Up to 10 million homes at risk of foreclosure through 2012, say analysts
by Matt CarterInman News
Wednesday, January 28, 2009
The House of Representatives is expected to vote today on an $825 billion stimulus bill that could save millions of jobs and prevent foreclosures, but which might also make the recession worse if the government's growing debt sends interest rates up and the dollar plummeting.
President Obama urged fast passage of the bill, saying new statistics being released every day "underscore the urgency of the economic situation."
"The American people expect ... us to put together a recovery package that puts people back to work (and) creates investments that assure our long-term energy independence, an effective health care system (and) an education system that works," Obama said.
House Republican Leader Rep. John Boehner called the stimulus plan "wasteful and unfocused" and said it would be "irresponsible to pass this massive debt onto our children and grandchildren." Boehner and other Republicans are pushing for an approach that puts more emphasis on tax relief and less on government spending to stimulate the economy.
H.R. 1, the American Recovery and Reinvestment Act of 2009, would earmark money for a range of federal programs and increase or extend benefits payable under Medicaid, unemployment and food-stamp programs. The bill also includes an estimated $165 billion in tax cuts for individuals and $110 billion for businesses.
In an analysis, the nonpartisan Congressional Budget Office estimated that the combination of increased spending and reduced tax revenue would create an additional $816 billion in deficit spending through 2019.
But CBO Director Douglas Eledorf told members of the House Budget Committee Tuesday that the bill would provide a "substantial boost to economic activity," leaving as many as 3.6 million more people employed at the end of 2010 than if the government took no action.
Grim jobs outlook
The U.S. lost 2.5 million jobs in 2008 — including 1.9 million in the last four months of the year alone, Eledorf testified — sending the unemployment rate to 7.2 percent. Without more government measures to create jobs and stimulate spending, unemployment could surge to 9.2 percent by early next year, up from the recent low of 4.4 percent at the end of 2006, CBO projects.
Moody's Economy.com chief economist Mark Zandi was even more pessimistic, telling lawmakers that without a stimulus bill the U.S. is looking at a loss of 8 million jobs by late 2010 and 11 percent unemployment by early 2011.
The stimulus plan now being considered in the House "will not keep the downturn from becoming the worst since the Great Depression, but it will ensure that it remains a recession and not a depression," Zandi said.
Even with a stimulus plan in place, Moody's Economy.com projects 5.5 million jobs will be lost and that unemployment will peak at nearly 9.5 percent in the summer of 2010, Zandi said.
Analysts at Credit Suisse estimate that for every 10 people added to the unemployment rolls, there are four potential foreclosures. That's a "back of the envelope" approach that assumes homeowners lose jobs in the same proportion as renters, and that about 60 percent of homeowners who are laid off may lose their homes.
If unemployment peaks at 8 percent at the end of this year, Credit Suisse projects a potential for 9 million homes to enter the foreclosure process from 2009 through 2012. If unemployment continues to rise into 2010 and reaches 10 percent by year end, Credit Suisse sees another 1.2 million foreclosures, or 10.2 million homes in jeopardy.
Many of those homes might be saved from foreclosure through loan modifications by lenders. If 50 percent of mortgages headed for foreclosure are modified and the re-default rate on those loans is 40 percent, only 6.3 million of the 9 million foreclosures envisioned in the more optimistic scenario would be completed, Credit Suisse estimated.
The Obama administration is already committed to putting $50 billion to $100 billion of the second half of the $700 billion Troubled Asset Relief Program, or TARP, into foreclosure prevention programs (see story).
CBO forecasts that national home prices will fall another 14 percent between third-quarter 2008 and the middle of 2010, leaving more homeowners unable to refinance their mortgages because their homes are worth less than they owe. Rising unemployment and the resulting loss of income will also contribute to high foreclosure rates, Eledorf said.
Hefty price tag
According to the CBO's analysis, the bill would provide $43.1 billion for highway construction and other transportation programs; $11.1 billion for housing assistance programs administered by the Department of Housing and Urban Affairs, and $5.2 billion in community development grants to states and cities. The bill also earmarks $48.9 billion for renewable energy and water resource programs; $14.2 billion for science, technology and criminal justice programs; and $4.5 billion for the Department of Defense to repair and renovate facilities.
Former CBO director Alice Rivlin, now a senior fellow at the Brookings Institution, warned lawmakers that they need to offset spending increases that add to the budget deficit by making offsetting spending cuts or by creating new "revenue streams" — raising taxes.
Not since the U.S. was in its infancy "have we been so dependent on foreign creditors," Rivlin said. For now, global investors are flocking to the safety of U.S. Treasurys, allowing the government to borrow at "astonishingly low rates," she said.
A failure to tackle future budget deficits could rattle the confidence of creditors and lead to "much higher interest rates" on public and private debt, Rivlin warned. A rapid increase in interest rates and a weakened dollar could deepen the recession and slow recovery, she said.
Rivlin was one of a dozen budget analysts who signed a memo to President Obama urging his administration to follow through on a campaign promise to "scrub every line item in the current budget with an eye to finding items that are either ineffective or outdated."
Zandi acknowledged that the stimulus plan and other bailout measures could more than triple the annual federal budget, from $450 billion in fiscal 2008 to $1.5 trillion this year and next. The federal debt load could rise from about 40 percent of gross domestic product to 60 percent, he said.
But Zandi said the borrowing the government would have to undertake to fund the $825 billion stimulus package shouldn't lead to excessively higher long-term interest rates, because private bond issues are expected to remain low. Even factoring in the Treasury's issuance to fund the growing debt, total credit market needs should remain "modest," Zandi forecasts, with yields on 10-year Treasurys staying below 4 percent through 2010.
Given the intensity of the downturn and the disarray of the financial system, Zandi called the budget deficit and other unintended consequences of the stimulus package "problems for another day."
