Month: March 2011

JPMorgan’s Dimon: No mortgage writedowns

By Jennifer Liberto, senior writer CNNMoney.com

March 31, 2011

WASHINGTON (CNNMoney) — The head of JPMorgan Chase said Wednesday that banks would not consider writing down mortgages for homeowners who can make payments, an idea at the center of talks aimed at fixing the mortgage mess.

“Principal writedown for people who could pay their mortgages? Yeah, that’s off the table,” JPMorgan Chase (JPMFortune 500) CEO Jamie Dimon said when asked about the idea after an appearance before a U.S. Chamber of Commerce forum in Washington.

Regulators and state attorneys general have been trying to get the banks to include mortgage principal writedowns as part of a proposed settlement of allegations that banks wrongly foreclosed on thousands of homeowners. The writedown proposal has been a key sticking point in the negotiations.

In addition to JPMorgan Chase, the other servicers are Bank of America (BACFortune 500), Wells Fargo (WFCFortune 500), Citigroup (C,Fortune 500) and Ally Financial (GJM).

Dimon spoke to the U.S. Chamber about a wide range of topics from monetary policy to struggling municipalities.

Dimon had little sympathy for municipalities and suggested that investors should expect that some of them will go bankrupt. But he suggested it won’t “shatter America” and it’s “part of the credit cycle.”

“The states have the wherewithal to fix their problems,” Dimon said. “It’s not going to stop the United States from starting to grow.”

Dimon spent most of his discussion with Chamber president Tom Donohue blasting regulators’ efforts to enact new rules on derivatives, or complex financial contracts that financial firms and companies use to hedge risk.

He specifically opposes requiring companies such as airlines and other companies to post cash up front before they enter into a deriviatives contract.

“If we’re required to have Caterpillar to post margin requirements, they’re simply going to do business in Singapore, where they don’t have to,” Dimon said.

 

Real estate: It’s time to buy again

Fortune, CNNMoney.com
Posted by Shawn Tully
March 28, 2011

Forget stocks. Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.

From his wide-rimmed cowboy hat to his roper boots, Mike Castleman fits moviedom’s image of the lanky Texas rancher. On a recent March evening, Castleman is feeding cattle biscuits to his two pet longhorn steers, Big Buddy and Little Buddy, on his 460-acre Bar Ten Creek Ranch in Dripping Springs, a hamlet outside Austin in the Texas Hill Country. The spread is a medley of meandering streams, craggy cliffs, and centuries-old oaks. But even in this pastoral setting, his mind keeps returning to a subject he knows as well as any expert around: the housing market. “I’m a dirt-road economist who sees what’s happening on the ground, and in 35 years I’ve never seen a shortage of new construction like the one I’m seeing today,” declares Castleman, 70, now offering a biscuit to his miniature donkey Thumper. “The talking heads who are down on real estate will hate to hear this, but America needs to build a lot more houses. And in most markets the price of new homes is fixin’ to rise, not fall.”

Castleman is in a unique position to know. As the founder and CEO of a company called Metrostudy, he’s spent more than three decades tracking real-time data on the country’s inventory of new homes. Each quarter he dispatches 500 inspectors to literally drive through 45,000 subdivisions from Baltimore to Sacramento. The inspectors examine 5 million finished lots, one at a time, and record whether they contain a house that’s under construction, one that’s finished and for sale, or a home that’s sold. Metrostudy covers 19 states, or around 65% of the U.S. housing market, including all the ones hardest hit by the crash: Florida, California, Arizona, and Nevada. The company’s client list includes virtually every major homebuilder and bank — from Pulte (PHM) and KB Home (KBH) to Bank of America (BAC) and Wells Fargo (WFC).

The key figures that Metrostudy collects, and that those clients prize, are the number of homes that are vacant and for sale in each city, and the number of months it takes to sell all of them. Together those figures measure inventory — the key metric in determining whether a market has a surplus or a shortage of new housing.

Today Castleman is witnessing an extraordinary reversal of the new-home glut that helped sink prices just a few years ago. In the 41 cities Metrostudy covers, a total of 78,000 houses are now either vacant and for sale, or under construction. That’s less than one-fourth of the 343,000 units in those two categories at the peak of the frenzy in mid-2006, and well below the level of a decade ago. “If we had anything like normal levels of buying, those houses would sell in 2½ months,” says Castleman. “We’d see an incredible shortage. And that’s where we’re heading.”

