Month: May 2012

Housing recovery ‘well under way’

May 27th, 2012,  by 

 OC Register

Nearly a third of U.S. mortgage borrowers, and a fourth of O.C. borrowers, have “negative equity” in their homes — that is, they owe more than their homes are worth, according to a recent Zillow report. The report said also that about 2.4 million U.S. homeowners – and about 9,200 in Orange County – owe more than double what their homes are worth.

Zillow Chief Economist Stan Humphries explains what that means. And he tells us that the U.S. is about halfway through the housing market recovery, although home price appreciation will remain weak for some time to come … 

Us: Are we seeing any improvement in the number of homeowners who are “under water” on their mortgage?
The lack of change does reflect basically two countervailing forces. One, home prices have been stabilizing, which is a good thing, which normally would help the negative equity rate go down.

Stan: Over the past year, there hasn’t been much change.

The other thing that affects the negative equity is foreclosure rate itself because foreclosures serve to clean out the (numbers) in negative equity. It converts a house that’s in negative equity through the foreclosure process into a home in positive equity because it’s foreclosed on, someone buys it and pays a down payment.

We probably would have seen stronger movement in the negative equity rate if we had the same rates of foreclosure liquidation that were occurring prior to the robo-signing controversy in the fall of 2010. Since that time, the pace of foreclosures has really slowed down, and people are cleaning out the negative equity rate at a slower rate than they were before.

Us: Is a stable negative equity rate good for underwater homeowners trying to hang onto their homes?

Stan: I suppose that’s true. For people who are in default, a stable negative equity rate would be good news because one of the underlying reasons for that is not processing foreclosures.

Although for the overall housing market, that does create enormous uncertainty because these are people who long term are not going to turn into performing loan (borrowers), so therefore are going to lose the house. Essentially that becomes part of the shadow inventory of homes that are not yet on the market but likely are going to be on the market in the near future.

Us: A fifth of U.S. mortgage borrowers owe at least 20% more than their homes are worth. How is that impacting the market?

Stan: Most research seems to suggest when you get to a loan-to-value ratio north of 135% (or owing 35% more than a home is worth), that’s where you start to really see strategic default behavior (where borrowers walk away from the home). It’s definitely worrisome.

(But) I think some consumers often equate the two very directly, that negative equity directly results in foreclosure. Of course, that’s far from the truth.

Our research shows nine out of 10 folks who are under water are paying the mortgage. Most of these people who are underwater are going to continue paying the mortgage.

But, that said, households that have negative equity are most vulnerable to liquidity shock, to some income disruption at the household level. So a lost job, a death, divorce, those events coupled with negative equity will make it much more likely a house will go into foreclosure. That’s the biggest risk that these negative equity homes pose to the housing market..

The second impact, of course, it creates basically a lock-in effect or a freeze within the housing stock where people are totally trapped in their homes and they, therefore, can’t go out and sell their house and buy another one.

If you think of the housing market like a conveyer belt or like a StairMaster in where a new homeowner moves onto the first rung, and then everyone moves up one. The ability of those who are already on the stair case to move up to the next rung, to the next step, is clogged up right now because of all the negative equity.

Us: Is housing market starting to turn?

Stan: Yeah. We scraped the bottom.

(But) it’s a multi-year process, where first you hit the bottom of home sales. And then you start to see these long-horizon buyers like investors, second-home buyers and retirees – buyers who tend to own the asset for a long period of time.

Then we start to see ZIP codes within metros start to recover, and then we see the bottom of home values at the metro level. And then we eventually see a bottom of those nationally.

In that sequence of events, we are at least halfway through.

We think that nationally (prices) will hit bottom later this year. Generally, I think the recovery in the housing market is well under way.

Certainly, the last several months have been pretty positive in terms of news in the housing market. Generally, we’re seeing demand about 12% above where it was last year. I think buyers are probably getting off the fence and buying homes in 2012, which is why we’re seeing this uptick in demand.

Us: When will prices go back up?

