Talking Points

When preparing for the purchase of a house, there are several items buyers must think about, such as their main priorities. Buyers should determine whether it’s more important to live in a particular type of home, such as a single family home with a garage, or in a particular neighborhood.


Some neighborhoods hold value more than others during a housing downturn. Buyers can work with a knowledgeable REALTOR® to find a neighborhood that meets their needs as well as one where home values are stabilizing or rising.

Once a buyer finds a home he want to make an offer on, he should be sure not to make a low-ball offer. Some sellers are willing to negotiate and others are not. Working with a REALTOR® can help ensure the buyer is dealt with fairly and guided through the process.

Source: California Association of Realtors

Home Sales Grow, Aided by More Stable prices

Home sales volume rose sharply in the final three months of 2010, aided by more stable prices on a year-over-year basis, a real estate industry group said Thursday.

Sales jumped 15.4% in the fourth quarter to an annual rate of 4.8 million units compared with 4.16 illion a quarter earlier, the National Association of Realtors said.

284Email Print Prices of single-family homes stabilized, rising 0.2% compared with 12 months earlier. The national median for homes sold during the period was $170,600.

"Home sales clearly recovered in the latter part of 2010, and are helping to absorb the inventory, including many distressed properties," said Lawrence Yun, chief economist of the Realtors' group.

Sales volume was particularly strong in the West region, up nearly 20% compared with the three months ended Sept. 30.

"A good portion of the sales activity in the West has been driven by investors taking advantage of discounted foreclosures, with high levels of all-cash transactions," said Yun.

The number of sales fell nearly 20% nationally, however, compared with the same period in 2009, when the homebuyer's tax credit was in effect.

"The tax credit clearly poached demand from the second half of 2010," said Jonathan Miller, CEO of Miller Samuel, a New York-based appraiser. "It artificially stimulated sales in the first half and artificially lowered it in the second."

Many housing market factors were favorable through the end of the year. Prices are very affordable for working families in most markets, interest rates are extremely low and bloated inventories offer a wide choice of properties.

The missing ingredient is a positive economic environment, specifically when it comes to hiring.

"An improving housing market and job growth will go hand in hand," said Yun. "The housing recovery will mean faster job growth."

He projects than a 300,000 increase in 2011 home sales will lead to the creation of about 150,000 to 200,000 jobs to the overall economy.

The survey revealed that single-family home prices held up better than those of condos. The national median for condos fell 6.4% compared with 12 months earlier, to $164,200. In some markets, condo prices have rarely been so affordable.

The median condo price in the Las Vegas metro area, for example, was just $60,700; in Phoenix, $68,900; and in Miami, $81,900. Reno, Nev., had the lowest condo prices in the nation, a median of $60,300.

As for single-family homes, Youngstown, Ohio, the old steel town struggling to find its way back into the modern economy, recorded a median of just $62,800 during the fourth quarter. That was a decline of nearly 14% from already bargain-basement prices a year earlier.

Toledo, Ohio at $74,500, Lansing, Mich. at $79,500, and South Bend, Ind. at $76,800 also recorded very low prices. Outside the Rust Belt, Ocala, Fla., was the lowest priced metro area at $80,200.

Honolulu had the highest single family home prices during the quarter, a median of $598,200. San Jose, Calif.'s median was $591,000 and San Francisco's was $558,200. 

Source: CNN Money

Banks Push Home Buyers to Put Down More Cash

Many economists and housing analysts blame lax lending standards – including no-down payment, no-document loans – for contributing to the challenges in the current real estate cycle. As a result, most lending institutions have increased minimum down payment requirements. Now, a new proposal by the Obama administration calls for gradually raising down payments to a minimum of 10 percent on conventional loans – those that can be bought or guaranteed by Fannie Mae and Freddie Mac.

MAKING SENSE OF THE STORY

Banks have found that larger down payments discourage delinquencies by increasing the buyers’ exposure to loss and reducing the impact of declining prices. According to a study by the Federal Reserve Bank of St. Louis, buyers who made smaller down payments were more likely to default during “unfavorable economic circumstances, such as a housing market slowdown or job loss.”

A recent analysis showed the median down payment in nine major U.S. cities rose to 22 percent last year on properties purchased with conventional mortgages. That percentage doubled in three years and represents the highest median down payment since the data were first tracked in 1997.

Higher borrowing costs and larger down payments could cause housing prices to decline further, analysts say. For now, borrowers who can’t afford such amounts are turning to alternative programs, such as loans for veterans or those backed by the Federal Housing Administration. Some industry experts say this has created a nonconventional mortgage market for riskier borrowers and those who don’t qualify for conventional loans. 

