Saturday, December 25, 2010

Home sales rise for 3rd time in 4 months

More people bought previously owned homes in November, the third increase in four months after the worst summer season in more than a decade.

Still, economists say it could take years for home sales to return to healthy levels.

Buyers bought homes at a seasonally adjusted annual rate of 4.68 million, the National Association of Realtors said Wednesday. Even with the rise, this year is shaping up to be the worst for home sales since 1997.

Economists say it could take at least two years or longer to return to a more normal level for sales of around 6 million units a year.

"The housing market is still flat on its back, but there are signs that it is starting to pick itself up," said Mark Zandi, chief economist at Moody's Analytics. "Even with the improvements we expect, next year will still be a very weak market."

The housing market is still struggling to recover from a boom-bust cycle which helped trigger a severe economic recession. Home prices have tumbled in most markets and many potential buyers worry that prices could fall further.

Zandi said he expects prices will fall another 5 percent from where they are now, hitting a bottom in the summer of next year.

A major problem is the glut of unsold homes on the market. Those numbers fell to 3.71 million units in November. It would take 9.5 months to clear them off the market at the November sales pace. Most analysts say a six to seven-month supply represents a healthy supply of homes.

Analysts said the situation is much worse when the "shadow inventory" of homes is taken into account. These are homes that are in the early stages of the foreclosure process but have not been put on the market yet for resale.

David Wyss, chief economist at Standard & Poor's in New York, said when these homes are added, the inventory level would actually be about double where it is now.

"There is a big shadow inventory out there of houses that are in the process of foreclosure or are underwater and will go into foreclosure," Wyss said. "We are still bouncing along the bottom in housing."

Patrick Newport, a housing economist at IHS Global Insight, said he believed sales of previously owned homes could actually drop farther in 2011, dipping to 4.6 million units and then begin a gradual recovery in 2012. He said it could take until 2014 for sales to return to around 6 million units.

For November, sales were up in all regions of the country led by an 11.7 percent rise in the West. Sales were up 6.4 percent in the Midwest, 2.9 percent in the South and 2.7 percent in the Northeast.

The November increase was driven by a 6.7 percent rise in sales of single-family homes which pushed activity in this area to an annual rate of 4.15 million units. Sales of condominiums dropped 1.9 percent to a rate of 530,000 units


Thursday, October 28, 2010

The world's most over-valued housing markets !

The Economist has compiled some interesting analysis on 20 housing markets across the globe.


The data not only looks at house price trends but also compares current prices to their “fair value” which is calculated by looking at the historical average ratio of house prices to rents.


Europe’s most over-valued housing market is Spain (+47.6), followed by France (+42.5%), Sweden (+41.5%) and the UK (+32%)


Germany and Switzerland are the cheapest markets on -12.9% and -6.4% respectively.


Globally, the most expensive market is Hong Kong (+58%), followed by Australia (+63%). 


Interestingly the US is around “fair value” at -2.1% according to the Case Shiller national index.



Painful corrections ahead?


The figures suggest that painful housing market corrections will eventually surface in many markets across the globe.


However, there is quite a bit of evidence to suggest that housing is different to other asset markets because is it more correlated with affordability (a function of real incomes and mortgage rates) rather than rents.


Unfortunately this argument still suggests that painful corrections may be on the horizon.


The UK and US seem intent on printing money to “support” their housing markets which will surely cause inflation and therefore interest rates to rise which will undermine affordability.


For countries like Spain within the Euro area, printing money is not an option.  If you believe the data, (which comes from asking prices rather than sale prices) house prices still have a long way to fall. 


In the medium term, the only options would seem to be significant nominal falls in house prices or a currency devaluation (euro crisis).


Optimists will argue that housing markets will not correct because “it is different this time” as long term interest rates are permanently lower and the dynamics of supply and demand have changed (rising population etc).


Nobody can predict the future but almost everyone who has ever argued "it is different this time" when defending an asset price bubble has turned out to be wrong.


Expect a rocky road ahead.  To paraphrase Winston Churchill, we may just be at the end of beginning of a new era in global house prices.