Stan: For a lot U.S. markets, the bottom has already arrived, or we’ll see the bottom arrive sometime in this calendar year, which we think is great news.

I think more importantly, at this point, consumers should get the message, part of the thing with negative equity is that they should not expect at V-shaped recovery in terms of home values. We’re certainly not going to go back to the boom-years appreciation, where it was 5% to 10% annualized. Even normal appreciation, we think, will be out of reach in the immediate aftermath of the bottom.

Normal appreciation is 2 ½% to 5% range for home values. We think appreciation will be more in the 1% to 3% range, and that’s largely factored by the negative equity picture. Nationally, we’ve had a decline in home values of about 24%, and you can’t endure a decline of that magnitude without leaving some significant scaring.

One of the chief scars that has been left negative equity, and that is going to color the markets for the next two to four years, until we can work past that … The good news there is home values aren’t falling any more.

Demand for O.C. homes at 7-year high

May 29th, 2012,  by 

Demand for local housing slipped in two weeks but is still at a 7-year high for late May.

The latest Orange County home inventory report from Steve Thomas and — data as of May 24 includes these thoughts …

“Demand, the number of new pending sales over the prior month, continued a trend it picked up a couple of weeks ago, following a normal cyclical pattern for this time of year year, shedding 147 pending sales, or 4%, and now totals 3,701. That is still the best posting for the end of May since May 2005. It is 21% stronger than a year ago and 12% stronger than two years ago when the hangover effect of the end of the first time home buyer tax credit was fading. These drops during this time of year are part of the transition from the Spring to the Summer Market. With graduations, vacations and busy summer activities resuming, the market slows a bit from the highs of the spring. Demand of 3,700 is still very, very strong. With a very tight inventory and strong demand, the expected market time is a very hot 1.57 months. From here, expect demand to remain strong and at similar levels throughout the summer.”

Thomas’ signature housing measurement is his “market time” benchmark. It tracks how many months it theoretically takes to sell all the inventory in the local MLS for-sale listings at the current pace of pending deals being made. By this Thomas logic, as of May 24 — we see …

  • Market time of 1.57 months for Orange County buyers to gobble up all homes for sale at the current pace vs. 1.53 months two weeks ago vs. 3.68 months a year ago vs. 2.98 months two years ago.
  • Of the 8 Orange County pricing slices Thomas tracks, 4 had faster market time vs. 2 weeks ago; and 8 improved over a year ago.
  • Orange County homes listed for under a million bucks have a market time of 1.27 months vs. 4.85 months for homes listed for more than $1 million.
  • So, basically, it is 3.8 times harder to sell a million-dollar-plus residence!
  • And just so you know, the million-dollar market represents 27% of all homes listed and 9% of all homes that entered into escrow in the past 30 days.

Here’s the recent data for listings; deals pending; market time in months; latest vs. 2 weeks earllier, a year ago and 2 years ago. Color coding for market time is red (slowed by 5%-plus in year); green (sped up by 5%-plus in year); and yellow (in between!) Note: k=thousand; m=million …

Slice Listings Deals Market Time (months) 2 week ago 1 yr. ago 2 yr. ago
$0-$250k 814 683 1.19 1.14 2.81 2.17
$250k-$500k 1,571 1,566 1.00 0.95 2.99 2.21
$500k-$750k 1,244 854 1.46 1.50 4.00 2.89
$750k-$1m 684 293 2.33 2.31 4.61 3.70
$1m-$1.5m 533 181 2.94 3.10 5.77 5.04
$1.5m-$2m 313 77 4.06 4.35 7.35 8.76
$2m-4m 451 57 7.91 9.40 11.40 12.38
$4m+ 270 8 33.75 25.90 51.00 29.75
All O.C. 5,827 3,701 1.57 1.53 3.68 2.98

Existing-home sales and prices rise, point toward recovery: NAR

By Jessica Huseman

May 22, 2012 •

Existing-home sales rose in April, and home prices continued to rise, according to the National Association of Realtors.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 3.4% to a seasonally adjusted annual rate of 4.62 million in April from a downwardly revised 4.47 million in March. This is 10% higher than the 4.2 million-unit level from April of last year.

