The Real Estate Market Is Changing … Again!

Posted in Real Estate by Jake on June 25, 2013 No Comments yet

Since mid-2012, the real estate market nationally and here in Sacramento has been marked by very low inventory of homes for sale. Statistics from local Boards of Realtors indicate that there has been only a three week supply of available homes for sale.  These are being chased by a far larger pool of prospective buyers ranging from individual first time buyers seeking a loan up to huge money-backed investors paying cash for everything they can get.

It’s a simple rule of economics that when the demand exceeds the supply, prices rise and that has certainly been the case in real estate.  Last year, the price of residential homes in Sacramento skyrocketed up 18%.   Year over year increases from May to May are over 27%.   Many people, including a great many in the media, have applauded this as evidence of an economic recovery.  But, if the increased prices are the result of a supply-demand imbalance, the question is what will happen to prices if balance is restored.  We may soon find out.

Prior to 2012, the real estate market was very scattered.  Prices were uncertain, jobs were still falling, and owners were struggling to get elusive loan modifications to keep their homes. Those that couldn’t – millions of them – were losing their homes either through short sales or, even worse, foreclosure.  Two events in 2012 changed the market:

1. National Mortgage Settlement. In February 2012, California and most states reached a Settlement of the “Robo-signer Scandal” concerning lenders’ fraudulent foreclosure practices. This Settlement was called the “National Mortgage Settlement”. In that Settlement, the big banks – BofA, Wells Fargo, Chase, Citi, and GMAC/Ally – agreed to pay $27.5 Billion in reparations, primarily through principal reductions on owner-occupied home loans.  This created two effects: 1) people who might have otherwise put their homes on the market for a short sale held off hoping that they might get some of the Settlement money; and 2) Lenders cut back on foreclosures fearing further legal actions against them.  This shrunk the homes for sale market with reduced short sale and REO listings leading to today’s severe inventory shortage.

2. Home Owners Bill of Rights.  In July 2012, California passed a series of laws which took effect January 1, 2013 and were collectively called the “Home Owners Bill of Rights”  HBOR for short.  The two major components of HBOR were: 1) a ban on “Dual Tracking” stopping the lender practice of foreclosing while loan modification was being negotiated; and 2) Borrower recourse against the lenders if they improperly handled the loan modification process.  HBOR’s provisions very likely also apply to stop foreclosure while short sales and equity sales are progressing. The results of HBOR was very similar:  Potential sellers held off while they attempted Modification under HBOR and lenders dropped foreclosures by 72%.

The result of these two issues was today’s extremely low sale inventory and upward push on prices.

But forces are underway that may bring change in the months to come.

 A.  Increase in Supply of Homes for Sale.  Despite the hopes of the National Mortgage Settlement and the Home Owners Bill of Rights, most people are still not getting loan modifications.  Recent statistics indicate that Lender willingness to modify loans is less than 25%. Further,  increasing prices have made it more attractive for lenders to push short sales and foreclosures seeking a higher and faster recovery. In May, for the first time in over a year, foreclosure starts increased.  Nationally, over 13 million properties are underwater and 1.7 million are in default or foreclosure. 700,000 more homes have already been foreclosed but are being held by lenders as REO’s.  We expect that, due to likely changes on the buyer side (see below), we’ll see 1) more people give-up on loan mods and list their homes as short sales; 2) more lender foreclosures; and 3) lenders selling their REO inventory. In addition, rising prices have enabled many people to be able to sell their homes for above break-even. These “Conventional Sales” are up 64% from a year ago.  Altogether, these will substantially increase the supply of homes for sale and decrease upward price pressure.

B.  Decrease in Available Buyers.  For every sale, there must be a seller and a buyer.  We expect, as stated above, that there will be many more sellers.  But will they find buyers… not all of them?   Interest Rates are increasing.  For several years, Buyers have enjoyed historically low interest rates.  Recently however, interest rates have started to rise as the Feds start backing off their market support (“quantitative easing”). While they’re still low, every fractional increase knocks some buyers out of qualifying.  Investor competition is weakening.  The big investors are finding it much harder to get good deals that make financial sense.

