie Bay - August 1, 2011 DSnews.com

Dump Underwater Home? Credit Will Sink

2011-07-25T07:59:00.000-07:00

Dear Debt Adviser,

I bought a condo in 2007 that is now underwater. I have a 5/1 adjustable-rate mortgage. That is, it has a fixed rate for five years and will be adjusted annually thereafter. The unit is seriously underwater. I purchased it for $359,000, and it is currently appraising at $245,000. I owe $319,000 on the mortgage. I can still make my mortgage payments just fine. But I want to dump this property so badly. What can I do? What are the options for people like me, who can make their payments but no longer want to live in the property they own?

-Robin

Dear Robin,

You are in good, or perhaps more accurately, not-so-good company. At the end of the first quarter of this year, 23% of U.S. homeowners with mortgages were underwater, according to a study by the research firm CoreLogic. (That is, the homeowners owe more on the mortgage loan than the current value of the home). That is a staggering 10.9 million homes. Now that we know you are far from alone, let's discuss your situation.

Many, like you, view their homes as an investment. You didn't say there is anything wrong with your home, nor do you need to leave the area for a job opportunity. You just don't like continuing to pay into an investment that may possibly be a long-term loser. This is a legitimate concern. Among other options, you could rent the place out, sell it and absorb the loss, live in it and stop worrying about the future or, as you so tenderly put it, dump it. Since you brought it up, let's look at the pros and cons of dumping it.

In normal times, I would counsel you to wait until prices turn up again before taking drastic action. But these are not normal times. A housing recovery may be long in coming. Furthermore, you may not be solely to blame for making a bad investment decision on this condo. There is a case to be made that the real estate person who sold you the condo, and the bank that financed it, played a role in this mess. Against that backdrop, an option many homeowners are choosing is a strategic default.

Strategic default is when you make the choice to stop making mortgage payments and your condo is foreclosed on by the mortgage holder. You have additional options, with differing consequences, for getting rid of your property. You can opt for a deed in lieu of foreclosure, for instance. You might attempt a short sale, where the lender agrees to let you sell the home for less than the remaining mortgage. Or you could mail your keys to your lender and move out. I have outlined some positives and negatives below regarding the choices you have.

Positives

If you live in a state with nonrecourse mortgages, you may not be responsible for the deficiency. According to the Internal Revenue Service, "A nonrecourse loan is a loan for which the lender's only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default." The rules and protections vary by state. So you need to determine precisely what nonrecourse protections you might be eligible for.

There can be tax advantages. Typically, forgiven debt is considered income by the IRS. However, if disposing of your home results in the lender forgiving part of your mortgage, the Mortgage Forgiveness Debt Relief Act provides that you will not have to pay income taxes on any qualifying mortgage amount, up to $1 million. This law's protection is available through 2012. However, the issue is a bit more complicated if you borrowed against your home and used the money for purposes other than home improvements or mortgage debt. That amount may not be sheltered from taxes.

Negatives

You could be sued by the lender for the balance of your mortgage loan that is not satisfied with the sale of your home. In your case, that's $74,000 plus fees and unpaid accrued interest.

You will suffer a big hit to your credit, which won't fully recover for seven years. For those with a FICO credit score of 720, for instance, the credit score would reasonably be expected to drop to a range of between 570 and 590.

Poor credit due to a mortgage default means you will pay more for credit, if you can get it at all. Furthermore, you may have trouble renting a place, getting a new job or promotion and obtaining reasonably priced insurance. You will be also shut out of Fannie Mae-backed mortgage loans for seven years.

Before considering a strategic default on your home, seek legal advice to determine all the consequences for the action in your state. And while you're at it, have your lawyer check over your loan documents to make sure they were properly drawn up and executed.

Homeowners in Denial About Value of Properties

2011-07-20T07:45:00.000-07:00

ANN CARRNS, On Tuesday July 19, 2011

Homeowners, especially those who bought their houses after the real-estate bubble burst, are still having trouble accepting just how much the values of their properties may have fallen, says a new report from the real-estate site Zillow.

Current sellers who bought their homes in 2007 or later, an analysis of the site's home listings shows, are overpricing their properties by an average of 14 percent.

Sellers who bought their houses before the bubble, and those who bought during the big run-up in home values, also are overpricing their homes, but not by as much. Those who bought before 2002 are pricing their homes roughly 12 percent over market value, while those who bought from 2002-06 price them about 9 percent over market value.

In the analysis, Zillow compared the asking price of one million homes for sale to the homes' previous purchase price, then factored in the change in the Zillow Home Value Index for the respective ZIP code, to determine an estimate of that home's current market value.

Stan Humphries, Zillow's chief economist, says those who bought post-bubble, in 2008, 2009 or later, seem to think they escaped the worse of the housing market debacle and tend to price their homes too high as a result. But 2006 was just the start of the housing recession, which continues today; home values are now down nearly 30 percent from the market's peak. And, values have fallen about 12 percent from January 2009 through May of this year, he says.

That means, he says, that even people who bought after the bubble burst need to take a hard look at what has happened in their local market since they bought their home. Traditionally, people tend to overprice their homes a bit anyway, to allow room for negotiation. But unrealistic overpricing in the current environment, he says, means properties stagnate.

Sellers, he said, need primarily to consider comparable sales and asking prices in their market when setting an asking price for their home. Factoring in what they paid for their home, or how much they owe on their mortgage, "leads to conclusions that are divorced from the outside market," he said, and the market determines whether a buyer is interested in your house: "The buyer doesn't care what you paid or what your mortgage is."

Of course, some sellers who owe more than their house is worth are limited in how low they can price their home because selling for less than their mortgage means they'll have to negotiate a short-sale with their bank. "They're hoping against hope that they can sell at a higher price," Mr. Humphries said.
But others are simply faced with a reluctance -- understandable, to be sure -- to sell the house for less than they paid. "They could price more aggressively, but there's a psychological hurdle," he says. "They don't want to realize a loss."

Humphries foresees home values continuing to fall through the middle of next year for a variety of reasons, including persistent unemployment, a significant pipeline of homes in foreclosure, as well as high rates of homes with negative equity, which means many more will likely end up in foreclosure. A return to a "normal" market is likely at least three away, he says.

Is your home on the market? What factors went into your asking price?

Bank Delays May Push 1 Million U.S. Foreclosure Filings to 2012

2011-07-17T20:43:00.000-07:00

By Dan Levy - Jul 13, 2011 Bloomberg.com

Lender delays in processing home- loan defaults will push as many as 1 million U.S. foreclosure filings from this year to 2012 or beyond, casting an “ominous shadow” on the housing market, according to RealtyTrac Inc.

The number of properties receiving a notice of default, auction or repossession plunged 29 percent in the first half of 2011 from the same period last year, the Irvine, California- based data seller said today in a report. About 1.17 million homes got a filing, or one out of every 111 households.

Procedural delays caused by a probe into bank documentation errors, combined with weak consumer sentiment and a jobless rate above 9 percent, are weighing on a property recovery by adding to a backlog of distressed homes, RealtyTrac said. A clogged foreclosure pipeline may prevent real estate prices from finding a bottom as the housing slump enters its sixth year.

“If you accept the premise that foreclosures are the black cloud hanging over the market, we’re not going to get price stability and people won’t leave the sidelines until that cloud is cleared away,” Nicolas Retsinas, professor of real estate at Harvard Business School in Cambridge, Massachusetts, said in a telephone interview.

U.S. home prices fell 33 percent from a July 2006 peak through April, according to the S&P/Case-Shiller index of 20 cities. Federal Reserve Chairman Ben S. Bernanke said in testimony to Congress yesterday that ongoing weakness in home values is reducing household wealth and limiting consumer confidence.

3.2 Million Forecast

RealtyTrac in January forecast as many as 3.2 million foreclosure filings for 2011. Delays have persisted as state attorneys general investigate “robo-signing,” the practice of pushing through documents without verifying their accuracy. Total filings for the year are likely to be about 2 million at the current pace, compared with 2.9 million in all of 2010, Rick Sharga, senior vice president, said in a phone interview.

“This casts an ominous shadow over the housing market, where recovery is unlikely to happen until the current and forthcoming inventory of distressed properties can be whittled down to a manageable number,” James J. Saccacio, RealtyTrac’s chief executive officer, said in today’s report.

Any settlement between lenders and attorneys general won’t guarantee a “huge increase” in filings, and housing may become a campaign issue in the 2012 election, Sharga said. Further delays in processing beyond the current scandal are “likely to come from the political arena,” he said.

Three-Year Low

Foreclosure filings in the first half declined 25 percent from the last six months of 2010, according to RealtyTrac. The second-quarter total was the lowest in more than three years.

The drop in filings is keeping home prices above where they should be, said Greg Hebner, managing director for Community Rebuild Partners, an investor in distressed real estate.

“You’re seeing an artificial floor,” he said in a telephone interview. “If supply flooded the market without all the delays, you’d see another 10 percent price drop.”

Nevada had the highest rate of foreclosure filings per household in the first half, with one in 21 receiving a notice. The number of notices in the state fell 17 percent from both the previous six months and a year earlier, RealtyTrac said.

Arizona had the second-highest rate, at one in 36 households, and California was third at one in 51.

California Leads Total

California had the most filings, with 263,500 properties in the state receiving a filing in the first six months, down 13 percent from the previous period and almost 23 percent from a year earlier. Florida ranked second in total filings with 113,641 and Arizona was third at 77,525.

The length of time that homes spend in the foreclosure process is increasing. In the second quarter, U.S. properties had an average 318 days from the initial bank notice to the completed seizure, up from 298 days in the first quarter and from 277 days a year earlier, according to RealtyTrac.

The foreclosure process took longest in New York at an average 966 days, followed by New Jersey at 944 days and Florida at 676 days. The process was shortest in Texas, 92 days, followed by Virginia at 106 days.

RealtyTrac sells default data from more than 2,200 counties representing 90 percent of the U.S. population.

