Housing Market Analysis For August 2013

Posted in Real Estate by Jake on September 27, 2013 No Comments yet

What caught my eye last month is both August sales and median prices fell simultaneously for the first time since January. After a 12.0 percent pop in July, August sales fell 1.8 percent as the California real estate market digested a 100 basis point increase in mortgage interest rates in mid-June. The decline in August sales caused the nearly uninterrupted 20-month increase in median home prices to finally take a breather.

This will be an interesting trend to watch. The combination of the rapid increase in mortgage interest rates and decline in sales, primarily due to the decline in distressed property sales, cash sales and investor purchases, will likely result in decreased demand. The decrease in demand, in turn, will likely depress prices and cause an increase in inventory. Actually, as of this writing, inventories have increased and days on market have increased, creating a clear shift in market forces.

Assuming interest rates don’t rise much further, the increase in inventory will be welcome news for the California real estate market, which has been challenged by an acute shortage of inventory for much of the past year. Many potential homebuyers with solid incomes and good credit looking to finance their home purchases who have been shut out of the market due to lopsided bidding wars against cash buyers should now have a better shot at getting into contract, albeit, at slightly higher rates than three months ago. While mortgage interest rates have jumped in recent weeks, we doubt they will rise much further because the Federal Reserve is keenly aware of the importance of the housing market to an ongoing economic recovery. I believe the Fed is not likely to remove its support from the housing market anytime soon and mortgage interest rates are still low by historic standards.

Quantitative Easing To Remain For Awhile- What Does It Mean For RE?

The Federal Reserve’s decision to maintain current levels of stimulus is, of course, great news for the housing market. Within seconds of the Fed’s announcement, yields on the 10-year Treasury note fell 10 basis points to 2.75% and will likely trend lower.  Mortgage interest rates are sure to follow.

With the cloud of uncertainty concerning the Fed’s decision gone, we believe the recent volatility in the mortgage interest rate market will likely retreat until sometime next year when talk of tapering will likely return. In our opinion, the Fed’s are keenly aware of the importance of the housing market to the economic recovery. For that reason, we doubt the Fed’s will consider reducing support anytime soon.

The recent interest rate hikes should result in price declines.   Home buyers have always bought as much home as their banker told them they could afford – and they can now afford 10 percent less than they could before the rate increases. But price declines won’t happen quickly.  Sellers, unlike buyers, tend not to believe that such a correction is necessary, and therefore do not drop prices to reflect what buyers can now afford.  They are buoyed by mistaken analysis that because both interest rates and prices rose in the 80′s, rising rates don’t mean lower prices.  But those were different times.  Then we had high inflation, which included wage inflation, allowing buyers to digest both the rise in rates and price.  That simply isn’t true today. The next few months will be fascinating to watch.  Will prices correct to reflect the new rates, I doubt it.  More likely we will see slower sales and more inventory.

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

Home Sales Will Hit A 5 Year High…Maybe!

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

“Sales of existing single family homes and condominiums beat expectations for August, rising to the highest level since May of 2010, when the government’s home buyer tax credit juiced sales temporarily. This time it could be argued that the government stimulus behind sales is record low mortgage rates, but that may not be all of it. Close to one third of the homes that sold in August went to buyers using all cash, despite average rates on the 30-year fixed sitting around 3.6%. Rates appear to have less of an impact than hoped. Witness mortgage applications to purchase a home fell 4% last week, even as rates fell to record lows on the Mortgage Bankers Association’s weekly survey. ‘The strengthening housing market is occurring even with difficult mortgage qualifying conditions, which is testament to the sizable stored-up housing demand that accumulated in the past five years,’ said the National Association of Realtors’ chief e conomist Lawrence Yun. With the August jump of 7.8% from July, Realtors now say they are confident that home sales for all of 2012 will hit their highest level in five years. They do warn that there are still ‘frictions’ in the market, not the least of which are about 12 million borrowers who owe more on their mortgages than their homes are worth. These so-called ‘underwater’ borrowers are largely stuck in place, unable to cover their debt and unable to move up. ‘Bottom line, housing continues to recover, but the bounce still has to be put into the perspective of how much damage was done,’ notes Peter Boockvar at Miller Tabak. ‘Looking specifically at single family homes, at a sales level of 4.30mm, it’s back to where it was in 1998 and of course still well below the bubble high of 6.34mm in Sept ’05.’

Still More Distressed Property On The Horizon

As positive data begin to outnumber negative, analysts warn of a large pipeline of distressed properties that are still weighing down a potentially more robust recovery. Foreclosure activity increased in August, and states that had all but halted the process on thousands of properties, due to judicial challenges to paperwork, are now ramping up again. This will add lower-priced properties to an already low volume of homes for sale. The question is, will that distress be absorbed quickly by investors and cease to have the negative impact on surrounding properties and consumer sentiment that foreclosures have had in years past? Investors, big and small, continue to move into this market, unafraid that rent prices will fall any time soon. ‘The demand for rental housing is incredible,’ said former GE CEO and author Jack Welch on CNBC Wednesday. ‘The home rental idea is moving strongly.’ As for the latest news on housing starts? ‘We’re going nowhere in housing,’ Welch replied. Home sales usually get a slight boost in early fall before tapering off to the slowest season around the holidays. Regardless of seasonality, the numbers are improving, while the barriers to entry, like credit and nega tive equity, remain. The two will duke it out slowly in these next few months, until a stronger improvement in jobs and more certainty over regulatory changes in the mortgage market finally let the bulls run free.”

Housing Market Picking Up Steam…

Posted in Real Estate, Short Sales by Jake on July 31, 2012 No Comments yet

 The housing market recovery is picking up speed with builders expressing more confidence about construction demand and falling gas prices, albeit still high, providing consumers with more disposable income.  The report from Goldman Sachs arrives at a time when forecasts for housing are somewhat improved, but worries remain over the potential global impact of the euro zone crisis and stagnant unemployment numbers.  In fact, the national debate over whether another round of quantitative easing is warranted remains in the news as the Federal Reserve grapples with an unemployment rate stuck well above 8%.  The latest Goldman Report comes from the firm’s global economics, commodities and strategy research team.  The team forecasts roughly 10% growth in residential investment but recognizes that risks remain in the sector.  Still, the report is generally positive with Goldman saying, “prices are now edging up, and the trough is probably behind us.”  Goldman had stated in March it was more pessimistic about housing because of stagnation in disposable personal income, but real disposable income growth has evidently picked up from zero in early 2012 to 2.7% in the three months leading up to May.

