by Selma Lewis, Research Economist for Real Estate Insights
At the end of 2009, foreclosures were definitely "in the news." And for good reason. The number of foreclosures rose from 1.8 million at the end of 2008 to about 2.5 million at the end of 2009. According to RealtyTrac, at the end of 2009, there was a total of 2,824,674 properties involved in foreclosure filings; that total includes default notices, scheduled foreclosure auctions and bank repossessions. This means that 2.21 percent of all U.S. housing units - one in 45 - received at least one foreclosure filing during 2009. That is up from 1.84 percent in 2008, 1.03 percent in 2007 and 0.58 percent in 2006.
It is important, however, not to generalize foreclosure trends across all states. In fact, four states - Nevada, Arizona, Florida, and California - account for 45 percent of the foreclosure inventory (according to the Mortgage Bankers Association's Mortgage Delinquency Survey) and 50 percent of all delinquency filings (based on data from RealtyTrac). Nevada tops the list with more than 10 percent of its housing units receiving at least one delinquency notice. In general, throughout 2009 these four states topped the list with the highest rates of filings and the number of foreclosures.*
In contrast, Vermont boasted the lowest foreclosure rate - 0.05 percent of its housing units - as well as the lowest absolute number of foreclosures - 143. Similarly, North Dakota had only 0.13 percent of its housing units receiving a delinquency notice. West Virginia was third at 0.17 percent and South Dakota ranked fourth at 0.21 percent. For comparison, the average national delinquency rate in the same quarter was at 8.85 percent.
Current Situation
At the beginning of the foreclosure crisis, mortgage defaults were primarily among non-prime borrowers. But things changed. In 2009, the wave of foreclosures were largely among prime loans. This suggests that while the initial crisis stemmed from bad underwriting practices, the extension of the crisis was due to the national economic recession and borrowers losing their jobs. Actually, the number of seriously delinquent prime loans grew at a much faster rate in 2009 - 66 percent - than did the number of seriously delinquent subprime loans, which increased by about 20 percent. As a result, prime loan defaults accounted for about 60 percent of the increase in all delinquent loans over the past year.
Similarly, the number of prime loans in foreclosure has doubled in each of the past two years, 99 percent between 2007 and 2008, and 95 percent in 2009. In comparison, the number of subprime loans in the process of foreclosure increased only 5 percent in the past year and 12 percent the year before. There has been, however, a much lower share of subprime loans originated in the last year, falling by 14 percent from the year prior. In the 3rd quarter of 2009, prime mortgage foreclosures accounted for 54 percent of all foreclosures, while subprime loans accounted for 36 percent.
In the last couple of months, it has become evident that the foreclosure crisis has moved "up market." Among recent prime loan defaults, those loans with balances of between $417,000 and $600,000 have performed the worst. In fact, the monthly Mortgage Monitor by Lender Processing Services (LPS) suggests that non-agency jumbo prime loans have had the worst deterioration rates year-over-year for both delinquencies and foreclosures, with delinquencies increasing some 85 percent and foreclosures increasing some 190 percent, both significantly higher than other product types. In 2006, homes in the bottom one-third of home values accounted for almost 55 percent of all foreclosures. In 2009, the bottom one-third made up 35 percent of foreclosures, compared to 35 percent and 30 percent for the middle and top one-thirds, respectively. That means 30 percent of foreclosures are homes in the top tier of local home values, almost twice the proportion of foreclosures than three years ago. Data by Amherst Securities suggest that the increasing rate of negative equity among top home price tiers might be kindling this trend.
Underwater
Nearly 10.7 million, or 23 percent, of all residential properties with mortgages were in negative equity as of the second quarter of 2009. An additional 2.3 million mortgages were possibly approaching negative equity - or having less than five percent in equity. That adds up to nearly 28 percent of all residential properties with a mortgage nationwide.
The share of homeowners "under water" is still largely concentrated in five states - in fact, those states with the highest foreclosure rates, namely Nevada, Arizona, Florida, Michigan, and California. Among the top five states, the average negative equity share was 46 percent, compared to 13 percent for the remaining states.
