The new year could be the best year in real estate in years, but the housing recovery still remains fragile and challenges remain, says Dave Liniger, RE/MAX co-founder and chairman.
Liniger recently offered up some of his predictions for the new year:
Demand Spikes, strained supply push prices higher in Phoenix Housing Market
Here are some of the trends they point to:
1. Super kitchens: The kitchen is not just a hub for cooking but has become a center of the home for entertainment and conversations. Builders have been opening the kitchen to other rooms and the kitchen island is becoming key to separating the spaces. The island adds more seating along with extra prep space. As kitchens become more open, pantries are getting bigger to accommodate the need for storage.
2. Outdoor/indoors merged: The interiors are feeling stretched by carving out spaces that seamlessly allow home owners to walk into outdoor retreats. But buyers want those outdoor spaces to be private, a stray from the once traditionally “public” backyard. As such, more builders are taking note and carefully positioning the architecture of the home to make sure the outdoor space offers more privacy.3. Bigger garage spaces: Builders are taking note of buyers’ preferences for more space in the garage, and not just for squeezing in their cars. The garage can be a workspace, hobby haven, and place for added extra storage.
4. Office space: The office/den is in demand as more people work from home, but the best location for it is to still in question. Traditionally, the home office has been located off the main entry of the home. But now builders are rethinking the location as buyers show preferences to have the office closer to the “living” area, particularly near the kitchen hub and family room.
5. Tech-spot: More home owners are constantly plugged into their technology, and the growth of connected homes likely will lead to even more need for tech hubs in the house. Some builders are designing small “server” rooms as smart technology enters more homes.
6. Dual homes: More people are squeezing under one roof as young adults stay with their parents longer, aging parents move in, and cultural preferences further the trend. Builders are taking a keen interest in multigenerational living arrangements. For example, Lennar has launched a NextGen brand of floorplans geared to multigenerational living, which include separate main entrances and options like a 500-square-foot attached suite for a private residence.Mortgage financing giant Fannie Mae dropped its mortgage rate forecast for next year about two-tenths of a percentage points from its prior forecast, projecting 30-year fixed rates will remain lower than initially thought, at about 4.3 percent next year.
This will cheapen the borrowing costs for home buyers and refinancers, helping to make home ownership more affordable. However, with the forecasted rate drop, Fannie Mae economists didn’t adjust the forecast for total home sales for 2015.
“The housing market continues to grind its way upward, but we don’t expect a breakout performance in 2015 as the fundamentals remain somewhat muted,” says Doug Duncan, Fannie’s chief economist. “We believe that mortgage activity in 2015 will be very similar to 2014.”
Last week, the 30-year fixed-rate mortgage averaged 3.99 percent nationwide, marking the sixth consecutive week of near 4 percent averages, Freddie Mac reported in its weekly mortgage market survey.
But will another year of low rates spur more home buying?
“The relatively lower rates after the spikes of the early 80s did stimulate buying,” says David Crowe, chief economist at the National Association of Home Builders. “This time around, the low rates are still not as low as they [recently] were so the relative advantage is not as great. ... [Also] the current situation is much more driven by the availability of mortgage credit than the cost.”
Home buyers and sellers planning a kitchen redo have a lot of questions they need answered: What style of cabinets are in? What’s the newest color for countertops? What appliances should I install when there are so many? How do I ensure that my kitchen will be a gathering hub?
The median price for March was $204,500, up almost 4.9 percent compared with $195,000 in February, according to a new report from the W. P. Carey School of Business at Arizona State University.
Phoenix Housing Market Hits Slowdown
The new rules are designed to take a "back to basics" approach to mortgage lending and lower the risk of defaults and foreclosures among borrowers, according to the Consumer Financial Protection Bureau, which issued the new rules.
"No debt traps. No surprises. No runarounds. These are bedrock concepts backed by our new common-sense rules, which take effect today," said CFPB director Richard Cordray in remarks prepared for a hearing Friday.Mortgage lenders are being asked to comply with two new requirements: The Ability to Repay rule and Qualified Mortgages. Here's how they will impact borrowers:
Ability to Repay
Qualified Mortgages
The rules also restrict "steering," or practices that give financial incentives to loan officers or mortgage brokers for pushing people into higher-interest loans that they can't afford -- a practice that was all too common leading up to the housing bust, Cordray said.
"We think the new rules are balanced and well-drawn. They will offer consumers protection without limiting credit to qualified borrowers," said Gary Kalman, the policy director for the Center for Responsible Lending.
Lenders don't seem to be too worried about the new rules, according to Keith Gumbinger of HSH.com, a mortgage information provider. "It's no surprise; everybody has been preparing for the change for months," he said. "Because there will be additional underwriting scrutiny, it could gum up the works initially and slow loan processing, but it's really just the codification of things that are already in place."
A significant factor is what's not in the rules. There's no minimum down payment or credit score requirement.
"[The qualifed mortgage] is not taking a one-size-fits-all approach. It ensures that first time homebuyers can still come to the table," said Kalman.
If the rules required a minimum down payment of, say 10% or 20%, it would eliminate many first time buyers who would have a difficult time raising that much cash.
The lack of a credit score requirement will enable lenders to loosen currently tight underwriting standards in the future should conditions warrant, according to Gumbinger. For the moment, most loans will still have to be backed by Fannie Mae and Freddie Mac, and with a few exceptions, they won't approve applicants with scores below 620.
Source: cnn.money.com
Holiday-season homebuyers benefit from a variety of market incentives that can shift the balance of power in price negotiations temporarily in their favor.
One reason why is a significant drop in overall demand, leaving buyers with less competition for their dream house.
Valley real-estate agents are well-aware of these time-sensitive incentives and do their best to share them with their clients.
Yamile Hirsh, a real-estate agent with Phoenix-based HomeSmart since 2008, stresses that nearly every part of the homebuying process is cheaper near the holidays.
“There’s less competition, there’s exposure to more listings, even moving companies are forced to drop prices in response to the drop in demand,” she said. “On the lending side, the closing process is faster and interest rates are still amazingly low.”
Buyers moving from a rental may also be able to take advantage of a month of interest deductions that can be applied to their 2013 tax returns.
The drop in demand can be frustrating for those listing their houses and the agents representing them. But Hirsh suggests this is often lessened by the attitude of prospective buyers around the holidays.
“During the rest of the year, especially in the summer, you have a lot of looky-loos,” Hirsh said. “During the holiday season, they really want to buy a home. They’re very serious people.”
Seyoue Sims, a Realtor with Realty One Group, said the drop in end-of-year demand this year hasn’t been quite as much as in years past, primarily because of recent moves in interest rates.
“Rates are starting to climb, and people are afraid that they will continue to go higher,” he said. “That’s causing some extra motivation to get into a house now.”
According to Freddie Mac, the average rate for a 30-year mortgage is 4.16 percent. That’s up nearly a full percentage point from the all-time low of 3.31 percent in November 2012.
Ricardo Avalos, a project manager with Intel Corp, is Hirsh’s client. He is currently looking for houses in the south Chandler area. He’s aware of the financial benefits of buying before the end of the year, but he also has extra motivation.
“I actually bought a home 10 years ago, and we closed the day before Thanksgiving,” Avalos said. “I got to have family over for Thanksgiving the next day. It was pretty amazing and pretty hectic.
The real estate market has been one of the strongest pillars of the economy following the greatest financial downturn since the Great Depression. Amid low interest rates and a great deal of intervention from policymakers, home buyers received an added incentive to purchase a home. Meanwhile, sellers enjoyed low inventory levels and rising prices. However, a new survey finds that sellers might be losing their control on the market.
In the third quarter, 72% of real estate agents said now is a good time to sell a home, down from 86% in the previous quarter, and the first drop of the year, according to Redfin, an online estate brokerage. On the other side of the closing table, 55% of agents said now is a good time to buy, up from 46% at the beginning of the year. Thirty percent of agents also said that sellers are having difficulties getting their home to appraise for the contract purchase amount.
"At the end of this summer, you could smell the rubber on the road from buyers hitting the brakes," said Redfin San Diego agent Sara Fischer. "The cutthroat competition and frenzied demand has relaxed considerably."
Although interest rates are still low on a historical basis, the recent rise in home prices is affecting home affordability. In the second quarter, 69.3% of new and existing homes sold were affordable to families earning the U.S. median income of $64,400, according to the National Association of Home Builders. That is down from 73.7% in the first quarter and is the first reading below 70% since late 2008.
In August, home prices across the nation increased on a year over year basis for the 18th consecutive month. According to CoreLogic, a property information and analytics provider, home prices jumped 12.4% in August from a year earlier. In fact, home prices have logged double-digit gains for seven straight months. Home prices are still 17.1% below their bubble peak in April 2006, but every state posted an annual increase in August.
Going forward, the survey from Redfin finds that only 5% of agents believe home prices will rise a lot in the next 12 months, down from 44% at the beginning of the year. Meanwhile, 11% of agents believe prices will drop a little over the next year, compared to only 4% in the second quarter.
Average Sales Price Analysis:
Sellers:
Last month saw the average sales price decrease slightly by $200 from $244,408 to $244,208. This does NOT follow the trend of the month of September in the prior two years when we have normally seen an increase in the average sales price. Although this is the 5th highest average in the 36-month reporting period, we are definitely seeing a level off of prices in the market. Sellers need to remain diligent about pricing homes according to the current market and to understand how this increase impacts individual homes. Sellers are encouraged to spend time with their real estate professional to determine what is happening in their local market.
Buyers:
This statistic is an indicator that buyers still continue to pay more for homes than they have in the past 36 months. Educated and savvy buyers understand that a competitive market gives them fewer options for home choices, negotiating on price AND looking for concessions from a seller. Although this may vary from area to area AND from price range to price range, buyers need to make sure they are fully informed regarding the individual market in which they have an interest. This will give them the best chance of being competitive in the search for a home.
Fun Days Ahead for Homebuyers
Sunday, Oct. 27th, 2013, could be looked back upon as a very significant date for Phoenix's real estate market.
According to Michael Orr, the director of real estate at Arizona State University, Oct. 27 is when Phoenix officially became a balanced market. Phoenix hasn't seen a balanced market in two and a half years, and a return to normalcy is exactly what some homebuyers have been waiting for.
"For most of the last 10 years (Phoenix has been) a market that had too many buyers or too many sellers," Orr explained on his weekly appearance on That Real Estate Show, Saturdays at 3 p.m. on News/Talk 92.3 KTAR. "(In a balanced market) there's no real strong advantage for either the buyer or the seller in transactions when they're negotiating, because they're pretty equally matched."
Equality is a very new concept for the Phoenix real estate market, which had seen sharp home price appreciation and low housing inventory, a tough combination for anyone who is looking to buy a home.
According to Orr, that dynamic has shifted:
"It's probably going to be a lot easier (for homebuyers) because there aren't so many buyers out there, and the ones that are out there are will be treated with more respect and have less competition, so it will be a lot more fun."
Orr cites a drop in buyer demand as the main reason for the shift from a sellers' market to a balanced one, and this momentum should continue and could even move Phoenix into a buyers' market by year's end.
"The question is does the demand continue to go down? If it does, then we could come out of a balanced market and move into a buyers' market by Christmas, and probably stay (in a buyer's market) into the first two months of the year," Orr said.
As home equity levels improve, the move-up buyer is back on the market. More move-up buyers are selling their current properties to replace them with pricier homes, according to the latest report from FNC, a real estate data firm.
The move-up buyers are coming with larger down payments on new homes as recent improvements in home equity levels have allowed them to move.
"An important sign of a healthy and sustainable recovery is increased housing turnover driven by trade-up buying, which is more or less discretionary spending," says Yanling Mayer, FNC’s director of research. "These buyers are typically more responsive to market conditions and financial incentives.”
Rising mortgage rates are driving the higher demand because move-up buyers are wanting to take advantage before mortgage rates rise any more, brokers say.
Plus, more move-up buyers are in a better position to move. Forty percent of all home owners now have at least 20 percent or more of equity in their homes now, according to RealtyTrac data.
Investors have gone from accounting for 23 percent of home purchases in February to about 20 percent in June—the lowest level since September 2012, according to data from Campbell/Inside Mortgage Finance survey.
Their numbers will likely decrease even more in the coming year. About 48 percent of investors recently surveyed say they plan to lessen their home purchases over the next year, according to a recent survey by ORC International. Only 20 percent of the investors surveyed say they plan to buy more homes in the next year, a drop from 39 percent 10 months earlier.
"Investors helped stabilize a housing market that was in free-fall and they did so by taking advantage of fire-sale home prices," says Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. "Now you see few fewer bargain prices in the market and that's a reason investor demand is coming off its peak."
Researchers at Arizona State University say rising interest rates don't appear to be affecting the Phoenix-area housing market, which is making a comeback.
A report from the university's W. P. Carey School of Business shows the median single-family home price in the area rose to $190,000, up roughly 27 percent from last June when the price hovered around $150,000. The report also noted the median price for condominiums and townhomes went up dramatically to $125,000, a nearly 40 percent increase.
Home equity is the difference between what a person owes on their mortgage and their home's market value. For example, someone who owes $200,000 on a home that is worth $300,000 has $100,000 in home equity.
As home prices rise nationwide, so too does the value of your home's equity. That value can be monetized through a home equity loan, home equity line of credit or what is called a cash-out refinance. (That's when you take out a new loan with a higher balance that pays off your existing mortgage and then you can use the remaining balance toward other things, like a second home.)
Unlocking some of your home's value to pay for a second home has its advantages -- but it has some big drawbacks too, says Greg McBride, a senior financial analyst for Bankrate.com.
Lenders tend to give more favorable terms to those who tap their home's equity to pay for a second home because they have more skin in the game.
Buyers who take out a separate mortgage on a second home are more likely to stop making payments if they run into financial trouble and default. To offset the increased risk, banks charge higher rates and require larger downpayments of these borrowers. But those who use their primary home's equity will work harder to pay off the loan and are much less prone to miss payments, said McBride.
The costs of borrowing, especially on home equity loans, can be lower as well, since these loans don't involve paying for title searches or insurance and other transactional costs of new mortgages.
But there are some negatives. By tapping your home's equity you'll be increasing your monthly mortgage payments and increasing the risk of losing your primary home to foreclosure.
The latest housing data out of Phoenix shows that the market is normalizing:
inventories have stopped falling and home sales are rising even as the share of
properties sold to investors is declining.
Here are seven takeaways:
1. Inventory is no longer below last year’s levels. While
the inventory of homes for sale in April stood 7% below March levels, inventory
stood 20% higher than one year earlier (by contrast, the national inventory in
April was still significantly lower on a year-over-year basis). The increase
appears to be coming from owners other than banks, because the inventory of
distressed homes is down 29% from a year earlier. Still, Mr. Orr notes that
inventories remain low by historical levels, largely because too many homeowners
are still unable or unwilling to sell. “At some point we will reach a pricing
level where resale supply will free up, but it seems clear we are not there
yet,” he writes.
2. Sales are rising, even though the share of homes being purchased
by investors has declined. Some of this is seasonal, but not all of it.
Investors accounted for 26.8% of homes purchased in April, down from 27.1% in
March and 34.5% last year. Meanwhile, sales of single-family homes rose by 4%
from April 2012.
