by Tim and Julie Harris
Most major lenders are freezing access to Home Equity Lines of Credit (HELOCs) . Millions of Americans use their HELOCs as their families security blanket to weather any unplanned financial storms. If you were planning on using your HELOC for spring home improvements, medical bills or college tuition, chances are the money has been, or will be shut off.
Most major lenders have been working together in collusion. Behind closed doors, these lenders have created a secret plan to cut off access to your home equity lines of credit.
You must be aware that the lender retains the right to cut off or reduce your line of credit at their sole discretion. Lenders are now arbitrarily reassessing properties and then locking out access for homeowners when the lenders believe the property has negative equity.
What can you do about this when you are affected?
Nothing.
From Countrywide, (this is part of a letter sent to home owners):
'Important message about your loan: At Countrywide Home Loans we are committed to helping customers sustain homeownership. As part of the commitment, and in keeping with its sound risk-management and responsible lending practices, Countrywide Home Loan is reviewing and analyzing home equity lines of credit in its servicing portfolio.
As you know, home values in many areas of the country have declined. We believe that the decline in the value of your property, from its original appraised value at the time your loan was made is significant. In accordance with the terms of your Home Equity Credit Line Agreement and Disclosure Statement (Agreement), we have elected to suspend further draws against your account as of the Effective Date above.'
More Than 122,000 Have Already Lost The Right To Borrow From Their Credit Lines And We Are Just Getting Started.
On Friday, the Los Angeles Times reported that Countrywide notified many homeowners they've lost their right to borrow against their credit lines:
'Tens of thousands of homeowners with home equity lines of credit are getting a rude surprise: They've been told by their lender that they can no longer take money out on their credit lines because sinking home prices have left them with little or no equity.
Among the lenders taking such action is Countrywide Financial Corp., which sent 122,000 letters to customers last week telling them they could no longer borrow against their credit lines. In some cases, according to the company, the borrowers are now "upside down"—the total debt on the home exceeds the market value of the property.
Calabasas-based Countrywide, the nation's largest mortgage lender, says it uses computer modeling that factors in changes in home prices to determine which customers will have their money tap shut off.'
Countrywide is not alone. This is a partial list of the Mortgage Lenders who are sending HELOC freeze letters now.
Bank of America - HELOC Freeze
Countrywide - HELOC Freeze
Chase - HELOC Freezes
CitiGroup - HELOC Freeze under review
National City - HELOC Freeze
Suntrust - HELOC Freeze
USAA Federal Savings - HELOC Feeeze
Washington Mutual - HELOC Freeze
If there was any question that consumers were feeling the financial pinch before...just wait until they are told that their homes are worth LESS than what they owe. In the words of Countrywide..."Significantly Less." What effect will this have on the economy...think this will make consumers feel more confident about housing?
Thursday, March 06, 2008
Wednesday, March 05, 2008
Bernanke's Call: Aid Homeowners
Fed Chief Asks Lenders To Take Aggressive Steps To Address Housing Crisis
By GREG IP
March 5, 2008; Page A3
from the Wall Street Journal
Federal Reserve Chairman Ben Bernanke, raising the level of urgency in dealing with the nation's housing crisis, called on lenders to aid struggling homeowners by reducing their principal -- the sum of money they borrowed -- to lessen the likelihood of foreclosure, and endorsed a bigger role for the federal government in backing such mortgages.
Mr. Bernanke's call, in a speech to bankers, is an acknowledgement the current focus on reducing homeowner's monthly payments by modifying their mortgage rates doesn't solve the underlying problem: the increasing number of American homes now worth less than their mortgages. It also suggests Mr. Bernanke is willing to advocate more aggressive measures to address the deepening housing crisis than the Bush administration has endorsed.
"The current housing difficulties differ from those in the past, largely because of the pervasiveness of negative equity positions," Mr. Bernanke told the Independent Community Bankers of America in Orlando yesterday. With negative equity, which means a home is worth less than its mortgage, "a stressed borrower has less ability...and less financial incentive to try to remain in the home.
"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure" than reducing the interest rate," he said.
A "potentially important step" to make this happen, he said, is to expand the ability of the Federal Housing Administration to guarantee larger mortgages and mortgages on which the borrower is, or is about to be, delinquent, in effect having the federal government backstop many loans that would otherwise go into default.
Mr. Bernanke has taken an increasingly activist stance on multiple fronts in battling the housing crisis. He has slashed interest rates, backed fiscal stimulus and has positioned himself between congressional Democrats, who want more government resources committed to preventing foreclosures, and the Treasury, which has focused on voluntary steps by lenders such as modifying interest rates on mortgages.
House Financial Services Committee Chairman Barney Frank (D., Mass.) called the speech an endorsement of his own proposal. "It begins with [lenders] recognizing they've lost money," he said. "Once they've done that we think the FHA should facilitate the refinancing."
During the housing boom, many homes were bought with little or no money down because both buyers and lenders bet on additional home-price appreciation to create equity.
Home prices have been declining nationwide for the last year. At the end of 2006, 7% of mortgage borrowers had negative equity, according to First American CoreLogic, a research firm. A report by economists from Goldman Sachs Group Inc. and Morgan Stanley and two academics estimates that proportion will rise to 21%, or 10.5 million households, if home prices fall 15%, as they expect. Assuming an average mortgage balance of $250,000, that would put $2.6 trillion of mortgage debt "under water," the report said.
The centerpiece of the Bush administration's efforts to stem foreclosures is Hope Now, a program under which mortgage servicers and lenders voluntarily reduce or freeze the interest rates of certain subprime borrowers. Mr. Bernanke said as a result, "workouts" of subprime mortgages rose from about 250,000 in the third quarter of 2007 to 300,000 in the fourth quarter, while workouts of prime mortgages rose from 150,000 to 175,000 in the same period. That pace picked up in January, he said.
Robert Steel, Treasury under secretary for domestic finance, declined to specifically endorse Mr. Bernanke's proposal but said it is "one of the tools" for trying to reduce foreclosures. In an interview with The Wall Street Journal, Mr. Steel said the problems posed by the housing crisis are "hard, new things" with no single, obvious solution.
He noted since the Hope Now initiative was announced last fall, the scale of the rate-reset problem has been diminished by Fed rate cuts, which means many mortgages will reset to lower rates than had previously been assumed.
Many outside experts also believe the focus on resets has been misplaced, given that most subprime defaults occurred even before lower teaser rates reset to higher levels.
Reducing the principal rather than the interest rate is a "very different framework for thinking about the problem," said Andy Laperriere, an analyst at ISI Group, a brokerage firm. He said with so many borrowers under water, "any proposal that helps them will be very expensive for either the financial institution or the taxpayer," and a large program would potentially sweep in millions of borrowers who weren't going to default anyway.
Industry reacted coolly to Mr. Bernanke's proposal. The American Securitization Forum, which represents participants in the market for mortgage-backed securities -- pools of mortgages originated and sold by banks and other lenders -- said it had already developed procedures for modifying loans, including through principal reduction. To reduce principal, firms that service MBS pools on behalf of the end investors need "a clear basis for concluding that the related borrower is unable...rather than simply being unwilling" to repay.
Steve O'Connor, senior vice-president of government affairs at the Mortgage Bankers Association, said lenders should consider principal reduction as one way of helping borrowers as long as it is "consistent with obligations" to MBS investors.
Mr. Bernanke said a principal reduction on a mortgage that's greater than the home's underlying value may make the mortgage's actual value greater by "reducing the risk of default and foreclosure."
J.P. Morgan Chase & Co. said in a statement it has "begun to review the feasibility of principal reductions for pooled loans." Any such reduction "must balance the interests of investors...and the borrowers' needs," it said.
--Damian Paletta and Robin Sidel contributed to this article
By GREG IP
March 5, 2008; Page A3
from the Wall Street Journal
Federal Reserve Chairman Ben Bernanke, raising the level of urgency in dealing with the nation's housing crisis, called on lenders to aid struggling homeowners by reducing their principal -- the sum of money they borrowed -- to lessen the likelihood of foreclosure, and endorsed a bigger role for the federal government in backing such mortgages.
Mr. Bernanke's call, in a speech to bankers, is an acknowledgement the current focus on reducing homeowner's monthly payments by modifying their mortgage rates doesn't solve the underlying problem: the increasing number of American homes now worth less than their mortgages. It also suggests Mr. Bernanke is willing to advocate more aggressive measures to address the deepening housing crisis than the Bush administration has endorsed.
"The current housing difficulties differ from those in the past, largely because of the pervasiveness of negative equity positions," Mr. Bernanke told the Independent Community Bankers of America in Orlando yesterday. With negative equity, which means a home is worth less than its mortgage, "a stressed borrower has less ability...and less financial incentive to try to remain in the home.
"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure" than reducing the interest rate," he said.
A "potentially important step" to make this happen, he said, is to expand the ability of the Federal Housing Administration to guarantee larger mortgages and mortgages on which the borrower is, or is about to be, delinquent, in effect having the federal government backstop many loans that would otherwise go into default.
Mr. Bernanke has taken an increasingly activist stance on multiple fronts in battling the housing crisis. He has slashed interest rates, backed fiscal stimulus and has positioned himself between congressional Democrats, who want more government resources committed to preventing foreclosures, and the Treasury, which has focused on voluntary steps by lenders such as modifying interest rates on mortgages.
House Financial Services Committee Chairman Barney Frank (D., Mass.) called the speech an endorsement of his own proposal. "It begins with [lenders] recognizing they've lost money," he said. "Once they've done that we think the FHA should facilitate the refinancing."
During the housing boom, many homes were bought with little or no money down because both buyers and lenders bet on additional home-price appreciation to create equity.
Home prices have been declining nationwide for the last year. At the end of 2006, 7% of mortgage borrowers had negative equity, according to First American CoreLogic, a research firm. A report by economists from Goldman Sachs Group Inc. and Morgan Stanley and two academics estimates that proportion will rise to 21%, or 10.5 million households, if home prices fall 15%, as they expect. Assuming an average mortgage balance of $250,000, that would put $2.6 trillion of mortgage debt "under water," the report said.
The centerpiece of the Bush administration's efforts to stem foreclosures is Hope Now, a program under which mortgage servicers and lenders voluntarily reduce or freeze the interest rates of certain subprime borrowers. Mr. Bernanke said as a result, "workouts" of subprime mortgages rose from about 250,000 in the third quarter of 2007 to 300,000 in the fourth quarter, while workouts of prime mortgages rose from 150,000 to 175,000 in the same period. That pace picked up in January, he said.
Robert Steel, Treasury under secretary for domestic finance, declined to specifically endorse Mr. Bernanke's proposal but said it is "one of the tools" for trying to reduce foreclosures. In an interview with The Wall Street Journal, Mr. Steel said the problems posed by the housing crisis are "hard, new things" with no single, obvious solution.
He noted since the Hope Now initiative was announced last fall, the scale of the rate-reset problem has been diminished by Fed rate cuts, which means many mortgages will reset to lower rates than had previously been assumed.
Many outside experts also believe the focus on resets has been misplaced, given that most subprime defaults occurred even before lower teaser rates reset to higher levels.
Reducing the principal rather than the interest rate is a "very different framework for thinking about the problem," said Andy Laperriere, an analyst at ISI Group, a brokerage firm. He said with so many borrowers under water, "any proposal that helps them will be very expensive for either the financial institution or the taxpayer," and a large program would potentially sweep in millions of borrowers who weren't going to default anyway.
Industry reacted coolly to Mr. Bernanke's proposal. The American Securitization Forum, which represents participants in the market for mortgage-backed securities -- pools of mortgages originated and sold by banks and other lenders -- said it had already developed procedures for modifying loans, including through principal reduction. To reduce principal, firms that service MBS pools on behalf of the end investors need "a clear basis for concluding that the related borrower is unable...rather than simply being unwilling" to repay.
Steve O'Connor, senior vice-president of government affairs at the Mortgage Bankers Association, said lenders should consider principal reduction as one way of helping borrowers as long as it is "consistent with obligations" to MBS investors.
Mr. Bernanke said a principal reduction on a mortgage that's greater than the home's underlying value may make the mortgage's actual value greater by "reducing the risk of default and foreclosure."
J.P. Morgan Chase & Co. said in a statement it has "begun to review the feasibility of principal reductions for pooled loans." Any such reduction "must balance the interests of investors...and the borrowers' needs," it said.
--Damian Paletta and Robin Sidel contributed to this article
Wednesday, February 27, 2008
Myth and Reality: Sale of Home Profits Taxed or Not?
Myth: If I sell my home for more than I paid for it, I have to reinvest the proceeds in a new home with a certain time to get the most favorable tax treatment.
Reality: Wrong. Congress erased that law in the late 1990s.
If you sell your primary residence, you typically can exclude a gain of as much as $250,000 if you're single, or as much as $500,000 if you're married and filing a joint return. To qualify for the full exclusion, you must have owned the home -- and lived in it as your primary residence -- for at least two of the five years prior to the sale. Even if you can't meet these tests, you still might qualify for a partial exclusion if you had to sell for certain reasons, such as a job change or health.
Congress recently made another change that may help some widows and widowers. Under the new law, a surviving spouse who hasn't remarried still may qualify for the up to $500,000 exclusion if the sale of the home occurs not later than two years after the spouse's death, says Robert Trinz, senior tax analyst the Thomson Tax and Accounting in New York. This change, which became effective on sales or exchanges beginning this year, gives the surviving spouse more time to sell.
~~ from the Wall Street Journal
As always, consult with your tax advisor regarding the tax consequences for you and your particular situation. We are not tax advisors, and always recommend that you consult with qualified professionals regarding tax advice.
Reality: Wrong. Congress erased that law in the late 1990s.
If you sell your primary residence, you typically can exclude a gain of as much as $250,000 if you're single, or as much as $500,000 if you're married and filing a joint return. To qualify for the full exclusion, you must have owned the home -- and lived in it as your primary residence -- for at least two of the five years prior to the sale. Even if you can't meet these tests, you still might qualify for a partial exclusion if you had to sell for certain reasons, such as a job change or health.
Congress recently made another change that may help some widows and widowers. Under the new law, a surviving spouse who hasn't remarried still may qualify for the up to $500,000 exclusion if the sale of the home occurs not later than two years after the spouse's death, says Robert Trinz, senior tax analyst the Thomson Tax and Accounting in New York. This change, which became effective on sales or exchanges beginning this year, gives the surviving spouse more time to sell.
~~ from the Wall Street Journal
As always, consult with your tax advisor regarding the tax consequences for you and your particular situation. We are not tax advisors, and always recommend that you consult with qualified professionals regarding tax advice.
Decline in Home Prices Accelerates
Fed's Efforts Have Only Muted Effect On Mortgage Rates
By KELLY EVANS, SERENA NG and RUTH SIMON
Wall Street Journal
February 27, 2008; Page A1
The decline in U.S. home prices accelerated in the fourth quarter, according to two leading barometers, compounding two of the biggest threats facing the nation's economy: faltering consumer spending and tight credit markets.
The S&P/Case-Shiller national home-price index for the fourth quarter fell 8.9% from a year earlier, the largest drop in its 20 years of data. And the Office of Federal Housing Enterprise Oversight's index -- which tracks only homes purchased with mortgages guaranteed by home-loan giants Fannie Mae or Freddie Mac -- was down 0.3%, the first year-to-year decline in the measure's 16 years.
Lower home prices threaten the economy's growth by making consumers feel less wealthy and thus less willing to spend. They also curtail homeowners' ability to borrow against the value of their homes to finance other purchases. In addition, lower housing prices erode the value of banks' collateral, prompting them to tighten their lending standards, which further damps economic growth.
A top Federal Reserve official indicated the housing slump and its broadening impact on the economy probably would keep the central bank biased in favor of more interest-rate cuts. "It appears that the correction in the housing market has further to go," Fed Vice Chairman Donald Kohn said yesterday in a speech in North Carolina. Mr. Kohn said that the downturn, after being "contained" for nearly two years, "appears to have spread to other sectors of the economy." He added that if the housing market deteriorates more than expected, "lenders might further reduce credit availability."
The Fed's efforts so far to soften the blow of the housing slump with lower interest rates appear to be having a muted effect. Since September, the Fed has reduced its target for short-term interest rates by 2.25 percentage points to 3%. But some mortgage rates are actually rising, and those that are falling haven't fallen that much.
The average interest rate on a standard 30-year fixed-rate mortgage was 6.38% yesterday, little changed from September but up from 5.61% in late January, according to HSH Associates, a mortgage-data publisher in Pompton Plains, N.J. Interest rates on so-called jumbo mortgages -- those larger than $417,000 -- were at 7.35%, also close to their September levels.
There are two reasons mortgage rates haven't responded more to the Fed's rate cuts. One is that long-term Treasury yields, which are the benchmark for most mortgage rates, have risen recently, perhaps because of increased concern about inflation as the prices of oil and other commodities soar. The other is that the spread between mortgage rates and Treasury rates has widened as investors and banks become increasingly reluctant to make home loans.
Hoping to Refinance
William Zempsky, a pediatrician who lives in West Hartford, Conn., was hoping to refinance his adjustable-rate mortgage before the rate -- which had been fixed at 4.5% for five years -- jumps to 6% or so in March. "I started to put my stuff together to refinance, but before we could pull the trigger, rates bounced up again," Mr. Zempsky said. "It seemed that with the Fed dropping rates that things would stay low, but they haven't."
If Mr. Zempsky doesn't refinance, his monthly payments will jump by about $275 a month, says his mortgage banker, Michael Menatian, president of Sanborn Mortgage Corp.
The housing-market slump also is taking its toll on consumer sentiment, which could lead to further pullbacks in spending, depressing the economy. The Conference Board, a New York-based business-research group, said yesterday that its index of consumer confidence fell sharply to 75.0 in February from 87.3 in January. The index is closely watched because consumer spending drives much of the U.S. economy.
"Consumer spending is going to take a hit," said Patrick Newport, an economist at Global Insight in Waltham, Mass. "The hit will be bigger the more home prices drop."
A growing glut of homes for sale suggests buyers have little interest in snapping up houses at current prices. Buyers "are waiting for the bottom to be there," said Vicki Nellis, a real-estate agent at Re/Max Allegiance in Burke, Va. She said this is the worst market she has seen in her 25 years in the business.