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net
To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

U.S Tackles Housing Slump - Thinks Fannie & Freddie Would Make Good Landlords

2011-07-12T10:47:00.000-07:00

By NICK TIMIRAOS - July 12, 2011 - The Wall Street Journal

The Obama administration is ramping up talks on how to revive the housing market, which is weighing on the economic recovery—and possibly the president's re-election in 2012.

Last year, advisers considered several housing-policy prescriptions but rejected them in favor of letting the market sort things out. Since then, weak demand and a stream of foreclosed properties have put renewed pressure on home prices, prompting concern within the White House.

Reuters

Housing "hasn't bottomed out as quickly as we expected," President Barack Obama said at a White House town hall last week. Mr. Obama said housing remained the "most stubborn" problem facing the country and conceded that a raft of federal mortgage-aid programs were "not enough, and so we're going back to the drawing board."

Policy ideas include having taxpayer-owned mortgage giants Fannie Mae and Freddie Mac relax their rules for loans to investors, allowing those buyers to vacuum up excess housing inventory. In certain markets, Fannie and Freddie could hold some foreclosed homes off the market and rent them out to ease the property glut.

Officials also could sweeten incentives for banks to reduce loan balances for borrowers who are underwater, or owe more than their homes are worth.

European Pressphoto Agency

The White House is weighing ideas to strengthen the feeble housing market. Pictured, emptying a foreclosed home in Lawrenceville, Ga., this year.

Discussions are in early stages, and there isn't consensus around particular ideas. A spokeswoman said the president and his advisers "are always looking at new ways" to strengthen the housing market but wouldn't disclose details. "While we continue to consider the options available to us, it would be inaccurate to say we are proposing any of these particular ideas at this time," White House spokeswoman Amy Brundage said.

Home-buyer tax credits worth up to $8,000 in 2009 and 2010 gave a short-term boost to home sales, but demand plunged after they expired. Foreclosures have put pressure on prices and damped residential construction, traditionally an engine of job growth during economic expansions.

"As conditions change, some options that were below the line the way the market was 18 months ago might be above the line today," said Peter P. Swire, who teaches law at Ohio State University and until last year was a top housing adviser to the White House.

Most of the administration's housing efforts have focused on helping borrowers refinance or modify their loans to avoid foreclosure. But some economists say too many borrowers won't be saved through loan workouts and that the administration must do more to soak up the flood of foreclosures by boosting housing demand.

President Obama's signature loan-modification program, announced during his first month in office, has lowered payments for around 600,000 borrowers. Meanwhile, around four million borrowers are in foreclosure or have missed three or more consecutive mortgage payments. While mortgage-delinquency rates have fallen, millions more remain at risk of defaulting if they experience a payment shock because they owe more than their homes are worth.

More recent housing relief has targeted unemployed borrowers. Last week, officials said unemployed borrowers with loans backed by the Federal Housing Administration could miss up to 12 months of payments while they look for new jobs. A separate $1 billion program is set to begin providing interest-free loans of up to $50,000 for temporarily jobless borrowers this month.

Unlikely to get Congress to provide additional funds, the administration is left to examine options that it can implement without congressional consent. Fannie and Freddie, the so-called government-sponsored enterprises or GSEs, could be one policy lever. "There are a number of things that we can look at on the GSE side," said Austan Goolsbee, departing chairman of the Council of Economic Advisers.

Last year, officials considered a range of policies that included allowing borrowers with loans backed by Fannie and Freddie to refinance more easily by relaxing fees that lenders are charged for riskier borrowers.

Others outside the administration have pushed for federal entities to lend more freely to mom-and-pop investors or to create public-private initiatives that would allow institutional investors to buy more foreclosed properties. "Because we have limited credit availability, we need investors to help soak up the supply," said Ivy Zelman, chief executive of housing-research firm Zelman & Associates.

Fannie and Freddie also could rent, instead of sell, some of their huge inventory of foreclosed homes, which could take some pressure off prices. The firms owned about 218,000 properties at the end of March, and sold around 100,000 during the first quarter, or more than one-third of all foreclosed property sales, according to analysts at Barclays Capital. The firms could take back as many as 700,000 homes over the next year, according to estimates by economists at Goldman Sachs.

That idea has generated interest among some housing officials but could meet resistance from Fannie and Freddie's independent federal regulator. Renting out homes hasn't been tried on a wide scale and is "riddled with risk," said Ed Delgado, a former Wells Fargo executive who leads the Five Star Institute, a mortgage-industry group. "Essentially you're converting the [firms] from providing liquidity to a glorified national landlord for distressed assets."

All these options could boost lending and attack the overhang of foreclosures, but would put more risk on federal agencies and Fannie and Freddie. The mortgage giants have cost taxpayers $138 billion and counting.

They also would require the blessing of the Federal Housing Finance Agency, which is charged with limiting losses at Fannie and Freddie. The FHFA last year refused to go along with an Obama administration initiative to reduce loan balances for certain borrowers who were current on their mortgages but heavily underwater. The agency has typically resisted programs which produce substantial, upfront losses designed to offset potentially larger but harder to quantify long-term losses.

The same skepticism that prompted advisers last year to push for giving the market room to heal on its own could prevail once again. Simply focusing on the broader economy is "one of the best things we can do for the housing market," Mr. Goolsbee said.

Still, the high-level housing discussions are significant because Mr. Obama hasn't put much emphasis on his housing policies over the past year. The administration has taken fire from both sides over its housing-relief plans, with Democrats saying the administration has let banks off too easily while Republicans have said the programs wasted money. The housing market could be a top election issue for voters in swing states such as Florida, Ohio, and Nevada.

—Jared A. Favole contributed to this article.

How the Bubble Destroyed the Middle Class

2011-07-10T21:12:00.000-07:00

July 8, 2011 By Rex Nutting

Commentary: Sluggish growth is no mystery: No one has any money

A lot of people say they are deeply puzzled by the slow recovery in the U.S. economy. They look at the 9+% unemployment rate and the mediocre growth in national output, and they scratch their heads and wonder: Where is the boom that inevitably follows a deep bust, such as we experienced in 2008 and 2009?

But there is no mystery. What other result would you expect from the financial ruin of the once-great American middle class?

And make no mistake, the middle class has been ruined: Its wealth has been decimated, its income isn't even keeping pace with inflation, and its faith in the American economy has been shattered. Once, the middle class grew richer each year, grew more comfortable, enjoyed a higher living standard. It was real progress in material terms.

But that progress has been halted and even reversed. In some respects, the middle class has made no progress in a generation, or two.

This isn't just a sad story about a few losers. The prosperity of the middle class has been the chief engine of growth in the economy for a century or more. But now our mass market is no longer growing. How could it? The middle class doesn't have any money.

There are a hundred different ways of looking at the economy, and a million different statistics. But if you wanted to focus on just one number that explains why the economy can't really recover, this is the one: $7.38 trillion.

That's the amount of wealth that's been lost from the bursting of housing bubble, according to the Federal Reserve's comprehensive Flow of Funds report. It's how much homeowners lost when housing prices plunged 30% nationwide. The loss for these homeowners was much greater than 30%, however, because they were heavily leveraged.

Leverage is an amazing thing: When prices go up, the borrower gets all the gains. And when prices go down, the borrower takes all the losses. Some families lost everything when the bubble collapsed, others lost very little. But, on average, American homeowners lost 55% of the wealth in their home.

Most middle-class families didn't have much wealth to begin with — about $100,000. For the 22 million families right in the middle of the income distribution (those making between $39,000 and $62,000 before taxes), about 90% of their assets was in the house. Now half of their wealth is gone and it will never come back as long as they live.

Of course, rich folk lost lots of wealth during the panic as well. Their wealth is mostly in paper not bricks — stocks, bonds, mutual funds, life insurance. The market value of those assets fell further than home prices did during the crash, but they've mostly recovered their value now. The S&P 500 (^GSPC - News) lost 56% of its value when it crashed, but it's doubled since then. Stocks are down about 13% from peak.

The rich recovered; the rest of us didn't.

If losing half your meager life savings weren't bad enough, the middle class has also been falling behind in terms of income for decades. Families in the middle make most of their money the old-fashioned way: Working their fingers to the bone for 40 years for wages and a modest pension.

Their wages have been flat after adjusting for inflation. In the late 1960s, the 20% of families right in the middle were earning almost their full share of the pie: they had 17.5% of total income. Their share has been falling steadily ever since. Now, that 20% is earning just 14.6% of all income. Meanwhile, the top 5% captured a growing share, going from 17% in the late 1960s to 22% today.

The housing bubble was the last chance most middle-class families saw for grasping the brass ring. Working hard didn't pay off. Investing in the stock market was a sucker's bet. But the housing bubble allowed middle-class families to dream again and more importantly to keep spending as if they were getting a big fat raise every year.

I don't think we've quite grasped how much the bubble distorted the economy in the Oughts, and how much it continues to distort it today. We're still paying the bills from that binge.

During the last expansion from 2003 to 2007, according to an analysis by Fed economists, American homeowners took $2.3 trillion in equity out of their homes through cash-out refinancing and home-equity loans, and they spent about $1.3 trillion of it on cars, boats, vacations, flat-screen televisions and shoes for the kids.

All that spending circulated through the economy, creating millions of jobs here and in China, where they make those TVs and shoes.

During that period, the economy grew at an annual average rate of 2.7%, which is about typical for our economy. But growth would have been closer to 2% if we hadn't had a housing bubble; if we hadn't had the extra consumption financed by the bubble and if we hadn't built millions of surplus homes. That's a huge difference. At 2.7%, the economy can create a significant number of jobs. But 2% is stagnation, not even keeping pace with population growth and productivity improvements.

Now that the bubble has burst, homeowners are putting money INTO their homes, not taking it out. The impulse to pay down the mortgage and the credit card is reducing the amount of money we're spending on other things. Since 2007, instead of taking $2 trillion out of their house, homeowners have put $1.3 trillion into them.

You think that might be having an impact on consumer spending?