Short sales with seconds taking 19 + months

Roadblocks involving second liens are standing in the way of more short sales, which reached the highest number in three years in the first quarter — 133,192 total transactions — said Daren Blomquist, vice president at RealtyTrac Inc., a real estate information service in Irvine, California.  While about 39% of homes that have entered the foreclosure process have more than one lien,  just 4.2% of short sales — 5,658 transactions — completed in the first quarter were on homes with second mortgages, according to an analysis RealtyTrac performed for Bloomberg.  In June, short sales of homes with multiple loans were completed an average of 19.75 months after the borrower’s last payment, according to an analysis by J.P. Morgan Securities, a unit of JPMorgan Chase & Co. (JPM)  That’s about two months, or 12%, longer than short sales of homes with single mortgages. Homes with second mortgages were twice as likely to be underwater, according to a July 12 report by real estate information provider CoreLogic Inc. (CLGX).  That makes them candidates for short sales, even if they don’t have delinquent loans, because their mortgage debt is greater than their resale value. The average negative equity for homes with second liens was $82,000, compared with $47, 000 for single-mortgage homes, Santa Ana, California-based CoreLogic said.

Short Sales Up…Foreclosure Prices Up And Down…More Foreclosures On The Way!

Posted in Real Estate by Jake on July 16, 2012 No Comments yet

Foreclosure-related sales have picked up, particularly pre-foreclosure sales. So says Brandon Moore, chief executive officer of RealtyTrac. “Pre-foreclosure sales hit a three-year high in the first quarter even as the average pre-foreclosure sales price dropped to a record low for our report,” he says.

Aggressive Short Sale Pricing..

According to Moore, lenders are approving more aggressively priced short sales, which in turn is resulting in more successful short sale transactions. Meanwhile, he says, “the average price of a bank-owned home is stabilizing and even increasing in some areas where a slowdown in REO activity over the past year has resulted in a restricted supply of REO homes available.” Still, he says, REO sales did increase on a quarterly basis in 21 states, “indicating that lenders are still working through a bottleneck of unsold REO inventory in many areas.”  The firm’s recent foreclosure sales report further details Moore’s comments, pointing out that sales of homes that were in some stage of foreclosure or bank owned accounted for 26% of all US residential sales during the first quarter—up from 22% of all sales in the fourth quarter and up from 25% of all sales in the first quarter of 2011. And according to the firm, third parties purchased a total of 233,299 residential properties in some stage of pre-foreclosure—defaults and scheduled foreclosure auctions—or bank-owned during the first quarter, an increase of 8% from the previous quarter and virtually unchanged from the first quarter of 2011.

 Foreclosure Prices Still 33% Below Market

First quarter pre-foreclosure sales were at their highest quarterly level since the first quarter of 2009 and pre-foreclosure sales accounted for 12% of all sales during the first quarter, up from 10% of all sales in the previous quarter and 9% of all sales in the first quarter of 2011, says the RealtyTrac report.  Third parties purchased a total of 123,778 bank-owned homes in the first quarter, up 2% from the previous quarter but down 15% from the first quarter of 2011, says the RealtyTrac report. REO sales accounted for 14% of all sales in the first quarter, up from 13% of all sales in the previous quarter but down from 15% of all sales in the first quarter of 2011. The report also points out that the average sales price of a bank-owned home in the first quarter was 33% below the average sales price of a non-foreclosure home, down from a 34% discount in the fourth quarter and a 37% discount in the first quarter of 2011. 

Home Price Index Climbing… 

The latest MarketPulse report from CoreLogic says the Home Price Index, including distressed sales posted two consecutive months of year-over-year increases in April 2012, the first such increase since the summer of 2010 when the housing market was benefitting from tax credits. According to chief economist Mark Fleming and senior economist Sam Khater, who authored the report, “While Arizona had one of the largest declines in the HPI since the peak (falling 47% from June 2006), that state had the highest year-over-year appreciation in house prices, posting a 9% increase in April.”  According to CoreLogic, listing information suggests price appreciation will last in the short term. “The asking price of new listings, a leading indicator of HPI, showed strong month-over-month increases through March,” according to the report. “In addition, the price of sold listings shows both year-over-year and month-over-month increases since February 2012.”

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/

 

Still More Legal Recourse For California Homeowners In Foreclosure?

Posted in Foreclosures, Real Estate by Jake on July 2, 2012 No Comments yet

The Foreclosure Reduction Act and the Due Process Rights Act were approved by the Joint Conference Committee in a 4-1 vote, sending them up to an expected vote in both the Assembly and Senate next week. The Foreclosure Reduction Act restricts the process of “dual-tracked foreclosures,” in which lenders work with homeowners on trial loan modifications while at the same time continuing the foreclosure process.  Over 900,000 foreclosures occurred in California between 2007 and 2011 and last year, 38 of the top 100 ZIP codes hit hardest by foreclosures were in California.  California’s foreclosure crisis has hurt property values throughout the state and resulted in less revenue for schools, public safety, and other vital public services.  The Due Process Rights Act guarantees a reliable contact for struggling homeowners to discuss their loans with and imposes civil penalties on robosigning.   The legislation also includes enforcement for borrowers whose rights are violated.  The committee responsible for the bill, the Joint Conference Committee, has passed historic legislation that codifies the protections eligible homeowners deserve while helping to stabilize the foreclosure crisis that has thwarted California’s economic recovery.  The Homeowner Bill of Rights was introduced in February and has been the subject of much debate from various state groups ever since.

Meanwhile in a galaxy not far away…

Economists continued to predict home prices will decline only slightly in 2012, falling 0.4 percent for the entire year, and will increase thereafter, according to the June 2012 Zillow Home Price Expectations Survey, compiled from 114 responses by a diverse group of economists, real estate experts, and investment and market strategists. 
For the first time, the individual economists surveyed were largely in agreement on the trajectory of home prices nationally, signaling that a true bottom may be imminent.

However, a majority (56 percent) of respondents also believe that, in five years, the U.S. homeownership rate will be below 65.4 percent, the rate recorded in the first quarter of 2012. One in five believe the homeownership rate will be at or below 63 percent, testing or breaking the 62.9 percent rate established in 1965, the lowest on record.
While the stronger signals of an imminent market bottom and turn are encouraging, the expected pace of housing recovery over the coming three years is significantly weaker now than it was two years ago.

