(CNNMoney) -- Renters beware: Double-digit rent hikes may be coming soon.
Already, rental vacancy rates have dipped below the 10% mark, where they had been lodged for most of the past three years.
"The demand for rental housing has already started to increase," said Peggy Alford, president of Rent.com. "Young people are starting to get rid of their roommates and move out of their parent's basements."
By 2012, she predicts the vacancy rate will hover at a mere 5%. And with fewer units on the market, prices will explode.
Rent hikes have averaged less than 1% a year over the past decade, according to Commerce Department statistics, adjusted for inflation. Now, Alford expects rents to spike 7% or so in each of the next two years -- to a national average that will top $800 per month.
In the hottest rental markets, the increases will likely top the 10% mark annually for the next couple of years, according to Lesley Deutch of John Burns Real Estate Consulting. In San Diego, she anticipates rents will rise more than 31% by 2015. In Seattle rents will climb 29% over that period; and in Boston, they may jump between 25% and 30%.
This is a sharp change from the recession, when many Americans couldn't afford to live on their own. More than 1.2 million young adults moved back in with their parents from 2005 to 2010, said Deutch. Many others doubled up together.
As a result, landlords had to reduce prices and offer big incentives to snag renters.
Now that the recession is easing, many of these young people are ready to find new digs, mostly as renters, not owners. Plus, the foreclosure crisis continues unabated, and the millions losing their homes are looking for new places to live.
Apartment developers many not be able to keep up with this heightened demand, which will force prices upwards, according to Chris Macke, a real estate analyst with CoStar, which tracks multi-family housing trends.
"There will be an envelope of two or three years," said Macke, "when the rise in demand for rentals will exceed the industry's ability to meet it."
Plus, Alford added, "there's been a shift in the American Dream. We're learning from our surveys that a huge proportion of people are choosing to rent."
They've experienced the downsides of home ownership -- or seen friends and family suffer -- and don't want to take the risks or pay the higher costs of home ownership.
Where home ownership costs are particularly high, there are many more renters than owners. In Manhattan, for example, only about 20% own their homes; in San Francisco, about of third of the population does; in Los Angeles, less than 40%; and in Chicago, about 44%.
There's one factor that could rein in rent increases: the huge number of foreclosed homes that could hit the market over the next few years.
In many markets, like Phoenix and Las Vegas, there are neighborhoods filled with recently built, single-family homes going for fire-sale prices. When the cost of owning homes falls well below the costs of renting them, more people will buy.
"That's always been the biggest competition for rentals," said Deutch
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
Friday, March 18, 2011
Thursday, March 10, 2011
Foreclosure Activity Decreases 14 Percent in February 2011, According to RealtyTrac
RealtyTrac, a leading online marketplace for foreclosure properties, released its U.S. Foreclosure Market Report for February 2011, which shows foreclosure filings—default notices, scheduled auctions and bank repossessions—were reported on 225,101 U.S. properties in February, a 14% decrease from the previous month and a 27% decrease from February 2010—the biggest year-over-year decrease since RealtyTrac began issuing its report in 2005. The report also shows one in every 577 U.S. housing units with a foreclosure filing during the month.
“Foreclosure activity dropped to a 36-month low in February as allegations of improper foreclosure processing continued to dog the mortgage servicing industry and disrupt court dockets,” said James J. Saccacio, chief executive officer of RealtyTrac. “While a small part of February’s decrease can be attributed to it being a short month and bad weather, the bottom line is that the industry is in the midst of a major overhaul that has severely restricted its capacity to process foreclosures. We expect to see the numbers bounce back, but that will likely take several months. And monthly volume may never return to its peak in March 2010 of more than 367,000 properties receiving foreclosure filings.”
Foreclosure Activity by Type
A total of 63,165 U.S. properties received default notices (NOD, LIS) for the first time in February, a 16% decrease from the previous month and a 41% decrease from February 2010. Default notices hit a 48-month low in February and were 55% below a peak of 142,064 in April 2009.
In states with a judicial foreclosure process (LIS), default notices decreased 19% from January and were down 48% from February 2010. In states with a non-judicial foreclosure process (NOD), default notices decreased 13% from January and were down 31% from February 2010.
Foreclosure auctions (NTS, NFS) were scheduled for the first time on a total of 97,293 U.S. properties in February, a 10% decrease from the previous month and a 21% decrease from February 2010. Scheduled foreclosure auctions hit a 27-month low in February and were 38% below a peak of 158,105 in March 2010.
Scheduled judicial foreclosure auctions (NFS) decreased 7% from January and were down 49% from February 2010. Scheduled non-judicial foreclosure auctions (NTS) decreased 11% from the previous month and were down 7% from February 2010.
Lenders foreclosed on 64,643 U.S. properties in February, down 17% from January and down 18% from February 2010. Bank repossessions (REO) hit a 22-month low in February and were down 37% from their peak of 102,134 in September 2010.
Bank repossessions in states with a judicial foreclosure process decreased 24% from January and were down 35% from February 2010, while bank repossessions in states with a non-judicial foreclosure process decreased 14% from January and were down 8% from February 2010.
Nevada, Arizona, California post top state foreclosure rates
Nevada posted the nation’s highest state foreclosure rate for the 50th straight month in February—one in every 119 Nevada housing units had a foreclosure filing during the month—despite a 22% decrease in foreclosure activity from the previous month. There were a total of 9,553 Nevada properties with a foreclosure filing in February, down 13% from February 2010.
Arizona posted the nation’s second highest state foreclosure rate, one in every 178 housing units with a foreclosure filing, and California posted the nation’s third highest state foreclosure rate, one in every 239 housing units with a foreclosure filing.