The Moody's Economy.com economist urged lawmakers to consider additional tax relief measures — including expanding the current $7,500 tax credit for first-time homebuyers — that would bring the cost of the stimulus bill to $1 trillion.
H.R. 1 would grant requests from real estate, mortgage lending and home-building industry groups to remove the current repayment requirement on the first-time homebuyer credit, which is scheduled to expire on June 30 (see story). Zandi said lawmakers could go further, increasing the homebuyer credit and expanding it to all buyers of owner-occupied homes through the end of the year.
Zandi also suggested adding a payroll tax holiday in the third quarter, which he said would boost spending by lower- and middle-income households and help cash-strapped small businesses stem layoffs.
Wednesday, January 28, 2009
Friday, January 23, 2009
Financing the Home Purchase
by Paul Bishop, Harika "Anna" Barlett and Danielle Hale, NAR Research
The 2008 National Association of REALTORS Profile of Home Buyers and Sellers was released in November.* The Association surveys home buyers and sellers annually to gather detailed information about the home buying and selling process. These surveys provide information on demographics, housing characteristics, the experience of consumers in the housing market, and the role that real estate professionals play in home sales transactions. In the November and December issues of Real Estate INSIGHTS, we looked at highlights from the profiles about home buyers and sellers. This month, we focus on home financing.
Financing the purchase of a home can be a significant challenge for some buyers. The recent turmoil in financial markets has definitely had an impact on the availability of mortgage credit for those consumers wanting to purchase a home.
But eventually credit will flow again. Recent trends in home financing can help real estate professionals be ready. Below we summarize information about financing the home purchase from July 2007 to June 2008 from the most recent NAR Profile of Home Buyers and Sellers.
Tighter underwriting standards have made financing the home purchase more challenging than it has been in previous year. In fact, compared to the previous survey in 2007, a smaller share of both first-time and repeat buyers report that they financed the entire purchase price of their home with a mortgage. Moreover, a significant percentage of buyers reported that they made some type of financial sacrifice in order to qualify for a mortgage and complete the sales transaction.
Financing the Home Purchase
Ninety-three percent of home buyers reported that they financed their home purchase with a mortgage. Among younger buyers, the percentage was 98 percent, decreasing somewhat for buyers between 45 and 64 years old. A significantly smaller share — two thirds — of buyers 65 and older financed their home with a mortgage, reflecting a significant share who used equity built up over a number of years allowing them to forgo use of a mortgage. Unmarried couple households rely on mortgages more often than other types of households. Single person repeatbuyer households were least likely to finance their home purchase with a mortgage.
Percent of Home Purchase that was Financed
One of the most significant changes in the characteristics of mortgage financing has been the sharp drop in the percentage of buyers who financed the entire purchase of their home. This no doubt reflects the tighter underwriting standards that many lenders implemented during the past year. In 2007, 29 percent of buyers reported that they financed their entire purchase with a mortgage compared with 23 percent in 2008. Among first-time buyers the share with 100 percent financing fell from 45 percent to 34 percent.
Downpayments
The median downpayment by first-time buyers was 4 percent, up from 2 percent in 2007; the number purchasing with no money down fell from 45 percent in 2007 to 34 percent in the current survey. Again, this likely reflects tightened lending standards. Indeed, by the close of the survey period (June 2008), no-downpayment loans all but disappeared.
Savings remains the major source of downpayment funds for the purchase of a home. As the share of buyers financing with no downpayment decreased, the share of buyers who relied on savings rose from 52 percent in 2007 to 56 percent in 2008. Half (51 percent) of repeat buyers used the proceeds from the sale of their previous home, down from 60 percent in 2007. Twenty-six percent of first-time buyers used a gift from a friend or relative, up from 22 percent in 2007.
Sources of downpayment vary across households of different types as well, although savings is the dominant source of downpayment for all types of households. Compared with other types of households, a greater share of unmarried couples and single male households relied on savings. Married couples depended on the proceeds of the sale of a previous home more often than other buyers.
Giving Up to Get
For some households, the purchase of a home and qualification for a mortgage requires some type of financial sacrifice. Buyers most often reported that they cut spending on luxury items(29 percent), entertainment (28 percent) or clothes (21 percent) in order to keep their debt lower to qualify for a loan. By a wide margin, first-time buyers more often reported cutting spending in these areas compared with repeat buyers. Still, 63 percent of repeat buyers and 41 percent of first-time buyers noted that they did not need to make any sacrifices.
Across different types of households, single female and unmarried couple buyers more often reported making some type of sacrifice in order to qualify to purchase a home. Nearly one-third of single female buyers cut spending on luxury items and entertainment; 29 percent of single female buyers also reported cutting spending on clothes. Among unmarried couple buyers, four in ten cut spending on luxury items or entertainment, and three in ten reduced expenditures on clothing.
Mortgage Challenges
Among recent home buyers, 7 percent noted that the mortgage application and approval process was much more difficult than anticipated with an additional 20 percent noting that it was somewhat more difficult than in recent years. It should be noted, however, that these views belong to those home buyers who successfully completed a home purchase transaction and consequently do not include an assessment of the difficulty of the process by potential buyers who were unable or unwilling to complete the purchase of a home.
One in ten unmarried couples who purchased a home described the mortgage process as much more difficult than anticipated. Although there was some variation across other types ofhouseholds, most did not consider the process difficult.
Of course, some households who wanted to obtain a mortgage in order to purchase a home faced additional hurdles. Among home buyers who successfully financed the purchase of their home, 5 percent reported that their mortgage application was rejected by one lender, with an additional 3 percent experiencing a rejection by two or more lenders.
Types of Mortgage Loans
Nine of ten home buyers reported that they secured a fixed-rate mortgage to finance their home purchase. That is an increase from the 81 percent who financed their home via a fixed-rate mortgage in 2007. Just 4 percent of buyers indicated that the interest rate on their mortgage was fixed for an initial period before adjusting, down from 10 percent in 2007.