Source: Wall Street Journal

Home Price Stabilization Seen in Most Metro Areas During Fourth Quarter, Sales Up

Home sales rebounded in 49 states during the fourth quarter with 78 markets – just over half of the available metropolitan areas – experiencing price gains from a year ago, while most of the rest saw price weakness, according to the latest survey by the National Association of REALTORS®.

Total state existing-home sales, including single-family and condo, jumped 15.4 percent to a seasonally adjusted annual rate of 4.80 million in the fourth quarter from 4.16 million in the third quarter, but were 19.5 percent below a surge to an unsustainable cyclical peak of 5.97 million in the fourth quarter of 2009, which was driven by the initial deadline for the first-time buyer tax credit.

In the fourth quarter, the median existing single-family home price rose in 78 out of 152 metropolitan statistical areas (MSAs) from the fourth quarter of 2009, including 10 with double-digit increases; three were unchanged and 71 areas had price declines. In the fourth quarter of 2009 a total of 67 MSAs experienced annual price gains.

The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009. The median is where half sold for more and half sold for less. Distressed homes, typically sold at a discount of 10 to 15 percent, accounted for 34 percent of fourth quarter sales, little changed from 32 percent a year earlier.

Lawrence Yun, NAR chief economist, is encouraged by the trend. “Home sales clearly recovered in the latter part of 2010 and are helping to absorb the inventory, including many distressed properties. Even with foreclosures continuing to enter the inventory pipeline, they’ve been selling well and housing supplies have trended down,” he said. “A recovery to normalcy requires steady trimming of the inventories.”

Yun added, “An improving housing market and job growth will go hand in hand. The housing recovery will mean faster job growth.” He projects about 150,000 to 200,000 jobs will be added to the economy this year from an anticipated 300,000 additional home sales in 2011.

Yun further noted, “Better than expected sales and/or strengthening in home values can have an even bigger job impact as consumer spending would naturally rise from a housing wealth recovery affecting a vast number of American families.”

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said a very favorable affordability environment is a huge factor in the recovery. “Although job growth has been relatively modest and credit is tight, you can’t underestimate the impact of historically high housing affordability conditions,” he said.

“Mortgage interest rates recently hit record lows, median family income has edged up and prices in most areas have been stable following the correction from the housing boom. For people with good credit and long term plans, it’s hard to imagine a better opportunity than what we see today,” Phipps said. “Unfortunately the flow of credit is unnecessarily tight and is constraining the pace of the housing and job growth recoveries.”

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage was a record low 4.41 percent in the fourth quarter, down from 4.45 percent in the third quarter; it was 4.92 percent in the third quarter of 2009.

“The healthier local housing markets are also experiencing favorable local employment conditions,” Yun said. Job growth is a major factor in price appreciation in metro areas such as the Washington, D.C., region, where the median existing single-family home price of $331,100 in the fourth quarter is 8.1 percent higher than a year ago; the Boston-Cambridge-Quincy area, at $346,300, up 4.2 percent; and Austin-Round Rock, Texas, at $190,300, up 4.1 percent.

Smaller metro areas sometimes see larger swings in price measurement depending on the types of properties that are sold in a given period. In such markets, full year price data can provide additional context.

In the condo sector, metro area condominium and cooperative prices – covering changes in 57 metro areas – showed the national median existing-condo price was $164,200 in the fourth quarter, which is 6.4 percent below the fourth quarter of 2009. Twenty-two metros showed increases in the median condo price from a year ago and 35 areas had declines; only 11 metros saw annual price gains in fourth quarter of 2009.

“Consumers in the hard hit regions of Nevada, Arizona and Florida were able to scoop up condos at absolute bargain basement prices,” Yun said. Median condo/co-op prices in affected metro areas include Las Vegas-Paradise at $60,700, Phoenix-Mesa-Scottsdale with a fourth quarter median of $68,900, and Miami-Fort Lauderdale-Miami Beach at $81,900.

The median existing single-family home price in the West declined 2.9 percent to $214,400 in the fourth quarter from a year ago. Existing-home sales in the West jumped 19.9 percent in the fourth quarter to a level of 1.17 million but are 14.2 percent below the cyclical peak in the fourth quarter of 2009.

“A good portion of the sales activity in the West has been driven by investors taking advantage of discounted foreclosures, with high levels of all-cash transactions,” Yun explained.