One in every 273 Utah housing units had a foreclosure filing in February, the nation’s fourth highest foreclosure rate, and one in every 298 Idaho housing units had a foreclosure filing during the month, the nation’s fifth highest foreclosure rate.
Other states with foreclosure rates ranking among the top 10 in February were Georgia, Michigan, Florida, Colorado and Hawaii.
10 states account for more than 70 percent of national total
With 56,229 properties with a foreclosure filing, California accounted for 25% of the national total in February. The state’s foreclosure activity decreased 16% from January—following two straight monthly increases in foreclosure activity—and was down 18% from February 2010—the 15th straight month where the state registered a year-over-year decrease in foreclosure activity.
Florida foreclosure activity decreased 13% from January and was down 65% from February 2010, but the state’s 18,760 properties with a foreclosure filing was still the nation’s second highest for the month. Florida foreclosure activity hit a 46-month low in February and was down 71% from a peak of 64,588 in April 2009.
Arizona documented the nation’s third highest state total in February, 15,485 properties with a foreclosure filing. Arizona foreclosure activity decreased 2% from the previous month and was down 7% from February 2010.
Michigan foreclosure activity decreased 16% from January and was down 30% from February 2010, but the state’s 14,003 properties with a foreclosure filing was still the nation’s fourth highest.
Georgia posted the fifth highest state total, tallying 12,807 properties with a foreclosure filing in February—up fractionally from the previous month and up 5% from February 2010.
Other states with foreclosure activity totals among the nation’s 10 highest in February were Texas (11,562), Illinois (9,592), Nevada (9,553), Ohio (8,598) and Wisconsin (4,478).
Florida cities absent from top 20 metro foreclosure rates for second straight month
For the second month in a row, no Florida cities posted foreclosure rates in the top 20 among U.S. metropolitan areas with a population of 200,000 or more. That was in contrast to 2010, when the state accounted for nine of the top 20 metro foreclosure rates.
Some of the metro areas filling the spots vacated by Florida cities included Racine, Wis., at No. 12, Salt Lake City at No. 16, Atlanta-Sandy Springs-Marietta at No. 17, and Detroit-Warren-Livonia at No. 18.
Nevada, California and Arizona cities continued to dominate the top 20, accounting for all top 10 metro foreclosure rates and 15 of the top 20 metro foreclosure rates in February. The Las Vegas-Paradise, Nev., metro area continued to register the nation’s highest metro foreclosure rate, one in every 106 housing units with a foreclosure filing in February.
The other Nevada metro area in the top 10 was Reno-Sparks, at No. 9 with one in every 184 housing units with a foreclosure filing during the month.
Seven California metro areas posted foreclosure rates in the top 10, led by Modesto at No. 2, with one in every 140 housing units with a foreclosure filing, and Stockton at No. 3, with one in every 141 housing units with a foreclosure filing. Also in the top 10 were Riverside-San Bernardino-Ontario at No. 5 (one in 144 housing units); Vallejo-Fairfield at No. 6 (one in 147 housing units); Merced at No. 7 (one in 153 housing units); Bakersfield at No. 8 (one in 166 housing units); and Sacramento-Arden-Arcade-Roseville at No. 10 (one in 189 housing units).
The Phoenix-Mesa-Scottsdale metro foreclosure rate ranked fourth highest: one in every 143 metro housing units had a foreclosure filing in February.
For more information, visit www.realtytrac.com.
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
“Foreclosure activity dropped to a 36-month low in February as allegations of improper foreclosure processing continued to dog the mortgage servicing industry and disrupt court dockets,” said James J. Saccacio, chief executive officer of RealtyTrac. “While a small part of February’s decrease can be attributed to it being a short month and bad weather, the bottom line is that the industry is in the midst of a major overhaul that has severely restricted its capacity to process foreclosures. We expect to see the numbers bounce back, but that will likely take several months. And monthly volume may never return to its peak in March 2010 of more than 367,000 properties receiving foreclosure filings.”
Foreclosure Activity by Type
A total of 63,165 U.S. properties received default notices (NOD, LIS) for the first time in February, a 16% decrease from the previous month and a 41% decrease from February 2010. Default notices hit a 48-month low in February and were 55% below a peak of 142,064 in April 2009.
In states with a judicial foreclosure process (LIS), default notices decreased 19% from January and were down 48% from February 2010. In states with a non-judicial foreclosure process (NOD), default notices decreased 13% from January and were down 31% from February 2010.
Foreclosure auctions (NTS, NFS) were scheduled for the first time on a total of 97,293 U.S. properties in February, a 10% decrease from the previous month and a 21% decrease from February 2010. Scheduled foreclosure auctions hit a 27-month low in February and were 38% below a peak of 158,105 in March 2010.
Scheduled judicial foreclosure auctions (NFS) decreased 7% from January and were down 49% from February 2010. Scheduled non-judicial foreclosure auctions (NTS) decreased 11% from the previous month and were down 7% from February 2010.
Lenders foreclosed on 64,643 U.S. properties in February, down 17% from January and down 18% from February 2010. Bank repossessions (REO) hit a 22-month low in February and were down 37% from their peak of 102,134 in September 2010.
Bank repossessions in states with a judicial foreclosure process decreased 24% from January and were down 35% from February 2010, while bank repossessions in states with a non-judicial foreclosure process decreased 14% from January and were down 8% from February 2010.
Nevada, Arizona, California post top state foreclosure rates
Nevada posted the nation’s highest state foreclosure rate for the 50th straight month in February—one in every 119 Nevada housing units had a foreclosure filing during the month—despite a 22% decrease in foreclosure activity from the previous month. There were a total of 9,553 Nevada properties with a foreclosure filing in February, down 13% from February 2010.