3. Sales of foreclosures and other distressed properties have
plunged, but sales of nondistressed properties have made up for those
declines. In April, sales of new homes were up by 27% and sales of
previously owned homes that weren’t distressed rose by 72%. Sales of bank-owned
homes fell by 53%, homes being flipped by investors fell by 47% and short sales
fell by 44%.
5. New foreclosure activity is down sharply. There were 60%
fewer new foreclosures initiated in April compared to one year earlier. Two
years ago, worries about a massive “shadow inventory” of delinquent and
underwater mortgages that hadn’t yet become foreclosures quieted any housing
happy-talk. Today, most analysts concede that any shadow inventory won’t be
liquidated in a way that will shock the system, and the numbers show little sign
of any shadow in Phoenix.
6. Institutional investors are getting too much credit.
While the “shadow inventory” hysteria has faded, some skeptics worry that too
many homes are being bought in bulk by Wall Street-backed funds that might
quickly retreat or dump all of the homes onto the market. The problem is that
“this idea falls flat when we examine the actual numbers of homes involved,”
writes Mr. Orr: “Many commentators dramatically overstate the impact that
institutional investors are having on our market.”
Mr. Orr calculates that rental firms have bought 11,000 homes in Phoenix,
representing “a tiny fraction,” or less than 1%, of the metro area’s housing
stock. If all of those homes hit the market next month, “we would still have
less supply than in a normal balanced market,” he wrote. Moreover, new housing
units would need to be found for the tenants being displaced. “In the real
world,” he concludes, “these rental homes are as likely to be held as investment
properties for several years and come back into the market relatively
slowly.”
7. Home-price data don’t show a housing bubble in Phoenix—at least
not right now. It’s true, of course, that Phoenix can’t sustain annual
home-price increases of 20% without similar increases in incomes. But the chart
above, provided by housing economist Tom Lawler, helps put the recent gains in
context. It shows Phoenix prices as tracked by the Case-Shiller index. Assuming
that prices should rise at the rate of appreciation seen during the 1990s,
prices are below a 3.1% annual rate of inflation. Instead, prices are roughly in
line with a 2% pace of annual appreciation since 2000.
Median list prices in May edged up 2.10 percent month-over-month, as housing inventories also were on the rise, creating a greater balance between supply and demand, according to realtor.com’s latest Real Estate Health Report.
The nationwide median list price was $199,000 for May, and up 4.79 percent year-over-year.
"We are seeing large regional markets across the country leading the way to national recovery. These regions are acting as a microcosm for what's slowly happening in the larger real estate market," says Steve Berkowitz, chief executive officer of Move. "Overall, we're seeing seller confidence beginning to respond to consumer demand. Nationally, there are more homes going on the market for a shorter amount of time. And this is happening in our hot markets on a much larger scale."
California housing markets are seeing some of the highest median price gains. The following 10 markets have seen the highest year-over-year list price gains:
1. Sacramento, Calif.: up 42.45%
2. Oakland, Calif.: up 38.27%
3. Detroit, Mich.: up 31.73%
4. San Jose, Calif.: up 30.58%
5. Los Angeles-Long Beach, Calif.: up 27.80%
6. Fresno, Calif.: up 27.48%
7. Phoenix-Mesa, Ariz.: up 27.03%
8. Stockton-Lodi, Calif.: up 25.63%
9. Reno, Nev.: up 24.23%
10. Santa Barbara-Santa Maria-Lompoc, Calif.: up 24%
Source: realtor.com®
The Fed said it will continue to buy $85 billion a month in Treasuries and mortgage-backed securities, but would reduce its asset purchase — known as “quantitative easing” — if job growth continues at its current pace.
Last year, the Fed committed to holding short-term interest rates near zero for as long as unemployment remained above 6.5 percent. In February, the unemployment rate was 7.7 percent. Many economists don’t expect unemployment to drop to levels around 6.5 percent until 2015.
However, Fed Chairman Ben Bernanke noted Wednesday that there is not consensus among the policy-making committee on how much longer to continue quantitative easing.
The committee recognized progress in the economy and job growth in recent months, noting “a return to moderate economic growth following a pause late last year.”
Bernanke has testified to Congress that quantitative easing has helped revive the housing market. Mortgage rates have fallen near all-time lows, with the average 30-year fixed-rate mortgage averaging 3.63 percent on March 14, according to Freddie Mac. In November 2012, 30-year rates fell as low as 3.31 percent.
| -- |
The latest figures released Tuesday by Zillow Inc. show Phoenix home values soared by 22.5 percent year-over-year during the last three months of 2012.
That’s significantly better than the nationwide average of 5.9 percent growth for the same period, and by far the biggest increase of any major metropolitan area examined by Zillow. San Jose, Calif. trailed far behind in second place at 15.4 percent, followed by San Francisco’s 14 percent and Las Vegas’s 13.9 percent.
Metro Phoenix’s price gains brought the area’s average home value to $157,800 for the fourth quarter, slightly better than the national average of $157,400, the report said.
Valley home values were also up 4.6 percent from just the third quarter, tying with San Diego for the fifth largest quarter-over-quarter jump, the report said. It was also much better than the nationwide average of 2.5 percent quarter-over-quarter.
Zillow economists expect the upswing in Valley home prices to continue through this year, albeit at a much slower 8.5 percent pace. The city of Phoenix should see a slightly bigger increase of almost 10 percent, while areas such as Scottsdale and Paradise Valley will see the biggest hikes of 13 to 14 percent.
The nation’s 5.9 percent annual rate of appreciation was also the fourth consecutive quarter of home value gains and the largest since August 2006.
This year, however, Zillow analysts say they expect the national appreciation rate to reflect that of a more normal, healthy market at about 3.3 percent.
“We expect this recovery to continue into 2013, but at a more sustainable pace,” Stan Humphries, Zillow’s chief economist, said in the report. “It’s important to be cautious moving forward, even as we celebrate the undeniably positive end to 2012, and be careful that consumers don’t grow to expect such high appreciation as the norm. Buying a home should be a long-term decision, and these swings between a deep housing recession and higher-than-normal appreciation rates can give consumers whiplash and cause some to lose sight of that.”
As Stuart Miller, chief executive of national homebuilder Lennar Corp., puts it: More people are “coming out of the penalty box.”
Some builders have a growing interest in reaching out to these “boomerang” foreclosure buyers. For example, builders like K. Hovnanian are providing sales staff with fliers that detail mortgage eligibility rules for families who have undergone a foreclosure or bankruptcy.
"The industry is saying, 'Pay your dues and then get back into the market,' " says Dan Klinger, president of K. Hovnanian American Mortgage.
Fannie Mae and Freddie Mac require a much longer wait than FHA to qualify for a loan after a foreclosure or short sale, up to seven years.
But just because “boomerang” families are allowed to apply again for financing for a home purchase doesn’t mean they’ll qualify for a loan, housing experts say. These families will still have to show a strong credit score and meet stringent underwriting standards.
Flipping is a real estate investment that involves buying a distressed property, swiftly improving its value - typically through physical upgrades - and then selling it at a higher - than - purchase - plus- improvements - cost, in order to pocket a profit.
Your agent will help you investigate your investment market and give attention to market moves - up or down - and the prospects for a resale in the near future. That due diligence is necessary before you start your search for the right property.
Get your feet wet by starting small. Save larger, more complicated deals for later - when you have more experience.
The best flippers are do-it-yourselfers who can perform the work. Otherwise, to save money, hire cheap labor (college students, day laborers, etc.) for basic painting, landscaping and other work that doesn't require skilled workers. less-skilled workers can perform.
Create a canvas for the buyer. Don’t get too cutesy or dramatic with the decor. You are an investor not a new home builder. As a rule, neutral tones work best. As with any home for sale, make it look inviting from curb appeal to the master bath.
Source: Realtytimes.com
Thanks,
-- Christina Complains
Dear Christina,
Sure, there are several ways for a first-time homebuyer to avoid paying private mortgage
insurance, or PMI. The first is to have a loan-to-value, or LTV, ratio on the
property of 80 percent or less, based on the home's appraised value.
One way to get to an 80 percent LTV when you don't have a 20 percent down
payment is to do a piggyback loan. With a piggyback loan, you borrow 80 percent
LTV on a first mortgage and at the same time take out a second mortgage,
typically for 10 percent of the home's appraised value. Then, you come up with a
10 percent down payment. This is also known as an 80/10/10 mortgage. The
downside of this type of mortgage is that the interest rate on the second
mortgage tends to be significantly higher than the interest rate on the first
mortgage.
Another alternative to making PMI premium payments is to have the mortgage
insurance payment baked into the interest rate. You have a higher interest rate
on your loan but aren't making separate premium payments. It will, however, show
up in the form of a higher monthly mortgage payment.
I try to remind homeowners that PMI on a conventional mortgage doesn't last
forever, and it gives them the opportunity to buy a home with a down payment
less than 20 percent. The lender must cancel the policy when a strong payment
history allows your loan balance to fall to 78 percent of what had been the
appraised value of the property at closing.
Bank of America Increases Relocation Assistance Payments to Customers Completing Preapproved Short Sale
Adding to its foreclosure prevention intiatives, Bank of America has launched a nationwide program that offers delinquent mortgage customers increased assistance with relocation expenses – between $2,500 and $30,000 - at the completion of a qualifying short sale. “Bank of America is committed to providing alternatives to foreclosure whenever possible,” said Bob Hora, home transition services executive for Bank of America. “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.”
To qualify for the enhanced relocation assistance payments under the new program, the seller must work proactively with the bank to obtain a preapproved sales price prior to submitting a purchase offer to the bank. A short sale must be initiated by the end of this year and close by September 26, 2013, to be eligible for the payment. Qualifying short sales that have already been started but have not
closed may be eligible for the relocation assistance.
The amount of assistance provided under the new program will be determined on a case-by-case basis using a calculation that includes the value of the home, amount owed and other considerations.
Initially, the program will be offered on mortgages that are owned and serviced by Bank of America.
While available nationally, Bank of America anticipates greatest response to the program will come from borrowers in California, Nevada, Arizona, Florida and other states hardest hit by the
economic downturn and falling property values.
Home sales are projected to be 9 percent above year ago levels, and home prices are expected to continue to rise, according to Fannie Mae economists. A shrinking inventory of for-sale homes on the market has also led to a gradual pickup in homebuilding in many housing markets across the market.
What’s more, residential investment is projected to contribute about 0.2 percentage points to the real gross domestic product this year -- which could mark its first annual contribution since 2005, Fannie researchers note.
Still, Fannie economists caution that the pace of the real estate market recovery will likely stay modest, due to factors like tight credit standards and a high number of foreclosures that continue to plague many markets.
Also, the overall economic recovery continues to face several challenges. Consumer spending dropped nearly a percentage point in the second quarter, and the labor market remains sluggish, according to Fannie Mae’s August report. However, retail sales did pick up in July and last month’s job report did have the strongest gain in five months.
"The July data hasn't changed our forecast for slow growth in 2012, but we're increasingly focused on the looming 'fiscal cliff' near year-end," Doug Duncan, Fannie Mae’s chief economist, said in a public statement. "The debt ceiling debate, as well as current legislation that could create a drag of more than 4 percent on GDP in 2013, may spur further caution among consumers and businesses alike. On the bright side, we continue to see positive trends in the housing sector, which is showing signs of a durable, long-term recovery."
New figures today from the Federal Housing Finance Agency show a year-over-year hike in sales prices of 12.9 percent. By contrast, the national average barely cracked 3 percent.
And prices in just the last quarter are up close to 6 percent.
What makes this particularly noteworthy is the same report issued exactly one year ago found exactly the opposite. The FHFA found prices had dropped almost 15 percent from the same time in 2010.
Part of the reason for the sharp increase could be a simple question of math: With prices having dropped so precipitously, any jump in sales prices seems magnified.
But Michael Orr said that there may be a bit less to the increase than the pure numbers show, at least as it affects the typical Arizonan.
Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business at Arizona State University, said much of the market is being driven by investors anxious for a bargain. As the inventory of affordable homes dries up, he said, the investors find themselves bidding against each other.
He said, though, that this double-digit price increase recorded by FHFA does not necessarily reflect what all homes in Arizona are bringing.
Orr said the index tends to weigh heavier with the sale of new homes which are being financed with conventional mortgages. At the other extreme, he said the federal agency seeks to filter out ``distressed'' sales forced by foreclosures.
``It depends on what you measure,'' he said.
The study by the Federal Housing Finance Agency finds the price of an average home in the state that sold in the first three months of the year up by nearly 2.5 percent in the last quarter. That was good enough to far exceed the national average of just a half a percent.
And that, in turn, is eating into the losses posted in the last five years.
But when the report adds in appraisals done on homes for refinancing mortgages, a different picture emerges: Overall home values are still dropping.
Put another way, homeowners who are getting new loans are seeing appraisal reports that show their properties are worth less now than a year ago. But anyone in the purchasing market needs to be prepared to shell out more.
Economist Michael Orr of the W.P. Carey School of Business at Arizona State University said one factor is simple supply and demand.
“We’ve got only a tiny fraction of normal listings of what we would normally have at this time of year,” he said. “At the same time, people who have relied on banks listing homes are realizing the banks haven’t got many homes because they’re not foreclosing on very many.”
Orr said his own analysis of the Arizona housing market, which relies on Multiple Listing Service data, is showing a sharp upswing in the price of homes being sold.
That still leaves the other half of the equation: the drop in what appraisers think homes being refinanced are worth.
Orr also said appraisers are being conservative in their reports.
“All they need to do is come up with a number that justifies the loan,” Orr continued. He said appraisers are not particularly interested in providing a figure that represents the current state of the market.
In fact, he said, they really cannot represent the current market because the “comps” they use — data on values of comparable homes that are selling — is pretty much three months out of date.
But Orr there’s another factor at work.
“They are under pressure to guess low,” he said. Orr said the lenders were stung when the appraisals done at the top of the market proved to be much higher than they could recoup when the buyers defaulted and the homes were sold in foreclosure.
And that makes a big difference in Arizona where home buyers are generally not liable for the difference between what the home brought at auction and the amount outstanding on the mortgage.
Andrew Leventis, principal economist for the FHFA, said he also believes that the figures may represent “appraisal conservatism.”
But Leventis said those lower numbers on the appraisal side of the equation also may reflect some unique aspects of what is happening in the market. The key there, he said, are the newaffordable refinancing programs.
“We may be seeing appraisals from parts of Arizona that may have suffered more, and are just showing more weakness than the rest of the market,” Leventis explained. He said a glut of appraisals from these distressed neighborhoods will bring down the overall average.
In another sign that metro Phoenix's housing market is slowly recovering, hundreds of homes across the region sold by banks after foreclosure or through short sales are being flipped by investors for almost double the price they paid just a few months earlier.
With metro Phoenix's median home price steadily climbing this year, speculators have seized on an opportunity to make fast profits and are selling houses across the region at prices not seen since the beginning of the housing boom in 2003-04.
Home prices have climbed as the supply of houses for sale has shrunk. The number of homes for sale in the Phoenix area is half of what it was last May, and the median price is up by an astonishing 30 percent since then.
Real-estate experts say that's also good news for homeowners who have been battered by falling prices for six years due to record foreclosure homes flooding the market and selling for bargain prices. Now that foreclosures have dropped and home prices have started to rebound, many more homeowners may be able to sell for a profit again.