Goldman Sachs Group Inc. estimates home prices ultimately will fall by 20% to 25% from the peak of the housing boom, while Merrill Lynch chief economist Dave Rosenberg says they could fall even further. According to the S&P/Case-Shiller national home-price index, prices have fallen 10.2% from their highs in the summer of 2006. In some areas, the declines have been much steeper. Prices in the Miami area were 17.5% lower in December than they were a year earlier, and prices in Las Vegas, Phoenix and San Diego have fallen by 15% or more.
There may be light at the end of the tunnel. As prices fall, potential buyers may be tempted off the sidelines. Economists agree the key to stabilizing prices is working off the huge inventory of unsold homes. Supply is shrinking: New-home construction has plunged dramatically. But demand has fallen just as much, leaving inventories high. Sales are now far below normal trends, and on Monday, an industry trade group reported a 0.5% increase in single-family home sales in January, the first in 11 months.
The S&P/Case-Shiller and Ofheo indices have important differences. The Ofheo index is less volatile because it only tracks the prices of homes purchased with mortgages guaranteed by government-backed agencies. That excludes jumbo mortgages, subprime mortgages and other riskier mortgage products.
One reason home prices are falling: Builders are trying to unload their unsold houses. Stuart Kaye, founder of Kaye Homes Inc. in Naples, Fla., has been offering discounts, including price cuts and other incentives, of 20% to 30% on about 50 homes in his inventory. He has sold 18 of them in recent months. "We want to be out from underneath this inventory, and we have made a commitment we will be through it in a 90-day period,'' he said.
But the interest-rate environment has brought a near halt to refinancing activity. P.H. Naffah, a musician in Goodyear, Ariz., has a roughly $415,000, 30-year mortgage with a fixed rate of 6.25%. He figures he could cut his mortgage costs by around $250 a month by refinancing into a loan with a 5.5% rate. "I'm waiting for the interest rates to go down," said Mr. Naffah, who added the savings "would be significant" because his monthly income as a musician fluctuates.
Other borrowers have been hamstrung by tighter credit standards as lenders eliminate programs and set tighter requirements, particularly in markets where home prices are falling. Steve Walsh, a mortgage broker in Scottsdale, Ariz., says his firm is originating about 300 loans a month, but closing only about 65. Mr. Walsh says that about 100 applications fell apart because of problems with appraisals. Another 100 loans didn't close because of rising mortgage rates.
In addition to inflation concerns, rates are rising because the market for mortgage-backed securities is in upheaval, thanks to rising mortgage delinquencies and the collapse of the high-risk subprime corner of the mortgage business.
Upward Pressure
Investors are demanding higher risk premiums for securities they buy with mortgages attached to them. And that is putting upward pressure on the rates charged to individuals. Even bonds backed by government-sponsored enterprises Fannie Mae and Freddie Mac -- which are considered safe triple-A-rated institutions -- have declined in value, pushing mortgage rates higher.
The difference between yields on some Fannie-backed mortgage bonds and yields on Treasury notes hit around 2.46 percentage points this week. This gap -- also known as the "spread" -- gets larger when investors become more risk averse and seek safety in Treasury bonds. It is up from 2.06 percentage points two weeks ago and has reached levels last seen during the 1980s savings-and-loan crisis, according to Bear Stearns.
Of course, mortgage rates would likely be even higher if the Fed hadn't moved aggressively in the past few months. But Fed officials seem mindful of their own limits. "Financing costs have risen, on balance, for riskier credits, and almost all borrowers are dealing with more cautious lenders who have adopted more stringent standards," Mr. Kohn said in his speech yesterday.
--Michael Corkery and Sara Murray contributed to this article.
By KELLY EVANS, SERENA NG and RUTH SIMON
Wall Street Journal
February 27, 2008; Page A1
The decline in U.S. home prices accelerated in the fourth quarter, according to two leading barometers, compounding two of the biggest threats facing the nation's economy: faltering consumer spending and tight credit markets.
The S&P/Case-Shiller national home-price index for the fourth quarter fell 8.9% from a year earlier, the largest drop in its 20 years of data. And the Office of Federal Housing Enterprise Oversight's index -- which tracks only homes purchased with mortgages guaranteed by home-loan giants Fannie Mae or Freddie Mac -- was down 0.3%, the first year-to-year decline in the measure's 16 years.
Lower home prices threaten the economy's growth by making consumers feel less wealthy and thus less willing to spend. They also curtail homeowners' ability to borrow against the value of their homes to finance other purchases. In addition, lower housing prices erode the value of banks' collateral, prompting them to tighten their lending standards, which further damps economic growth.
A top Federal Reserve official indicated the housing slump and its broadening impact on the economy probably would keep the central bank biased in favor of more interest-rate cuts. "It appears that the correction in the housing market has further to go," Fed Vice Chairman Donald Kohn said yesterday in a speech in North Carolina. Mr. Kohn said that the downturn, after being "contained" for nearly two years, "appears to have spread to other sectors of the economy." He added that if the housing market deteriorates more than expected, "lenders might further reduce credit availability."
The Fed's efforts so far to soften the blow of the housing slump with lower interest rates appear to be having a muted effect. Since September, the Fed has reduced its target for short-term interest rates by 2.25 percentage points to 3%. But some mortgage rates are actually rising, and those that are falling haven't fallen that much.
The average interest rate on a standard 30-year fixed-rate mortgage was 6.38% yesterday, little changed from September but up from 5.61% in late January, according to HSH Associates, a mortgage-data publisher in Pompton Plains, N.J. Interest rates on so-called jumbo mortgages -- those larger than $417,000 -- were at 7.35%, also close to their September levels.
There are two reasons mortgage rates haven't responded more to the Fed's rate cuts. One is that long-term Treasury yields, which are the benchmark for most mortgage rates, have risen recently, perhaps because of increased concern about inflation as the prices of oil and other commodities soar. The other is that the spread between mortgage rates and Treasury rates has widened as investors and banks become increasingly reluctant to make home loans.
Hoping to Refinance
William Zempsky, a pediatrician who lives in West Hartford, Conn., was hoping to refinance his adjustable-rate mortgage before the rate -- which had been fixed at 4.5% for five years -- jumps to 6% or so in March. "I started to put my stuff together to refinance, but before we could pull the trigger, rates bounced up again," Mr. Zempsky said. "It seemed that with the Fed dropping rates that things would stay low, but they haven't."
If Mr. Zempsky doesn't refinance, his monthly payments will jump by about $275 a month, says his mortgage banker, Michael Menatian, president of Sanborn Mortgage Corp.
The housing-market slump also is taking its toll on consumer sentiment, which could lead to further pullbacks in spending, depressing the economy. The Conference Board, a New York-based business-research group, said yesterday that its index of consumer confidence fell sharply to 75.0 in February from 87.3 in January. The index is closely watched because consumer spending drives much of the U.S. economy.
"Consumer spending is going to take a hit," said Patrick Newport, an economist at Global Insight in Waltham, Mass. "The hit will be bigger the more home prices drop."
A growing glut of homes for sale suggests buyers have little interest in snapping up houses at current prices. Buyers "are waiting for the bottom to be there," said Vicki Nellis, a real-estate agent at Re/Max Allegiance in Burke, Va. She said this is the worst market she has seen in her 25 years in the business.
Goldman Sachs Group Inc. estimates home prices ultimately will fall by 20% to 25% from the peak of the housing boom, while Merrill Lynch chief economist Dave Rosenberg says they could fall even further. According to the S&P/Case-Shiller national home-price index, prices have fallen 10.2% from their highs in the summer of 2006. In some areas, the declines have been much steeper. Prices in the Miami area were 17.5% lower in December than they were a year earlier, and prices in Las Vegas, Phoenix and San Diego have fallen by 15% or more.
There may be light at the end of the tunnel. As prices fall, potential buyers may be tempted off the sidelines. Economists agree the key to stabilizing prices is working off the huge inventory of unsold homes. Supply is shrinking: New-home construction has plunged dramatically. But demand has fallen just as much, leaving inventories high. Sales are now far below normal trends, and on Monday, an industry trade group reported a 0.5% increase in single-family home sales in January, the first in 11 months.
The S&P/Case-Shiller and Ofheo indices have important differences. The Ofheo index is less volatile because it only tracks the prices of homes purchased with mortgages guaranteed by government-backed agencies. That excludes jumbo mortgages, subprime mortgages and other riskier mortgage products.
One reason home prices are falling: Builders are trying to unload their unsold houses. Stuart Kaye, founder of Kaye Homes Inc. in Naples, Fla., has been offering discounts, including price cuts and other incentives, of 20% to 30% on about 50 homes in his inventory. He has sold 18 of them in recent months. "We want to be out from underneath this inventory, and we have made a commitment we will be through it in a 90-day period,'' he said.
But the interest-rate environment has brought a near halt to refinancing activity. P.H. Naffah, a musician in Goodyear, Ariz., has a roughly $415,000, 30-year mortgage with a fixed rate of 6.25%. He figures he could cut his mortgage costs by around $250 a month by refinancing into a loan with a 5.5% rate. "I'm waiting for the interest rates to go down," said Mr. Naffah, who added the savings "would be significant" because his monthly income as a musician fluctuates.
Other borrowers have been hamstrung by tighter credit standards as lenders eliminate programs and set tighter requirements, particularly in markets where home prices are falling. Steve Walsh, a mortgage broker in Scottsdale, Ariz., says his firm is originating about 300 loans a month, but closing only about 65. Mr. Walsh says that about 100 applications fell apart because of problems with appraisals. Another 100 loans didn't close because of rising mortgage rates.
In addition to inflation concerns, rates are rising because the market for mortgage-backed securities is in upheaval, thanks to rising mortgage delinquencies and the collapse of the high-risk subprime corner of the mortgage business.
Upward Pressure
Investors are demanding higher risk premiums for securities they buy with mortgages attached to them. And that is putting upward pressure on the rates charged to individuals. Even bonds backed by government-sponsored enterprises Fannie Mae and Freddie Mac -- which are considered safe triple-A-rated institutions -- have declined in value, pushing mortgage rates higher.
The difference between yields on some Fannie-backed mortgage bonds and yields on Treasury notes hit around 2.46 percentage points this week. This gap -- also known as the "spread" -- gets larger when investors become more risk averse and seek safety in Treasury bonds. It is up from 2.06 percentage points two weeks ago and has reached levels last seen during the 1980s savings-and-loan crisis, according to Bear Stearns.
Of course, mortgage rates would likely be even higher if the Fed hadn't moved aggressively in the past few months. But Fed officials seem mindful of their own limits. "Financing costs have risen, on balance, for riskier credits, and almost all borrowers are dealing with more cautious lenders who have adopted more stringent standards," Mr. Kohn said in his speech yesterday.
--Michael Corkery and Sara Murray contributed to this article.
Monday, February 25, 2008
200 Posts and More to Come!
I've just noticed that I've posted 200 times on this blog.
It's a milestone, of sorts. Long-time readers know that I use a lot of sources of material, while also posting original commentary and observations about the market. In fact, I just received a comment from a reader (Hi, Garrett!) and I like to see my readers' comments here!
I'll keep providing material, some of which might be called 'timeless' in that I give tips on selling or buying that you can use whatever the market, and also commentary and articles about the current market conditions, which change all the time.
If there's something else that you would like to see here, just drop me an email with your request and direct it to: Ray@SCVhometeam.com
It's a milestone, of sorts. Long-time readers know that I use a lot of sources of material, while also posting original commentary and observations about the market. In fact, I just received a comment from a reader (Hi, Garrett!) and I like to see my readers' comments here!
I'll keep providing material, some of which might be called 'timeless' in that I give tips on selling or buying that you can use whatever the market, and also commentary and articles about the current market conditions, which change all the time.
If there's something else that you would like to see here, just drop me an email with your request and direct it to: Ray@SCVhometeam.com
Friday, February 15, 2008
Fannie, Freddie may have to tiptoe into 'jumbo light' market
Raising conforming loan limit not a simple task
Monday, February 11, 2008
By Matt Carter
Inman News
While Fannie Mae, Freddie Mac and the Federal Housing Administration will soon be allowed to dive into what until now has been the jumbo loan market, it remains to be seen how many borrowers will benefit.
Congress and the Bush administration have agreed to raise the $417,000 conforming loan limit until the end of the year, under a provision of the $150 billion economic stimulus package approved by Congress last week.
But the devil, as they say, will be in the details. The new formula for determining the conforming loan limit will allow Fannie, Freddie and FHA to guarantee loans of up to 125 percent of the median home price of an area.
While housing markets where the median home price exceeds $216,840 will benefit from higher limits for FHA loan guarantee programs, one analysis suggests Fannie and Freddie will be able to tiptoe into the jumbo loan business in only 19 metropolitan statistical areas (MSAs). [Our local area is at or very near the maximum loan limit of $729,750]
The first step to be taken to implement the changes will be determining median home prices. The Department of Housing and Urban Development has been given 30 days to publish median-home-price data once President Bush signs the stimulus package into law.
But where will HUD get the data? And with prices falling rapidly in many markets, will the data be updated monthly, quarterly or annually?
HUD spokesman Lemar Wooley said FHA will use a combination of existing government data sets and available commercial information to determine the median sales price. He said FHA loan limits are based on the county a property is located in, except when the county is part of a larger MSA, in which case the county with the highest loan limit determines the limit for the entire MSA.
Not only does HUD have to come up with median-home-price numbers for every housing market in America, but Fannie Mae and Freddie Mac will have to come up with credit guidelines for a class of loans that, until now, has mostly been off-limits. The government-chartered mortgage financiers will have to decide what their standards will be for the loans they will purchase, or securitize and guarantee.
As they venture into the jumbo loan market, Fannie and Freddie will have to decide if they need to be more cautious about the minimum down payments they will accept, borrower's credit histories, and the fees they charge for taking on more risk. The task will be complicated by the fact that the maximum loan size will vary from market to market, instead of the uniform $417,000 limit in place today in 48 states other than Alaska and Hawaii.
In high-cost markets, the $417,000 conforming loan limit for loans eligible for purchase or guarantee by Fannie and Freddie will be raised to 125 percent of the median home price, with an upper cap of $729,750. That formula means that the $417,000 conforming loan limit will remain in place in markets where the median home price is $333,600 or less.
While there's no time limit for Fannie and Freddie to publish guidelines for the new class of loans, the companies have promised to work with regulators to expedite the process. James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told members of the Senate Banking Committee Thursday that the process could take months.
The temporary increase in the conforming loan limit is likely to have a bigger impact on FHA loan guarantee programs, because the current limits for FHA are lower. In high-cost markets, the current ceiling for FHA loan programs is $372,790, and $200,160 in other markets.
The new ceiling for FHA loan programs in normal markets will be $271,050 -- meaning that even borrowers in housing markets where the median home price is below $216,840 may be eligible for FHA-backed purchase or refinance loans up to that amount. In areas where the median home price is above $216,840, the limit for FHA loan programs will be 125 percent of the median home price, all the way up to $729,750.
Fannie and Freddie will be allowed to buy and securitize jumbo loans originated any time between July 1, 2007 and Dec. 31, 2008. That means jumbo lenders may be able to sell some of the loans they've made in the last seven months to Fannie and Freddie, freeing them up to make more loans.
One reason Congress and the Bush administration agreed to raise the conforming limit, at least for now, is that Wall Street investors will no longer buy most mortgage-backed securities that don't carry the backing of Fannie, Freddie or FHA. That means borrowers are paying about 1 percent more for jumbo loans that exceed the $417,000 conforming loan limit. [In our area, the difference has been about 1.25%]
But there's no guarantee investors will accept the jumbo loans backed by Fannie and Freddie -- which are private, publicly traded companies that face potentially billions of losses in the current mortgage morass -- as safe investments. They may also need some time to familiarize themselves with how FHA is handling the larger loans, said Jaret Seiberg, an analyst with Stanford Group Co. who follows the secondary mortgage market.
"Investors understand the risk characteristics of conforming mortgages that are securitized by Fannie and Freddie, and they understand FHA-backed loans securitized through Ginnie Mae," Seiberg said. "But they don't have experience with jumbo loans coming out of those channels. In a market with so much uncertainty, it's a real question whether investors are going to have an appetite for a new product."
If Wall Street investors don't snatch up the larger loans backed by Fannie, Freddie and FHA after they are securitized, that would limit the benefits to the secondary mortgage market and do less to ease the credit crunch than backers of the move have hoped.
As Fannie's and Freddie's losses mount and they bump up against minimum capital requirements, their capacity to purchase and guarantee loans is not unlimited. And as Lockhart noted, it takes three times as much capital to guarantee one $600,000 loan as it does one $200,000 loan.
While Seiberg is confident that HUD can implement higher loan limits for FHA programs, he said Fannie and Freddie have technological and capital issues to overcome before they become "meaningful players" in the "jumbo light" market.
As to which housing markets might benefit from higher conforming loan limits, Seiberg said Stanford Group used median-home-price data from the National Association of Realtors to analyze where Fannie and Freddie might be able to purchase or guarantee loans above the current $417,000 limit.
Stanford Group identified 19 markets -- more than a third of them in California -- where Fannie and Freddie could enter the jumbo light market.
Monday, February 11, 2008
By Matt Carter
Inman News
While Fannie Mae, Freddie Mac and the Federal Housing Administration will soon be allowed to dive into what until now has been the jumbo loan market, it remains to be seen how many borrowers will benefit.
Congress and the Bush administration have agreed to raise the $417,000 conforming loan limit until the end of the year, under a provision of the $150 billion economic stimulus package approved by Congress last week.
But the devil, as they say, will be in the details. The new formula for determining the conforming loan limit will allow Fannie, Freddie and FHA to guarantee loans of up to 125 percent of the median home price of an area.
While housing markets where the median home price exceeds $216,840 will benefit from higher limits for FHA loan guarantee programs, one analysis suggests Fannie and Freddie will be able to tiptoe into the jumbo loan business in only 19 metropolitan statistical areas (MSAs). [Our local area is at or very near the maximum loan limit of $729,750]
The first step to be taken to implement the changes will be determining median home prices. The Department of Housing and Urban Development has been given 30 days to publish median-home-price data once President Bush signs the stimulus package into law.
But where will HUD get the data? And with prices falling rapidly in many markets, will the data be updated monthly, quarterly or annually?