Q3 2009  

1997 - 2010*

Under (-) / Over (+) valued** 

 on a year earlier






 Hong Kong


















































 United States (Case-Shiller ten-city index)





 United States (Case-Shiller national index)










 New Zealand










 South Africa




















 United States (FHFA)










*Or most recent available figure

**Against long-run average of price-to-rents ratio, latest available rents data


Sunday, October 17, 2010

Local Housing Market Continues to Move at Sluggish Pace

Minneapolis, Minnesota (October 11, 2010) –With the current round of figures, be mindful of the fact that we're entering a period of apples-to-oranges comparisons. Market activity was comparatively strong last year due to the approaching deadline for the 2009 tax credit. Combine that with a slowing sales season and buyers driven to enter contracts by April 30, 2010, and it becomes apparent that September 2010's numbers should be taken with a grain of proverbial salt.

"We won't have apples-to-apples comparisons again until summer of 2011," said Brad Fisher, President of the Minneapolis Area Association of REALTORS®. "The housing market is still moving sluggishly as we continue to wait for recovery beyond the buyer tax credit."

Pending sales in the 13-county Twin Cities metro area were down 37.8 percent compared to last September, and closed sales were down 33.5 percent. The decreases are not so drastic when looking at year-to-date 2010 versus 2008, which shows just a 1.4 percent decline in closed sales.

Inventory grew to 28,129, an increase of 13.9 percent. While the first seven months of 2010 enjoyed year-over-year price gains, the $166,000 median sales price was a 2.4 percent decrease from last year and the second consecutive month of price declines.

Digging deeper, traditional sellers (nonforeclosure and non-short sale) enjoyed a 7.6 percent price increase to $215,250, foreclosure prices dropped 3.3 percent to $114,950 and short sales decreased 4.7 percent to $143,000.

All market segments showed a decrease in pending sales activity—40.1 percent for traditional sellers, 24.9 percent for foreclosures and 12.0 percent for short sales.

Listing activity declined 10.7 percent for the entire market since September 2009. Traditional sellers put 11.2 percent fewer homes on the market, banks put 5.8 percent more foreclosures on the market and there were 11.5 percent fewer short sales added to the market.

There are 8.6 months of inventory for the entire Twin Cities market—up 30.3 percent from the 6.6 months of supply last year at this time. Negotiations also slid back toward buyers for the third consecutive month. The percent of original list price received at sale declined 3.2 percent to 90.9 percent. The last time this metric was this low was April of 2009.

The Housing Affordability Index has soared to 220, which means the median family income is 220 percent of the income needed to qualify for the median priced home using a 20 percent down, 30-year fixed mortgage. That is the highest level it has been since we started recording it in 2001. Hey, look at that, there are nuggets of good news out there.

Sunday, October 10, 2010

Department of Real Estate Takes Aim at Short Sale Negotiator Fees

On September 20, 2010 the California Department of Real Estate (DRE) posted on its website an update to its previously issued "Consumer and Industry Alert(s) Regarding Short Sales Fraud, and Related Issues." The latest discussion concerns "the growing, questionable, and sometimes unlawful practice of short sale negotiators ('SSN') requiring/compelling Buyers to pay the SSN's fee."

The article locates four areas of potential legal liability when this practice is implemented. They are: (1) Breach of Fiduciary Duty, (2) Lender Fraud, (3) Violation of Agency Law, and (4) Violation of RESPA. (Note: The article itself does not present its concerns in such a systematic format; but space limitations impose organizational requirements on my summary.) Problems present themselves in the following circumstances.

(1) Breach of Fiduciary Duty: (a) It is reported that some listing agents indicate in the MLS agent-to-agent remarks section that offers will not be presented unless the Buyer includes with the offer an Addendum specifying that he will pay a specified amount to an SSN. If this is not a requirement of the seller, the failure to present an offer would be a breach. (b) In some situations the listing agent will specify that the Buyer "must" request a specified credit for non-recurring closing costs as part of the offer, with the understanding that the SNN fee will be paid from that credit. The DRE paper states that, if this happens, "then the SSNs may be involved in a 'shell' game. If that occurs, the Buyers' interests might not be properly protected…" and the SSN and/or the agents may have breached their fiduciary duties.

