The national economic headlines continue to be bearish, but some of the underlying fundamentals for real estate are pointing to better days ahead.
Mortgage rates remain unbelievably low:
Take home mortgage rates: Last week thirty year fixed rates dropped below the seemingly-unbreakable five percent barrier for the first time on record, according to the Mortgage Bankers Association.
New thirty year loans went for an average 4.89 percent, while fifteen year loans were just above 4.6 percent.
Programs coming which will potentially put an end to foreclosures?
In a letter to Congress last week, Lawrence Summers, Obama's nominee to head the National Economic Council, said the incoming administration plans to use portions of the remaining $350 billion in "TARP" -- or "Troubled Asset Relief Program" -- money to rework monthly payments for what Summers called "responsible home owners" now facing economic challenges in the recession.
Though Summers did not go into detail, the program is likely to be based on FDIC chairman Sheila Bair's proposed "mass-modification" concept that the Bush administration rejected last Fall.
Versions of that program might include widespread principal write-downs -- outright reductions in home owners' mortgage balances -- and guarantees to lenders in the event borrowers re-default.
The Obama administration is also likely to institute an immediate ban on all foreclosure actions, possibly for three months, and is certain to enact bankruptcy reform legislation allowing judges to modify mortgage terms to forestall foreclosures.
Harney's final assertion is that an improved tax credit may be the final nail in the coffin to make all of our housing woes go away:
Add in still another factor: Congress may create a new and improved tax credit -- one that's not repayable and covers all home purchases, not simply first-time buyers -- and we just might be looking at a FAR more positive outlook than a lot of people could imagine.
Demand for U.S. mortgage applications was unchanged during the Christmas holiday week, holding the highest levels in more than five years with loan rates near record lows, an industry group said on Wednesday.
Borrowing costs have tumbled more than 1-1/2 percentage points from summer peaks and are widely expected to slide further as the government steps in to stabilize the worst housing market since the Great Depression.
The Mortgage Bankers Association's seasonally adjusted index of mortgage application activity was unchanged last week at 1,245.7, matching the highest level since July 2003 set the previous week.
The skinny:
Fast-falling mortgage rates are driving demand, particularly for refinancing.
Fixed 30-year home loan rates averaged 5.03 percent last week, marginally lower than 5.04 percent a week earlier but well below the 6.59 percent summer peak in July, according to the Mortgage Bankers Association.
Last week's rate was the lowest since June 2003, the trade group said.
These cheap mortgage rates are great but:
The government interventions "can drive down primary mortgage rates and make getting loans much more affordable, make a borrower's monthly payments lower -- if they can qualify," he said on Tuesday.
Let me also add that these cheap mortgage rates mean nothing to someone who wants to refinance, is credit worthy, but their home no longer appraises since values have dropped so dramatically. Unfortunately, thousands of people fall into both categories. Either no longer credit worthy or credit worthy with a house underwater. Regardless of what bucket most people find themselves trapped in, these times benefit the usual suspects, the ones who need the least amount of help.
All in all, the present status of many housing markets look bad, but there are many underlying aspects that are subtly working towards repairing this housing mess. Mortgage rates are down significantly, (like it or not) the government is throwing unbelievable amounts of money at the problem and some of it will stick, sales numbers and inventory levels in the West seem to be showing signs of some stabilization, values have dropped dramatically in many locales (and have been doing so since July / August of 2005 in some CA markets). Despite the healing that is trying to take place, our current economic stresses and foreclosure madness are making it nearly impossible for these markets to improve because of absurd inventory levels, continued affordability issues, and lack of available credit for most.
Merely stating the obvious, housing values need to stop dropping, people need to be able to comfortably pay their mortgages, and inventory needs to melt away. Until then, the pain will remain and home values will continue to drop as the ultimate equalizer to affordability. Unbelievable opportunities will abound for those who see opportunity where everyone else sees risk and remains paralyzed by fear.
American homeowners will collectively lose more than $2 trillion in home value by the end of 2008, according to a report released Monday.
Beginning, middle, and end, this housing story remains deplorably bad:
"This year marked the acceleration of the market correction, and is likely to end with the eighth consecutive quarter of declines in home values," said Stan Humphries, Zillow's vice president of data and analytics. "Homeowners in most areas we cover are struggling with foreclosures pouring into the market, large amounts of negative equity and dropping home values."
Don't put the battering ram away just yet:
The foreclosure picture is not likely to clear up in the coming months, according to Humphries (Stan Humphries, Zillow's vice president of data and analytics). He expects to see more foreclosed, vacant homes added to already bulging inventories, sending prices spiraling down and putting more mortgage borrowers deeper underwater.