If all the noise you’re hearing about housing has you totally confused, join the crowd. One day you’ll read that owning a home has never been more affordable. The next day you’ll see news that housing starts have plunged to nearly their lowest level in half a century, as headlines announced in March. After four years of falling prices and surging foreclosures, it’s hard to know what to think. Even Robert Shiller and Karl Case can’t agree. The two economists, who together created the widely followed S&P/Case-Shiller Home Price indices, are right now offering sharply contrasting views of housing’s future. Shiller recently warned that the chances were high for a further double-digit drop in U.S. home prices. But in an interview with Fortune, Case took a far brighter view: “The lack of new home building is a huge help that a lot of people are ignoring,” says Case. “People think I’m crazy to be optimistic, but housing is looking like the little engine that could.”

To see where real estate is truly headed, it’s critical to keep your eye firmly on the fundamentals that, over time, always determine the course of prices and construction. During the last decade’s historic run-up in prices, Fortune repeatedly warned that things were moving too fast. In a cover story titled “Is the Housing Boom Over?,” this writer’s analysis found that the basic forces that govern the market — the cost of owning vs. renting and the level of new construction — were in bubble territory. Eventually reality set in, and prices plummeted. Our current view focuses on those same fundamentals — only now they’re pointing in the opposite direction.

So let’s state it simply and forcibly: Housing is back.

Two basic factors are laying the foundation for dramatic recovery in residential real estate. The first is the historic drop in new construction that so amazes Castleman. The second is a steep decline in prices, on the order of 30% nationwide since 2006, and as much as 55% in the hardest-hit markets. The story of this downturn has been an astonishing flight from the traditional American approach of buying new houses to an embrace of renting. But the new affordability will gradually lure Americans back to buying homes. And the return of the homeowner will start raising prices in many markets this year.

Of course, home prices are low and home construction is weak for a reason: incredibly low demand. For our scenario to play out, America will need a decent economy, with job creation and consumer confidence continuing to claw their way back to normal.

One big fear is that today’s tight credit standards will chill the market. But we’re really returning to the standards that prevailed before the craze, and those requirements didn’t stop prices and homebuilding from rising in a good economy. “The credit standards are now at about historical levels, excluding the bubble period,” says Mark Zandi, chief economist for Moody’s Analytics. “We saw prices rising with fundamentals in those periods, and it will happen again.”

To see why, let’s examine the remarkable shift in home affordability. A new study by Deutsche Bank measures affordability in two ways: first, the share of income Americans are paying to own a home. And second, the cost of owning vs. renting. On the first metric, the analysis finds that homeowners now pay just 9.8% of their income in after-tax mortgage, tax, and insurance payments. That’s down from 17.2% at the bubble’s peak in 2007, and by far the lowest number in the Deutsche Bank database, going back to 1999. The second measure, the cost of owning compared with renting, should also inspire potential buyers. In 28 out of 54 major markets, it’s now cheaper to pay a mortgage and other major costs than to rent the same house. What’s most compelling is that in all of the distressed markets, owning now wins by a wide margin — a stunning reversal from four years ago. It now costs 34% less than renting in Atlanta. In Miami the average rent is now $1,031 a month, vs. the $856 it costs to carry a ranch house or stucco cottage as an owner. (For more, see The top 10 cities for home buyers)

Not all markets will bounce back equally, of course. Housing resembles the weather: The exact conditions are different in every city. But in general the big U.S. markets fall into two different climate zones right now. We’ll call them the “nondistressed markets” and the “foreclosure markets.” A more detailed look shows why the forecast for both is favorable.

Nondistressed markets: Ready for launch

No cities went untouched by the collapse in prices over the past few years. But markets such as Northern Virginia, Indianapolis, Minneapolis, San Diego, the San Francisco suburbs, and virtually all of Texas held up reasonably well. In those areas prices spiked far less than in bubble cities — the foreclosure markets we’ll get to shortly — chiefly because they didn’t get nearly as many speculators who thought they could flip the homes or rent them to snowbirds.

The nondistressed markets will be able to get prices rising and construction growing far faster than the harder-hit areas for a simple reason: Although some of these markets are still suffering from foreclosures, they don’t need to work through the big overhang haunting a Las Vegas or a Phoenix. The number of new homes for sale or in the pipeline is extraordinarily low in nondistressed markets. San Diego is typical. It has just 921 freestanding homes for sale or under construction, compared with 4,425 in late 2005. The challenge for these cities is to generate enough demand to reduce inventories of existing, or resale, homes. In the entire country the resale supply stands at 3.5 million houses and condos. That’s a fairly high number, since it would take more than eight months to sell those properties; seven months or below is the threshold for a strong market.

But in the nondistressed cities, the existing home inventory is lower, closer to seven months on average. So a modest increase in demand will translate into strong gains in both prices and new construction. That should happen quickly, because most of those markets — including Silicon Valley, Northern Virginia, and Texas — are now showing good job growth.