(2) Lender Fraud: This may occur in a variety of ways. (a) It could happen if the Buyer's obligation to pay the SSN is not made known to the seller's lender (e.g. the Addendum referred to above might not be included in the paperwork submitted). (b) It could also occur if the payment is hidden by not showing up on the HUD-1. (c) If the seller's mortgage holder does not know that an SSN payment is being made to the listing office, that might violate the lender's term sheet with regard to allowable commissions. (d) The buyer's willingness to pay an SSN fee may be the result of a collusion for the sale price to be less than Fair Market Value, in violation of the lender's requirements.

(3) Violation of Agency Law: This can happen when the SSN's agency relationship is not clearly disclosed. Moreover, to the degree that the SSN may be portrayed as representing both parties, the dual agency may not be properly explained and confirmed by the principals.

(4) The DRE also suggests that payment to an SSN by the buyer could be a RESPA violation in the form of a "junk fee" paid to a settlement service provider in a situation where "no real or added services are actually performed for the Buyer…"

The DRE paper is carefully hedged and full of qualifiers. It seldom says that a particular act really is a violation of something -- only that it "might be" "could be" "raises questions" "appears problematic" etc. Well, ok, that's what lawyers do; but, because of that, the paper provides little in the way of clear guidance to practitioners. But the intent is clear -- Stay away from charging buyers to pay short sale negotiators!

Even though the DRE article will not come right out and say that the practice of having buyers pay for short sale negotiators is illegal, it regrettably demeans those who engage in this practice.

"In some instances the Listing Agent is trying to get paid extra money to serve as both the Listing Agent and the SSN. In other cases, the Listing Agent has hired an outside SSN because that agent is not able or willing to provide short sale negotiation services to their clients, but at the same time this Listing Agent does not want to share his or her commission earnings with the outside SSN that has been hired to do that work."

How outrageous! Are we to suppose that if the house needs painting, the listing agent should either do it himself or else pay the painter…?

Negotiating a short sale with the Seller's lender(s) is generally a difficult and time-consuming task. It is an important and non-duplicative service. Moreover, to be done well, it typically requires knowledge and skills that have been acquired through experience and/or formal training. Negotiating a short sale is not within the scope of traditional brokerage services. It should not be assumed that even the most competent and experienced listing agent will also be in a position to conduct effective short sale negotiations.

It is fortunate for consumers that an unrelated cadre of qualified and competent short sale negotiators has emerged around the country. Far too many potential short sales have wound up to be foreclosures because of inept agents trying to do the negotiations. But no one should expect that qualified short sale negotiators will offer their services for free. It certainly isn't a listing agent's obligation to pay them. The seller, who has no money, can't pay them. And now the Department of Real Estate tells us that the buyer shouldn't be the one to pay them.

Tuesday, August 3, 2010

Mortgage Rates Hit Low of 4.54 Percent

NEW YORK—Mortgage rates are the most affordable in decades for those who can qualify for a loan.

For many, the opportunity to buy a home or refinance at this time is lost because of the tough economy and tight credit standards. But those who have secure jobs, superior credit, and strong finances could do even better than the 4.54 average rate that Freddie Mac reported Thursday, according to experts.

The latest rate is the lowest for a 30-year fixed loan since Freddie began tracking rates in 1971. It also marks the fifth time in six weeks that the mortgage company has reported hitting a new average low.

Still, it’s possible to get an even lower rate if a borrower contributes more than 20 percent to the down payment or has impeccable credit.

“Scores matter,” said Ritch Workman, co-owner of Workman Mortgage in Melbourne, Fla. He can offer a rate of 3.375 percent on a $200,000 Freddie Mac loan. The caveat: The borrower must put down 20 percent, have a credit score of 800 and pay $1,400 in add-on fees.

Susquehanna Bank, which has branches in Pennsylvania, New Jersey, Maryland and West Virginia, is advertising a similar loan. But the credit score requirement is 720 and the add-on fees total $750.

Sometimes the best rates are offered by community banks or credit unions. They keep mortgages on their books instead of selling them to investors, said Greg McBride, a senior financial analyst at Other times, bigger banks or smaller mortgage bankers have the best deals.