C.  Effects of Sequestration.  We’re not feeling it yet but most analysts expect the economy to start feeling the effects of the Sequestration program that took effect to push for a balancing of the Federal Budget.  $87 Billion dollars is coming out of the economy this year through a reduction in Federal spending.  Federal spending is scheduled to get slashed by another $110 Billion dollars each year for the next 9 years!  While these cuts are arguably necessary for the economic salvation of our nation, they will no doubt result in job losses and possibly higher costs as these cuts are absorbed.  That means more upside down owners putting their homes on the market as short sales and less available buyers with the resources or loan qualifying ability to buy those homes.

To summarize, while none of us has a crystal ball to be able to say with absolute certainty that these effects will come to pass, the indicators are out there that changes are coming.  Time will tell what that will mean for real estate owners, buyers, and the agents who serve them.  Stay tuned!

Housing Shortage Being Felt…Especially In The West

Posted in Foreclosures, Real Estate by Jake on October 22, 2012 No Comments yet

“It’s hard to imagine, given that the nation’s housing market is still digging itself out of an epic foreclosure crisis, that there just are not enough homes available to buy.  But that, apparently,  is the case, according to the National Association of Realtors, who blame a drop in home sales on an ‘acute lack of supply’ in certain formerly hot markets.  ‘Recent price increases are not deterring buyer interest,’ notes Lawrence Yun, NAR’s chief economist.  ‘Rather, inventory shortages are limiting sales,  notably in parts of the West.’  A little perspective is called for here.  The housing recovery has largely been driven by investors on the low end of the market.  Cities like Phoenix,  Las Vegas and Sacramento, CA, where the foreclosure crisis hit hardest and where home prices fell the most, were swarmed by these investors, who were looking to take advantage of the situation and convert this distress into long-term rental rewards and shorter term resale profits.  Witness, sales of homes priced under $100,000 in the West are down 47 percent from a year ago, according to the NAR,  after investors drove prices notably higher.  Distressed sales made up just 24 percent of total home sales in September, while they had been making up over one third of sales for the past two years.

Where’s The Beef?

So where is all this distressed supply, given that there are still 5.45 million homes with mortgages that are either delinquent or in the foreclosure process (per LPS Applied Analytics)?  Banks are doing more foreclosure alternatives, like short sales, but they are also making more aggressive loans.  Bank of America this week announced that in the past five months it has reduced principal on 30,000 troubled loans, with an average reduction of $145,000.  This as part of the mortgage servicing settlement signed early this year.  However, banks have also finally come around to the fact that loan modifications with reduced principal have a much lower re-default rate.  Yun suggests that builders need to really ramp up production in order for home sales to recover more.  Housing starts for single family homes in September were up 43 percent from a year ago and building permits were up 27%, but the real volumes are still about half the normal level.  New homes are popular with first-time home buyers, who are only making up 32 percent of the market, whereas they normally represent about 45 percent. That is due to still tight credit conditions. The biggest problem affecting inventories is that regular home sellers are not putting their homes on the market at a high enough rate to offset the drop in distressed volumes.  Why?  Part of it is still a lack of confidence in the market, but most of it is that, as of August, about 15 million homeowners still owed more on their mortgages than their homes were worth, according to Zillow.  That’s 31 percent of homes with a mortgage.  Negative equity and near negative equity is largely what is holding the market back now, even as distressed homes slowly move out of the system.  Given the huge drops in sales and inventory out West, which had been driving much of the gains in the overall market,  some analysts predict deeper sales drops in the coming months.  While sales of higher priced homes are up considerably from a year ago, they still make up a very small share of the total market.  About 65 percent of the market is made up of homes priced lower than $250,000.  These are a lot of numbers to digest, but they add up to a still bumpy recovery ahead for housing.”