Buying a Home: a Good Investment?
The majority of home buyers still believe that their home purchase will be a good investment. Eighty-seven percent of home buyers considered their purchase a good financial investment. Nearly half (47 percent) of buyers believe that their home is a better investment than stocks,with an additional 31 percent viewing it as equivalent to stocks. There is little difference in the perception of first-time or repeat buyers.
There was, however, disagreement agreement about the investment value of their home purchase, depending on the type of home buyer household. Single male buyers were somewhat less likely to consider their purchase a better investment than stocks while single female buyers and unmarried couples were the most optimistic.
Looking Ahead
The current economic recession, job losses, and more restricted access to mortgage capital will no doubt have an impact on home buying activity in early 2009. But with mortgage rates around 5 percent and an unprecedented inventory of homes - both new and existing - there are many opportunities for homeownership for buyers with solid credit. Government programs, including the home buyer tax credit, higher FHA loan limits, and the eventual flow of mortgage capital from banks and lenders (as a result of the Troubled Asset Relief Program) will also help home buyers and homeowners. A new economic stimulus package - if it includes significant housing-stimulus provisions — should also help enable consumers to become homeowners and purchase a piece of the American Dream.
*NAR mailed an eight-page questionnaire in August 2008 to a national sample of 133,000 home buyers and sellers who purchased their homes between July 2007 and June 2008, according to county records. It generated 10,053 usable responses; the adjusted response rate was 7.9 percent. All information is characteristic of the 12-month period ending in June 2008 with the exception of income data, which are for 2007. Because of rounding and omissions for space, percentage distributions for some findings may not add up to 100 percent.
The 2008 National Association of REALTORS Profile of Home Buyers and Sellers was released in November.* The Association surveys home buyers and sellers annually to gather detailed information about the home buying and selling process. These surveys provide information on demographics, housing characteristics, the experience of consumers in the housing market, and the role that real estate professionals play in home sales transactions. In the November and December issues of Real Estate INSIGHTS, we looked at highlights from the profiles about home buyers and sellers. This month, we focus on home financing.
Financing the purchase of a home can be a significant challenge for some buyers. The recent turmoil in financial markets has definitely had an impact on the availability of mortgage credit for those consumers wanting to purchase a home.
But eventually credit will flow again. Recent trends in home financing can help real estate professionals be ready. Below we summarize information about financing the home purchase from July 2007 to June 2008 from the most recent NAR Profile of Home Buyers and Sellers.
Tighter underwriting standards have made financing the home purchase more challenging than it has been in previous year. In fact, compared to the previous survey in 2007, a smaller share of both first-time and repeat buyers report that they financed the entire purchase price of their home with a mortgage. Moreover, a significant percentage of buyers reported that they made some type of financial sacrifice in order to qualify for a mortgage and complete the sales transaction.
Financing the Home Purchase
Ninety-three percent of home buyers reported that they financed their home purchase with a mortgage. Among younger buyers, the percentage was 98 percent, decreasing somewhat for buyers between 45 and 64 years old. A significantly smaller share — two thirds — of buyers 65 and older financed their home with a mortgage, reflecting a significant share who used equity built up over a number of years allowing them to forgo use of a mortgage. Unmarried couple households rely on mortgages more often than other types of households. Single person repeatbuyer households were least likely to finance their home purchase with a mortgage.
Percent of Home Purchase that was Financed
One of the most significant changes in the characteristics of mortgage financing has been the sharp drop in the percentage of buyers who financed the entire purchase of their home. This no doubt reflects the tighter underwriting standards that many lenders implemented during the past year. In 2007, 29 percent of buyers reported that they financed their entire purchase with a mortgage compared with 23 percent in 2008. Among first-time buyers the share with 100 percent financing fell from 45 percent to 34 percent.
Downpayments
The median downpayment by first-time buyers was 4 percent, up from 2 percent in 2007; the number purchasing with no money down fell from 45 percent in 2007 to 34 percent in the current survey. Again, this likely reflects tightened lending standards. Indeed, by the close of the survey period (June 2008), no-downpayment loans all but disappeared.
Savings remains the major source of downpayment funds for the purchase of a home. As the share of buyers financing with no downpayment decreased, the share of buyers who relied on savings rose from 52 percent in 2007 to 56 percent in 2008. Half (51 percent) of repeat buyers used the proceeds from the sale of their previous home, down from 60 percent in 2007. Twenty-six percent of first-time buyers used a gift from a friend or relative, up from 22 percent in 2007.
Sources of downpayment vary across households of different types as well, although savings is the dominant source of downpayment for all types of households. Compared with other types of households, a greater share of unmarried couples and single male households relied on savings. Married couples depended on the proceeds of the sale of a previous home more often than other buyers.
Giving Up to Get
For some households, the purchase of a home and qualification for a mortgage requires some type of financial sacrifice. Buyers most often reported that they cut spending on luxury items(29 percent), entertainment (28 percent) or clothes (21 percent) in order to keep their debt lower to qualify for a loan. By a wide margin, first-time buyers more often reported cutting spending in these areas compared with repeat buyers. Still, 63 percent of repeat buyers and 41 percent of first-time buyers noted that they did not need to make any sacrifices.
Across different types of households, single female and unmarried couple buyers more often reported making some type of sacrifice in order to qualify to purchase a home. Nearly one-third of single female buyers cut spending on luxury items and entertainment; 29 percent of single female buyers also reported cutting spending on clothes. Among unmarried couple buyers, four in ten cut spending on luxury items or entertainment, and three in ten reduced expenditures on clothing.