HUD spokesman Lemar Wooley said FHA will use a combination of existing government data sets and available commercial information to determine the median sales price. He said FHA loan limits are based on the county a property is located in, except when the county is part of a larger MSA, in which case the county with the highest loan limit determines the limit for the entire MSA.
Not only does HUD have to come up with median-home-price numbers for every housing market in America, but Fannie Mae and Freddie Mac will have to come up with credit guidelines for a class of loans that, until now, has mostly been off-limits. The government-chartered mortgage financiers will have to decide what their standards will be for the loans they will purchase, or securitize and guarantee.
As they venture into the jumbo loan market, Fannie and Freddie will have to decide if they need to be more cautious about the minimum down payments they will accept, borrower's credit histories, and the fees they charge for taking on more risk. The task will be complicated by the fact that the maximum loan size will vary from market to market, instead of the uniform $417,000 limit in place today in 48 states other than Alaska and Hawaii.
In high-cost markets, the $417,000 conforming loan limit for loans eligible for purchase or guarantee by Fannie and Freddie will be raised to 125 percent of the median home price, with an upper cap of $729,750. That formula means that the $417,000 conforming loan limit will remain in place in markets where the median home price is $333,600 or less.
While there's no time limit for Fannie and Freddie to publish guidelines for the new class of loans, the companies have promised to work with regulators to expedite the process. James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told members of the Senate Banking Committee Thursday that the process could take months.
The temporary increase in the conforming loan limit is likely to have a bigger impact on FHA loan guarantee programs, because the current limits for FHA are lower. In high-cost markets, the current ceiling for FHA loan programs is $372,790, and $200,160 in other markets.
The new ceiling for FHA loan programs in normal markets will be $271,050 -- meaning that even borrowers in housing markets where the median home price is below $216,840 may be eligible for FHA-backed purchase or refinance loans up to that amount. In areas where the median home price is above $216,840, the limit for FHA loan programs will be 125 percent of the median home price, all the way up to $729,750.
Fannie and Freddie will be allowed to buy and securitize jumbo loans originated any time between July 1, 2007 and Dec. 31, 2008. That means jumbo lenders may be able to sell some of the loans they've made in the last seven months to Fannie and Freddie, freeing them up to make more loans.
One reason Congress and the Bush administration agreed to raise the conforming limit, at least for now, is that Wall Street investors will no longer buy most mortgage-backed securities that don't carry the backing of Fannie, Freddie or FHA. That means borrowers are paying about 1 percent more for jumbo loans that exceed the $417,000 conforming loan limit. [In our area, the difference has been about 1.25%]
But there's no guarantee investors will accept the jumbo loans backed by Fannie and Freddie -- which are private, publicly traded companies that face potentially billions of losses in the current mortgage morass -- as safe investments. They may also need some time to familiarize themselves with how FHA is handling the larger loans, said Jaret Seiberg, an analyst with Stanford Group Co. who follows the secondary mortgage market.
"Investors understand the risk characteristics of conforming mortgages that are securitized by Fannie and Freddie, and they understand FHA-backed loans securitized through Ginnie Mae," Seiberg said. "But they don't have experience with jumbo loans coming out of those channels. In a market with so much uncertainty, it's a real question whether investors are going to have an appetite for a new product."
If Wall Street investors don't snatch up the larger loans backed by Fannie, Freddie and FHA after they are securitized, that would limit the benefits to the secondary mortgage market and do less to ease the credit crunch than backers of the move have hoped.
As Fannie's and Freddie's losses mount and they bump up against minimum capital requirements, their capacity to purchase and guarantee loans is not unlimited. And as Lockhart noted, it takes three times as much capital to guarantee one $600,000 loan as it does one $200,000 loan.
While Seiberg is confident that HUD can implement higher loan limits for FHA programs, he said Fannie and Freddie have technological and capital issues to overcome before they become "meaningful players" in the "jumbo light" market.
As to which housing markets might benefit from higher conforming loan limits, Seiberg said Stanford Group used median-home-price data from the National Association of Realtors to analyze where Fannie and Freddie might be able to purchase or guarantee loans above the current $417,000 limit.
Stanford Group identified 19 markets -- more than a third of them in California -- where Fannie and Freddie could enter the jumbo light market.
San Fernando Valley Sales Down 35%, While Prices Post a Modest Increase
[from the Southland Regional Association of Realtors]
Home sales in the San Fernando Valley during 2007 declined a record 34.9 percent from the prior year, while the annual median price posted its smallest increase in many years, the Southland Regional Association of Realtors reported.
A total of 6,271 homes closed escrow compared to the 9,632 sales of 2006. The peak of the recent boom came in 2003 when Realtors completed 13,878 sales, but the record high was set in 1988 with 15,263 single-family transactions. Annual home sales in the San Fernando Valley have been slowing since 2004.
Realtors managed and negotiated home and condominium sales during 2007 that generated $1.76 billion for buyers, sellers and the local economy. That figure does not include the added millions of dollars home sales yield for related services, such as contractors, landscaping specialists, home improvement companies and manufacturers of furniture and appliances.
"Sales are down and prices are soft, but people have to be shaken out of their attitude that prices will plunge dramatically," said Mary Funk, the 2008 president of the Southland Regional Association of Realtors. "I just do not think resale prices will go down nearly as much as some people believe. There is no bell that goes off when the market hits the top or the bottom of a cycle, so anyone who needs a home and is waiting to catch a steal may be disappointed and may miss an opportunity."
Some of the properties listed for sale on the Multiple Listing Service operated by the Association are foreclosures owned by banks and short sales, Funk said, but the San Fernando Valley does not have nearly as many distressed properties as regions of Southern California that were hit harder by the sub-prime mortgage meltdown. Typically, the areas reporting the most problems had extensive new home construction and a high percentage of first-time buyers, unlike the San Fernando Valley which is a mature housing market with limited new home and entry-level sales.
"Sellers are finally accepting the new reality and those who are selling today are doing whatever it takes to complete a transaction," said Jim Link, the Association's Chief Executive Officer. "However, there are too many prospective buyers who think prices should be much, much lower, and think they can snag a super bargain. "But banks are not going to dramatically slash prices and take a huge loss," Link said. "Banks want to recoup their investment and that means they will list properties competitively at prices below comparable homes, but certainly not at fire sale prices."
Condominium resale activity throughout the San Fernando Valley during 2007 fell for the fifth consecutive year, down 33.2 percent drop to 2,443 condo sales. However, annual condo sales have been lower - below 2,000 transactions from 1993 to 1995, including the record low of 1,607 set in 1993. The record high of 5,041 transactions was set in 2002.
The annual single-family median price came in at $61 1,933 -the highest on record. The increase of 1.0 percent was the lowest gain on record with each year posting slightly smaller gains since the 26.3 percent increase of 2003. This year's annual median price beat the prior record of $605,917 set in 2006.
The annual condominium median price of $385,967 was down 2.3 percent from 2006 when the record high $394,917 annual condo median was posted. It was the first drop in the annual median since 1996. From 2000 to 2005 the annual condo median posted double-digit increases with the largest one of 28.7 percent coming in 2003.
"It's difficult to predict when this cycle will end and working out the limited number of local foreclosures may take some time," Link said. "Hopefully, by Spring we will see a market that is a little more predictable than today."
There were 5,671 active listings throughout the San Fernando Valley at the end of December, an increase of 8.8 percent over a year ago. At the current pace of sales, the inventory represents a 10.9-month supply - a buyers' market, but a clear improvement from recent months when it went as high as a 16-month supply. For perspective, the record high was a 23-month supply set in February 1993. A balanced market is in the 5- to 6-month range.
December single-family sales plunged 51.6 percent compared to the prior year while condo sales were off 55.6 percent. Declines in the median price of homes and condos were 12.4 percent for homes and 16.5 percent for condos. Prices are still sticky, not dropping nearly as fast as sales would indicate they should.
Home sales in the San Fernando Valley during 2007 declined a record 34.9 percent from the prior year, while the annual median price posted its smallest increase in many years, the Southland Regional Association of Realtors reported.
A total of 6,271 homes closed escrow compared to the 9,632 sales of 2006. The peak of the recent boom came in 2003 when Realtors completed 13,878 sales, but the record high was set in 1988 with 15,263 single-family transactions. Annual home sales in the San Fernando Valley have been slowing since 2004.
Realtors managed and negotiated home and condominium sales during 2007 that generated $1.76 billion for buyers, sellers and the local economy. That figure does not include the added millions of dollars home sales yield for related services, such as contractors, landscaping specialists, home improvement companies and manufacturers of furniture and appliances.
"Sales are down and prices are soft, but people have to be shaken out of their attitude that prices will plunge dramatically," said Mary Funk, the 2008 president of the Southland Regional Association of Realtors. "I just do not think resale prices will go down nearly as much as some people believe. There is no bell that goes off when the market hits the top or the bottom of a cycle, so anyone who needs a home and is waiting to catch a steal may be disappointed and may miss an opportunity."
Some of the properties listed for sale on the Multiple Listing Service operated by the Association are foreclosures owned by banks and short sales, Funk said, but the San Fernando Valley does not have nearly as many distressed properties as regions of Southern California that were hit harder by the sub-prime mortgage meltdown. Typically, the areas reporting the most problems had extensive new home construction and a high percentage of first-time buyers, unlike the San Fernando Valley which is a mature housing market with limited new home and entry-level sales.
"Sellers are finally accepting the new reality and those who are selling today are doing whatever it takes to complete a transaction," said Jim Link, the Association's Chief Executive Officer. "However, there are too many prospective buyers who think prices should be much, much lower, and think they can snag a super bargain. "But banks are not going to dramatically slash prices and take a huge loss," Link said. "Banks want to recoup their investment and that means they will list properties competitively at prices below comparable homes, but certainly not at fire sale prices."
Condominium resale activity throughout the San Fernando Valley during 2007 fell for the fifth consecutive year, down 33.2 percent drop to 2,443 condo sales. However, annual condo sales have been lower - below 2,000 transactions from 1993 to 1995, including the record low of 1,607 set in 1993. The record high of 5,041 transactions was set in 2002.
The annual single-family median price came in at $61 1,933 -the highest on record. The increase of 1.0 percent was the lowest gain on record with each year posting slightly smaller gains since the 26.3 percent increase of 2003. This year's annual median price beat the prior record of $605,917 set in 2006.
The annual condominium median price of $385,967 was down 2.3 percent from 2006 when the record high $394,917 annual condo median was posted. It was the first drop in the annual median since 1996. From 2000 to 2005 the annual condo median posted double-digit increases with the largest one of 28.7 percent coming in 2003.
"It's difficult to predict when this cycle will end and working out the limited number of local foreclosures may take some time," Link said. "Hopefully, by Spring we will see a market that is a little more predictable than today."
There were 5,671 active listings throughout the San Fernando Valley at the end of December, an increase of 8.8 percent over a year ago. At the current pace of sales, the inventory represents a 10.9-month supply - a buyers' market, but a clear improvement from recent months when it went as high as a 16-month supply. For perspective, the record high was a 23-month supply set in February 1993. A balanced market is in the 5- to 6-month range.
December single-family sales plunged 51.6 percent compared to the prior year while condo sales were off 55.6 percent. Declines in the median price of homes and condos were 12.4 percent for homes and 16.5 percent for condos. Prices are still sticky, not dropping nearly as fast as sales would indicate they should.
2007 SCV Home Sales off 31%
Annual Median Price Falls 5.4%
[from the Southland Regional Association of Realtors]
2007 was the third consecutive year that sales of existing single-family homes in the Santa Clarita Valley declined while the annual median price of homes fell for the first time on record, the Southland Regional Association of Realtors reported.
A total of 1,993 single-family homes changed owners last year, down 31.3 percent from the prior year. It was the lowest annual total since the association started keeping statistics in 1998. The record high of 3,869 home sales was set in 2004, the peak of the recent sellers' boom market.
Likewise, the condominium annual tally of 841 condo sales was the lowest on record. It dropped 32.5 percent from the prior year, with three of the last four years posting sales declines after six consecutive years of typically double-digit increases in sales.
Realtors managed and negotiated home sales in the Santa Clarita Valley last year that generated $1 -57 billion for buyers, sellers and the local economy. That figure does not include the added millions of dollars each sale yielded for related services, such as contractors, landscaping specialists, home improvement companies and manufacturers of furniture and appliances.
"I truly do not expect resale prices to go down all that much," said Doreen Chastain-Shine, president of the Association's Santa Clarita Valley Division. "Still, sellers don't want to believe what's happening, that the market has shifted in favor of buyers. Sellers are still not being realistic."
Chastain-Shine and Jim Link, the Association's chief executive officer, said that while it will take some time to work out problems related to foreclosures and short sales in the area, the problem is not severe enough to dramatically impact resale prices.
However, the market is at stalemate because sellers cling to boom market expectations and buyers incorrectly believe they can purchase a home at a dramatically reduced price. But even foreclosed properties listed for sale by lenders are not being priced with large discounts as lenders want to recoup their investment.
"While we're seeing the effect of the subprime crisis in the overall market," Link said, "we are not in a price free fall like what might be happening in market with large amounts of new home construction and a high percentage of first-time home buyers."
The statistics for 2007 support that view: The annual median price of the 1,993 homes sold last year was $570,658, down 5.4 percent from the record high of $603,492 set in 2006. It was the first drop in the annual median since the association began keeping statistics in 1998.
The condominium annual median price of $353,333 was down 7.2 percent from the record high of $380,583 set in 2006. Just like single-family homes, the condo annual median posted the first decline on record. From 2001 to 2005 the condo annual median price posted double-digit gains with 2003 and 2004 at 28.3 percent and 28.7 percent respectively.
There were 2,100 active listings throughout the Santa Clarita Valley at the end of December, up 9.4 percent from a year ago, but down 10.3 percent from the November tally. At the current pace of sales, the inventory represents a 12.7-month supply - clearly a buyers' market, but not as large as the 15.7-month supply reported in November.
"The mind set that real estate values never go down simply is not true," Link said. "Like any commodity, real estate has it's peaks and valleys, but over time owning a home in California has always been a solid investment that continues to increase in value."
[from the Southland Regional Association of Realtors]
2007 was the third consecutive year that sales of existing single-family homes in the Santa Clarita Valley declined while the annual median price of homes fell for the first time on record, the Southland Regional Association of Realtors reported.
A total of 1,993 single-family homes changed owners last year, down 31.3 percent from the prior year. It was the lowest annual total since the association started keeping statistics in 1998. The record high of 3,869 home sales was set in 2004, the peak of the recent sellers' boom market.
Likewise, the condominium annual tally of 841 condo sales was the lowest on record. It dropped 32.5 percent from the prior year, with three of the last four years posting sales declines after six consecutive years of typically double-digit increases in sales.
Realtors managed and negotiated home sales in the Santa Clarita Valley last year that generated $1 -57 billion for buyers, sellers and the local economy. That figure does not include the added millions of dollars each sale yielded for related services, such as contractors, landscaping specialists, home improvement companies and manufacturers of furniture and appliances.
"I truly do not expect resale prices to go down all that much," said Doreen Chastain-Shine, president of the Association's Santa Clarita Valley Division. "Still, sellers don't want to believe what's happening, that the market has shifted in favor of buyers. Sellers are still not being realistic."
Chastain-Shine and Jim Link, the Association's chief executive officer, said that while it will take some time to work out problems related to foreclosures and short sales in the area, the problem is not severe enough to dramatically impact resale prices.
However, the market is at stalemate because sellers cling to boom market expectations and buyers incorrectly believe they can purchase a home at a dramatically reduced price. But even foreclosed properties listed for sale by lenders are not being priced with large discounts as lenders want to recoup their investment.
"While we're seeing the effect of the subprime crisis in the overall market," Link said, "we are not in a price free fall like what might be happening in market with large amounts of new home construction and a high percentage of first-time home buyers."
The statistics for 2007 support that view: The annual median price of the 1,993 homes sold last year was $570,658, down 5.4 percent from the record high of $603,492 set in 2006. It was the first drop in the annual median since the association began keeping statistics in 1998.
The condominium annual median price of $353,333 was down 7.2 percent from the record high of $380,583 set in 2006. Just like single-family homes, the condo annual median posted the first decline on record. From 2001 to 2005 the condo annual median price posted double-digit gains with 2003 and 2004 at 28.3 percent and 28.7 percent respectively.
There were 2,100 active listings throughout the Santa Clarita Valley at the end of December, up 9.4 percent from a year ago, but down 10.3 percent from the November tally. At the current pace of sales, the inventory represents a 12.7-month supply - clearly a buyers' market, but not as large as the 15.7-month supply reported in November.
"The mind set that real estate values never go down simply is not true," Link said. "Like any commodity, real estate has it's peaks and valleys, but over time owning a home in California has always been a solid investment that continues to increase in value."
Friday, February 08, 2008
New Laws in 2008 Affect Realtors and Consumers
As 2008 roles in, several new laws are taking effect that are significant to real estate professionals and the general public. Here is a brief summary of a number of these new laws.
Mortgage Forgiveness Debt Relief Act: This new federal act will help some taxpayers caught in the sub-prime mortgage calamity. Under this act, taxpayers may exclude up to $2 million in income of qualified principal residence indebtedness for discharges sustained during a three-year window (January 1, 2007 through January 1, 2010). This includes obligations incurred from acquisition, construction or substantial improvement of an individual’s principle residence. Refinancing is also encompassed so long as the amount refinanced does not exceed the amount of the indebtedness. California, however, does not automatically observe the provisions of this bill. Therefore, income from forgiveness of debt still must be reported as earnings for state tax purposes. Still the act does free homeowners from a staggering and depressive federal tax obligation possibility, provides a way to sell their homes for less than what is owed on them and avoids having a foreclosure placed on their records.
Cell Phone Usage: This new state law affects every driver. As of July 1, 2008, all motorists will be required to use hands-free devices when using a cell phone while driving. Violators will face a $20 fine for the first offense and a $50 fine for each subsequent breach. The only exception is when contacting a law enforcement agency or public safety entity for emergency purposes.
Anti-Discrimination: Landlords and their agents, as of January 1, may no longer legally inquire into the immigration or citizenship status of an existing or prospective tenant.
Real Estate Appraisers: A licensed appraiser’s compensation can no longer be dependent upon or affected by the value conclusion generated by an appraisal for a real property purchase, transfer, sale, financing or development. In addition, any party with an interest in a real estate transaction is barred from influencing or attempting to influence the appraisal process for a mortgage loan.