Lawrence Yun, NAR’s chief economist, said the numbers point to a housing recovery under way.

“It is no longer just the investors who are taking advantage of high affordability conditions. A return of normal home buying for occupancy is helping home sales across all price points, and now the recovery appears to be extending to home prices,” he said.

Total housing inventory at the end of April rose 9.5% to 2.54 million existing homes, a seasonal increase that represents a 6.6-month supply at the current sales pace, up from a 6.2-month supply in March. Listed inventory is 20.6% below a year ago when there was a 9.1-month supply.

“A diminishing share of foreclosed property sales is helping home values. Moreover, an acute shortage of inventory in certain markets is leading to multiple biddings and escalating price conditions,” Yun said.

Yun said those areas include the Washington, D.C.; Miami; Naples, Fla.; North Dakota; Phoenix; Orange County, Calif.; and Seattle, in the majority of which he says “stronger price increases” can be expected.

He said the general downtrend in listed and shadow inventory has caused a shift from the buyers’ market to one that is more balanced, and in some areas is even pushing into a seller’s market.

The national median existing-home price for all housing types jumped 10.1% to $177,400 in April from April of last year, and the March price showed an upwardly revised 3.1% annual improvement.

Yun said this is the first time there has been back-to-back, year-over-year increases since June and July of 2010, and even then gains were less than 1%. For this year, he said the country can can expect a “modest overall price gain of 1 to 2%, with stronger improvement in 2013.”

Distressed homes accounted for 28% of April sales. Of those, 17% were foreclosures and 11% were short sales. This is down slightly from 29% in March and down 9% from April of last year’s 37%. Foreclosures sold for an average discount of 21% below market value in April and short sales were discounted at an average of 14%.

Just last week, the 30-year fixed rate dropped to a record weekly lowof 3.91% since records began in 1971, according to Freddie Mac. It was the third week in a row where the record was broken.

First-time buyers rose to 35% of purchasers in April, up 2% from March’s numbers and 1% year-over-year.

All-cash sales dropped to 29% of transactions in April, down from March’s 32% and year-over-year from April 2011’s 31%. Investors account for the majority of cash sales, and their buying slowed in April to 20% of homes down 1% from March and unchanged from April 2011’s 21%.

Single-family home sales rose 3% to a seasonally adjusted annual rate of 4.09 million in April, up from 3.97 million in March. The numbers are 9.9% higher than the 3.72 million-unit rate one year ago.

Existing condo and co-op sales were up 6% to a seasonally adjusted annual rate of 530,000 in April — beating March’s numbers by 30,000 sales. April’s numbers are 10.4% above April of last year’s numbers.

Regionally, existing-home sales in the Northeast gained 5.1% to an annual level of 620,000 in April and are 19.2% higher than a year ago. The median price in the Northeast was $256,600, up 8.8% from April 2011.

In the Midwest, existing-home sales increased 1% in April to 1.03 million. That is 14.4% higher than April 2011. The median price in the Midwest was $141,400, up 7.4% from a year ago.

Existing-home sales in the South rose 3.5% to an annual level of 1.79 million in April and are 6.5% higher year-over-year. The median price in the South was $153,400, up 8% from last year.

Existing-home sales in the West increased 4.4% to an annual pace of 1.18 million in April and are 7.3% above April 2011. The median price in the West was $221,700, an impressive increase of 15.9 percent from a year ago.

FHA may loosen limits on condo mortgages

The revisions could remove at least some of the obstacles that have dissuaded condo homeowner association boards from seeking approval or recertification of their buildings for FHA loans.

May 20, 2012|By Kenneth R. Harney LA Times

WASHINGTON — Thousands of condominium owners and buyers around the country could soon be in line for some welcome news on mortgage financing: Though officials are mum on specifics, the Federal Housing Administration is readying changes to its controversial condominium rules that have rendered large numbers of units ineligible for the agency’s low-down-payment insured mortgages.

