FINAL NOTES FOR THIS MONTH ON RECESSION, PRICING AND THE FUTURE… There was an Associated Press article whose headline read, “US Housing Slump a Prelude to Recession.” It was a brief article and had 3 main points: 1) if history is any guide, a recession is most likely around the corner because a recession followed 6 of the last 7 housing downturns. 2) Housing stats are at all-time lows since after WWII 3) after the recession ended, housing starts typically rebounded strongly after inventory fell and home sales picked up.
What I would add to this equation for Southern California in general and Orange County specifically should inspire hope. I’m not trying to be naïve. I know we are months from a full recovery. Obviously we have economic woes beyond housing, i.e. food and gas, to name just two. However, let me add that the Associated Press also noted that immigration growth would be a key factor in rejuvenating the market. We also have tremendous economic diversity that is currently being overshadowed by the mortgage meltdown but won’t be forever. Prices falling every month mean more buyers that can enter the market each month. All these first time buyers are planting the seeds for the first true move up market in almost a generation. We need these buyers to start the cycle in a recovering housing market. Finally, generation “Y” is the first generation to be as big as the boomers. Expect them to fuel a housing market as they turn 25 to 35 in the coming years. With mortgage practices returning to normal, money should be available to those who qualify and expect a return to normal appreciation. With as much trepidation as the next year may bring, it will also bring the same level of opportunity for many. I am always here to answer any questions you may have.
Monday, July 14, 2008
What Do Economists Think ?
HOW DID WE GET HERE? WHAT DO ECONOMISTS THINK?... Well, we got here in a variety of ways. First and foremost the way was paved with cheap and available money. The blame for this goes all the way to Greenspan, Wall Street and the White House. Without getting into the fray, let it be known that the Associated Press reported on June 19th that more than 400 real estate industry players have been indicted since March, in a Justice Department sting dubbed, “Operation Malicious Mortgage.” It is believed that mortgage mishandling, at best, and fraud at worst, is responsible for most of the nation’s housing crisis.
Economists’ views seem to be two-fold. First off is the belief that housing prices had to fall because they ran up so much faster than income. Obviously incomes were left in the dust, particularly in Southern California. Economist Chris Thornberg has said, “Southern California home prices likely will continue falling until mid-to-late 2009… The reason prices are falling is because of gravity. The run-up in home prices over the past decade was ludicrous and wasn’t accompanied by a comparable increase in income.”
Thornberg’s estimate of a 50% decline was different than that of the Chapman economists who predict 16% in ’08 and then another 9% in ’09. Many industry insiders blame the stark decline in prices on foreclosures. Well yeah. But you cannot exclude them from the housing mix to create a different percentile. That would be voo doo math. Excluding the foreclosures from any statistic is like saying if you hadn’t gone swimming, you wouldn’t be wet.
Bottom Line: No one can predict the bottom of the market. But the edict BUY LOW would seem to be in operation here. Just make sure you consult your own advisors as to what is best for you.
Economists’ views seem to be two-fold. First off is the belief that housing prices had to fall because they ran up so much faster than income. Obviously incomes were left in the dust, particularly in Southern California. Economist Chris Thornberg has said, “Southern California home prices likely will continue falling until mid-to-late 2009… The reason prices are falling is because of gravity. The run-up in home prices over the past decade was ludicrous and wasn’t accompanied by a comparable increase in income.”
Thornberg’s estimate of a 50% decline was different than that of the Chapman economists who predict 16% in ’08 and then another 9% in ’09. Many industry insiders blame the stark decline in prices on foreclosures. Well yeah. But you cannot exclude them from the housing mix to create a different percentile. That would be voo doo math. Excluding the foreclosures from any statistic is like saying if you hadn’t gone swimming, you wouldn’t be wet.
Bottom Line: No one can predict the bottom of the market. But the edict BUY LOW would seem to be in operation here. Just make sure you consult your own advisors as to what is best for you.