Source: NAR

Talking Points …

• Getting a mortgage is a complex, time-consuming process that is generally one of the most significant events in one’s life. Because of this, there are several potential pitfalls borrowers should avoid.
  
  
• Applying for new credit and a mortgage simultaneously is never recommended. Anytime a borrower applies for new credit, the borrower is seen as a greater credit risk, at least initially. If the borrower also applies for a credit card or auto loan around the same time as applying for a mortgage, the borrower’s credit score might get dinged enough to increase the interest rate applied to the loan, or disqualify the borrower altogether. Borrowers should first apply for a mortgage, then apply for other consumers loans after the mortgage has been funded.
  
  
• Another mistake some borrowers make is failing to look at the total housing payment. A mortgage payment consists of principal, interest, taxes, and insurance (PITI). Commonly, some prospective home buyers forget to factor in the property taxes and insurance premium into the overall mortgage budget.

Source: California Association of Realtors

Housing Finance Changes Likely to Mean Less Government Backing for Some Buyers

The Obama administration is likely to recommend reducing the size of mortgages eligible for government backing, according to current and former officials, a move that could make getting a home loan in high-priced areas such as the Washington region more expensive.

Administration officials, who are preparing a white paper on overhauling the nation's housing finance system, are looking at scaling back the support provided during the mortgage crisis to help the ailing real estate market.

In the District and most of its neighboring counties, home buyers have benefited from a temporary federal policy that has allowed mortgages up to $729,750 to receive government backing. Such home loans typically carry lower interest rates than those without government support, because investors are attracted by the official guarantee.

The administration is now likely to suggest that Congress allow the policy to lapse as scheduled in September, lowering the loan limit to $625,500.

The proposal to let the higher limits lapse is among the most concrete elements in the long-awaited review, which examines various options for reshaping the role government plays in the mortgage finance market.

The report, which will in part address the fate of the troubled mortgage giants Fannie Mae and Freddie Mac, is scheduled to be released as soon as next week.

The white paper comes in response to one of the prime causes of the financial crisis - a breakdown in the system that funnels money to home buyers. The collapse of Fannie Mae and Freddie Mac, which sit at the heart of that system, has proved to be the most expensive legacy of the crisis. The government seizure and rescue of the firms in September 2008 has cost taxpayers more than $130 billion.

At the same time, the companies have been essential cogs in the home loan market, providing billions of dollars in funding to keep interest rates low at a time when most private financial firms have abandoned the mortgage finance business.

The review is still being debated by policymakers at the White House, the Treasury Department and the Department of Housing and Urban Development, according to sources familiar with the discussions.

"These discussions are ongoing, but the president has not made decisions on any policy options," said a White House official, who like others interviewed for this article spoke on the condition of anonymity to comment on internal talks.

The report's release has already been delayed twice, attesting to the economic and political challenges confronting its authors.

The housing market is still in the doldrums, and any significant policy changes could have a major impact on the affordability of housing. Changes could also affect economic relations between the United States and other countries, for instance China and Japan, because of their large holdings of securities backed by American home loans.

Meanwhile, the new Republican majority in the House has been sharply critical of the Obama administration's handling of the housing policy review, saying the White House is reluctant to announce a plan for abolishing Fannie and Freddie and devising a new housing finance system. Many Republicans say Fannie and Freddie played an outsize role in causing the financial crisis.

The administration is not expected to lay out a detailed blueprint for a new housing finance system, sources said. Instead, officials are expected to announce short-term steps to slightly reduce government support, such as by dropping loan limits. The administration's hope is that banks would feel more comfortable offering loans for higher-priced homes without government support.

The Washington region and other pricey housing markets have a three-tiered mortgage system. The lowest rates apply to 30-year fixed-rate mortgages that do not exceed $417,000 and meet Fannie Mae and Freddie Mac guidelines. The highest rates apply to loans larger than $729,750, also known as jumbo loans, which are not guaranteed by the federal government. An in-between rate can be found for loans from $417,000 to $729,750.

Guy Cecala, publisher of Inside Mortgage, said there's little doubt that lenders are eager and able to jump back into the jumbo loan market, and many have. The problem is that the private market imposes tough standards for borrowers taking out these large loans, demanding 30 percent down payments and credit scores above 750.

"That could change if there's more competition within the private sector, but we don't know that yet," Cecala said.

Keith Gumbinger, a vice president at mortgage research firm HSH Associates, said he expects that borrowers who took out loans between $625,500 and $729,750 would pay "slightly more expensive rates" if the current proposal is enacted, "but jumbos were always slightly more expensive."

At least at first, reducing loan limits would not have much effect in parts of the country that have more moderately priced real estate markets.