New Disclosure for Private Transfer Fees: Beginning January 1, a seller who must provide a Transfer Disclosure Statement is required to concurrently furnish a disclosure statement of private transfer fees, if applicable. Transfer fees include any payment that must be paid upon transfer of real property as imposed by a deed, CC &Rs or other documents. The statement must include a notice that payment is required, the amount of the fee and name of the entity that is to receive payment.
Recording Private Transfer Fees: As a condition of payment of the fee, any person or entity imposing a private transfer fee must record the instrument creating the fee and a separate notice of Payment of Transfer Fee Required. Both must be simultaneously recorded at the county recorder’s office for which the property is located.
Loan Regulations: As of January 1, each of the agencies governing residential loans (all under the purview of the California Secretary of Business, Transportation and Housing) will have the authority to adopt guidelines that provide more stringent provisions on residential loans on one-to-four unit family residences for interest-only, negatively amortized and adjustable mortgage loans. We expect these new guidelines will require lenders to verify that consumers can repay their loans and will demand clearer statements concerning the likelihood that future payments will be made. Criminal penalties for failing to do so are likely to be considered. This new law also brings certain private lenders under the influence of the Department of Real Estate.
Property Tax Reassessment: As of January 1, any transfer of real property made from January 1, 2001 through January 1, 2006 between registered domestic partners is retroactively exempt from property tax reassessment. The recipient of the real property transfer must submit an application by June 30, 2009 to reverse the reassessment.
Mortgage Forgiveness Debt Relief Act: This new federal act will help some taxpayers caught in the sub-prime mortgage calamity. Under this act, taxpayers may exclude up to $2 million in income of qualified principal residence indebtedness for discharges sustained during a three-year window (January 1, 2007 through January 1, 2010). This includes obligations incurred from acquisition, construction or substantial improvement of an individual’s principle residence. Refinancing is also encompassed so long as the amount refinanced does not exceed the amount of the indebtedness. California, however, does not automatically observe the provisions of this bill. Therefore, income from forgiveness of debt still must be reported as earnings for state tax purposes. Still the act does free homeowners from a staggering and depressive federal tax obligation possibility, provides a way to sell their homes for less than what is owed on them and avoids having a foreclosure placed on their records.
Cell Phone Usage: This new state law affects every driver. As of July 1, 2008, all motorists will be required to use hands-free devices when using a cell phone while driving. Violators will face a $20 fine for the first offense and a $50 fine for each subsequent breach. The only exception is when contacting a law enforcement agency or public safety entity for emergency purposes.
Anti-Discrimination: Landlords and their agents, as of January 1, may no longer legally inquire into the immigration or citizenship status of an existing or prospective tenant.
Real Estate Appraisers: A licensed appraiser’s compensation can no longer be dependent upon or affected by the value conclusion generated by an appraisal for a real property purchase, transfer, sale, financing or development. In addition, any party with an interest in a real estate transaction is barred from influencing or attempting to influence the appraisal process for a mortgage loan.
New Disclosure for Private Transfer Fees: Beginning January 1, a seller who must provide a Transfer Disclosure Statement is required to concurrently furnish a disclosure statement of private transfer fees, if applicable. Transfer fees include any payment that must be paid upon transfer of real property as imposed by a deed, CC &Rs or other documents. The statement must include a notice that payment is required, the amount of the fee and name of the entity that is to receive payment.
Recording Private Transfer Fees: As a condition of payment of the fee, any person or entity imposing a private transfer fee must record the instrument creating the fee and a separate notice of Payment of Transfer Fee Required. Both must be simultaneously recorded at the county recorder’s office for which the property is located.
Loan Regulations: As of January 1, each of the agencies governing residential loans (all under the purview of the California Secretary of Business, Transportation and Housing) will have the authority to adopt guidelines that provide more stringent provisions on residential loans on one-to-four unit family residences for interest-only, negatively amortized and adjustable mortgage loans. We expect these new guidelines will require lenders to verify that consumers can repay their loans and will demand clearer statements concerning the likelihood that future payments will be made. Criminal penalties for failing to do so are likely to be considered. This new law also brings certain private lenders under the influence of the Department of Real Estate.
Property Tax Reassessment: As of January 1, any transfer of real property made from January 1, 2001 through January 1, 2006 between registered domestic partners is retroactively exempt from property tax reassessment. The recipient of the real property transfer must submit an application by June 30, 2009 to reverse the reassessment.
Thursday, February 07, 2008
Economic Stimulus Package Goes to President for Signature
[Just in from the California Association of Realtors...]
Thanks in part to lobbying by C.A.R. and NAR members, the Senate passed their version of an economic stimulus package today, Thursday, February 07, 2008. The Senate version expands rebate checks for seniors and disabled veterans and includes the same increases to the conforming loan limits for both GSE and FHA found in the House stimulus package. The House just passed the Senate version of the bill and it will now be sent to the White House. The President is expected to sign the legislation by the end of next week, ahead of the Congressional self-appointed deadline of February 15th. The increase in the conforming loan limits will last through 2008, but C.A.R. and NAR continue to lobby for FHA and GSE reform, making these increases permanent.
The U.S. House of Representatives passed a stimulus package last week that raised the FHA and conforming loan limits to as high as $729,750 in high-cost areas. By increasing the loan limits, borrowers will see immediate relief with new liquidity in the mortgage market and the nation will see an additional 300,000 home sales. Research shows that an increase in the FHA limit would enable an additional 138,000 Americans to purchase homes, and 200,000 families to refinance their homes safely and affordably.
Increasing the FHA loan limits is critical to bolstering California’s housing market. Current law restricts FHA loans to levels well below the median home price in many areas of the country and caps loans in high cost states at $363,790. These limits are preventing many homebuyers from using FHA to purchase or refinance their loan. The proposed provision will increase FHA loan limits nationwide by raising the floor to $271,050 and the limit to 125% of local median home prices.
Additionally, raising Fannie Mae and Freddie Mac’s (GSEs) conforming loan limit will provide immediate relief to borrowers and alleviate downward pressure on current housing markets. For instance, increasing the GSE loan limit could result in more than 300,000 additional home sales and strengthen current home prices by 2-3%.
The critical role that GSEs play in providing liquidity to the mortgage market has never been more evident than it is today. The national subprime meltdown has had a dramatic impact on both the cost and availability of mortgages in many markets. Since August 2007, the interest rates for jumbo borrowers have been more than 1 percentage point higher than conforming loans, which can cost homeowners up to $400 month in higher interest payments.
Thanks in part to lobbying by C.A.R. and NAR members, the Senate passed their version of an economic stimulus package today, Thursday, February 07, 2008. The Senate version expands rebate checks for seniors and disabled veterans and includes the same increases to the conforming loan limits for both GSE and FHA found in the House stimulus package. The House just passed the Senate version of the bill and it will now be sent to the White House. The President is expected to sign the legislation by the end of next week, ahead of the Congressional self-appointed deadline of February 15th. The increase in the conforming loan limits will last through 2008, but C.A.R. and NAR continue to lobby for FHA and GSE reform, making these increases permanent.
The U.S. House of Representatives passed a stimulus package last week that raised the FHA and conforming loan limits to as high as $729,750 in high-cost areas. By increasing the loan limits, borrowers will see immediate relief with new liquidity in the mortgage market and the nation will see an additional 300,000 home sales. Research shows that an increase in the FHA limit would enable an additional 138,000 Americans to purchase homes, and 200,000 families to refinance their homes safely and affordably.
Increasing the FHA loan limits is critical to bolstering California’s housing market. Current law restricts FHA loans to levels well below the median home price in many areas of the country and caps loans in high cost states at $363,790. These limits are preventing many homebuyers from using FHA to purchase or refinance their loan. The proposed provision will increase FHA loan limits nationwide by raising the floor to $271,050 and the limit to 125% of local median home prices.
Additionally, raising Fannie Mae and Freddie Mac’s (GSEs) conforming loan limit will provide immediate relief to borrowers and alleviate downward pressure on current housing markets. For instance, increasing the GSE loan limit could result in more than 300,000 additional home sales and strengthen current home prices by 2-3%.
The critical role that GSEs play in providing liquidity to the mortgage market has never been more evident than it is today. The national subprime meltdown has had a dramatic impact on both the cost and availability of mortgages in many markets. Since August 2007, the interest rates for jumbo borrowers have been more than 1 percentage point higher than conforming loans, which can cost homeowners up to $400 month in higher interest payments.
Friday, February 01, 2008
I'm from the Government and I'm here to help you
Raise and raise again
As I predicted months ago, our elected officials in this pre-election season will be coming up with all kinds of 'solutions' to the problems in the housing market. Freezing mortgage interest rates, state bonds to bail out homeowners whose monthly payments get too high to pay, giving judges the ability to change loan terms, raising the loan limits on FHA Fannie Mae and Freddie Mac loans, pumping liquidity into the system (printing mo' money!), lowering the Fed interest rates, and sending out checks to everybody are some of the latest proposals. The only things missing are declaring California, Nevada, Arizona, and Florida Federal (housing) Disaster Areas and dropping money out of helicopters.
People in the real estate business are pumped up... so is Wall Street since the financial stocks have gotten their bail outs between the Federal Reserve and Sovereign Funds. We can all party some more while kicking the can down the road, to be dealt with at some undetermined point in the future.
If you are getting the idea that I don't think this is good policy making, you would be right. However, I don't determine macro-economic policy and neither do you. Both of us are subject to these factors that are way beyond our control, and to the extent that we can make our own way for ourselves and our families, we do our best.
Between the stimulus package and all the rest, it is lining up as a terrific buying opportunity until the election in November. With four year lows in mortgage rates for conforming loans (now with an upper limit of $417,000 but soon to be raised above $700,000), this will provide a decided boost in our local area. However, the rise in the conforming limit may only last until the end of the year, as part of the temporary stimulus package now winding its way through Congress. Concurrent with this development is a tightening of credit guidelines, which will limit the numbers of people who can get the loans. The third factor to affect our housing market will be a second look at risk factors by the folks with the money. As the risk factor for lenders goes up, so do interest rates. Flooding the market with cash also tends to raise inflation and inflation fears, which also increases interest rates.
In my opinion, nobody really has a good handle on what should be done to minimize the effects of the downturn in the housing market on the rest of the economy, but the cure may be worse than the disease.
That said, we have a narrow window for action while interest rates are low. It's a buying opportunity, and for many people, it may not be this good for years. As interest rates rise as I expect they will, many will be priced out of the market with credit restrictions. For sellers who need to sell... sell. Price the home right and it will sell. However, the last call for high prices happened a couple of years ago. Expect a lower price, but if you can make it work for you, take it.
For those who want to stay in your homes and weather this storm, know your loan terms. If you have an adjustable loan or any of the exotics, you have to know what the worst case scenario is for the adjustments. Can you keep your home if the worst case happens? If not, get yourself into a fixed rate loan while interest rates are low. If you can't do that, you should consider getting out of the house by selling it before you get into trouble.
With dropping sales prices do you now owe more than your home is worth? This upside-down condition is becoming more and more common, and you may have some options than you are aware of here too. Give us a call.
For those in way over your heads (and increasingly you know who you are), give us a call at 661-287-9164 today. Our Foreclosure Avoidance Team can help you find the right solution for your particular circumstance, and the solution is certainly not 'one size fits all'. But let's start from where we are and help get you to where you want to go.
Buyers: just call us now. There are deals out there, and we know where they are. For those who choose to work with us, you will get a screamin' deal. Just call now.
In this market turmoil there is opportunity. You can miss it, or you can profit by it. For some of you, our best strategy would be to work to minimize loss. However, our training and experience is exactly tuned to this kind of market. Do yourself a favor, and let's begin right now, from where we find ourselves.
On behalf of the SCV Home Team at Keller Williams Realty, we all look forward to working with you!
~~Ray
As I predicted months ago, our elected officials in this pre-election season will be coming up with all kinds of 'solutions' to the problems in the housing market. Freezing mortgage interest rates, state bonds to bail out homeowners whose monthly payments get too high to pay, giving judges the ability to change loan terms, raising the loan limits on FHA Fannie Mae and Freddie Mac loans, pumping liquidity into the system (printing mo' money!), lowering the Fed interest rates, and sending out checks to everybody are some of the latest proposals. The only things missing are declaring California, Nevada, Arizona, and Florida Federal (housing) Disaster Areas and dropping money out of helicopters.
People in the real estate business are pumped up... so is Wall Street since the financial stocks have gotten their bail outs between the Federal Reserve and Sovereign Funds. We can all party some more while kicking the can down the road, to be dealt with at some undetermined point in the future.
If you are getting the idea that I don't think this is good policy making, you would be right. However, I don't determine macro-economic policy and neither do you. Both of us are subject to these factors that are way beyond our control, and to the extent that we can make our own way for ourselves and our families, we do our best.
Between the stimulus package and all the rest, it is lining up as a terrific buying opportunity until the election in November. With four year lows in mortgage rates for conforming loans (now with an upper limit of $417,000 but soon to be raised above $700,000), this will provide a decided boost in our local area. However, the rise in the conforming limit may only last until the end of the year, as part of the temporary stimulus package now winding its way through Congress. Concurrent with this development is a tightening of credit guidelines, which will limit the numbers of people who can get the loans. The third factor to affect our housing market will be a second look at risk factors by the folks with the money. As the risk factor for lenders goes up, so do interest rates. Flooding the market with cash also tends to raise inflation and inflation fears, which also increases interest rates.
In my opinion, nobody really has a good handle on what should be done to minimize the effects of the downturn in the housing market on the rest of the economy, but the cure may be worse than the disease.
That said, we have a narrow window for action while interest rates are low. It's a buying opportunity, and for many people, it may not be this good for years. As interest rates rise as I expect they will, many will be priced out of the market with credit restrictions. For sellers who need to sell... sell. Price the home right and it will sell. However, the last call for high prices happened a couple of years ago. Expect a lower price, but if you can make it work for you, take it.
For those who want to stay in your homes and weather this storm, know your loan terms. If you have an adjustable loan or any of the exotics, you have to know what the worst case scenario is for the adjustments. Can you keep your home if the worst case happens? If not, get yourself into a fixed rate loan while interest rates are low. If you can't do that, you should consider getting out of the house by selling it before you get into trouble.
With dropping sales prices do you now owe more than your home is worth? This upside-down condition is becoming more and more common, and you may have some options than you are aware of here too. Give us a call.
For those in way over your heads (and increasingly you know who you are), give us a call at 661-287-9164 today. Our Foreclosure Avoidance Team can help you find the right solution for your particular circumstance, and the solution is certainly not 'one size fits all'. But let's start from where we are and help get you to where you want to go.
Buyers: just call us now. There are deals out there, and we know where they are. For those who choose to work with us, you will get a screamin' deal. Just call now.
In this market turmoil there is opportunity. You can miss it, or you can profit by it. For some of you, our best strategy would be to work to minimize loss. However, our training and experience is exactly tuned to this kind of market. Do yourself a favor, and let's begin right now, from where we find ourselves.
On behalf of the SCV Home Team at Keller Williams Realty, we all look forward to working with you!
~~Ray
Thursday, January 24, 2008
Bush-Congress Stimulus Plan Helps Housing
WASHINGTON -- Democratic and Republican congressional leaders completed a deal Thursday with the White House on an economic stimulus package that would give most tax filers refunds of $600 to $1,200. The plan also provides tax incentives for businesses and contains a measure that would help an important segment of the mortgage market.
The package temporarily raises the conforming loan limits for Fannie Mae and Freddie Mac, beyond the current $417,000, which would allow the government-sponsored companies to buy bigger loans in areas with high housing costs. The new cap, expiring Dec. 31, could be as much as about $730,000, depending on a metropolitan area's median housing price. That would help free up the market for "jumbo" mortgages, which has suffered amid a broader credit crunch.
While the stimulus package still needs to pass the Senate and be signed off by President Bush, this would dramatically assist in completing new purchase and re-fi mortgages in our area. This will help some of those in danger of foreclosure, by making more money at cheaper rates available for lending.
As we know, the devil is in the details, but since the housing sector threatens to do significant damage to the rest of the US economy and indeed, the world economy, some kind of relief was expected.
It remains to be seen whether this is a full surrender by Washington to the financial and banking sector, and whether increasingly stringent and historically sound lending practices will prevail, or if this is just a big pre-election give-away scheme by politicians which will do more long term damage to housing and the economy.
Stay tuned to The Real Blog for analysis. However, for the short term, our local real estate market will benefit and speaking as a Realtor, some freeing up of the credit market may help a lot.
The package temporarily raises the conforming loan limits for Fannie Mae and Freddie Mac, beyond the current $417,000, which would allow the government-sponsored companies to buy bigger loans in areas with high housing costs. The new cap, expiring Dec. 31, could be as much as about $730,000, depending on a metropolitan area's median housing price. That would help free up the market for "jumbo" mortgages, which has suffered amid a broader credit crunch.
While the stimulus package still needs to pass the Senate and be signed off by President Bush, this would dramatically assist in completing new purchase and re-fi mortgages in our area. This will help some of those in danger of foreclosure, by making more money at cheaper rates available for lending.
As we know, the devil is in the details, but since the housing sector threatens to do significant damage to the rest of the US economy and indeed, the world economy, some kind of relief was expected.
It remains to be seen whether this is a full surrender by Washington to the financial and banking sector, and whether increasingly stringent and historically sound lending practices will prevail, or if this is just a big pre-election give-away scheme by politicians which will do more long term damage to housing and the economy.
Stay tuned to The Real Blog for analysis. However, for the short term, our local real estate market will benefit and speaking as a Realtor, some freeing up of the credit market may help a lot.
Sunday, January 13, 2008
Reality 101: How to Create an Immigration Depression
[The following is an portion of a column by John Mauldin in Frontline Thoughts. Info on subscription is at the bottom of this page. While the political season could also be described as the silly season, there are serious issues that need to be addressed... seriously. While many Realtors absolutely will not include any political commentary (ever), I sometimes will. That's why it's called The Real Blog.]
How to Create an Immigration Depression
The call by Huckabee and others to deport 12,000,000 illegal immigrants is simply economic suicide. It would create a depression (not just a minor recession) in short order. Let's reduce productivity by 10-15%. Let's reduce consumer spending by 7-8%. Shut down hundreds of thousands of businesses who could not get workers they need. Who will pick the crops? Or do any of a hundred jobs that Americans don't want to do? It would drive up labor costs and create inflation. It would be a disaster of Biblical proportions.