Home Price Bottom In 2013?

Posted in Real Estate by Jake on June 19, 2012 No Comments yet

Fannie Mae’s Take

A new report from Fannie Mae’s economic research team projects home prices will reach bottom in 2013 while the nation’s overall macroeconomic situation hinges on a set of risky outliers. While consumers started 2012 with a dose of cautious optimism, market conditions have worsened.  The research report outlining these conclusions was released by Fannie’s Economic & Strategic Research Group on Tuesday.

Doug Duncan, chief economist for Fannie Mae, released a report saying growth for all of 2012 is expected to come in at roughly 2.2%. And before Americans finish off the year, they will continue dealing with a reduction in hiring, potential issues stemming from the fiscal crisis in Europe and a potential drag on the U.S. economy during the remainder of the year. “Our view is that the underlying resilience of the economy and of consumers in particular that has been demonstrated during the past couple of years will persist,” Duncan said. “However, the magnitude of the uncertainties surrounding the European debt crisis and our fiscal condition here in the U.S. implies that the risks to the outlook are clearly tilted to the downside.”

Housing Starts Plunge, but Permits Surge in Mixed Market

Housing starts fell in May from a 3-1/2 year high although permits to build new homes rose sharply, suggesting a nascent housing recovery remains on track. The Commerce Department said on Tuesday that groundbreaking on new homes dropped 4.8 percent to a seasonally adjusted annual rate of 708,000 units.  The reading, which is prone to significant revisions, was below the median forecast in a Reuters poll of a 720,000-unit rate. Revisions to data from prior months were more upbeat. April’s starts were revised up to a 744,000-unit pace from a previously reported 717,000 unit rate. That was the highest reading since October 2008. New permits for building homes jumped 7.9 percent to a 780,000-unit pace. That was the highest since September 2008 and well above analysts’ forecasts. Recent data has suggested the U.S. economy is losing steam, which has raised expectations the Federal Reserve could ease monetary policy as soon as Wednesday, when it concludes a two-day policy review. Hiring has slowed every month since February, while manufacturing output contracted last month. Europe’s debt crisis and planned belt-tightening by the U.S. government loom heavily over the economy. A downturn would imperil President Barack Obama’s hopes of reelection in November.

Builders Getting Bullish

The U.S. housing market has shown some signs of life after collapsing six years ago although it remains hobbled by a glut of unsold homes. Sentiment among home builders touched a five-year high in June, a survey showed on Monday. Builders appear to be getting more bullish on residential real estate: in May, they applied for permits to build new homes at the highest rate since September 2008, according to a government report issued Tuesday. The increase in permits to an annual rate of 780,000 in the Census Bureau report mirrors a recent survey of builder confidence, which rose to its highest level since 2007, according to the National Association of Home Builders. Actual housing starts, however, dropped 4.8% compared with April, although they did gain 28.5% compared with a year earlier. The housing market has been sending out mixed messages, with home prices still very weak and foreclosures showing signs of picking up after months of decline.

San Francisco Bay Area Sales Up!

Posted in Foreclosures, Real Estate, Short Sales by Jake on April 25, 2012 No Comments yet

March home sales in California’s Bay Area reached their highest level for the month in five years, the result of lower prices, low interest rates and an improving economy.  About 7,700 new and resale houses and condos sold in the nine-county Bay Area in March, up 34.9% from 5,702 in February, and up 9.1% from 7,051 a year earlier, according to San Diego-based DataQuick.  The February to March sales jump is normal for the season, but the latter’s sales count was the highest for the month since 8,317 homes were sold in 2007. Since 1988, March sales have ranged from 4,898 in 2008 to 12,645 in 2004, with an average of 8,812.

Median Price Is Up

“This is the time of year when buying patterns usually start to normalize,” said DataQuick President John Walsh. “And while the changes we’re seeing are incremental, they’re incremental in a positive direction. That said, there’s a long way to go.”  The median price paid for all new and resale houses and condos sold in the Bay Area in March totaled $358,000, a 10.2% increase from $325,000 in February, but down 0.6% from $360,000 in March 2011. 

 What’s The Take Away?

To put these figures in perspective, the low point of the current real estate cycle fell to $290,000 in March 2009, while the peak rose to $665,000 in June/July 2007.  Statewide median home prices posted their first year-over-year increase in 16 months. The California Association of Realtors members said tight inventory (4.1 months) throughout the state and particularly robust sales in the San Francisco Bay area helped fuel the price increase.

“Two of the big issues to watch closely are how fast distressed properties are being put on the market, and the availability of, or lack of availability of, mortgage financing,” DataQuick’s Walsh said.  Distressed property sales, according to the firm, made up 44.3% of the resale market, down from 48.8% in February and 48.2% a year earlier.  Foreclosure resales accounted for 24.9% of resales in March, falling from 26.4% in February, and down from 31.5% in the year-ago period. Foreclosure resales averaged about 10% over the past 17 years.  Short sales made up 19.4% of Bay Area resales in the month, down from 22.4% in the previous month and up from 16.7% a year earlier.

Short Sale Are Up…But Prices Are Down?

Posted in Short Sales by Jake on April 25, 2012 No Comments yet

“Buyer traffic is strong, supply of homes for sale is low, and yet home prices continue to defy the usual formula, falling again in March. Prices usually rise as supply shrinks, but demand is still too low to make those historical ‘norms’ compute, not to mention that the type of supply available is largely distressed.  Foreclosures and short sales accounted for 47.7% of sales, in a three month running average measured by Campbell/Inside Mortgage Finance. That’s the 25th month in a row that distressed sales have topped 40% of the market.  ‘With nearly half of the market being distressed, we’re a long way from a return to a normal market,’ said Thomas Popik, research director at Campbell Surveys. ‘Agents responding to our survey say that homeowners with well-maintained properties in good locations are very reluctant to list at today’s prices. That’s why inventory is low–and also why forced REO and short sales are such a big proportion of the remaining market.’  Home prices for non-distressed properties fell 5.7% in March year-over-year, according to the survey. Prices for ‘damaged’ REO (bank-owned properties) fell 5.7% and for move-in ready REO fell 2.5% during the same period. The real sticker shock is in short sales. Prices of those homes fell 14.3% from March of 2011.