Mortgage Challenges
Among recent home buyers, 7 percent noted that the mortgage application and approval process was much more difficult than anticipated with an additional 20 percent noting that it was somewhat more difficult than in recent years. It should be noted, however, that these views belong to those home buyers who successfully completed a home purchase transaction and consequently do not include an assessment of the difficulty of the process by potential buyers who were unable or unwilling to complete the purchase of a home.
One in ten unmarried couples who purchased a home described the mortgage process as much more difficult than anticipated. Although there was some variation across other types ofhouseholds, most did not consider the process difficult.
Of course, some households who wanted to obtain a mortgage in order to purchase a home faced additional hurdles. Among home buyers who successfully financed the purchase of their home, 5 percent reported that their mortgage application was rejected by one lender, with an additional 3 percent experiencing a rejection by two or more lenders.
Types of Mortgage Loans
Nine of ten home buyers reported that they secured a fixed-rate mortgage to finance their home purchase. That is an increase from the 81 percent who financed their home via a fixed-rate mortgage in 2007. Just 4 percent of buyers indicated that the interest rate on their mortgage was fixed for an initial period before adjusting, down from 10 percent in 2007.
Buying a Home: a Good Investment?
The majority of home buyers still believe that their home purchase will be a good investment. Eighty-seven percent of home buyers considered their purchase a good financial investment. Nearly half (47 percent) of buyers believe that their home is a better investment than stocks,with an additional 31 percent viewing it as equivalent to stocks. There is little difference in the perception of first-time or repeat buyers.
There was, however, disagreement agreement about the investment value of their home purchase, depending on the type of home buyer household. Single male buyers were somewhat less likely to consider their purchase a better investment than stocks while single female buyers and unmarried couples were the most optimistic.
Looking Ahead
The current economic recession, job losses, and more restricted access to mortgage capital will no doubt have an impact on home buying activity in early 2009. But with mortgage rates around 5 percent and an unprecedented inventory of homes - both new and existing - there are many opportunities for homeownership for buyers with solid credit. Government programs, including the home buyer tax credit, higher FHA loan limits, and the eventual flow of mortgage capital from banks and lenders (as a result of the Troubled Asset Relief Program) will also help home buyers and homeowners. A new economic stimulus package - if it includes significant housing-stimulus provisions — should also help enable consumers to become homeowners and purchase a piece of the American Dream.
*NAR mailed an eight-page questionnaire in August 2008 to a national sample of 133,000 home buyers and sellers who purchased their homes between July 2007 and June 2008, according to county records. It generated 10,053 usable responses; the adjusted response rate was 7.9 percent. All information is characteristic of the 12-month period ending in June 2008 with the exception of income data, which are for 2007. Because of rounding and omissions for space, percentage distributions for some findings may not add up to 100 percent.
Local ‘Journal Register’ newspapers out of business
The PA8 weekly newspaper group owned by the Journal Register Co. is now the PA3 with the folding of 5 local weekly papers. Four Chester County papers, including the Oxford Tribune, Coatesville Ledger, Parkesburg Press and Downingtown Ledger, ceased publication last week. The closings also end the combined Classified Section that ran in all the PA8 weeklies.
It is expected that the weekly closings are just a beginning for the Journal Registry Company and more closings and consolidations are right over the horizon.
Source: Chester County Press; 1/14/09
It is expected that the weekly closings are just a beginning for the Journal Registry Company and more closings and consolidations are right over the horizon.
Source: Chester County Press; 1/14/09
I'm Baaa'aaack
It's been a while since I actually penned something original here. Not sure why that is since I love to hear myself talk....
Since last I "spoke" here, the world has undergone some massive change. We have a new President, a ton of turmoil in the credit markets, old standbys GM, Ford and Chrysler are begging for mercy, and well, the Eagles have blown another shot at the Super Bowl. Some things in life ARE consistent alas!
What is inconsistent is the real estate market. The market took a dramatic plunge of inactivity when the credit debacle hit the proverbial fan after Labor Day and never recovered as we went through those dastardly holidays we end the year with. Only when Prez-elect Obama started to speak up and credit rates dropped after Christmas did the sideline-dwelling buyers start to peak back out their doors. Lately first-time buyers seem to be basking in the sunlight of our 15 degree days and business is brisk (relatively speaking of course). Many many showings of late and our office is posting encouraging results lately in contracts completed.
This is the spring market afterall, and with rates extremely low and a nice selection if not overabundance of inventory, buyers really should be more motivated than they seem to buy. It is, afterall a buyers market. But buyers seem to think they can time a market and I believe, with the encouragement of well-meaning Realtors, seem to be sitting back waiting to spy that bottom price for their next dream home. the reality is that many of these reluctant buyers will not pull the trigger until the next upswing is months old and they will in fact pay considerably more for their next home than they probably would now. But that's the American way!
The market is particularly peculiar (say THAT real fast a few times!) for investors. Urban areas such as Philly and Wilmington are teeming with finished rehabs that aren't selling and so are being rented. In Philly, typical rentals are now competing with granite countertop-adorned flips that are being rented, essentially at rates the regular rentals were getting 18 months ago. As I wrote last spring, investors seem to still be unloading, or trying to unload, portfolios, why, I'm not sure, maybe because they aren't finding renters, or the rentals aren't cashflowing like they did two years ago.
Alas, what goes up will come down, and what goes down, will usually find its way back up.
Let's hope so. To all those economics experts, especially the self-proclaimed ones, like Suze Orman, all I can say is this: SHUT THE HELL UP! Enough with all the negative BS. Keep saying it (I can't even say it) will happen, and it WILL sell-fulfill your prediction! So, SHUT UP! As someone's mom used to say, if you have nothing good to say, keep quiet......
Since last I "spoke" here, the world has undergone some massive change. We have a new President, a ton of turmoil in the credit markets, old standbys GM, Ford and Chrysler are begging for mercy, and well, the Eagles have blown another shot at the Super Bowl. Some things in life ARE consistent alas!