Zandi of Moody’s Analytics expects that prices will rise three to four points faster than inflation for the next few years in virtually all of the nondistressed markets. His view is that prices will increase in line with rents, which are now growing briskly because apartments are in short supply. Those higher rents will encourage buyers to cross the street from an apartment to a home of their own.

In Northern Virginia, Chris Bratz, an engineer, and his wife, Amy DiElsi, a publicist, are planning to leave their rental apartment and become homeowners for the first time. The main reason? Buying has simply become a far better deal than renting. “The market got completely inflated, then it crashed, so prices are coming back to where they should be,” says Chris. As the couple have watched prices fall, they have also watched the rent on their apartment spiral upward, reaching $2,700 a month. They calculate that they should be able to purchase a townhouse for between $400,000 and $500,000 and pay less per month for a mortgage.

The nondistressed markets will also lead the way in construction. Zandi predicts that for the nation as a whole, single-family housing “starts” — measured when a builder pours a foundation for a new home — will rise from 470,000 in 2010 to as much as 700,000 this year. A large portion of that activity will happen in nondistressed markets where a tightening supply of resale houses will start making new homes look like a good deal. “Our main competition is from resales,” says Jeff Mezger, CEO of KB Home. “The prices of those homes have stayed so low, because of low demand, that it’s hampered the ability of builders to sell new houses.”

But many would-be buyers simply prefer a brand-new house. Eventually they’ll move from renters to buyers, and the trend will accelerate now that prices are no longer dropping. In Minneapolis, Yuan Qu and her husband, Xiang Chen, a researcher at the University of Minnesota, just moved from a two-bedroom rental to a new light-blue four-bedroom ranch with a chocolate-colored roof on a spacious corner lot. They paid $400,000, a bargain price compared with a few years ago. The couple, both in their early thirties, moved to Minnesota from China six years ago. “We wanted to buy a house, and we’ve been waiting and waiting and waiting,” says Qu. “The prices went down for so long, we finally thought they couldn’t keep falling.” For Qu the only choice was new construction. “We’re not very handy people,” she admits.

Foreclosure markets: The outlook is brightening

The true disaster areas for housing since the bubble burst have been Sunbelt cities such as Las Vegas, Phoenix, andMiami — places that boasted great job and population growth in the mid-2000s, only to suffer a housing crash that swamped them with empty homes and condos and crushed their economies. But people always want to live in those sunny locales, and their job markets are starting to recover, albeit slowly. In foreclosure markets the inventory problem is far greater because it includes not just traditional resale homes but millions of distressed properties. Fortunately those houses are now such a screaming deal that investors, including lots of mom-and-pop buyers, are purchasing them at a rapid pace. To be sure, some foreclosure markets won’t rebound for years because they’re both vastly overbuilt and far from big job centers; a prime example is California’s Inland Empire, a real estate disaster zone 80 miles east of Los Angeles.

But the outlook is brightening for Phoenix, Las Vegas, Miami, and parts of Northern California. A big positive is the tiny supply of new homes entering the market. Phoenix, for example, has a total of just 8,100 new homes that are either for sale or under construction, down from 53,000 in mid-2006. The big test in these cities is absorbing the steady stream of distressed properties. The foreclosures put downward pressure on the market far out of proportion to their numbers because of markdown pricing. “We had levels of inventory even higher than this in 1990 and 1991,” says MIT economist William Wheaton. “But they were traditional listings, not foreclosures, so they didn’t create the big discounts you get with foreclosures.”

Wheaton reckons that we’ll see a flow of around 1 million foreclosures a year, at a fairly even pace, from now through 2013. That figure is frequently cited as evidence that the market is doomed for years in most foreclosure markets. Not so. The reason is that the vast bulk of those units, probably over 600,000, according to Gleb Nechayev, an economist with real estate firm CB Richard Ellis (CBG), are being converted to rentals either by investors or their current owners. Those properties are finding plenty of renters, since the rental market is still extremely strong across the country. Remember, the millions who lost their homes to foreclosure still need somewhere to live.

A typical investor is Alex Barbalat, a Russian immigrant who’s purchased seven homes east of San Francisco in the towns of Bay Point, Antioch, and Pittsburg. His average purchase price is around $100,000 for homes that once sold for between $300,000 and $500,000. But he has no trouble finding renters, since his tenants can commute to jobs in San Francisco on the BART transit system. Barbalat is pocketing rental yields on the prices he paid of around 12%, and he’s in no hurry to sell. “I’m holding them until prices drastically rise,” he says.