Also, investors are fixing up homes before reselling them for higher prices, which improves neighborhoods and nearby home values, said Mike Orr, real- estate analyst with Arizona State University's W.P. Carey School of Business.
"Investors fixing and flipping homes are adding to the supply of homes for sale that the regular buyer wants," he said. "This is good for the market and good for home values."
The trend has unfolded fast. Foreclosures started steadily falling last year, and lenders began moving to sell the homes they had already taken back and close short sales.
Most of the flipped houses are getting at least minor renovations and upgrades and selling to people who intend to live in them, another sign that regular buyers are returning to the market in big enough numbers to push prices higher.
A sample of the jaw-dropping price run-ups:
An east Phoenix home bought through a short sale for $218,000 in September sold in late February for $560,000. The home was completely remodeled, but the price was still an eye-popping 156 percent more than the investor paid.
A home in Chandler, built in 2005, sold through a short sale in November for $255,000 and was then flipped by an investor for $410,000 in March -- a 61 percent profit in five months.
A former foreclosure home in central Glendale was bought for $131,000 in January and flipped in mid-April for $243,000, an 85 percent jump. The investor added stainless-steel appliances and replastered the swimming pool at the ranch-style home.
In Goodyear, a 2,000-square-foot home in the Estrella Vista community was purchased from the lender for $88,000 in January. The investor repainted the home, put in new carpet and resold it for $188,000 in mid-April for a 113 percent gain.
"There are hundreds of recent examples of foreclosure or short-sale homes that have sold to investors who have been able to resell them quickly for much higher prices," said Tom Ruff, managing director of AZ Bidder, a Phoenix-based online foreclosure-auction firm.
He said these deals are giving metro Phoenix's housing market a huge boost and aiding in its recovery.
Ruff, who has been researching the trend and created a database of thousands of sales, said the market has been building toward this trend for the past year.
A slowing of foreclosures means fewer bargain homes on the market, while at the same time demand for homes has jumped as investors and regular buyers try to purchase at the bottom of the market.
It's now clear metro Phoenix's housing market hit bottom last fall, according to the experts.
Investors looking for bargains on foreclosure homes fight for them at daily auctions in front of Maricopa County's courthouse.
Lenders foreclose on homes in Arizona through trustee-sale auctions, where buyers must pay cash, make the winning bid and take the home "as is." Many of the investors making the most money are buying at the auctions.
In an effort to save money and avoid having to take the house back, fix it up and pay a real-estate agent to market it, banks are making more deals with investors at foreclosure auctions. Bidding wars are common among investors, who know what shape a house is in and what they can spend on it to still make a profit.
Those homes are providing buyers with the biggest profits:
In a central Phoenix historic district, a home built in 1925 was purchased at a foreclosure auction in late February for $281,000. Less than a month later, the home was resold for $361,000.
Last November, a north Phoenix house was grabbed at a foreclosure auction for $150,200. The investor renovated the 3,000-square-foot home, redoing everything from the plumbing and electrical to the kitchen. It resold for $319,000 in March.
A house in the north Scottsdale golf community Troon Village sold at auction in December for $628,000. The buyer was able to flip the property by March for $850,000 without having to put much more money or work into remodeling it. The original owner paid $771,500 for the 4,000-square-foot upscale home with three bedrooms, four bathrooms and a negative-edge pool.
Orr said the strong resale market for investors who buy homes directly from lenders at foreclosure auctions will continue at least for the rest of the year as Valley home values continue to rise.
But Orr, who also publishes the "Cromford Report," an online daily real-estate analysis, said that will make it tougher for buyers to find inexpensive foreclosure homes for sale by lenders because they are selling at the auctions.
"The model for flippers works best when prices are rising, even though they have to work hard to find the right homes to buy," he said.
However, housing analysts say the current big jumps in prices on former foreclosure homes won't last for long because the number of foreclosures is falling. The number of metro Phoenix homes taken back by lenders in April was 1,650, the lowest level since late December 2007.
Although flipping homes for profit is reminiscent of the boom times in metro Phoenix, those golden days are a long way off for regular homeowners.
But real-estate experts say a rising number of people who were underwater on their mortgages last year are seeing they suddenly have equity in their properties.
Metro Phoenix's median resale-home price has climbed 23 percent since August from a 12-year low of $112,000 to $138,400 last month.
Today's metro Phoenix home prices are nowhere near boom levels. The area's resale median reached a record high of $253,000 in May 2006, according to Information Market, a real-estate research firm. But home prices are now rising fast. This year alone, the median has climbed 15 percent.
Experts say what will help the housing market continue to recover is if regular homeowners see they can make a profit and sell. That is beginning to happen now.
Last month, a 1,600-square-foot south Scottsdale condominium bought by an investor in January for $125,000 in a normal transacation -- not a foreclosure or short sale -- sold for $238,500 in cash. The owner who sold the condo in January paid $100,000 for it in 1994.
"When the typical homeowners see they can sell for a profit, supply will increase and the housing market will truly recover," Orr said. "But it will be awhile before all the great deals go away.''
CoreLogic, meanwhile, also shows a local drop in foreclosures, so much so that the Phoenix foreclosure market is tracking below the national foreclosure rate of 3.43 percent of outstanding mortgages. That number locally in January was 2.85 percent of outstanding mortgages, a decrease of 1.93 percentage points compared with a year earlier. The 90-day delinquency rate was 7.35 percent in Phoenix as compared with 10.07 percent in January 2011.
The declining inventory numbers may be the biggest surprise.
“Supply is tight in a pretty extreme way, and it looks likely to stay that way for months,” said Orr, director of the Center for Real Estate Theory and Practice at the W.P. Carey school.
Including new home sales, median prices for single family homes were up from $115,000 in February 2011 to $124,500 in February 2012, or 8.3 percent.
During the current buying season, which runs through June, Orr expects “frantic attempts” to buy homes by multiple buyers.
“One thing that could slow this down is appraisals,” Orr said. “That’s because appraisers are still looking at prices from up to three months ago, and they may be reluctant to write appraisals that match the now-higher market value.”
As a result, cash buyers will be in the driver’s seat.
Inventory of for-sale homes has dropped by about 23 percent compared to this time last year, and fell by 6 percent alone from December 2011 to January 2012, according to Realtor.com data.
The age of the inventory is also declining, and is nearly 5 percent below levels last January.
The median age of for-sale housing inventory is lowest — 69 days or less — in Oakland, Calif.; Bakersfield, Calif.; Denver; Fresno, Calif.; Stockton-Lodi, Calif. and Phoexnis-Mesa, Ariz., according to January data from Realtor.com.
Meanwhile, as inventory is falling, the median list price has been on the rise: up nationally more than 3 percent year-over-year.
Jay Brinkmann, the trade group's chief economist, said Thursday that apartment owners have raised their rates, in particular large investment trust Equity Residential. That's coupled with fewer people, roughly 60%, who intend to renew a lease, according to a study by Kingsley Associates.
"This means we might see a spring season better than the numbers are predicting," Brinkmann said at the MBA's mortgage servicing conference in Orlando, Fla. The trade group forecasts 4.39 million single-family homes sold in the second quarter, already an increase from the seasonally adjusted 4.17 million a year earlier.
Many Americans ran to rentals during the worst of the housing crisis, pushing homeownership to a 14-year low, and more tenants elected to stay put.
"The question is not how did (homeownership) fall, but how it got so high in the first place," Brinkmann said.
The MBA adjusted its forecast for mortgage originations in 2012 to just more than $1 trillion with more refinances than initially expected, according to Mike Fratantoni, vice president of economics and research. That's still below 2011 levels and would be the lowest since 1997.
Fratantoni expects home sales to grow 10% in 2013, though he predicted refinances will drop off considerably as MBA projects interest rates to slowly move off the lowest levels in 40 years.
Positive employment news, including a continued decline in jobless claims, could impact housing soon, but Brinkmann said uncertainty over business taxes in an election year and European debt could keep growth at bay.
"Everything is going to be based overall where the economy goes," Brinkmann said. "This is going to be a slow year. There are a number of headwinds we're facing in terms of economic growth."
Help Coming in March for Underwater Homeowners
A long-awaited federal program will soon allow more Phoenix-area homeowners to refinance their mortgages and lower their payments in spite of owing far more than their homes are now worth.
The expansion of the Home Affordable Refinancing Plan will allow for new home loans in March, according to new details from the U.S. Department of Housing and Urban Development, and homeowners are already lining up to apply.
President Barack Obama announced the plan in October, and borrowers have awaited the details since.The program targets homeowners who bought during the housing boom and have been unable to refinance up until now because their homes are no longer worth enough to secure a new mortgage through traditional refinancing.
An earlier version of HARP allowed homeowners with mortgages backed by two federal loan agencies to refinance, but only if their new loans were no more than 125 percent of their home's current value. In metro Phoenix, where values have plunged by more than half since the market's peak in 2006, that limit left many borrowers out.
The update to the program, which lenders refer to as HARP 2.0, lifts that loan-to-value restriction completely.The goal is to help homeowner save money and fend off foreclosures by lowering payments.
For a typical $250,000 mortgage, a switch from a 6 percent rate to current rates of about 4 percent would cut the monthly payment by about $300.
Matt Oliver of Peoria-based Lund Mortgage said despite the delay, some bigger banks have already refinanced borrowers deeply underwater and are now holding the loans, waiting to turn them over to the federal mortgage agencies Fannie Mae and Freddie Mac.
Albert Hasson was able to get his bank, Flagstar, to approve a refinance on his Phoenix-area home in late December even though the refinancing program was stalled at the time."The expanded HARP program is only semistalled," Hasson said. He said other homeowners should call their servicers now to see if they can be approved early.
To qualify
The expanded refinancing program is available only to those with mortgages backed by Fannie Mae and Freddie Mac, but the two entities back more than half of all mortgages.
Eligible homeowners can have missed only one payment in the past year and must still bring in enough monthly income to afford their lower payment.
Some borrowers will be required to show proof they have the income to pay the lower mortgage payments, but the guidelines aren't clear on who will be required to do this.
HUD Secretary Shaun Donovan told The Arizona Republic in October that part of the goal of expanding the refinancing program is to reward homeowners who have continued to pay their mortgages despite huge drops in their home's values and potentially prevent more homeowners from walking away. Estimates show nearly half of Arizona's mortgage holders are underwater.
The previous HARP plan, which allowed homeowners to refinance if their loan-to-value ratio was 125 percent or lower, had the same intent. But it helped few metro Phoenix homeowners because home values in the region have plummeted 60 percent during the crash.
While the program will be expanded, some borrowers aren't eligible. Kim Baker has been in her Phoenix home for more than five years and owes at least 40 percent more on her mortgage than what her house is worth. She can't refinance to reduce her 6.5 percent interest rate because her loan isn't backed by Fannie or Freddie. She wants the federal government to give lenders an incentive to help homeowners like her, too."Otherwise, we're stuck," she said. "Can't sell, can't re-fi, can't lower our payment, can't move to a cheaper house down the street. We didn't want to walk away or foreclose. So we keep paying every month hoping the economy turns around and maybe in several years we'll break even."
New guidelines
Much of the delay introducing the expanded refinancing program has been because of slow negotiations with lenders, and it is still not clear if the nation's biggest banks will participate, market watchers say.
The government struggled to get big lenders to cooperate with another program, a loan-modification plan that would reduce payments for struggling homeowners.
It's likely to take lenders a few months to implement the expanded refinancing program, so it may not be clear until summer whether the program will be more successful.
Government officials say it has taken longer than expected to work out details with lenders on the expanded refinancing plan. The federal government has several hurdles to overcome with lenders and the mortgage market to make the new program work.
Currently, most loans are bundled together as securities and resold to investors, who make money off homeowner interest payments.But the market doesn't currently deal with loans that are intentionally issued on homes that are worth less than the amount of the loan. It's not clear yet whether the federal government will create new securities to sell to investors or add a portfolio to hold the loans in.
The federal government also has to negotiate with lenders holding second mortgages on a home so they won't stall or stop the new refinancing program. Under the program, those lenders can get a small settlement when the loan is refinanced.
The expanded HARP program also now is open to investor-owned properties.
Homeowners can check to see if their loan is backed by Fannie or Freddie at www.makinghomeaffordable.gov.
Jay Luber, president of Galaxy Lending, said it appears the new HARP will reduce rates, fees and the terms of a loan, ultimately providing a more affordable and less risky mortgage.
Source: azcentral.com
Federal officials hope to launch a pilot program in early 2012 to convert government-owned foreclosures into rental properties.
The program, which was cited by Federal Reserve Chairman Ben Bernanke last week as one way to address the housing crisis, would sell foreclosed homes now owned by Fannie Mae and Freddie Mac to investors in bulk. The properties would then be converted into rentals.
The initiative began back in August, when the Federal Housing Finance Agency, the Treasury Department and the U.S. Department of Housing and Urban Development announced they were seeking suggestions on ways to dispose of repossessed homes now owned by Fannie Mae, Freddie Mac and the Federal Housing Administration.
In addition to getting the properties off the government's books, officials are hoping putting the homes back into productive use will stabilize neighborhoods and housing values. Also, it is looking to expand the supply of rentals, which are increasingly in demand.
The agency is not releasing details on how the rental program would work, instead saying it is "proceeding prudently but with a sense of urgency to lay the groundwork for the development of good initial transactions in early 2012."
Administration officials said they are continuing to work with the agency to develop the program.
Until now, most foreclosed homes have been sold individually because investors have demanded bigger discounts to buy large numbers of properties.
But federal officials are warily eyeing the expected surge in foreclosures as banks ramp up their action against delinquent homeowners. The process had been stalled since late 2010 when banks' shoddy paperwork practices came to light.
He urged lawmakers to ramp up their efforts to fix the housing market, placing particular emphasis on the problem of vacant homes on the market.
"Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery," he said.
Bernanke's comments launched a full-court press by Federal Reserve officials last week to raise awareness of the continuing problems plaguing the housing market.
His proposals were quickly followed by Fed Governors Sarah Bloom Raskin, who spoke on ramping up enforcement of mortgage servicers, and Elizabeth Duke, who said Fannie Mae and Freddie Mac could do more to help heal the housing market.
Meanwhile, New York Fed President William Dudley gave a speech that touched on a wide range of housing policies -- including principal reduction and mortgage refinancing -- that he believes will boost the economy.
The Fed has already tried to boost real estate sales by pushing mortgage rates down to record lows through massive bond-buying programs.
But the renewed push for housing help indicates that the Fed, which has basically run out of monetary policy ammunition to revive the real estate market, is urging the federal government to ramp up its efforts.
11 Must-Knows About Early Mortgage Pay-off
Q: Will I save money if I make my regular monthly payment early?
Q: How do I know if my mortgage is "simple interest"?
A: Your note will say that interest accrues daily. Also, the monthly payment on a SIM varies month to month, so if your payment is always the same, you do not have a SIM.
A: If you include it with your regular payment and pay before the grace period, the extra payment will be applied to the current balance. If you make the extra payment after the grace period, it might be applied to the current balance, or it might not be credited until the following month, depending on the systems/policies of the servicer. You should find out where the servicer's cutoff is for receiving credit in the current month.
Q: If I make a large extra payment, will my future scheduled payments be lower?