Arizona posted the nation’s second highest state foreclosure rate, one in every 178 housing units with a foreclosure filing, and California posted the nation’s third highest state foreclosure rate, one in every 239 housing units with a foreclosure filing.
One in every 273 Utah housing units had a foreclosure filing in February, the nation’s fourth highest foreclosure rate, and one in every 298 Idaho housing units had a foreclosure filing during the month, the nation’s fifth highest foreclosure rate.
Other states with foreclosure rates ranking among the top 10 in February were Georgia, Michigan, Florida, Colorado and Hawaii.
10 states account for more than 70 percent of national total
With 56,229 properties with a foreclosure filing, California accounted for 25% of the national total in February. The state’s foreclosure activity decreased 16% from January—following two straight monthly increases in foreclosure activity—and was down 18% from February 2010—the 15th straight month where the state registered a year-over-year decrease in foreclosure activity.
Florida foreclosure activity decreased 13% from January and was down 65% from February 2010, but the state’s 18,760 properties with a foreclosure filing was still the nation’s second highest for the month. Florida foreclosure activity hit a 46-month low in February and was down 71% from a peak of 64,588 in April 2009.
Arizona documented the nation’s third highest state total in February, 15,485 properties with a foreclosure filing. Arizona foreclosure activity decreased 2% from the previous month and was down 7% from February 2010.
Michigan foreclosure activity decreased 16% from January and was down 30% from February 2010, but the state’s 14,003 properties with a foreclosure filing was still the nation’s fourth highest.
Georgia posted the fifth highest state total, tallying 12,807 properties with a foreclosure filing in February—up fractionally from the previous month and up 5% from February 2010.
Other states with foreclosure activity totals among the nation’s 10 highest in February were Texas (11,562), Illinois (9,592), Nevada (9,553), Ohio (8,598) and Wisconsin (4,478).
Florida cities absent from top 20 metro foreclosure rates for second straight month
For the second month in a row, no Florida cities posted foreclosure rates in the top 20 among U.S. metropolitan areas with a population of 200,000 or more. That was in contrast to 2010, when the state accounted for nine of the top 20 metro foreclosure rates.
Some of the metro areas filling the spots vacated by Florida cities included Racine, Wis., at No. 12, Salt Lake City at No. 16, Atlanta-Sandy Springs-Marietta at No. 17, and Detroit-Warren-Livonia at No. 18.
Nevada, California and Arizona cities continued to dominate the top 20, accounting for all top 10 metro foreclosure rates and 15 of the top 20 metro foreclosure rates in February. The Las Vegas-Paradise, Nev., metro area continued to register the nation’s highest metro foreclosure rate, one in every 106 housing units with a foreclosure filing in February.
The other Nevada metro area in the top 10 was Reno-Sparks, at No. 9 with one in every 184 housing units with a foreclosure filing during the month.
Seven California metro areas posted foreclosure rates in the top 10, led by Modesto at No. 2, with one in every 140 housing units with a foreclosure filing, and Stockton at No. 3, with one in every 141 housing units with a foreclosure filing. Also in the top 10 were Riverside-San Bernardino-Ontario at No. 5 (one in 144 housing units); Vallejo-Fairfield at No. 6 (one in 147 housing units); Merced at No. 7 (one in 153 housing units); Bakersfield at No. 8 (one in 166 housing units); and Sacramento-Arden-Arcade-Roseville at No. 10 (one in 189 housing units).
The Phoenix-Mesa-Scottsdale metro foreclosure rate ranked fourth highest: one in every 143 metro housing units had a foreclosure filing in February.
For more information, visit www.realtytrac.com.
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
Friday, March 4, 2011
HSBC Suspends All U.S. Foreclosures
HSBC Holdings PLC has suspended all foreclosure actions in the United States, according to the company’s annual regulatory filing with the Securities and Exchange Commission (SEC).
HSBC says it decided to temporarily halt foreclosure proceedings after examinations by federal regulators uncovered what the company described as “deficiencies” in its handling of legal paperwork related to foreclosure cases.
HSBC is headquartered in London and is Europe’s largest bank. It operates in the United States as HSBC Finance and HSBC Bank USA, both of which were subject to the official investigations involving mortgage servicing practices and foreclosure processing.
HSBC says it received cease-and-desist letters from both the Federal Reserve and the Office of the Comptroller of the Currency (OCC) which outlined problems in the company’s processing, preparation, and signing of affidavits and other documents supporting foreclosures, and in HSBC’s management of third-party law firms retained to carry out foreclosures.
“Management is reviewing foreclosures where judgment has not yet been entered and will correct deficient documentation and re-file affidavits where necessary,” HSBC said in its annual report. “We have suspended foreclosures until such time as we have substantially addressed noted deficiencies in our processes.”
HSBC said it is currently in discussions with the Federal Reserve and the OCC regarding the terms of the cease and desist orders, which prescribe actions to address the deficiencies noted in the joint examination, and the company expects consent orders to be finalized soon.
In addition, HSBC said it could face fines and civil money penalties imposed by the regulators and federal agencies.
HSBC is among 14 major servicers subject to the regulatory probe that could face sanctions and fines for faulty foreclosure procedures. Bank of America, Citigroup, and Wells Fargo have also disclosed in regulatory filings that they could face similar enforcement actions. 03/01/2011 By: Carrie Bay DSnews.
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
HSBC says it decided to temporarily halt foreclosure proceedings after examinations by federal regulators uncovered what the company described as “deficiencies” in its handling of legal paperwork related to foreclosure cases.
HSBC is headquartered in London and is Europe’s largest bank. It operates in the United States as HSBC Finance and HSBC Bank USA, both of which were subject to the official investigations involving mortgage servicing practices and foreclosure processing.
