INDICATORS TO WATCH

Daily Real Estate News | October 29, 2009

What are the signs that mortgage rates, now at historic lows, are about to go up?

One way to catch a clue is to read the minutes of the Federal Reserve. For instance, the Federal Open Market Committee said in its September minutes that when it came to interest rates, there is "no policy change." And the minutes said that while the Fed believes "an economic recovery is underway," it regards a weak economy as a greater risk than inflation. Upcoming meeting minutes are likely to be just as forthcoming if an uptick is in the cards.

Other signs include:
 

• Declining unemployment: The unemployment rate is sitting at 9.7 percent. If lots of Americans go back to work, an increase in interest rates is likely.
• Rising discount rate: The rate the Fed charges banks that borrow from it directly stands at 0.5 percent. If it rises or the spread between it and the Federal Funds rate widens, then mortgage rate increases won't be far behind.

Source: BusinesWeek.com, Marc Roth (10/28/2009)
 

Senate Banking Committee Chairman Chris Dodd (D-Conn.) says Senate Democrats have agreed to extend the first-time home buyer tax credit. The latest version extends the program to home sales signed - not closed - by April 30. Purchasers would have another 60 days to close the sale. The credit will also be expanded to include so-called step-up buyers who have lived in their current home for at least five years.

The credit would be cut nearly 10 percent to a $7,290 cap. Income eligibility for first-time home buyers would stay the same, but it would rise for step-up buyers to $125,000 for individuals and $250,000 for couples.

Source: Bloomberg News, Dawn Kopecki and Ryan Donmoyer (10/27/2009)

GOOD NEWS FOR THOSE WHO PROCRASTINATED

Daily Real Estate News | October 27, 2009 |

It seems likely that the U.S. Senate will approve a deal to extend the First-Time Homebuyer Tax Credit, but the devil is in the details.

Florida Democrat Sen. Bill Nelson told reporters traveling to Florida with President Obama on Monday that he thought that the extension would be approved, but both senators and representatives are among those who think that there should be some fiscal offset for the cost of the extension. Spending any more money on the stimulus effort also could stir up a hornets' nest in some circles.

The proposal in the Senate that appears to have the most likelihood of passage would extend the $8,000 credit through March 31, then its value would drop by $2,000 for each of the subsequent three quarters of 2010. This plan was offered by Senate Majority Leader Harry Reid of Nevada and Senate Finance Committee Chairman Max Baucus, a Montana Democrat.

Source: Associated Press, Andrew Taylor (10/26/2009) and The Wall Street Journal, John D. McKinnon (10/27/2009)

Daily Real Estate News | October 26, 2009 |

Mortgage loan applicants with a credit dispute on their records may find it impossible to get a loan even if they have a score above 800 and a large down payment, warn consumer watchdogs.

The problem stems from a Fannie Mae policy that requires lenders to hand-underwrite these loans because that practice makes it harder for scammers to use the credit dispute law to hide bad credit experiences.

Denying people who are good credit risks a loan is frequently an unintended consequence, says Christopher Cruise, a mortgage originator and a founder of Responsible Loan Officers. "There's no question - when there are lots of other applications and business is good," applications requiring extra time and research "just aren't going to move."

The policy is "extremely unfair to honest consumers who are simply doing what they should - challenging misinformation," says Evan Hendricks, whose newsletter Privacy Times outlined Fannie Mae's policy in a recent report.

Fannie Mae says it is reviewing the policy and may change it.

Source: Washington Writers Group, Kenneth R. Harney (10/25/2009)

GREAT NEWS FOR THOSE LOOKING TO SELL THEIR HOMES OR IS IT?

Existing-home sales bounced back strongly in September with first-time buyers driving much of the activity, marking five gains in the past six months, according to the National Association of REALTORS®.

Existing-home sales-including single-family, townhomes, condominiums, and co-ops-jumped 9.4 percent to a seasonally adjusted annual rate of 5.57 million units in September from a level of 5.10 million in August, and are 9.2 percent higher than the 5.10 million-unit pace in September 2008. Sales activity is at the highest level in more than two years, since it hit 5.73 million in July 2007.

Lawrence Yun, NAR chief economist, said favorable conditions matched with a tax credit are boosting home sales. "Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home," he said. "We are hopeful the tax credit will be extended and possibly expanded to more buyers, at least through the middle of next year, because the rising sales momentum needs to continue for a few additional quarters until we reach a point of a self-sustaining recovery."

Even with the improvement, Yun said the market is underperforming. "Despite spectacular gains in the stock market, principally from the financial sector recovery, most of the 75 million home-owning families have more wealth tied to their homes. Home values could soon turn consistently positive and help the broad base of middle-class families, but we are not there yet," he said.