A: On a fixed-rate mortgage, the scheduled payment is not affected by the extra payment. You just pay down the balance faster. On an adjustable-rate mortgage, the scheduled payment remains the same until the next rate adjustment. At that point, the payment is recalculated based on the reduced balance, the new rate and the original term. So unless it is offset by a rate increase, the payment will drop.
Q: Would I be better off investing excess funds rather than paying down the loan balance?
A: Not very likely. Paying down the loan balance is an investment carrying a yield equal to the mortgage rate, with no default risk. There are no riskless investments today that pay a yield that even comes close.
Q: Would this apply to a high-tax-bracket borrower who deducts mortgage interest payments?
A: Yes, what matters is the after-tax yield on the mortgage repayment relative to other investments, and the tax-rate adjustment affects them equally.
Q: Isn't it better to make extra payments in the early years of a mortgage when the regular payment goes largely to interest than in later years when most of it goes to principal?
A: No, the return on investment is not affected by where the mortgage is in its life cycle. While the allocation of scheduled payments between principal and interest changes over the life of the mortgage, extra payments go entirely to principal, no matter what stage of its life cycle the mortgage is in.
Q: Is there a way to escape a prepayment penalty clause?
A: No, the clause is there to protect the lender, or the ultimate investor if the loan was sold, which it probably was. Investors pay extra for the protection. I have never heard of a case where a prepayment penalty clause was voluntarily waived.
Q: Should seniors close to retirement pay off their mortgage?
A: It is a prudent move if they have the assets to do it, because the rate they are paying on their mortgage is higher than the return they can earn on assets having a high degree of safety. Paying off their mortgage also clears the way for a reverse mortgage in the future, should the need for additional income arise.
Q: If I have two mortgages, which do I pay down first?
A: In general, pay down the mortgage carrying the higher rate. However, if that mortgage is fixed-rate while the lower-rate mortgage is adjustable-rate, the decision must consider the possibility that the rate on the adjustable will increase in the future.
Q: Is a biweekly payment mortgage a painless way to pay it off sooner?
A: Making half the monthly payment every two weeks is not painless, because it requires an extra monthly payment every year, and the lender will charge you for the privilege. An alternative approach that is equally effective, and which is entirely within your control, is to increase your scheduled monthly payment by 1/12 of the payment.
Nishu Sood, director of Wall Street's Deutsche Bank Securities, used the term "revulsion" to describe the current phase of metro Phoenix's housing market.
"Revulsion," as in many people are averse to the very product that got the nation in trouble in the first place.
Sood was the lead speaker at the Scottsdale-based Land Advisors' third annual housing forecast for the Phoenix area, presented to a group of the region's top real-estate executives.
He was quick to point out that revulsion was the last phase in the "bubble" cycle before recovery for the region's housing market.
He said if Land Advisors would have asked him to speak about Phoenix's housing market in the years between 2006-10, everyone attending would have needed a shot of bourbon to make it through his negative evaluations and projections.
This week, Sood said he felt more positive about Phoenix's housing market and its oncoming recovery than he did about many other parts of the country.
That's something that made the executive sitting next to me smile with relief. This is the same man who brought in a Corona at the start of the 3 p.m conference because he thought he would need it to get through another negative forecast.
Sood's evolution of the housing bubble includes these cycles:
A change in the mortgage business and upgrades in technology during the 1990s made it easier to make and obtain loans.
In 2002, home prices started to climb, though most people were more concerned about dot.com stocks.
By 2004, housing euphoria had begun, and home prices were soaring.
Then, in 2005-06, came the explosion of the housing market. One later speaker said that's when "anyone who could fog a mirror with their breath could get a mortgage to buy a home."
In 2007-08, the painful market reversal hit. Some had expected it, but few were prepared for its carnage.
The financial crisis followed in 2008-09. It continues to shake the world.
And the current situation: revulsion. Sood said many people now are distrustful and averse to housing.
But, he said, the next and, one hopes, the last phase of housing bubble will be the recovery.
Speakers also included Land Advisors CEO Greg Vogel, Avatar Properties President Carl Mulac, Cromford Report founder and analyst Mike Orr, and the CEO of homebuilder Taylor Morrison, Sheryl Palmer.
None of them believes full recovery will come in 2012. But most agree it could start next year and be in full swing by 2014
The Federal Housing Finance Agency, which oversees mortgage finance sources Fannie Mae and Freddie Mac, said it was easing the terms of the two-year-old Home Affordable Refinance Program, which helps borrowers who have been making mortgage payments on time but have not been able to refinance as home values have dropped.
To help underwater borrowers, or those whose loans are worth more than their homes, FHFA said it will scrap a cap that prohibits any homeowners whose mortgage exceeds 125 percent of the property's value from participating in HARP, which is targeted at loans backed by Fannie Mae and Freddie Mac.
"Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets," FHFA's acting director, Edward DeMarco, said in a statement.
After meeting with DeMarco earlier this month, one lawmaker said the expanded program could help as many as 600,000 to one million borrowers. But that is only a fraction of the estimated 11 million homeowners who are underwater.
President Barack Obama is expected to promote the initiative during a speech Monday in Las Vegas. Obama will also use the trip to raise money for his re-election campaign.
But even the White House is uncertain about how many homeowners it could help. White House economist Gene Sperling said Monday it was too early to project how many struggling borrowers would "benefit from the changes announced today or could be announced in the future."
The New York Times reported Monday that the initiative was part of a program the president would be rolling out to address the nation's economic woes in the face of congressional Republicans' reluctance to pass his jobs plan.
It is the latest White House effort to deal with a key factor stalling the economy -- a crippled housing market -- and adding to political liabilities for Obama, whose re-election bid is already imperiled by stubbornly high U.S. unemployment.
It remained unclear whether the Obama administration's revised approach, which falls short of an overarching plan that some experts have said is needed, will provide enough of a boost to the battered housing market to spur the stagnant U.S. economic recovery.
Earlier federal programs to curb housing foreclosures have failed to yield the benefits initially promised.
To encourage banks to participate in the program, FHFA is revamping it to protect lenders from having to buy back HARP loans if underwriting problems are later found. Banks will only have to verify that borrowers have made at least six of their last mortgage payments and the new rules eliminate the need for appraisals in most cases.
FHFA said government-controlled Fannie Mae and Freddie Mac will waive certain fees for borrowers that refinance into loans with a shorter term, such as 15 years, aiming to spur homeowners to pay down the amount they owe at a faster rate.
HARP, one of the Obama administration's anti-foreclosure efforts, was unveiled in March 2009 and was expected to help as many as 5 million borrowers. So far, however, only about 894,000 borrowers have refinanced their loans through the program.
FHFA said it will extend the effort until Dec. 31, 2013. The program is limited to loans that Fannie Mae and Freddie Mac guaranteed before June 2009.
The Federal Reserve weighed in on what to do about housing Monday, too. A top Fed official said the nation's central bank could do more to drive interest rates lower to help housing, Rueters reported. The remarks by New York Fed president William Dudley marked the second time in a week that a Fed policy maker highlighted the possibility that the U.S. central bank could do more to support the housing market.
Rental demand and prices continue to soar, and investors are cashing in. Rents are rising at a 5.17 percent annual rate — up from last year’s 4.72 percent rate. If rents continue to grow at their current pace, they won’t be too far behind the record-high reached in 2000 of 6.18 percent, according to Axiometrics Inc.
The rental market has added about 1.4 million new renters this year, some of whom were former home owners who faced foreclosure or a short sale. Renters are increasingly showing an appetite for single-family homes owned by investors.
As such, the number of investors in the market is growing. Investors make up anywhere between 20 and 40 percent of monthly existing home sales, according to home-sale data. With home prices and interest rates low, more aspiring investors are jumping in. Nearly 60 percent of investors in a recent survey by Realtor.com considered themselves newcomers to real estate investing.
Investors used to aim for rents that were 1% of the purchase price, or $1,000 a month for a $100,000 home—an annual gross return of 12%—says Michael McCreary. His firm, McCreary Realty, manages about 300 properties in the Atlanta area. Today, he says, some of his investors are getting as much as 2% of the purchase price.
In general, though, average returns after expenses are far less, more like 5% to 6% of the property value, says Ingo Winzer, president of Local Market Monitor, a real-estate forecasting firm. But that still is well above what many other investments yield.
Before you start scouring for deals, keep in mind that owning rental properties is time-consuming, expensive and fraught with challenges, and many investors lose money. You will want to avoid falling into one of these common traps.
• Mistake 1: Confusing a cheap deal for a good deal.
It is true that you can buy some homes for ridiculously low prices—but that doesn't mean you can rent them out. Homes in deserted subdivisions aren't any more appealing to renters than they are to buyers. The same is true for less-attractive properties or those in less-desirable school districts.
Knowing the potential rent isn't enough. Before you buy a property, you should also factor in closing costs of 3% to 6%, the costs to fix up the place and maintain it, and your holding costs. Then add the profit you expect to make (and more closing costs, if you intend to turn around and sell it). Only then can you figure out what you can afford to pay.
• Mistake 3: Forgetting that time is money.
In real estate, "time is your biggest enemy," says David Hicks, co-president of HomeVestors of America, a franchiser whose motto is "We Buy Ugly Houses." You lose money when your property is empty, whether you are painting it or between tenants. You also lose if you buy in the fall and can't replace the roof until spring. You may be better off accepting a lower rent than waiting for a higher-paying tenant.
• Mistake 4: Assuming you will sit back and watch the rent roll in.
"When you become a landlord, you become a rent collector," says Mark Kreditor of Get There First Realty, which manages 1,600 rentals in the Dallas-Fort Worth area.
Just like homeowners who can't pay the mortgage, tenants lose their jobs and stop paying the rent. Evicting them can take several weeks, and some steal appliances or other property. Mr. Kreditor says that once or twice a month, a tenant removes a home's copper tubing on the way out the door to sell the copper for its meltdown value.
You will need to screen prospective tenants carefully—or pay someone to do it for you.
• Mistake 5: Underestimating repair costs.
As with all homes, you will be making lots of repairs. You may find wood rot or mold when you remove that cracked bathtub. Carpet in rental homes typically must be replaced every five years, and you may have to repaint after every tenant. Tony A. Drost, president of the National Association of Residential Property Managers, or Narpm, suggests setting aside six months of expenses so that you will have funds if a major repair is needed.
• Mistake 6: Assuming that owning a rental is the same as owning a home.
You might put up with flaws in a home that a renter wouldn't tolerate. In addition, many states and communities have strict (and complex) laws for landlords, even if you own only one property. A property manager can handle most of the headaches, but you should expect to pay one up to a month of rent for finding and screening tenants—and up to 10% of the monthly rent for management fees.
You can find property managers through the websites of trade groups Narpm and the Institute of Real Estate Management. In addition, many communities have local Real Estate Investor Associations, which can provide support.
The event drew a crowd of more than 170 participants and was held Wednesday at the Camelback Inn.
ARMLS CEO Bob Bemis said he wanted to combine the expertise of both the commercial and residential communities so that everyone could get a better picture of what truly is going on across the real estate spectrum.
“The residential and commercial people don’t talk as much as they should,” Bemis said.
Michael Orr, creator of the Cromford Report that includes in-depth local residential research, said he’s not sure the market will return to normal as we know it. He’s only willing to place a few bets on the next three or four months, which look modestly positive for home sales except when it comes to prices.
“They’re definitely not going up, but they’re not going down either,” Orr said.
Don’t get too excited, he said. Prices are not going to turn around quickly, but they could next year.
Foreclosures are dropping rapidly and are at the lowest level since September 2007. Short sales, he said, will be the largest part of the sales market for the time being.
“We’ve already been through the worst,” he said.
Scott Golba, who owns a property management firm and is an expert on residential rentals, was practically jubilant.
In other words, this is the growth rate for investors He pointed out that 34 percent of homes in the Valley are rentals, and the vacancy rate averages just 3 percent.
Most people are fearful of becoming landlords for fear of a renter trashing their houses. He said that’s rarely the case right now.
“Most (renters) are people who just lost a home and want to stay in the same subdivision. These are homeowners renting your home,” he said.
Nate Nathan, president of land brokerage firm, Nathan & Associates, still is very bullish on Phoenix. When the market turns around, in his estimation in 2014, all eyes will be on Phoenix because it’s the only place in the U.S. that can handle large amounts of job growth and population growth, he said.
On the commercial side, the experts said they are seeing improvements in the market after everything came to an utter standstill in 2009.
Stein Koss, an industrial expert with Lee & Associates, said since Amazon started occupying large amounts of distribution space in the West Valley, other retailers are taking a closer look at Phoenix.
Phil Breidenbach, an office leasing expert with Colliers International, said the situation is better but has a long way to go given how many jobs have been lost over the past several years. The bright spot at the moment? Downtown Phoenix. “It’s probably more exciting than any other place,” he said.
Cam Stanton, a retail investment specialist with CB Richard Ellis, said of these distressed properties,” he said.
Getting a mortgage can be tough these days -- even people with near-perfect credit have been rejected for loans. But for some lucky borrowers, things aren't as bad as the doom-and-gloom crowd says.
At a recent press conference, Federal Reserve Chairman Ben Bernanke said lending standards for mortgages have tightened so considerably that "the bottom third of people who might have qualified for a prime mortgage in terms of, say, FICO scores a few years ago -- cannot qualify today."
Indeed, roughly one-in-four mortgage applicants was denied in 2010, up from about 18% in 2003, according to data from the Federal Financial Institutions Examination Council. And those are just the ones that apply -- many discouraged potential borrowers don't even bother to apply anymore.
Yet, there is money to lend. Bob Ryan, the acting commissioner for the U.S. Department of Housing and Urban Development, or HUD, recently said that mortgage money "is flowing, it's stable, it's tightened from the boom years, but it's there."
And many of those potential home buyers sitting on the sidelines may just have a shot at it -- as long as they take a few crucial steps.
"The belief is that you can't get a mortgage at all -- but you can," Keith Gumbinger, of the mortgage information provider HSH Associates.
Most of the major mortgage underwriters have only returned to the more prudent standards of the days before the housing bubble. Now, according to Tuck Bradford, a branch manager with lender Mortgage Master, borrowers usually must meet four criteria in order to get a mortgage backed by Fannie Mae or Freddie Mac, the two government-run mortgage giants:
In today's market, however, even having all four of these factors in place doesn't always guarantee that you will get a loan.
Steve Habetz, a loan officer in Westport, Conn. had a client who was seeking to refinance but he had a single blemish scarring an otherwise spotless credit report. The client had a couple million dollars in assets, high income, ample home equity -- and a strong credit score of 700.
"This guy was a Boy Scout when it came to paying debts," said Habetz. "He had never been late."
Yet, Habetz couldn't get him a mortgage. The problem: an investment property the client had owned and tried to unload but couldn't (thanks to the housing bust). He eventually resorted to a short sale -- a deal in which the proceeds of the sale are insufficient to pay the amount owed on the mortgage and the bank agrees to forgive the losses.
Not only did the short sale lop 100 points or so off his credit score, but it also resulted in an automatic rejection of his refinance application.
"It's maddening," said Habetz. "Other than that one detail, he's very low risk. Because he had the short sale, he's out of the box for two years."