The report may discuss at least two options for a long-term overhaul of the housing finance system. One option would severely scale back government support for housing, leaving only the Federal Housing Administration, which targets first-time home buyers. Another option would be to create a government backstop for housing.

Both policies seek to address a fundamental problem posed by Fannie and Freddie in the buildup to the housing crisis. Chartered by Congress as corporations, Fannie and Freddie grew beyond their means as investors thought they carried an implicit guarantee of governmental support and were too big to fail. Meanwhile, Fannie and Freddie, as profit-making corporations, took ever-bigger risks. In the end, the hybrid system led to disaster.

The lack of a consensus within the administration about which option to advocate reflects ongoing differences among policymakers. Treasury Secretary Timothy F. Geithner and his advisers have expressed skepticism about a continued large role for the government in providing support for housing.

But other powerful and rarely aligned interests - such as the financial industry, civil rights organizations and groups that advocate for affordable housing - support a continued role.

"The essential question is: Is there going to be a government guarantee beyond FHA? That's one central area of debate," said Michael Barr, who recently stepped down as a senior Treasury official. "Both sides agree that if there is a government guarantee, it needs to be an explicit government guarantee, and it needs to be paid for."

Administration officials say any steps they take will be gradual.

"You have to make sure other people are coming" into the market as the government exits, said an administration official. "You don't want to leave a hole in the market where credit-worthy borrowers can't get any credit. The government is guaranteeing 95 percent of the market. It's not like it's just going to stop tomorrow."

One idea under discussion is to create a government insurance fund for mortgages. Banks would make home loans, and a new mortgage insurance company would charge a fee to insure the loan. Then the new government fund would charge a second fee to provide another layer of insurance. If the loan went bad, the government insurance fund would cover the loss only if the private mortgage insurance company had collapsed.

Peter Swire, who helped oversee mortgage finance policy at the National Economic Council earlier in the Obama administration, said a government guarantee is necessary because the government will still be on the line if the housing market crashes.

"My reading of history is when the housing system is tanking in any major economy, governments have intervened," said Swire, a law professor at Ohio State University. "We'll get all of the problems of an eventual government rescue without the safeguards."

Source: Washington Post

Housing Bubbles Are Few and Far Between

WHAT’S the outlook for home prices over the next decade? It’s not easy to tell. We need to confront the basic fact that near the beginning of the 21st century, the market for homes in much of the world suddenly became more speculative than ever.

This enormous housing bubble and burst isn’t comparable to any national or international housing cycle in history. Previous bubbles have been smaller and more regional.

We have to look further afield for parallels. The most useful may be the long trail of booms and crashes in the price of land, particularly of farms, forests and village lots. Those upheavals may give some insights into the present situation, and some guidance for the next decade.

In the 19th century and most of the 20th, speculation in land was a powerful phenomenon. There was little speculative activity around homes, however, which were usually viewed as rapidly depreciating assets whose value was to be found almost entirely in physical buildings, not the land beneath them. Eventually, the buildings were expected to be torn down and replaced, so there was little bubble psychology for housing on any large scale. People generally didn’t think about housing as an investment.

But they knew that land was fixed in quantity and would last forever, and many believed that as the economy grew and more people were born, there would be ever-increasing demand. The speculative imagination could be easily fired by reflecting on the huge population that would consume the food from this land or settle on it in future years.

There have been many highly localized land price bubbles in the United States over the last couple of centuries, although bubbles over large areas have been rather rare. Those with the biggest national impact were in the 19th century, when speculators found opportunities that had been created by government land sales and by shifts in land prices set off by construction of canals and railroads. Stories of fortunes in land speculation captured the imagination, and led to bubbles. (That is typically how bubbles form, by titillating the public imagination.)

Two such land bubbles stand out. The first, in the 1830s, was associated with federal distributions to state banks and the loss of fiscal restraint that had been imposed by the short-lived Second Bank of the United States. People began to think farm prices could never fall. As an article in a publication called The Cultivator said in 1836: “Who ever heard of a man buying and selling a farm at the same or a lessened price? It is so well understood that the seller is to have more than he gave, that it has almost become a settled principle in the purchase of real estate.”

The bubble burst with the Panic of 1837, and was followed by the first great depression in United States history, from 1837 to 1843.

A second bubble, in the 1850s, was encouraged by an 1852 act of Congress making land warrants tradable. It burst with the Panic of 1857. Some historians — notably James L. Huston of Oklahoma State University — say they think that the resulting tensions escalated sectional animosities and helped precipitate the Civil War, which ended the depression.