For many, it was hard to ever image a time when housing would fall. Now, for many, it's hard to image that the future will bring better days. The doom and gloom continues ... for good reason don't you think?
As reported by CNNMoney.com - "Existing home sales tumble:"
Sales of existing homes fell in October and prices continued to decline as potential buyers remain sidelined by the weak economy, according to a real estate group's report issued Monday.
The National Association of Realtors reported that sales by homeowners slid in October to an annual pace of 4.98 million. That was down 3.1% from September's revised reading of 5.14 million.
Economists surveyed by Briefing.com were expecting sales to have declined to an annual rate of 5.05 million in October.
On a year-over-year basis, sales were down 1.6%.
Housing supply increased slightly:
Total housing inventory at the end of October eased 0.9% to 4.23 million existing homes, according to the report. At the current sales pace, that represents a 10.2 months of supply, which was up from the 10-month supply in September.
The West bucks the trend with strong sales numbers:
Sales declined nationwide on a monthly basis. But sales in the West rose 37.5% over year-ago levels, suggesting that some buyers are taking advantage of distressed sales in overbuilt areas in California and Nevada. - CNNMoney.com
The U.S. housing market remains on an extremely shaky foundation. It does continue to appear that extreme pricing pressures have pushed home prices low enough to entice a fair number of investors and home buyers as indicated by the strong numbers posted in the West.
Over the past few months, there have been and continue to be intermittent bright spots and hints at positively trending indicators but, every step of the way, the depression like economic conditions that we continue to face continue to hold back housing.
Sadly, times remain very grim and look to continue, in the near term, on the same wayward path as housing fights for equilibrium.
If mortgage lending was the Wild West during the boom years, foreclosure-prevention counseling is the lucrative new frontier of the bust.
Nearly 1.6 million borrowers are in jeopardy of losing their homes this year, according to economist Mark Zandi of Moody's Economy.com, and thousands of new foreclosure-rescue companies are rushing in to offer the troubled homeowners loan work-out assistance. For a price.
They're looking for you:
Usually homeowners seeking mortgage modifications call their lenders directly or work with non-profit community groups. But many borrowers are now turning to for-profit companies as their mailboxes are flooded with work-out offers.
Each day private firms go online or visit courthouses across the country to pore over foreclosure filings, which are public records. "By 10 or 11 o'clock, they've mailed out solicitations to anyone with a foreclosure filing that day, promising to save their homes," says Jeff Hart, a prosecutor with the Ohio attorney general's office.
Once a borrower contacts a foreclosure-prevention company, the counselor takes their financial information, analyzes how much the client can afford, and then contacts the lender and negotiates new mortgage terms.
Look out, here comes the fraud:
"Folks need to be really careful," said Chris Kukla, a spokesman for the Center for Responsible Lending. "In many cases, these are no better than scams. You should look at all your low-price or free options before signing on with a for-profit company."
One of the main criticisms of for-profit foreclosure counselors is that they are not regulated, with oversight laws varying state by state. As a result, some marginal characters are drawn to the industry, ones who use high-pressure sales tactics and play on fear.
Many firms demand hefty up-front fees, which they keep even if a loan is not successfully modified. Only a dozen states, including Minnesota, New Jersey, New York, Nevada, Massachusetts and Maryland, prohibit that tactic.
As usual the markets are at work. Unfortunately, there's always an angle to be played when it comes to scam artists. As far as we're concerned, this housing market crisis is an endless playground that will enable these scam artists to take advantage of the most desperate individuals in their greatest time of need.
Guaranteed, people will be taken for a ride. Don't be one of them. It's always a few that make a bad name for the rest. Do your homework. Contact multiple experts. Get in the know.
National home prices, driven lower by a flood of foreclosures, plummeted in the third quarter by a record 9% year-over-year, according to a report issued Tuesday.
The median price of a single-family home fell in four out of five states, the National Association of Realtors reported. The national median price was $200,500, down 2.9% from the second quarter of 2008.
The California housing market:
Three California markets recorded the steepest year-over-year declines in median prices: Riverside-San Bernardino, east of Los Angeles, where the median price plunged 39.4% to $227,200; Sacramento, down 36.8% to $212,000; and San Diego, down 36% to $377,300.
The high volume of sales in California and other bubble-bust states may indicate a healthy trend, according to Lawrence Yun, NAR's chief economist.
"We have seen cases of multiple bidders on properties in California," he said. "That suggests that future price declines may be minimal."
But while California saw significant declines, fully 79% of all metro areas recorded price drops for the quarter, according to Mike Larson, a real estate analyst at Weiss Research.