Now, I am all for controlling the border. I want to know who is coming in. But we have to deal with reality, and the reality is that we need those workers who are here. The economy simply will not function without them. You can't send them home and then tell them to apply and hope they can get back in, and then expect business to function as usual. It will take years for a bureaucracy to handle the paperwork.
Go ahead. Close the borders. Find out who is here illegally and make sure they do not have a criminal record. If so, they go. The rest need to get documented, and we need to radically increase the number of immigrants we allow (after we control the borders!), especially educated workers who can help us build our knowledge economy.
And yes, this is amnesty. That is the cost of not controlling the border all these years. Nothing we can do about it, unless we want to shoot ourselves in both feet just to prove a point. Sounds rather dumb to me.
The great irony is that within ten years we are going to need even more immigrants to replace retiring boomers, as well as to pay into social security and Medicare programs. We are going to be competing with Europe for those immigrants. We need to get a head start.
And yes, it is a lot more complex than this quick analysis. But pandering to voters who for whatever reason want to stop illegal immigration by throwing out everyone who is here illegally is not the answer. Establish fines, require documents, whatever. But recognize reality and stop telling voters what they want to hear when your policies simply cannot work and will be destructive.
***************************************************************
John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore
To subscribe to John Mauldin's E-Letter please click here:
http://www.frontlinethoughts.com/subscribe.asp
How to Create an Immigration Depression
The call by Huckabee and others to deport 12,000,000 illegal immigrants is simply economic suicide. It would create a depression (not just a minor recession) in short order. Let's reduce productivity by 10-15%. Let's reduce consumer spending by 7-8%. Shut down hundreds of thousands of businesses who could not get workers they need. Who will pick the crops? Or do any of a hundred jobs that Americans don't want to do? It would drive up labor costs and create inflation. It would be a disaster of Biblical proportions.
Now, I am all for controlling the border. I want to know who is coming in. But we have to deal with reality, and the reality is that we need those workers who are here. The economy simply will not function without them. You can't send them home and then tell them to apply and hope they can get back in, and then expect business to function as usual. It will take years for a bureaucracy to handle the paperwork.
Go ahead. Close the borders. Find out who is here illegally and make sure they do not have a criminal record. If so, they go. The rest need to get documented, and we need to radically increase the number of immigrants we allow (after we control the borders!), especially educated workers who can help us build our knowledge economy.
And yes, this is amnesty. That is the cost of not controlling the border all these years. Nothing we can do about it, unless we want to shoot ourselves in both feet just to prove a point. Sounds rather dumb to me.
The great irony is that within ten years we are going to need even more immigrants to replace retiring boomers, as well as to pay into social security and Medicare programs. We are going to be competing with Europe for those immigrants. We need to get a head start.
And yes, it is a lot more complex than this quick analysis. But pandering to voters who for whatever reason want to stop illegal immigration by throwing out everyone who is here illegally is not the answer. Establish fines, require documents, whatever. But recognize reality and stop telling voters what they want to hear when your policies simply cannot work and will be destructive.
***************************************************************
John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore
To subscribe to John Mauldin's E-Letter please click here:
http://www.frontlinethoughts.com/subscribe.asp
Friday, January 11, 2008
Ever Optimistic Realtors' Association Spins the Market...
Home Sales Slowdown in the Santa Clarita Valley May Be Easing
Despite ongoing national reports about slow home sales and troubles in the home loan industry, a total of 111 single-family homes and 38 condominiums sold during November throughout the Santa Clarita Valley, the Southland Regional Association of REALTORS® reported.
The single-family resale total was down 39.3 percent from a year ago, a decline that was below the 50 percent or higher drops reported in other Southern California communities, suggesting that local buyers recognize the opportunities that exist in today's market.
"I don't think you can time the housing market anymore than you can time the stock market," said Larry Gasinski, the 2007 president of the Association's Santa Clarita Valley Division. "How do you know when any market has hit bottom and is on its way back up again?
"It's a buyers' market today so why not make an offer?" he said. "If you think prices will drop 10 percent over the next year, open up with an offer that is 10 percent lower than current sales comparisons. Waiting could mean the home you love will not be there, that favorable loan interest rates will be gone, or that you'll be competing with many more prospective buyers."
The 38 condos that sold were down 56.8 percent from a year ago when the total was 88 sales. The November tally was the lowest condo sales total on record, beating the prior low of 42 sales set in October 2007.
The median price of single-family homes sold during November was $522,500, down 9.9 percent from a year ago. The median has been falling slowly since the record high of $643,000 was set in April of 2006. After nine years of increases in the annual median price, 2007 is likely to post a decline of about 5 percent.
The condominium median price reported during November of $316,000 was down 13.4 percent from November 2006, but increased 1.9 percent from the median reported in October.
The condo record high of $397,000 was set in January 2006.
"The resale market in the Santa Clarita Valley appears to be finding a new equilibrium faster than other communities," said Jim Link, the chief executive officer of the Southland Regional Association of Realtors. "Until the lending industry starts making jumbo loans higher than $417,000 the recovery will be very slow. Still, the region's economic fundamentals are good and a growing number of buyers recognize that there are opportunities today that didn't exist just a short while ago."
A total of 2, 341 properties were listed for sale throughout the Santa Clarita Valley at the end of November, an increase of 7.2 percent from a year ago, but down 4.2 percent from this October, which suggests that the pace of listings is slowing.
At the current rate of sales, the active inventory represents a 16-month supply - a clear indicator of a buyers' market and well above the desired 5- to 6-month inventory that would represent a balanced market.
While statistics do not exist to prove the point, it is believed that today's inventory is far less than the totals reported in the early 1990s when the nation and the state were going through a deep economic recession.
"The market will remain stymied until more prospective buyers realize that affordable home loans are still available and that opportunities in today's market outweigh the risks of waiting," Link said. "The elements that made Santa Clarita desirable during the boom years - a great community, excellent value for the housing dollar, and a marvelous lifestyle - ensure that the local resale market will recover faster than other communities."
[from SRAR homepage Jan 11, 2008]
Despite ongoing national reports about slow home sales and troubles in the home loan industry, a total of 111 single-family homes and 38 condominiums sold during November throughout the Santa Clarita Valley, the Southland Regional Association of REALTORS® reported.
The single-family resale total was down 39.3 percent from a year ago, a decline that was below the 50 percent or higher drops reported in other Southern California communities, suggesting that local buyers recognize the opportunities that exist in today's market.
"I don't think you can time the housing market anymore than you can time the stock market," said Larry Gasinski, the 2007 president of the Association's Santa Clarita Valley Division. "How do you know when any market has hit bottom and is on its way back up again?
"It's a buyers' market today so why not make an offer?" he said. "If you think prices will drop 10 percent over the next year, open up with an offer that is 10 percent lower than current sales comparisons. Waiting could mean the home you love will not be there, that favorable loan interest rates will be gone, or that you'll be competing with many more prospective buyers."
The 38 condos that sold were down 56.8 percent from a year ago when the total was 88 sales. The November tally was the lowest condo sales total on record, beating the prior low of 42 sales set in October 2007.
The median price of single-family homes sold during November was $522,500, down 9.9 percent from a year ago. The median has been falling slowly since the record high of $643,000 was set in April of 2006. After nine years of increases in the annual median price, 2007 is likely to post a decline of about 5 percent.
The condominium median price reported during November of $316,000 was down 13.4 percent from November 2006, but increased 1.9 percent from the median reported in October.
The condo record high of $397,000 was set in January 2006.
"The resale market in the Santa Clarita Valley appears to be finding a new equilibrium faster than other communities," said Jim Link, the chief executive officer of the Southland Regional Association of Realtors. "Until the lending industry starts making jumbo loans higher than $417,000 the recovery will be very slow. Still, the region's economic fundamentals are good and a growing number of buyers recognize that there are opportunities today that didn't exist just a short while ago."
A total of 2, 341 properties were listed for sale throughout the Santa Clarita Valley at the end of November, an increase of 7.2 percent from a year ago, but down 4.2 percent from this October, which suggests that the pace of listings is slowing.
At the current rate of sales, the active inventory represents a 16-month supply - a clear indicator of a buyers' market and well above the desired 5- to 6-month inventory that would represent a balanced market.
While statistics do not exist to prove the point, it is believed that today's inventory is far less than the totals reported in the early 1990s when the nation and the state were going through a deep economic recession.
"The market will remain stymied until more prospective buyers realize that affordable home loans are still available and that opportunities in today's market outweigh the risks of waiting," Link said. "The elements that made Santa Clarita desirable during the boom years - a great community, excellent value for the housing dollar, and a marvelous lifestyle - ensure that the local resale market will recover faster than other communities."
[from SRAR homepage Jan 11, 2008]
Wednesday, January 02, 2008
Taxes are reassessed in housing slump
Homeowners across the nation are looking to county governments to reassess the values of their homes in the face of flattening and falling prices that have befallen scores of markets. Downward assessments, done at the request of homeowners or pre-emptively by government, appear to be most pronounced in areas where the housing market was exploding just a few years ago, or where economic conditions are poorest.
While every state and local government has its own methods for assessing home values for tax purposes - some do it annually, some every five years and everything in between - many counties are hearing from residents that they would like their homes reassessed, or have taken steps to bring the taxes down of their own volition.
No one has aggregated the total number of counties reassessing home values, and many counties take at least a year to catch up to the marketplace. In some places where reassessments are rising, the numbers have yet to approach historical heights.
Cities where home values have fallen the most are the obvious first place to look for residents clamoring for reassessments, but that is not always the case. Some states, like California, Michigan and Nevada, have statutory caps in property tax increases, which mean the market value of single family homes almost always exceeds the assessed tax values, except in a major downturn. (The New York Times)
While every state and local government has its own methods for assessing home values for tax purposes - some do it annually, some every five years and everything in between - many counties are hearing from residents that they would like their homes reassessed, or have taken steps to bring the taxes down of their own volition.
No one has aggregated the total number of counties reassessing home values, and many counties take at least a year to catch up to the marketplace. In some places where reassessments are rising, the numbers have yet to approach historical heights.
Cities where home values have fallen the most are the obvious first place to look for residents clamoring for reassessments, but that is not always the case. Some states, like California, Michigan and Nevada, have statutory caps in property tax increases, which mean the market value of single family homes almost always exceeds the assessed tax values, except in a major downturn. (The New York Times)
States unveil new nationwide mortgage regulatory framework
On January 2, a new era for mortgage regulation in the United States will ring in when the states' Nationwide Mortgage Licensing System (NMLS) goes live. The Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) announced that NMLS, an Internet-based system that will serve as the foundation of a coordinated state mortgage regulatory framework, officially became operational on the first business day of 2008.
The launch of NMLS is just one part of a multi-faceted plan being implemented by CSBS and AARMR to improve regulation and bring about greater uniformity across state lines in mortgage supervision. These efforts include coordinated supervision, improved regulatory practices and consistent standards for testing and training for mortgage originators. To accomplish this, many states have changed or are in the process of changing their laws and regulations.
The launch of NMLS is just one part of a multi-faceted plan being implemented by CSBS and AARMR to improve regulation and bring about greater uniformity across state lines in mortgage supervision. These efforts include coordinated supervision, improved regulatory practices and consistent standards for testing and training for mortgage originators. To accomplish this, many states have changed or are in the process of changing their laws and regulations.
Ten Reasons Why Now is a Great Time to Buy
1) Selection, selection, selection.
There are about 2300 resale homes on the market in the Santa Clarita Valley area. Regardless of the price range a buyer desires, there are plenty of houses from which to choose. Just a few years ago the resale inventory dropped below 1,000 units. A buyer was forced to make compromises if they were going to locate the home of their dreams. There is a also a great selection of attached homes, condos, and townhouses. You can find large lots, small lots, and a lot that will accommodate your boat or RV. There are lots of options in this market.
2) No Bidding Wars.
In 2005 there was one client that made an offer on ten homes. They lost the first nine to the 'feeding frenzy' that existed. Other buyers bid the properties up substantially from the original listing price. There were escalation clauses where buyers authorized their agents to outbid other offers by thousands of dollars. There is no competitive bidding in this buyer's market.
3) You can make an offer.
A few years ago when you made an offer, the only question was how high above the list price could the buyer reach in hopes of being the best offer on the table. Today the sell price list vs. price ration is about 96%. A seller will not be insulted if you 'make them an offer they can't refuse'.
4) Patience is tolerated.
In the hot seller's market that existed everything was rushed. Find a house before other buyers did. Hurry up and make the offer. Today a buyer can take their time. Look at several homes and think about your decision for a few hours.
5) Due diligence is welcomed.
In this market a buyer is encouraged to obtain a home inspection, termite inspection, and appraisal. In 2005 many buyers waived these contingencies in order gain an advantage with multiple offers.
6) There are plenty of spec homes.
In the not too distant past buyer had to 'play games' if they wanted a new home. There were lotteries and waiting lists in order to obtain new construction. Some buyers slept in their cars in order to get to the head of the lines. R.L. Brown estimates that builders have thousands of specs ready for immediate occupancy.
7) Repair requests are welcomed.
After a buyer completes a home inspection, they are allowed to submit a repair request to the seller. In the past a seller might insist the home was sold 'as is'. Many times, there were back-up buyers waiting for a primary buyer to upset the seller whose home was increasing in value almost daily.
8) Few, if any investors.
It is estimated that one third of all sales in 2005 were to investors. These non-owner occupied buyer caused the market to inflate and affordability to decline. Mortgage fraud became commonplace. It's a great time to buy without having to compete with hundreds of prospective landlords.
9) Location, location, location.
Today's buyers can find homes closer to work. In the past buyers flocked to Palmdale or Riverside County in order to find affordable homes. In this market, reasonably priced homes are within biking or walking distance to schools, rapid transit lines, and relatives.
10) Real Financing is available.
The 'wink, wink' zero down, no doc, adjustable, sub-prime loans are gone. Fixed rates are back. FHA financing, first time homeowner bond programs, special loans for teachers, and police officers are back in business. It's a great time to buy real estate!
There are about 2300 resale homes on the market in the Santa Clarita Valley area. Regardless of the price range a buyer desires, there are plenty of houses from which to choose. Just a few years ago the resale inventory dropped below 1,000 units. A buyer was forced to make compromises if they were going to locate the home of their dreams. There is a also a great selection of attached homes, condos, and townhouses. You can find large lots, small lots, and a lot that will accommodate your boat or RV. There are lots of options in this market.
2) No Bidding Wars.
In 2005 there was one client that made an offer on ten homes. They lost the first nine to the 'feeding frenzy' that existed. Other buyers bid the properties up substantially from the original listing price. There were escalation clauses where buyers authorized their agents to outbid other offers by thousands of dollars. There is no competitive bidding in this buyer's market.
3) You can make an offer.
A few years ago when you made an offer, the only question was how high above the list price could the buyer reach in hopes of being the best offer on the table. Today the sell price list vs. price ration is about 96%. A seller will not be insulted if you 'make them an offer they can't refuse'.
4) Patience is tolerated.
In the hot seller's market that existed everything was rushed. Find a house before other buyers did. Hurry up and make the offer. Today a buyer can take their time. Look at several homes and think about your decision for a few hours.
5) Due diligence is welcomed.
In this market a buyer is encouraged to obtain a home inspection, termite inspection, and appraisal. In 2005 many buyers waived these contingencies in order gain an advantage with multiple offers.
6) There are plenty of spec homes.
In the not too distant past buyer had to 'play games' if they wanted a new home. There were lotteries and waiting lists in order to obtain new construction. Some buyers slept in their cars in order to get to the head of the lines. R.L. Brown estimates that builders have thousands of specs ready for immediate occupancy.
7) Repair requests are welcomed.
After a buyer completes a home inspection, they are allowed to submit a repair request to the seller. In the past a seller might insist the home was sold 'as is'. Many times, there were back-up buyers waiting for a primary buyer to upset the seller whose home was increasing in value almost daily.
8) Few, if any investors.
It is estimated that one third of all sales in 2005 were to investors. These non-owner occupied buyer caused the market to inflate and affordability to decline. Mortgage fraud became commonplace. It's a great time to buy without having to compete with hundreds of prospective landlords.
9) Location, location, location.
Today's buyers can find homes closer to work. In the past buyers flocked to Palmdale or Riverside County in order to find affordable homes. In this market, reasonably priced homes are within biking or walking distance to schools, rapid transit lines, and relatives.
10) Real Financing is available.
The 'wink, wink' zero down, no doc, adjustable, sub-prime loans are gone. Fixed rates are back. FHA financing, first time homeowner bond programs, special loans for teachers, and police officers are back in business. It's a great time to buy real estate!
Friday, December 28, 2007
Pace of Decline in Home Prices Sets a Record
By JAMES R. HAGERTY and KELLY EVANS
December 27, 2007
Wall Street Journal Page A1
A closely watched gauge of U.S. home prices shows they are falling sharply across most of the nation, as a deepening slump in the housing market threatens to damp consumer spending.
Home prices in 10 major metropolitan areas in October were down 6.7% from a year earlier, according to the S&P/Case-Shiller home-price indexes, released yesterday by credit-rating firm Standard & Poor's. That exceeded the previous record year-to-year decline of 6.3% in April 1991, when the economy was emerging from a recession. (See a PDF summary of the report.)
New statistics from the Census Bureau, meanwhile, indicate a slowdown in the number of Americans moving to states that led the housing boom, including Nevada, Florida and Arizona. (See related article.)
The silver lining behind the latest home-price data is that they signal the market is making what most economists see as a necessary adjustment, dragging home prices back into closer alignment with Americans' ability to pay. The market is working its way "back to reality," says David Seiders, chief economist of the National Association of Home Builders. He thinks house prices will bottom out by early 2009.
Some other economists say that might not happen before 2010. "The housing shock is only about halfway over, and housing prices will continue to fall well into 2009," says Lehman Brothers economist Michelle Meyer.
During the housing boom in the first half of this decade, fast-rising home prices made it easy for homeowners to take out home-equity loans or refinance their primary mortgages to extract some cash. That helped sustain consumer spending, which accounts for about 70% of U.S. economic activity.