HSBC says it received cease-and-desist letters from both the Federal Reserve and the Office of the Comptroller of the Currency (OCC) which outlined problems in the company’s processing, preparation, and signing of affidavits and other documents supporting foreclosures, and in HSBC’s management of third-party law firms retained to carry out foreclosures.
“Management is reviewing foreclosures where judgment has not yet been entered and will correct deficient documentation and re-file affidavits where necessary,” HSBC said in its annual report. “We have suspended foreclosures until such time as we have substantially addressed noted deficiencies in our processes.”
HSBC said it is currently in discussions with the Federal Reserve and the OCC regarding the terms of the cease and desist orders, which prescribe actions to address the deficiencies noted in the joint examination, and the company expects consent orders to be finalized soon.
In addition, HSBC said it could face fines and civil money penalties imposed by the regulators and federal agencies.
HSBC is among 14 major servicers subject to the regulatory probe that could face sanctions and fines for faulty foreclosure procedures. Bank of America, Citigroup, and Wells Fargo have also disclosed in regulatory filings that they could face similar enforcement actions. 03/01/2011 By: Carrie Bay DSnews.
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
Monday, February 28, 2011
House prices to keep falling?
According to Capital Economics, the second leg of the US housing downturn will continue throughout the year and could be nasty if a vicious circle of falling prices and rising foreclosures continues. "The second downward leg in house prices that began last year will continue throughout this year and take prices to a new cycle low, some 5 percent below current levels," Paul Dales, a senior economist at Capital Economics, said. "Incredibly favorable valuations and exceptionally low mortgage rates will not prevent this fall in prices. Valuations and affordability are much less important when demand is constrained by poor economic conditions and the effects of the previous plunges in asset prices," Dales explained. In the US, 25 percent of households are in negative equity with another 25 percent not having enough equity to qualify for a new mortgage, said Dales, who also warned that those who can move are less likely to do so as prices fall. Even rising sales will not stop the fall in prices, he added.
"Rising employment and incomes will mean that home sales will continue to edge up from their still depressed levels. The existing market will continue to outperform the new market, as buyers are attracted to heavily discounted foreclosed homes," Dales said. "Rising home sales will not prevent prices from falling either. Even though sales rose in the 1990s, prices still fell," he added. With well over 5 million homes either up for sale or in the foreclosure pipeline, the rental market could be strong, according to Dales. "The good news is that some of the vacant supply may be rented out. After all, the fact that rental demand is rising and rental supply is already tight means that for the next few years the rental market will be the best performing part of the residential market," he said. "For the first time since 1986, rentals yields are likely to rise above their long-run average of 5 percent. Falling house prices, though, will mean that gross rental returns remain below 10 percent," Dales said.
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
"Rising employment and incomes will mean that home sales will continue to edge up from their still depressed levels. The existing market will continue to outperform the new market, as buyers are attracted to heavily discounted foreclosed homes," Dales said. "Rising home sales will not prevent prices from falling either. Even though sales rose in the 1990s, prices still fell," he added. With well over 5 million homes either up for sale or in the foreclosure pipeline, the rental market could be strong, according to Dales. "The good news is that some of the vacant supply may be rented out. After all, the fact that rental demand is rising and rental supply is already tight means that for the next few years the rental market will be the best performing part of the residential market," he said. "For the first time since 1986, rentals yields are likely to rise above their long-run average of 5 percent. Falling house prices, though, will mean that gross rental returns remain below 10 percent," Dales said.
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
Saturday, February 26, 2011
Toll Brothers posts profit Is this an Indication of the Future?
Luxury homebuilder Toll Brothers reported a quarterly profit as it offered fewer buyer incentives and benefited from a tax break. The company, whose shares rose more than 3 percent, was also able to finish selling certain less-profitable communities, which boosted its margins. Revenue rose 3 percent to $334.1 million, compared with analysts' estimates of $317.2 million. The company's average home price rose 7 percent to $586,000, but Toll expects that to decline to within a range of $540,000 and $565,000 for the rest of the year. In the fifth year of the housing slump, most homebuilders continue to suffer as they compete in a market oversupplied with cut-rate foreclosures and short sales that are a legacy of a housing boom fueled by subprime lending and speculation.
While Toll's high-end products do not compete as directly with foreclosures as some rivals, which focus on the first-time homebuyer, the company is still struggling to close sales with buyers concerned that the home will lose value. The latest results include a tax benefit of $20.4 million. Without that, the company lost $17 million, compared with a year-earlier loss of $56.8 million, excluding special items.
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
While Toll's high-end products do not compete as directly with foreclosures as some rivals, which focus on the first-time homebuyer, the company is still struggling to close sales with buyers concerned that the home will lose value. The latest results include a tax benefit of $20.4 million. Without that, the company lost $17 million, compared with a year-earlier loss of $56.8 million, excluding special items.
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
Friday, February 25, 2011
Real Estate World is all over the Spectrum
MBA - mortgage applications up
Mortgage applications increased 13.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending February 18, 2011. The Market Composite Index, a measure of mortgage loan application volume, increased 13.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 14.8 percent compared with the previous week. The Refinance Index increased 17.8 percent from the previous week. The seasonally adjusted Purchase Index increased 5.1 percent from one week earlier. The unadjusted Purchase Index increased 9.6 percent compared with the previous week and was 6.9 percent lower than the same week one year ago. “Ongoing turmoil in the Middle East brought interest rates lower last week. Borrowers took advantage of these lower rates, bringing application activity back near levels from two weeks ago, following sharp declines last week,” said Michael Fr
atantoni, MBA’s Vice President of Research and Economics.