The revisions could remove at least some of the obstacles that have dissuaded condominium homeowner association boards from seeking FHA approval or recertification of their buildings for FHA loans in the last 18 months. Under the agency’s regulations, individual condo units in a building cannot be sold to buyers using FHA-insured mortgages unless the property as a whole has been approved for financing.

According to condominium experts, realty agents, lenders and builders, the FHA’s rules have become overly strict and have cut buyers from their best source of low-cost mortgage money, thereby frustrating the real estate recovery that the Obama administration says it advocates.

Christopher L. Gardner, managing member of FHA Pros, a national consulting firm based in Northridge that assists condo boards in obtaining FHA approvals, said barely 25% of all condo projects that are potentially eligible for FHA financing are now approved. That is despite the fact, Gardner said, that FHA financing is the No. 1 mortgage choice for half of all condo buyers and is crucial to many first-time and minority purchasers.

Moe Veissi, president of the National Assn. of Realtors and a broker in Miami, said the FHA’s strict rules “have had an enormous impact on individuals” across the country, especially residents of condo projects who find they are unable to sell their units because their condo board has not sought or obtained approval from the FHA as a result of objections to the agency’s strict criteria. This in turn depresses the prices that unit owners can obtain and ultimately harms their equity holdings and financial futures, Veissi said.

FHA officials defend their requirements as prudent and necessary to avoid insurance fund losses but have expressed a willingness to reconsider some of the issues that have upset condo owners and the real estate industry. Among the biggest areas of criticism of the FHA’s rules are its limitations on:

•Non-owner occupancy. The agency requires that no more than 50% of the units in a project or building be non-owner-occupied. This rule alone has made large numbers of condominiums in hard-hit markets ineligible for FHA financing, where investors have purchased units for cash to turn into rentals.

•Delinquent condo association fee payments. The FHA refuses to approve a project where more than 15% of the units are 30 days or more behind on payments of condo fees to the association. Given the state of the economy, this has been a problem for thousands of associations, even in relatively prosperous markets. Steve Stamets, a loan officer with Apex Home Loans in Rockville, Md., said some sellers and buyers have been so frustrated by the rule that they have offered to pay the amount of delinquent fees needed to bring the overall project into compliance “just to get the deal done. This is a ridiculous situation,” Stamets said. “When somebody calls up now and says they want to buy a condo with an FHA loan, I cringe.”

•Nonresidential space usage. The FHA has set a cap of 25% of the total floor space in a project for commercial use. Critics say this is too low and unrealistic for condo projects in urban areas, where retail and office revenues can be important to overall financial feasibility.

The agency has imposed a long list of other requirements on insurance and reserves, plus a highly controversial rule that associations interpret as creating harsh legal liabilities for condo board officers if applications for FHA approvals contain inaccuracies. Andrew Fortin, vice president for government and public affairs at Dallas-based Associa, one of the country’s largest homeowner association management firms, said many boards, facing the prospect of severe penalties, have refused to apply solely because of this personal liability burden.

The FHA is expected to clarify the personal liability language and make other modifications in its forthcoming rules. Whether the changes will be enough to persuade homeowner boards to apply for approvals in large numbers is uncertain, but industry experts say they — and residential unit owners — are likely to welcome whatever loosening of the current restrictions FHA can offer.

Bank of America offering up to $30,000 for short sales

By Les Christie @CNNMoney May 15, 2012

NEW YORK (CNNMoney) — Bank of America is offering some struggling homeowners payments of up to $30,000 if they sell their homes in a short sale and avoid ending up in foreclosure.

Under the plan, Bank of America (BACFortune 500) will offer homeowners so-called relocation payments of between $2,500 and $30,000 if they sell their home in a short sale. In short sale deals, the sale price of the home is less than what the seller owes the bank.