Economists now worry that falling home prices will prompt consumers to pull back on spending enough to slow growth or even tip the economy into recession. "Eventually what's happening in the housing market is going to catch up with us," says Patrick Newport, an economist at research-firm Global Insight Inc.
Fears of a sharp drop in consumption were assuaged somewhat last week when the government reported that consumer spending in November grew at the fastest pace in 3½ years. And though holiday sales fell short of retailers' expectations, consumers, spurred by discounts, spent heavily in the final days before Christmas. Economists say that even if overall spending slows in December, the strength seen in October and November would be enough to keep the economy afloat in the near term.
"The most important determinant of [spending] is always income," says Harm Bandholz, an economist at UniCredit in New York. He said that Americans' disposable income has risen a "solid" 2.5% over last year. He and others say that as long as the job market holds up and incomes keep growing, Americans will continue to spend.
The S&P/Case-Shiller index showed that some of the fastest declines in home prices are in metropolitan areas that were among the hottest during the housing boom. Prices were down 12.4% from a year earlier in Miami, 11.1% in San Diego, 10.7% in Las Vegas and 10.6% in Phoenix.
Home prices are still up from a year ago in some cities, such as Seattle and Charlotte, N.C. And people who bought their homes several years ago still are sitting on sizable gains in most of the country.
The boom more than doubled prices in many populous areas near the coasts. The run-up was fueled in part by unusually low interest rates, which slashed the cost of monthly mortgage payments. In addition, in the wake of the technology-stock bubble, many Americans viewed real estate as a safer investment than stocks, and so poured increasing sums into second homes and rental properties. Home sales began to slow in mid-2005. Prices leveled off and then started declining in 2006. Over the past year, mortgage defaults have soared, leading to rapid growth in foreclosures.
Bette Zerba, a Realtor with Re/Max in Phoenix, says local residents trying to sell their homes can't compete with foreclosed homes selling for $50,000 to $100,000 less than theirs. "The sellers now are having to reduce their prices by 20% to 30% to compete," she says.
As the market adjusts, single-family housing starts have fallen 55% from their January 2006 peak to a seasonally adjusted annual rate of 829,000. In recent months, lenders and investors have begun owning up to billions of dollars of losses on mortgages and related securities, clearing the decks for an eventual revival in lending.
But the recovery of the housing market is likely to be a gradual process. That's partly because the boom left prices so far out of whack with incomes. As measured by the S&P/Case-Shiller national index, home prices jumped 74% in the six years through 2006. During the same period, U.S. median household income rose 15%. (Neither figure is adjusted for inflation.) That made housing unaffordable for many Americans.
For a few years, lax lending standards -- some loans required no down payments and offered low introductory interest rates -- meant borrowers could buy more expensive houses than they could really afford. But lenders have been burned by a surge in defaults that started in 2006, and such mortgages generally are no longer available. That means house prices will have to fall to a level potential buyers can afford.
Mark Zandi, chief economist of Moody's Economy.com, a research firm in West Chester, Pa., predicts that on average U.S. house prices will decline about 12% by the second quarter of 2009 from their peak in the second quarter of 2006. He expects household income to rise by about the same amount over that period.
Signs of this adjustment are apparent in the latest quarterly analysis of house prices by National City Corp., a Cleveland banking concern, and Global Insight. Economists at the two firms look at home prices in relation to household income and other factors, including population density (an indication of how much land is available) and past differences in prices caused by factors like climate and schools. In the third quarter, they found, prices in 38 of the nation's 330 metro areas were more than 33% above a level that could be explained by fundamental drivers of housing costs. That was down from 48 metro areas in this "overvalued" category in the second quarter.
"Parts of the housing market are scratching bottom right now," says Richard DeKaser, chief economist at National City. Sales of new and existing homes are down about 32% from their mid-2005 peak, he says, and probably won't fall much further before leveling off or starting to recover slowly.
Prices of new homes are likely to start recovering in the first half of 2008 because builders are aggressively chopping prices to clear inventories, says Edward Leamer, an economics professor at the University of California, Los Angeles. Recent price cuts by builders may have reduced demand in the short term because they encourage potential buyers to expect further discounts.
DAILY ECONOMICS NEWSLETTER
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• Econ Blog: In Case-Shiller Data, Few Metro Areas SparedBut prices of previously occupied homes are likely to continue falling slowly for several years, Prof. Leamer says. That's because people trying to sell their homes often don't have an urgent need to move, and try to hold out for a price they consider fair.
On average, prices of previously occupied homes, as measured by the S&P/Case-Shiller indexes, are likely to drop another 7% in 2008 before flattening out in 2009, says Thomas Lawler, a housing economist in Vienna, Va.
Inventories of unsold homes remain very high and may increase in the new year as lenders dump more foreclosed houses on the market. The number of detached single-family homes listed for sale in October was enough to last 10½ months at the current sales rate, according to the National Association of Realtors. That was more than double the level of two years ago and the highest since 1985.
Along with inventories, the nation's home ownership rate will have to adjust to today's realities as many Americans who stretched too far to buy homes in recent years go back to renting. The home ownership rate in the third quarter stood at 68.2% of households, down from a peak of 69.2% in 2004. Even a small drop in that rate has a big effect on housing demand. Economists at Goldman Sachs have warned that falling home ownership rates may force a further 40% drop in housing starts next year, to an annual rate as low as 500,000 units, before construction starts to recover.
The mortgage market also needs to adjust further. Most of the funding for home loans comes from investors who buy securities backed by bundles of mortgages. Since August, many of those investors have shunned the market amid fears of rising defaults. As a result, lenders generally are focusing on loans that can be sold to government-sponsored investors Fannie Mae or Freddie Mac, or insured by the Federal Housing Administration. So-called jumbo loans -- those above $417,000, too big to be sold to Fannie or Freddie -- have grown much more expensive, deterring buyers in high-cost areas.
The current scarcity of funds available for mortgage lending creates a chicken-and-egg situation, says Prof. Leamer. Investors who provide funding for home loans don't want to commit more money until they believe the housing market is getting better. But it's hard for the housing market to rebound as long as mortgage credit is tight. Lower prices eventually will break this impasse, by luring buyers back into the market and reassuring investors that the market is finding a bottom, he says.
Write to James R. Hagerty at bob.hagerty@wsj.com and Kelly Evans at kelly.evans@wsj.com
December 27, 2007
Wall Street Journal Page A1
A closely watched gauge of U.S. home prices shows they are falling sharply across most of the nation, as a deepening slump in the housing market threatens to damp consumer spending.
Home prices in 10 major metropolitan areas in October were down 6.7% from a year earlier, according to the S&P/Case-Shiller home-price indexes, released yesterday by credit-rating firm Standard & Poor's. That exceeded the previous record year-to-year decline of 6.3% in April 1991, when the economy was emerging from a recession. (See a PDF summary of the report.)
New statistics from the Census Bureau, meanwhile, indicate a slowdown in the number of Americans moving to states that led the housing boom, including Nevada, Florida and Arizona. (See related article.)
The silver lining behind the latest home-price data is that they signal the market is making what most economists see as a necessary adjustment, dragging home prices back into closer alignment with Americans' ability to pay. The market is working its way "back to reality," says David Seiders, chief economist of the National Association of Home Builders. He thinks house prices will bottom out by early 2009.
Some other economists say that might not happen before 2010. "The housing shock is only about halfway over, and housing prices will continue to fall well into 2009," says Lehman Brothers economist Michelle Meyer.
During the housing boom in the first half of this decade, fast-rising home prices made it easy for homeowners to take out home-equity loans or refinance their primary mortgages to extract some cash. That helped sustain consumer spending, which accounts for about 70% of U.S. economic activity.
Economists now worry that falling home prices will prompt consumers to pull back on spending enough to slow growth or even tip the economy into recession. "Eventually what's happening in the housing market is going to catch up with us," says Patrick Newport, an economist at research-firm Global Insight Inc.
Fears of a sharp drop in consumption were assuaged somewhat last week when the government reported that consumer spending in November grew at the fastest pace in 3½ years. And though holiday sales fell short of retailers' expectations, consumers, spurred by discounts, spent heavily in the final days before Christmas. Economists say that even if overall spending slows in December, the strength seen in October and November would be enough to keep the economy afloat in the near term.
"The most important determinant of [spending] is always income," says Harm Bandholz, an economist at UniCredit in New York. He said that Americans' disposable income has risen a "solid" 2.5% over last year. He and others say that as long as the job market holds up and incomes keep growing, Americans will continue to spend.
The S&P/Case-Shiller index showed that some of the fastest declines in home prices are in metropolitan areas that were among the hottest during the housing boom. Prices were down 12.4% from a year earlier in Miami, 11.1% in San Diego, 10.7% in Las Vegas and 10.6% in Phoenix.
Home prices are still up from a year ago in some cities, such as Seattle and Charlotte, N.C. And people who bought their homes several years ago still are sitting on sizable gains in most of the country.
The boom more than doubled prices in many populous areas near the coasts. The run-up was fueled in part by unusually low interest rates, which slashed the cost of monthly mortgage payments. In addition, in the wake of the technology-stock bubble, many Americans viewed real estate as a safer investment than stocks, and so poured increasing sums into second homes and rental properties. Home sales began to slow in mid-2005. Prices leveled off and then started declining in 2006. Over the past year, mortgage defaults have soared, leading to rapid growth in foreclosures.
Bette Zerba, a Realtor with Re/Max in Phoenix, says local residents trying to sell their homes can't compete with foreclosed homes selling for $50,000 to $100,000 less than theirs. "The sellers now are having to reduce their prices by 20% to 30% to compete," she says.
As the market adjusts, single-family housing starts have fallen 55% from their January 2006 peak to a seasonally adjusted annual rate of 829,000. In recent months, lenders and investors have begun owning up to billions of dollars of losses on mortgages and related securities, clearing the decks for an eventual revival in lending.
But the recovery of the housing market is likely to be a gradual process. That's partly because the boom left prices so far out of whack with incomes. As measured by the S&P/Case-Shiller national index, home prices jumped 74% in the six years through 2006. During the same period, U.S. median household income rose 15%. (Neither figure is adjusted for inflation.) That made housing unaffordable for many Americans.
For a few years, lax lending standards -- some loans required no down payments and offered low introductory interest rates -- meant borrowers could buy more expensive houses than they could really afford. But lenders have been burned by a surge in defaults that started in 2006, and such mortgages generally are no longer available. That means house prices will have to fall to a level potential buyers can afford.
Mark Zandi, chief economist of Moody's Economy.com, a research firm in West Chester, Pa., predicts that on average U.S. house prices will decline about 12% by the second quarter of 2009 from their peak in the second quarter of 2006. He expects household income to rise by about the same amount over that period.
Signs of this adjustment are apparent in the latest quarterly analysis of house prices by National City Corp., a Cleveland banking concern, and Global Insight. Economists at the two firms look at home prices in relation to household income and other factors, including population density (an indication of how much land is available) and past differences in prices caused by factors like climate and schools. In the third quarter, they found, prices in 38 of the nation's 330 metro areas were more than 33% above a level that could be explained by fundamental drivers of housing costs. That was down from 48 metro areas in this "overvalued" category in the second quarter.
"Parts of the housing market are scratching bottom right now," says Richard DeKaser, chief economist at National City. Sales of new and existing homes are down about 32% from their mid-2005 peak, he says, and probably won't fall much further before leveling off or starting to recover slowly.
Prices of new homes are likely to start recovering in the first half of 2008 because builders are aggressively chopping prices to clear inventories, says Edward Leamer, an economics professor at the University of California, Los Angeles. Recent price cuts by builders may have reduced demand in the short term because they encourage potential buyers to expect further discounts.
DAILY ECONOMICS NEWSLETTER
Sign up for our new email of the day's Real Time Economics posts, by Greg Ip, Sudeep Reddy and the Journal's economics team. The email also includes the latest economic headlines, data and columns. Choose HTML or plain text.
RELATED POSTS
• Econ Blog: In Case-Shiller Data, Few Metro Areas SparedBut prices of previously occupied homes are likely to continue falling slowly for several years, Prof. Leamer says. That's because people trying to sell their homes often don't have an urgent need to move, and try to hold out for a price they consider fair.
On average, prices of previously occupied homes, as measured by the S&P/Case-Shiller indexes, are likely to drop another 7% in 2008 before flattening out in 2009, says Thomas Lawler, a housing economist in Vienna, Va.
Inventories of unsold homes remain very high and may increase in the new year as lenders dump more foreclosed houses on the market. The number of detached single-family homes listed for sale in October was enough to last 10½ months at the current sales rate, according to the National Association of Realtors. That was more than double the level of two years ago and the highest since 1985.
Along with inventories, the nation's home ownership rate will have to adjust to today's realities as many Americans who stretched too far to buy homes in recent years go back to renting. The home ownership rate in the third quarter stood at 68.2% of households, down from a peak of 69.2% in 2004. Even a small drop in that rate has a big effect on housing demand. Economists at Goldman Sachs have warned that falling home ownership rates may force a further 40% drop in housing starts next year, to an annual rate as low as 500,000 units, before construction starts to recover.
The mortgage market also needs to adjust further. Most of the funding for home loans comes from investors who buy securities backed by bundles of mortgages. Since August, many of those investors have shunned the market amid fears of rising defaults. As a result, lenders generally are focusing on loans that can be sold to government-sponsored investors Fannie Mae or Freddie Mac, or insured by the Federal Housing Administration. So-called jumbo loans -- those above $417,000, too big to be sold to Fannie or Freddie -- have grown much more expensive, deterring buyers in high-cost areas.
The current scarcity of funds available for mortgage lending creates a chicken-and-egg situation, says Prof. Leamer. Investors who provide funding for home loans don't want to commit more money until they believe the housing market is getting better. But it's hard for the housing market to rebound as long as mortgage credit is tight. Lower prices eventually will break this impasse, by luring buyers back into the market and reassuring investors that the market is finding a bottom, he says.
Write to James R. Hagerty at bob.hagerty@wsj.com and Kelly Evans at kelly.evans@wsj.com
Thursday, December 27, 2007
Top Ten Tips When Moving With Your Pet
Buying or selling a home and moving is not only one of the most stressful events in your life, it can also be stressful on your pets.
A Pet Friendly Real Estate Agent like Ray Kutylo and the SCV Home Team can help you plan and prepare to guarantee a stress-free move. Here are a few tips to help start your preparations for a safe move for you and your pets.
1. Identification. Rule #1 in moving with your pet is properly identifying your pet with an identification tag and sturdy collar. A common mistake is to have outdated information on a pet tag. Make sure your pet’s tag includes updated information including destination location and telephone number and a mobile number, so you can be reached easily. An additional method of identification is a microchip, which is injected under the pet’s skin between the shoulder blades and is about the size of a grain of rice. The procedure is simple and similar to administering a vaccine. Microchips can be purchased directly from veterinary clinics, and the prices vary. Some shelters offer discounts for microchipping to people that have adopted shelter animals. If you have an assistance animal, ask your local shelter or Veterinarian if there any discounts for the enrollment fees.
2. Veterinary Records. Notify your Veterinarian you will be moving and ask for a current copy of your pet’s vaccinations. Your Veterinarian may also provide you with a copy of your pet’s full medical history to provide to your new Veterinarian, but in most cases medical history can be faxed to your new Veterinarian upon request. Keep your pet’s medical history in a convenient location during your move and not packed away in the moving truck. Depending on your destination, your pet may also need additional vaccinations, medications, and health certificates. Have your current veterinarian’s phone number handy in case of an emergency or if your new veterinarian needs more information about your pet.
3. Medications and Food. Keep at least one week’s worth of food and medication in case of emergency. Veterinarians cannot write a prescription without a prior doctor/patient relationship. This means that before you can get any prescription medications, your pet will need to be examined first by its new doctor. This may be inconvenient if you need medication right away. Discuss your pet’s medical needs with your Veterinarian and they can provide you with a prescription before your move if necessary. This includes special therapeutic foods - purchase an extra supply in case you can’t find the food right away in your new area.
4. Keeping your pet secure. Pets can feel vulnerable on moving day. Keep your pet in a safe, quiet, well ventilated place, such as the bathroom on moving day with a PETS INSIDE sign on the door to keep off-limits to friends and movers. There are many different types of travel crates on the market, and many are lightweight and collapsible just for traveling purposes. Make sure your pet is familiar with the crate you will be using for transportation by gradually introducing him to the crate before your trip. Be sure the crate is well ventilated and sturdy enough for stress-chewers or your pet could make an escape.
5. First Aid Kit. First aid is not a substitute for emergency veterinary care, but being prepared and knowing basic first aid could save your pet’s life. A few recommended supplies for a basic first aid kit include: Your veterinarian’s phone number, Gauze to wrap wounds or muzzle animal, Adhesive tape for bandages, Non-stick bandages, Towels, and Hydrogen peroxide (3 percent). You can use a door, board, blanket or floor mat as an emergency Stretcher and a soft cloth, rope, necktie, leash or nylon stocking for an emergency muzzle.
6. Traveling by car. It is best to travel with your dog in a crate, but if your dog enjoys car travel, you may want to accustom him to a restraining harness. For your safety as well as theirs, it is ALWAYS best to transport cats in a well ventilated carrier. Secure the crate with a seat belt and provide your pet with familiar toys. Never keep your pet in the open bed of a truck, or the storage area of a moving van. In any season, a pet left alone in a parked vehicle is vulnerable to being injured, harmed or stolen. Plan ahead by searching for pet friendly hotels to find overnight lodging during your move, and have plenty of kitty litter and plastic bags on hand for Doggy Duty. Try to keep your pet on his regular diet and eating schedule and bring along bottled water to avoid upset stomach or diarrhea. If traveling is stressful for your pet, always consult your veterinarian about ways that might lessen the stress of travel.
7. Air Travel. If traveling by air, first check with the airline about any pet requirements or restrictions to be sure you have prepared your pet to be safe and secure during the trip. Some airlines will allow pets in the cabin, depending on the size of the pet, but you will need to purchase a special airline crate that fits under the seat in front of you. Give yourself plenty of time to work out any arrangements necessary including consulting with your veterinarian, and the U.S. Department of Agriculture. If traveling is stressful for your pet, always consult your veterinarian about ways that might lessen the stress of travel.