Housing Market
HOUSING MARKET HAS ITS WOES, BUT HAS ITS OPPORTUNITIES AS WELL… Every cloud has a silver lining and the real estate market is no different. Sales volume took a jump in May (the latest full month available) over April, although sales were still off approximately 10% from May of ’07. However, most agents who are actively working the foreclosure market will tell you that 8 to 20 offers is not unusual for any house priced under $500,000. The papers will tell you the market is dead, the economists are predicting doom and gloom for another 18 months. I’m here to tell you, don’t believe everything you read. Having said that, yes this is a market to approach with caution. You should know exactly what you want, and what you can afford. But, there are definitely deals out there. You need a real estate professional to help you. There is definite navigation required and you will need negotiating power. I am here to help you. This is a radical market full of possibilities.
Tuesday, May 6, 2008
REO and FHA Loans
BUYING BANK OWNED, FHA LOANS AND THE WHOLE ENCHILADA… There is a lot of conflicting information out there. Have foreclosures peaked? Maybe not everywhere, but Orange County is getting close. The banks took possession of 698 properties in March, down 4% from February and down 13% from January. (Source:Dataquick) They could spike again, slightly, over the next few months but indications would be that the number is stabilizing. Some reasons are that more and more lenders are developing work out programs, loan modifications and loan relief. Short sales are still out there but frankly they are the riskiest bet for a buyer. You could be tied up for weeks waiting for a response from a lender, unlike a bank owned which is listed for a set price and is ready to go. Remember, however, that most bank owned properties are sold “as is” and “buyer beware.” They will need work and patience. Don’t expect to lowball these properties either as multiple offers are starting to make an appearance on these already price adjusted homes. We want to say a word about FHA loans. The loan limit on this product has risen to $729,000 in Orange County. It allows for a 3% down payment or 5% if it’s a “jumbo lite.” The money can be gifted and need not be seasoned. It is available for refinance up to 97% loan to value for rate and term. This is a viable option for refinances if some of your equity has been lost. Please call us for any questions on any real estate matter. We are your experts on “the whole enchilada!” See you next month!
P.S. For a look at how the county shapes up with foreclosures by city, give us a call and we will send you the map which appeared in the OC Register.
P.S. For a look at how the county shapes up with foreclosures by city, give us a call and we will send you the map which appeared in the OC Register.
HOME SALES are UP
PRICES ARE DOWN, BUT SALES ARE UP… The next paragraph will have the exact numbers of sales which will still be down from the previous year, but up from the previous month. The fact is sales are way up from February. March sales (the latest month available) in Los Angeles, Orange, Ventura, San Bernardino, Riverside and San Diego counties were up 18.8% from February. According once again to Dataquick, that’s still not great as the average increase from February to March for the previous 20 years has been 38%. Yet I think it’s a number worth looking at. Why? Because most brokers reported their highest monthly sales in 15 months, which means this March was a heck of a lot better than March of ’07. The current inventory levels have not only stabilized, but they have hit a neutral plateau meaning they don’t really favor sellers or buyers. According to the OC Register (April) supply is hovering at about 6.77 months, meaning if not another house was listed it would take 6.77 months to sell every home currently listed to reach 0% inventory. This is not a bad number considering the affordability index is rising monthly. In fact, it’s risen from a low of 11% at the height of the market to around 30%. That’s the number of people that can afford to buy a home at current prices. Even though the emotions of the market favor buyers and because of that supply favors buyers, activity is slowly growing. Are we out of the woods? No, let’s be realistic and truthful. But, investors are sneaking back in and there are some great deals out there. If you need to buy, you need to call us. There are not a lot of great reasons to wait because the single factor that should sway you is interest rates and they are still at near historic lows.
Tuesday, April 22, 2008
Up with the Down Payment
Sen. John McCain of Arizona, the presumptive Republican nominee, proposed something last week that no other major presidential candidate has advocated in decades: raising minimum down-payment levels for home mortgages.
That would mean no more zero-down deals. No more "piggyback" plans that combine 90 percent first loans with 10 percent seconds. No more "down-payment assistance" setups whereby sellers indirectly supply most or all of the cash for the buyer's down payment.
Even the 3 percent minimum required by the Federal Housing Administration would be raised under McCain's plan. That puts him squarely at odds with the Bush administration and Democratic leaders in the House and Senate, who are negotiating legislation that would cut the FHA's minimum to zero, favored by the House, or 1.5 percent, favored by the Senate.