Keep in mind that rates fluctuate significantly, even within a day, like airfares on a travel site. And the key to finding the best rate is to shop around online and in person.

Either way, borrowers are getting good deals. The last time home loan rates were lower was during the 1950s, when most mortgages lasted just 20 or 25 years.

The rate on 15-year fixed loans, a popular choice for refinancing, also are the lowest on records dating back to 1991. That rate fell to 4 percent from 4.03 percent last week.

Mortgage rates have been falling since spring. Yields on U.S. Treasury bonds have dropped as jittery investors seek safer investments. Rates tend to track the yields on Treasurys.

Low rates helped spark a little activity in the weak housing market. Applications to purchase homes rose 2 percent last week from the previous week, the Mortgage Bankers Association said Wednesday. Still, the housing market has been struggling and overall applications for loans were down last week as fewer people applied to refinance.

High unemployment, slow job growth, and tight credit have made it difficult for many to purchase homes. Home sales got a boost this spring when the government offered homebuying tax credits, but activity has fizzled since those expired in April.

Sales of previously occupied homes fell 5.1 percent in June. New home sales jumped last month, but it was the second-weakest month on record and it came after sales tumbled in May.

Refinance activity has increased over the last month as homeowners seek more affordable monthly payments. But many don’t qualify for a loan or don’t have the cash to pay for closing costs. And rates have been low for so long that many have already refinanced.

To calculate the national average, Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country.

Rates on five-year adjustable-rate mortgages averaged 3.76 percent, down from 3.79 percent a week earlier. Rates on one-year adjustable-rate mortgages fell to an average of 3.64 percent from 3.70 percent.

The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount. The nationwide fee for loans in Freddie Mac’s survey averaged 0.7 a point for all loans.

A service of YellowBrix, Inc.

Thursday, June 17, 2010

Senate votes to extend US home tax credit deadline

June 16 (Reuters) - The U.S. Senate voted on Wednesday to give homebuyers another three months to settle on their contracts and take advantage of a popular tax credit that sparked a rush of activity in the housing market.

The Senate, with a vote of 60-37, accepted an amendment by Democratic Leader Harry Reid that extends the closing deadline to Sept. 30 for buyers who met the April 30 deadline to have a signed contract.

The current deadline requires buyers to close by June 30 to get the $8,000 tax credit for first-time homebuyers. Existing homeowners buying a new primary residence are eligible for a $6,500 credit.

Reid offered the measure as an amendment to a bill that would extend some popular business tax breaks and extend unemployment insurance benefits for jobless workers.

The proposal would not have a significant impact on future home sales as the extension would be only for home buyers who already had a contract in hand by April 30.

The popularity of the tax credit has caused some anxiety because settlement offices are inundated with buyers trying to close on transactions by the end of this month to get the tax break.


Tuesday, June 15, 2010

Soft housing demand imperils recovery

Demographic terms bode well for the long-term health of housing markets, but the near term is fraught with uncertainty, according to a “State of the Nation’s Housing” report released today by the Joint Center for Housing Studies of Harvard University.

With the economy finally adding jobs this spring and house prices down dramatically, “two essential conditions for a sustained recovery in single-family starts and sales had fallen into place,” the report said.

But it remains to be seen whether home sales will weather the expiration of the federal homebuyer tax credit, the report said. Initial signs of a recovery are also threatened by a “severe overhang” of vacant units, high unemployment, and record numbers of homes that are worth less than what’s owed on their mortgage.

The report concludes that deep cuts in homebuilding have already brought housing supply and demand back into better balance. It’s soft demand for housing, rather than a large oversupply, that’s holding back residential construction at the moment.

The recession wiped out 8.4 million jobs, which has forced some families to double up and delayed plans of many young adults to move out of their parents’ homes. Demand for housing is also down because the downturn has slowed the pace of immigration, and an estimated 1 million illegal immigrants have left the country, the report said.

Soaring unemployment and reduced immigration have slowed the pace of household formation from between 1.2 million and 1.4 million a year during the first half of the decade to less than 1 million a year, the report said.

In the long run, demographic forces are expected to lift household formation to about 1.25 million a year during the decade ahead, even if immigration remains subdued.

