“I've been in beastly hot Pensacola, Florida, preparing stories on mortgage mediation, and, of course, oil. President Obama dropped by the beach of Pensacola, Florida yesterday to talk to some local folks, while I spent the day in empty beach front mansions and empty ocean-view condos. The oil isn't really here yet, just a few tar balls, but the apprehension is everywhere. This is a housing market that saw prices drop 50 percent in the housing crash. I'm talking beautiful, grand, beachfront properties, where the sand is positively Caribbean white, and values just plummeted. Last year, as investors started to dip their toes back into the warm water here, it all started to pick up, and condos and homes alike were selling again, albeit at bargain prices.
Now just the perception, the fear that oil is coming, changed all that in an instant. It's not just buyers putting the breaks on, but renters as well, and that will not bode well for condo owners who rely on renters to offset their mortgages. Rothfeder, a self-proclaimed optimist, says he's hoping BP will start writing checks to all sorts of people in Pensacola Beach, including condo owners. But how much and for how long? What strikes me, though, in driving around here for the last few days is not the growing fear among the locals, but the sheer number of "For Sale" signs down the beach. They're literally almost every third house. That kind of inventory isn't healthy for any market, forget a beach-front community staring down the face of an oil slick."
Against a backdrop of misery, buyers are empowered — and are taking full advantage. Exacting buyers are upending the battered real estate market, agents and other experts say, leading to last-minute demands for multiple concessions, bruised feelings on all sides and many more collapsed deals than usual. It is a reversal of roles from the boom, when competing buyers were sometimes reduced to writing heartfelt letters saying how much they loved the house and how they promised to eternally worship the memory of the previous owners. These days, it is the buyers who are coldly seeking the absolute best deal while the sellers are left in emotional turmoil.
Everyone expected the housing market to suffer at least a temporary hangover after the government’s $8,000 tax credit expired, but not necessarily this much. Preliminary data from around the country indicates that the housing market began swooning last month immediately after the credit was no longer available. In some places, sales dropped more than 20 percent from May 2009, when the worst of the financial crisis had subsided. Builders have been affected too. Construction of new homes in May dropped 17.2 percent from April, the Commerce Department said Wednesday, significantly lower than forecast. Permits for future construction dropped 10 percent, suggesting a cruel summer.
The Mortgage Bankers Association said Wednesday that applications for loans to buy houses were down by a third compared with last year. Applications are back to the level of the mid-1990s, when the country’s housing market was smaller. But the optimists, and real estate remains full of them, say the trough is temporary. The stimulus might have stolen sales from May but by July, they argue, people will need to buy again.
Unemployment benefits, 'doc fix' scaled back in Senate bill
Seeking to appease deficit hawks, the Senate scaled back unemployment benefits and Medicare physician reimbursement measures on Wednesday. The revised jobs bill eliminates a $25 weekly supplement for the jobless that had been part of the last year's stimulus act. Those currently receiving the supplement in their unemployment benefits check will continue to do so until they exhaust their extended benefits, or until the week of Dec. 7, whichever comes first.
That cut will reduce the bill's cost by $5.8 billion over the next decade. The new version of the bill would also freeze a 21% cut to Medicare physician reimbursement rates only through November, instead of through 2011. This will reduce the bill's size by $16.4 billion over 10 years. Senate lawmakers also voted Wednesday to include a measure in the bill that would push back the deadline to close on home purchases and still qualify for a federal tax credit of up to $8,000. Homebuyers would have until September 30, instead of June 30, to complete the transaction. The provision will cost $140 million over 10 years
Most borrowers who have had their mortgages modified through a government-sponsored program will redefault within 12 months, according to a report released Wednesday. Between 65% and 75% of loans that are modified through the Home Affordable Modification Program(HAMP) but not backed by the federal government are likely to go bad, according to the report released by Fitch Ratings, a N.Y.-based credit-rating agency. The main reason these borrowers continue to struggle is that HAMP does nothing to solve the rest of their debt problems, the report added. "Many of these borrowers still have very heavy levels of other debt," said Diane Pendley, a Fitch managing director, "auto loans, credit cards and other expenses.