Excerpts contributed by Diana Olick

California Homeowner Bill Of Rights Now Law

Posted in Real Estate by Jake on July 12, 2012 No Comments yet

All eyes in the nation now turn to California as Governor Jerry Brown signed into law the Homeowner Bill of Rights to help struggling Californians keep their homes. This law aims to avoid foreclosure where possible in order to help stabilize California’s housing market and prevent the other negative effects of foreclosures on families, communities, and the economy. The new law will generally prohibit lenders from engaging in dual tracking, require a single point of contact for borrowers seeking foreclosure prevention alternatives, provide borrowers with certain safeguards during the foreclosure process, and provide borrowers with the right to sue lenders for material violations of this law.

Applicability of the Law:

This law will generally come into effect on January 1, 2013. It only pertains to first trust deeds secured by owner-occupied properties with one-to-four residential units, unless otherwise indicated below. “Owner-occupied” means the property is the principal residence of the borrower and secured by a loan made for personal, family, or household purposes (CC 2924.15). A “borrower” under this law must generally be a natural person and potentially eligible for a foreclosure prevention alternative program offered by the mortgage servicer, but not someone who has filed bankruptcy, surrendered the secured property, or contracted with an organization primarily engaged in the business of advising people how to extend the foreclosure process and avoid their contractual obligations (CC 2920.5(c)). A “foreclosure prevention alternative” is defined as a first lien loan modification or another available loss mitigation option, including short sales (CC 2920.5(b)). Some of the requirements of this law do not apply to “smaller banks” that, during the preceding annual reporting period, foreclosed on 175 or fewer properties with one-to-four residential units (CC 2924.18(b)).

For a complete breakdown of the law and it’s specific application to the various issues of the distressed homeowner please visit:     http://www.leginfo.ca.gov/

 

Up and Down: Seesawing Mortgages

It’s not hard to see the effects of a distressed economy. Jobless claims, mortgage loans, rates and delinquencies, foreclosures and short sales rise and fall. Just this November, headlines under mortgages in inman.com prove that the country’s real estate industry is ever changing and ever inconsistent. Obviously, thanks to the big help coming from the White House, many Americans are still unemployed, homeless, and in debt.

Let’s trace the headlines back to the first week of the month.

November 3, 2011 — Mortgage rates stay in the basement

“Mortgage rates sagged this week as ongoing concerns about the European debt crisis had investors fleeing to the relative safety of mortgage-backed securities that fund most U.S. home loans.”

November 9, 2011 – New settlement disclosure form to replace HUD-1

A prototype for a new unified settlement disclosure form may replace the separate HUD-1 Settlement Statement and Truth in Lending disclosure form which is currently used. Should the new forms’ designs are finalized, consumers will receive a unified loan disclosure form when they apply for a mortgage, and a unified settlement disclosure form if they want to purchase a home.

November 10, 2011 – Low rates sparking demand for mortgages

Low rates of mortgage loans increased demand to purchase mortgages and refinancings.

November 11, 2011 – 10 guilty pleas in scheme to take control of Las Vegas HOAs

“Federal prosecutors have negotiated guilty pleas with 10 defendants for their alleged involvement in a scheme to take control of as many as a dozen homeowners associations in Las Vegas in order to file construction defect lawsuits against builders and then win contracts to do remediation work.”

November 17, 2011 – Mortgage rates near historic lows for third straight week

Mortgage rates remain low for the third consecutive week averaging 4% and still nearing the all-time low of 3.94 percent in the week ending October6.

November 17, 2011 – Congress votes to restore FHA loan limits

The Congress and Senate vote  with 298-121 and 70-30, respectively, to restore FHA’s ability to insure loans of up to $729,750 in high cost markets through 2013.