But whether those new households will be homeowners or renters remains to be seen.

Homeownership markets “are being tugged in different directions,” the report noted. Lower prices have made homes more affordable, but tighter underwriting standards make qualifying for a mortgage more difficult.

During the boom, many lenders would fund mortgages carrying payments of up to 38 percent of borrower income. that standard would have allowed about 17.8 million renters to qualify to buy a median-priced home in 2008, the report said. at the more stringent 28 percent income standard often employed today, only 12.5 million renters would have qualified.

The swing in payment-to-income requirements means that home prices would have to drop more than 26 percent in order for households that qualified at the 38 percent standard to purchase under the new 28 percent standard.

According to the National Association of Realtors, median home prices fell 26 percent from October 2005 to March 2010. With mortgage rates near record lows, mortgage mortgage payments on the median-priced home are closer to median gross rents than at anytime since 1980, the report noted.

For borrowers making a 10 percent downpayment on a median-priced home, mortgage payments will amount to less than 20 percent of median household income, the lowest level in records dating back to 1971.

Assuming that household “headship rates” hold constant at 2008 levels, overall demand should support the construction of more than 17 million new homes between 2010-20, the report said. that number includes manufactured homes, and takes into account demand for second homes and the need to replace older housing stock.

Analysts are keeping a close eye on home construction because, with the exception of the dot-com crash and 2001 recession, housing tends to lead the economy into and out of recessions.

Residential fixed investment dropped 53.7 percent from 2005 to 2009, and represented just 2.5 percent of gross domestic product in 2009 — the lowest level since 1945. Builders started construction on only 445,000 single-family homes in 2009, compared with more than 1 million a year during the 1990s.

Declines in residential construction have been a drag on the economy for 3 1/2 years, before turning positive again during the second half of 2009. (According to the Bureau of Economic Analysis, investment in residential construction contracted again during the first quarter of 2010.)

While demographic trends indicate that household formation will return to or exceed household growth rates seen from 1995 to 2005, income levels may continue to deteriorate.

The first 10 years of the new century were a “lost decade” for household income, with median income falling 5 percent from 2000 to 2008, to $49,800, the report noted. After three decades of gains, “real median household incomes will almost certainly end (the decade) lower than they started,” the report lamented.

The sheer size of the echo-boom generation — those born between 1986 and 2005 — will produce record numbers of households headed by young adults, who typically have lower incomes.

At 80.8 million strong, the echo boomer generation is already larger than the Baby Boom generation, and 42 percent are members of a minority group, the report noted. Minorities make up more than 50 percent of echo boomers in Hawaii, new Mexico, California, Texas, Arizona, Nevada, and Washington, D.C.

The median income of households headed by 35- to 44-year-old minorities in 2008 was $45,000, compared with $72,900 for whites in the same age group. The median wealth of minority households in 2007 was $26,900, or about one-quarter of white household wealth. Only 23 percent of U.S.-born minorities between the ages of 25-34 have college degrees, compared with 40 percent of whites.

The significant income and wealth disparities between whites and minorities threatens future growth in housing investment and the broader economy, the report said.

“Narrowing these disparities will depend on the ability of the nation to improve the educational achievement of minorities, and of the economy to create better-paying jobs that rely on skilled workers,” the report noted.

The recession not only slowed household formation, but made it more difficult for families to move. Mobility rates fell 12.6 percent from 2005 to 2008, bottoming out in 2009, and the steepest declines were among homeowners.

An estimated 11.2 million homeowners are “underwater,” owing more on their mortgages than their homes are worth. some may choose to remain in place rather than sell their home or walk away with a loss.

Many older homeowners who had planned to retire and move to another home have delayed those plans.

“Unless housing and financial markets rebound sharply in the near future, some owners may never be able to retire elsewhere,” the report noted.

The flip side for seniors is that they are more likely to have paid down much of their mortgage or to own their homes outright, and still stand to gain if they sell their homes. Price declines in retirement destinations like Arizona, Nevada and Florida help make them more affordable.

But Sunbelt retirement communities still face an uphill battle, the report said, because much of the boom in those areas was driven by construction and job growth.