The HAMP modifications reduce housing expenses down to 31% of income but do not touch these other obligations." Currently, according to the Fitch report, about half of prime borrowers who lose their homes now do so through foreclosure. The other 50% go through short sales, in which they sell their homes for less than what they owe the bank, or deed-in-lieu, a transaction where the bank takes back the property directly and forgives the outstanding balance. The servicers have been encouraged to rev up their short sale engines by the Treasury Department, which runs HAMP and its sister program, Home Affordable Foreclosure Alternatives (HAFA), which provides cash incentives to the parties who agree to short sales.. Now, when borrowers re-default on HAMP mods or other bank workouts, banks are much more likely to offer help to execute a short sale or deed-in-lieu.
While Washington moves ahead on reforming the nation's financial system, bank lending is yet to catch up. Many banks have been reluctant to make new loans in recent months, in part, because of uncertainty about just how harshly lawmakers would crack down on the industry. But last week's ironing out of a Wall Street reform bill may do little to revive the flow of credit. "If anything, this legislation could reduce credit outstanding - not increase it," said Gerard Cassidy, managing director of bank equity research at RBC Capital Markets. As part of the proposed new law, banks would also be banned from making so-called 'liar loans'. Instead, lenders would be required to verify both a borrower's income and their ability to make payments. The reform bill also leaves many other questions unanswered. Bankers, particularly those at the nation's top financial institutions, are still awaiting details on just how much capital their firms are required to hold.
Small banks, on the other hand, continue to face tough oversight from regulators about both the loans on their books, and in some instances, the types of loans they are making. But these aren't the only reasons why banks may still be reluctant to lend more. Troubling economic numbers like last week's sharp decline in new home sales may keep bankers nervous as they try to manage their current loan losses. "There is such uncertainty about the economic outlook that individuals and corporations are going to try and paid down debt or sit on whatever cash they have," said Richard Staite, a London-based banking analyst with Atlantic Equities, which tracks several large U.S. banks.
Up to 180,000 home buyers will lose their tax credit through no fault of their own if Congress fails to pass an extension to the home buyer tax credit by June 30 when the closing deadline expires. Included in that number are thousands of home buyers in every state of the union, from 390 in Wyoming to 17,700 in California, according to estimates by the National Association of Realtors®. “We are strongly urging the Senate and the House to act quickly to pass this legislation and ease the minds and pocketbooks of these home buyers,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz.
“These are not buyers who just entered into the market. These are buyers who previously met all the qualifications for the tax credit, but find themselves at the mercy of a workflow jam with lenders or other delays such as lapses in the National Flood Insurance Program, Rural Housing Service, and new home construction, and might not be able to complete the purchase of their homes by the current deadline,” said Golder. “It would be a tragedy for them not to be able to complete the purchase in time to claim the credit.”
Home prices rose 0.8% in April compared with March and were up 3.8% from a year ago, according to the S&P/Case-Shiller Home Price Index of 20 major housing markets. However, prices, are still off 30% from their peak. That good news is tempered by a couple of factors. First, the one-year comparison was against a low-ebb mark. In April 2009, prices were just above a five-year low. Secondly, the improvement came during a time when the federal government was heavily subsidizing home sales through an $8,000 homebuyer's tax credit. That credit is about to expire.
"Other housing data confirm the large impact, and likely near-future pullback, of the federal program," said David Blitzer, a spokesman for Standard and Poor's. Only two cities saw values fall during the month. Miami prices fell 0.8% for the month, which pushed the city into negative territory for the year at -0.5%. New York dropped 0.3% month-over-month and is off 1% year-over-year, while the strongest rebound has been in California. San Francisco prices jumped 2.2% month-over-month and are up 18% year-over-year, more than any other city in the 20-city index. San Diego prices rose 0.7% compared with March and 11.7% since April 2009. Los Angeles prices rose 7.8% over the past 12 months, and 0.7% in April.