But, for every client like Habertz's who gets rejected, there are those who have been much luckier at landing mortgage loans. And typically, they have turned to the Federal Housing Administration for help.
"The FHA is just about as free and easy as it was in the go-go days," said Gumbinger.
Squatter Nation: 5 years without a mortgage payment
Standards for these loans, insured by the FHA and issued by regular mortgage lenders, are flexible and aimed at making mortgage borrowing easier, especially for working-class Americans.
For years, the FHA had no minimum credit score requirement at all. Now though, it requires a minimum of 580 to qualify for a 3.5%-down loan and 500 for a 10%-down mortgage.
In practice, however, some banks will impose higher standards, according to Scott Sheldon, a loan officer with First California Mortgage in Sonoma County, Calif.
"We FHA lenders have to protect ourselves and we've been going with a 640 minimum for a 3.5% mortgage," he said.
Sheldon had one client who seemed like an impossible case. The client was buying a home in Healdsburg, California, the heart of Sonoma's wine country. His credit score was just over 600, he was paying alimony and child support and he only had enough money for a small down payment. And there was one additional tiny problem: He had just emerged from bankruptcy in April 2009.
In other ways, he was low-risk borrower. He grossed $10,000 a month, ample enough to satisfy debt-to-income guidelines on the $315,000 home he was buying, and he was able to document a stable work history.
The client knew he had to raise his credit score above the 600 level in order to improve his chances. So he paid a credit repair service, Lexington Law, about $500 to find and correct errors in his records. That helped boost his score above 640.
How foreclosure impacts your credit scoreThe client got the loan and closed on a home a couple weeks ago. The bankruptcy made it tough -- but not impossible.As Melanie Roussell, a spokeswoman for the FHA explained, the agency is willing to overlook a blemish on a credit report -- even a big one -- if other factors are favorable. In today's unforgiving housing market, that's music to a borrower's ears.
Homes are more affordable to more families, according to the latest index for the first quarter of 2011 that shows affordability reaching its highest level in more than 20 years.
Nearly 75 percent of all new and existing homes sold in the first quarter of 2011 were affordable to families earning the national median income of $64,400, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index. The previous high was set in the fourth quarter of 2010 with 73.9 percent.
"With interest rates remaining at historically low levels, today's report indicates that home ownership is within reach of more households than it has been for more than two decades," says Bob Nielsen, chairman of the National Association of Home Builders.
The most affordable metro housing market in the nation? Syracuse, N.Y., in which 94.5 percent of all homes sold were affordable to households earning the area's median family income of $64,300.
Other metro cities ranking high on the affordability index were Youngstown-Warren-Boardman, Ohio-Pa.; Indianapolis-Carmel, Ind.; Warren-Troy-Farmington Hills, Mich.; and Toledo, Ohio.
Meanwhile, the least affordable major housing market for the first quarter of 2011 was New York-White Plains-Wayne, N.Y.-N.J.
Source: Realtormag.com
If you're considering selling your home, there are a number of factors you should consider regarding the resale value of your property. Some of these issues may devalue your home or scare some potential buyers away entirely, even if your home is an otherwise outstanding property.
Consider these eight factors when listing your home:
1. Location, location, location
Many real estate television shows repeat this phrase over and over. Buying a home in an area that provides residents with access to services and effective transportation is important — though many buyers don't wish to live too close to airports and busy roads for fear of noise.
Visual appeal is another concern. Cell phone towers and power lines can be seen as eyesores — or possibly even having potential health hazards. Local school closures can also deter potential buyers who have children or who are considering having children in the near future. Some buyers may be leery of purchasing homes that are on flood plains.
To ensure maximum resale potential, consider how many of these types of issues exist near the properties you're considering. Remember, though, there's no way of knowing exactly how a neighborhood will evolve over time.
2. Good renovations gone bad
If your home looks like a DIY nightmare, this can definitely devalue your home. Though putting money into renovations generally increases the value of a home, poorly done renovations can have the opposite effect. If buyers feel that the renovations will have to be redone, there's a good chance they'll make a lower offer or keep looking for a move-in ready home.
3. Overly creative customization
That bright pink feature wall might have seemed like a good idea at the time, but the truth is that unusual paint choices — both inside and outside the home — can turn buyers off, even if your customization is the cutting edge trend in current home design magazines. Customizing spaces so that they may not be functional to future buyers, like turning the garage into a home gym or a granny apartment, might make some buyers reluctant to buy your property.
The same can be said for unique landscaping choices or renovations that are too high scale for the house. A professional chef's kitchen or marble bathrooms in a modest home suited to first-time buyers won't likely provide a good return-on-investment.
4. Unappealing curb appeal
The first thing potential buyers will see is the exterior of the property. If the house appears to be outdated or in poor repair on the outside, people will assume it is the same for the inside. Water features or swimming pools and overly landscaped green space may turn off some buyers since people tend to associate high maintenance yards with expensive upkeep and unnecessary headaches. Old fences and sheds can also devalue your home, especially if they look like they're in dire need of replacement. Keep the gardens weeded and the lawn mowed so that potential buyers can see how nice the property is, inside and out.
5. Pets gone wild
Many people won't mind buying a home that has had resident animals, but no one wants to live with constant reminders of former owners' pets. Damage to carpets, walls or a strong smell of animals will put off some buyers — especially those with allergies. Consider letting your pets live elsewhere while the property is for sale. Also, a good cleaning and repairing of any visible damage will help to mitigate the potential devaluation of your home associated with pet ownership.
7. Sinister reputation
Well-known crimes, deaths or even urban legends associated with your house or neighborhood can decrease the value of a home immensely. Most people don't want to live in a home where they feel that something awful has happened, much less move in with your alleged resident ghost! Though these kinds of issues may be out of your control, they may certainly have an impact on the resale value of your home.
8. Frightful Foreclosures
Many buyers are leery of purchasing foreclosures that are being sold on an "as-is" basis. The fear is that the home could be a money pit or require a huge amount of repairs before being move-in ready. Some good homes may be available through foreclosures, but it's important to do your research, ask lots of questions and don't be afraid to bargain. It's also crucial that you get a home inspection so that you know exactly what you're getting into. There's a good chance that some work will be required when buying a foreclosure, but you may get great value for your money if you're willing to put in a little work.
The bottom line
Neighborhoods change over time, so there's no way to be totally sure when you buy a property how the area will look in the years to come. However, you should always make your best efforts to address any issues with your property that are within your control. Play up your home's strong points and get involved with your real-estate agent to ensure that any special features of your home and neighborhood have been highlighted.
Existing home sales rose 3.7% from February to a seasonally adjusted annual rate of 5.1 million, the National Association of Realtors reported Wednesday. That marked the sixth monthly rise for existing home sales in the past eight months. "We're clearly on a recovery path," says Lawrence Yun, NAR chief economist.
Yet median prices in March dropped 5.9% from March 2010 to $159,600. Distressed homes accounted for 40% of sales, up from 35% a year ago, the NAR says. Distressed homes, such as those in foreclosure, typically sell at a 20% discount and pull down market prices.
"At this point, we're likely to see a steady improvement in sales," says economist Joel Naroff of Naroff Economic Advisors. But prices will continue to come under pressure because of so many distressed homes. Many economists expect U.S. home prices to fall 5% to 7% this year. Some economists predict steeper declines.
For now, investors are driving much of the increase in existing home sales. They're snapping up distressed homes, fixing them up and selling them for a slight profit, or turning them into rentals, says Patrick Newport, economist at IHS Global Insight. Investors accounted for 22% of sales activity in March, the NAR says, up from 19% a year ago. Thirty-five percent of March sales were all-cash deals, a record.
Investors are seizing on low prices and strong rental demand, says Paul Dales, U.S. economist at Capital Economics. Rents have edged up in recent months after staying fairly stable for two years, he says. There are also more renters after millions of people lost homes to foreclosure.
There are signs that non-investor buyers are getting more active. Applications for mortgages to buy homes, according to the Mortgage Bankers Association's Purchases index, have risen 10% over a seven-week period, Newport says.
"This pickup in demand should show up in improved existing home sales in April and May, unless lending conditions tighten," he says.
Tight credit is already restraining demand, Yun says. The NAR says the average credit score for loans bought by government-backed mortgage giants Freddie Mac and Fannie Mae is now about 760, up from 720 in 2007.
High unemployment and underwater mortgages are also hurting demand. Almost 25% of homeowners with a mortgage owe more than their homes are worth. "This means many households that want to move can't," Dales says.
Home sales may rise this year, but "a meaningful recovery is a few years away," he says.
Source: USAToday.com
In this depressed housing market, not everyone is losing money. Many landlords are finding the rental market for houses is a great place to make money.
It's a classic example of supply and demand. As more and more families lose their homes to short sale and foreclosure, they have to go somewhere. With the high demand, landlords are raising rent.
In the Valley, 55 percent of houses for sale are considered distressed properties, meaning a shortsale or foreclosure. Those previous homeowners are shut out of the buyer pool for the next three to five years, which means they need for a house to rent. That's great news for landlords.
Realtor Shar Rundio says 75 percent of the calls to her office are not from those looking to buy or sell but from families desperately needing somewhere to live.
Take, for example, a newly listed rental property in Gilbert.
"We listed a pretty basic three bedroom, two bath house," Rundio said. "As soon as the property hit the market, we saw an enormous amount of activity, probably 50 calls and five applications within the week, and some of those people hadn't even seen the property."
What's even more surprising: Some of those rental applications are offering more than the asking price. It sounds like the Valley housing market during the boom of 2005.
"We're seeing that if properties are priced well, about $1200 a month is kind of the hot number, they're moving very quickly," Rundio said.
Nationwide, experts say 2010 was the best in 15 years for landlords. Many people are still skittish about buying and are waiting out the roller coaster market.
"They're being less picky on what's important in a rental property," Rundio said. "They're trying to stay in a school district, and they're trying to find something to work for their family for the time being."
Experts are advising renters to sign a lease as long as possible to lock in current prices. Rates are up 5 percent over last year, and with this demand, they expect rental rates to keep going up.
Source: kpho.com
More than two years after the government seized Fannie Mae and Freddie Mac, the Obama administration will recommend phasing out the housing-finance giants and gradually reducing the government's footprint in the mortgage market, according to people familiar with the matter.
The administration is expected to include three options for a post-Fannie and Freddie world when it releases a long-awaited proposal for the future of the nation's $10.6 trillion mortgage market, which could come as soon as Friday. Together with federal agencies, Fannie and Freddie have accounted for nine of 10 new loan originations in the past year.
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The White House's "white paper" will begin what promises to be a prolonged and fiery debate about the future of how homes are financed across the U.S. Any wind-down of Fannie and Freddie would happen gradually to avoid roiling markets, and the central, unanswered question is what kind of federal function, if any, the administration and Congress will invent to take their place.
Steps to reduce the government role in the mortgage market likely would raise borrowing costs for home buyers, adding pressure on the still-fragile U.S. housing markets. Consequently, analysts believe any transition could take years and would be driven by the pace of the housing market's recovery.
The fight over how to restructure the housing-finance system has roiled Washington, and yet both parties have been hesitant to propose detailed legislation.
For conservatives, Fannie and Freddie played a starring role in the financial crisis, and any solution that is viewed as replicating their function could face fierce opposition from some Republicans. But more moderate Republicans may resist such an approach and could join Democrats who have said a federal role is necessary to ensure broad access to home ownership.
While advancing one detailed plan risks providing fodder for partisan battles, offering multiple proposals may help the administration force those views into the open, said Michael Barr, a former assistant Treasury secretary in the Obama administration.
"If you focus on the steps everybody agrees on—here are the 10 things you've got to do—that gives people a chance to unite behind a set of steps," he said. A list of options he added, has the benefit of forcing Republicans "to come up with their own plan, and make their own mistakes."
The administration's proposal to Congress is likely to assess the merits and drawbacks of each of the three options. The most conservative would propose no government role in the mortgage market beyond existing federal agencies, such as the Federal Housing Administration.
The two others would create a way for the government to backstop part of the secondary mortgage market, a role long- filled by Fannie and Freddie. Under one, that government backstop would kick in primarily during periods of market stress; under the other, the government would play a role at all times.
For 40 years, the housing-finance system has featured a blend of public and private entities. Fannie and Freddie buy mortgages from banks and other originators, repackage them for sale as securities and make investors whole when borrowers default. Investors long assumed the two shareholder-owned firms had an implied federal guarantee, which let them borrow at below-market rates and facilitate 30-year fixed-rate loans.
As the recent housing bubble inflated, Fannie and Freddie joined private lenders in loosening standards. Mounting defaults wiped out the pair's razor-thin capital reserves, spurring the government to take over both. The White House has committed unlimited amounts of aid to ensure that the firms meet their obligations to debt and securities holders. So far, taxpayers are on the hook for $134 billion.
Treasury Secretary Timothy Geithner told PBS's Charlie Rose earlier this month that the housing-finance business was a "mess" and that the administration's plan would "crowd private capital" back in. That, he said, would curb the government role and leave "a system that will not be vulnerable to the really tragic colossal failures" of the past.
The administration's paper will focus on three levers to help withdraw the government from the mortgage market, each of which promises to raise costs for borrowers. Officials are likely to call for lower maximum loan limits for mortgages Fannie and Freddie can purchase. Limits are set at $417,000 nationally but Congress approved emergency measures two years ago raising the limits to as much as $729,750 in high-cost areas. Unless Congress passes a third extension, they will fall to $625,500 in October.
Policy makers could also encourage Fannie and Freddie to steadily raise fees they charge banks to guarantee mortgages. As the fees rise, loans offered by private lenders that aren't government-backed will become more competitive. And they could push for gradual increases in the minimum down payments on government-backed loans.
While Fannie and Freddie are already on track to reduce their combined $1.5 trillion mortgage portfolios by 10% annually, the paper could also recommend accelerating that run-off if market conditions can support it.
Housing and Treasury aides met Tuesday with President Barack Obama to review their report. Top administration officials have publicly discussed the merits of a limited but explicit government guarantee of securities backed by certain types of mortgages. The housing and banking industries have advanced proposals arguing that such a guarantee is needed to maintain a healthy market, particularly for long-term, fixed-rate loans that remain a keystone of U.S. housing.
Others argue that because investors might assume the government will step in during a crisis, it is better to make guarantees explicit and charge up front for them. Industry and academic proposals have called for a new entity to regulate the market and any government guarantees, just as the Federal Deposit Insurance Corp. charges fees to insure deposits and handle bank failures.
But some economists and regulators have warned any new government backstops would put too much risk on taxpayers. In exchange for guaranteeing loans, policy makers could face pressure to under-price guarantees. Any options must also navigate a mortgage market that has grown increasingly consolidated and risks shifting the "too-big-to-fail" risks from Fannie and Freddie to U.S. megabanks.
Source: Wall Street Journal
While renting offers zero tax breaks, buying a home offers several tax benefits that can make homeownership more affordable. Real estate professionals need to be careful in providing detailed tax advice to clients to avoid lawsuits, but you can ensure clients have the information they need to understand the all of the tax benefits of home ownership.
The following is a few of the tax benefits to home ownership, according to Stephen Fishman, an author and lawyer who specializes in small business, tax and intellectual property law.
Is now the right time to invest in a house?
Trick question. Actually, it's two questions.