8. Finding a Veterinary Clinic, Specialty and Emergency Hospital. Before you move, ask your veterinarian to recommend another doctor in your new area. Talk to other pet owners in your new area. Call the state veterinary medical association (VMA) for Veterinarians in your location. Once you have selected a Veterinary Hospital ask for an impromptu tour as kennels should be kept clean at all times, not just when a client is ‘expected’. You may also want to schedule an appointment to meet the doctors. Now go through the following checklist: Are the receptionists, doctors, technicians, assistants friendly, professional and knowledgeable? Are the office hours and location convenient? Does the clinic offer emergency or specialty services or boarding? If the Veterinary Hospital that you have selected does not meet these criteria, you may want to keep looking so you can be assured that your pet is receiving the best possible care.
9. Preparing your new home. Keep in mind that your pets may be frightened and confused in new surroundings. To reduce the chance of escaping due to fear, or pure excitement to explore the new territory, prepare all the familiar and necessary things your pet will need from day one including food, water, medications, bed, litter box, food and water bowls. Pack these items last, so they can be immediately unpacked and available for your pet in a secure room when you arrive at your new home. Remember to keep all external windows and doors closed when your pet is unsupervised. Be cautious of unsupervised areas in the kitchen or utility areas as nervous pets can seek refuge in narrow gaps behind or between appliances. If your new home is nearby, your pet may be confused and find a way back to your old home. Notify the new homeowners of your new address and ask them to contact you if your pet is found in the neighborhood.
10. Learn more about your new area. Once you find a new Veterinarian, ask if there are any local disease concerns such as heartworm or Lyme disease as well as vaccinations or medications your pet may require. Also, be aware of any unique laws. For example, there are restrictive breed laws in some cities. Contact the city or travel information bureau for more information as your pet may be affected by these laws. If you will be traveling internationally, always remember to have your pet examined by a Veterinarian and carry an updated rabies vaccination and health certificate. It is very important to contact the Agriculture Department or embassy of the country or state to where you are traveling to obtain specific information on special documents, quarantine, or costs to bring the animal into the country.
SOURCE: The Pet Realty Network™ Library
A Pet Friendly Real Estate Agent like Ray Kutylo and the SCV Home Team can help you plan and prepare to guarantee a stress-free move. Here are a few tips to help start your preparations for a safe move for you and your pets.
1. Identification. Rule #1 in moving with your pet is properly identifying your pet with an identification tag and sturdy collar. A common mistake is to have outdated information on a pet tag. Make sure your pet’s tag includes updated information including destination location and telephone number and a mobile number, so you can be reached easily. An additional method of identification is a microchip, which is injected under the pet’s skin between the shoulder blades and is about the size of a grain of rice. The procedure is simple and similar to administering a vaccine. Microchips can be purchased directly from veterinary clinics, and the prices vary. Some shelters offer discounts for microchipping to people that have adopted shelter animals. If you have an assistance animal, ask your local shelter or Veterinarian if there any discounts for the enrollment fees.
2. Veterinary Records. Notify your Veterinarian you will be moving and ask for a current copy of your pet’s vaccinations. Your Veterinarian may also provide you with a copy of your pet’s full medical history to provide to your new Veterinarian, but in most cases medical history can be faxed to your new Veterinarian upon request. Keep your pet’s medical history in a convenient location during your move and not packed away in the moving truck. Depending on your destination, your pet may also need additional vaccinations, medications, and health certificates. Have your current veterinarian’s phone number handy in case of an emergency or if your new veterinarian needs more information about your pet.
3. Medications and Food. Keep at least one week’s worth of food and medication in case of emergency. Veterinarians cannot write a prescription without a prior doctor/patient relationship. This means that before you can get any prescription medications, your pet will need to be examined first by its new doctor. This may be inconvenient if you need medication right away. Discuss your pet’s medical needs with your Veterinarian and they can provide you with a prescription before your move if necessary. This includes special therapeutic foods - purchase an extra supply in case you can’t find the food right away in your new area.
4. Keeping your pet secure. Pets can feel vulnerable on moving day. Keep your pet in a safe, quiet, well ventilated place, such as the bathroom on moving day with a PETS INSIDE sign on the door to keep off-limits to friends and movers. There are many different types of travel crates on the market, and many are lightweight and collapsible just for traveling purposes. Make sure your pet is familiar with the crate you will be using for transportation by gradually introducing him to the crate before your trip. Be sure the crate is well ventilated and sturdy enough for stress-chewers or your pet could make an escape.
5. First Aid Kit. First aid is not a substitute for emergency veterinary care, but being prepared and knowing basic first aid could save your pet’s life. A few recommended supplies for a basic first aid kit include: Your veterinarian’s phone number, Gauze to wrap wounds or muzzle animal, Adhesive tape for bandages, Non-stick bandages, Towels, and Hydrogen peroxide (3 percent). You can use a door, board, blanket or floor mat as an emergency Stretcher and a soft cloth, rope, necktie, leash or nylon stocking for an emergency muzzle.
6. Traveling by car. It is best to travel with your dog in a crate, but if your dog enjoys car travel, you may want to accustom him to a restraining harness. For your safety as well as theirs, it is ALWAYS best to transport cats in a well ventilated carrier. Secure the crate with a seat belt and provide your pet with familiar toys. Never keep your pet in the open bed of a truck, or the storage area of a moving van. In any season, a pet left alone in a parked vehicle is vulnerable to being injured, harmed or stolen. Plan ahead by searching for pet friendly hotels to find overnight lodging during your move, and have plenty of kitty litter and plastic bags on hand for Doggy Duty. Try to keep your pet on his regular diet and eating schedule and bring along bottled water to avoid upset stomach or diarrhea. If traveling is stressful for your pet, always consult your veterinarian about ways that might lessen the stress of travel.
7. Air Travel. If traveling by air, first check with the airline about any pet requirements or restrictions to be sure you have prepared your pet to be safe and secure during the trip. Some airlines will allow pets in the cabin, depending on the size of the pet, but you will need to purchase a special airline crate that fits under the seat in front of you. Give yourself plenty of time to work out any arrangements necessary including consulting with your veterinarian, and the U.S. Department of Agriculture. If traveling is stressful for your pet, always consult your veterinarian about ways that might lessen the stress of travel.
8. Finding a Veterinary Clinic, Specialty and Emergency Hospital. Before you move, ask your veterinarian to recommend another doctor in your new area. Talk to other pet owners in your new area. Call the state veterinary medical association (VMA) for Veterinarians in your location. Once you have selected a Veterinary Hospital ask for an impromptu tour as kennels should be kept clean at all times, not just when a client is ‘expected’. You may also want to schedule an appointment to meet the doctors. Now go through the following checklist: Are the receptionists, doctors, technicians, assistants friendly, professional and knowledgeable? Are the office hours and location convenient? Does the clinic offer emergency or specialty services or boarding? If the Veterinary Hospital that you have selected does not meet these criteria, you may want to keep looking so you can be assured that your pet is receiving the best possible care.
9. Preparing your new home. Keep in mind that your pets may be frightened and confused in new surroundings. To reduce the chance of escaping due to fear, or pure excitement to explore the new territory, prepare all the familiar and necessary things your pet will need from day one including food, water, medications, bed, litter box, food and water bowls. Pack these items last, so they can be immediately unpacked and available for your pet in a secure room when you arrive at your new home. Remember to keep all external windows and doors closed when your pet is unsupervised. Be cautious of unsupervised areas in the kitchen or utility areas as nervous pets can seek refuge in narrow gaps behind or between appliances. If your new home is nearby, your pet may be confused and find a way back to your old home. Notify the new homeowners of your new address and ask them to contact you if your pet is found in the neighborhood.
10. Learn more about your new area. Once you find a new Veterinarian, ask if there are any local disease concerns such as heartworm or Lyme disease as well as vaccinations or medications your pet may require. Also, be aware of any unique laws. For example, there are restrictive breed laws in some cities. Contact the city or travel information bureau for more information as your pet may be affected by these laws. If you will be traveling internationally, always remember to have your pet examined by a Veterinarian and carry an updated rabies vaccination and health certificate. It is very important to contact the Agriculture Department or embassy of the country or state to where you are traveling to obtain specific information on special documents, quarantine, or costs to bring the animal into the country.
SOURCE: The Pet Realty Network™ Library
The Five Miracles of 2008
When someone agrees to give me referrals and asks for a few of my business cards, five miracles have to happen for me to get the referral.
1) They don't lose my card.
2) They have my card with them when them when the topic comes up.
3) They remember to give out my card.
4) The referral doesn't lose my card.
5) The referral actually picks up the phone and calls.
Could I please collect a quarter for all the times people have told me that they referred someone to me... and I get no call! I'm not saying don't give our my cards. What I am saying is... think about the Five Miracles.
Let me teach you how to refer people to me.
When you meet someone who can benefit from my service, just as you did, simply ask their permission for me to contact them. Then call me with their information and I will follow up with them. There is obviously no cost or obligation on their part and I will never pressure them. My job is to make you look good. Ok... Great. By the way, all referrals to me are rewarded.
1) They don't lose my card.
2) They have my card with them when them when the topic comes up.
3) They remember to give out my card.
4) The referral doesn't lose my card.
5) The referral actually picks up the phone and calls.
Could I please collect a quarter for all the times people have told me that they referred someone to me... and I get no call! I'm not saying don't give our my cards. What I am saying is... think about the Five Miracles.
Let me teach you how to refer people to me.
When you meet someone who can benefit from my service, just as you did, simply ask their permission for me to contact them. Then call me with their information and I will follow up with them. There is obviously no cost or obligation on their part and I will never pressure them. My job is to make you look good. Ok... Great. By the way, all referrals to me are rewarded.
Tuesday, December 25, 2007
A Brief History of Christmas
By JOHN STEELE GORDON
December 21, 2007;
Wall Street Journal Page A19
Christmas famously "comes but once a year." In fact, however, it comes twice. The Christmas of the Nativity, the manger and Christ child, the wise men and the star of Bethlehem, "Silent Night" and "Hark the Herald Angels Sing" is one holiday. The Christmas of parties, Santa Claus, evergreens, presents, "Rudolph the Red-Nosed Reindeer" and "Jingle Bells" is quite another.
But because both celebrations fall on Dec. 25, the two are constantly confused. Religious Christians condemn taking "the Christ out of Christmas," while First Amendment absolutists see a threat to the separation of church and state in every poinsettia on public property and school dramatization of "A Christmas Carol."
A little history can clear things up.
Click for MORE
December 21, 2007;
Wall Street Journal Page A19
Christmas famously "comes but once a year." In fact, however, it comes twice. The Christmas of the Nativity, the manger and Christ child, the wise men and the star of Bethlehem, "Silent Night" and "Hark the Herald Angels Sing" is one holiday. The Christmas of parties, Santa Claus, evergreens, presents, "Rudolph the Red-Nosed Reindeer" and "Jingle Bells" is quite another.
But because both celebrations fall on Dec. 25, the two are constantly confused. Religious Christians condemn taking "the Christ out of Christmas," while First Amendment absolutists see a threat to the separation of church and state in every poinsettia on public property and school dramatization of "A Christmas Carol."
A little history can clear things up.
Click for MORE
Friday, December 21, 2007
Mortgage Insurance Premiums Now Tax Deductable
The U.S. House of Representatives voted this week making mortgage insurance premiums tax deductible for all mortgages originated for the next three years. The Senate passed this legislation last week by unanimous consent. Mortgage insurance first became tax deductible in 2007.
Eligible homeowners with adjusted gross incomes of $100,000 or less can deduct the full cost of their mortgage insurance premiums under the new legislation. Families with incomes between $100,000 and $109,000 can be eligible for a reduced deduction.
This means that a borrower in a 25% marginal tax bracket who takes out a $300,000 mortgage during the next three years, may see an additional $53 in tax savings* per month or $636 in tax savings* per year, making homeownership more affordable.
You can obtain additional information at the IRS web site, www.irs.gov.
*Tax savings example based on a premium rate of 0.85% on a 100% LTV interest only PLUSSM loan generating annual deductible premiums of $2,550 ($300,000 x 0.85%) multiplied by a 25% marginal tax rate (e.g. married couple filing jointly with taxable income of $63,700 or more) yielding a tax savings of $53 per month in 2007.
Eligible homeowners with adjusted gross incomes of $100,000 or less can deduct the full cost of their mortgage insurance premiums under the new legislation. Families with incomes between $100,000 and $109,000 can be eligible for a reduced deduction.
This means that a borrower in a 25% marginal tax bracket who takes out a $300,000 mortgage during the next three years, may see an additional $53 in tax savings* per month or $636 in tax savings* per year, making homeownership more affordable.
You can obtain additional information at the IRS web site, www.irs.gov.
*Tax savings example based on a premium rate of 0.85% on a 100% LTV interest only PLUSSM loan generating annual deductible premiums of $2,550 ($300,000 x 0.85%) multiplied by a 25% marginal tax rate (e.g. married couple filing jointly with taxable income of $63,700 or more) yielding a tax savings of $53 per month in 2007.
California & Florida Top Sales Price Drop, Foreclosure Rise Lists
Home prices fell in 21 states from October 2006 through October 207 and dropped in 21 of 31 major metro areas reported in a study released today by First American Corp.'s LoanPerformance.
The price of single-family detached homes tumbled 15.7 percent in the Riverside-San Bernardino-Ontario, Calif., market area from October 2006 to October 2007, according to the LoanPerformance Home Price Index, which analyzes data for repeat sales transactions.
And six of the eight local market areas tracked in the report that experienced double-digit price declines from October 2006 to October 2007 are in Florida or California, based on single-family detached housing sales data. Las Vegas and Phoenix also saw a double-digit drop in home prices during the study period.
California, Florida, Nevada and Arizona also appear in the top-10 list of states with the highest rate of foreclosure filings in the nation during November, released today by real estate data company RealtyTrac.
The price of single-family detached homes tumbled 15.7 percent in the Riverside-San Bernardino-Ontario, Calif., market area from October 2006 to October 2007, according to the LoanPerformance Home Price Index, which analyzes data for repeat sales transactions.
And six of the eight local market areas tracked in the report that experienced double-digit price declines from October 2006 to October 2007 are in Florida or California, based on single-family detached housing sales data. Las Vegas and Phoenix also saw a double-digit drop in home prices during the study period.
California, Florida, Nevada and Arizona also appear in the top-10 list of states with the highest rate of foreclosure filings in the nation during November, released today by real estate data company RealtyTrac.
Tuesday, December 18, 2007
Fed Proposes New Mortgage Rules
The Federal Reserve has proposed new regulation of mortgage providers which will lead to more disclosure by lenders, without restricting access to credit. Or so says this CNBC video report.
You can view it by clicking http://www.cnbc.com/id/15840232?video=610627371
You can view it by clicking http://www.cnbc.com/id/15840232?video=610627371
Sunday, December 16, 2007
Tracking the Truth on Foreclosures
RealtyTrac's data is oft-cited by the media, but some question its accuracy
by Andrew Galvin
The Orange County Register
If ever there were a public relations success story, RealtyTrac is it. The Irvine-based firm's monthly news releases, chock-full of state-by-state foreclosure counts, are devoured by a national media ravenous for data on what many consider a developing crisis. But questions are being raised about whether the firm's oft-cited numbers overstate the real dimensions of the foreclosure problem. And that could create a problem for the company's credibility.
For example, last year, RealtyTrac's data showed Colorado had the nation's highest foreclosure rate. That didn't sit well with state officials, who decided to do their own count of foreclosures and came up with a figure much smaller than RealtyTrac's. Then, in July, RealtyTrac reported 12,602 foreclosure actions in Georgia, giving the state the nation's second-highest foreclosure rate. When the Atlanta Journal-Constitution looked into the numbers, the newspaper found that RealtyTrac had counted more than 2,000 properties twice and sometimes more. RealtyTrac acknowledges it isn't perfect but says its data offers comprehensiveness and context that other providers don't.
Why the discrepancies?
The main reason is that RealtyTrac counts every step in the foreclosure process. So if a home goes into default on its mortgage, is scheduled for auction and then repossessed by a bank, RealtyTrac counts that home three times. RealtyTrac counted 54,747 "foreclosure actions" in Colorado last year. That number wasn't useful because it didn't reflect how many homeowners were actually in danger of losing their homes, said Ryan McMaken, spokesman for the Colorado Division of Housing. "We couldn't really use those numbers for having serious discussions," he said. So McMaken put an intern to work calling all of the state's 64 counties to get a count of how many homes entered the foreclosure process last year. The number he came up with: 28,435.
This summer, partly in response to criticism, RealtyTrac began sorting its numbers to compile a separate count of properties in foreclosure, in addition to total foreclosure actions. RealtyTrac's "unique property" count, published quarterly, found 19,411 properties in foreclosure in Colorado in the first half of this year. That's within a few dozen of the 19,460 counted by McMaken. "I think they're getting a lot closer now," McMaken said, adding that "we might not have to collect our own numbers" anymore.
In the Georgia situation, RealtyTrac admitted it erred. It revised its July count for the state to 8,461 foreclosure actions, down from its initial count of 12,602. "The reporting error resulted from a combination of overlapping data coverage in some areas of Georgia and an anomaly in the formatting of some of the foreclosure records in those overlapping areas," the company said.
RealtyTrac could probably mute much of the criticism of its data if it simply published its unique properties count every month in addition to its total filings count. That's something the company is considering doing next year, said Rick Sharga, RealtyTrac's vice president of marketing.
Does it matter how the data are counted? Jack Kyser, chief economist with the Los Angeles County Economic Development Corp., argues that it does. Figures that overstate problems in the housing market "become sort of a self-fulfilling prophecy in that people are afraid to go out and look for a home," Kyser said. Moreover, inflated data on foreclosures could prompt politicians to push through ill-considered mortgage reforms. "You do something that's good, but it's the law of unintended consequences," Kyser said.
Other factors that could cause RealtyTrac's counts to be higher than others: the company doesn't filter out duplicate filings if two or more loans on the same property go into default, and its monthly reports are based on the date that foreclosure actions enter its database, rather than the recording dates, Sharga said. "We're not perfect; we don't claim to be," Sharga said. "When we do find a mistake, we fix it … and try not to replicate that."
by Andrew Galvin
The Orange County Register
If ever there were a public relations success story, RealtyTrac is it. The Irvine-based firm's monthly news releases, chock-full of state-by-state foreclosure counts, are devoured by a national media ravenous for data on what many consider a developing crisis. But questions are being raised about whether the firm's oft-cited numbers overstate the real dimensions of the foreclosure problem. And that could create a problem for the company's credibility.