Even with trillions in debt being paid off or written off, very little progress has been made in deleveraging. The debt-to-disposable income ratio has slipped from 130% at the height of the bubble to 115%, but that's still far more than the 90% recorded in 2000 or the 80% of 1989 or the 60% of 1976. No one knows how far it needs to fall before American families are comfortable with how much they owe.

The slow growth in the economy is no mystery: Most families don't have any extra money to spend. It will take a long time for the middle class to rebuild its wealth, especially if we don't find some work.

The crazy thing is that our leaders aren't even talking about this crisis. With the upper classes prospering and global markets booming, they don't need the U.S. middle class any more. The market is up, profits are soaring, and the corporate jet is fueled and ready for takeoff.

And if the middle class can't buy bread? Let them eat cake.

Rex Nutting is a columnist and MarketWatch's international commentary editor, based in Washington.

A Few Recent Reports on the Real Estate Market

2011-07-07T16:17:00.000-07:00

TUESDAY, JULY 5TH, 2011 - AppraiserNews.com

If you take the time to review some of these reports, you might find some parts that are not completely bad.

On June 30th, CoreLogic released its May Home Price Index which showed a month to month increase nationally of 0.8% along with a year to year decrease of 7.4% and a link to this report is found here: CoreLogic Home Price Index Shows Second Consecutive Month-Over-Month Increase

Bloomberg discussed the pending home sales report released by the NAR and the Case-Shiller data in reports on June 28th and 29th and links to both of these articles are found here:
Home Prices in 20 U.S. Cities Fall by Most in 17 Months, Case-Shiller Says

Pending Sales of U.S. Existing Homes Rise by 8.2%, Almost Triple Forecasts

On June 27th, CNBC’s Diana Olick reviewed information from Case-Shiller and Capital Economics which clearly showed the fastest market declines in the low end of the market in comparison with the high end (surprise, surprise) and a link to this report is found here: Low-End Housing sees Higher Losses

The next day, Ms. Olick summed up her feelings about the days when the various real estate reports are released and the various “spins” made of this data and a link to this is found here: Home Price Headlines Hide the True Picture

On June 27th, Janet Tavakoli writing in the Huffington Post discussed her thoughts on “Why Some Housing Prices Are Still Falling and Subprime Loans Are Still Sliding” and a link to this report is found here: Why Some Housing Prices Are Still Falling and Subprime Loans Are Still Sliding

An optimist amongst us! No, I’m not speaking of Lawrence Yun, chief economist for the NAR, we are giving him this week off. We are speaking of no other than HUD Secretary Shaun Donovan who offered his upbeat thoughts to CNN, an analysis of which was given by Kim Chipman of Bloomberg on July 3rd, a link to which is found here:
U.S. Home Prices Poised to Climb as Foreclosures Wane, HUD’s Donovan Says
Countrywide: The gift that keeps on giving. The New York Times reported on June 29th that Bank of America was completing a settlement agreement in which they would pay $8.5 billion to settle claims by investors who purchased mortgage securities that soured when the real estate market declined. The article reported that the affected securities came from Countrywide Financial which Bank of America purchased in 2008. Bloomberg’s Dawn Kopecki and Hugh Son discussed this on June 29th and a link to their article is found here: Moynihan Opts to ‘Rip Off Band-Aid’ From Bank of America’s Mortgage Wound

One final report: On June 29th, CNBC and Lending Tree released a slideshow on the ten states with the healthiest housing markets (hint: N. Dakota is #1) and a link to this slideshow is found here: States With The Healthiest Housing Markets

Finding your home’s value online - What home valuation tools tell you, and what to watch out for

2011-07-05T07:06:00.000-07:00

(When we launch our valuation tools at MyPropertyValue.com - they will be accurate!!! Coming very soon!!!)

By Amy Hoak, MarketWatch - July 5, 2011

CHICAGO (MarketWatch) — Plugging an address into an online home value tool like Zillow won’t tell you exactly what a seller would be willing to pay for the place. But it’s a start.

Given the recent report that home prices rose in April in many parts of the country, it’s possible more homeowners will begin poking around the Internet to see if their home’s value has changed at all for the better.

The S&P/Case-Shiller 20-city home-price index showed that home prices rose 0.7% in April, compared with March — the first increase in eight months. Prices rose in 13 cities and fell in seven cities, according to the report. Read more: U.S. home prices up for first time in eight months.

But trying to value your home — on your own — isn’t a simple task.

“It goes without saying that this is the most difficult time for anyone to value a home because it’s such a volatile market,” said Amy Bohutinsky, chief marketing officer for Zillow. “The true value of a home is based on the price agreed to by a buyer and seller.”

That said, online tools can give homeowners a ballpark estimate on what a particular home is worth — an important benefit to those considering whether it’s worth it to refinance, buy or sell.

Zillow , with its “Zestimates,” is a well-known valuation tool available to consumers, but there are others, including Cyberhomes.com , as well as tools that appear on lender sites, including Bank of America and Chase . An online search will reveal others too.

It’s important, however, to understand these tools’ limitations, said Joseph C. Magdziarz, president of the Appraisal Institute, a professional association that represents real-estate appraisers.

“[Automated valuation models] can give you a ballpark idea based on activity in your area, but unless the consumer knows how that data is filtered, it could give you a wrong conclusion,” Magdziarz said. So he recommends using these sites with caution.

For instance, the comparable homes data used to estimate the value of your home could include foreclosures and short sales, which may skew estimated prices lower, he said. And if the data is being taken solely from public sources, that could also be a problem, because public records can contain outdated or inaccurate details about a home, he added.

How accurate?

After a recent update to expand and improve its database of homes, Zillow now claims that the median margin of error on its Zestimates is 8.5%, nationwide. It’s below 6% for metropolitan areas including Denver, San Diego and Washington, D.C., according to the company.

Bank of America’s tool is nearly a decade old, said Mike Toner, senior vice president of enterprise sales performance for Bank of America. The tool is provided by a third party, and is used by bankers as well.

The accuracy of the estimates in any model, however, can vary depending on what kind of home it is and the neighborhood it’s in.

For example, if you live in a subdivision where all the homes were built at around the same time from a few standard plans and not many renovations have been made to the homes, the estimate could be reasonable, said Matthew Haines, founder of PropertyShark.com, a property research site that aggregates real-estate data. But, he added, “If you’re in New York City, and there’s a brownstone next to a new construction apartment building, next to a school, next to a business and every property is unique… forget it, you’re not getting anywhere close.”

To get a clearer picture of what a home might be worth — short of getting an expert opinion from an appraiser or, for that matter, the opinion of a real-estate agent — compare estimates from at least two or three different sites, Magdziarz said. With enough numbers, there should be some consistency that could provide a range of what the home is worth.

How often?

Back in the days of the housing boom, some homeowners routinely checked their home’s value online for sport: “It’s fun to look at the value of the asset you own when that asset is going up,” Bohutinsky said.

These days, with prices dropping, it might be more painful for homeowners to look at where their values have fallen. Today, people often seek out these home value tools for a clear reason: More than three-fourths of Zillow users are in the market in some way, Bohutinsky said.

And for the most part, people shouldn’t be too worried about their home’s value on a regular basis, Haines said, adding that if you’re not planning on moving or refinancing, you might be best of just enjoying your home and not being overly concerned about its value.

Looking at how your home compares with others in the neighborhood can be helpful when you’re planning a home improvements, so that you don’t over-improve your own home. And knowing your home’s estimated value is important when you’re thinking of buying, selling, refinancing or applying for a home-equity loan. Otherwise, there’s no sense in obsessing.

“Month to month, it isn’t so important. But year over year, having knowledge of what the local market is like and what your house value is can determine other financial decisions you make,” Toner said.

Amy Hoak is a MarketWatch reporter based in Chicago.

Little Help From Government for ‘Underwater’ Homeowners

2011-07-03T11:50:00.000-07:00

By Alan Zibel - July 1, 2011 The Wall Street Journal

: Associated Press

Fewer than 5,000 homeowners have taken advantage of an Obama administration program that aids “underwater” homeowners, reflecting banks’ resistance to offer such principal write-downs.

The administration in March 2010 unveiled a multi-part effort designed to encourage banks to slash principal balances for borrowers whose homes have plunged in value due to the housing bust. It attracted lots of attention at the time. But the program has failed to gain traction.

About 10.9 million U.S. households, or nearly 23% of those with a mortgage, are “underwater” – meaning that they owe more on their properties than their homes are worth, according to CoreLogic Inc. Treasury Department statistics released Friday show that only 4,911 homeowners are participating in the principal-reduction program, which aids borrowers who owe at least 15% more than their properties are worth.

But those homeowners who managed to get their loan balances reduced are seeing substantial principal reductions: The median write-down was about $69,500, or a reduction of more than 32%.
This program and others are part of Treasury’s Home Affordable Modification Program, or HAMP, which was announced in early 2009, but has fallen far short of initial expectations. As of May, it has helped about 633,500 U.S. homeowners avoid losing their homes through permanent loan modifications, compared with an initial goal of helping 3 million to 4 million borrowers.

HAMP mainly provides banks with incentive payments to lower borrowers’ interest rates and extend mortgage terms. The administration announced the additional effort to aid underwater homeowners, under pressure to do more to address the foreclosure crisis.

The Treasury’s “principal reduction alternative” became effective in October. Plus, the Federal Housing Administration launched a “short refinance” program with similar goals last September. That program, however, has assisted fewer than 300 homeowners.

Banks have largely resisted slicing homeowners’ loan balances. Only 2.8% of loan modifications – including government and private-sector programs – made in the first quarter involved a reduction in the total principal amount owed, according to a report by bank regulators earlier this week.

More Money for Struggling Homeowners - It doesn't need to be repaid.

2011-06-30T11:36:00.000-07:00

provided by

June 30, 2011

A new federal program is offering aid with a sweet kicker: It doesn't need to be repaid.

For the roughly four million homeowners who have fallen behind on their mortgage payments, the federal government is offering yet another remedy: free money to catch up on their loans.