The four week moving average for the seasonally adjusted Market Index is up 1.9 percent. The four week moving average is up 1.6 percent for the seasonally adjusted Purchase Index, while this average is up 1.8 percent for the Refinance Index. The refinance share of mortgage activity increased to 65.7 percent of total applications from 64.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.6 percent from 6.0 percent of total applications from the previous week.
Housing Data is Questionable
"Most consider President's Day weekend as the official start of the spring housing season. There is, therefore, no more crucial time than now to have reliable data at our disposal for home sales, prices and inventories. How else do buyers, sellers and investors know how to proceed? Unfortunately, the housing crash itself has undermined the veracity of those readings. With the boom and the bust came the attention. Housing brought our economy down, and in doing so, boosted itself to the headlines. As with any big story, a cottage industry sprang up around it. Data providers came out of the woodwork, and as online sale and foreclosure web sites proliferated, so too did their ability to add to that data pool.
The result is double edged: On the downside, some data providers are less-than accurate, but on the upside, their sheer numbers provide a system of checks and balances, tempering the most outrageous assertions. So it seems sort of appropriate that today, as a new controversy swarms around potential errors in home sales figures from the National Association of Realtors, the exalted and much-contested S&P/Case-Shiller Home Price Index is released. It reports that home prices are dangerously close to an official double dip. Other data providers have been asserting recently that S&P/Case-Shiller is too bullish (and of course too bearish).
As for the Realtors' data, I find this one more disturbing. While some I have spoken with today call the claim by CoreLogic (a housing data provider) that the Realtors overestimated home sales in 2010 by almost 1.5 million, 'overblown,' the Realtors themselves admit there is a problem. They are 're-benchmarking' their sales calculation process. 'The last re-benchmarking to the existing-home sales series was based on 2000 Census data, so NAR is undertaking a re-benchmarking using independent sources,' says NAR's Walter Molony. 'We are consulting with various outside housing economists, government agencies, and some academic experts on the methodology to determine if there is, in fact, any drift in NAR’s existing home sales data, and, if so, by how much.' Molony says at this point they believe any drift in the data to be 'relatively minor,' and he goes on to say CoreLogic's assumptions may be 'too high.'
Bottom line, though, if NAR overstated sales, then inventories are far higher than we think they are (inventory, or months supply, is based on a calculation of properties for sale and the current sales pace). We already have a great deal of uncertainty in the inventory numbers because of the so-called 'shadow inventory' of foreclosures and bank owned homes. Why do all these numbers matter in the real world of Sunday open houses and local market closings? Because sales and inventories drive prices and they drive expectations...the latter, perhaps, more important in the current market where consumer confidence is all but non-existent."
"Rising employment and incomes will mean that home sales will continue to edge up from their still depressed levels. The existing market will continue to outperform the new market, as buyers are attracted to heavily discounted foreclosed homes," Dales said. "Rising home sales will not prevent prices from falling either. Even though sales rose in the 1990s, prices still fell," he added. With well over 5 million homes either up for sale or in the foreclosure pipeline, the rental market could be strong, according to Dales. "The good news is that some of the vacant supply may be rented out. After all, the fact that rental demand is rising and rental supply is already tight means that for the next few years the rental market will be the best performing part of the residential market," he said. "For the first time since 1986, rentals yields are likely to rise above their long-run average of 5 percent. Falling house prices, though, will mean that gross rental returns remain below 10 percent," Dales said.
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
Mortgage applications increased 13.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending February 18, 2011. The Market Composite Index, a measure of mortgage loan application volume, increased 13.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 14.8 percent compared with the previous week. The Refinance Index increased 17.8 percent from the previous week. The seasonally adjusted Purchase Index increased 5.1 percent from one week earlier. The unadjusted Purchase Index increased 9.6 percent compared with the previous week and was 6.9 percent lower than the same week one year ago. “Ongoing turmoil in the Middle East brought interest rates lower last week. Borrowers took advantage of these lower rates, bringing application activity back near levels from two weeks ago, following sharp declines last week,” said Michael Fr
atantoni, MBA’s Vice President of Research and Economics.
The four week moving average for the seasonally adjusted Market Index is up 1.9 percent. The four week moving average is up 1.6 percent for the seasonally adjusted Purchase Index, while this average is up 1.8 percent for the Refinance Index. The refinance share of mortgage activity increased to 65.7 percent of total applications from 64.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.6 percent from 6.0 percent of total applications from the previous week.
Housing Data is Questionable
"Most consider President's Day weekend as the official start of the spring housing season. There is, therefore, no more crucial time than now to have reliable data at our disposal for home sales, prices and inventories. How else do buyers, sellers and investors know how to proceed? Unfortunately, the housing crash itself has undermined the veracity of those readings. With the boom and the bust came the attention. Housing brought our economy down, and in doing so, boosted itself to the headlines. As with any big story, a cottage industry sprang up around it. Data providers came out of the woodwork, and as online sale and foreclosure web sites proliferated, so too did their ability to add to that data pool.
The result is double edged: On the downside, some data providers are less-than accurate, but on the upside, their sheer numbers provide a system of checks and balances, tempering the most outrageous assertions. So it seems sort of appropriate that today, as a new controversy swarms around potential errors in home sales figures from the National Association of Realtors, the exalted and much-contested S&P/Case-Shiller Home Price Index is released. It reports that home prices are dangerously close to an official double dip. Other data providers have been asserting recently that S&P/Case-Shiller is too bullish (and of course too bearish).
As for the Realtors' data, I find this one more disturbing. While some I have spoken with today call the claim by CoreLogic (a housing data provider) that the Realtors overestimated home sales in 2010 by almost 1.5 million, 'overblown,' the Realtors themselves admit there is a problem. They are 're-benchmarking' their sales calculation process. 'The last re-benchmarking to the existing-home sales series was based on 2000 Census data, so NAR is undertaking a re-benchmarking using independent sources,' says NAR's Walter Molony. 'We are consulting with various outside housing economists, government agencies, and some academic experts on the methodology to determine if there is, in fact, any drift in NAR’s existing home sales data, and, if so, by how much.' Molony says at this point they believe any drift in the data to be 'relatively minor,' and he goes on to say CoreLogic's assumptions may be 'too high.'