The Regional housing markets:
Regionally, single family home prices were the most stable in the South, where they fell just 3.7% to $174,200. They dropped 5.5% in the Midwest to $159,900 and 6.5% in the Northeast to $267,700. In the West, the median price fell 21.4% to $266,300.
If you've been following the housing market (if you haven't, have you been hiding in a cave?), these numbers are no surprise. Perhaps a bit on the bright side, report after recent report, it does look like there are a fair number of buyers cherry-picking discounted properties. After all, the prices have tanked. Home prices couldn't continue to go up forever and they can't continue to drop forever.
If you can time the bottom perfectly, we'd love to hear from you!
... new mortgage applications increased last week by 12 percent, according to the Mortgage Bankers Association. Applications from people looking to buy houses with FHA loans were up by 15.3 percent, while applications from purchasers seeking conventional mortgages rose by six and a half percent.
Assertion #2:
... remember that there is a huge pent-up demand simmering away out there for housing -- especially from first-time buyers who want to scoop up low-priced deals.
Assertion #3:
When fixed interest rates drop -- and last week they were down by a quarter of a percentage point -- those buyers start doing the math and getting into the market with offers.
Assertion #4:
Another piece of positive news you may not have noticed: Pending home sales were higher than year-earlier levels for the second straight month -- 1.6 percent higher than September 2007 .
Although pending sales contracts were down slightly for the month, in the western states they were up by 3.7 percent, and now stand at an extraordinary 39.7 percent higher than they were at the same time in 2007.
Assertion #5:
At the National Association of Realtors' convention in Orlando, chief economist Lawrence Yun, warned the delegates not to expect a housing recovery overnight, certainly not with unemployment on the rise. But he projected a slow, steady, multi-year upward trend, with 5.02 million total sales this year, 5.3 million for 2009, and 5.6 million for 2010.
Already sales are up significantly in major markets in many parts of the U.S. Yun specifically mentioned the west coast of Florida, the Phoenix area, Virginia, Long Island New York, Kansas City, Minnesota and Idaho.
Harney's conclusion:
So here's the key point to keep in mind as you try to make sense of the headlines: The stock market is NOT the housing market. It's on a whole different set of tracks. And it's been in a highly volatile state for more than a month.
Housing, on the other hand, has already endured its painful correction for two and a half years … is now pretty much stabilized … and is slowing moving toward its cyclical recovery.
Do you agree with Harney's assessment?
Logic would dictate that we're closing in on the bottom because housing prices have been tanking and are nearing, in many locales, pre-housing boom levels. The Fed's have been endlessly pumping liquidity into our markets and have been working towards spurring the banks to start lending again. Naturally, there would be pent-up demand for housing as many potential home buyers have been "feared" to the sidelines or simply cannot obtain a loan with the latest round of tightening standards.
In short, the housing market is ready to bottom. However, one of the major problems still to be dealt with is the deteriorating economic conditions that we remain confronted with. Times are bad and people are currently losing their jobs in large numbers. We don't believe prices will continue to tank at the fevered level of the past year but we do believe that housing will struggle to find its footing until much of these economic problems can be dealt with or at least have the appearance of being dealt with to build consumer confidence.
Is it a good time to buy? We believe it is. Don't worry about the last 10% as you can make this up, and then some, by negotiating a good deal. Five years down the road, you'll be glad you did and wish you bought more.
Housing market predictions, housing boom, housing bubble, housing crash, economic recession. Some did get it right!
In a previous post (Housing Predictions) we highlighted a round-table housing market discussion which included Peter Schiff as one of the leading "housing expert" analysts. Schiff, despite being ridiculed by other panelist, was spot on in his analysis. In fact, as we stated before, his comments regarding the housing boom, housing bubble, and eminent housing crash were nearly prophetic in nature.
Paul Krugman, on the record getting the housing boom, housing bubble, housing crash extremely right as well:
The signs are almost always there if you're willing to listen and you know what you're looking for. The problem. Few people are willing to listen and even fewer people know what they're looking for.
At least 7.5 million Americans owe more on their mortgages than their homes are currently worth, according to a real estate research firm's report released Friday.
In other words: If they sold their homes today, they'd have to bring a check to the closing. Ouch.
Another 2.1 million people stand right on the brink, according to the report by First American CoreLogic. Their homes are worth less than 5% more than the mortgages they're paying on them.
Top Ten States - Most Underwater Loans:
Top Ten States - Fewest Underwater Loans:
Ouch is right! The housing correction, battering, unraveling, whatever you want to call it continues. If you're wondering what that bang was you just heard, it's the balloon. The air is no longer seeping out of the balloon, the balloon just exploded.