Proponents of low FHA down payments say that they are necessary to allow moderate-income families to buy first homes and that, if properly underwritten and serviced, they do not lead to extraordinarily high default or foreclosure rates.
McCain also said the giants of the mortgage industry, the congressionally chartered Fannie Mae and Freddie Mac, "should never insure loans when the homeowner clearly does not have skin in the game." He did not specify how much skin would be needed.
McCain's rationale for tightening up down payments: He thinks a key contributing factor to the national mortgage crisis was the tiny -- or nonexistent -- equity contributions required by lenders during the boom years. When the boom fizzled and home values fell, many borrowers found themselves in negative-equity positions, owing more on their mortgages than the market value of their homes.
Though neither of his potential Democratic opponents nor the White House has commented on details of the McCain proposal, efforts to rein in down-payment standards already are under way by major private mortgage lenders and insurers. Fannie Mae and Freddie Mac both have raised fees on new loans in which borrowers have less than 25 percent equity. They also have increased minimum credit scores for low-equity mortgages.
Private mortgage insurers have tightened availability of new loans with less than 5 percent down by sharply raising credit standards for applicants and by refusing to underwrite such loans in markets they designate as "declining."
The emerging trend in the private marketplace reverses one of the hallmark practices of the housing-boom years. When the National Association of Realtors surveyed thousands of first-time buyers in late 2004 and early 2005, it found that a stunning 43 percent had put no money into their purchases. The study pegged the median down payment by first-time purchasers at just 2 percent, which dropped to 1 percent in high-cost areas, such as California, where zero-down piggyback plans were wildly popular.
The result, as the real estate market began turning in mid-2005, was that large numbers of people began homeownership underwater. Research by a subsidiary of First American found that by 2006, 15 percent of households that took out loans the previous year were already at a zero- or negative-equity position. Five percent were in negative territory by 10 percent or more, with mortgage debt balances at least 10 percent higher than the market value of their properties.
The study also found that one out of three purchasers nationwide had an equity cushion of less than 20 percent. Forty-four percent had less than 30 percent equity. Areas where owners had the least equity -- California, Colorado, Florida and Ohio -- subsequently have seen some of the highest foreclosure and delinquency rates.
What's the national situation on equity holdings among all American homeowners, including people who took out their mortgages long before the boom? The Federal Reserve Board researches that question periodically through its "flow of funds" studies. Here's what it found most recently:
From the fourth quarter of 2006 through the fourth quarter of 2007, homeowners lost $387.5 billion in net equity holdings, mainly because of property devaluations in major markets. The year-end $9.65 trillion in equity was the lowest level since mid-2004.
At the end of 2007, according to the Fed, American homeowners' equity was 47.9 percent of home values, down a full percentage point from the third quarter and six percentage points below 2003. Any way you look at it, $9.65 trillion is a vast financial resource, and a national "loan to value" ratio around 50 percent means most homeowning households still have hefty cushions.
But don't look for the return of mass-marketed zero-down mortgages anytime soon. Whatever politicians decide to do, the private marketplace is heading back to more traditional standards, where equity up front was the rule.
That would mean no more zero-down deals. No more "piggyback" plans that combine 90 percent first loans with 10 percent seconds. No more "down-payment assistance" setups whereby sellers indirectly supply most or all of the cash for the buyer's down payment.
Even the 3 percent minimum required by the Federal Housing Administration would be raised under McCain's plan. That puts him squarely at odds with the Bush administration and Democratic leaders in the House and Senate, who are negotiating legislation that would cut the FHA's minimum to zero, favored by the House, or 1.5 percent, favored by the Senate.
Proponents of low FHA down payments say that they are necessary to allow moderate-income families to buy first homes and that, if properly underwritten and serviced, they do not lead to extraordinarily high default or foreclosure rates.
McCain also said the giants of the mortgage industry, the congressionally chartered Fannie Mae and Freddie Mac, "should never insure loans when the homeowner clearly does not have skin in the game." He did not specify how much skin would be needed.