Investment funds are also entering the game. Dotan Y. Melech looks for bargains in Las Vegas for UnitedASM, a firm he co-founded that manages apartments and other real estate investments. The firm has raised more than $20 million from outside investors to purchase distressed properties. So far, Melech has bought around 300 houses and plans to purchase another 200 this year. He has no trouble renting the houses he buys, since, he estimates, occupancy rates in Las Vegas are touching 95%. The “cap rate,” or return on investment after all expenses, is between 8% and 10% — twice the rate on 10-year Treasuries. Melech rents to people who lost their homes but are reliable renters. “A lot of people can’t be buyers because their credit got hurt,” he says.

Even with investors jumping in, buying activity in foreclosure markets hasn’t yet increased enough to bring inventories down. It will soon. Zandi thinks prices will fall a couple of percentage points lower in the distressed markets in the short run. “But that will be overshooting,” he says. “It’s like an elastic band. If prices do drop this year, they will need to bounce back because they’ll be far too low compared with rents and replacement cost.” Renters will come off the sidelines to purchase homes in the years ahead, precisely the opposite trend of the past few years.

Consider the example of Michael Dynda, a retired Air Force avionics technician who now works for a government contractor in Las Vegas. Dynda, 49, is a first-time buyer who put off purchasing for years, in part because prices were falling so rapidly in Las Vegas, with no bottom in sight. But last year the combination of bargain prices and low mortgage rates became too good to resist. He ended up purchasing a 2,300-square-foot stucco home for $240,000, or about half what it would have fetched in 2007. Dynda got a 4.38% home loan, and pays the same amount on his mortgage as on the rent on the house he left to become a homeowner. “The timing was about as good as it could get,” says Dynda.

Back on the ranch, Mike Castleman is lounging in his creek-front mansion, built from “a hundred tons of fine central Texas limestone.” As he shows off his collection of custom-made guitars, including one crafted to resemble the skin of a rattlesnake, the homespun housing guru once again returns to his favorite topic.

Castleman claims that this recovery will look like all the others: It will bring a severe shortage of housing. He invokes the livestock business to explain. “It takes three years between the time a bull mates with a cow and when you get a calf ready for market,” he says. “That’s how it is in housing too. We’ll get a big surge in demand and the drywall companies will take a long time to ramp up, and it will take years to get new lots approved. Buyers will show up looking for a house in a subdivision, and all the houses will be sold. The builders will tell them it will take six months to deliver a house.” But those folks, says Castleman, will be set on buying a place. “And they’ll want it so bad they’ll bid the prices up!” In other words: Beat the crowd.

It’s a Great Time to Buy a House
Mike Castleman, the Texan with the best realtime view of housing in the U.S., tells editor-atlarge Shawn Tully that the naysayers are about to get a big surprise: rising prices for new homes.

 

Southland February Home Sales At 3-year Low; Investor Interest High

March 15, 2011 DQNews.com

La Jolla, CA—Southern California’s housing market remained sluggish in February despite relatively strong demand from investors and others paying cash for homes. Prices appeared fairly flat as many potential home buyers stayed on the sidelines and waited – whether for a sign values have bottomed, job security has improved or credit has loosened, a real estate information service reported.

Last month 14,369 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties. That was down 0.6 percent from 14,458 in January, and down 6.4 percent from 15,359 in February 2010, according to DataQuick Information Systems of San Diego.

A small change in sales – up or down – between January and February is normal for the season. On average, sales have risen 0.6 percent between those two months since 1988, when DataQuick’s statistics begin.

The total number of homes sold last month was the lowest for a February since 2008, when 10,777 sold, and the second-lowest since 1995, when 12,459 sold. Last month’s sales fell 19.5 percent short of the Southland’s average February sales tally – 17,848 – since 1988.

The 847 newly built homes sold in the region last month marked the second-lowest level on record for a February, behind 842 sales in February 2009. Builders continue to struggle to compete with prices on resale homes, especially distressed properties.

Last month’s distressed sales – the combination of sales of foreclosed homes and “short sales” – accounted for well over half of the resale market.

Foreclosure resales – properties foreclosed on in the prior 12 months – made up 37.1 percent of resales last month, up from 36.8 percent in January but down from 42.4 percent a year ago. Over the past year foreclosure resales hit a low of 32.8 percent last June but since then they’ve trended higher. Foreclosure resales peaked at 56.7 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 19.8 percent of Southland resales last month. That was up from an estimated 19.7 percent in January, 18.4 percent a year earlier, and 12.0 percent two years ago.

The abundance of distressed homes for sale continues to attract unusually high levels of investor and cash-only buyers.

Absentee buyers – mostly investors and some second-home purchasers – bought a record 26.1 percent of the Southland homes sold in February, paying a median $198,000. Since 2000, absentee buyers have purchased a monthly average of 16.2 percent of all homes sold. (Absentee data go back to 2000.)