November 23, 2011 – Economic worries keep lid on mortgages rates

Mortgage rates reach record lows for the fourth consecutive week in November for the week ending November 23, which is down by percent last week and 4.4 percent a year ago, according to Freddie Mac’s Primary Mortgage Market Survey.

 

Source: www.inman.com/news/category/Mortgages

Senate Restores Mortgage Loan Limits

Posted in Politics, Real Estate by mrdublin on November 1, 2011 No Comments yet

The Senate makes a move to restore mortgage loan limits just before Halloween. But…Will it save the real estate market? Will it increase home sales? Will it attract more homeowners to sell home? Will it push home buyers to buy home? Or will it be just another scheme to make the government look like it is doing something to save the home sales market?

Calling all real estate agents, home buyers and home sellers, an important amendment was passed by the senate last Thursday, October 30, which will restore the mortgage loan limits back to $729,750. This is still in connection with the request of National Association of Realtor (NAR) to restore the mortgage loan limits and give more chances for home buyers to purchase the house of their dreams.

The amendment to a spending bill would restore the $729,750 maximum loan limit on government backed mortgages for two more years. The increase in ceiling is joined by another Senate amendment that would bring back the formula for determining the upper loan limit in high-cost housing markets from now until 2013.

With a 60-38 vote, the new amendment was approved by the Senate, and now moves to the House, which is now responsible for approving or disapproving the said bill.

NAR lobbied real hard for the amendment despite continuously failing to have related bills reach the House or even the Senate and despite the Obama Administration not wanting to extend its role in mortgage lending by opposing the higher limits taking place.

To rationalize with those against the higher limits, the new amendment will impose a new loan fee of 15 basis points a year on unpaid principal balance for the entire time of the mortgage. A basis point is equal to a hundredth of a percent thus, 15 basis point fee means $750 on a loan with a $500,000 balance. This would raise the revenue to $300 million according to backers of the bill.

Meanwhile, according to Fannie Mae, Freddie Mac and FHA, lower loan limits would affect approximately 83,000 mortgages in areas with higher living costs.

Courtesy: Real Estate Insider News

Mortgage Delinquencies Declining….Other Signs Of Life

Posted in Real Estate by Jake on December 9, 2010 1 Comment

TransUnion expects the national mortgage delinquency rate to fall by about one-fifth to 4.98% by the end of 2011. The company projects the rate at 6.21% at the end of 2010, representing a nearly 10% decrease from the prior year. The national delinquency rate fell 3.5% from the second quarter to third quarter, which was the largest quarterly drop in four years, TransUnion said in late November. The number of delinquent mortgages peaked in July 2009.  Slowly improving employment figures and continued stabilization in housing prices will fuel the declining delinquency rates, according to Steve Chaouki, group vice president in TransUnion’s financial services unit.

“While there is continued price pressure in many markets, we expect a growing number of areas of the country to experience a rise in property values along with some stabilization of values in those states and markets hardest hit by the recession,” he said.  TransUnion said the national delinquency rate rose more 50% between 2008 and 2009, which was on top of a 53% gain the previous year and a 54% increase in 2006.  The company expects Arizona, Florida and Nevada to see the largest declines in mortgage delinquencies next year, but those three states will also have the highest rate of loans 60-days past due, as well.

Tax cuts extended?

President Obama announced a tentative deal with Congressional Republicans on Monday to extend the Bush-era tax cuts at all income levels for two years as part of a package that will also keep benefits flowing to the long-term unemployed, cut payroll taxes for all workers for a year and take other steps to bolster the economy.  “It’s not perfect, but this compromise is an essential step on the road to recovery,” Mr. Obama said. “It will stop middle-class taxes from going up. It will spur our private sector to create millions of new jobs, and add momentum that our economy badly needs.”  The package will reduce the 6.2% Social Security payroll tax on all wage earners by two percentage points for one year, putting more money in the paychecks of workers.