In terms of larger metropolitan areas (with population greater than 50,000 people), the highest levels of negative equity are in those metros located in the top five "negative equity" states. Within smaller metropolitan areas largest losses are seen in Merced, CA and El Centro, CA (both 85 percent underwater), Modesto, CA and Stockton, CA (both 84 percent), Bakersfield, CA (79 percent), and Port St. Lucie, FL (79 percent).
"Strategic Defaults"
With estimates from LPS of some 25 percent of borrowers currently having negative equity nationwide, the question increasingly being asked is what the likelihood may be of homeowners underwater who are likely to "leave the pool", or "strategically default". According to a study by Experian and Oliver Wyman, more than a quarter of all existing defaults were found to be strategic and they more than doubled from 2007 to 2008 to 588,000. The study also found that borrowers with higher credit scores were 50 percent more likely to strategically default than those with lower credit scores.
In another survey study by Guiso, Sapienza, and Zingales**, the authors found that 26 percent of existing defaults were strategic. They also found that no household would default if the equity shortfall is less than 10 percent of the value of the home. Yet, 17 percent of households would default, even if they could afford to pay the mortgage, when the equity shortfall reaches 50 percent of the value
of their house.
Besides relocation costs, the most important variables in predicting strategic default are moral and social considerations. All things being equal, people who consider it immoral to default are 77 percent less likely to declare their intention to do so, while people who know someone who defaulted are 82 percent more likely to declare their intention to do so. That said, there is some research that suggests that while borrowers with negative equity should be walking away in droves, most homeowners choose not to strategically default due to the desire to avoid the shame and guilt of foreclosure and exaggerated anxiety over the perceived consequences from foreclosure.
What May Lie Ahead
What many analysts are finding alarming is the decreasing rate of delinquencies that are ending up in foreclosures. Loss mitigation efforts such as the Making Home Affordable Program (HAMP), as well as backlogs caused by the elevated delinquent loan volumes, are extending the number of days in delinquency. The data by LPS suggest that average number of delinquent days for loans in foreclosure has risen from 249 to 406 from January 2008 to December 2009 - an increase of 63 percent. The fear is that the increasing pool of troubled loans, also referred to as the "shadow inventory," is only going to lead to more inventory and home price problems in the future. (We'll discuss shadow inventory in a follow-up article in next month's Real Estate Insights.)
The impact of HAMP is still difficult to evaluate. December's numbers suggest 1,164,507 cumulative trial-period plan offers extended to borrowers, and 902,620 trial modifications started. The goal is 3-4 million homeowners with lower mortgage payments through a modification through 2012. Available data indicate around 112,000 modifications have turned permanent. The latest assessment of the program's progress by the State Foreclosure Prevention Working Group*** also suggests that while the HAMP has helped to slow down the foreclosure crisis, current efforts have been insufficient as the total number of struggling homeowners not on track for any foreclosure prevention assistance continues to grow. Indeed, the Working Group found that only four out of ten seriously delinquent borrowers were involved in loss mitigation efforts.
As the increase in the rates of prime loan defaults suggests, so does the predominant hardship reason for permanent modifications under the Making Home Affordable program: curtailment of income is currently the primary reason for mortgage defaulting. With the unemployment rate at or near 10 percent nationally, and millions of more Americans having either exited the workforce or remaining underemployed, it is very difficult to say definitively how the economy will play out in the next couple of years and what the effects will be on the future foreclosure rates.
by National Association of Realtors Research Staff
There was good news for most states in the 4th quarter of 2009. Existing-home sales rose from the 3rd to 4th quarter in 48 states and the District of Columbia. In fact, 32 states experienced double-digit quarterly gains. On a year-over-year basis, resales were higher in 49 states and the District, with all but three posting double-digit annual increases.
According to the latest quarterly statistics released by NAR Research, total state existing-home sales, including single-family and condo, jumped 13.9 percent to a seasonally adjusted annual rate of 6.03 million in the fourth quarter - up from 5.29 million in the third quarter. Existing-home sales rose 27.2 percent from their 4th quarter 2008 pace of 4.74 million units. As a further sign of housing market stability, distressed properties accounted for 32 percent of fourth quarter transactions; that is down from
37 percent a year earlier.