 Robo Signing Impetus

Short sales have been ramping up of late, as banks attempt to comply with the so-called ‘robo-signing’ mortgage settlement. Those are part of the losses the banks are required to take in the $25 billion deal. Over the past six months, short sales have moved from 17.8% of all sales to 19.9%, according to the Campbell/IMF survey. They now represent the number one segment for distressed properties.

That share is likely to grow, as the conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), last week announced it was directing the two mortgage giants to ‘develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure.’ It includes a requirement that mortgage servicers review and respond to short sale requests within thirty days.  Lengthy timelines have long been the biggest complaint in the short sale sector.

Quicker  Short Sale Decisions

Fannie Mae and Freddie Mac hold hundreds of thousands of distressed loans, and accelerating the process will surely move the numbers up quickly, although the rules don’t go into effect until June 1. The FHFA is requiring the two make final decisions on these sales within 60 days. Previously, short sales could take up to a year and even beyond, with buyers often dropping out in frustration.  ‘This could put short-term downward pressure on home prices, as short sales by their nature occur more quickly than foreclosures,’

writes Jaret Seiberg, analyst at Guggenheim Partners. ‘That could raise questions about the status of the housing recovery, which could be negative for those with housing exposure. That would include homebuilders, mortgage lenders and mortgage insurers.’  On the plus side, short sales tend to sell at higher prices than foreclosures. It appears, however, that regardless of the FHFA edict, banks are already ramping up the short sales. Some began doing so in the aftermath of the robo-signing scandal, as foreclosures stalled. Even now, foreclosures falling as short sales rise.

The good news is that sales of distressed properties are rising, but the headlines will likely focus more on the falling prices, than the much-needed clearing of these homes.”

courtesy: Diana Olick

Fannie & Freddie Bulk Sales Begin Soon!

Posted in Foreclosures, Real Estate by Jake on February 10, 2012 No Comments yet

The government is starting to shed foreclosed, single-family homes it owns — by selling them in bulk to investors, who would turn them into rental properties.  Officials, however, are saying  that only “test” sales will occur “in the near-term” with a focus on the areas hardest hit by foreclosures. They declined to comment beyond a news release they issued.  The test comes after the government in summer 2011 asked for proposals on what to do with more than 90,000 foreclosed properties it then held. The government typically sells foreclosed properties one at a time, but officials specifically asked for ways to move homes in bulk because of the size of the backlog.  About 4,000 groups or individuals submitted ideas on how the government could unload the properties. After The Enquirer filed a Freedom of Information Act request, the government released a list of 423 companies, groups and individuals that submitted responsive proposals, but no details on their proposals.

Another Government Agency To Supervise The Test Sale

The test sale of the foreclosures and conversion of them into rental housing is being supervised by the Federal Housing Finance Agency (FHFA). The agency has acted since 2008 as the federal conservator for Fannie and Freddie, which are public companies although they were created by Congress.  In a news release Wednesday, the finance agency said “Fannie Mae will offer for sale pools of various types of assets including rental properties, vacant properties and non-performing loans” under the test. It also asked investors to pre-qualify to participate in the test.  The investors will be required “to rent the purchased properties for a specified number of years.” FHFA officials hope the rental period will “provide relief for local housing markets that continue to be depressed by the volume of foreclosed properties, and provide additional rental options to certain markets.” 

Limit The Loss To Taxpayers?

 To qualify, investors will have to show the financial wherewithal to buy the assets, sufficient experience and knowledge to bear the risks and manage of the investment and agree to “keep certain information about the REO (real estate) and related matters confidential.”  Nationwide, the 83,000 homes currently up for sale and potential conversion into rental units are among more than 200,000 foreclosures of all kinds that the government holds, apparently making it the nation’s largest owner of foreclosed properties. The 200,000 is almost a third of foreclosed properties across the nation.  Moving the backlog would get them off the books of the Federal Housing Administration. It also would clear the books of Fannie Mae and Freddie Mac, which buy mortgages, bundle them and then sell mortgage-backed securities to investors.  The FHA, Fannie and Freddie became owners of the properties as hundreds of thousands of owners defaulted on their mortgages during the real estate meltdown.  Clearing the backlog would limit the loss to taxpayers, who already have bailed out Fannie and Freddie at a cost of $169 billion and counting. The losses are expected to total $220 billion to $311 billion by the end of 2014, according to latest projections in December by the Federal Housing Finance Agency.

States With Highest Foreclosure Rates Are Still Holding Out…

Posted in Real Estate by Jake on February 8, 2012 No Comments yet

California, New York, Nevada, and Massachusetts are among the states that haven’t signed off on a settlement with banks over foreclosure abuses, according to state officials and two people familiar with the talks.  The holdouts include some with the highest rates of foreclosures. More than 6% of Nevada housing units had at least one foreclosure filing in 2011, the nation’s highest rate, according to RealtyTrac. California was third-highest with more than 3%, said the firm, which tracks foreclosures.  California Attorney General Kamala Harris and New York Attorney General Eric Schneiderman, who have been among the most outspoken in pushing for changes to the accord, were among those who hadn’t joined as of a Feb. 6 deadline.

More than 40 states originally signed on, said Iowa Attorney General Tom Miller, who is helping to lead talks with the banks.

“Adding more numbers probably improves the political dimension of the settlement from the standpoint of the attorneys general,” said Ken Scott, a Stanford University law professor.

“If you can say there were only a handful of diehards that didn’t sign on, that gives you some political protection.”  All

50 states announced almost 16 months ago they were investigating bank foreclosure practices following disclosures that faulty documents were being used to seize homes. Officials from states and federal agencies, including the Justice Department, have since negotiated terms of a proposed settlement with five banks that is said to be worth as much as $25 billion.  At the time of this posting, Arizona, Michigan and Florida have also joined the other 40 states in the deal, for a total of 43.

Pay People To Pay Mortgages?

Posted in Real Estate by Jake on July 14, 2011 No Comments yet

“At what point is moral hazard trumped by corporate survival and the cold hard need to get people to pay their mortgages? The answer is: Now.  As home values continue to fall and more borrowers fall into a negative equity position on their home loans, those who stand to lose, banks and investors, are working to keep borrowers current.  To date, they have focused on delinquent borrowers, offering loan modifications and foreclosure alternatives, like short sales and deeds in lieu of foreclosure.