McCain's rationale for tightening up down payments: He thinks a key contributing factor to the national mortgage crisis was the tiny -- or nonexistent -- equity contributions required by lenders during the boom years. When the boom fizzled and home values fell, many borrowers found themselves in negative-equity positions, owing more on their mortgages than the market value of their homes.
Though neither of his potential Democratic opponents nor the White House has commented on details of the McCain proposal, efforts to rein in down-payment standards already are under way by major private mortgage lenders and insurers. Fannie Mae and Freddie Mac both have raised fees on new loans in which borrowers have less than 25 percent equity. They also have increased minimum credit scores for low-equity mortgages.
Private mortgage insurers have tightened availability of new loans with less than 5 percent down by sharply raising credit standards for applicants and by refusing to underwrite such loans in markets they designate as "declining."
The emerging trend in the private marketplace reverses one of the hallmark practices of the housing-boom years. When the National Association of Realtors surveyed thousands of first-time buyers in late 2004 and early 2005, it found that a stunning 43 percent had put no money into their purchases. The study pegged the median down payment by first-time purchasers at just 2 percent, which dropped to 1 percent in high-cost areas, such as California, where zero-down piggyback plans were wildly popular.
The result, as the real estate market began turning in mid-2005, was that large numbers of people began homeownership underwater. Research by a subsidiary of First American found that by 2006, 15 percent of households that took out loans the previous year were already at a zero- or negative-equity position. Five percent were in negative territory by 10 percent or more, with mortgage debt balances at least 10 percent higher than the market value of their properties.
The study also found that one out of three purchasers nationwide had an equity cushion of less than 20 percent. Forty-four percent had less than 30 percent equity. Areas where owners had the least equity -- California, Colorado, Florida and Ohio -- subsequently have seen some of the highest foreclosure and delinquency rates.
What's the national situation on equity holdings among all American homeowners, including people who took out their mortgages long before the boom? The Federal Reserve Board researches that question periodically through its "flow of funds" studies. Here's what it found most recently:
From the fourth quarter of 2006 through the fourth quarter of 2007, homeowners lost $387.5 billion in net equity holdings, mainly because of property devaluations in major markets. The year-end $9.65 trillion in equity was the lowest level since mid-2004.
At the end of 2007, according to the Fed, American homeowners' equity was 47.9 percent of home values, down a full percentage point from the third quarter and six percentage points below 2003. Any way you look at it, $9.65 trillion is a vast financial resource, and a national "loan to value" ratio around 50 percent means most homeowning households still have hefty cushions.
But don't look for the return of mass-marketed zero-down mortgages anytime soon. Whatever politicians decide to do, the private marketplace is heading back to more traditional standards, where equity up front was the rule.
Wednesday, April 16, 2008
Fannie Mae News
Fannie Mae will allow more struggling homeowners to sell their homes for less than they owe on their mortgages in a gambit that could hit the mortgage finance company with upfront losses but stave off massive hemorrhage from foreclosures.
The program by the largest U.S. financier and guarantor of home mortgages addresses homeowners with "upside-down" loans who owe more than their homes are worth. There are now an estimated 9 million U.S. homeowners in that predicament, according to Moody's (nyse: MCO - news - people ) Economy.com.
Encouraged by regulators and politicians intent on keeping more homeowners from defaulting, Fannie Mae (nyse: FNM - news - people ) and its smaller government-sponsored sibling Freddie Mac (nyse: FRE - news - people ) have expanded their roles in the stricken housing market. The companies together must provide as much as $200 billion in new funding for home loans in exchange for getting their risk cash cushions reduced. The government requires them to keep a certain amount on reserve to guard against risk.
Under Fannie Mae's new plan, the firms that collect payments for its mortgages will allow in more cases involving delinquent borrowers so-called "short sales" of homes for less than the amount owed on the loan. Fannie, as the mortgage guarantor, takes a hit on such sales, but can avoid the potentially larger loss from a home going into foreclosure.
"Fannie Mae's first priority is to work with our servicers to keep people in their homes," Jason Allnutt, Fannie Mae's vice president for credit loss management, said in a prepared statement. "If we exhaust our workout options, there are several ways we can help distressed homeowners avoid foreclosure, including negotiating a short sale."