The effort, called the Emergency Homeowners Loan Program, is the latest in the federal government's efforts to slow down the flood of foreclosures a necessary step to a meaningful recovery in the housing market, says a Department of Housing and Urban Development official. For people who have lost their jobs, the $1 billion program offers loans of up to $50,000 that don't actually need to be repaid, if applicants meet certain requirements.

The goal, says HUD, is to offer short-term aid to people who look like they'll be back on their feet soon. But critics say the loans may leave homeowners worse off in the long run. "This is a short run band-aid, a modest attempt to grapple with the severity of the situation," says Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles.

Rolled out by HUD and the nonprofit housing advocacy group NeighborWorks America, the program is making loans with far better terms than anything on offer at a local bank. The loans are interest-free. Payments go directly to the lender for a portion of the borrower's monthly mortgage, including missed payments or past due charges. And when the assistance period -- which runs for up to two years -- ends, 20% of the loan is forgiven with each passing year. In other words, for qualified borrowers who stay in their home for at least five years after the assistance period and who don't fall behind on their mortgage again, this money doesn't have to be paid back.

But some critics say that's where help for consumers ends. By taking this loan, borrowers risk falling further into debt. If they sell their home before the entire loan is forgiven, they'll be on the hook for the remaining amount. The same holds true if they fall behind on their mortgage payments again: they'll need to repay the remaining balance of the loan when they sell or refinance their home. Separately, borrowers aren't required to have equity in their home to receive this money, so someone who has to repay this loan risks owing more on the home later than they do now. For homeowners who are significantly underwater now, the loan may only delay foreclosure, says Gabriel. While the limit each person will get is up to $50,000, loans will average about $35,000 per person, according to NeighborWorks America.

Others say the program doesn't go far enough. The loans will be made available to around 30,000 applicants -- "a drop in the bucket," says Stu Feldstein, president at SMR Research, a housing and mortgage research firm. It's helpful, he says, but it won't be enough to seriously boost the ailing housing market. Roughly 4 to 4.5 million borrowers are behind on their mortgages by at least 90 days or are in foreclosure, accounting for roughly 8% of all mortgages. Housing analysts say the loss of income is the primary reason why borrowers are in danger of losing their homes. Those behind the program counter that the help will be significant for some. "If you are one of those 30,000 people, I think you should be very excited to get this help," says a NeighborWorks America spokesman.

The program started last week and will take applications through July 22. Many experts say it's still too early to say it will be successful, and so far federal assistance programs haven't impacted a significant number of borrowers. The government's Home Affordable Modification Program, which started in 2009 and was projected to help up to 4 million homeowners lower their mortgage payments has so far only permanently helped around 700,000 homeowners. To be eligible, homeowners must have lost income and be at risk of foreclosure due to involuntary job loss, underemployment or a medical or other economic condition; details on the application process are available online through NeighborWorks America.

Home prices rise, snapping 8-month drop streak

2011-06-28T06:42:00.000-07:00

By Les Christie June 28, 2011: 9:05 AM ET - NEW YORK (CNNMoney) --

The downward cycle in home prices broke in April after eight consecutive months of decline, according to a survey released Tuesday.

According to the S&P/Case Shiller 20-city index, prices rose 0.7% compared with March, although they fell 0.1% when adjusted for the strong spring selling season. Prices were down 4% year-over-year.

"In a welcome shift from recent months, this month is better than last -- April's numbers beat March," said David Blitzer, S&P's spokesman, in a statement. "However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the spring-summer home buying season."

"It is much too early to tell if this is a turning point or simply due to some warmer weather," Blitzer added.

Any hint of good news in the troubled housing market will likely bring cheer to the industry, and there are some signs that market conditions are not quite as dire as some of the statistics may indicate.

Foreclosures for sale: Big supply, low prices

Much of the price drop over the past year can be blamed on severe price slashing for homes in foreclosure, as Federal Reserve chairman Ben Bernanke pointed out in a press conference last Wednesday. Prices for homes sold by regular sellers have held up much better.

Metropolitan Washington continued to be the strongest of the 20 cities covered by the report. Prices rose 3% in April there and have been on the plus side year-over-year, up 4%.

The worst performing market for the month was Detroit, where prices fell 2.9%. The biggest year-over-year drop was recorded by Minneapolis, where prices have plunged 11.1% since last April.

Tighter Lending Crimps Housing

2011-06-26T13:30:00.000-07:00

By NICK TIMIRAOS And MAURICE TAMMAN - JUNE 25, 2011 - The Wall Street Journal

The percentage of mortgage applications rejected by the nation's largest lenders increased last year, spotlighting how banks' cautious lending practices are hampering the nascent housing market recovery.

In all, the nation's 10 largest mortgage lenders denied 26.8% of loan applications in 2010, an increase from 23.5% in 2009, according to an analysis by The Wall Street Journal of mortgage data filed with banking regulators.

Although lenders were expected to pull back from the freewheeling conditions that helped inflate the housing bubble, some economists argue they are now too conservative, and say that with the U.S. economy still wobbly, mortgages need to be easier to obtain for qualified borrowers, not harder.

Mapping Denial Rates

A state-by-state look at 2010 mortgage application denial rates.

View Interactive

"As the noose on credit availability tightens, credit is being choked off at a time when the housing market is extremely fragile," says Laurie Goodman, senior managing director at Amherst Securities Group LP.

Christopher Thornberg, a housing economist at Beacon Economics in Los Angeles, counters that "banks are doing what they need to do" to change lending standards in the wake of a "crazy bubble. "
He adds, "You had decades where credit standards were tougher than they are even now."

Among the would-be borrowers having a harder time are those who have seen their incomes fall or interrupted by a period of unemployment, scenarios that have become increasingly common in recent years. Some self-employed applicants are also hitting barriers to loans—hurdles they didn't face in the past.

Lending standards are still tight in part because government entities Fannie Mae, Freddie Mac, and the Federal Housing Administration, which collectively account for more than nine in 10 loans being made today, are under heavy pressure to avoid any losses.

Those firms don't make loans directly but instead purchase or guarantee mortgages that meet their standards, and so have significant influence over which loans banks are willing to approve.
Lou Barnes, a third-generation mortgage banker in Boulder, Colo., says lenders have grown too cautious.

Fannie and Freddie, in particular, "are behaving like a hurricane insurance company that won't write any policies within 200 miles of an ocean."

Fannie Mae, for its part, says tighter loan restrictions, while painful for the housing market, are necessary to correct past excesses.

"Clearly we got too loose. This is a return to historical standards," says Doug Duncan, Fannie's chief economist. "When markets were stable and these standards were applied, you didn't hear the same complaints."

On Tuesday, Mr. Barnes told Amy Menell that his bank wouldn't be able to approve her for a loan even though she has a credit score above 800, no debt and is willing to put down more than 50% on a $400,000 house in Boulder, Colo. Ms. Menell, a mother of three who is finalizing a divorce and receiving a cash settlement of $400,000, wants to take advantage of low interest rates and the depressed housing market to buy a home.

But Ms. Menell works as a real estate agent and had little income in 2009, when the housing market slowed.

That has left her without the two years of documented income the bank wants for her loan application, even though she says business has picked up over the last year.

"I know the housing market inside and out here, and believed that with a significant enough down payment and more assets behind you, that you could get a loan," she says.

Mr. Barnes says that in ordinary times, Ms. Menell would have had no difficulty getting a loan. "Going back as far as there has been banking, if somebody walked in the door with a 50% down payment, good credit, cash in reserve, they'd walk out with a loan," he says.

To be sure, the rejection rates have been higher than they are now, and reached 32.5% at the height of the housing bubble in 2007. That was driven, in part, by brokers and loan officers testing the limits to see just how loose banks were willing to go.

The mortgage data analyzed by The Wall Street Journal included loan applications filed by consumers who wanted to refinance existing mortgages as well as those planning to buy a home. Among home-purchase applications, lenders denied 19.9% of applications, up from 18.2% in the previous year, while 27.2% of refinance applications were denied, up from 24.4%.

Recent surveys by regulators show no sign of credit easing so far this year. Nearly four in 10 banks reported tighter mortgage lending conditions for the 12-months ended in February, according to a survey published this week by the government's Office of the Comptroller of the Currency. Just 8% said that standards had loosened.

The Journal obtained the data from individual lenders in accordance with the Home Mortgage Disclosure Act, which requires lenders to report such figures. The top 10 lenders accounted for more than 70% of loan originations last year, though a substantial percentage of those loans were obtained by the lenders immediately after smaller firms had approved the loans.

The analysis showed that denials increased in every state except Delaware and in all but nine of the top 100 metropolitan areas. Denial rates were highest in Miami, Detroit, and New Orleans, and lowest in Raleigh, N.C.; Bethesda, Md.; and San Jose, Calif.

In Miami, where home prices are down by 50% from their 2006 peak, nearly 44% of loan applications were rejected last year.

The market relies heavily on buyers with cash: In April, nearly 63% of home sales were all-cash deals, according to the Miami Association of Realtors.

There are some limits to what the data can show. Loan officers say that many borrowers are being dissuaded from even applying in the first place, out of fear they won't meet stringent guidelines.
In past economic cycles, lending standards tended to ease within the first year of an economic recovery, and the OCC survey showed that banks have eased underwriting standards for commercial loans over the 12-month period ended in February.

But in the current cycle, lenders have kept standards tight for home loans even though the economy is growing. "There's no question that accessible credit is a problem," says David Stevens, chief executive of the Mortgage Bankers Association, an industry group.

Mr. Stevens, who headed the Federal Housing Administration for two years until March, says a key factor in banks' reluctance to lend more freely is the aggressive effort by Fannie and Freddie to force banks to repurchase loans if they go bad.

In a measure of more-rigid lending standards—and, banks argue, proof they are acting more responsibly—the Federal Housing Finance Agency says that just 0.3% of loans backed by Fannie and Freddie in 2009 have ever recorded three consecutive missed payments, down from 2.6% in 2000.