Bottom line, though, if NAR overstated sales, then inventories are far higher than we think they are (inventory, or months supply, is based on a calculation of properties for sale and the current sales pace). We already have a great deal of uncertainty in the inventory numbers because of the so-called 'shadow inventory' of foreclosures and bank owned homes. Why do all these numbers matter in the real world of Sunday open houses and local market closings? Because sales and inventories drive prices and they drive expectations...the latter, perhaps, more important in the current market where consumer confidence is all but non-existent."
"Rising employment and incomes will mean that home sales will continue to edge up from their still depressed levels. The existing market will continue to outperform the new market, as buyers are attracted to heavily discounted foreclosed homes," Dales said. "Rising home sales will not prevent prices from falling either. Even though sales rose in the 1990s, prices still fell," he added. With well over 5 million homes either up for sale or in the foreclosure pipeline, the rental market could be strong, according to Dales. "The good news is that some of the vacant supply may be rented out. After all, the fact that rental demand is rising and rental supply is already tight means that for the next few years the rental market will be the best performing part of the residential market," he said. "For the first time since 1986, rentals yields are likely to rise above their long-run average of 5 percent. Falling house prices, though, will mean that gross rental returns remain below 10 percent," Dales said.
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
Wednesday, February 23, 2011
Home Prices Fall Again
In December, home prices continued to slip, and the declines were very widespread. The Case-Schiller Composite 10 City index (C-10) fell 0.36% on a seasonally adjusted basis, and is down 1.22% from a year ago. The broader Composite 20 City index (which includes the cities in the C-10) fell by 0.41% on the month and is down 2.40% from a year ago.
This is the second month in this second leg down in housing prices that the year-over-year change has been negative for both composites; it will not be the last. Of the 20 cities, only six posted gains on the month. The biggest gains were in DC, up 1.14% on the month, followed by Dallas, up 0.80% and Boston, up 0.61%.
There were 14 metropolitan areas where prices fell on the month. Worst hit were Tampa and Detroit, each suffering a 2.14% decline on the month. They were followed by Phoenix, down 1.03%, Seattle (down 0.95%) and Portland (down 0.62%). Year over year, just two metro areas saw gains and 18 suffered losses. This is the six straight month-to-month decline in the composites. It thus looks like a new downtrend in housing prices is well established.
Look at Seasonally Adjusted Numbers
There is a seasonal pattern to home prices, and thus it is better to look at the seasonally adjusted numbers than the unadjusted numbers. Most of the press makes the mistake of focusing on the unadjusted numbers. While the 2.40% fall in the C-20 year over year in isolation is not the end of the world, it means that most of the small rebound in housing prices we saw from the spring of 2009 to the summer of 2010 has now evaporated.
Eleven cities posted new post peak lows, meaning that the first-time homebuyer bounce in prices has now more than totally evaporated in those areas. From the April 2006 peak of the housing market, the C-10 is down 31.25% while the C-20 is off by 31.17%. Relative to the low of April 2009, the C-10 is now up just 2.43%, and the C-20 has only a 0.80% margin before it is posting new post bubble lows.
The Case Schiller data is the gold standard for housing price information, but it comes with a very significant lag. This is December data we are talking about, after all, and it is actually a three-month moving average, so it still includes data from October and November.
The second leg in the housing price downturn is not over. Housing prices are going to fall again in coming months. The first graph from (http://www.calculatedriskblog.com/) tracks the history of the C-10 and C-20 indexes. Note that on both indexes we are almost back to the post-crash lows. It seems likely to me that we will set new lows before the second leg down is over.
Which Cities Fared Best/Worst?
On a year-over-year basis, with the exception of Washington DC (up 4.11%), the strongest cities are in California. However, even there the year-over-year gains are pretty much gone. San Diego is still in positive territory with a 1.70% rise. However, Los Angeles has fallen back into negative territory with a decline of 0.26%, and San Francisco is down 0.43%. Still, the only other city to hold its year-over-year decline to less than one percent was Boston, down 0.82%.
There were eight metropolitan areas where the year-over-year declines were more than 5%. Detroit fared the worst with a 9.15% decline (you can still have big percentage declines even as one approaches zero). The same is true for Phoenix, down 8.38% over the last year and showing no signs at all of rising from the ashes.
Atlanta has been hit almost as hard as if “Uncle Billy Sherman” was paying another visit to the city, down 8.00%. Portland is down 7.83%, and Chicago, facing an ill wind, it is down another 7.40% from a year ago. In other words, significant year-over-year declines are happening in just about every corner of the country.
The graph (also from this source) below tracks the cumulative declines for each city over time. If the red bar is shorter to the downside than the yellow bar for a city, it indicates that prices in that city rose during 2010.
In every city, prices are below where they were in April 2006, but there is a huge variation. Las Vegas is the hardest hit, with prices down 58.04% from the peak, followed by Phoenix down 55.20%. Three more cities are down more than 40%: Miami down 49.01%, Detroit off 48.16%, and Tampa with a 45.45% decline.
At the other end of the spectrum are Dallas, where prices are down only 6.11%, Charlotte off 8.48% and Denver where they are down 10.02%. (Note: the percentage declines I am quoting are from April 2006, when the national peak was hit; the numbers in the graph are relative to that city’s individual peak, so there is a little bit of difference.)