Metropolitan Area Home Prices
There was some good news on the home price front as well. In the fourth quarter, 67 out of 151 metropolitan statistical areas boasted higher median existing single-family home prices compared with prices registered in the fourth quarter of 2008. In the third quarter only 30 MSAs showed annual price increases. Sixteen metros experienced double-digit increases. On a national basis, the news was not quite as good. The national median existing single-family home price was $172,900, 4.1 percent below the price registered in the fourth quarter of 2008. But on the positive front, that was the smallest price decline in over two years. It should be noted that the most recent monthly price data showed a broad stabilization in home prices.
In the condo sector, metro area condominium and cooperative prices - covering changes in 54 metro areas - showed the national median existing-condo price was $177,300 in the fourth quarter, down 4.8 percent from the fourth quarter of 2008. Eleven metros showed increases in the median condo price from a year earlier. In the third quarter only four metros experienced annual price gains.
Regional Differences
All four regions of the country saw rising home sales. Existing-home sales in the Northeast rose 11.1 percent from the 3rd quarter to 1.03 million units; Northeast resales were 33.6 percent higher than a year ago. The median existing single-family home price in the Northeast declined 5.6 percent to $234,900 in the fourth quarter from the same quarter in 2008, but with widely varying conditions. Markets with lower median prices that have avoided wide swings, such as Buffalo, are generally showing consistent price gains. And even some of the higher cost areas such as Nassau-Suffolk (NY) and Boston (MA) are exhibiting signs of stabilization.
In the Midwest, existing-home sales jumped 14.5 percent (on a quarter to quarter basis) to a pace of 1.38 million units and were 29.9 percent above a year ago. The median existing single-family home price in the region rose 1.1 percent from a year ago to $141,100. In fact, the Midwest accounted for the majority of metro areas experiencing double-digit price gains.
Existing-home sales in the South increased 13.8 percent from the 3rd to the 4th quarter of 2009 to an annual rate of 2.23 million units; resales in the region were 28.2 percent higher than in the fourth quarter of 2008. The median existing single-family home price in the South was $153,000 in the fourth quarter, down 2.4 percent from a year earlier.
The West experienced a 16.2 percent increase in existing-home sales, posting an annual rate of 1.38 million units. On a year-over-year basis, resales in the region were up 18.2 percent. The median existing single-family home price in the West did decline 8.9 percent from a year ago (to $227,200), but many metros showed price gains.
Behind the Numbers
What's driving the rising home sales and stabilizing prices? The dominant factor is the home buyer tax credit. Buyers are responding to the program, and that - combined with record low mortgage interest rates - are attracting purchasers to the market.
One cautionary issue down the road will face buyers. They will need to accelerate their buying plans if they want to qualify for the tax credit. While repeat buyers do not have to sell their existing home, all buyers must occupy the property they purchase as a primary residence in order to qualify for the tax credit. Buyers who have a contract in place by April 30, 2010, have until June 30, 2010, to finalize the transaction to get a credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.
Near-term market conditions will remain favorable. While interest rates are expected to trend up later this year, affordability continues at healthy levels. In general, housing market conditions are good - home prices are steadying and inventory, while drawing down, continues to be plentiful offering potential buyers a variety of options.
This year could bring significant changes from 2009 for those seeking home loans. Over the last year, home prices fell to 2003 and earlier levels in many parts of the country. In addition, home loan rates declined to the lowest levels on record and this combination led to the highest home affordability levels ever recorded. Here's a recap of what happened in 2009 and what you need to know for the year ahead. Interest rates throughout 2009 were artificially low. That's because in late 2008, the Federal Reserve put into place a program for purchasing Mortgage Backed Securities with the intention of lowering mortgage rates. They were successful with reported rates by Freddi Mac falling below 5.00% several times in 2009.
Without this program mortgage rates would have been at least 1.00% higher, and potentially even higher than that. Did you know that a change of 1% in a home loan rate impacts the amount someone can borrow by roughly 10%? For example, if rates are in the low 5.00% range today and they shoot up to the low 6.00% range, $250,000 home buyers may become $225,000 home buyers.
Look for rates to return to 2008 and previous levels as the Fed ends the program on March 31, 2010. While rates will not immediately increase to 6.00% or higher, know that without additional intervention, rising rates are inevitable. Expect that under worst case scenarios, rates could dance around the 7.00% range.