For American taxpayers, now on the hook for some $145 billion in housing losses connected to Fannie Mae and Freddie Mac loans, that amount could be just the tip of the iceberg. According to the Congressional Budget Office, the losses could balloon to $400 billion. And if housing prices fall further, the cost to the taxpayer could hit as much as $1 trillion. “Some of us who don’t even own homes are paying to support others and their home ownership, and they ask ‘why?’ said Robert J. Shiller, a Yale University economics professor and co-creator of the S&P/Case-Shiller Home Price Indices. The indices measure the US residential housing market by tracking changes in the value of residential real estate both nationally and in 20 metropolitan regions. Shiller added that the mission of Fannie and Freddie should be severely cut back “so that they’re not helping middle-class homeowners, [but] they’re helping poor people get into the housing market.”
Buyers took advantage of the foreclosed-home market in the first quarter, racking up 31% of all sales made in the January-March period, according to a new RealtyTrac Report.
Steeply discounted prices was the magnet that attracted buyers.
The average sales price of properties that sold while in some stage of foreclosure was nearly 27 percent below the average sales price of properties not in the foreclosure process, according to the Irvine, CA-based researcher.
A total of 232,959 U.S. properties in some stage of foreclosure -- default, scheduled for auction or bank-owned (REO) -- sold to third parties in the first quarter, a decrease of 14 percent from the previous quarter and down 33 percent from the peak during the first quarter of 2009, when sales of foreclosure homes accounted for 37 percent of all residential sales.
"First time homebuyers and investors continue to buy foreclosure properties in large numbers, and at substantial discounts," says James J. Saccacio, chief executive officer of RealtyTrac.
"As lenders have begun repossessing homes at record levels over the first half of 2010, it will be interesting to watch how they will manage the inventory levels of distressed properties on the market in order to prevent more dramatic price deterioration."
The average sales prices on properties in some stage of foreclosure decreased 23 percent from 2006 to 2009 while the average discounts on foreclosure purchases steadily increased from 21 percent in 2006 to 27 percent in the first quarter of 2010.
Discounts on REOs are larger than discounts on pre-foreclosures, although discounts on pre-foreclosures appear to be trending higher as short sales become more common.
Foreclosure sales increase 2,500 percent from 2005 to 2009
More than 1.2 million U.S. properties in some stage of foreclosure sold to third parties in 2009, an increase of 25 percent from 2008 and an increase of nearly 327 percent from 2007.
Total foreclosure sales in 2009 were up more than 1,100 percent from 2006 and up more than 2,500 percent from 2005. Foreclosure sales accounted for 29 percent of all sales in 2009, up from 23 percent in 2008 and up from 6 percent in 2007.
The average sales price of properties that sold while in some stage of foreclosure in 2009 was 25 percent below the average sales price of properties not in the foreclosure process.
That was up from an average discount of 22 percent in 2008 but down from an average discount of 26 percent in 2007.
The average foreclosure discount in 2005 was 35 percent, driven by a nearly 50 percent discount on REOs; however, the discount on pre-foreclosures trended up slightly over the same five-year period, from nearly 12 percent in 2005 to 15 percent in 2008 and 2009.
Foreclosure sales by type in first quarter
A total of 144,503 bank-owned (REO) properties sold to third parties in the first quarter, down 13 percent from the previous quarter and down 27 percent from the first quarter of 2009.
REO sales accounted for 19 percent of all sales in the first quarter, up from nearly 16 percent in the previous quarter but down from 21 percent of all sales in the first quarter of 2009.
REOs sold for an average discount of 34 percent, up from an average discount of nearly 32 percent in both the previous quarter and the first quarter of 2009.
A total of 88,456 pre-foreclosure properties -- in default or scheduled for auction -- sold to third parties in the first quarter, down 15 percent from the previous quarter and down nearly 41 percent from the first quarter of 2009.