Question No. 1: Is now the time to buy?
Question No. 2: Is buying a house a good investment?
The first answer is easy: With a few exceptions, if you have 20% to put down and good credit, now is a great time to buy. That's been the case all year, and I'd argue that we're probably closer to the end than to the beginning of the really great time. Let me explain.
Back in January home prices had dropped 28% from their peak. More important, interest rates were at historical lows. By locking in a mortgage for 15 or 30 years on a value-priced home, you were getting an incredible deal, even if home prices decreased. (I took my advice and bought a New York City apartment.)
At the time, I thought that prices and rates were more likely to rise than fall. I was half right: Home values have been inching up since the spring, but mortgage rates, incredibly, dropped further.
By August (the latest numbers available) the median home price had risen 1% over a year ago, but 30-year rates had dropped a half-point to 4.5%. Assuming 20% down and a 30-year mortgage, the total cost of owning a median-priced home is now down $16,000 from a year ago.
Home values may waffle over the coming year, but because Americans take out such large, long mortgages, rates are what really matter. And I am more likely to grow hair than see 30-year mortgage rates drop below 4%. It's far more likely that rates (and the cost of ownership) will rise.
Now for question No. 2: Is a house a good investment?
First, it depends on what you mean by investment. If your definition is strictly about dollars returned, a house probably won't be a great use of your capital. If you bought the median-priced house today with 20% down, to recoup your total costs (and I'm not including property taxes and maintenance here) over three decades, the home's value would have to rise about 3% a year.
That's likely, but you'll almost certainly (we all hope) do much better than that in the stock market. The fact is, however, that that's the normal case for housing; the booms that began after World War II and in the late 1990s were the exceptions.
Of course, there are places where you might do better. I bought my condo in Manhattan, a small island that, by virtue of the business done on it, has a sustained demand for property. And smaller, energy-efficient housing in cities or inner suburbs around San Francisco or Chicago is likely to be in higher demand than big, outer suburban homes with long commutes to Las Vegas or Atlanta.
According to urban and environmental planning professor William Lucy of the University of Virginia, this move toward urbanization in American housing is the reversal of a trend that's been in place since 1945. Keep it in mind when making your buying decisions.
That said, the key point to remember is this: Buying a fairly priced home at today's rates may be the best deal you will ever get. And who knows? It may even turn out to be a good investment.
Source: CNN.com, Ali Velshi
Freddie Mac analysts point to five features that they believe will likely characterize the 2011 housing and mortgage markets:
1. Low mortgage rates. With Fed observers expecting the central bank to keep the federal funds rate at its current target range of 0 percent to 0.25 percent for most (or all) of 2011, relatively low mortgage rates will be a feature of the 2011 mortgage market. Thirty-year fixed-rate loans are likely to remain below 5 percent throughout the year, and initial rates of 5/1 hybrid adjustable-rate mortgages will likely remain below 4 percent in 2011.
2. Prices have hit bottom. House prices are likely to begin a gradual, but sustained recovery in the second half of 2011.
3. Housing will remain affordable. With affordability high, many first-time buyers will be attracted to the housing market in the New Year, likely translating into more home sales in 2011 than in 2010.
4. Refinances will dwindle. Many eligible borrowers have already refinanced and the federal Making Home Affordable refinance program is expiring on June 30. While fixed-rate loans are likely to remain low, they will move up gradually, making it even less likely that refinances will be attractive to most home owners.
5. Delinquency rates will decline. Based on the last several business cycles, the share of loans that are 90 or more days delinquent or in foreclosure proceedings — known as the "seriously delinquent rate" — generally crests within a year of the start of the recovery in payroll employment, and this economic recovery appears to fit within that pattern. Payrolls began to rise last January, and by the spring the seriously delinquent rate had begun to fall.
Source: Freddie Mac (12/09/2010)
Rates on 30-year fixed mortgages rose slightly from their lowest level in decades, inching up to a national average of 4.21 percent.
Mortgage buyer Freddie Mac says the average rate for 30-year fixed loans was up from 4.19 percent the previous week. That was the lowest level on records dating back to 1971.
The average rate on 15-year fixed loans rose to 3.64 percent. That was up from 3.62 percent a weak earlier, the lowest weekly average on records dating back to 1991.
Rates have been falling since April. The latest declines are largely because investors have been buying up Treasury bonds in anticipation of the Federal Reserve's likely move to buy Treasurys to stimulate the economy. That demand lowers Treasury yields, which mortgage rates tend to track.
Low rates haven't helped the struggling housing market, which recorded its worst summer in more than a decade. But they have led to a modest surge in refinancing.
To calculate average mortgage rates, Freddie Mac collects rates from lenders around the country on Monday through Wednesday of each week. Rates often fluctuate significantly, even within a given day.
Rates on five-year adjustable-rate mortgages averaged 3.45 percent, up from 3.47 percent a week earlier. Rates on one-year adjustable-rate mortgages fell to an average of 3.3 percent from 3.43 percent.
The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount. The nationwide fee for loans in Freddie Mac's survey averaged 0.8 a point for 30-year. It averaged 0.7 of a point for 15-year and 1-year mortgages and 0.6 of a point for 5-year mortgages.
Source: Associated Press
Who are the luckiest renters of all? With housing prices still slipping in many cities, you might argue that any renter is lucky. After all, they're sidestepping the worst collapse in home values in decades. Housing prices in an around big U.S. cities are down 25% to 30%, and aren't bouncing back. Values are up 2.1% this year, but in June they began slipping again, according to housing data firm Radar Logic.
The luckiest renters of all live in a relatively small handful of cities. These are places where rents are the smallest fraction of what it costs to purchase a home. In those places renters can afford to live in homes that most couldn't possibly purchase. There are also some cities where homeowners are getting the better financial deal. These are cities where rents are likely to be quite a bit higher than the after-tax cost of owning. In those places, renting is like throwing your money away.
So the luckiest renters in the country live in San Francisco, New York, Washington, and Los Angeles. Two other towns, Boston and San Diego, are close behind. The luckiest owners, meanwhile, live in the big cities in the Southern U.S., including two places that have been battered by the housing collapse: Miami and Phoenix.
Sorry, Las Vegas and Chicago. Despite the damage done to your housing markets, you're still in the uncomfortable middle. The cost of renting and the cost of owning are more likely to be in balance in those metropolises. If you're moving to one of them for only a short while, rent. If you're planning to settle down, buy. Says who? Two of the best-known housing-data firms, Trulia.com and Zillow.com, recently studied their buy vs. rent date in a few dozen of the largest cities in the U.S. Forbes itself follows buy-vs.-rent data for high-end neighborhoods in 10 of the largest cities in the U.S.
The three sources each use different methodologies, and come to different conclusions about which cities offer renters the better deals vs. which cities offer homeowners the better deals. Forbes sought out the areas where the three sources agree, and came up with six cities that are best for renters and six that are best for homeowners.
In San Francisco the cost of purchasing a home is 20 to 30 times annual rent, meaning that renters are getting the better deal. In New York, similarly, the ratio is 17 to 35 times. In contrast, some Miami homes will cost you only eight or nine times what it would cost you to rent them for a year. In Phoenix, purchase prices are around 10 times annual rent.
That doesn't mean San Francisco and New York will remain renters' havens forever. These are cities that thrive in economic booms, driven as they are by enormous financial services and technology industries. Rents are already beginning to climb again in New York, relative to purchase prices. Manhattan brokerage CitiHabitats says rents on the island were up solidly in August from a year earlier. Two-bedroom apartments in Chelsea were renting for an average of $4,500 a month in August, up almost 7% from a year earlier. In the coveted West Village, rents were up 14%.
Even so, large numbers of people moving into new homes in New York are refusing to buy, fearful of falling values there. The Corcoran Group surveyed its agents recently and discovered that 29% report having been asked by buyers to submit purchase bids with backup rental offers stapled to them. Somewhere between 10% and 30% of for-sale Corcoran listings, meanwhile, are simultaneously being offered up for rent.
Veteran Corcoran agent Tim Cass says all the nervous buyers crowding into the rental market are precisely what is driving rents up. "The problem right now is so many first-time buyers are in the rental market, and I think some are being short-sighted," says Cass. If rents rise 14% a year--not unheard of during an economic boom in New York--renting in 2015 will cost nearly double what it does today. And if that happens, you can bet asking prices for for-sale homes will rise smartly as well.
Source: Forbes.com
For the last year, the real estate industry has been talking about shadow inventory and the coming flood of distressed properties. Where are they?
Here’s what’s happening, according to a recent paper by Alan Mallach, a senior fellow the Brookings Institution:
· Some delinquencies have been resolved through loan modifications or people working out the problems on their own.
· Banks are getting better at managing short sales.
· Investors are aggressively buying up properties, sometimes in bulk, directly from the banks or at courthouse auctions so they don’t hit the market.
The likeliest outcome, Mallach predicts, is a steady flow of foreclosures over a long timeframe that will prevent another crash in home prices, but will probably lead to low or no appreciation in home prices.
Source: Wall Street Journal
The possibility of securing a mortgage rate below 5% has greatly improved in recent weeks, in a positive sign for would-be home buyers.
Home mortgage rates fell for the sixth straight week, according to two key measures, with one of them pointing to a sub-5% rate for the 30-year fixed loan for the second week in a row.
Freddie Mac's (FRE, Fortune 500) weekly report said the 30-year rate slipped to 4.87% for the week ended Thursday, the lowest since May. According to the mortgage backer, last week's rates stood at 4.94%.
Mortgage tracker Bankrate.com said the average 30-year fixed loan slipped to 5.22% from 5.25% the previous week. The 15-year fixed rate also fell, Bankrate said, to 4.6% from 4.64% the week before.
The 30-year rate is influenced by the benchmark 10-year note's yield, which moves in the opposite direction of its price. Treasury prices have risen over the past week as $78 billion worth of auctions received above-average demand.
"Another disappointing employment report had investors questioning the strength and sustainability of the economic rebound," the Bankrate report said. "The resulting uncertainty drove investors into the safety of government and mortgage-backed bonds."
"Not even a substantial auction of government debt has been enough to derail the streak of declining mortgage rates," the Bankrate report said.
Rates are returning to levels not seen since the spring when, in an effort to cap mortgage rates, the Federal Reserve began a campaign to buy back $300 billion in Treasurys. The Fed hoped that it would spark demand and keep yields -- and therefore, mortgage rates -- in check.
Mortgage rates fell as refinancings abounded. But those benefits seemed to wear off, as rates started on a tear in the summer. By June, the benchmark 10-year bond's yield had increased steadily to hover around 4%.
Now the central bank has less than $15 billion left to spend on its buyback program, which led some investors to worry that yields would soar again. So far, that's not the case.
On Wednesday, reports said Democratic congressional leaders were working to extend a $8,000 tax credit for first-time home buyers past the Nov. 30 expiration date and could even make it available to current homeowners who buy a new house.
Homeowners have received a boost from both the tax credit and the lower rates -- last year, the average 30-year fixed mortgage rate was 6.2%, according to Bankrate.
To translate the difference in mortgage rate into dollars, consider a $200,000 loan. At last year's rate of 6.2%, the monthly payment would be $1,224.94, or $124 higher than the monthly payment at the current rate.
The low rates helped mortgage applications surge by 16.4% last week, according to a separate report.
Source: money.cnn.com
Prospective buyers have an edge in a down market, but this doesn't mean they are guaranteed to make money on the properties they buy. When real estate sales are slow and there is a glut of homes for sale, buyers have an opportunity to pick up a house on the cheap. The operative word here is "opportunity". There are times when you should pounce and times when you should show restraint and avoid an impulse buy. Knowing the difference could save you thousands of dollars.
Tip No.1: Do Your Homework. Buyers generally have the advantage in a down market, but this doesn't mean you should walk into a transaction blindly. Prospective buyers should search the internet for listings, inquire with a realtor and check the local newspapers to gain insight on a particular area. Many national and local real estate agents make their listings available on the internet. The objective of this research is to get to know the price range for the area. You want to get a sense of what a low price would be for your desired area.
Tip No.2: Get Your Ducks in a Row. To make sure that you're able to pounce on a deal at a moment's notice, it makes sense to get pre-approved for a mortgage and to have an attorney on retainer to handle the closing paperwork.
It also makes sense to line up a home inspector and an insurance agent. These professionals can provide valuable information to the buyer about what parts of the home might need repairs and what it will cost to insure.
April figures for existing-home sales in metro Phoenix reveal several promising shifts for those searching for signs of a housing-market recovery.
The overall number of home sales in the region continued to hover near record levels last month.
Beneath the sales figures were other encouraging numbers:
• Foreclosures did not dominate sales of existing homes in the Valley for the first time in more than a year.
• The number of investors purchasing homes from lenders dropped.
• More buyers purchased homes with the intent of living in them.
• More buyers financed their purchases with long-term mortgages.
April sales included the last wave of first-time buyers who rushed to buy before a federal tax credit expired. Many did not want to purchase foreclosure homes.
More than 1.8 million people nationally, most of them first-time buyers, used the tax credit to purchase homes, according to early government- and housing-industry estimates. The figures haven't been broken down by state yet, but Phoenix-area real-estate agents have seen a significant increase in first-time buyers.
The return of average buyers to the market suggests more people are buying for the long haul rather than for a quick resale. The shift away from foreclosures also means more Valley homeowners were able to sell their houses last month.
"It appears foreclosures may have finally made their downward turn," said Tom Ruff, analyst for real-estate-research firm Information Market. "The number of home sales might drop now, but prices could go up."
The uptick in first-time buyers may be temporary. But the shift from a market dominated by foreclosures and speculative buying may be more lasting.
Foreclosures and pre-foreclosures in the Valley also fell in April. So far in May, the number of bank-owned home sales is down compared with April.
Ruff calculated April's buyers and sellers through an analysis of property records. Bank-owned foreclosure homes accounted for about 33 percent of all Valley home sales last month. Foreclosures accounted for more than 50 percent of Phoenix-area home sales during 2009.
These new trends could mean there are more long-term buyers vs. short-term speculators buying homes in the Valley now, which could lead to home-price increases in the future.
Here's the breakdown of metro Phoenix's 8,955 home sales in April:
• Only 650 were new-home sales, and the median price of those houses was $213,483.
• Regular sales of existing homes totaled 5,287. The median price of these houses purchased from homeowners was $150,000.
• The remaining 3,018 home sales from the tally were bank-owned foreclosures, which had an overall median price of $106,000.
• The overall median price for all homes sales was $135,000.
• About 34 percent of all homebuyers paid cash.
• About 15 percent of all homes were purchased by investors who signed real-estate documents saying they intended to rent the property to tenants. A year ago, 20 percent of all Valley homebuyers recorded as investors. The rate was 19 percent in January of this year.
• Nearly half of the 5,953 homebuyers who financed their purchase through mortgages used Federal Housing Administration loans, which are primarily obtained by first-time buyers.
The federal tax credit expired April 30, so most last-minute sales for people trying to beat the deadline closed last month.
First-time homebuyers were eligible for an $8,000 credit, and existing-home owners were eligible for a $6,500 credit. Buyers had to have signed contracts by the deadline to receive the credit but have until June 30 to finalize their purchases. Those lagging home sales will show up in Valley figures for May and June.