Last fall, New Jersey-based Loan Value Group launched a new business model, offering lenders and mortgage investors a way to keep their current, but underwater, borrowers current through cash incentives.  It’s called Responsible Homeowner Reward, and today, one of the nation’s largest mortgage insurers, PMI Mortgage Insurance, joined in.  Here’s how it works. Borrowers pay nothing. They sign up with the program, promising to keep current on their mortgages for a certain period, generally 36 to 60 months (LVG has worked out the contract with the participating lender/investor).  After that period, the borrower will be paid anywhere from 10 to 30% of the loan principal, depending on the contract, in cash. The lenders/investors pay LVG, which receives a servicing fee, and LVG pays the borrowers. Again, the borrowers pay nothing for this bonus.

Even PMI is getting into the act

The PMI deal works the same, with PMI paying a scaled reward for select borrowers over a five-year period. If the borrowers stay current, they earn the payoff over the five years and receive the cash at the end. PMI created its own subsidiary, Homeowner Reward, but that subsidiary will work with LVG, and PMI will pay LVG an administration fee. To date, 38 states have borrowers enrolled in the LVG program, totaling approximately 10,000, according to LVG. The largest number of borrowers are from the hardest hit states, California, Florida, Arizona, Nevada and Michigan.  So far, RH Rewards has offered, but not paid out, $107,393,922, according to the company’s website.  ‘All of those states have achieved greater than 50% reduction in default rates than respective control group,’ said an LVG spokesperson.

Okay, so now that we get it, we have to ask what exactly are we getting here? From a purely business perspective, it makes sense.
By targeting borrowers with the most negative equity and therefore at the greatest risk of strategic default, lenders and investors are cutting their losses by keeping the borrowers current. They stand to lose more in a foreclosure.  But does it sound slightly ironic to anyone else that a mortgage insurance company, whose business is to insure loans by charging borrowers premium fees, is now paying those very same borrowers back to stay current on the loans they’re insuring?  ‘For borrowers in our pilot program, Responsible Homeowner Reward (SM) provides an incentive to stay current on their mortgage by helping them earn an offset to the decline in home values. Such programs, if successful, could reduce the incidence of foreclosure, which could help stabilize house prices and stabilize communities,’ said Chris Hovey, PMI’s SVP of Servicing Operations and Loss Management.

Strategic default is the only card left

Like I said, it’s business, a numbers game where companies have now figured out how much they need to pay to avert a larger loss.
Apparently we have hit that tipping point where strategic default is now so pervasive and so acceptable that companies are forced to pay borrowers to stop.  So what exactly is the difference between that and principal write-down, which the big lenders seem to abhor as a bigger moral hazard even for borrowers facing foreclosure?  In an interview with HousingWire back in April of this year, the managing partner of LVG, Frank Palotta, said, ‘There is little focus on loss-mitigation efforts for current loans, as these homeowners typically pay. As a result, the vast majority of these homeowners are left with no other option than to become ‘the squeaky wheel’ by becoming delinquent in order to receive a call from their servicer.’

courtesy:  Diana Olick

Foreclosures Fall?..

Posted in Real Estate by Jake on June 20, 2011 No Comments yet

According to RealtyTrac, the online marketplace of foreclosed properties, foreclosure filings fell 33% In May from a year earlier and 2% month-over-month. The number of homes 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 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.  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.

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.”

Surge In Short Sales…No Thanks To The Government

Posted in Short Sales by Jake on June 20, 2011 No Comments yet

This from Diana Olick:

“Any time I see a 74% jump in anything, I hear alarm bells, so when the Treasury Department reported just that big a jump in its Home Affordable Foreclosure Alternatives (HAFA) program, I figured there had to be something really big behind it.  And I was wrong.  There’s nothing big behind it, in fact there’s something very small behind it: Small numbers.

HAFA provides financial incentives for servicers and borrowers to do short sales (selling the property for less than the value of the mortgage) and deeds in lieu of foreclosure (basically just giving the property back to the bank). The program launched in April of 2010 and was later streamlined in December, 2010, based on feedback from mortgage servicers, real estate agents and homeowners.  So far, HAFA has completed 7,113 short sales or DIL’s. In April, however, HAFA saw 1,666 completed, up 74% from the 959 done in March.  Why the jump?’  It’s too early to draw broad conclusions,’ says Treasury spokesman Andrea Risotto, noting that Treasury just began reporting the numbers two months ago. She also points to a long reporting lag because the short sale process still takes so long. But none of this is the story.
The 74% jump exists because the numbers are just so small, and that’s the story. HAFA is doing a relatively miniscule number of short sales, when you compare the program to what the big banks are doing on their own.

JP Morgan Chase has done over 110,000 short sales since 2009, now processing about 5000 a month, according to recent reports to Congress, and they are the number three servicer behind Bank of America and Wells Fargo. If you extrapolate that out, the top three banks are probably doing more than 20,000 a month, and they’re ramping up the sales as we speak.  ‘Short sales shot up in the Spring as banks wrestled with foreclosure problems and delays,’ says Guy Cecala of Inside Mortgage Finance. In fact, the Campbell/Inside Mortgage Finance Housing Pulse Tracking Survey reported short sales hit a record high of 19.6% of all home purchase transactions in March. ‘Banks have discovered that short sales are often the fastest and most cost effective way to resolve a severely delinquent mortgage, and they have greatly improved their processing systems (any turnaround times) for handling these transactions.’

Compared to a foreclosure, other sources say, short sales result in smaller losses. There is more financial certainty than from an REO (bank owned) sale many months down the road when the property has likely deteriorated. The banks are currently looking at so many potential REO’s from so many delinquent loans in the pipeline, they’d be ridiculous not to try to short sell as many as they possibly could.  Some servicers are aggressively seeking out borrowers for short sales.  ‘Chase reaches out to borrowers who have already listed their homes or were recently denied a modification to initiate the short sale evaluation process. The goal is to have as much paperwork completed as possible prior to receiving the offer, thereby reducing the time from offer receipt to approval,’ a Chase spokesman explains.

But why, if HAFA actually pays borrowers and servicers to do short sales and DIL’s, would banks be doing so many outside of the program?  ‘HAFA is a taxpayer funded program, so it has eligibility requirements targeted at a certain segment of the population,’ says Risotto, noting that the program is for owner occupants who can demonstrate financial hardship and whose first mortgage is less than $729,750. ‘HAFA is not meant to be for every person looking to do a short sale,’ she adds.  That knocks out investors, jumbo loans and borrowers who don’t meet the ‘hardship’ requirements of the Treasury. The big banks are likely more lenient on that last one, again knowing that a short sales will be cheaper in the end than a foreclosure.”