Buyers who paid cash accounted for a record 31.7 percent of February home sales, paying a median $200,000. That was up from 30.4 in January and 30.1 percent a year earlier. The February cash level was the highest for any month in DataQuick’s statistics back to 1988. The 10-year monthly average for the percentage of Southland homes purchased with cash is 13.1 percent. Cash purchases are where there was no indication in the public record that a corresponding purchase loan was recorded.

“The January and February sales data can be interesting, but we always caution that historically they’ve been a poor barometer for the rest of the year. What the past two months do tell us is that lots of people have bet, often with cash, that housing at today’s prices will prove a solid investment,” said John Walsh, DataQuick president.

“This spring we’ll see an infusion into the market of more traditional buyers, who aren’t necessarily purchasing with an investor mindset. If the stars line up right – low prices, low mortgage rates, available credit, higher job growth and higher consumer confidence – we could see sales shoot back up to more normal levels. There’s pent-up demand out there. Lots of people have been waiting for the right time to buy. But they’ve got to feel more confident in their jobs, they’ve got to qualify for a loan and, for some, they need to be convinced prices are at or near bottom. One group will still be stuck on the sidelines, though: Those who owe significantly more on their mortgages than their homes are worth.”

The median price paid for a Southland home last month was $275,000, up 1.9 percent from $270,000 in January, and unchanged from $275,000 in February 2010. In January this year, the median fell slightly (-0.6%) from a year earlier, marking the first year-over-year decline since October 2009.

The median’s low point for the current real estate cycle was $247,000 in April 2009, while the high point was $505,000 in mid 2007. The peak-to-trough drop was due to a decline in home values as well as a shift in sales toward low-cost homes, especially inland foreclosures.

At the county level last month, the overall median sale price fell on a year-over-year basis in four counties and was unchanged in two. Declines from a year ago were logged in Orange (-1.7 percent), Riverside (-1.0 percent), San Diego (-4.3 percent), and Ventura (-1.4 percent) counties, while the median was the same as a year ago in Los Angeles and San Bernardino counties.

The median paid for the largest home-type category – resale single-family detached houses – fell year-over-year last month in Orange (-3.1 percent), San Diego (-3.1 percent) and Ventura (-9.6 percent) counties. The other three counties recorded annual gains ranging from 2.6 percent in Los Angeles and Riverside counties to 3.6 percent in San Bernardino County.

Government-insured FHA loans, a popular low-down-payment choice among first-time buyers, accounted for 32.2 percent of all mortgages used to purchase homes in February. That was the lowest level since August 2008, when 26.8 percent of purchase loans were FHA. Last month’s FHA level was down from 33.2 percent in January and 36.8 percent in February 2010. Two years ago FHA loans made up 36.9 percent of the purchase loan market, while three years ago it was just 6.5 percent.

Last month 18.1 percent of all sales were for $500,000 or more, down from a revised 18.3 percent in January and down from 18.5 percent a year earlier. The low point for $500,000-plus sales was in January 2009, when only 13.6 percent of sales crossed that threshold. Over the past decade, a monthly average of 26.8 percent of homes sold for $500,000 or more.

Viewed differently, Southland zip codes in the top one-third of the housing market, based on historical prices, accounted for 34.6 percent of total sales last month. That was up from 33.4 percent in January and up from 32.7 percent a year ago. Over the last decade, those higher-end areas contributed a monthly average of 37.1 percent of regional sales. Their contribution to overall sales hit a low of 26.2 percent in January 2009.

High-end sales still suffer from tight credit policies. Adjustable-rate mortgages (ARMs) and so-called jumbo home loans have been relatively difficult to get ever since August 2007, when the credit crunch hit.

Last month ARMs represented 7.8 percent of Southland purchase loans, up from 7.0 percent in January and 4.1 percent a year ago. Last month’s figure was the highest since August 2008, when it was 10.5 percent. Over the past decade, a monthly average of about 38 percent of purchase loans were ARMs.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 15.6 percent of last month’s purchase lending, up from 15.2 percent in January and 14.8 percent a year earlier. However, in the months leading up to the credit crisis that struck in August 2007, jumbos accounted for 40 percent of the market.

Last month the percentage of Southland homes that was flipped – bought and re-sold on the open market within a six-month period – was 3.2 percent. That was up from a “flipping” rate of 3.1 percent in January but down from 3.4 percent a year earlier. Flipping varied last month from as little as 2.4 percent in Ventura County to as much as 3.8 percent in San Diego County.

