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.
Showing posts with label real estate. Show all posts
Showing posts with label real estate. Show all posts
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.
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 2, 2008
FHA
WHAT WERE THE EXACT NUMBERS AND WHAT SHOULD YOU DO?... There were 1,471 sales in February ‘08, the latest statistics available. That is 14.4% up from December ’07. That breaks down to 975 single-family resale, 345 condos, and 151 new homes. The sales were evenly divided by price range which reflects the lowering prices because people could buy more house with less money. There were 1,739 Notice of Default filed but far fewer actual foreclosures at 732. WHAT SHOULD YOU DO? If we haven’t had an opportunity to visit with you about your real estate aspirations, now might be a good time. The Wall Street Journal had an awesome article in its Personal Finance section entitled, “PLAYING THE HOUSING SLUMP: IS IT TIME TO MAKE YOUR MOVE?” Although we won’t recapitulate the whole article here, it makes some excellent points about trading up, doubling down, and helping hand. The latter is a reference to helping your kids buy a home. RIGHT NOW WITH THE NEW FHA LOAN LIMITS, it is again an exciting time in real estate. FHA has a 3% down program. Although it is a fully documented loan, it does allow that 3% to be a gift. Fannie Mae also has raised loan limits based on median price for your area. To find out more about the limits you can visit http://www.efanniemae.com/. With the median prices coming down, you can get a lot of house for the money right now. It is something to seriously consider for your kids or yourself. THESE LOAN LIMITS MAY ONLY BE WITH US FOR A YEAR! Don’t miss out! Please call us and let’s talk about short sales, foreclosures, or many other opportunities.
Surge in Foreclosures
WHAT’S CAUSING THE SURGE AND WHAT ABOUT ALL THOSE FORECLOSURES?... The surge is caused plain and simple by buyer demand. Right now, if a home is properly priced for its condition, it will sell. Because of incredibly bad publicity, buyers have sat and sat and sat on the sidelines. Many of them can wait no longer to buy. AND THEY SHOULDN’T WAIT ANY LONGER. RIGHT NOW IS A GREAT TIME TO BUY PROPERTY! That’s not to say it couldn’t get even better in terms of prices declining, but the unknown quotient there is interest rates. Right now, we know that interest rates are great. We know the Fed has been very proactive in trying to guard the market from a true crash and all indications are it will continue to do so.
Right now is the best inventory. As this buyer cycle peaks, less desirable property will be available and in less quantity. According to Dataquick Information Services we so far have seen a 12.9% median price drop in LA county, 16.1% drop in Orange county (bringing it back to 2004 levels), and 21% down in the Inland Empire. Some buyers are targeting foreclosures, looking for that great deal. There are some deals out there, but you may also find yourself in a multiple offer situation because if it’s a deal, others will sniff it out as well. The big difference to this market, compared to the blow out of the 90’s is that this time around, people have jobs. We lost almost 1,000,000 jobs in the 90’s. This market is nothing like that. This time we have people waiting for the affordability index to rise so they can buy a home. BIG DIFFERENCE! When the housing market peaked, the affordability index was 11%. Today it is 32%. BIG DIFFERENCE!
Right now is the best inventory. As this buyer cycle peaks, less desirable property will be available and in less quantity. According to Dataquick Information Services we so far have seen a 12.9% median price drop in LA county, 16.1% drop in Orange county (bringing it back to 2004 levels), and 21% down in the Inland Empire. Some buyers are targeting foreclosures, looking for that great deal. There are some deals out there, but you may also find yourself in a multiple offer situation because if it’s a deal, others will sniff it out as well. The big difference to this market, compared to the blow out of the 90’s is that this time around, people have jobs. We lost almost 1,000,000 jobs in the 90’s. This market is nothing like that. This time we have people waiting for the affordability index to rise so they can buy a home. BIG DIFFERENCE! When the housing market peaked, the affordability index was 11%. Today it is 32%. BIG DIFFERENCE!
Subscribe to:
Posts (Atom)