Washington, D.C. - The apartment market remains healthy although rental demand is slowing, said Ron Witten, president of Witten Advisors LLC, speaking this week at the National Association of Home Builders' (NAHB) Fall Construction Forecast Conference.
Witten said that apartment occupancy level has decreased by only half a point in the past 12 months, and is now at 95 percent on a national basis. Rent growth continues, but it has declined from 4 to 5 percent at its peak in 2006-07 to 2.3 percent in the second quarter this year.
"Fundamentals are still quite good in the multifamily rental sector," said Witten.
However, he said that rental demand is "definitely" declining. Witten said the "real threat" to apartments comes from the single-family "shadow" rental market. However, he added that in early-2008 there was a significant trailing off in rental singlefamily move-ins due to renters' avoidance of living in remote locations because of high gas prices.
Witten forecasts that job losses will continue through 2009 before modestly recovering in 2010, and he said there will be a "strong" 2011.
Witten said there are about 100,000 units of empty apartments, which is not a big overhang given the base of about 20 million-plus apartment properties. He said no significant progress will be made in reducing the inventory as long as there are job losses through the end of 2009.
"This is the only housing sector that is not oversupplied," he said. 2009 he said will see the end of job losses, and by the end of 2010, any excess inventory will be "behind us."
David Seiders, chief economist of NAHB, said at the forecast that there has been a strong increase in multifamily rental production in the past year. However, he said the NAHB forecasts this increase was "overdone" and expects a decline in apartment starts, which will continue for about a year before stabilizing.
We believe the rental market in general should remain strong due to the misfortune of large numbers of homeowners who have lost their homes, are continuing to lose their homes, and will ultimately be forced to rent.
The single-family residential dwellings should begin to present an increasingly larger drag on apartment type rentals as more homes will continue to flood the market due to the sub-prime / credit crisis and investors, in increasingly larger numbers, will begin to take advantage of attractive and significantly lower housing prices now found in many of the overheated markets.
Record numbers of Silicon Valley homeowners have been foreclosed upon this year, and most must seek rental housing once they leave their homes. If tenant-occupied houses are in foreclosure, tenants nearly always get evicted, pushing them into the rental market again. And many renters who could afford to buy homes size up the bleak economy and opt not to take on mortgages and home ownership.
The result: It's a competitive market for those seeking reasonably priced rentals, and it's a pretty good time to be a landlord.
"The rental market has definitely become tighter in the sense that rents are going up," said Martin Eichner of Project Sentinel in Sunnyvale, an organization that provides landlord-tenant dispute resolution services, as well as foreclosure prevention help.
Average apartment rents rose 5.2 percent in Santa Clara County in the third quarter, to $1,708 a month, according to RealFacts, a Marin County firm that measures average monthly rents for all types of units in complexes of at least 50 units.
But rent increases in the third quarter were not as steep as in the second quarter, a sign of the softening economy. And RealFacts said apartment complexes were 95.6 percent full in the July-to-September quarter, down from 96.7 percent a year earlier.
One reason apartment occupancy rates are slipping is that more single-family houses are coming onto the market as rentals, said Joshua Howard, executive director of the local division of the California Apartment Association. Some of those houses are previous foreclosures that were purchased by investors.
"That's providing competition to multi-unit buildings," Howard said. "The rental housing economy has more options available right now."
Again, this trend will continue and should become more pronounced as the housing market begins to find a bottom. Many markets may not have bottomed in terms of pricing, but leveling inventories (this past year has brought subsiding rates of vigorously increasing inventory levels found in many markets during 2006 and 2007), steady rental rates, battered housing prices, and a volatile stock market are all favorable indicators leading a fair number of investors to believe that they can hear some homes rightfully screaming, "it's time, buy me!"
"LONDON -- The European housing markets are turning as bitter as vinegar on chips as property sales and prices come tumbling down.
Property values fell to their lowest level in 30 years in September, according to the Royal Institution of Chartered Surveyors. According to another report, home sales fell to 17,000 in June 2008 from 105,000 in June of 2007, and that was before the financial collapse of late summer and fall.
Prices have fallen 15 percent in the last year with some local experts predicting a 50 percent drop before the bottom is reached. As many as 60,000 homeowners are dipping into "negative equity" per month. The U.S. market began to fall in late 2005. The U.K. market stayed strong until last year, but now it is falling fast."
"Doom and gloom" continues to rule the day in this ever growing global arena. The world, in it's expansion, continues to grow smaller and much more intimate.