Contrary to what you may see or hear in the media, money is widely available for people who want to finance their homes. There is one caveat, though. People need to be able to demonstrate that they qualify for the loan amount they are pursuing and that they have been willing to repay debt they have accepted in the past.
To obtain financing today, a borrower needs to supply the lender with all documentation pertaining to their income, liquid assets and potentially items related to their credit reporting. The best preparation path to follow is to gather most recent paystubs for 30 days of earnings, two years W-2s with complete tax returns and three months statements, all pages, for any liquid assets used for qualifying.
The free wheeling days of borrowing whatever people thought they could repay are gone. While some exceptions may be granted for strong compensating factors, total debt to income level will be capped at 45%.
If you haven't checked out your credit reports recently, now is a good time to do so if you plan on seeking financing in the next 12 months. You can pull up your reports for free at AnnualCreditReport.com. Examine your reports for any inaccuracies and work to get them corrected prior to seeking financing. You can also seek assistance from your mortgage professional.
If you simply look at the data that is reported, one could surmise that the bottom in U.S. home prices was hit in 2009. One nationally respected index for home price reporting, the S&P/Case-Shiller Home Price Indices, indicates that home prices turned for the better around mid-year in 2009.
While all markets are different and some may continue to show signs of weakness, most communities have demonstrated strength and should continue to do so. However, some potential headwinds do exist for the second and third quarter of 2010, following the expressed expiration dates of several stimulus programs: The Mortgage Backed Securities purchase program and home buyer tax credits, both of which are directed at the housing and the mortgage markets.
Foreclosures and short sales will also continue to influence many of the hardest hit markets as unemployment and resetting adjustable rate mortgages weigh on distressed homeowners.
Two dates lie on the horizon that will impact interest rates and potentially home prices. The first program scheduled to end is the Federal Reserve's program for purchasing Mortgage Backed Securities. Announced in November of 2008, the Fed began purchasing $1.25 trillion in mortgage bonds in 2009 which will culminate at the end off March. As the intention and result of this program was to lower rates, mortgage rates will likely begin to rise after the program concludes.
In addition, April 30, 2010 is the last day to enter into a home purchase contract and still potentially qualify for a federal income tax credit of up to $8,000 for first-time home buyers and up to $6,500 for repeat home buyers. The credit can be claimed only on contracts that close by June 30, 2010.
While no one knows for certain what the future holds, one thing does appear clear. Home loan rates and home prices both will be higher in the future. If you or anyone you know is looking to purchase or refinance a home, waiting could be costly!
By Brian Summerfield, Online Editor, REALTOR® Magazine
Toward the beginning of this decade, we saw two manias explode onto the national scene: reality TV and the housing boom. The perhaps inevitable combination of these two popular trends resulted in a massive proliferation of real estate-focused programming on cable television.
These shows generally fell into two categories:
- Design and Staging: These shows focused primarily on home furnishings and improvements, for the implicit (and sometimes explicit) purpose of increasing a house’s value for resale.
- House Hunting: These shows focused more on the process of finding a home with the desired characteristics for the right price.
Moreover, while channels such Bravo and A&E added a few real estate shows to its lineup, a couple of others made real estate and related topics their bread and butter—namely, HGTV and Discovery Home & Leisure (which has since been rebranded Planet Green, reflecting another important industry trend).
Shows have adapted to the changing times as well. These days, programs like Real Estate Intervention, which helps sellers come to terms with realistic prices for their properties, and Renovation Realities, which offers a glimpse into the stresses and soaring costs involved with home improvement projects, present a pragmatic picture of the process of buying, selling, and improving houses.
Still, in good times or bad, the main thing is to amuse and interest viewers. And the sheer number of these kinds of programs on TV right now suggests that there’s a large audience that wants real estate-themed entertainment, regardless of what the market is doing.
(On a personal note, I’m not a fan of most of these shows, and this post shouldn’t be viewed as an endorsement. But liking something and acknowledging it as a cultural phenomenon are two separate things. I don’t particularly like American Idol either, but there’s no denying its popularity in this decade.)