Is Housing As Bad As It Seems?

Posted in Real Estate by Jake on June 20, 2011 No Comments yet

As the housing market started to weaken earlier this year, analysts feared that the seasonal bump would not materialize at all – a sure sign of deepening problems that could tip the economy back into recession.  From January through to March, home prices fell so far that they are now back to levels not seen since the middle of 2002, according to the widely watched S&P/Case-Shiller Index.  Slowing job growth and declining consumer confidence added to the perception that the market was worsening.

What do the Realtors Say?

And yet interviews with realtors in half a dozen cities around the country paint a different picture. They say that the volume of sales and prices started to strengthen in April and have continued to gain momentum through the first weeks of June.  The housing market in many US cities is performing better than recently released national data would suggest.  List prices rose in 24 of 26 cities tracked by Altos Research in May, with San Francisco, Washington and San Jose, California, showing the biggest gains.  New York and Las Vegas were the only two cities in the index where prices declined.  A separate index compiled by CoreLogic that tracks prices in 6,507 postal codes rose slightly in April compared with March – the first such increase since a homebuyer tax credit that helped prop up the market expired in April 2010.  It may well be the beginning of a reversal,” said Mark Flemming, CoreLogic’s chief economist.

No one is suggesting there is a boom under way, only that the market may not be as bad as some recent analysis has suggested.
Most predictions call for at least a 5% price decline this year and no bottom until 2012. Despite the hand-wringing, there are encouraging signs.  California, hard hit by the housing crisis, has seen a notable pick-up. “People are still unsure, because there are a lot of mixed signals,” said Jim Hamilton, the former head of the California Realtors Association. “But, overall, more buyers are coming into the market.”

Luxury housing leading the recovery

The housing market is showing “signs of improvement” with help from luxury home sales, Toll Brothers Chief Executive Douglas Yearley said yesterday.  “There are some signs luxury is leading us out of this a little bit,” he said. “We’re clearly off the bottom.”  But while Toll is a builder of those luxury homes, the CEO expects sales the rest of the year to be relatively flat.
That’s despite 60% of Toll sales coming from the northeast corridor of Boston to Washington, D.C., which was not hit with the same housing problems as Las Vegas and Florida, among others.
“I think in pockets we’ll see some success,” Yearley said.
“The good news is pricing has definitely stabilized. We’re not seeing price reductions. In some isolated cases, we have some pricing power, we’re able to raise prices.”  He added that after five or six years of waiting, buyers want “to move on with their lives and I think they’re done trying to time the perfect point to get in the market. They’re taking advantage of great interest rates. Affordability’s at an all-time high…It’s helping us but we have a long ways to go.”

West Is Now In Double Dip..Prices Sliding

Posted in Real Estate by Jake on April 10, 2011 No Comments yet

According to DSNews.com,  new data released by Clear Capital shows that home prices in the western part of the country are sliding again, down 4.3% over the first three months of this year.  Granted housing is inherently local, but the company says, taken on the whole, the West region has now officially entered double-dip territory, with home values hitting lows not seen since 2001.  Across the rest of the United States, though, the valuation firm argues that negative forecasts have been “overstated,” as prices in the South and Midwest have remained flat since the beginning of the year and prices in the Northeast have slipped just 0.5%.

According to Clear Capital, data through March 2011 in the Midwest, South, and Northeast regions is “encouraging” as home prices have managed to find a bottom in the midst of ongoing foreclosure pressures and the traditionally slow winter season.  “The latest data through March supports our view that many markets are continuing to see relief from the significant price declines we observed through January,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital.  “Looking deeper at the disparity between the West and the other regions, we find that the rate of change in REO (bank foreclosures) saturation continues to serve as a leading indicator of home prices.

For example, out of all the regions, only the West showed acceleration in its REO saturation from the previous quarter,” Villacorta explained.  Clear Capital says the region’s underperformance in home prices reflects the extent distressed activity plays in western markets.  Recently, distressed activity as a proportion of total sales has climbed nearly 10% since the second quarter of 2010, and now stands at 40.8% of sales, according to the company’s study.  The poor showing in the West pulled home prices at the national level down 1.3% during the first quarter of this year, Clear Capital reports.  But looking ahead, the company says should the traditional spring and summer buying seasons prove substantial, national home prices could reach positive quarterly gains before the end of 2011. However, Clear Capital was quick to add that distressed activity remains high and will likely void any gains in the West.

Short Sales And The Effects On Home Prices

Posted in Real Estate, Short Sales by Jake on April 9, 2011 No Comments yet

This from Diana Olick:

“Home prices fell 6.7% in February year over year, according to a new report from CoreLogic. That numbers includes distressed sales, that is, sales of foreclosed properties or short sales, where the bank agrees to let the homeowner sell for less than the value of the mortgage. If you take those sales out, however, home prices were basically flat.  ‘When you remove distressed properties from the equation, we’re seeing a significantly reduced pace of depreciation and greater stability in many markets,’ notes CoreLogic’s chief economist Mark Flemming. ‘Price declines are increasingly isolated to the distressed segment of the market, mostly in the form of REO sales, as the stock of foreclosures is slowly cleared.’  Distressed sales, though, still make up more than a third of all home sales, according to the National Association of  Realtors, and that number is likely to rise at least in the near future. The banks have slowed the process of foreclosure, and that has reduced the num  ber of bank owned properties hitting the market lately, but it’s a whole different story with short sales.

‘Absolutely we can see on the ground, it’s just happening,’ says Robert Cruz, a real estate broker just south of San Francisco who deals primarily in short sales. ‘The banks are asking us to go out and engage the borrower, find the borrowers who have defaulted or re-defaulted and list the properties before they have to foreclose.’  Short sales used to be a long, tedious process with a very low success rate. ‘Short sales used to be a waste of time,’ Cruz remembers. ‘Now it’s totally changed.’  Much of that is due to banks streamlining the process and a new government incentive program, but much of it is coming from the banks themselves.