Refinance loans are harder for many borrowers to get because home values have fallen so sharply over the past four years, leaving many borrowers with much less equity than they thought they had.

The Journal analysis found that insufficient collateral was the most common denial code flagged by lenders when they rejected loan applications.

Other top denial reasons included inadequate debt-to-income ratios and poor credit histories.
Adam Bauer, who says his family is pressed for space in its two-bedroom home in Belmont, Calif., has found new hurdles in getting a loan, even though he obtained a mortgage for his current home without difficulty in 2004. Tax returns for the 47-year old information-technology consultant show that his income declined in 2009 due to losses on a start-up business.

Mr. Bauer and his wife have always tried to maintain a stellar credit profile because even before deciding to purchase a new home, they expected to refinance their current adjustable-rate mortgage. They each have a credit score of at least 780, have no credit-card debt, and have more than 20% equity in their home. "We've been preparing for this for years, and we're really surprised we're not having an easier go," he says.

He says one loan officer said that based on the income shown on his tax returns, he wouldn't qualify today for the $537,000 loan he already has on his current property, let alone the $900,000 loan he is seeking to buy a larger house.

Write to Nick Timiraos at nick.timiraos@wsj.com and Maurice Tamman at maurice.tamman@wsj.com

Home Resales Slide 3.8% !!!

2011-06-22T12:13:00.000-07:00

By S. MITRA KALITA - JUNE 22, 2011 - The Wall Street Journal Homes

PHILADELPHIA—The housing slump has reined in Americans' once-insatiable appetite for bigger and better homes.

The real-estate industry's growth and survival depend on buyers trading up to more-expensive properties. Now, faced with economic uncertainty, tighter lending and a glut of properties, homeowners are hunkering down, forgoing dreams of dens and great rooms, fourth bedrooms and second staircases.

The trend can be seen in the latest report on sales of existing, or previously owned, homes for May, released Tuesday by the National Association of Realtors. Overall, the report showed that sales of existing homes fell 3.8% in May, underscoring the weakness of the spring selling season and the uneven nature of the housing recovery. The national median existing-home price was $166,500 in May, down 4.6% from May 2010.

But the report also showed that the market is bifurcating. Sales of homes under $100,000 were up 6.7% nationwide in May, compared with a year earlier, led by a 58% gain in the West. Meanwhile, sales of homes priced between $100,000 and $500,000—which represents the vast middle tier of the market—declined nearly 19%.

The middle tier of the housing market has seen less activity partly because would-be buyers often cannot sell their existing homes or have put buying on hold as prices continue to fall and labor markets remain unstable. Sellers of homes in the middle tier, meanwhile, often won't capitulate because they are deep underwater on their mortgages—owing more than their homes are worth—or otherwise burdened with debt.

"What negative equity has done to the market is to gum up the conveyor belt that has worked pretty well," said Stan Humphries, chief economist for real estate portal Zillow.com. "People can't move up a rung because they can't get out, or they don't want to."

To be sure, the squeeze on the middle market varies by region. Sales volume for homes priced between $500,000 and $750,000 in the Midwest posted a 1% increase in May, compared with a year earlier, for example. And while regional activity coast to coast has been weak, some cities are bucking national trends and posting price gains and reporting strong activity. Median prices in Houston, Miami, San Antonio and Washington, D.C., were all up in May, compared with a year ago.

In many ways, Philadelphia exemplifies the broader demographic shifts affecting real estate nationwide. Baby boomers are retrenching, often selling homes in the suburbs to move back into cities. Price declines in the suburbs have been steeper than in the city. Multimillion-dollar luxury properties, meanwhile, appear more insulated and continue their rise. Sellers who price aggressively tend to find buyers much faster.

But not all are willing. In Bucks County, Pa., Vijay Raju's five-bedroom, five-bathroom home has lingered on the market for 18 months. He listed it for $849,900—a price he won't budge on because he put so much work into the property. He said he knows the price is high, but "I didn't want to lose money," by selling at a loss, he said.

About four miles away, Joanna Kot's four-bedroom, two-bathroom on a block of Cape Cod homes sold within two weeks. With an eye on moving into a newer, bigger house, Ms. Kot priced aggressively—at $199,000. "We put the price down a little because we were worried we wouldn't be able to sell," she said.

The route between Mr. Raju's house and Ms. Kot's winds past at least 10 others for sale, reflecting the county's 11-month supply of homes, according to one real-estate agent.

The high end is largely exempt from the vagaries of the market. For one, it represents a small fraction of sales, and purchasers tend to be all-cash buyers. In Philadelphia, the sale of an 8,444-square-foot penthouse at 1706 Rittenhouse Square hit a record last year when it sold for $12.5 million.

"Our projects are aimed at the tiny top sliver of the market," says developer Tom Scannapieco. "The people in this price range are not feeling the pain of this economic slowdown."

But the trade-up buyers—families that once might have bought a bigger home—are staying put and trying to do make do with what they have. Luke Chechla, a partner with KLM Contractors, describes clients as "very careful."

"Years ago, they would not only move but improve the quality of the home right away," he said. "Five years ago, if someone had a small leak in the roof, it was, 'How much for a new roof?' Now it's 'Can you fix this without replacing the whole roof?"'

In a sign of the times, Mr. Chechla has begun working with a European supplier of moveable walls. He reasons that if people can't buy a house with more rooms, they can at least divide existing space to create them.
—Matthew Strozier contributed to this article.

How to Tell if Your Housing Market Has Hit Bottom

2011-06-20T08:58:00.000-07:00

Three essential clues may signal if better times are ahead

By DAVID CROOK- - June 20, 2011 The New York Times

At first glance, you're not likely to see a lot of similarities between stately Cambridge, Mass., and sprawling Denton, Texas.

Amid the continuing gloom in the U.S. housing market, you can find small pockets of home-price stability -- communities that are actually recovering from the housing bust. WSJ's David Crook talks with Kelsey Hubbard about what those communities can teach today's home buyers and sellers.

Cambridge (population about 105,000) was already more than 200 years old when Denton (120,000) was founded in 1857. From the center of Cambridge, it's an easy stroll across the Charles River into Boston. Denton, in contrast, sits where Interstate Highway 35 divides—to the west, it's 41 miles to Fort Worth; to the east, 39 miles to Dallas.

But both are college towns. Cambridge is well known as the home of Harvard University and the Massachusetts Institute of Technology. Denton has North Texas State University and Texas Woman's University.

They have something else in common, too. Both have pretty much recovered from the five-year-and-counting housing recession. And both provide invaluable clues for those looking to decipher whether their own markets have seen the worst of the crisis.

According to a statistical analysis performed for The Wall Street Journal by the online real-estate information and search firm Zillow, home values in a handful of communities are where they were just before the most frenzied days of the real-estate bubble. Focusing on communities with sufficient sales activity to produce statistically valid value estimates, Zillow spotted 25 places that are within single-digit percentage points of their home-value peaks. (Zillow found no communities where values have surpassed their high-water marks.) Not bad considering that home values in some major metropolitan areas are at half their bubble-era peaks.

As a result, spotting the factors that have helped those communities get by may allow all homeowners to better gauge what's going on where they live—and what the future may hold for their home's value.
Some words of caution.

First: Don't look at these as housing-market "winners," and don't go looking for new places where you can score a killing. That's the thinking that got much of the country in trouble in the first place. Housing isn't an investment like stocks or bonds and shouldn't be approached that way.

Second: Although many of the areas have certain traits in common, most are just nice places to live, places where anyone might want to work and raise a family. Each is special in its own right.

Finally, the biggest reason that most are surviving the downturn is because they never experienced the huge price runups that Florida, Nevada or California did in the first place.

In Denton, Zillow estimates values are down 7.4% from their peak, while values are down about 8.6% in Cambridge. That's about where prices stood in 2004 in both towns. In contrast, the latest Case-Shiller Home Price Index indicates national prices are at 2002 levels.

So what should you look for if you are thinking of selling your home or buying a new one? What does a healthy real-estate market look like today?

Here are three big factors to look for. If your community shares any of these traits, you may already be on the rebound.

It's the oldest joke in real estate, but with a new punch line:
Q: What are the three most important things to consider when buying a house?
A: Jobs. Jobs. Jobs.
Clearly, the No. 1 factor in determining whether a community has passed through the worst of the housing debacle is its current state of employment. There has always been a connection between the local jobs picture and the local real-estate market, but it's even greater today.

The official U.S. unemployment rate was still a very high 9.2% as the prime home-shopping season began in March. Denton County's unemployment rate was 7.4% in March—way up from before the financial crisis but lower than the rate for all of Texas and nearly two points below the national rate. Unemployment in Cambridge's Middlesex County is 2½ percentage points below the U.S. average.
Indeed, many of the communities that turned up in the Zillow analysis have big recession-insulated employers like Cambridge's and Denton's universities.

Look at North Carolina, where three communities appear on the Zillow list. Although North Carolina's unemployment rate is higher than the national average, all three communities are lower than the state rate. Jacksonville, where values are just 0.1% below their peak, is the home of the Marine Corps' Camp Lejeune and New River Air Station. Fayetteville has the Army's Fort Bragg and Pope Air Force Base. And Durham is one of the vertices of the Research Triangle conglomeration of universities, state and federal government offices, and government, nonprofit and corporate research facilities.

Rents

Local rents are very strong indicators of real-estate values. Home prices in most communities that have best weathered the downturn tend toward the low-rent end. That is, they have lower price-to-rent multiples, and house hunters will often find it cheaper to buy properties than to rent them.

Look at a typical "rent vs. buy" calculator available on many real-estate or personal-finance websites. Most calculators figure that if prices are more than 15 times annual rents, then a market favors renters; under 15 times, buyers.

Earlier this month, there was a $525-a-month rental two-bedroom, one bath house in Conway, Ark., near the state capital, Little Rock, where home values are down just 5.1% from their peak. But asking prices for comparable houses in the same neighborhood are in the high $60,000s—so, using the typical rent-vs.-buy formula, prices are about 11 times rent, a bargain.