The entire 20th century appears to have had only one farmland bubble of national significance — it occurred in the 1970s. Its causes were complex, but it seems to have been accompanied by a newly common belief that the human population would soon become excessive. A widely cited Club of Rome report in 1972 predicted famines induced by overpopulation. In any case, that bubble burst after the Federal Reserve clamped down on credit in the United States, effectively producing the recessions of the early 1980s.

So land manias have been rather infrequent, many decades apart. They suggest that the recent housing bubble is a similarly rare event, not to be repeated for many decades.

But, of course, the relevance of this long history isn’t entirely clear. In contrast to the 19th century, when the business cycle proceeded without much constraint, we now have the Fed and an active government housing stabilization policy, both of which mitigate the cycle’s more extreme effects. And now, the Dodd-Frank law has created a Financial Stability Oversight Council, which is supposed to go even further to prevent instability.

Ultimately, bubbles are impossible without extreme public enthusiasm. Opinions about housing seem to change in rather trendy ways, but investor enthusiasm for housing has now been down for more than five years — a decline that started well before the collapse of the housing bubble in 2007.

With Karl Case of Wellesley College, who developed the S&P/Case-Shiller Home Price Indices with me, I have been surveying opinions of home buyers in the United States on and off since 1988. We have found a fairly steady downtrend since the early-to-mid-2000s in a number of speculative attitudes. On questionnaires, people are less likely to report that they think of housing as an investment, or to express the view that real estate is the “best investment.”

Source: New York Times

Managing a Potential Flood of Foreclosures

You can talk all you want of renewed interest in housing, slowly increasing sales and supposed stabilization in prices, but the elephant in the room is slowly growing, and banks, Fannie, Freddie and the government know it. I'm talking about foreclosures.

Economist Mark Zandi, often quoted by lawmakers on both sides of the aisle, told the Senate Budget Committee this morning that while he's "optimistic" with regard to the economy's prospects, "At the top of my list of concerns, at least in the near term (6 to 12 months), is the ongoing problem in the housing market and the foreclosure crisis."

REO inventory is rising, he proved through some slides. Four million seriously delinquent loans, out of 50 million first mortgage loans, "so that's a lot." And while he noted that the problems appear to have peaked, there are still over 600,000 properties in REO, which will only put more pressure on prices when they come to market.

Zandi called modification efforts "inadequate," despite the 1.5 to 2 million modifications a year. "In the context of all the problems that we've got, it's still quite small," he noted. Zandi's biggest concern is that 14 million homeowners, according to his calculations, are underwater (owe more on their mortgages than their homes are worth), and 4 million of those are underwater by more than 50 percent. "That's deeply underwater," he elaborated.

This testimony just happened to coincide with a few blurbs of information I've noted over the past few days.

Chase announced that it has plans to add 25 new Chase Homeownership Centers in 19 states this year. "The best way to help borrowers find ways to stay in their homes is to sit down face-to-face and discuss their individual circumstances," writes Chase Home Lending CEO David Lowman in the press release.

Wells Fargo is holding 20 mediation events across the country this year, inviting more than 150,000 borrowers who are behind on payments. These will be held at hotels and convention centers, much like the non-profit Boston-based NACA has been doing for years.

Fannie Mae is expanding its loss mitigation efforts, trying to modify more borrowers, and if not, trying to find foreclosure alternatives, like short sales or deeds in lieu. They are also testing a program in Florida to negotiate modifications before going to court.

Earlier this week, the Hope Now coalition of servicers and investors reported it had done well more than twice the number of loan mods in 2010 than the government's Home Affordable Modification Program.

Bottom line: banks, Fannie, Freddie...they really get it now. Foreclosures are ramping up again and are endangering today's fragile housing recovery. Rick Sharga at RealtyTrac claims we have yet to see the foreclosure peak. Regardless, even if 2011's number is slightly lower than the peak, it is more critical now than ever before to stem the tide because housing is struggling to recover on it's own without government intervention (other than incredibly low mortgage rates, which don't appear to help much). Last year various government incentives helped mitigate the foreclosure losses to the overall market; the market doesn't have that benefit now.

Zandi says one answer is for Fannie and Freddie to stop charging higher refi rates for borrowers with low credit scores and higher LTV's (loan to value ratios) in order to facilitate more refinancing, even when borrowers are underwater. These are loans the GSE's likely already own or back. "It will cost Fannie and Freddie in interest income, but they will benefit in the form of fewer foreclosures," argues Zandi.

Source: CNBC