Fitch: Housing Prices Have 10% to Go Before Stabilizing
Fitch Ratings put the housing slump in perspective with a note out today looking at when prices will start to stabilize. Its estimates are based on Case-Shiller housing data and assume a rate of inflation of 3%:
"Fitch's analysis shows that the 29% rise in prices realized between 2004 and 2006, representing one of the largest price growth periods ever recorded, has been reversed. With prices returning to early 2004 levels, Fitch believes that most of the additional 10% decline, which will bring prices back to levels seen in 2003, will occur over the next eighteen months. Fitch then expects declines thereafter to moderate."
A loss of an additional 10% over the next 18 months could be considered a positive since housing prices have been dropping sharply and quickly in many markets. The obvious negative, another 10% loss ... wow. When will this end?
Over appraisals, cash-out refinances, and inflated stated income may be a thing of the past but have no fear, new mortgage fraud strategies have found a new home. - (CNNMoney.com)
What's happening:
"The number of fraudulent loans issued during the second quarter this year increased 45%, compared with the same period in 2007, according to the Mortgage Asset Research Institute (MARI), a service of LexisNexis."
Popular mortgage fraud during the housing boom:
"During the boom, that might have meant a buyer who inflated his income to qualify for a bigger loan. Some went so far as to get a fake appraisal, invent a fake buyer, and after securing a mortgage, absconding with the cash."
Today's mortgage fraud:
"One modern gambit is under-appraising property values.
These schemes involve short sales, which come up when a struggling homeowner is 'underwater,' or owes more on his mortgage than the home is worth.
When done legitimately, the owner sells the home for the lower market value, and the lender agrees to accept just that amount and forgive the difference.
When illegitimate, fraudsters fake very low appraisals for the homes and use those appraisals to justify low short-sale prices - well below true market values.
If busy bankers don't check the appraisal closely, they may agree to sales of homes that should be worth $200,000, for $150,000 or even less.
The buyers - in cahoots with the owner - then flip them for a big profit."
Still more fraud - "new liar loans" for a depressed housing market:
"During the boom, many borrowers misrepresented their income or assets with 'no-doc liar loans,' approved on the basis of good credit scores with no documentation.
After the mortgage meltdown, no-doc loans vanished, but applicants who lie have not.
'Liar loans are now fully documented - but with really good fraudulent documents,' said Hagberg.
In one case investigated by Interthinx, a New York man buying an investment property in Georgia provided documents that showed double his actual salary.
Advanced information technology and photocopying equipment have gotten so accurate that very convincing papers, including income statements, savings accounts and tax returns can be produced on demand."
One more spin - "Buy and Bail":
"This is a new scheme that had no equivalent during the boom years.
You're underwater on your mortgage and want a new, cheaper home down the block.
You could just bail on the existing home, but no lender would give you a mortgage for the new one.
So you tell the bank you plan to rent out the current home - even though you have no intention of doing so.
'This is a very difficult scam to pin down,' said Jennifer Butts, a spokeswoman for MARI, because the rental agreements that borrowers proffer may not be scrutinized by lenders."
Different times, different tactics, business as usual.
"Initial construction of U.S. homes fell to a fresh 17-year low in September, according to a government report released Friday.
Privately owned housing starts fell to a seasonally adjusted annual rate of 817,000 in September, according to the Commerce Department. The rate was down 6.3% from August's revised reading of 872,000 and 31.1% lower than September 2007." - (CNNMoney.com)
It's ugly and getting uglier:
Housing starts have fallen nearly two-thirds from their peak of 2.3 million in January 2006, and were at the lowest annual pace since January 1991.
'This is bad news for anyone who works in the housing industry, bad news for the economy as a whole, and the decline in housing activity just continues to deepen,' said Mike Larson, an analyst for Weiss Research. 'This is one of the worst downturns in the housing market in the history of our country.'
A bright spot: Lower inventory levels will ultimately turn this housing market around (simple supply and demand economics). There is demand, there's no credit, and there's too many homes.
"You've heard the news that pending sales are up across the country over 7 percent from July to August. While that's the broad brush news, when looking at the details, one sees just how many states in the West are experiencing a huge surge in the number of sales being registered on real estate boards across the region."
Markets showing the strength:
"Leading the way is Idaho, with a 51 percent jump between the two quarters. California was up 25.8 percent followed closely by Nevada at 25 percent. The fourth strongest statewide market was Arizona, up by 20.5 percent."
Anthony's conclusion:
"When news hit about this latest sales increase of 7.4 percent, hidden, again, in the fine print was the fact that sales year over year in the west had jumped a whopping 37 percent. The challenge facing markets now, of course, is the current credit crisis, which will determine if the trends of upward bound sales will continue."