The bank first tested the payments in a pilot program in Florida last fall. Under that initiative, Bank of America paid up to $20,000 to borrowers who sold their homes in short sales.

“This program can help customers make a planned transition from ownership when home retention options have been exhausted or they have made a decision not to keep the home,” said Bob Hora, an executive for the bank.

Chase (JPMFortune 500) started a similar initiative in late 2010 that pays as much as $35,000 to short sellers. Wells Fargo (WFC,Fortune 500) has also paid five-figure incentives to short sellers or to owners who turned over their deeds to the bank.

BofA said it has completed 200,000 short sales over the past two years. These sales are generally more cost effective for banks than foreclosures. By avoiding foreclosure, the lenders get distressed properties back from delinquent borrowers more quickly, which helps them to avoid property tax payments, maintenance expenses and legal fees that can build up for months, even years, as foreclosures work through the system.

In addition, the incentives help guarantee the homes will return to the lenders in better condition. Foreclosed properties are often poorly maintained, even sometimes sabotaged, by angry former owners, making them worth far less to the banks.

During the last three months of 2011, foreclosures sold for an average of about $150,000, according to RealtyTrac. Meanwhile, short sales sold for an average of about $185,000.

To qualify for Bank of America’s relocation payments, borrowers must obtain pre-approval on sale prices for their homes. The sale must begin by the end of 2012 and close by September 26, 2013.

The exact compensation is determined case-by-case based on a calculation that involves the home’s value, mortgage balance and other factors.

Borrowers can call 877-459-2852 to find out if they may be eligible for the program.

Analyst: Foreclosure’s shrinking shadow over housing


Published: May 18, 2012

Veteran Southern California real estate analyst G.U. Krueger adds his commentary on the housing market to this blog in a spot we call “Thursday Morning Quarterback.” Here’s his latest installment. …

There was a time, when the “shadow” of the “shadow supply” was rising and rising – between 2006 and the first quarter 2010.

Since then, the shadow supply of distressed properties has been shrinking. So-called “non-judicial states” — where foreclosures are handled by trustees, an often efficient recycling of distressed properties — lead with shrinking shadows. In judicial states — where courts are involved in the foreclosure process — shadows still loom large.

Mortgage delinquencies tracked by the Mortgage Bankers Association show most shadow supply indicators went in the right direction during 2012′s first quarter:

At the end of the first quarter 2012, 11.8 percent of mortgage loans were either late or in the foreclosure process on a seasonally adjusted basis. That’s down from 11.96 percent in 2011 Q4 and 12.8 percent a year ago. Two years ago the number stood at 14.7 percent, a steady improvement.

This decline in homeowners being late on their payment was almost entirely due to declining delinquencies in various stages of delinquencies. This is important because delinquencies are the leading indicator for future foreclosures. The percentage of loans in which foreclosure actions started was 0.96 percent, down from 0.99 percent the quarter before and 0.12 percentage points lower than a year ago. That’s almost back to “normal”.

Loans that were 30 days delinquent declined to 3.13 percent from 3.22 percent in 2011′s final quarter. The first quarter number was around the long-term average, indicating the positive effects of job growth — and the tighter underwriting of recent loans.

60-day delinquent loans dropped to 1.21 percent from 1.25 percent the quarter before — lowest since the end of 2007.

The 90-day delinquent mortgage bucket stood at 3.06 percent last quarter, down from 3.11 percent in 2011 Q4. This was the lowest since 2008 but still significantly above normal, which would be 0.8 percent. This would be the immediate feeder bucket that would unleash foreclosures following the foreclosure settlement from April 5th this year. It’s significant that this is coming down.

The in-foreclosure bucket is important to watch also to see if banks unleash a new wave of foreclosures. The in-foreclosure bucket remained stubbornly high in 2012 Q1 at 4.39 percent, which is down slightly from 4.48 percent in 2011 Q4, and down only slightly from 4.5 percent a year ago.