Cruz says in the first quarter of this year his firm’s short sale closings were up at least 60%, thanks to the banks and servicers being far more aggressive in pursuing them; not only are they pursuing them, but they are paying for them. While the government’s Home Affordable Foreclosure Alternative Program offers borrowers $3000 in ‘relocation assistance’ after successful short sales, Cruz says some of the banks are paying borrowers up to $25,000. He says the banks know the sellers are more savvy today and know they can live rent free for at least a year before a bank takes possession of the home in foreclosure. $3000 isn’t much incentive to move quickly; $25,000 is.  ‘It’s a sea change,’ adds Cruz.  So why am I telling you all this? Because if short sales continue to increase at this rate, even just this year, that’s going to push the home price numbers down even further. Sure, if you take out the short sales, the numbers will look better, but those big headline numbers generally include short sales, and that will further erode confidence. More short sales will also force organic sellers and home builders to try to compete with lower prices. Short sales may be better for the banks and better for borrowers’ credit scores, but they will take their toll on the greater market.”

DOJ Meeting Over Modifications And Foreclosure Practices Gets Off Slowly

Posted in Real Estate, Short Sales by Jake on April 1, 2011 No Comments yet

This from CNBC’s Diana Olick:

“At the end of a day-long negotiation session over the foreclosure paperwork mess at the Department of Justice, Iowa Attorney General Tom Miller and Associate Attorney General Thomas Perrelli came out for a brief chat with reporters.  They essentially said nothing.  Miller: ‘We had a good first meeting with the banking and servicer industry- emphasis on good and first. It was a first meeting, it was a breaking of the ice, and that takes some time and is part of the process. The discussion was good—I think it was on a good level, given the exchange of ideas and rationale and principles. I think we have a long way to go—again emphasis on first meeting.’  Perrelli: ‘Tom Miller is a fantastic partner, we’re lucky to be working together. I’ll echo what Tom said, I think it was a very productive first meeting, with serious discussion of a wide range of challenges and problems in the mortgage servicing industry.’

The banks weren’t talking, at least the representatives in the meeting weren’t talking, nor were their spokespeople. But big bank executives have been commenting on the biggest sticking point in a potential settlement over foreclosure practices: Principal reduction.  Some of the State AGs, including the lead on the investigation, Miller, as well as federal regulators and administration officials appear to be looking toward principal forgiveness as the punishment the banks should pay. But as recently as last night, JP Morgan Chase’s Jamie Dimon told reporters, ‘Yeah, that’s off the table.’  This morning the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) put out their quarterly ‘Mortgage Metrics Report’ for Q4.

It showed just 2.7 percent of modifications made in the quarter by national banks and federal thrifts (that includes Fannie and Freddie) included any principal reduction. The banks did the vast majority of the reduction with Fannie and Freddie doing none. But principal reduction fell dramatically, over 60 percent from year ago as a modification tool, meaning banks are less and less inclined to do it.  I’m not exactly sure what will come out of these endless ‘negotiations’ over the so-called ‘robo-signing’ scandal, other than the banks trying to push foreclosures through and out of the system before any penalties come down the pike. The longer the negotiations drag on, the better for the banks and the worse for consumers. Federal regulators may come out with something sooner, given that they are less worried about the political ramifications of what they do than the state attorneys general.”

Shadow Inventory Will Force Foreclosures

Posted in Real Estate by Jake on February 3, 2011 No Comments yet

Two reports from separate credit rating agencies are drawing the same conclusion: Foreclosures will reach new heights this year, even after setting records in 2010.  “DBRS expects foreclosure filings and completed foreclosures to reach record levels in 2011 as alternatives such as modifications for seriously delinquent borrowers are exhausted,” said Kathleen Tillwitz, an operational risk strategist at the rating agency. “Consequently, losses to residential mortgage-backed securities will likely increase as REO inventories are sold at deep discounts causing writedowns in transactions — particularly the subordinate tranches.”

450 Billion

Standard & Poor’s ratings currently estimates that the principal balance of distressed homes amounts to about $450 billion, representing nearly one-third of the nonagency RMBS market currently outstanding, according to the firm’s fourth quarter 2010 report on foreclosure timelines, also released this week.  S&P expects that it will take 49 months to clear the supply of distressed homes on the market in the U.S. — an 11% increase over the previous quarter and a considerable 40% increase from 4Q 2009.  S&P reports that the volume of distressed residential mortgage properties that are not associated with Fannie Mae or Freddie Mac continues to fall, but at an ever-slowing pace.  And in some markets, clearing the shadow inventory will take a very long time.  “The shadow inventory in the New York MSA will take the longest to clear — 130 months as of fourth-quarter 2010. That is at least twice as long as it will take in any of the other top 20 MSAs and 2.7 times the average time to clear for the U.S. as a whole,” the S&P report states. “This is primarily due to very low liquidation rates in New York.”

Only 30% Of Foreclosures Are On The Market

Posted in Real Estate by Jake on January 31, 2011 No Comments yet

RealtyTrac Senior Vice President Rick Sharga said major banks currently hold roughly 1 million REO, or homes repossessed through foreclosure, but only 30% have actually made it onto the market. According to its year-end report, foreclosure filings reached a new high in 2010 and should climb even higher this year, possibly surpassing 4 million filings. And that’s not counting the more than 5 million delinquent loans that have yet to enter the initial stages of the foreclosure process, Sharga said.

The major kink in the housing market’s recovery, and for the macro economy overall, is the work left to be done on homes currently in the foreclosure process, those about to enter it and the amount of repossessed homes the banks must shed. Striking a proper balance on how to mange this shadow inventory of foreclosures is vital for the banks to show a healthy balance sheet while not dumping too many distressed properties onto the market, further dragging down home prices and values.

A recent study from Morgan Stanley showed the shadow inventory, those properties facing imminent default, evolving from mostly subprime and Alt-A loans to containing more prime loans as elevated unemployment levels have pushed more homeowners behind on their mortgage. Analysts said that some 8 million repossessions would need to be liquidated over the next five years before the market stabilizes. Adding to the problem are recent issues the banks are having processing the paperwork. In October, the banks had to hold up foreclosures to refile affidavits signed improperly in many states, pushing more than 250,000 foreclosure cases into 2011.

Reports recently showed that the problem may have spread to the notices of default as well. And in the 23 states where lenders must foreclose on a homeowner through the court system, backlogs of cases have formed month-long delays. Sharga said a court clerk in Florida, one of the states with the longest traffic jams, told him between 500,000 and 600,000 cases are yet to be heard. Sharga said he’s encouraged by the uptick in demand for REO. “We’ve seen more traffic on our site, and even more buyers raising their hand asking for help from a Realtor,” he said. “This means they’re getting serious about buying again.” He also said that the most traffic comes from Southwestern states and Florida.