Homebuyer Credits Long Gone
The homebuyer tax credit was propping up home prices, but now with that support gone, prices are resuming their downtrend. People had until June 30 to close on their houses, and they had to agree to the transaction by April 30. That pulled sales into those months that might otherwise have happened later on. The credit was up to $8,000, so almost nobody would want to close their deal in early July and simply leave that money on the table.
The tax credit is a textbook example of a third party subsidizing a transaction. When that happens, both the buyer and the seller will get some of the benefit. The buyer gets his when he files his tax return next year, the seller gets hers in the form of a higher price for the house.
Since the tax credit is now over, that artificial prop to housing prices has been taken away. Sales of existing houses simply collapsed in July, after the credit expired, and have remained depressed ever since. The extremely high ratio of homes for sale to the current selling pace is sure to put significant downward pressure on prices.
There is still quite a bit of “shadow inventory” out there as well. That is, homes where the owner is extremely delinquent in his mortgage payments and unlikely ever to make up the difference, but that the bank has not yet foreclosed on or foreclosed houses that have not yet been listed for sale.
Take a good hard look at the third graph (also from this source) and tell me what you think is going to happen to housing prices over the next few months. A normal market has about six months of supply available; during the bubble, the months of supply generally ran closer to four months, and prices were soaring. It was not until inventories climbed above the six month mark that prices started to fall. The really collapsed as the months of supply moved into the double digits.
The extensive government support for the housing market — including the tax credit, but also the Fed buying up $1.25 Trillion in mortgage paper to artificially depress mortgage rates — helped boost sales and bring the months of supply back down. Now that support is over, the months of supply are still elevated, and thus housing prices are falling. Unfortunately this graph is not updated with the December price data, and we will not get the months of supply data for existing homes until tomorrow.
The tax credit was not a very effective means of stimulus, but it did help prop up prices, and that is a pretty important accomplishment, even if it proves to be ephemeral. The credit cost the government about $30 billion. A large part of that money went to people who would have bought anyways, but perhaps would have done so in July or August rather than May or June.
New Homes = Big Stimulus
To the extent it rewarded people for doing what they would have done anyway, it did nothing to stimulate the economy. Also, turnover of existing houses really does not do a lot to improve the economy. It is the building of new houses that generates economic activity.
It is not just about the profits of D.R. Horton (DHI: 12.01 -0.79 -6.17%). A used house being sold does not generate more sales of lumber by International Paper (IP: 27.735 -1.285 -4.43%) or any of the building products produced by Berkshire Hathaway (MAS: 13.005 -0.295 -2.22%). It does not put carpenters and roofers to work. New homes do.
While housing prices are important to the economy, the level of turnover in used houses is not. Home equity is, or at least was, the most important store of wealth for the vast majority of families.
The Current State of Home Equity
Houses are generally a very leveraged asset — much more so than stocks. Using your full margin in the stock market still means you are putting 50% down. In housing, putting 20% down is considered conservative, and during the bubble was considered hopelessly old fashioned. As a result, as housing prices declined, wealth declined by a lot more. For the most part we are not talking vast fortunes here, but rather the sort of wealth that was going to finance the kids college educations and a comfortable retirement.
With that wealth gone, people have to put away more of their income to rebuild their savings if they still want to be able to send the kids to college or to retire. The decline in housing wealth is a very big reason why retail sales have been so weak. With everyone trying to save, aggregate demand from the private sector is way down. If customers are not going to spend and buy products, employers have no reason to invest to expand capacity. They have no reason to hire more workers.
Also, as housing prices fell, millions of homeowners found themselves owing more on their houses than the houses were worth. That greatly increases the risk of foreclosure. If the house is worth more than the mortgage, the rate of foreclosure should be zero. Regardless of how bad your cash flow situation is — due to job loss, divorce or health problems, for example — you would always be better off selling the house and getting something, even if it is less than you paid for the house than letting the bank take it and get nothing.
By propping up the price of houses, the tax credit did help slow the increase in the rate of foreclosures. Still, a quarter of all houses with mortgages are worth less than the value of the mortgage today. Another five percent or so are worth less than five percent more than the value of the mortgage. If prices start to fall again, those folks well be pushed under water as well.
The final graph below (from this source) shows where the underwater people are by state. Red means houses underwater, medium and dark blue indicate people with solid equity stakes in their homes.
On the other hand, it is not obvious that propping up the prices of an asset class is really something that the government should be doing. After all, it is hurting those who don’t have homes and would like to buy one.
Support for housing goes far beyond just the tax credit. The biggest single support is the deductibility of mortgage interest from taxes. Since homeowners are generally wealthier and have higher incomes than those who rent, this is a case of the lower middle class subsidizing the upper middle class. Also, even if they are homeowners, people with lower incomes are more likely to take the standard deduction rather than itemize their taxes. The mortgage interest deduction only applies if you itemize.
There has been much discussion of trying to rationalize the tax system and bringing down tax rates, but to do so the base would have to be broadened through the elimination of deductions. The mortgage interest deduction is one of the biggest of these. An attempt that leaves the mortgage interest deduction in place would have to be mere tinkering around the edges. While the concept of lower rates and fewer deductions is a good one, transitioning from here to there in the current weak housing market is going to be difficult to say the least.
The real problem though is that, now that the tax credit is over, prices will find their more natural level. Fortunately, relative to the level of incomes and to the level of rents, housing prices are now in line with their long-term historical averages, not way above them as they were last year.
In other words, houses are fairly priced — not exactly cheap by historical standards, but not way overvalued either. That will probably limit how much price fall over the next six months to a year to about 5% more from here, rather than the 30% decline we saw from the top of the bubble. That, however, is more than enough of a decline to do some serious damage.