Associated Press

That's the same price-to-rent multiple as in college town Champaign, Ill., where a three-bedroom, one-bath house was on the rental market for $850 a month. Albany, N.Y., another state capital, also falls within the affordability range. You can buy a four-bedroom, 1½-bath house for around $200,000, only about eight times the annual rent.

Caveat: Beware the outliers. Extremely low price-to-rent multiples can be warning flags for seriously depressed markets that are glutted with unsold properties. Trulia, another real-estate information site, regularly publishes a rent-to-buy analysis of large metropolitan areas, and the most "affordable" markets are a Where's Where of the real-estate bust: Las Vegas (prices 6 times rents), Phoenix (7), Miami (8). At the opposite end, Trulia's survey says the "least affordable" market is New York City (39), where home values are down just 9.1% from their peak.

Foreclosures

Healthier communities have fewer foreclosed properties pulling down values of other homes.

Just as jobs fuel the local housing engine, foreclosures put on the brakes. Even in good times, one foreclosed property in a neighborhood can bring down the values of every other house around it. And, in bad times, entire metropolitan areas can be swamped by abandoned, foreclosed houses.

In 2010, the worst year so far, about 2.23% of all the homes received a foreclosure filing, according to RealtyTrac, an Irvine, Calif., firm that monitors foreclosed properties. In Las Vegas, the poster child of the Sun Belt's real-estate bust, the foreclosure rate was 12%, more than 80% of homes are worth less than their mortgages and values are down more than 50% from their peak.

And what was the foreclosure rate in Utica, the buckle of upstate New York's merciless Snow Belt? Barely a flurry, just 0.04%. And home values are down just 4.2%, helped along by a growing population.

For home owners, the snow looks a lot more inviting than it used to.

Foreclosures fall for 8th straight month

2011-06-17T07:18:00.000-07:00

By Les Christie June 16, 2011 NEW YORK (CNNMoney)

Foreclosure filings experienced their eighth straight month of declines, according to RealtyTrac.

In May, filings fell 33% from a year earlier and 2% month-over-month, according to the online marketplace of foreclosed properties. The number of homes that were repossessed (referred to as REOs or real estate-owned properties) in May also declined to 66,879, down 3.8% from April and 29% year-over-year, the firm said.

The huge year-over-year drop in foreclosures doesn't necessarily mean the housing market is staging a recovery, however.

James Saccacio, the CEO of RealtyTrac, says the declines are likely due to lingering effects of the "robo-signing" scandal, which broke last September, when it was discovered that banks were playing fast and loose with foreclosure documents.

In some cases, it was found that banks brought foreclosure proceedings upon homeowners when they had no standing to do so. Sloppy paperwork sometimes made it impossible to tell which entity was the rightful owner of the mortgage notes.

To help fix the mess, foreclosure proceedings were temporarily suspended. Even though the suspension has since been lifted, the pace of foreclosures remains significantly slower as banks more thoroughly review each case to ensure they are being handled legally and properly.

Walk away from your mortgage? Get 'ruthless'

"Foreclosure processing delays continue to mask the true face of the foreclosure situation," said Saccacio. "Lenders are somewhat unevenly pushing batches of bad loans through foreclosure as they overhaul their paperwork and documentation procedures."

There's another factor at play, as well. The banks can't sell the homes they've already seized so they aren't as incentivized to repossess more homes.

"[There's] weak demand from buyers, making it tough for lenders to unload their REO inventory," said Saccacio. "Even at a significantly lower level than a year ago, the new supply of REOs exceeds the amount being sold each month."

The banks don't want to take on the expense of maintaining the homes -- property taxes, heating costs, repairs and insurance -- if they can't sell them quickly.

Selling off the inventory of repossessed homes is crucial to the housing market, said Jim Gillespie, CEO of Coldwell Banker. Sold at steep discounts, REOs compete with new homes for buyers and have severely depressed new home sales.

"That's a critical element for the economic recovery," said Gillespie. "If new homes were selling anywhere close to their levels of five years ago, it would add a full point to the GDP."

The steepest drops in filings have come from judicial states, ones in which the courts are involved in repossessions. In these states, where foreclosure proceedings are subject to the scrutiny of the courts, it appears banks are taking special care to make sure they've stamped out the last vestiges of the robo-signing issues.

Nevada, where most cases are handled outside of court, continued to be foreclosure central. One of every 103 households received a notice of some kind in May. However, that was an improvement of 23% compared with May 2010. Arizona, with one filing for every 210 households, and California, one for every 259, were second and third.

The judicial state of Florida, where the housing market is no better, has seen a much greater drop-off in filings over the past year, down 62%. It now has the eighth highest foreclosure rate, of one filing for every 461 households. A year ago, it was in the top four, along with the other "Sand States."

Real-estate scam that’s devastating prices - flopping!!!

2011-06-12T08:16:00.000-07:00

WASHINGTON (MarketWatch) — By Lew Sichelman June 10, 2011

Question: My neighbor in Palm Springs, Calif., who claims to have millions or more in the bank, let his home with a $1 million mortgage go into foreclosure. A real-estate friend of his bought it from the bank and is renting it back to him. After one year, my neighbor plans to buy it back. It affects me as a homeowner because now we have a home in our community that shows a sale price for $600,000, instead of the current market of $725,000. How do I report such activities? —J. McK.

Answer: This type of thing is more prevalent than most people realize. According to CoreLogic, a real-estate and mortgage data firm headquartered in Santa Ana, Calif., lenders will lose more than $375 million this year alone when they sell undervalued houses based on the price opinions funneled to them by unscrupulous real-estate agents.

The scam is called “flopping,” and you are correct, it can have a devastating impact on property values because now, the “sale” becomes a comparable for all future appraisals of matching neighborhood properties.

Like flipping, flopping is the intentional misrepresentation of house prices. But whereas flipping usually takes place when housing prices are rising, flopping occurs when values are depressed.

When a house is flipped illegally, it is “sold” for a greatly inflated value in order to obtain a mortgage that is far greater than the place is really worth. When the seller, who is often in on the scheme, is paid at closing, the difference between the actual selling price and the loan amount is split between the perps, who are usually industry insiders who know how to scam the system.

When a house is flopped, it is usually owned by a underwater borrower who has asked the lender to approve a short-sale at a price that’s less what is owed. Unbeknownst to the owner or the lender, the real-estate agent supplies one or more opinions of valuation that show the house to be worth one amount when it is really worth much more on the open market.

When the lender agrees to take the lower price, the agent purchases the property in his name or that of a straw buyer and immediately flips the property to an honest-to-goodness buyer-in-waiting at a higher price than the one negotiated with the lender, with the difference split between the participants.

Appraisal and valuation misrepresentation continue to be a big bugaboo in the mortgage sector, even in a weak housing market. And flopping is one of the biggest issues because lenders tend to take agents at their word. But when they do check, they are shocked at what they find. (A great reason to use our valuation tools!)

Some real-estate agents are “clever, even more so than criminals,” says Michael Richardson of BrokerPriceOpinion.com, a firm which assists lenders in obtaining accurate valuations. “I’ve seen them change [comparables] to fit the scenarios they are trying to get away with. I’ve seen it where they enter fictitious listings and then remove them later. And I’ve seen it where they’ve recruited other agents” to participate in their schemes.

Flopping costs lenders tens or sometimes hundreds of thousands of dollars per transaction because the house could have been sold for more than they accepted. But it costs sellers big money, too. How? Because if you are a seller and your state allows your lender to pursue a deficiency judgement against you, you could end up owing more than had the realty agent not taken advantage of the lender’s ignorance — or trust — of your home’s actual value on the open market.

To avoid becoming a flopping victim, sellers would do well to pay $95 to $100 for a separate broker price opinion from a disinterested party to make sure the value set by their agent is at least in the ballpark. Richardson says he’d do this before even hiring an agent to put together a short sale.

Sellers should also perform the usual due diligence — with your local realty association, better business bureau, consumer affairs agency and the state real-estate commission — to make sure their agent hasn’t been caught pulling a fast one on others. If they try it once and are successful, chances are they’ll try it again — and again.

In your case, reporting these miscreants is easier said than done because what has taken place is not yet a crime, only an immoral act, and a pending one at that. I don’t even think the lender can do any more than make sure it never deals again with the real-estate agent — or your neighbor, for that matter.

Nevertheless, you should report the agent to your local realty association as well as his broker. And you should also report what has transpired to the lender which originally foreclosed on the property. It is the one which is out big bucks here.

Perhaps the lender might be able to seek a deficiency judgement against your neighbor to recover its loss once the place is resold at a much higher price. California is one of those states where deficiency judgements are not permitted. But perhaps the lender can persuade a judge to rule otherwise in this obvious case of fraud.

Bank of America, JPMorgan Chase and Wells Fargo Bank cited for poor performance on HAMP

2011-06-10T09:51:00.000-07:00

Treasury Department says the lenders will not receive payments beginning this month for loan modifications

By Mary Ellen Podmolik, Tribune, June 9, 2011

The Treasury Department publicly slapped the three largest servicers of home mortgages Thursday, announcing that it would withhold incentive payments until they do a better job of helping struggling homeowners.

For the first time, Treasury and the U.S. Department of Housing and Urban Development disclosed results of an audit of the 10 largest servicers participating in its 25-month-old Home Affordable Modification Program. The report cited Bank of America, JPMorgan Chase and Wells Fargo Bank for not performing sufficiently. As a result, they will not receive payments beginning this month for loan modifications made.

A fourth servicer, Ocwen Loan Servicing LLC, also was cited but not penalized because its results were hurt by the acquisition of another servicing portfolio.

The extent of the payments to be withheld remains unclear, but in May the three lenders received $24 million; almost $7.2 million to Bank of America, $8 million to Chase and $8.7 million to Wells Fargo.