Real-estate agents say it appears that in Phoenix, first-time buyers were the biggest group to tap the tax credit because they didn't need to sell a home to buy another. But a drop in foreclosures means regular homes will be drawing more attention from buyers. More demand for non-foreclosure homes will drive up values.
Investor purchases are dropping along with the number of inexpensive foreclosure homes for sale.
Among those investors still buying homes, some have shifted to short sales, which are recorded as regular sales and fetch higher prices than foreclosure homes, real-estate agents say.
The number of actual investors in the Valley is always higher than the number tallied on real-estate documents. Some investors fail to disclose the home is not their primary residence.
During the height of the Valley foreclosure-sales boom in April 2009, more than 60 percent of all home purchases were made by investors, according to realty industry estimates. Then, there were 8,156 home sales in the region, and the overall median price was $126,000.
Vicki Cox Golder, president of the National Association of Realtors, said there has been a change in housing-market psychology. "Buyer confidence is back, and homebuyers have long-term views," said Golder, a Tucson real-estate agent. "The typical buyer plans to stay in their home for 10 years, so we've put the flipping mentality behind us."
If you're delinquent on your mortgage, your credit score will suffer. Everyone knows that. The question is, by how much?
Until recently, those answers were hard to come by. Credit bureaus were uncommunicative about expressing, in points, just how much impact different foreclosure types of mortgage delinquencies have on scores.
Recently, Fair Isaac, which developed FICO scores, pulled back the curtain a bit, revealing some estimates of point-score declines following mortgage delinquency problems.
Here are the average hit your credit will take:
30 days late: 40 - 110 points
90 days late: 70 - 135 points
Foreclosure, short sale or deed-in-lieu: 85 - 160
Bankruptcy: 130 - 240
To come to these figures, Fair Isaac created two hypothetical consumers, one who starts out with a fair-to-middling score of 680 and the other with a very good one of 780. (FICO scores range from 300 to 850.)
The hypothetical person with the 780 FICO has 10 credit accounts versus six for the 580, plus a longer credit history, lower utilization of total credit limit and no missed payments on any account. The other consumer has two slightly damaged accounts. Neither have any accounts in collection or adverse public records.
See the chart above to see how each scenario affected each borrower.
Notice that for both borrowers a single one-time black mark results in steep drops, but it is when they fall further behind that things get really harsh, according to Craig Watts, a spokesman for Fair Isaac.
"The lending industry tends to regard an account differently when it has become 90 or more days late," he said, "The likelihood that consumers will resume paying their overdue obligations drops off significantly after the delinquencies have reached 90 days."
One reason credit companies were so closed-mouthed is that they often can't definitively state how much each delinquencies will affect scores because there are too many variables.
Some borrowers will fall much more steeply than others for the same payment problem, according to Maxine Sweet, vice president for public education at Experian, one of the nation's main credit bureaus.
"If you picture someone who has just one mortgage and one other credit account versus a mature credit user like me with 15 accounts, if they miss one payment that would impact their scores a lot more," she said. "For me, one missed payment would just be a blip."
The point loss also depends on the borrower's starting point: People with very high credit scores have more to lose than low-score borrowers; the impact of a single blemish on an 800 score is more than on a 500.
Of course, it just gets worse when you face foreclosure.
Mortgage borrowers can lose their homes three basic ways: a foreclosure; a short sale, where the home is sold for less than than is owed and the bank (generally) forgives the difference; or a deed-in-lieu, in which the borrower gives back the property and the bank again forgives any unpaid balance.
Sweet said credit bureaus generally slash scores equally for those three resolutions to someone losing their home. The important factor, she said, is that "it's reported that you paid less on a settled account."
Some borrowers may think that because they never missed a payment, they can "walk away" from their homes with relatively little impact on scores. Not true. "When a deed-in-lieu or short sale is reported as a partial payment, it's treated as a serious delinquency," Watts said, "just like a foreclosure."
Even if borrowers made payments faithfully for years before short selling or doing a deed-in-lieu, their credit score will still take a hit. The total decline will run about 85 points for the 680 score borrower to as much as 160 for the 780 score.
Mortgage debt, combined with other financial problems, can send borrowers into bankruptcy, the worst thing that can happen to your credit score.
The effects are long-lasting, according to Sweet. In a Chapter 13 bankruptcy, which involves partial repayment over several years, the stain will take seven years to remove. A Chapter 7 bankruptcy, which involves liquidation, takes 10 years to get over.
Absorbing a big credit-score hit can make many transactions more costly. It's not just paying more for credit card debt and auto loans, insurance can cost more as well.
The average savings for someone with a good versus mediocre credit score is about $115 a year for auto insurance and $60 for home, according to Loretta Sorters, of the Insurance Information Institute.
A low credit score can even make it harder to rent a home because landlords often use credit scores to weed out prospective renters.
Despite the problems a poor credit score can cause, Experian's Sweet recommends that people who are in financial dead ends, like totally unaffordable mortgages, it's better to recognize that and cut your losses quickly; don't prolong the problem.
"You need to do what you need to do to get your finances back in order," she said. "Don't worry about your credit score."
Source: http://money.cnn.com/2010/04/22/real_estate/foreclosure_credit_score/index.htm
9 Homebuying Mistakes to Avoid
Buying a home is perhaps the most arduous, expensive and, ultimately, valuable acquisition you'll ever complete, here are a few tips on common mistakes to avoid.
1. Going solo. Buying a house is a complex transaction. It should be a team effort. You'll need a real estate agent, lender, inspector, insurer and other team members to help you through each step of the way.
2. Love at first sight. If you believe in fairy tales you probably shouldn't be buying a home. You won't live happily ever after if you emote your way through the home buying process. Buy a home that fits your budget and your lifestyle.
3. 'Loanless' shopping. Being pre-qualified gives you a general idea of how much you can afford to borrow. It's better to be pre-approved for a given loan. Sellers will take you more seriously and you'll stay on budget.
4. Overbuying. Home buyers buying more than they could truly afford, in part, led to the collapse of the housing market. Analyze all your monthly costs including debts, food, transportation, entertainment, and savings. Your total monthly debts, including your mortgage, should not exceed 36 percent of your income before taxes.
5. Misplaced trust. You are engaged in what's likely your most valuable acquistion ever. It's a business transaction. Ask family, friends, co-workers, professionals and others you trust for referrals.
6. Accepting oral agreements. Get it in writing. The rate lock, the home inspection, disclosures, the contract. Always. Should a dispute arise, you've got the details documented.
7. Skipping the fine print. Understand what's really in any document before pciking up a pen. Get documents in advance, take time to read them and ask questions.
8. Forgetting or betting on resale. Avoid buying a home that costs 50 percent more than neighboring homes. Reconsider buying the most expensive home on the block. Neighbors' lower home values will weaken yours.
9. Making an unconditional offer. Protect yourself with these contingencies:
The Valley's real estate market could soon be getting a boost, as the Federal Housing Administration recently lifted its anti-flipping rule for one year.
Some say this could open the floodgates for buyers, creating new opportunities for investors like Barry Hart.
Hart is an investor who purchases Valley homes to resale or "flip."
Up until now he's had to find cash buyers or wait 90 days to sell because of the FHA's anti-flipping rule.
Officials hope the move will reduce the enormous number of foreclosed homes on the market.
"Properties are not being maintained, they're deteriorating, and HUD has issued the lifting of the ban to target that," said Valley realtor Toni Coursey.
To prevent inflated home values, the lift comes with a 20 percent rule.
"The seller of the property cannot list it for 20 percent or more of their acquisition cost, so they can't profit more than 20 percent on the sale," Coursey explained.
But the problem is, not all lenders are recognizing the ban lift.
"They want to see how the market is driven by this waiver lift, and secondly they want to make sure they have total control of their paper (money)," said Doug Peveto, a mortgage banker with Magnifund Group.
According to Peveto, financing may be tough, but it's not impossible.
"There are multiple lenders within this vacinity that have the capability to take a flip home and allow it to go through FHA financing," he said.
That's good news for Hart, who's hoping to start moving homes fast.
Source: ABC15.com
Issues on people's minds: The ways in which property "flippers" may be getting frustrated and how to calculate where the maximum gain from flipping might come.
Source: RealEstateJournal.com
The number of permanent mortgage modifications under the federal Making Home Affordable program jumped 75 percent last month nationally and nearly 70 percent in Arizona and the Valley.
A year ago this week, President Barack Obama was at Dobson High School in Mesa to announce federal initiatives to help distressed homeowners and reduce foreclosures. The Making Home Affordable program has been widely criticized for not helping enough homeowners avoid foreclosure.
Nationally, 66,465 permanent modifications were reported last year. January activity brings that total to 116,297.However, permanent modifications remain far behind the 1 million trial modifications initiated since the program’s inception, and more than 61,400 homeowners have dropped out of the program.
Through Dec. 31, 4,137 permanent modifications were reported in Arizona, including 3,453 in the Valley. Including January, permanent modifications jumped to 7,000 in Arizona, including 5,834 in the Valley.
The median savings to borrowers with permanent modifications is more than $500 per month. An estimated 3.4 million mortgages nationally are at least 60 days delinquent and deemed eligible for the modification program, up from 3.35 million as of Dec. 31.
“Our goal has always been to ensure broad access to affordable mortgage credit, stabilize home sales and prices, stem damage to hard-hit neighborhoods, and provide responsible homeowners who are struggling the chance to stay in their homes,” said Meg Reilly, Treasury spokeswoman.
Arizona remains among states with both the highest mortgage delinquency rates and the highest mortgage modification activity under the program.
“(The federal program) was designed to target responsible homeowners who live in their homes and can sustain a mortgage at reduced monthly payment levels,” Reilly said. “Modifications might not be the right option for all homeowners. It is just one program in a much broader strategy to stabilize the housing market.”
All modifications start in a trial phase, she said. If after a three- to five-month trial phase the borrower has submitted all documents, been deemed eligible and stayed current on their monthly payments, the modification becomes permanent, she said.
“The increase in permanent modifications (in January) is largely due to the high number of people who hit the end of their trial phase,” Reilly said.
Bank of America, one of the largest participants in the federal modification program, says it quadrupled the total number of completed modifications in the past month. More than 12,700 bank customers now have permanent modifications, up from 3,200 as of Dec. 31.
“In the past month, our concerted customer outreach initiative has driven a substantial increase in the rate of conversions from trial to permanent modifications, as we anticipated in our recent reports of (program) progress,” said Jack Schakett, credit loss mitigation strategies executive for Bank of America Home Loans.
Source: East Valley Tribune
Move up, move down, move sideways; it just doesn't matter. Whichever direction you move, financially, you may still qualify for the new tax credit available to current homeowners. It is unfortunate that the credit has too often been characterized as a credit for "move-up" homeowners. The phrase carries the implication that the new home must cost more than the sale price of the former one. Indeed, even the November 6 White House Press Release said that the credit would be available to qualified homeowners who "wish to step up to a new home." Same implication.
So, it is worth emphasizing that the credit is equally available to homeowners who are moving down, cost-wise.
The move-down homebuyer is not an unusual phenomenon. For years retirees have been known to move from a larger home to one that is smaller and often less expensive. Moreover, it is reasonable to think that current economic conditions may lead to even more move-down buyers. Just as thousands of families have found it necessary or desirable to downsize with respect to their cars and their general lifestyle, so it may be when it comes to considering the costs of owning and maintaining a larger house than they really need.
The same requirements apply to both move-down and move-up buyers.
First of all, the previous home must have been occupied as the buyer's principal residence for at least five consecutive years out of the past eight years. Two examples: (1) Suppose that during the past eight years you occupied the property for three years, then rented it out for two years (perhaps because of a job transfer or temporary assignment), and then occupied it again for three years up until now. Even though you had occupied the property as your principal residence for six of the past eight years, you would not be eligible because you had not occupied it for five consecutive years. (I'm not saying this makes sense; I'm just reporting on the requirements.) (2) Suppose you bought a home eight (or more) years ago, you occupied it as a principal residence until two years ago when you sold it. Would you qualify? Yes, because you had occupied it as a principal residence for at least five consecutive years of the past eight.
There are important issues of timing as well. You must have purchased (that is closed on) the replacement home sometime after 11/6/2009 and before 4/30/2010. With one exception: the new home will also qualify if you had entered into a binding contract no later than April 30, 2010 and you closed no later than June 30, 2010.
The time the previous home sold doesn't matter. Indeed, it doesn't even have to be sold. You might, for example, keep it as a rental.
The tax credit is for 10% of the purchase price up to a maximum credit of $6,500 for joint filers and $3,250 for those filing separately. There is a full credit for singles whose income does not exceed $125,000 and for couples whose income is no more than $225,000. A phase-out applies to higher incomes up to $145,000 and $245,000 respectively.
The cost of the new home may not exceed $800,000.
The new home must be used as a principal residence for a three year period subsequent to closing, or else the credit must be repaid.
This program won't help everyone, of course; but it's pretty nice for those to whom it applies.
House hunting usually slows down this time of year, as people put their searches on hold during the holidays.
This winter could be different, however, thanks to the extension — and expansion — of the first-time homebuyer tax credit.
"We're going to see far more interest in the fourth quarter than we generally do because of the tax credit," says Heather Fernandez, vice president of Trulia.com, a real-estate search engine. Traffic surged on the site on Nov. 5, the day Congress approved the credit extension, she says.
The new law extends the tax credit for first-time homebuyers and opens it up to some existing homeowners as well: The credit is now up to $8,000 for first-time buyers and up to $6,500 for repeat buyers.
All buyers must have a binding contract on a house in place on or before April 30. The purchase must be for a principal residence and must close on or before June 30.
To be considered a first-time homebuyer, an individual must not have owned a home in the past three years. And to be eligible, existing homeowners need to have lived in the same principal residence for five consecutive years during the eight-year period that ends when the new home is purchased.
Income limits have risen as well. According to the Internal Revenue Service's Web site, www.irs.gov, the homebuyer tax credit phases out for individuals with modified adjusted gross incomes between $125,000 and $145,000, and between $225,000 and $245,000 for people filing joint returns.
The inclusion of move-up buyers might inspire homeowners to list their house if they've been putting it off, says Carolyn Warren, a Seattle mortgage broker.
"If people love their home, it's not going to entice them to sell," Warren says. "If they've had it in the back of their minds and really would like to move up, it might push them into doing it sooner than later."
If you're thinking of purchasing a home, here are five tips:
Don't procrastinate
Start your house search now. Getting an early start will give you a better chance of finding the right house before the credit deadline.
When first-time buyers thought that the credit would expire Nov. 30, people scrambled to find properties in September and October, says Pat Lashinsky, chief executive of ZipRealty, a residential real-estate brokerage firm. In some cases, "there wasn't inventory that fit people's needs," he says. In some markets, including Phoenix, Chicago and parts of California, for example, properties had multiple bidders, Lashinsky adds.
Before you start house hunting, get preapproved for a mortgage, says Eddie Fadel, a Miami-based mortgage banker. And do a realistic assessment of what you can afford.
Buyers who have to sell an existing home should price it aggressively from the beginning to drum up interest and get a buyer as soon as possible, Fernandez says.
Don't count on another extension
The credit won't be available forever, Fadel says.
"This is a medication for the housing crisis," he says, "Once the patient — which is the housing market — is cured, there will be no medication needed."