Washington-based Fannie Mae's plan was disclosed this week by one of its executives at a real estate industry conference. It was first reported Wednesday by American Banker, a trade publication.
Brad German, a spokesman for McLean, Va.-based Freddie Mac, said the company recently changed its policy regarding its mortgage servicers in a way that increased approvals of short sales by 90 percent between the fourth quarter of 2007 and the first quarter of this year. Late last year, Freddie Mac gave some of its servicers more authority to accept short sales without prior approval from the company, German said.
Real estate agents, meanwhile, have been frustrated by what they see as lenders' reluctance to approve short sales. A national survey of 3,000 agents conducted in March by research firm Campbell Communications found that, on average, loan servicers take more than four weeks to respond to offers from would-be buyers, often resulting in a sale falling through.
"There's a little tension there between the agent role and the lender role," said Brian Chappelle, a partner at Potomac Partners in Washington, a consulting firm to the mortgage industry. "It is a balancing act."
He also suggested it may be difficult to distinguish between deserving borrowers who are in over their heads with a mortgage and others just trying to take advantage of the system.
The federal Office of Thrift Supervision, a division of the Treasury Department, has also drafted a plan to help such upside-down borrowers, allowing them to refinance into government-backed loans covering the home's current value. To make up the difference, lenders would receive a special certificate equivalent to the remainder of the balance owed that they could redeem if the home were eventually sold at a higher price.
The program by the largest U.S. financier and guarantor of home mortgages addresses homeowners with "upside-down" loans who owe more than their homes are worth. There are now an estimated 9 million U.S. homeowners in that predicament, according to Moody's (nyse: MCO - news - people ) Economy.com.
Encouraged by regulators and politicians intent on keeping more homeowners from defaulting, Fannie Mae (nyse: FNM - news - people ) and its smaller government-sponsored sibling Freddie Mac (nyse: FRE - news - people ) have expanded their roles in the stricken housing market. The companies together must provide as much as $200 billion in new funding for home loans in exchange for getting their risk cash cushions reduced. The government requires them to keep a certain amount on reserve to guard against risk.
Under Fannie Mae's new plan, the firms that collect payments for its mortgages will allow in more cases involving delinquent borrowers so-called "short sales" of homes for less than the amount owed on the loan. Fannie, as the mortgage guarantor, takes a hit on such sales, but can avoid the potentially larger loss from a home going into foreclosure.
"Fannie Mae's first priority is to work with our servicers to keep people in their homes," Jason Allnutt, Fannie Mae's vice president for credit loss management, said in a prepared statement. "If we exhaust our workout options, there are several ways we can help distressed homeowners avoid foreclosure, including negotiating a short sale."
Washington-based Fannie Mae's plan was disclosed this week by one of its executives at a real estate industry conference. It was first reported Wednesday by American Banker, a trade publication.
Brad German, a spokesman for McLean, Va.-based Freddie Mac, said the company recently changed its policy regarding its mortgage servicers in a way that increased approvals of short sales by 90 percent between the fourth quarter of 2007 and the first quarter of this year. Late last year, Freddie Mac gave some of its servicers more authority to accept short sales without prior approval from the company, German said.
Real estate agents, meanwhile, have been frustrated by what they see as lenders' reluctance to approve short sales. A national survey of 3,000 agents conducted in March by research firm Campbell Communications found that, on average, loan servicers take more than four weeks to respond to offers from would-be buyers, often resulting in a sale falling through.
"There's a little tension there between the agent role and the lender role," said Brian Chappelle, a partner at Potomac Partners in Washington, a consulting firm to the mortgage industry. "It is a balancing act."
He also suggested it may be difficult to distinguish between deserving borrowers who are in over their heads with a mortgage and others just trying to take advantage of the system.
The federal Office of Thrift Supervision, a division of the Treasury Department, has also drafted a plan to help such upside-down borrowers, allowing them to refinance into government-backed loans covering the home's current value. To make up the difference, lenders would receive a special certificate equivalent to the remainder of the balance owed that they could redeem if the home were eventually sold at a higher price.
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