For a family earning $50,000 a year, it will amount to a savings of $1,000. For a worker slated to pay the maximum tax, $6,621.60 on income of $106,800 or more in 2011, the cut will mean a savings of $2,136.  That will replace the central tax break for middle-and low-income Americans in last year’s economic stimulus measure, White House officials said.  The deal will also continue a college-tuition tax credit for some families, expand the earned-income tax credit and allow businesses to write off the cost of certain equipment purchases.  The top rate of 15% on capital gains and dividends will remain in place for two years, and the alternative minimum tax will be adjusted so that as many as 21 million households will not be hit by it.  In addition, the agreement provides for a 13-month extension of jobless aid for the long-term unemployed.

Everyone hit in the foreclosure crisis

The foreclosure crisis has hit lower-income communities the hardest, but it has touched every slice of the market, and resolving it may well be harder in places where homes are too expensive to attract investors with ready cash.  Naperville, a high-end Chicago suburb, has more than 230 homes valued at over $300,000 in danger of seizure, according to RealtyTrac, a foreclosure data provider. Monmouth County, a New Jersey Shore area that boomed in the early 2000s, has 462 over $400,000.  Ladera, an unincorporated community of about 25,000, is conspicuously affluent — it’s home to Tamra of The Real Housewives of Orange County. The schools are strong, the surrounding chaparral foothills pretty.  Now defaulters may live for a year or more with a giant mortgage they can’t fully pay. Not counting homes already in the foreclosure process, about one in 10 Ladera mortgages is at least 30 days late, according to LPS Applied Analytics. And houses in the foreclosure process have been deli  nquent an average of 16 months, up from seven in 2008.

The national figures are almost as ugly. And what they show is that our collective real estate hangover is far from over. And limbo will start to last even longer as the “robo-signing” scandal raises questions about the integrity of the foreclosure process.  To judge from recent stories about poorly (if not fraudulently) documented seizures, you would think servicers are snatching up houses quickly. In fact, rushed doc signings and long delinquencies are two sides of the same problem: During the boom, lenders tripped over themselves to create millions more ultimately unsustainable mortgages than they can now unwind.  Yet for the housing market to return to health, there needs to be resolution for these zombie loans that won’t ever be paid in full and won’t quite die either. Until they can be eliminated through short sales, foreclosures, and permanent modifications, the zombies will keep home values from recovering and suck momentum from the economy. They’re not departing soon  .  As Christopher Thornberg of Beacon Economics in Los Angeles puts it, “This is going to bleed on for years. People will wander in and out of trouble.”

Auto credit market thawing

The percentage of loans going to subprime buyers rose 8 percent in the third quarter, their first year-over-year increase since 2007, according to a report issued Tuesday by Experian, a credit reporting agency. For new cars, the percentage of loans going to subprime buyers rose 13 percent over the July-September period in 2009. The increase for used cars was 3 percent.  The majority of loans—63 percent—still going to buyers with prime credit scores, which is defined as a 680 or above. But even that is settling into a more normal pattern. Before the recession, when credit was very loose, just 51 percent of loans were going to prime buyers, according to Melinda Zabritski, director of automotive credit at Experian. Last fall, when credit was tight, 66 percent of loans went to prime buyers.  Another sign that the credit market is thawing: The loans people are getting are covering larger amounts and have longer terms. The average amount financed for new cars rose $2,530, to $2  5,273, over the third quarter of last year, while the average amount financed for used cars grew $977 to $16,706. The average terms rose by about a month, although the lowest tier buyers—those with scores of 550 or less—saw their terms rise by nearly four months.  Zabritski said the loosening in auto lending is likely to continue to grow in the near term.

Mortgage rates are in your head!

“It’s like home buyers today are suffering from post-traumatic stress disorder.  The housing crash, foreclosure crisis and banking scandals have all combined to make buyers more sensitive than ever before.  That’s why the slightest fluctuation in mortgage interest rates have huge emotional power today.  ‘I think some people get a little fearful of what the higher payment might mean to them but they don’t’ realize how minimal the difference might be,’ notes Eric Gates, President of Apex Home Loans in Rockville, MD.  In fact, Gates did a little math for me on the change in your monthly payment at different interest rates, if you buy a $200,000 home (just above the national median) with 20% down.