Be mindful of interest rates
Interest rates are low right now, but will likely rise next year, Warren says. Higher rates will affect your monthly mortgage payments, thus the affordability of the house you are buying.
"It's pretty universally accepted that rates will be higher next year," she says. "What is unknown is how fast and by how much" they will rise.
Average rates on 30-year fixed-rate mortgages have been hovering around 5%. But when the Federal Reserve stops buying large amounts of mortgage-backed securities next year, interest rates could rise, Warren points out. The Fed plans to end its purchase program in March.
Communicate with your lender
Make sure you're speaking with your lender regularly to avoid any delays. If the lender asks for any additional documentation, turn it in as soon as possible, says Doug Heddings, a New York-based real-estate agent with Charles Rutenberg Realty.
And think twice before pursuing a short sale. That's where someone sells a home for less than what he or she owes on a mortgage, with permission of the lender. The process can be lengthy and unpredictable because the homeowner's lender has to approve any deal, Warren says, and it can get complicated when there is a second mortgage associated with the property.
Don't take shortcuts
Don't forgo any of the steps you would normally take just to make the tax-credit deadline. That means making sure the house is a good fit and is in the right location and getting a home inspection, Lashinsky says. Skipping steps could cost you in the long run.
"Don't let the tax credit get you to make a decision to buy a house that you wouldn't otherwise want to buy," he says. "Don't shortcut the process to get the tax credit."
The Maricopa County Assessor's Office is working its way through the largest wave of property-valuation appeals in nearly two decades as real-estate values continue to decline and owners try to save money in the lagging economy.
Appeals have been growing for the past five years, but they have leaped by nearly 50 percent in the past two years alone.
Maricopa County Assessor Keith Russell said his office saw 13,251 appeals in 2007 for residential, commercial and vacant land. As property values began to fall, the number of appeals rose to 17,213 last year and to 19,801 this year. The biggest spike over those three years was for commercial appeals, followed by residential.
In 2005, when property prices were rising rapidly and assessments had not caught up to market value, total appeals were nearly half of what they are today.
The final deadline to appeal your property valuation this year is Dec. 15.
This year's valuations were established in January and mailed to owners in February. But the taxes based on those valuations aren't due to be paid until the fall of 2010, an 18-month lag that creates a disconnect between the value the county puts on a property and what an owner considers its value in today's market.
Valuation notices indicate both a "full cash value" and a "limited property value," the two categories by which various property taxes are determined. The full cash value, which is intended to closely resemble market value, can be appealed. If you don't think you could have sold your home on Jan. 1 for the full cash value listed on the valuation, you may want to consider an appeal.
Over the past couple of decades, appeals have typically risen when the market declined, Russell said.
"When we don't have as much money coming in, we all look at the bottom line, whether that's insurance being paid for the car or property taxes," he said.
Appeals hit record numbers during the late 1980s and into the 1990s when, Russell said, the Assessor's Office was flooded with as many as 28,000 a year.
Ira Friedman, the county assessor at the time, and others blamed unregulated tax consultants, saying they were making millions of dollars filing appeals on behalf of developers and corporations. The consultants typically received a percentage of the savings.
Others, including some of the tax consultants, attributed the number of appeals to the real-estate crash and savings-and-loan crisis, which put developers, real-estate companies and mortgage-loan companies out of business, depressed real-estate values, brought construction to a halt and led to the prosecution of Charles H Keating Jr. and others.
This year, the deadline to file a free administrative appeal with the Assessor's Office passed in April, but there are still a few more weeks to file an appeal in Arizona Tax Court. No attorney is required, but there is a filing fee of $142.
Former Gilbert Mayor Steve Berman is among those who have filed a court appeal. His home was assessed at $858,300, but he believes it's now worth closer to $500,000.
"That $300,000 difference is what some people's entire house costs," Berman said. "It'd be like paying taxes on an extra house or an extra couple of houses."
He said if he wins, it could save him hundreds of dollars a month. He won't know exactly how much until the tax rate for 2010 taxes is set next August and he receives his tax bill next September.
The trial is Nov. 18.
"If my house was assessed at $200,000 and the current value was $150,000, I don't know if I'd go through the baloney," he said. "But, in this case, the magnitude is just so big."
Assessor's Office spokesman Paul Petersen said residential appeals are up particularly in the higher-value areas of Scottsdale and north Phoenix. Residents there stand to save more money because they are often arguing a larger discrepancy.
However, the amount of taxes an individual may save by arguing that a home should be valued at $50,000 or $300,000 less will vary widely depending on the city, school district and even flood-control district in which that person lives and the taxes each district levies.
Petersen said the biggest spike in appeals over the past year has come with commercial property because valuations haven't fallen as quickly as the market for those types of property. Last year, there were 6,841 commercial appeals. This year, there have been 8,978.
There also is more money at stake in those cases, he said.
"The median value for a single-family home has dropped 40 percent in the last two years, by our numbers, but in commercial and vacant land, they tend to lag behind," he said. "We haven't seen the drop yet, but it's coming."
Russell said his staff of 300 tries to catch errors in the computer-generated full-cash valuations. They spot-check and, for example, look out for a home that increased in value by 20 percent when the rest of the homes in the neighborhood increased by 10 percent.
But he admitted that with 1.5 million parcels of land in the county, they don't find everything.
He said his office welcomes appeals. "We're going to make a mistake, and if somebody brings that to our attention, I'm tickled," he said. "We want to get it right. That's why we mail those values out."
Russell said the valuations that will be mailed out in February will likely show declines in every area. "Values for most single-family homes, and most properties in general, are going to see a reduction next year," he said. "People need to look at that notice and say, "Hey, is this reasonable?' "
Source: AZcentral.com
Find and plug leaks
Leaks account for 14% of the water used inside homes. “Some homes lose thousands of gallons to leaks. Over time it can add up and be significant,” Cooley says. There are a few simple ways to check for leaks and repair them:
Source: msn.com
Home resales hold steady in September
Valley home resale transactions held steady in September with 6,135 sales recorded in Maricopa County, compared with 5,995 sales in August, according to a report from Arizona State University.
Home foreclosure activity also remained about the same, with lenders foreclosing on 2,935 single-family homes in September - down slightly from 3,085 foreclosures in August.
ASU Realty Studies director Jay Butler, in a report issued Tuesday, said an excess of 6,100 home sales is considered strong activity for September, which is typically a slow month for the housing market.
But September's housing market was anything but typical, Butler added, because about half of the resale transactions involved bank-repossessed homes.
"The market is following its structural pattern, but the reasons for it are different," he said.
That pattern is a seasonal one in which home sales peak in June or July, and then dip to an annual low in January or February. What's different this year is that home foreclosures continue to drive the majority of sales, as they have throughout 2009.
Sales activity was up significantly from September 2008, when the market recorded only about 4,600 home resales.
Though still a problem, the number of foreclosures decreased somewhat from just over 3,650 a year earlier.
Unfortunately, Butler said, the past year's home sales data suggest a winter surge in foreclosures could be forthcoming.
Foreclosure activity increased dramatically in February, hitting a then-record high of about 4,300 foreclosures.
Butler said it's likely the surge resulted from financially struggling homeowners finally giving up after resolving to continue making loan payments through the holiday season.
Declining prices, especially in the lower end of the market, continued to attract investor and homeowner interest, he added.
The median single-family home price in September was $140,000, up from $138,000 in August - a considerable drop from the median price of $180,000 in September 2008.
Source: Arizona Republic, Craig Anderson Oct. 13, 2009
When Congress passed an $8,000 tax credit for first-time home buyers last winter, it was intended as a dose of shock therapy during a crisis. Now the question is becoming whether the housing market can function without it. As many as 40 percent of all home buyers this year will qualify for the credit. It is on track to cost the government $15 billion, more than twice the amount that was projected when Congress passed the stimulus bill in February.
In the view of the real estate industry and some economists, all that money is well spent. They contend the credit is doing what it was meant to do, encouraging a recovery in the housing market that is gathering steam. Analysts say the credit is directly responsible for several hundred thousand home sales.
Skeptics argue that most of the money is going to people who would have bought a home anyway. And they contend that unless it is allowed to expire on schedule in late November, the tax credit is likely to become one more expensive government program that refuses to die.
The real estate industry, including the powerful 1.1 million-member National Association of Realtors, wants Congress to extend the credit at least through next summer. The group hopes to expand the program to $15,000 and to allow all buyers, not just those who have been out of the market for at least three years, to qualify. The price tag on that plan: $50 billion to $100 billion.
‘A no-brainer’
Joseph and Chassity Myers are among the two million buyers eligible for the credit this year. The newlywedsheard they could get money from the government for something they were tempted to do anyway. “It was a no-brainer,” said Mr. Myers, a commercial underwriter. “Owning something is the American family dream.” The couple bought a two-bedroom condominium here in the spring for $171,000 and amended their 2008 taxes immediately, receiving their windfall by direct deposit a few weeks later. Their home is now a monument to the government’s generosity. They bought a leather couch, a kitchen table, a bed, television stand, china cabinet, kitchen table, coffee table, grill and patio set.“We did exactly what the government wanted us to do,” said Ms. Myers, a third grade teacher. “We stimulated the economy.”
Expiration of credit looms
Mortgage applications increased nearly 10 percent for the week ending Sept. 3 from late August, the largest gain since early April and the latest of many signs of life in real estate. The upturn can be attributed to several factors: the return of confidence, very low mortgage rates, and prices in some markets that are at decade-low levels. But the looming expiration of the tax credit on Nov. 30 seems to be playing a role too, particularly in relatively low-cost markets like Phoenix, Las Vegas and Dallas.
Since then, another seven units have sold, including the one bought by the Myerses. Brian Denbow, who works for a subprime auto financing firm, also was spurred to action by the credit. He too intends to use the money for furniture. Five of the buyers did not qualify for the credit for various reasons.
The Lawn at Bluffview remains nowhere near full. Potential buyers “just want a deal,” said the sales agent, Beverly Bell. Two weeks ago, the price of the unsold units was cut 10 percent.
The National Association of Realtors estimates that about 350,000 sales this year would not have happened without the lure of the tax credit. Moody’s Economy.com used computer modeling to put the number at 400,000.
The government’s efforts to directly reward home buyers began more than a year ago with a $7,500 tax credit that had to be repaid over 15 years. Last winter, amid fears of another Great Depression, the Senate came up with a much sweeter $15,000 package as part of the stimulus bill. That measure was ultimately reduced to the $8,000 credit.
Now the sponsor of the original Senate bill, Johnny Isakson, Republican of Georgia, is back with a new bill that would give a maximum $15,000 credit to any buyer who stays in a home for at least two years.
“The problem now is not first-time buyers, it’s the move-up market — the guy transferred from Chicago to Atlanta who can’t sell his house,” said Mr. Isakson, a former real estate agent.
Without a new and more generous credit, he warned, there would be a downward spiral of home sales and more foreclosures, provoking a second recession.
The real estate industry is lobbying heavily for the bill, but acknowledges that in an atmosphere that is less crisis-driven than last winter it will almost certainly have to settle for less.
“There will be a lot of water under the bridge, a lot of compromise, between now” and a final bill, said Richard A. Smith, chairman of the Business Roundtable’s Housing Working Group.
Divided
Economists are sharply split on the merits of another round of government help.
Mark Zandi, chief economist of Moody’s Economy.com, favors expanding the credit to all home buyers, even investors, into next summer. “The risks of not doing something like this are too great,” he said. “I don’t think the coast is clear.”
James Glassman of JPMorgan Chase echoed those views but said he favored continuing to restrict the credit to first-time buyers.
On the other side of the issue is the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute. It labeled the original credit as one of the worst provisions of the stimulus package, on the grounds that the money is a bonus for people who would buy a house anyway. The center has an even dimmer view of extending the credit to all buyers.
“Is this the best way to spend money we don’t have?” asked senior fellow Roberton Williams.
Dean Baker of the Center for Economic and Policy Research called the credit “a questionable redistributive policy” from renters to home buyers, but said that he used it himself when he bought a house. He wrote on his blog: “Thank you very much, suckers!”
This article, “Fight Looms in Congress on Tax Break for Home Buyers,” first appeared in The New York Times.
NEW YORK (CNNMoney.com) -- Sales of existing homes rose in July for the fourth consecutive month, lending support to economists who argue a recovery is near.
Sales of previously owned single-family homes were up 7.2% compared with June and 5% from July 2008, The National Association of Realtors (NAR) reported Friday. The monthly gain was the largest on record for existing-home sales, which NAR has tracked since 1999.
"The housing market has decisively turned for the better," said Lawrence Yun, NAR's chief economist. "A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales."
July home sales hit an annualized rate of 5.24 million proprieties, marking the first breach of the 5 million annualized rate mark since last September, when they hit 5.1 million. Since then, they have stayed in a very narrow range, bouncing between between January's low of 4.49 million and October's high of 4.94 million.
The July performance far exceeded expectations: A consensus of real estate experts had forecast sales of 5 million.
Of course, homes should be selling. Prices have fallen more than 32% from their peaks, set in the summer of 2006. Plus, mortgage rates near historic lows makes the cost of purchasing a home lower than they've been in nearly 20 years.
"In some recovering markets like San Diego, Las Vegas, Phoenix and Orlando, the demand for foreclosed and lower priced homes has spiked, and a lack of inventory is becoming a common complaint," Yun said.
Overall though, the national inventory rose by more than 7% to 4.09 million units. That will continue to keep prices low, according to Mike Larson, a housing analyst with Weiss Research.
"There's a bifurcation of the market," he said. "There's excess supply putting downward pressure on prices and people respond to the lower prices by buying homes."
Housing is its most affordable in many years, he pointed out. "Falling prices is not part of the problem, they're part of the solution," he said.
Hurting home sales have been stubborn increases in job losses. More than 6.7 million jobs have been lost since the beginning of 2008.
That's one reason why Robert Dye, a senior economist for PNC Financial Services (PNC, Fortune 500), is keeping his optimism in check.
"I wouldn't go overboard on this number," he said. "The economy is still healing and will continue to run into some bumps. But it does bode very well for the future and shows buyer confidence is increasing."
There is one potential bump, however: The looming end of the first-time homebuyers credit. The credit gave first-time homebuyers an up to $8,000 refund on their taxes if they close on a deal before Dec. 1. That credit has been motivating buyers, and when it expires, demand could dry up.
"Just like with the cash-for-clunkers program, we run the risk of a letdown as the program runs its course," Dye said.
Regionally, the strongest market was the Northeast, where sales soared by 13.4% to an annualized rate of 930,000. That was 3.3% higher than last July. The median price of homes sold during the month was $236,700, off 15% from last year.
Midwest sales rose 10.9% to a 1.22 million rate, 8% higher year-over-year. Prices there have sunk 5.9% over the past 12 months to a median of $157,200.
In the South, sales were up 7.1% from June and 5.4% from last July to a rate of 1.95 million. Price have dropped 7.1% to $164,500 over the past 12 months.
The only region reporting a slip in sales was the West, where they fell 1.7% to a rate of 1.13 million. That was ahead of last July, however, by 1.8%. The median price there was $202,300, a whopping 28% below what is was a year ago.
http://money.cnn.com/2009/08/21/real_estate/home_sales_rise_in_July/index.htm?postversion=2009082110