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The Federal Reserve who has been purchasing Mortgage Backed Securities (MBS) these securities are tied to mortgage rates, to keep Interest Rates low during the Housing Crisis was suppose to begin reducing, then stopping their purchases of MBS beginning in January.
This has caused concern in the Real Estate and Mortgage industry because when the Fed stops their purchases of MBS rates will move higher from the Fed’s artificially low rates in the low 5%’s.
Rates will more than likely move into the mid to high 6%’s maybe even to the low 7%’s.
Here is what was said about the Real Estate Market and the MBS Purchase Plan from the Fed at their recent meeting……………..
"Some participants remained concerned about the economy’s ability to generate a self-sustaining recovery without government support. In particular, they noted the risk that improvements in the housing
sector might be undercut next year as the Federal Reserve’s purchases of MBS wind down, the homebuyer tax credits expire, and foreclosures and distress sales continue."
"In the residential real estate sector, home sales and construction had risen relative to the very low levels reported in the spring; moreover, house prices appeared to be stabilizing and in some areas had reportedly
moved higher. Generally, the outlook was for gains in housing activity to continue. However, some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness,
including the termination next year of the temporary tax credits for homebuyers and the downward pressure that further increases in foreclosures could put on house prices. Moreover, mortgage markets could come
under pressure as the Federal Reserve’s agency MBS purchases wind down."
That said, with the housing recovery still slow the Fed is hinting that they may keep the MBS Purchase plan in place………What does that mean for us???
This means rates should stay low, in the 5%’s for the foreseeable future.
Rates have been rising slightly over the last few weeks as word that the MBS Purchase plan was beginning to end.
Can the continuation of the MBS Purchase plan be a bad thing???
The answer is………..could be.
Rates will eventually have to get back to current market rates of 6%-7%.
The Fed is trying to make this a gradual climb higher but this might not happen, especially if they extend the MBS Purchase plan.
It may be time to “rip the band-aid” off and let rates come back to normal market conditions.
If the artificially low rates stay in place for a while, when the Fed does decide to stop their MBS purchases we can see a quick jump higher………
Yes, really low rates are great but do we want to see rates move from 5% to 7% in a week or two when the MBS Purchase plan is halted?
What we all really want and the market needs to see is a gradual increase over 6-12 months.
Our industry seems to be beginning to recover.
Hopefully the Gov’t will get out of our way and let the recovery happen more, sooner than later.
Please let me know if you have anyone I can help you with this week.
PS - Thank you so much for your business, and remember I am NEVER to busy for your referrals!
Kindest Regards,
Michael W. Ulman
Direct: (843) 457-2867
Email: mulman@myrtlebeachmortgage.net
Fax: 1-(866) 695-2432
Website: www.pmfmyrtlebeach.com
Paramount Mortgage Funding, Inc.
9506 Hwy 707 Suite 6
Myrtle Beach, SC. 29588
In the early 1980s, homes on average started to get bigger and by the 1990s, most builders were constructing even larger homes with many high end luxury features.
In recent years there has been a backlash against these luxury houses due to greater awareness of environmental issues and the practical realities of the economic downturns. These luxry homes are reviled by many for being high energy eaters. More than one-fifth of all energy used in the United States in 2006 was consumed by residential buildings, and these houses were a major contributor to that figure.
Nowadays, the watchwords in housing are sustainable development, small energy footprints, and green architecture. More builders are starting to use recycled materials in construction and incorporating renewable energy sources into designs which are getting the attention of homebuyers.
However, the push to go green in real estate has occasionally produced a backlash of its own. For instance, many in the home building industry are apprehensive about overzealous energy regulations for homes, particularly with the proposed Cap and Trade bill. Also, some believe that once the economy improves, Americans will resume their big-house-lovin’ ways.
Whether the green movement in real estate is a long-term trend remains to be seen. But with energy prices rising and an increase in public awareness of global warming, I'm guessing "Going Green" will result in green.
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• lot / land - MLS® $113,300
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11.33 Acres of Land SW of Conway
• lot / land - MLS® $135,960
Pawley Swamp, Conway - Over 11 acres of wooded land for sale on Pawley Swamp Road southwest of Conway near Pitch Landing. Another 11 acre tract that adjoins the property is also for sale. Great investment or development opportunity.