What is inconsistent is the real estate market. The market took a dramatic plunge of inactivity when the credit debacle hit the proverbial fan after Labor Day and never recovered as we went through those dastardly holidays we end the year with. Only when Prez-elect Obama started to speak up and credit rates dropped after Christmas did the sideline-dwelling buyers start to peak back out their doors. Lately first-time buyers seem to be basking in the sunlight of our 15 degree days and business is brisk (relatively speaking of course). Many many showings of late and our office is posting encouraging results lately in contracts completed.
This is the spring market afterall, and with rates extremely low and a nice selection if not overabundance of inventory, buyers really should be more motivated than they seem to buy. It is, afterall a buyers market. But buyers seem to think they can time a market and I believe, with the encouragement of well-meaning Realtors, seem to be sitting back waiting to spy that bottom price for their next dream home. the reality is that many of these reluctant buyers will not pull the trigger until the next upswing is months old and they will in fact pay considerably more for their next home than they probably would now. But that's the American way!
The market is particularly peculiar (say THAT real fast a few times!) for investors. Urban areas such as Philly and Wilmington are teeming with finished rehabs that aren't selling and so are being rented. In Philly, typical rentals are now competing with granite countertop-adorned flips that are being rented, essentially at rates the regular rentals were getting 18 months ago. As I wrote last spring, investors seem to still be unloading, or trying to unload, portfolios, why, I'm not sure, maybe because they aren't finding renters, or the rentals aren't cashflowing like they did two years ago.
Alas, what goes up will come down, and what goes down, will usually find its way back up.
Let's hope so. To all those economics experts, especially the self-proclaimed ones, like Suze Orman, all I can say is this: SHUT THE HELL UP! Enough with all the negative BS. Keep saying it (I can't even say it) will happen, and it WILL sell-fulfill your prediction! So, SHUT UP! As someone's mom used to say, if you have nothing good to say, keep quiet......
New Refinance Boomlet May Lift Economy a Bit
Daily Real Estate News January 23, 2009
Record low mortgage rates are providing a small measure of stimulus to the troubled U.S. economy as borrowers scramble to refinance their home loans — a move that frees up cash to spend on other items. The Mortgage Bankers Association reports that the volume of loan applications has soared since November to its highest level in six years. However, despite mortgage rates hovering around and even under 5 percent in recent weeks, some homeowners who want to refinance are finding they cannot because of lenders' tightened credit standards.
Source: Christian Science Monitor, Mark Trumbull (01/23/09)
Record low mortgage rates are providing a small measure of stimulus to the troubled U.S. economy as borrowers scramble to refinance their home loans — a move that frees up cash to spend on other items. The Mortgage Bankers Association reports that the volume of loan applications has soared since November to its highest level in six years. However, despite mortgage rates hovering around and even under 5 percent in recent weeks, some homeowners who want to refinance are finding they cannot because of lenders' tightened credit standards.
Source: Christian Science Monitor, Mark Trumbull (01/23/09)
Growth Area: Welcome to the Renter's Market
Daily Real Estate News January 22, 2009
Landlords and property managers are pointing out that they have never faced so many tenants seeking rent reductions, and fear of losing tenants is persuading them to negotiate."
In the apartment business before the downturn, it wasn't a 'Let's make a deal' climate," says Jessica Scully, president of Scully Co., a property management company with units in four states, “Now, it's something we are seeing more of."
Scully is particularly nervous about filling units that used to go to new graduates who are now likely to stay home with mom and dad.
Jared Wilk, an associate at Wilk & Welch Associates, a property management firm in the Boston area, even found himself working to keep a tenant whose rent check bounced. He was willing to lower her rent knowing he wouldn't be able to rent the apartment for more than the discounted amount. Trading a rent reduction for a lease extension is one way for both parties to get what they want, says Mitchell Rattner, president of Home Equity Savers in suburban Chicago.
Source: The Wall Street Journal, Dana Mattioli (01/21/2009)
Landlords and property managers are pointing out that they have never faced so many tenants seeking rent reductions, and fear of losing tenants is persuading them to negotiate."
In the apartment business before the downturn, it wasn't a 'Let's make a deal' climate," says Jessica Scully, president of Scully Co., a property management company with units in four states, “Now, it's something we are seeing more of."
Scully is particularly nervous about filling units that used to go to new graduates who are now likely to stay home with mom and dad.
Jared Wilk, an associate at Wilk & Welch Associates, a property management firm in the Boston area, even found himself working to keep a tenant whose rent check bounced. He was willing to lower her rent knowing he wouldn't be able to rent the apartment for more than the discounted amount. Trading a rent reduction for a lease extension is one way for both parties to get what they want, says Mitchell Rattner, president of Home Equity Savers in suburban Chicago.
Source: The Wall Street Journal, Dana Mattioli (01/21/2009)
Wednesday, January 21, 2009
Real Estate Outlook: Change Anticipated
by Kenneth R. Harney
The national economic headlines continue to be bearish, but some of the underlying fundamentals for real estate are pointing to better days ahead.
Take home mortgage rates: Last week thirty year fixed rates dropped below the seemingly-unbreakable five percent barrier for the first time on record, according to the Mortgage Bankers Association.
New thirty year loans went for an average 4.89 percent, while fifteen year loans were just above 4.6 percent.
Equally important, the outlines of the Obama administration's and Congress's plans to turn around the housing markets just became clearer. Tops on their list: Ending the foreclosure epidemics in some parts of the country through ambitious new programs designed to rework the terms of hundreds of thousands of mortgages that are now unaffordable.
In a letter to Congress last week, Lawrence Summers, Obama's nominee to head the National Economic Council, said the incoming administration plans to use portions of the remaining $350 billion in "TARP" — or "Troubled Asset Relief Program" — money to rework monthly payments for what Summers called "responsible home owners" now facing economic challenges in the recession.