Conditions for First-Time Buyers
Early information from a large annual consumer study to be released on Nov. 13, the 2009 National Association of REALTORS® Profile of Home Buyers and Sellers,shows that first-time home buyers accounted for more than 45 percent of home sales during the past year. A separate practitioner survey shows that distressed homes accounted for 29 percent of transactions in September.

NAR President Charles McMillan said affordability conditions remain historically high. "Potential first-time buyers can take heart in that affordability conditions this year are the highest on record dating back to 1970, but with the first-time buyer tax credit scheduled to expire at the end of next month, people could hold back from entering the market," he said. "Our read is that housing overshot on the downside because homes are selling for less than replacement construction costs in much of the country, and the home price-to-income ratio has fallen below the historical average."

Inventory Falls
Total housing inventory at the end of September fell 7.5 percent to 3.63 million existing homes available for sale, which represents an 7.8-month supply at the current sales pace, down from an 9.3-month supply in August. Unsold inventory totals are 15.0 percent below a year ago.

"The current housing supply is the lowest we've seen in two and a half years," Yun said. "If we could continue to absorb inventory at this pace, home prices would return to normal, modest appreciation patterns next year."

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 5.06 percent in September from 5.19 percent in August; the rate was 6.04 percent in September 2008.

Home Sales Breakdown
The national median existing-home price for all housing types was $174,900 in September, which is 8.5 percent lower than September 2008. Distressed properties continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes in the same area.

Single-family home sales rose 9.4 percent to a seasonally adjusted annual rate of 4.89 million in September from a pace of 4.47 million in August, and are 7.7 percent above the 4.54 million-unit level in September 2008. The median existing single-family home price was $174,900 in September, which is 8.1 percent below a year ago.

Existing condominium and co-op sales jumped 9.7 percent to a seasonally adjusted annual rate of 680,000 units in September from 620,000 in August, and are 9.7 percent above the 561,000-unit pace a year ago. The median existing condo price was $175,100 in September, down 11.7 percent from September 2008.

Here's the region-by-region picture:

• Northeast: Existing-home sales increased 4.4 percent to an annual level of 950,000 in September, and are 11.8 percent higher than September 2008. The median price was $234,700, down 7.0 percent from a year ago.
• Midwest: Existing-home sales jumped 9.6 percent in September to a pace of 1.25 million and are 7.8 percent above a year ago. The median price was $147,600, which is 1.0 percent below September 2008.
• South: Existing-home sales rose 9.0 percent to an annual level of 2.06 million in September and are 10.8 percent higher than September 2008. The median price was $153,500, down 7.6 percent from a year ago.
• West: Existing-home sales surged 13.0 percent to an annual rate of 1.30 million in September and are 5.7 percent above a year ago. The median price in the West was $219,000, which is 15.0 percent below September 2008.

Source: NAR

Daily Real Estate News | October 21, 2009 | Share

While obstacles to short sales remain, real estate practitioners say the process is becoming more efficient. Rather than waiting six months or more to push through a deal, agents say banks are more willing to negotiate prices up front.

"My gut feeling is that short sales seem to be the preferred avenue for distressed property now," says Cindi Hagley of San Ramon, Calif.-based Windermere Welcome Home. "It's cheaper for [banks] to do a short sale than go all the way to foreclosure."

The short-sale process has become more manageable now that banks are willing to pre-approve prices, reach out to underwater borrowers who have listed their homes for sale, implement Web-based systems that manage the short sale process, and add staff dedicated to short sales.

Additionally, the U.S. Treasury is set to implement a streamlined short sales framework and offer incentive payments of $1,500 to home owners and $1,000 to both loan servicers and second-lien holders.

Borrowers also prefer short sales because Fannie Mae requires them to wait only two years to own another home or even less than that if they were not delinquent. By contrast, those who lost their homes to foreclosure have to wait five years.

Source: San Francisco Chronicle, Carolyn Said (10/21/09)

A new housing price forecast predicts that home values will drop an average of 11.3 percent in 342 out of 381 markets by June 30, 2010.

Financial information and analysis firm Fiserv also predict that prices will stabilize and rise 3.6 percent in 2011.

Mark Zandi, chief economist with Moody's Economy.com, agrees with Fiserv. "I think more price declines are coming because the foreclosure crisis is not over," he says.

Fiserv called Miami the biggest loser, predicting a decline of 29.9 percent by next June. It also predicts large declines in Orlando, Las Vegas, and Phoenix.

Source: CNNMoney.com, Les Christie (10/20/2009)

GREAT ADVICE FOR CONDO BUYERS

Daily Real Estate News | October 19, 2009 |

Buyers who are considering the purchase of a condominium should inspect the health of the home owner's association before they close.

The seller should provide the buyer all financial documents relating to the association in time for an attorney for the buyer to review them before closing.