DataQuick Information Systems monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

The typical monthly mortgage payment that Southland buyers committed themselves to paying was $1,174 last month, up from $1,128 in January and down from $1,180 in February 2010. Adjusted for inflation, current payments are 48.1 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 57.4 percent below the current cycle’s peak in July 2007.

Indicators of market distress continue to move in different directions. Foreclosure activity remains high by historical standards but is lower than peak levels reached over the last two years. Financing with multiple mortgages is very low, and down payment sizes are stable, DataQuick reported.

Foreclosures plunge 27% – biggest drop on record

By Les Christie, staff writerMarch 10, 2011

NEW YORK (CNNMoney) — Is our long national foreclosure nightmare ending?

The number of foreclosure notices filed in February dropped 14% compared with a month earlier and 27% compared with a year earlier, according to RealtyTrac.

That was the biggest year-over-year decline the company has ever recorded. But the improvement may be exaggerated, according to RealtyTrac CEO James Saccacio, who traced some of the decline to the fallout over robo-signing issues.

“Allegations of improper foreclosure processing continued to dog the mortgage servicing industry and disrupt court dockets,” he said. “The industry is in the midst of a major overhaul that has severely restricted its capacity to process foreclosures.”

Another contributing factor was the harsh winter weather that covered much of the country during the month. That delayed some of the paperwork processing and the serving of notices of default, notices of auction sales and other filings.

There were still more than 225,000 filings during the month, or one for every 577 homes. The banks repossessed 64,643 homes from delinquent borrowers, down significantly from the peak of about 102,000 last September.

The foreclosure fall flew in the face of other housing market reports that made it clear that housing is far from being out of the woods. S&P/Case-Shiller reported that prices are going down, and Zillow, the real estate website, said nearly 30% of borrowers with mortgages owe more than their homes are worth.

Looking to the future, the 50 state attorney generals seem to be making progress in their pursuit of a financial settlement with the banks over the robo-signing mess.

“We believe some of the servicers have slowed foreclosures as they wait to see how the settlement talks play out,” said RealtyTrac spokesman Rick Sharga, who expects a huge spike in filings over the next few months.

One segment of the industry that could benefit from the foreclosure drop, — no matter how artificial — is new home builders. “It’s definitely good for them,” said Pat Newport, a housing market analyst with IHS Global Insight. “It makes it easier for them to compete in the market.”

The builders have run up against bargain-basement pricing as the banks sell off their steady flood of repossessed homes. If that flood ebbs, it should firm up pricing and make it easier for developers to sell their new homes and make a profit.

Home building contributes much to the overall economy. A pick-up from the current low rate of sales, which is down about 75% from the peak, would result in many new jobs.

“Existing home sales produce some economic activity but it pales in comparison with new home sales,” said David Crowe, the chief economist for the national Association of Home Builders. “We calculate that for every 100,000 homes built, it creates 150,000 construction jobs but another 150,000 manufacturing jobs building refrigerators, furniture and other products.”

Worst-hit states

Three of the four “Sand States,” Nevada (one filing for every 119 housing units), Arizona (one in 222) and California (one in 239) held their places at the top of the list of hardest hit states. Utah is the new number four, followed by Idaho, Georgia and Michigan.

Florida (one in 472), however, has slipped down the list to number eight. Filings dropped more than 65% year-over-year.

Part of the reason for Florida’s improvement may have been the fall-out from the robo-signing issue. Foreclosures involve court hearings in the Sunshine State and many cases have been delayed by judges.

“Judicial foreclosure states recorded the most severe drops in foreclosures,” said Sharga.

Housing Regulator Extends Fannie, Freddie Refinance Program

By Alan Zibel

March 10, 2011 Fox News

WASHINGTON -(Dow Jones)- Homeowners whose property values have fallen dramatically in the housing bust will have another year to refinance their mortgages through a government program, a federal regulator said Friday.

The Federal Housing Finance Agency, which oversees mortgage titans Fannie Mae (FNMA: 0.40, -0.01, -3.02%) and Freddie Mac (FMCC: 0.40, -0.01, -2.89%) said the two companies will now offer refinanced loans under the Obama administration’s Home Affordable Refinance Program through mid-2012. The program had been scheduled to expire on June 30.

The program allows borrowers to refinance if they owe up to 25% more than their property’s current value on their mortgages. Though it got a slow start, nearly 812,000 homeowners have now used the program since it was launched in 2009.

It has assisted more homeowners than the administration’s much-criticized Home Affordable Modification Program, which has helped about 540,000 homeowners to date.

The announcement came as Republicans mount an effort to end the administration’s foreclosure-prevention efforts. House lawmakers have voted to end two Obama foreclosure programs, and plan a vote next week on ending the flagship HAMP program. They have not targeted the refinancing program, which draws no direct taxpayer aid, for elimination.