Though Summers did not go into detail, the program is likely to be based on FDIC chairman Sheila Bair's proposed "mass-modification" concept that the Bush administration rejected last Fall.
Versions of that program might include widespread principal write-downs — outright reductions in home owners' mortgage balances — and guarantees to lenders in the event borrowers re-default.
The Obama administration is also likely to institute an immediate ban on all foreclosure actions, possibly for three months, and is certain to enact bankruptcy reform legislation allowing judges to modify mortgage terms to forestall foreclosures.
Why's this important for anyone involved in real estate? The key to stabilizing local markets, say most economists, is reducing the numbers of new foreclosures and other distressed-price transactions.
Foreclosures lower property values in surrounding neighborhoods, wherever they occur. That discourages potential buyers — who don't want to plunge in as long as prices are still declining.
If the new administration and Congress can successfully reduce the numbers of new foreclosures, there's an excellent chance that the current combination of low prices and record low mortgage rates can have the effect they should be having: Spurring new sales.
Add in still another factor: Congress may create a new and improved tax credit — one that's not repayable and covers all home purchases, not simply first-time buyers — and we just might be looking at a FAR more positive outlook than a lot of people could imagine.
Published: January 20, 2009
The national economic headlines continue to be bearish, but some of the underlying fundamentals for real estate are pointing to better days ahead.
Take home mortgage rates: Last week thirty year fixed rates dropped below the seemingly-unbreakable five percent barrier for the first time on record, according to the Mortgage Bankers Association.
New thirty year loans went for an average 4.89 percent, while fifteen year loans were just above 4.6 percent.
Equally important, the outlines of the Obama administration's and Congress's plans to turn around the housing markets just became clearer. Tops on their list: Ending the foreclosure epidemics in some parts of the country through ambitious new programs designed to rework the terms of hundreds of thousands of mortgages that are now unaffordable.
In a letter to Congress last week, Lawrence Summers, Obama's nominee to head the National Economic Council, said the incoming administration plans to use portions of the remaining $350 billion in "TARP" — or "Troubled Asset Relief Program" — money to rework monthly payments for what Summers called "responsible home owners" now facing economic challenges in the recession.
Though Summers did not go into detail, the program is likely to be based on FDIC chairman Sheila Bair's proposed "mass-modification" concept that the Bush administration rejected last Fall.
Versions of that program might include widespread principal write-downs — outright reductions in home owners' mortgage balances — and guarantees to lenders in the event borrowers re-default.
The Obama administration is also likely to institute an immediate ban on all foreclosure actions, possibly for three months, and is certain to enact bankruptcy reform legislation allowing judges to modify mortgage terms to forestall foreclosures.
Why's this important for anyone involved in real estate? The key to stabilizing local markets, say most economists, is reducing the numbers of new foreclosures and other distressed-price transactions.
Foreclosures lower property values in surrounding neighborhoods, wherever they occur. That discourages potential buyers — who don't want to plunge in as long as prices are still declining.
If the new administration and Congress can successfully reduce the numbers of new foreclosures, there's an excellent chance that the current combination of low prices and record low mortgage rates can have the effect they should be having: Spurring new sales.
Add in still another factor: Congress may create a new and improved tax credit — one that's not repayable and covers all home purchases, not simply first-time buyers — and we just might be looking at a FAR more positive outlook than a lot of people could imagine.
Published: January 20, 2009
Friday, January 16, 2009
30-Year Rates Fall Below 5 Percent
Daily Real Estate News January 16, 2009
Mortgage rates dropped to their 11th straight weekly decline, reaching new record lows, according to Freddie Mac. Interest rates on 30-year, fixed rate mortgages averaged 4.96 percent this week, down from a previous week's 5.01 percent.
The low rates have caused a spike in home refinancing loans and a welcome relief to cash-strapped home owners facing a slowing economy and rising unemployment rates.
"The fact that interest rates have dropped to a record low is an important development since more affordable home financing could help bring buyers back to the market and prevent some of these foreclosures," says Lawrence White, professor of economics at New York University's Stern School of Business.
Other rates were mixed for the week:
15 year fixed rates: averaged 4.65 percent, up from 4.62 percent.
1-year adjustable rate mortgages: fell slightly averaging 4.89 percent from 4.95 percent last week.
5/1 ARMs: averaged 5.25 percent compared with 5.49 percent last week. Mortgage rates have continued to drop ever since the Federal Reserve announced a plan in December to buy up $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae—the government-sponsored enterprises.
Freddie Mac started recording mortgages in 1971.
Source: Reuters, Julie Haviv (1/15/09)
Mortgage rates dropped to their 11th straight weekly decline, reaching new record lows, according to Freddie Mac. Interest rates on 30-year, fixed rate mortgages averaged 4.96 percent this week, down from a previous week's 5.01 percent.
The low rates have caused a spike in home refinancing loans and a welcome relief to cash-strapped home owners facing a slowing economy and rising unemployment rates.
"The fact that interest rates have dropped to a record low is an important development since more affordable home financing could help bring buyers back to the market and prevent some of these foreclosures," says Lawrence White, professor of economics at New York University's Stern School of Business.
Other rates were mixed for the week:
15 year fixed rates: averaged 4.65 percent, up from 4.62 percent.
1-year adjustable rate mortgages: fell slightly averaging 4.89 percent from 4.95 percent last week.
5/1 ARMs: averaged 5.25 percent compared with 5.49 percent last week. Mortgage rates have continued to drop ever since the Federal Reserve announced a plan in December to buy up $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae—the government-sponsored enterprises.
Freddie Mac started recording mortgages in 1971.