–  4.25%: $787.10
–  4.5%: $810.70
–  4.75%: $834.64
–  5.0%: $858.91

‘Keep in mind that difference is mainly interest which is tax deductible. So, someone paying an extra $24 a month in interest who is in a 25% tax bracket is really only paying an extra $18 a month after the tax write off of the extra interest,’ Gates adds. Yes, cutting the mortgage interest deduction is currently being debated as a deficit-reducer, but the proposal is to reduce the cap from $1 million to $500,000, so it’s not going to affect the buyers I’m using as an example here.  The fact is that we’re talking less than $100 a month, for a full percentage point increase.  Obviously big cities or in-demand housing markets, where home prices are far higher than the national average, will see bigger jumps in their monthly payments, but if they’re able to afford the higher priced home, the change in monthly payment would likely be comparable in its impact on their overall budget.

So why, then, do mortgage purchase applications fall every time rates go up slightly and the opposite when they go down?  The answer is that it is largely emotional. Home buyers seem to ignore what they can afford and focus instead on what they think they somehow deserve in today’s badly beaten market.  ‘Instead of focusing on what’s my payment going to be, they see that their friend got 4.25 and they want that same rate and 4.5 isn’t 4.25 and they think ‘that’s not good enough’,’ says Gates, who has seen that happen more than once. Fear of unemployment also looms large, so buyers are much more careful with monthly payment calculations, even trying to make sure that if they are out of work temporarily they can still make the payments and not go into default.”

Home Sales Up But Home Prices Down

Posted in Real Estate by Jake on October 5, 2010 No Comments yet

The Pending Home Sales Index rose 4.3% to 82.3 based on contracts signed in August from a downwardly revised 78.9 in July, but is 20.1% below August 2009 when it was 103.0. The data reflects contracts and not closings, which normally occur with a lag time of one or two months, short sales notwithstanding.  Lawrence Yun,  NAR chief economist, cautioned any sudden rise in mortgage rates could slow the recovery. “Current low consumer price inflation has helped keep mortgage interest rates very attractive this year. However, recent rising trends in producer prices at the intermediate and early stages of production, along with very high commodity prices, are raising concerns about future inflation and future mortgage interest rates,” he said. “Higher inflation would mean higher mortgage interest rates. In the meantime, housing affordability is hovering near record highs.”  The PHSI in the Northeast declined 2.9% to 60.6 in August and remains 28.8% below August 2009. In the Midwest the index rose 2.1% i  n August to 68.0 but is 26.5% below a year ago. Pending home sales in the South increased 6.7% to an index of 90.8 but are 13.1% below August 2009. In the West the index rose 6.4% to 101.1 but remains 19.6% below a year ago.

Prices Down

Home prices in the Altos Research 10-city composite index dropped 1.5% to an average median price of $465,968 in September after a 1% drop the month before.  In the last 14 months, prices only increased month-over-month once. In May, prices improved 0.2%. Further price declines are expected.  “As the market continues to correct, continued price decreases can be expected, likely until the early part of 2011, when the boost of the ‘Spring market’ is felt,” according to Altos.  Just as in August, home prices fell in 25 of the 26 markets covered by Altos, an analytics firm.  Prices dropped the most in Phoenix, down 4.55%, San Francisco by 2.96% and a 2.53% drop in Dallas.  But nationally, inventory was down 2.24%, which, according to Altos, will soften the impact of weakening homebuyer demand in many markets.  “While home prices are still falling, it is significant that there are fewer and fewer homes listed for sale. In fact, in only nine of the 26 markets that Altos follows in its monthly report were increases noted,” according to the report.

http://www.ProfessionalHouseBuyers.com

courtesy: smartrealestatenews.com