The housing regulator also said new fees imposed by Freddie Mac would no longer apply to refinanced loans made under the HARP program. Those fees charge many borrowers an additional 0.25% when taking out a mortgage.

Fannie and Freddie buy mortgages from banks and other lenders, repackage them for sale as securities and make investors whole when borrowers default. The two companies nearly collapsed as a result of the housing bust, and regulators put them into a federal conservatorship in September 2008.

The Treasury Department has committed unlimited aid to ensure that the firms meet their obligations. So far, taxpayers are on the hook for $134 billion.

First-time buyers turn fussy about ‘move-in ready’ homes

Stricter loan requirements and cable TV have helped make purchasers extra picky, experts say.

By Kenneth R. Harney, LA Times

March 6, 2011

Picky, picky, picky. Are today’s first-time home buyers passing up great deals because they insist on flawless “move-in ready” houses requiring little or no changes — even at the starter-home price levels at which shoppers traditionally have been willing to factor future fix-ups and renovations into their offers?

Or are they simply reflecting market realities? They see record inventories of houses sitting unsold, they have plenty to choose from, and they may not have the money, time or inclination to do fix-ups after making the purchase.

Large numbers of real estate agents see this as a significant and perplexing issue that’s having a negative effect on the housing recovery. New research suggests they may be on to something. A survey by Coldwell Banker Real Estate of 300 first-time buyers found that 87% said “finding a move-in ready home is important.” .

A posting about fussy purchasers on the 203,000-member ActiveRainonline real estate network in late February drew strong support from realty agents nationwide. Holly Kirby Weatherwax, an agent based in Reston, Va., who wrote the original blog post, said in an interview that some shoppers are so picky that they walk out of well-priced houses solely because of relatively minor imperfections such as:

•The kitchen appliances are by different manufacturers.

•There are no granite counters — despite the fact that the house is a modest-priced starter home.

•A carpet needs replacing or the color doesn’t match their furniture.

•Wall colors are “wrong,” such as white, when for today’s tastes, they should be a warmer hue.

“They’re missing out on some excellent, older lived-in houses, it’s a shame,” she said, “simply because they can’t overlook” flaws that would not have bothered shoppers during the previous two decades.

Zillow, the Seattle-based online real estate research and data company, suggests any shift by consumers toward greater attention to home details may be an inevitable byproduct of today’s higher down payment minimums and more stringent loan qualification requirements.

According to Zillow researchers, the median down payment in 11 major metropolitan areas has jumped to 20%, compared with “close to zero” in some of the same areas just five years ago. In other words, first-time buyers today often must put a huge effort into coming up with down payment cash, and they want to make sure that equity investment goes into a near-perfect house — one that will need the fewest and least costly upgrades and changes for the next couple of years.

Also, said Zillow spokeswoman Katie Curnutte, shoppers in 2011 “are really in the driver’s seat. Nationally, buyers who purchased homes [in] December paid 4% less than the asking price. That points to a lot of room for negotiating and opportunities for buyers to be choosy.”

Some agents suggest buyers today tend to be hipper and more sophisticated about home design, furnishings, floor materials, counters and appliances because they are exposed to far more information on cable TV than earlier generations of first-timers.

Michael Jacobs, a Coldwell Banker agent in Pasadena, said cable channels such as HGTV “certainly have opened the eyes of more buyers” to design and presentation details. For example, he said, he’s held open houses where young buyers walk in and say immediately, “Oh, this house has been staged” — an observation virtually unheard of in earlier years, when shoppers wouldn’t have spotted the telltale signs.

“HGTV certainly has made these sorts of things more obvious,” Jacobs said.

But constant exposure to cable real estate design shows may also be fostering a lack of realism on the part of some shoppers, according to agents.

Cindy Westfall of Prudential NW Properties in Lake Oswego, Ore., said the shows have “given some buyers the impression that all homes should have granite counters, stainless-steel appliances, etc. There are a few [shoppers who] want all the bells and whistles of that $500,000 house for $200,000, and no amount of talking to them on the realities can change their minds.”

Westfall said she recently worked with a buyer who was interested only in older houses under $200,000 — starter-home pricing territory — but who wouldn’t tolerate the minor imperfections and nicks that older houses typically display.

“The fact is, you just can’t have it all,” Westfall said. “You can’t have the big yard, the top-line updates and all that in a starter home. You’ve got to compromise somewhere or else you’ll never buy anything.”

 

Cash-only home sales rise in California

All-cash buyers grabbed a record 30.9% share of California house and condo sales in January. In Southern California’s most expensive communities, cash deals now account for as much as two-thirds of home sales.