Source: Reuters, Julie Haviv (1/15/09)
10 Cities Boasting Mini Sales Booms
Daily Real Estate News January 16, 2009
Some cities that were hardest hit by the real downturn are experiencing mini sales booms.Las Vegas real estate properties are down 28 percent in price, but sales of homes are up 15 percent.Motivated buyers accounted for 64 percent of Las Vegas sales in October, says Radar Logic, a derivatives firm. That’s the highest rate in the country."There's a pretty active housing market, it's simply at a lower-priced inventory," says Michael Feder, chief executive of Radar Logic. "
And there are now bidding wars taking place over homes in foreclosure.
"Phoenix and San Diego are reporting similar experiences. "We're clearing out the bad news," says Kiva Patten, a director at Merrill Lynch specializing in housing derivatives.
"By the end of 2010 – that's where we're calling the bottom in the forward market. You're going to get a small price appreciation in 2011," says Patten. "It's not like the turn is 10 percent per year, it'll be something like 3 percent or 4 percent."
Here are the cities where experts say it makes the most sense to buy now:
Las Vegas
Sacramento, Calif.
San Diego, Calif.
Los Angeles
Detroit
Phoenix
San Francisco
Washington, D.C.
San Jose
AtlantaSource: Forbes, Matt Woolsey (01/12/09)
Some cities that were hardest hit by the real downturn are experiencing mini sales booms.Las Vegas real estate properties are down 28 percent in price, but sales of homes are up 15 percent.Motivated buyers accounted for 64 percent of Las Vegas sales in October, says Radar Logic, a derivatives firm. That’s the highest rate in the country."There's a pretty active housing market, it's simply at a lower-priced inventory," says Michael Feder, chief executive of Radar Logic. "
And there are now bidding wars taking place over homes in foreclosure.
"Phoenix and San Diego are reporting similar experiences. "We're clearing out the bad news," says Kiva Patten, a director at Merrill Lynch specializing in housing derivatives.
"By the end of 2010 – that's where we're calling the bottom in the forward market. You're going to get a small price appreciation in 2011," says Patten. "It's not like the turn is 10 percent per year, it'll be something like 3 percent or 4 percent."
Here are the cities where experts say it makes the most sense to buy now:
Las Vegas
Sacramento, Calif.
San Diego, Calif.
Los Angeles
Detroit
Phoenix
San Francisco
Washington, D.C.
San Jose
AtlantaSource: Forbes, Matt Woolsey (01/12/09)
Sunday, January 11, 2009
Mortgage Rates Continue Falling to Record Lows
Daily Real Estate News January 9, 2009
For the fourth consecutive week, mortgage rates have fallen to all-time lows. The 30-year mortgage rates averaged 5.01 percent this week, which is a drop from last week's 5.1 percent. Last year at this time, rates averaged 5.87 percent.
"Interest rates for 30-year fixed-rate mortgages fell for the 10th week ... due in part to the Federal Reserve's recent purchases of mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae," says Freddie Mac Chief Economist Frank Nothaft.
Other rates also dropped for the week:
15-year fixed rates: dropped to 4.62 percent from 4.83 percent last week. Last year at this time 15-year mortgage rates averaged 5.43 percent.
5-year hybrid adjustable-rate mortgages averaged 5.49 percent, a drop from 5.57 percent last week. The only slight increase in rates this week was in 1-year ARMs, which were 4.95 percent, up from 4.85 percent last week. Overall, 1-year ARMs were still down for the year from last year's 5.37 percent.
Freddie Mac began tracking rates in 1971.
Source: The Wall Street Journal, Amy Hoak (1/09/09)
For the fourth consecutive week, mortgage rates have fallen to all-time lows. The 30-year mortgage rates averaged 5.01 percent this week, which is a drop from last week's 5.1 percent. Last year at this time, rates averaged 5.87 percent.
"Interest rates for 30-year fixed-rate mortgages fell for the 10th week ... due in part to the Federal Reserve's recent purchases of mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae," says Freddie Mac Chief Economist Frank Nothaft.
Other rates also dropped for the week:
15-year fixed rates: dropped to 4.62 percent from 4.83 percent last week. Last year at this time 15-year mortgage rates averaged 5.43 percent.
5-year hybrid adjustable-rate mortgages averaged 5.49 percent, a drop from 5.57 percent last week. The only slight increase in rates this week was in 1-year ARMs, which were 4.95 percent, up from 4.85 percent last week. Overall, 1-year ARMs were still down for the year from last year's 5.37 percent.
Freddie Mac began tracking rates in 1971.
Source: The Wall Street Journal, Amy Hoak (1/09/09)
Wednesday, January 7, 2009
2008 Profile of Home Buyers and Sellers Pennsylvania Report Highlights
The real estate market offers a variety of choices, opportunities and challenges for home buyers, sellers, and real estate professionals helping them with their transactions. For home buyers, there are numerous ways to search for and find a home, a variety of mortgage products to finance their home and a growing list of services that their agent can provide to assist them in the process. Home sellers can choose to sell their home themselves or enlist the professional assistance of an agent who can provide various levels of service to best suit each home seller‟s needs. Because the real estate market is always evolving, it is important for real estate professionals to have a clear picture of today‟s home buyers and sellers. The 2008 Profile of Home Buyers and Sellers describes the characteristics and motivations of recent home buyers and sellers in Pennsylvania and in so doing helps real estate professionals track the changing demands of consumers in a dynamic market.
CHARACTERISTICS OF HOME BUYERS
The median age of home buyers was 38 years old. Among first-time buyers, the median age was 29.
The median 2007 household income of home buyers in Pennsylvania was $71,700 compared to $74,900 among home buyers nationally.
Sixty-six percent of home buyers had no children under age 18 residing in the home.
Fifty-nine percent of home buyers were married couples, 18 percent single females, 11 percent single males, and 9 percent were unmarried couples.
Six percent of home buyers reported they were born outside the United States, compared to 9 percent nationally.
First-time home buyers accounted for 46 percent of recent home purchases.