For a year, Treasury has said it was stepping up its oversight of servicers and sought to make the loan modification process more transparent and accurate, in response to complaints from homeowners and housing counselors that HAMP, announced with great expectations by President Barack Obama shortly after his inauguration, was a dismal failure. Critics have complained that the servicers' processes are cumbersome and confusing and have cost homeowners' their homes. On Capitol Hill, Republicans have called for an end to HAMP and other housing-related programs.

Late last month, the Government Accountability Office released a survey in which 76 percent of participating housing counselors described their experience with HAMP as "negative" or "very negative." Almost half complained that it typically took more than seven months — when it's supposed to take 30 days — for clients who submitted complete applications to find out whether they would receive a trial modification, the first step toward a permanent reduction of their loan payments.

There also has been criticism that the carrot, the up to $2,500 paid to a servicer to make a permanent modification, isn't enough of an incentive, and the stick, program enforcement, is nonexistent. Eighteen months ago, the Treasury Department said there could be penalties for noncompliance with the program, but no actual penalties have been announced, other than the decision to withhold payments.

On a conference call Thursday, Treasury officials noted the limited scope of their authority. "We're using the tools we have," said Tim Massad, acting assistant secretary for financial stability. "We don't have the power to impose fines the way a regulator would."

So instead, with the new report, Treasury is taking another tack that it calls an "appropriate step," publicly calling out those companies in the hope that holding them up to public criticism would engender better cooperation. Treasury said it plans to report on individual progress of the top 10 servicers each quarter.

The report only focuses on HAMP efforts for mortgages that are not backed by Fannie Mae and Freddie Mac. Much of mortgage modification activity has shifted to in-house programs operated by individual servicers.

Wells Fargo, for one, is fighting back. The lender said it was formally disputing the report, which it said uses year-ago data that "paints an unfairly negative picture of our modification efforts and contradicts previous written assessments shared with us by the Treasury."

The government's audit found that Wells Fargo needed substantial improvement in the way it communicated with borrowers and evaluated borrowers for loan modifications. On 27 percent of loans sampled, Wells Fargo's borrower income calculations, used to determine whether a modification would be offered, differed from auditors' calculations by more than 5 percent. The government said an acceptable level was 5 percent of loans with income errors.

In an interview, Wells Fargo Senior Vice President Teri Schrettenbrunner said that 85 percent of its modification activity involves its own program, not HAMP, but it was still filing a formal dispute. "It's a reputational issue," she said. "The incentives are inconsequential. We got into HAMP because we needed to find a way to work with homeowners."

Massad said the department spoke to all firms about the findings and it "will certainly discuss objections or differences of opinion that any servicer has." Also, he noted, if problems are resolved within a reasonable period of time, Treasury would resume payments.

Bank of America, meanwhile, said it acknowledged that "improvements must be made in key areas, particularly those affecting the customer experience," and that future reviews will confirm its progress along those lines. The report took issues with the bank's second-look processes, incentive-payment records and making income errors in 22 percent of cases.

Chase was primarily cited for making income errors 31 percent of the time. Chase said it "respectfully disagrees with the assessment. We have made significant improvements since the modifications that Treasury reviewed."

Treasury's audit, conducted in late 2010 and 2011's first quarter focused on three areas: homeowner identification and communication, loan modification processes and program management and reporting. The age of the loan-modification applications studied varied, and privately, loan servicers fault the administration for making changes to the program's guidelines that may have skewed audit results. For instance, they say, errors in income calculations are likely due to the fact that for a time, Treasury directed servicers to make trial loan modifications on stated income rather than verified, documented income.

Of the almost 1.6 million trial modifications begun since the program started in April 2009, only 608,615, or 38 percent, have resulted in permanent mortgage modifications.

In the Chicago area in April, 6,870 homeowners were participating in active trial modifications, and another 31,724 homeowners had received permanent modifications.

Also according to the administration's report, almost 3.9 million homes nationally were vacant but held off the market, compared with 3.6 million a month earlier. Meanwhile, almost 11.1 million homeowners with a mortgage were underwater, meaning they owed more on their homes than the property was worth.

9 Reasons To Buy A House Now!!!

2011-06-09T06:53:00.000-07:00

Forbes Online - Jun. 3 2011

If you’re planning to buy a house right now, the next few months may be the best time to buy. Waiting for both housing prices and interest rates to fall may not be a good strategy for potential homebuyers since analysts don’t expect any significant declines in these two most important home-buying factors. Here’s nine real estate trends that suggest you should get into the housing market sooner than later. (To learn more, check out 5 Sunny Real Estate Markets To Watch In 2011)

1. Lowest Housing Prices in Years
Nobody knows when the housing market will hit bottom, but prices are at their lowest in several years and may soon start inching back up again. So buying now or in the near future may be the right time. An abundance of bargain-priced housing is now available because of foreclosures and falling prices.

2. Interest Rates at a 50-Year Low
Interest rates are near a 50-year low, according to housing analysts. By the second week of May, 2011, 30-year fixed mortgage rates had fallen to their lowest rates of the year at 4.63%. Although mortgage rates vary from day to day, the 30-year rate at this level is an attractive inducement to first-time buyers, or buyers who want to either move up to larger residences, or others, including many empty-nesters wanting to sell and move to smaller houses or condos.

3. Interest Rates Expected to Go Up
As the economic recovery gains momentum, interest rates are expected to increase, making mortgages more expensive. Even a half-percent increase in mortgage interest can add a hundred dollars or more to your monthly payments, depending on the amount of your loan. (To learn more about interest rates, read Forces Behind Interest Rates.)

4. Adjustable Rate Mortgages at Record Lows
Adjustable Rate Mortgages (ARMs) are also lower now, although there are risks that interest rates may increase over the life of the mortgage and the balloon payment due at the end of the mortgage life, usually three or five years, could be substantial. Nevertheless, for new buyers who are sure they’ll have enough income to meet payment obligations, an ARM may be the best way to buy a house. Keep in mind that payments may increase on a monthly basis. For a full explanation of advantages and risks in an ARM, visit the federalreserve.gov.

5. Low Down Payment Mortgages Available
Low-down-payment financing through Federal Housing Administration-insured mortgages is available as an additional inducement to buy a house now. Down payment minimum requirements also fluctuate and may increase as the market heats up, so potential buyers with less cash to consummate a deal may be well-advised to buy now.

6. Easy to Qualify, Easy to Borrow (I disagree with this one!)
Lending standards have become less rigid recently, so qualifying for a mortgage may be easier. Experts advise that a potential buyer become pre-approved for a loan by a lending institution – meaning that a lender guarantees to make the loan contingent on an appraisal of the property. But the good news in seeking pre-approval is that lenders are now willing to let a potential buyer take on more debt than the previous formula allowed – a percentage of monthly income. (For more on getting a cost effective mortgage, see Score A Cheap Mortgage.)

7. Lenders Offer No-Fee Mortgages
Many banks and other lending institutions are waiving mortgage loan generation and other fees and points (each point represents 1% of the loan amount), thereby reducing the cost of buying.

8. Home Builders Eager to Sell, Offer Incentives
Home builders, competing with the resale market, are offering incentives to potential buyers to reduce their inventory of unsold new homes. Incentives may include cash for furniture or free refrigerators, washers and dryers. In Seattle, for example, builders have offered opportunities to win iPads or Smart phones, and $3,000 buyer bonuses. Specific demographic groups, including military personnel, police, firefighters and health-care workers, have been targeted by builders for special offers. But virtually anyone who can qualify for a mortgage is likely to get a good deal from a homebuilder who is eager to sell.

9. Motivated Home Owners Desperate to Sell
Desperate sellers of existing homes have also been offering attractive inducements to potential home buyers, including warranties on appliances, air conditioners and furnaces. Some sellers are even offering cash or have included furnishings, refrigerators, washers and dryers as a bonus to potential buyers. With so many existing homes in foreclosure or underwater – bargain prices are abound in this depressed market. (For help on buying a house, read Top Tips For First-Time Home Buyers.

The Bottom Line
With a convergence of the factors above, all of which are favorable to the prospective home buyer, there may not be a better time to buy than right now. It’s a buyer’s market, but like everything else in life, the bargain deals won’t last. (To help determine if it is the right time to buy, read Are You Ready To Buy A House?)

Why It's Time To Buy

2011-06-08T07:12:00.000-07:00

The Clouds Haven't Quite Parted, But the Long-Term Case for Home Ownership Is Looking Stronger

By RUTH SIMON and JESSICA SILVER-GREENBERG

Back in June 2006, when the housing market peaked, the prospect of a five-year national housing bust seemed unimaginable to most people. And yet here we are, with the latest Standard & Poor's Case-Shiller index showing that prices hit new bear-market lows, falling back to 2002 levels nationally and to 1990s levels in some battered regions.

Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody's Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer's market: There were about 15 million vacant homes in the U.S. last year, according to John Burns Real Estate ConsultingInc.—some 3.1 million more than normal.

April Home Prices

See the change in home prices from April 2010 to April 2011, state by state.

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Home Prices, by Metro Area

See data from the 20 metro areas Case-Shiller tracks.

View Interactive

Such conditions might not last long. Moody's Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply overhang isn't likely to get much worse. Meanwhile, demographic indicators such as "household formation"—the number of new households each year—are on the rise, and promise to take a bite out of the glut in coming years.

The upshot: "While we might not see rapid growth in the next couple of years, there are a tremendous number of positive signs that could lead to a rebound," says Anthony Sanders, a real-estate finance professor at George Mason University.
The short-term outlook isn't encouraging. Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months.

But the long-term benefits of homeownership remain very much intact. For now, at least, you can deduct the mortgage interest on your taxes—a big perk for people in higher tax brackets. You get to paint your walls any color you wish, without having to clear it with a landlord. And assuming you can buy a home for about the same price as you can rent one, buying will give you the ability one day to live rent-free. Come retirement time, a paid-off mortgage means your monthly expenses are significantly reduced, and you have a chunk of equity to play with.
So what might the next five years look like? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market—demographics, affordability, loan availability, employment and psychology—should take over.