By Lauren Beale, Los Angeles Times

March 1, 2011

Cash talks. And it’s speaking loudly in California real estate these days, even in the nicest parts of town.

All-cash buyers grabbed a record 30.9% share of the Golden State’s houses and condos in January as low prices lured investors and others, according to San Diego research firm DataQuick Information Systems.

Cash activity has been brisk for months in foreclosure-ridden areas such as Riverside and San Bernardino. But now, the cash buyer has become a major player in Southern California’s most expensive communities, where cash deals account for as much as two-thirds of home sales.

The trend is being driven by several factors, analysts say, including the difficulty of getting a “jumbo” loan from lenders still stinging from the mortgage meltdown. It also reflects speculation by wealthy investors who believe home prices are at or near a bottom.

“A lot of people think housing will outperform other financial investments,” said Andrew LePage, a DataQuick analyst. “This is just a place to park their money.”

In the Southland’s $1-million-and-up market, 29.2% of buyers paid cash last year — the highest percentage since 1994, DataQuick statistics show. For homes selling for $5 million and up, 62.2% paid cash.

Overall, cash deals constituted 27.8% of Southern California home sales in 2010, the most since DataQuick began tracking the market in 1988. It’s also more than double the 13% average for cash sales over the last decade.

The shift toward cash purchases started when foreclosures became a significant factor in the market, said Gary Painter, director of research at the USC Lusk Center for Real Estate. That’s because investors buying properties on the courthouse steps don’t go looking for mortgages.

“There have always been all-cash investors who think they can go in and flip a home,” he said.

There’s just more of them now. Cash buying has reached fever pitch in parts of Orange County, where the Balboa community of Newport Beach saw the highest percentage of sales going to cash buyers last year of any $1-million-plus Southland community — 66.7%.

Chris Crocker, a Coldwell Banker broker in Corona del Mar, said well-heeled buyers are using cash to acquire investment properties and second homes or to better their portfolios.

“Buyers are looking out 10 years, and buying a trophy property for 40% off its price” before the housing downturn, Crocker said.

Within a five-mile radius, his office closed 24 all-cash deals in the $5-million-and-up price range in the last six months.

“The smart money is ahead of the game and buying before the summer selling season when they will have competition,” he added.

Other big cash markets were Montecito, with 57.2% of sales, and Beverly Hills, with 45.6%.

“All-cash buyers are becoming the optimum buyer,” said agent Ian Brooks of Rodeo Realty, Beverly Hills. “I just closed three deals in a row that were all cash.”

Among the properties was a $1.73-million condo at the Azzurra in Marina del Rey, a 19-story building known for its collection of paintings, sculptures and photographs by artists including Andy Warhol, Ed Ruscha and Roy Lichtenstein that adorn the lobby and other public areas.

Brooks says most of his clients who pay cash are investors looking for a fast close.

“We call it land banking,” he said, “because buyers are literally taking these condos and homes and they are betting prices will go up.”

But all-cash purchases aren’t a cause for excitement in every luxury community in Southern California. Montecito is one such market where cash is old news.

“It doesn’t sell any popcorn here,” said Harry Kolb, a Sotheby’s agent with 32 years of experience in the wealthy Santa Barbara community. “We’re pretty jaded. Over-$5-million sales are, for the most part, cash.”

One reason for the high percentage of cash sales is that luxury properties are hard to value, making it harder to get a loan.

“Our market is very subjective,” Kolb said. “We’ll have a 3,000-square-foot house that sells for more than a 5,000-square-foot house. Appraisers don’t know how to handle that.”

Another factor contributing to the high percentage of all-cash deals in luxury markets is the prospect of being turned down for a loan because the qualification process has gotten much more difficult for jumbo loans, Kolb said. In areas with high housing costs, including Los Angeles and Orange counties, a jumbo loan is a mortgage of more than $729,750.

“Very substantial financial people have not been able to get loans,” he said. “It’s the first time they’ve ever been refused for anything.”

While investors are counting on home prices to rise, they should also be prepared for a long wait, USC’s Painter cautioned.

“My sense is that we are in a flat period,” he said. “I expect we’ll be there for another 12 months as the inventory gets pushed out in the foreclosures that banks are holding and as they dispose of them.”

The growth in cash buying is making clinching a deal increasingly difficult for traditional buyers.

“There is a competitive advantage against people who have to finance,” Painter said. With a cash buyer, the seller knows that the chances of a successful close are higher. “It gives people a leg up on the buying side.”

It also translates into dollars. The all-cash buyer often can negotiate about 10% off the asking price, real estate experts agree.

“Cash will continue to prevail in any purchase, big or small,” said Rodeo Realty’s Brooks. “The all-cash offer is king.”