For example, last year, RealtyTrac's data showed Colorado had the nation's highest foreclosure rate. That didn't sit well with state officials, who decided to do their own count of foreclosures and came up with a figure much smaller than RealtyTrac's. Then, in July, RealtyTrac reported 12,602 foreclosure actions in Georgia, giving the state the nation's second-highest foreclosure rate. When the Atlanta Journal-Constitution looked into the numbers, the newspaper found that RealtyTrac had counted more than 2,000 properties twice and sometimes more. RealtyTrac acknowledges it isn't perfect but says its data offers comprehensiveness and context that other providers don't.
Why the discrepancies?
The main reason is that RealtyTrac counts every step in the foreclosure process. So if a home goes into default on its mortgage, is scheduled for auction and then repossessed by a bank, RealtyTrac counts that home three times. RealtyTrac counted 54,747 "foreclosure actions" in Colorado last year. That number wasn't useful because it didn't reflect how many homeowners were actually in danger of losing their homes, said Ryan McMaken, spokesman for the Colorado Division of Housing. "We couldn't really use those numbers for having serious discussions," he said. So McMaken put an intern to work calling all of the state's 64 counties to get a count of how many homes entered the foreclosure process last year. The number he came up with: 28,435.
This summer, partly in response to criticism, RealtyTrac began sorting its numbers to compile a separate count of properties in foreclosure, in addition to total foreclosure actions. RealtyTrac's "unique property" count, published quarterly, found 19,411 properties in foreclosure in Colorado in the first half of this year. That's within a few dozen of the 19,460 counted by McMaken. "I think they're getting a lot closer now," McMaken said, adding that "we might not have to collect our own numbers" anymore.
In the Georgia situation, RealtyTrac admitted it erred. It revised its July count for the state to 8,461 foreclosure actions, down from its initial count of 12,602. "The reporting error resulted from a combination of overlapping data coverage in some areas of Georgia and an anomaly in the formatting of some of the foreclosure records in those overlapping areas," the company said.
RealtyTrac could probably mute much of the criticism of its data if it simply published its unique properties count every month in addition to its total filings count. That's something the company is considering doing next year, said Rick Sharga, RealtyTrac's vice president of marketing.
Does it matter how the data are counted? Jack Kyser, chief economist with the Los Angeles County Economic Development Corp., argues that it does. Figures that overstate problems in the housing market "become sort of a self-fulfilling prophecy in that people are afraid to go out and look for a home," Kyser said. Moreover, inflated data on foreclosures could prompt politicians to push through ill-considered mortgage reforms. "You do something that's good, but it's the law of unintended consequences," Kyser said.
Other factors that could cause RealtyTrac's counts to be higher than others: the company doesn't filter out duplicate filings if two or more loans on the same property go into default, and its monthly reports are based on the date that foreclosure actions enter its database, rather than the recording dates, Sharga said. "We're not perfect; we don't claim to be," Sharga said. "When we do find a mistake, we fix it … and try not to replicate that."
Thursday, December 13, 2007
Navigating the Rate Freeze Plan
'Navigating the Bush Administration's Rate Freeze Program' is a terrific interactive webpage provided by the Wall Street Journal. If you think you may qualify or if you are just interested in who can be a big winner in this limited bulwark against what looks like a potential fiasco.
Just my opinion, of course.
http://online.wsj.com/public/resources/documents/info-SubPrime_Points071206.html
Just my opinion, of course.
http://online.wsj.com/public/resources/documents/info-SubPrime_Points071206.html
Saturday, December 08, 2007
Identity Theft Solution
Identity theft is becoming an increasing problem in the US, and the criminals are getting more and more sophisticated. It can be a nightmare sorting out a problem if you have one.
ID Theft Assist is a company which offers Identity Theft insurance but with a whole lot more as well. They will monitor daily your credit reports to see if someone is trying to steal your identity and alert you if there is a problem, and they have a staff which will help you do the actual work of sorting out problems if you have one. They charge a reasonable $149 a year, which like most insurance is a waste if you don't need it, but a lifesaver if you do.
You should check them out by clicking on the following link. You can click on the link to "what we do" and especially the letters from satisfied customers. I hope you never have a problem but we live in a day and age when such problems are only going to increase. http://www.idtheftassistsubscription.com
ID Theft Assist is a company which offers Identity Theft insurance but with a whole lot more as well. They will monitor daily your credit reports to see if someone is trying to steal your identity and alert you if there is a problem, and they have a staff which will help you do the actual work of sorting out problems if you have one. They charge a reasonable $149 a year, which like most insurance is a waste if you don't need it, but a lifesaver if you do.
You should check them out by clicking on the following link. You can click on the link to "what we do" and especially the letters from satisfied customers. I hope you never have a problem but we live in a day and age when such problems are only going to increase. http://www.idtheftassistsubscription.com
Friday, December 07, 2007
Foreclosure relief plan draws mixed response. What do you think?
Opinions are all over the board on what to do [if anything] for the housing market. Please take a look at this article and then post a reply with your opinion! Thanks. Ray
Some view interest rate freeze as more harmful than helpful
Thursday, December 06, 2007
By Glenn Roberts Jr.
Inman News
A plan to freeze interest rates for a segment of homeowners who face the prospect of foreclosure is either political grandstanding, a delaying tactic, a finger attempting to plug a bursting dam, or the right cure for an ailing market, depending on who you talk to in the real estate brokerage community.
Real estate agents and brokers are definitely talking about the Bush administration's effort to bring together mortgage-market players in a program to assist some distressed subprime borrowers to refinance into safer loans and avoid resetting rates that would lead to more defaults.
An estimated 1.2 million subprime borrowers with adjustable-rate mortgages would be eligible to participate in a fast-track process to refinance or apply for modified loan terms under this program, the Treasury Department announced this morning.
The Treasury Department estimated that perhaps 1.8 million owner-occupied subprime mortgage resets will occur in 2008 and 2009. Treasury Secretary Henry M. Paulson Jr. noted that the plan announced today is "a private sector effort, involving no government money."
Even before the details of the bailout plan were revealed, real estate industry professionals were already talking about the potential impact to consumers and the real estate industry.
Some real estate professionals commented in online forums that they preferred to let the market problems run their course and do not favor any efforts to intervene, and some said a rate freeze could potentially do more harm than good to the overall housing market.
"I think it's going to be a negative," said Samuel Marcus, an associate broker for Century 21 Laffey Associates in Long Island, N.Y.
"I don't think it's going to help the market -- I think it's going to hurt the market, and it's going to cost somebody a lot of money, be it taxpayers or buyers who went with a conventional mortgage."
Marcus said he feels for people who were misguided or chose home loans that got them in over their heads, and a bailout program could have short-term benefits but will not likely solve all of the market troubles.
"I would favor no federal intervention. I think we have to lick our wounds and move forward. We should work on changing the system so something like this doesn't happen again," he said.
The program seems to have been brought out through political posturing, he said.
In addition to the Bush administration's efforts to put the rate-freeze plan together for distressed homeowners, Democratic presidential candidates Hillary Rodham Clinton and John Edwards also announced proposals this week to curb foreclosures, and Clinton criticized the Bush plan as too weak.
Clinton's own proposal would have set a 90-day foreclosure moratorium and a five-year rate freeze for some troubled borrowers.
"I think it's grandstanding," said Mike Jaquish, an associate broker for Keller Williams Realty in Cary, N.C.
He said that a plan to freeze mortgage rates might harm liquidity in the mortgage market, as it could sap motivation from investors to purchase mortgage-backed securities.
If investor confidence in the mortgage market sinks further, that could make it harder for entry-level buyers, he said.
"I don't think (this) is going to make things easier for much of anyone," he said.
The principal of interfering with money markets could have a more dire impact on mortgage financing than the foreclosure problem, and he generally favors a hands-off approach to the workings of the market.
But he acknowledged that there are some very real problems with foreclosures. "I'm concerned about the overall status of the market. We've upset the apple cart big time. An adjustment is going to be made. If things get as grim as people say, the (Federal Housing Administration) is going to be the lender of choice."
Ultimately, the mortgage problems may heavily leverage the country, he said.
Realtor Krista Fuchs of Prudential Fox & Roach of Exton, Pa., said, "Something has to be done to stop the cycle of homes going into foreclosure," which can drive up inventory and drive down local home prices, potentially fueling more foreclosures.
But a rate freeze has pitfalls, too. "Freezing the rates will cause problems, possibly lawsuits," she said. "Hopefully, it won't deter future investors from buying mortgages. If that happens then the industry and economy is in much bigger trouble than we are now."
The problem is bigger than a "silver bullet fix," she said, and it appears "it's just the beginning."
Mark Anderson does see a silver lining, though, to a rate-freeze program. "If people are going to be losing homes, and they can keep them at a reduced rate or a current rate, I think it helps everybody. I think it helps Realtors, I think it helps mortgage investors," said Anderson, a Realtor for Keller Williams Classic Realty in Coon Rapids, Minn.
Buyers who were expecting a "huge fire sale" on homes may not like the idea of a rate freeze, Anderson said. "They want the market to continue sinking. But at the end of the day it's going to be helpful for everyone. It certainly beats the alternative of all those folks losing homes over the next five years."
And while there may be worries about lawsuits, Anderson said that was surely a part of the discussion in putting together a rate-freeze plan. "This could only be good for (investors)," he said, "They're not going to lose as much."
He added, "The breathing room and extra time should allow people with marginal credit to qualify and refinance themselves out of their adjusting ARMs."
The National Association of Realtors announced its support for the Bush administration's efforts to curb the rise in foreclosures by allowing loan modifications or a freeze in interest rates for some borrowers.
"The dream of homeownership should not turn into a family's worst nightmare," Richard Gaylord, NAR's 2007 president, said in a statement. "The loan modification program introduced by President Bush and U.S. Treasury Secretary Henry Paulson is a good first step in helping deserving families keep their homes."
The association also supports Fannie Mae and Freddie Mac reforms such as an increase in the conforming loan limit to aid home buyers in high-cost markets and improve mortgage liquidity, and also supports FHA modernization legislation.
Jerry Howard, president of the National Association of Home Builders, said that the plan has "the potential to get us out of this down cycle that we're in," as it could stabilize home prices and renew demand in new homes.
The home-building industry, he said, may start to see that increase in demand manifest itself in the second quarter of the year, with an increase in production by the third quarter.
He said that he didn't know how many owners of new homes might be eligible for the mortgage relief program introduced today.
Jennifer Bukaty, a broker for Bridgetown Realty Inc. in Portland, Ore., said she doesn't believe a rate-freeze plan is ultimately going to succeed because she believes there are too many legal complications.
She said that part of living in a free country is accepting responsibility for your actions.
"I think individual people made individual choices. I'm sorry about the mortgage industry, as well. I think the good ones are writing good, solid loans and doing the right thing," she said.
She acknowledges that the average consumer may not understand the intricacies of mortgage financing, adding that she directs her own clients to stay within their means and does not lead them to seek risky loans.
It might be more worthwhile to focus resources on the perpetrators of mortgage fraud, said Lenn Harley, broker for Homefinders.com, a real estate company that operates in Maryland, Virginia and Florida.
"I can't stand things that are unfair, and there's going to be a great deal of unfairness in this (plan)," she said.
She said any bailout plan will not prevent the inevitable -- properties that are already in a foreclosure process, though it may delay rather than prevent some aspects of the market downturn.
"Sooner or later the market will rule and when the market rules all of those people who didn't make mortgage payments go into foreclosure," she said.
Prices have been rising at a much faster clip than income, she said, and those prices will have to come down. "This isn't going to help," she said. "It's all political."
***
What's your opinion? Send your Letter to the Editor to Ray@SCVhometeam.com .
Some view interest rate freeze as more harmful than helpful
Thursday, December 06, 2007
By Glenn Roberts Jr.
Inman News
A plan to freeze interest rates for a segment of homeowners who face the prospect of foreclosure is either political grandstanding, a delaying tactic, a finger attempting to plug a bursting dam, or the right cure for an ailing market, depending on who you talk to in the real estate brokerage community.
Real estate agents and brokers are definitely talking about the Bush administration's effort to bring together mortgage-market players in a program to assist some distressed subprime borrowers to refinance into safer loans and avoid resetting rates that would lead to more defaults.
An estimated 1.2 million subprime borrowers with adjustable-rate mortgages would be eligible to participate in a fast-track process to refinance or apply for modified loan terms under this program, the Treasury Department announced this morning.
The Treasury Department estimated that perhaps 1.8 million owner-occupied subprime mortgage resets will occur in 2008 and 2009. Treasury Secretary Henry M. Paulson Jr. noted that the plan announced today is "a private sector effort, involving no government money."
Even before the details of the bailout plan were revealed, real estate industry professionals were already talking about the potential impact to consumers and the real estate industry.
Some real estate professionals commented in online forums that they preferred to let the market problems run their course and do not favor any efforts to intervene, and some said a rate freeze could potentially do more harm than good to the overall housing market.
"I think it's going to be a negative," said Samuel Marcus, an associate broker for Century 21 Laffey Associates in Long Island, N.Y.
"I don't think it's going to help the market -- I think it's going to hurt the market, and it's going to cost somebody a lot of money, be it taxpayers or buyers who went with a conventional mortgage."
Marcus said he feels for people who were misguided or chose home loans that got them in over their heads, and a bailout program could have short-term benefits but will not likely solve all of the market troubles.
"I would favor no federal intervention. I think we have to lick our wounds and move forward. We should work on changing the system so something like this doesn't happen again," he said.
The program seems to have been brought out through political posturing, he said.
In addition to the Bush administration's efforts to put the rate-freeze plan together for distressed homeowners, Democratic presidential candidates Hillary Rodham Clinton and John Edwards also announced proposals this week to curb foreclosures, and Clinton criticized the Bush plan as too weak.
Clinton's own proposal would have set a 90-day foreclosure moratorium and a five-year rate freeze for some troubled borrowers.
"I think it's grandstanding," said Mike Jaquish, an associate broker for Keller Williams Realty in Cary, N.C.
He said that a plan to freeze mortgage rates might harm liquidity in the mortgage market, as it could sap motivation from investors to purchase mortgage-backed securities.
If investor confidence in the mortgage market sinks further, that could make it harder for entry-level buyers, he said.
"I don't think (this) is going to make things easier for much of anyone," he said.
The principal of interfering with money markets could have a more dire impact on mortgage financing than the foreclosure problem, and he generally favors a hands-off approach to the workings of the market.
But he acknowledged that there are some very real problems with foreclosures. "I'm concerned about the overall status of the market. We've upset the apple cart big time. An adjustment is going to be made. If things get as grim as people say, the (Federal Housing Administration) is going to be the lender of choice."
Ultimately, the mortgage problems may heavily leverage the country, he said.
Realtor Krista Fuchs of Prudential Fox & Roach of Exton, Pa., said, "Something has to be done to stop the cycle of homes going into foreclosure," which can drive up inventory and drive down local home prices, potentially fueling more foreclosures.
But a rate freeze has pitfalls, too. "Freezing the rates will cause problems, possibly lawsuits," she said. "Hopefully, it won't deter future investors from buying mortgages. If that happens then the industry and economy is in much bigger trouble than we are now."
The problem is bigger than a "silver bullet fix," she said, and it appears "it's just the beginning."
Mark Anderson does see a silver lining, though, to a rate-freeze program. "If people are going to be losing homes, and they can keep them at a reduced rate or a current rate, I think it helps everybody. I think it helps Realtors, I think it helps mortgage investors," said Anderson, a Realtor for Keller Williams Classic Realty in Coon Rapids, Minn.
Buyers who were expecting a "huge fire sale" on homes may not like the idea of a rate freeze, Anderson said. "They want the market to continue sinking. But at the end of the day it's going to be helpful for everyone. It certainly beats the alternative of all those folks losing homes over the next five years."
And while there may be worries about lawsuits, Anderson said that was surely a part of the discussion in putting together a rate-freeze plan. "This could only be good for (investors)," he said, "They're not going to lose as much."
He added, "The breathing room and extra time should allow people with marginal credit to qualify and refinance themselves out of their adjusting ARMs."
The National Association of Realtors announced its support for the Bush administration's efforts to curb the rise in foreclosures by allowing loan modifications or a freeze in interest rates for some borrowers.
"The dream of homeownership should not turn into a family's worst nightmare," Richard Gaylord, NAR's 2007 president, said in a statement. "The loan modification program introduced by President Bush and U.S. Treasury Secretary Henry Paulson is a good first step in helping deserving families keep their homes."
The association also supports Fannie Mae and Freddie Mac reforms such as an increase in the conforming loan limit to aid home buyers in high-cost markets and improve mortgage liquidity, and also supports FHA modernization legislation.
Jerry Howard, president of the National Association of Home Builders, said that the plan has "the potential to get us out of this down cycle that we're in," as it could stabilize home prices and renew demand in new homes.
The home-building industry, he said, may start to see that increase in demand manifest itself in the second quarter of the year, with an increase in production by the third quarter.
He said that he didn't know how many owners of new homes might be eligible for the mortgage relief program introduced today.
Jennifer Bukaty, a broker for Bridgetown Realty Inc. in Portland, Ore., said she doesn't believe a rate-freeze plan is ultimately going to succeed because she believes there are too many legal complications.
She said that part of living in a free country is accepting responsibility for your actions.
"I think individual people made individual choices. I'm sorry about the mortgage industry, as well. I think the good ones are writing good, solid loans and doing the right thing," she said.
She acknowledges that the average consumer may not understand the intricacies of mortgage financing, adding that she directs her own clients to stay within their means and does not lead them to seek risky loans.
It might be more worthwhile to focus resources on the perpetrators of mortgage fraud, said Lenn Harley, broker for Homefinders.com, a real estate company that operates in Maryland, Virginia and Florida.
"I can't stand things that are unfair, and there's going to be a great deal of unfairness in this (plan)," she said.
She said any bailout plan will not prevent the inevitable -- properties that are already in a foreclosure process, though it may delay rather than prevent some aspects of the market downturn.
"Sooner or later the market will rule and when the market rules all of those people who didn't make mortgage payments go into foreclosure," she said.
Prices have been rising at a much faster clip than income, she said, and those prices will have to come down. "This isn't going to help," she said. "It's all political."
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