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Adult Community (55+)
• 2 bath, 3 bdrm single story - MLS® $225,000 - Priced to Sell!
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From The Washington Post
The Senate voted to renew the government's $8,000 tax credit for first-time home buyers through the first six months of next year as part of a broader bill designed to extend unemployment benefits.
For the first time, the tax credit program would also enable many homeowners who buy a new primary residence to receive a $6,500 refund.
The measure was attached to a bill that would provide 20 weeks of unemployment benefits in more than two dozen states with jobless rates above 8.5 percent and up to 14 weeks elsewhere. Another provision in the bill would allow businesses that had operating losses in 2008 and 2009 to seek refunds for taxes paid on profits over the past five years.
The bill, which passed 98 to 0, should reach the House floor by Thursday, House Majority Leader Steny H. Hoyer (D-Md.) said in a statement. His office said the legislation would then go to the White House for the president's signature.
The Obama administration has previously supported extending the $8,000 tax credit, and without congressional action the program would end Nov. 30.
Under the bill, first-time home buyers would receive the $8,000 tax credit if they sign a contract by April 30 and close on it by June 30. The plan would also make those who buy a new primary residence eligible for the $6,500 credit if they owned their current home for at least five consecutive years in the previous eight years.
But the measure limits the purchase price of the home to $800,000. It also imposes income caps so that people who make more than $125,000 annually and couples who make more than $225,000 would not be eligible for the program, which is estimated to cost $10 billion.
Sen. Johnny Isakson (R-Ga.), a longtime advocate of the tax credit, praised passage of the bill in his chamber but said the extension would be the last one. "Tax credits like this only work by creating the sense of urgency to take advantage of them," Isakson said in a statement.
The tax credit and the broader bill in which it is included are part of a series of Democratic-led initiatives aimed at helping the economy and people who have lost their jobs.
The unemployment benefits of more than 1 million people would lapse without this extension, according to the National Employment Law Project, a nonpartisan group that tracks the issue. More than 15 million Americans are unemployed, more than a third of them for longer than six months.
Although the legislation gained wide bipartisan support, it had been mired in bickering for weeks as Republicans tried to attach amendments that Democrats opposed. Party leaders from both sides voiced support for the core measures, including the tax credit.
Supporters of the tax credit, including the real estate industry, say it has energized home buyers and helped increase sales. But critics say the program is too expensive and has attracted mainly people who were going to buy a home anyway.
In the Senate's measure, taxpayers would be able to claim the credit on their 2009 income tax return for purchases made in 2010.
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It continues to be an excellent time to purchase a home. There are many factors that work in favor of homebuyers, both those looking to make their first home purchase and those seeking to move up into a larger home.
In recent weeks, there have been many indicators pointing to an improving real estate market, so buyers should act now while conditions remain ideal.
Consider these reasons why now is a good time to buy a home:
- Housing affordability remains high.This allows buyers to purchase a bigger home, or one in a better location, than they might have in the past.
- The number of homes on the market has started to decrease. Yet, homebuyers still have a wide variety of homes to choose from, making it more likely they will find their dream home.
- Mortgages are at historically low levels, and some buyers are even able to get 30-year fixed rates below 5 percent. Low mortgage rates also positively impact affordability and allow buyers to enjoy lower mortgage payments for the lifetime of their loan. This may be of particular interest to renters whose rent payments typically rise each year.
Pending home sales have increased for seven straight months, the longest in the series of the index which began in 2001, according to latest survey. The Pending Home Sales Index rose 6.4 percent to 103.8 from a reading of 97.6 in July, and is 12.4 percent above August 2008 when it was 92.4. The index is at the highest level since March 2007 when it was 104.5. Lawrence Yun, NAR chief economist, said not all contracts are turning into closed sales within an expected timeframe. “The rise in pending home sales shows buyers are returning to the market and signing contracts, but deals are not necessarily closing because of long delays related to short sales, and issues regarding complex new appraisal rules,” he said. “No doubt many first-time buyers are rushing to beat the deadline for the $8,000 tax credit, which was originally set to expire at the end of November.”