Here's some advice from Leonard Baron, professor of finance at San Diego State University, about the information that the seller should consider:

• Does the association budget include money for operating expenses such as water, lights, elevator maintenance, and landscaping?
• Is there extra money set aside in a reserve fund for long-term maintenance? If there is an outside reserve study, that should be provided. If not, there should be adequate money in the reserves right now to cover 50 percent of the estimated cost of repairs over the next 30 years.
• Do the condo's expenses exceed revenues due to a high foreclosure rate or other reasons that owners' debts go unpaid?
• If there is a shortfall, does the association have a plan besides cutting back on services for making it up?

Source: The Wall Street Journal, June Fletcher (10/17/2009)

ALL IN THE FAMILY

Intra-family loans can be the best way for parents to help their children purchase a property.
The strategy makes the purchase more affordable, increases the size of the home a cash-strapped purchaser can afford, and helps the parent leverage his gift to reduce a taxable estate.

The parent must charge interest at a market rate on family loans, says Ken Kilday, an adviser with USAA Wealth Management, or face IRS penalties. But parents can then take the $13,000—$26,000 for a couple—that can be gifted without eating into the gift exemption and apply it annually toward paying off their child’s loan.

Kilday also suggests that parents put in their will that upon their death, the loan be fully forgiven.

Source: Dow Jones Newswires, Taylor Smith (10/15/2009)
 

I am not sure that I agree with this analysis. I think the housing market is at about the bottom and that the upward trend will continue.

Daily Real Estate News | October 12, 2009 |

Despite the recent market decline, Americans are still willing to borrow a large amount of money to buy a home because they are convinced that housing values will rise, writes Robert J. Shiller in his monthly New York Times column.

Shiller, professor of economics and finance at Yale University and cofounder and chief economist of MacroMarkets, examined survey data that asked home buyers in Los Angeles, San Francisco, Milwaukee, and Boston a variety of questions, including how much they believe the value of their homes will change in the next year.

The average answer among the 311 people surveyed was an increase of 11.2 percent. The media response was 5 percent, which Shiller also believes is high.

Such upbeat answers about the housing market led Shiller to conclude that home buyers think the decline in home prices is over and now is the time to buy. Their optimism, Shiller says, has caused an upturn in prices.

Shiller has doubts that this increase signals a new housing boom. Instead, he says it is evidence of "higher short-run price volatility," which is economist-speak for a warning that prices could go down again.

Source: The New York Times, Robert J. Shiller (10/11/2009)
 

As if short sales were't already hard enough.

Daily Real Estate News | October 9, 2009 |

Banks are backing away from short sales, forcing sellers to pay extra at closing or demanding a promissory note for the amount due. One-third of borrowers owe more on their mortgages than their properties are worth, according First American CoreLogic.

When their situations were really tough, most banks preferred short sales because they were their best opportunity to get the most money back. But with an improving economy, and because the losses on many of these properties have already been written off the books, banks are increasingly reluctant to negotiate a short sale.

Today, banks demand 9.5 weeks to respond to a short-sale request, compared to 4.5 weeks a year ago, according to research firm Campbell Communications. Their reluctance is frequently stymieing sales and frustrating real estate practitioners.

"It drives me up a wall," says Robert G. Hertzog of Summit Home Consultants in Phoenix. "[The bank is] holding my client hostage."

Source: BusinessWeek, Christopher Palmeri (10/09/2009)

Remodeling for Dollars

Daily Real Estate News | October 5, 2009 |

More than 80 percent of new single-family homes have at least two bathrooms, which occupy an average of 300 square feet of floor space, or 12 percent of the total area, according to a study by the National Association of Home Builders.

The home builder's study reports a major return on value for extra bathrooms: "When the number of bathrooms is approximately equal to the number of bedrooms, an additional half-bath adds about 10 percent to the home's value, and one additional bath adds about 19 percent."

A mid-range bathroom remodel, which costs $10,500 on average nationwide, repays a home buyer at least 100 percent of the outlay when the property is sold, the home buyer study concludes.

Source: Chicago Tribune, Mike McClintock (09/21/2009)

Loan Modification Can't Help Everyone!

Daily Real Estate News | October 1, 2009 |

More than 50 percent of home owners whose loans were modified in the first six months of 2008 had fallen behind on their payments a year later, the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision said Wednesday.

The situation could have been worse. One-third of borrowers whose monthly payments were reduced by 20 percent or more had fallen behind again within a year. But more than 60 percent of borrowers whose payments were left unchanged or increased fell behind.

The report covers 34 million loans, representing 60 percent of first mortgages on residences. More than 11 percent of all borrowers covered by the report had missed at least one payment in the first six months of 2009.

Source: The Associated Press, Alan Zibel (09/30/2009)