Any big impact of bankers’ foreclosure-mishandling settlement will be seen in the judicial states. Ten of the top 11 states with highest foreclosure rates are judicial. California and Arizona, which used to have high foreclosure rates have now fallen below the national average of 4.4 percent — California at 3.29 percent; Arizona at 3.57 percent. It is no coincidence that these sates are seeing first signs of price stabilization.

Adding up all the mortgage distress, we see there are still 5.7 million loans delinquent, but that’s a misleading number. Not all of will end in foreclosure — and even this number has dropped from 7 million-plus two years ago. The shadows of the shadow supply are becoming smaller, especially the delinquencies in the early foreclosure process.

O.C. homes draw multiple-offer ‘avalanche’

May 14th, 2012, 

 OC Register

Orange County’s housing market is back at 2005 intensity, according to one report, with multiple offers for homes commonplace.

Click to see what $35 million would buy you in Newport!

Below $500,000 range is NUTS. Homes priced at or near their market value are generating an avalanche of multiple offers. A home in this range is placed on the market and, within moments, cars filled with buyers are touring the home. Realtors leave their business card behind so that the listing agent and seller know that the home has been shown. In the first couple of days of hitting the market, there are already stacks of business cards on the counter, a leading indicator that this home is not going to last. Upon writing an offer, buyers quickly find that they are one of many, sometimes over ten, offers on the home. Suddenly it becomes a battle of wills. In the end, the seller factors the highest price with the largest down payment. I know, you are thinking, “What about the appraisal?” In many instances, shrewd sellers and Realtors are leveraging the competition to drop the appraisal contingency and require the buyer to make up the difference between the appraisal price and the purchase price, IF there is an appraisal problem. This is precisely what a buyer is experiencing. Now, let’s take a look at the economic principles at play by zeroing in on the irrefutable data. Supply has dropped to levels not seen since June 2005. Demand is at levels not seen since June 2005. The expected market time for all of Orange County is 1.5 months, or six weeks. It is four weeks for homes priced below $500,000, 22 days for short sales, and 19 days for foreclosures.

Thomas’ signature housing measurement is his “market time” benchmark. It tracks how many months it theoretically takes to sell all the inventory in the local MLS for-sale listings at the current pace of pending deals being made. By this Thomas logic, as of May 10 — we see …

  • Market time of 1.53 months for Orange County buyers to gobble up all homes for sale at the current pace vs. 1.51 months two weeks ago vs. 3.68 months a year ago vs. 2.53 months two years ago.
  • Of the 8 Orange County pricing slices Thomas tracks, 5 had faster market time vs. 2 weeks ago; and 8 improved over a year ago.
  • Orange County homes listed for under a million bucks have a market time of 1.23 months vs. 5.17 months for homes listed for more than $1 million.
  • So, basically, it is 4.2 times harder to sell a million-dollar-plus residence!
  • And just so you know, the million-dollar market represents 26% of all homes listed and 8% of all homes that entered into escrow in the past 30 days.

Here’s the recent data for listings; deals pending; market time in months; latest vs. 2 weeks earllier, a year ago and 2 years ago. Color coding for market time is red (slowed by 5%-plus in year); green (sped up by 5%-plus in year); and yellow (in between!) Note: k=thousand; m=million …

Slice Listings Deals Market Time (months) 2 week ago 1 yr. ago 2 yr. ago
$0-$250k 858 751 1.14 1.11 2.95 1.75
$250k-$500k 1,607 1,689 0.95 0.94 3.03 1.79
$500k-$750k 1,253 834 1.50 1.53 3.72 2.55
$750k-$1m 678 294 2.31 2.49 4.81 3.55
$1m-$1.5m 521 168 3.10 3.02 5.50 4.99
$1.5m-$2m 309 71 4.35 5.29 8.41 7.17
$2m-4m 442 47 9.40 10.64 10.82 10.89
$4m+ 259 10 25.90 35.43 33.89 20.94
All O.C. 5,883 3,848 1.53 1.51 3.68 2.53