Fifty-seven percent of first-time home buyers were between 25 and 34 years old.
The median income of first-time home buyers was $63,000 compared to $60,600 among all first-time buyers nationally.
Ten percent of first-time buyers identified their race or ethnicity as non-white.
The primary reason for the recent home purchase was a desire to own a home for 68 percent of first-time buyers.
For the timing of the home purchase, 50 percent reported it was just the right time for them, 18 percent noted they had to purchase when they did, and 20 percent reported it was either due to improved affordability of homes or availability of homes for sale. Only 2 percent stated they wished they had waited to buy.
Forty-three percent of home buyers reported using social networking Web sites, such as MySpace, Facebook, LinkedIn, and Friendster. Among home buyers aged 18 to 24, 79 percent reported using social networking sites, and 46 percent reported using them every day or nearly every day.
CHARACTERISTICS OF HOMES PURCHASED
New home purchases were 9 percent of recent home purchases.
Sixty-two percent of homes purchased were detached single family homes.
The typical home buyer purchased a home 10 miles from their previous residence.
The median price of homes purchased was $195,000 compared to $204,000 in the U.S.
The typical buyer purchased a home that was 1.760 square feet in size. The median size of home purchased by first-time buyers was 1.530 square feet.
Commuting costs were considered as very or somewhat important by 84 percent of buyers when considering which home to purchase.
Recent home buyers plan to live in their home a median of 10 years.
THE HOME SEARCH PROCESS
Thirty-seven percent of recent buyers reported that their first step in the home-buying process was looking online for properties for sale. Nine percent of first-time buyers and 21 percent of repeat buyers reported their first step was to contact a real estate agent.
Eighty-nine percent of home buyers used the Internet to search for homes.
The typical home buyer searched for a home for a median 12 weeks and saw a median 10 homes.
Ninety percent of home buyers used a real estate professional during their home search.
Among home buyers, the typical Internet searcher was 36 years old and visited a median 10 homes. The typical home buyer who did not use the Internet to search for homes was 54 years old and saw a median 6 homes.
Thirty-five percent of home buyers first learned about the home they purchased from a real estate professional; 39 percent first learned about the home they purchased through the Internet.
Real estate agents were viewed as a very useful information source by 81 percent of buyers, and as a somewhat useful information source by an additional 16 percent of buyers searching for a home.
Three percent of buyers purchased a foreclosed home. 32 percent considered buying a home in foreclosure, but either could not find the right home, or found the purchase process to be too difficult or complex.
HOME BUYING AND REAL ESTATE PROFESSIONALS
Eighty-eight percent of home buyers purchased their home through a real estate agent or broker.
Fifty percent of first-time buyers were referred to their agent by a friend, family member, neighbor or relative.
Ninety-seven percent of buyers ranked honesty and integrity as a "very important" factor when choosing a real estate professional to assist with a home purchase.
When asked about their agent‟s performance on those qualities considered important, 85 percent reported they were "very satisfied" with the honesty and integrity of their agent.
Seventy percent of recent buyers will definitely use their agent again and 17 percent will probably use the agent again or recommend to others.
FINANCING THE HOME PURCHASE
Ninety-four percent of home buyers financed their home purchase; 98 percent of first-time home buyers financed the purchase of their home compared to 90 percent of repeat buyers.
Savings was the chief source of the downpayment for 81 percent of first-time buyers.
Fifty-two percent of repeat buyers used proceeds from the sale of their primary residence toward the downpayment; 46 percent relied on savings for a portion of the downpayment.
49 percent of home buyers reported they have made some sacrifices to be able to make their home purchase, such as reducing spending on luxury items, entertainment or clothing.
Forty-five percent of all buyers believe that their home purchase was a better financial investment than stocks, and an additional 31 percent of buyers feel their home purchase was at least as good an investment as stocks.
HOME SELLERS AND THEIR SELLING EXPERIENCE
The median age of home sellers was 47 years; they had a median income of $86,400.
Seventy-seven percent of home sellers were married and 60 percent had no children under 18 years old living at home.
Fifty-eight percent of sellers traded up to a larger home when purchasing their next home.
The typical home seller owned their home for 8 years.
The typical home was on the market for 8 weeks. Forty-eight percent of home sellers not reduce their asking price before their home sold.
Recent sellers typically sold their homes for 97 percent of the listing price.
Fifty-six percent of sellers offered incentives to attract buyers, most often assistance with closing costs and home warranty policies.
Eighty-nine percent of sellers used an agent or broker to sell their home.
Fifty-two percent of all sellers were very satisfied with the selling process.
HOME SELLERS AND REAL ESTATE PROFESSIONAL
Seventy-one percent of sellers contacted only one agent before selecting one to help assist in the sale of their home.
When selecting a real estate professional, 40 percent of sellers received a recommendation from a friend, neighbor or relative.
The reputation of the agent was the most important factor when choosing a real estate professional for 34 percent of recent sellers.
Fifty-seven percent of sellers used the same agent for their home purchase.
For 22 percent of sellers, their most important expectation was that the real estate agent will help price home competitively. 18 percent of reported their most important expectation was that the agent will help sell the home within a specific timeframe.
Ninety-six percent of sellers reported their home was listed or advertised on the Internet.
Seventy-five percent of sellers used an agent that provided a broad range of services and managed most aspects of the sales transaction.
Fifty-seven percent of sellers reported they would definitely use the same real estate agent again.
FOR SALE BY OWNER SELLERS (FSBO)
Nine percent of sellers sold their home without the assistance of an agent compared to 13 percent of sellers nationally. Among all sellers, 4 percent were FSBO sellers who knew the buyer.
Sixty-nine percent of FSBO sellers reported that they had difficulty in selling their home themselves, in performing tasks such as understanding and performing the necessary paperwork to complete the transaction, preparing the home for sale, and getting the price right.
1/09 National Association of Realtors
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