Here is a glimmer of what the future may hold: While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn't battered by foreclosures, you may be close to a bottom already.
"The regular marketplace is hanging tough," says CoreLogic chief economist Mark Fleming.
Here is a look at five key factors that will govern local markets over the next several years:

Lending
As rates hover near historic lows, experts expect banks to ease borrowing standards over time.
Psychology
If prices stabilize, it could tip the balance away from fear and pull more buyers back into the market.
Affordability
In several markets, it's becoming cheaper to own than to rent.
Demographics
The rate of "household formation" is expected to climb in coming years.
Employment
The strength of the housing recovery depends on job growth.

Demographics

Household formation fell during the economic downturn as a weak economy led some people to stay in school, double up with roommates or move in with family members. According to Moody's Analytics, the number of new households renting or owning a home dropped to 578,000 in 2008 from nearly 2 million in 2005, just before the peak of the housing boom.
But household formation increased to nearly 950,000 last year, says Moody's, and should average 1.2 million over the next decade.

That, combined with increased obsolescence and higher demand for second homes, should begin sopping up excess inventory in much of the country over the next two years, Moody's says.
"Whatever the excess supply of housing is, it is shrinking pretty fast," says Thomas Lawler, an independent housing economist.

Some of the uptick in household formation is likely to come from the leading edge of the echo baby boomers, who have been waiting for the economy to recover before striking out on their own, says William Frey, a demographer with the Brookings Institution. That is likely to fuel an increase in demand for both rental apartments and starter homes.

The portion of people moving across the country has fallen to the lowest level since World War II, he adds. That is a sign that many people have put their lives on hold because of the weak economy.

"When things do pick up, there will be this pent-up demand for everything involved with starting a household," Mr. Frey says.
Of course, when prices in healthier regions begin to rise, many would-be sellers who have sat on the sidelines could begin putting homes on the market, muting the price gains at first, says Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School. Even so, she expects home prices to stabilize and begin to strengthen over the next two or three years.

There also are some powerful demographic cross-currents worth considering. The first baby boomers turned 65 in January, an age when demand for new homes falls and many begin to think about downsizing. "The baby-boom generation pushed prices up as they got older," says Dowell Myers, a professor of urban planning and demography at the University of Southern California. But in the coming years, "boomers will start flooding the market on the supply side" with larger homes, while fueling new demand for smaller properties with more services and amenities.

Affordability

Rising home prices made renting cheaper than buying in many parts of the country. But that dynamic has begun to change: Housing affordability, as measured by the ratio of median home prices to median household incomes, has fallen below pre-housing bubble levels in just over two-thirds of the country, according to an analysis of more than 380 metro areas by Moody's Analytics.
Renting is still cheaper than buying in most markets, but rising rents and falling house prices mean that, in some areas, this won't be the case for long. Buying a home is already cheaper than renting in Chicago, Cleveland, Detroit and Orlando, Fla., according to Moody's Analytics. In other markets, including Dallas, Las Vegas and Sacramento, Cailf., the equation is likely to soon turn in favor of homeownership if current trends persist, the firm says.
In Ann Arbor, Mich., where home prices fell 11.2% between 2007 and 2010, according to Fiserv Case-Shiller, housing affordability has risen well above historical levels, according to Moody's Analytics.
That is good news for home buyers such as Steven Upton, a 42-year-old photographer, who in June will close on four-bedroom brick house on 10 acres in an upscale community in Ann Arbor. Mr. Upton paid $400,000 for the home, which previously listed for $600,000. "It's a tremendous deal," he says.
Before buying a house, it is wise to compare rental prices for similar properties. To be ultraconservative, wait until the monthly outlays, including taxes and insurance, are equal. You also could factor in the tax savings of owning, which would make buying more attractive even if the gross monthly outlay is slightly higher.

Employment

The strength of the housing market depends largely on the economy. Rising incomes and increased employment tend to give more would-be buyers confidence and buying power. For now, job growth remains sluggish: On Friday the Labor Department reported that just 54,000 jobs were created in May, far below expectations.
But signs of how a stronger job market could fuel housing demand are evident in the Dallas metro area, which added 83,100 new jobs in the 12 months ending in April—the largest gain in the nation, according to the Bureau of Labor Statistics. Dallas never had a big housing boom or bust and has benefited from trade with Mexico, a strong telecommunications sector and a central location.

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The opportunities for a job with more responsibility drew Duane and Linda Elmer to Dallas from Des Moines, Iowa, where Mr. Elmer was a banker for nine years. The couple has agreed to pay $415,000 for a four-bedroom, four-bath house with a Jacuzzi and pool. Their Des Moines home, purchased nine years ago for $410,000, is on the market for $390,000. "We are willing to take the loss for the opportunity to live in a more diverse community and to take a job with greater breadth of responsibilities," Mr. Elmer says.

Borrowers like the Elmers who are relocating for job opportunities are a big driver of home sales in nearby Plano, Texas, says Harry Ridge, a real-estate agent. He says such sales accounted for 20% of his business last year.

A similar influx of job seekers is fueling housing demand in the Washington area, where 25,700 new jobs were added in the 12 months since April 2010. Washington was the only one of the 20 cities tracked by Standard & Poor's and Case-Shiller that saw home prices rise both on a month-to-month and year-over-year basis.

Credit

Mortgage financing remains plentiful for borrowers with good credit scores and solid employment histories. But for borrowers who don't fit traditional lending standards, getting a loan can still be nearly impossible. In the first quarter, about 10% of banks tightened standards for nontraditional loans, according to the Federal Reserve. Meanwhile, higher down-payment standards are locking some would-be buyers out of the market. Just 35% of renters have the minimum 3.5% down payment needed for an FHA loan on the median-priced home in their market, according to a recent survey by Zelman Associates.
Credit is likely to remain tight for at least the next six months, says Clifford Rossi, a former Citigroup Inc. consumer-lending executive who teaches at the University of Maryland.
But conditions should improve over time, he says: "There's no question that it will gradually get easier."
That will be welcome news to borrowers like Greg Silver. The 50-year-old real-estate developer would like to buy a second home, but hasn't been able to secure a jumbo mortgage because his income consists of capital gains from sales of the properties he develops. Mr. Silver closed three sales in the past 12 months, netting him a total of more than $25 million, but didn't record any capital gains in 2008 and 2009. Sure, he could use some of that cash to buy a home outright, but he would prefer to mortgage it, get the tax deduction and keep his cash free for business purposes.
"It's a little devastating," says Mr. Silver, who is living in Greenwich, Conn.

Psychology

The long-term case for buying over renting remains in force. Yet nowadays, "People are simply scared," says Aaron Galvin, chief executive of Luxury Living Chicago, which finds rental apartments for wealthy clients.
Mr. Galvin says he has seen a 30% increase in business in the last year, driven by would-be home buyers who can afford to purchase a property but are choosing not to do so.
The portion of Americans who believe homeownership is a safe investment dropped to 66% in the first quarter from 83% in 2006, according to Fannie Mae, the government-controlled mortgage company.
But it isn't clear whether the fear will result in a prolonged change in attitudes, as during the Great Depression, or have little long-term impact, as was the case for the housing bust that shook California and the Northeast in the late 1980s and early 1990s. Eighty-seven percent of people surveyed by Fannie Mae said they preferred owning to renting, though access to schools, control over one's environment and other quality-of-life issues now are seen as the key benefits of homeownership, with building wealth and other financial factors viewed as less important. In addition, 67% of renters surveyed by Zelman Associates said they planned to buy a home in the next five years.
Jeffrey Connor may be a bellwether for the future of the housing market. The 40-year-old finance director at a corporate law firm says he thought briefly about buying a house when he moved to Chicago from Washington in October. But he opted instead to rent a luxury two-story apartment in downtown Chicago for $3,559 a month. Mr. Connor says it will take substantial job growth and a sharp drop in foreclosures to convince him to buy.
"The market is clearly soft," he says, "especially when we consider it good news that the unemployment rate is hovering around 9% instead of 10%." Mr. Connor says he isn't worried about missing out on today's low interest rates and will consider buying once unemployment falls to 6%.
Other buyers are showing less willingness to wait for the absolute perfect time to buy. Doug Yearly, chief executive of luxury builder Toll Brothers Inc., told investors in May that "some of our clients, after waiting so long, are starting to move off the fence and into the market, motivated by attractive pricing, low interest rates and, most important, the desire to take the next step in their lives. The family with elementary-school kids and a puppy when the housing debacle began five years ago now has middle-school kids and the dog weighs 80 pounds."

Home clearance sale coming from 'desperate' sellers

2011-06-06T09:46:00.000-07:00

By Les Christie June 1, 2011 CNNMoney

NEW YORK (CNNMoney) -- Home prices are already a third off their highs, but this summer could bring the real discounts.
Buyers are still cautious, and anxious sellers will have to price aggressively to get them off the fence.
That could result in a "summer clearance sale," predicts Pete Flint, CEO of Trulia, the real estate web site.
"We don't imagine a stampede of buyers, like outside of Macy's on Black Friday," he said. "We see this more akin to January sales where retailers are trying to get rid of stock before it gets stale."
Several factors, he said, will lead to blow-out prices:

Accelerating price drops: Home prices have already reached their lowest level since the housing bubble burst, and are now at 2002 levels. Sellers will feel the pressure to make deals before their homes lose even more value.

Bloated inventory: There are boatloads of homes on the market, more than eight months worth at the current rate of sales. Many are distressed properties -- short sales and bank repossessions. Such homes are selling at discounts up to 50%.

Tight credit: Some homebuyers still can't obtain mortgages, limiting demand.

Unemployment: While the job picture has brightened, unemployment is still around 9%. People without jobs don't buy homes, obviously, but high unemployment also rattles working people. Lacking the confidence that their jobs are secure, they may not look to buy.

These forces could all come to a head this summer, according to Flint, because of the cyclical nature of homebuying. Buying takes off in spring as many young families hope to make their moves before the new school year.
"By the end of the homebuying season, sellers will become increasingly desperate," said Flint.