Short Sales And REO’s Causing Double Dip In Housing?

Posted in Short Sales by Jake on January 3, 2011 No Comments yet
Home prices took a shockingly steep plunge on a monthly basis, an indication that the housing market could be on the verge of — if it’s not already in — a double-dip slumpPrices in 20 key cities fell 1.3% in October from a month earlier, an annualized decline of 15%.

According to the S&P/Case-Shiller index released last Tuesday. Prices were down 0.8% from 12 months earlier.

Month-over-month prices dropped in all 20 metro areas covered by the index. Six markets reached their lowest levels since the housing bust first began in 2006 and 2007. They were Atlanta, Charlotte, N.C., Miami, Portland, Ore., Seattle and Tampa, FL.

“The double-dip is almost here,” said David Blitzer, chairman of the Index Committee at Standard & Poor’s. “There is no good news in October’s report. Home prices across the country continue to fall.”

The report was far more dire than anticipated by industry experts, who had forecast an almost flat market in October. It followed weak September numbers. “It was a bit of a surprise,” said real estate analyst Pat Newport of IHS Global Research. “I wasn’t expecting it to lag so badly in all 20 cities.”

He, along with many other experts, has been forecasting further price erosion over the next few months of 5% to 7%, but didn’t expect the price drop to hit so fast and so hard. It’s mostly attributable to the end of the tax credit for homebuyers, the effects of which started to vanish beginning in June.

“The trends we have seen over the past few months have not changed,” said Blitzer. “The tax incentives are over and the national economy remained lackluster in October, the month covered by these data.”

Sales volume continues to lag, off 25% even from last October, when markets could hardly be described as robust.

Why the housing bulls are wrongThe inventory of homes on the market is up about 50% compared with last year at this time, and there are millions of potential homes for sale waiting on the sideline for markets to improve.

Much of that “shadow inventory” is held as repossessed properties by banks, who will eventually have to release them back on the market.

Most (and least) affordable citiesPrices in Atlanta, down 2.9%, and Detroit, off 2.5%, took a particular beating in October. Las Vegas and Washington came out of the month only slightly bruised, down just 0.2%. The report ran counter to what have been generally positive signs of economic recovery.

According to Richard DeKaser, an independent housing market analyst and founder of Woodley Park Research. “The market is not showing much improvement after the summer slump,” he said. “Housing is acting as a drag on recovery.”

The coming of the second of the double dip is icing on the cake for homebuyers, who already have benefited from prices not seen in years in most markets.

“Prices have already adjusted, and are probably undervalued in most cities,” said Newport. “This will make them even more undervalued.”

Real Estate Trends To Watch In 2011

Posted in Real Estate by Jake on December 24, 2010 No Comments yet

Two thousand and ten was full of mixed economic news, glacial growth, and most of all, financial uncertainty. So where are we headed from here? What are the trends that need to be watched? What lessons can we take away from 2010, to improve profitability in 2011?

Unemployment

The unemployment rate, and particularly private-sector jobs, can’t be overstated as the most critical predictor of recovery, both generally and for the real estate sector. Unemployment is what’s fueling the foreclosure spike (and subsequent value drain), it’s what’s causing people to default on their lease agreements (and subsequent vacancy problems), and is generally what’s preventing people from participating in the overall economy. Once job growth is back on track, the foreclosure boom will turn around, and the rental industry will stabilize.

Supply: Shadow Inventory

On the supply side, prices are further driven down by foreclosures, in the form of a massive shadow inventory (properties scheduled for foreclosure or taken back by the lender, but not yet listed for sale, and therefore not included in the normal real estate inventory statistics). Currently, there are 2.1 million residential properties in shadow inventory, or an eight month supply, which has to be tacked onto the normal supply of housing available for sale (which is 4.2 million homes, or a fifteen month supply). Real estate markets nationwide (including lease markets) aren’t going to see substantial value growth until this shadow inventory dissipates, and that will take several years, especially given the current long wait times for foreclosures caused by lender documentation issues. As a final note, it’s worth mentioning that Fitch Ratings currently places the number of vacant residential dwellings in the United States at 14.4 million, and that does not include the shadow inventory described above.

Demand: From Deeds to Leases

Without the artificial boost in real estate demand caused by the tax credit (R.I.P. June, 2010), demand has dropped off, causing real estate sales and prices to languish. But even taking a long-term view, homeownership rates are dropping, for reasons ranging from the high unemployment and foreclosure rates, to household consolidations, to the tightened credit market. The all-time peak for homeownership in America was reached in 2004, at a rate of 69.2%. This number is now down to 66.9% and still dropping, which means tens of millions of Americans who were in owner-occupied dwellings are now signing a lease agreement instead. In a study by Trulia a few months ago, over 27% of Americans report that they have no interest in buying a home in their lifetime, and fewer Americans believe that homeownership has any relation to the American dream (72%, down from 77% only six months earlier). This is actually good news for landlords and real estate investors in a position to buy, as it will create a more stable tenant population, and a survey by Fannie Mae in late 2010 showed that the average predicted change in lease pricing over the next year is a 2.8% increase.

Conclusions

A year ago, there was simultaneously more hope for a healthy recovery, and more fear that we might slip into a double dip recession. It’s now far more likely that neither will occur, and that we’re in for a long, painstakingly slow recovery, which will lurch and splutter along over the next three to five years. Home prices are still dropping in most cities, and while the decline is leveling off, we are still down by over 25% from 2006 prices (comparable to the home value loss in the Great Depression, which was 25.9% from peak to valley). Here are a few take-home points from the trends in 2010, which are expected to continue through 2011:

  • Now is a good time to buy real estate investment properties, but only if you can profitably hold the property as a rental unit for several years to come.
  • Most real estate markets will continue to be soft through 2011. Exceptions will be cities with job growth.
  • Real estate investors should be careful not to over-improve rental properties in lower-income areas, as tightened lending guidelines and diminishing demand for homeownership will prevent investors from being able to “retail” these homes to first-time homebuyers.
  • Beware of rising bed bug infestations and litigation, and be pro-active in establishing a bed bugs policy.
  • Protect your cash cushion: stay liquid, as lease default rates are up and vacancies are prevalent, and selling properties for quick cash may not be an option.

Stay profitable, stay liquid, and stay in business for another year!