Pre-foreclosure sales accounted for nearly 12 percent of all sales, up from nearly 10 percent in the previous quarter but down from 16 percent in the first quarter of 2009.
Pre-foreclosures, which are often short sales, sold for an average discount of nearly 15 percent, up from nearly 14 percent in the previous quarter but down from 16 percent in the first quarter of 2009.
Nevada, California, Arizona post highest percentage of foreclosure sales in Q1
Foreclosure sales accounted for 64 percent of all sales in Nevada in the first quarter, the highest percentage of any state, although Nevada's percentage was down from 65 percent of all sales in the previous quarter and 75 percent of all sales in the first quarter of 2009.
California posted the second highest percentage, with foreclosure sales accounting for 51 percent of all sales there in the first quarter -- up slightly from 50 percent in the previous quarter but down from 70 percent of all sales in the first quarter of 2009.
Foreclosure sales as a percentage of all sales were also down in Arizona from the first quarter of 2009, but the state still posted the third highest percentage in the first quarter, with foreclosure sales accounting for 50 percent of all sales.
Other states where foreclosure sales accounted for at least one-third of all sales were Massachusetts, Rhode Island, Florida, Michigan, Georgia, Illinois, Idaho and Oregon.
Ohio, Kentucky, Illinois post highest foreclosure discounts
The average sales price of properties that sold while in some stage of foreclosure in the first quarter was 39 percent below the average sales price of properties not in the foreclosure process in Ohio, Kentucky and Illinois -- the states with the three highest average foreclosure discounts.
The average overall foreclosure discount was at least 35 percent in California, Tennessee, Pennsylvania, DC and New Jersey.
The biggest discount on bank-owned properties was in New York, where the average sales price for REOs was 52 percent below the average sales price for properties not in foreclosure.
The biggest discount on pre-foreclosure properties was in Rhode Island, where the average sales price for properties in default or scheduled for auction was 33 percent below the average sales price for properties not in foreclosure.
According to Radar Logic, the federal government is currently holding about 46 percent of the entire body of REO properties in the country[1]. This includes properties held by Fannie Mae, Freddie Mac, HUD and VA loans. The company also predicts that due to a glut of “non-performing” homes that are not yet in foreclosure but clearly headed that way, the stake that the federal government has in the housing market is only going to go up for a predicted total of 3.1 million homes ultimately in the federal government’s possession.
While this massive property backlog is of concern no matter how you view our current administration or government in general, it is particularly disconcerting since these homes are marketed and maintained through the use of taxpayer dollars. The same analytics company predicts that the book value of the homes in question could reach $614 billion, which is particularly troubling when you factor in that the government, just like most other sellers today, will end up selling REO inventory at a loss. Factor in the average discount today (40% below book price) and that is a loss of $246 billion before you even factor in the properties that are discounted before they reach foreclosure status via short sales.
It seems like these massive property holdings could hold the key to the survival or the downfall of the housing market. What do you think the government should do with this plethora of distressed property?
According to Radar Logic, the federal government is currently holding about 46 percent of the entire body of REO properties in the country[1]. This includes properties held by Fannie Mae, Freddie Mac, HUD and VA loans. The company also predicts that due to a glut of “non-performing” homes that are not yet in foreclosure but clearly headed that way, the stake that the federal government has in the housing market is only going to go up for a predicted total of 3.1 million homes ultimately in the federal government’s possession.
While this massive property backlog is of concern no matter how you view our current administration or government in general, it is particularly disconcerting since these homes are marketed and maintained through the use of taxpayer dollars. The same analytics company predicts that the book value of the homes in question could reach $614 billion, which is particularly troubling when you factor in that the government, just like most other sellers today, will end up selling REO inventory at a loss. Factor in the average discount today (40% below book price) and that is a loss of $246 billion before you even factor in the properties that are discounted before they reach foreclosure status via short sales.
It seems like these massive property holdings could hold the key to the survival or the downfall of the housing market. What do you think the government should do with this plethora of distressed property?
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