A Weak Report, but Not Unexpected
The Case Schiller report was weak, but in line with what the consensus expected. The second leg down in housing prices is underway, but fortunately will probably be a much shorter leg than the first one.
Still, that is bad news for the economy. Used homes make very good substitutes for new homes, and with a massive glut of used homes on the market, there is little or no reason to build any new ones. Residential investment is normally the main locomotive that pulls the economy out of recessions. It is derailed this time around and there seems to be little the government can do to get it back on track.
Case-Schiller: Home Prices Fall Again
By Dirk Van Dijk on February 22, 2011
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
This is the second month in this second leg down in housing prices that the year-over-year change has been negative for both composites; it will not be the last. Of the 20 cities, only six posted gains on the month. The biggest gains were in DC, up 1.14% on the month, followed by Dallas, up 0.80% and Boston, up 0.61%.
There were 14 metropolitan areas where prices fell on the month. Worst hit were Tampa and Detroit, each suffering a 2.14% decline on the month. They were followed by Phoenix, down 1.03%, Seattle (down 0.95%) and Portland (down 0.62%). Year over year, just two metro areas saw gains and 18 suffered losses. This is the six straight month-to-month decline in the composites. It thus looks like a new downtrend in housing prices is well established.
Look at Seasonally Adjusted Numbers
There is a seasonal pattern to home prices, and thus it is better to look at the seasonally adjusted numbers than the unadjusted numbers. Most of the press makes the mistake of focusing on the unadjusted numbers. While the 2.40% fall in the C-20 year over year in isolation is not the end of the world, it means that most of the small rebound in housing prices we saw from the spring of 2009 to the summer of 2010 has now evaporated.
Eleven cities posted new post peak lows, meaning that the first-time homebuyer bounce in prices has now more than totally evaporated in those areas. From the April 2006 peak of the housing market, the C-10 is down 31.25% while the C-20 is off by 31.17%. Relative to the low of April 2009, the C-10 is now up just 2.43%, and the C-20 has only a 0.80% margin before it is posting new post bubble lows.
The Case Schiller data is the gold standard for housing price information, but it comes with a very significant lag. This is December data we are talking about, after all, and it is actually a three-month moving average, so it still includes data from October and November.
The second leg in the housing price downturn is not over. Housing prices are going to fall again in coming months. The first graph from (http://www.calculatedriskblog.com/) tracks the history of the C-10 and C-20 indexes. Note that on both indexes we are almost back to the post-crash lows. It seems likely to me that we will set new lows before the second leg down is over.
Which Cities Fared Best/Worst?
On a year-over-year basis, with the exception of Washington DC (up 4.11%), the strongest cities are in California. However, even there the year-over-year gains are pretty much gone. San Diego is still in positive territory with a 1.70% rise. However, Los Angeles has fallen back into negative territory with a decline of 0.26%, and San Francisco is down 0.43%. Still, the only other city to hold its year-over-year decline to less than one percent was Boston, down 0.82%.
There were eight metropolitan areas where the year-over-year declines were more than 5%. Detroit fared the worst with a 9.15% decline (you can still have big percentage declines even as one approaches zero). The same is true for Phoenix, down 8.38% over the last year and showing no signs at all of rising from the ashes.
Atlanta has been hit almost as hard as if “Uncle Billy Sherman” was paying another visit to the city, down 8.00%. Portland is down 7.83%, and Chicago, facing an ill wind, it is down another 7.40% from a year ago. In other words, significant year-over-year declines are happening in just about every corner of the country.
The graph (also from this source) below tracks the cumulative declines for each city over time. If the red bar is shorter to the downside than the yellow bar for a city, it indicates that prices in that city rose during 2010.
In every city, prices are below where they were in April 2006, but there is a huge variation. Las Vegas is the hardest hit, with prices down 58.04% from the peak, followed by Phoenix down 55.20%. Three more cities are down more than 40%: Miami down 49.01%, Detroit off 48.16%, and Tampa with a 45.45% decline.
At the other end of the spectrum are Dallas, where prices are down only 6.11%, Charlotte off 8.48% and Denver where they are down 10.02%. (Note: the percentage declines I am quoting are from April 2006, when the national peak was hit; the numbers in the graph are relative to that city’s individual peak, so there is a little bit of difference.)
Homebuyer Credits Long Gone
The homebuyer tax credit was propping up home prices, but now with that support gone, prices are resuming their downtrend. People had until June 30 to close on their houses, and they had to agree to the transaction by April 30. That pulled sales into those months that might otherwise have happened later on. The credit was up to $8,000, so almost nobody would want to close their deal in early July and simply leave that money on the table.
The tax credit is a textbook example of a third party subsidizing a transaction. When that happens, both the buyer and the seller will get some of the benefit. The buyer gets his when he files his tax return next year, the seller gets hers in the form of a higher price for the house.
Since the tax credit is now over, that artificial prop to housing prices has been taken away. Sales of existing houses simply collapsed in July, after the credit expired, and have remained depressed ever since. The extremely high ratio of homes for sale to the current selling pace is sure to put significant downward pressure on prices.
There is still quite a bit of “shadow inventory” out there as well. That is, homes where the owner is extremely delinquent in his mortgage payments and unlikely ever to make up the difference, but that the bank has not yet foreclosed on or foreclosed houses that have not yet been listed for sale.
Take a good hard look at the third graph (also from this source) and tell me what you think is going to happen to housing prices over the next few months. A normal market has about six months of supply available; during the bubble, the months of supply generally ran closer to four months, and prices were soaring. It was not until inventories climbed above the six month mark that prices started to fall. The really collapsed as the months of supply moved into the double digits.
The extensive government support for the housing market — including the tax credit, but also the Fed buying up $1.25 Trillion in mortgage paper to artificially depress mortgage rates — helped boost sales and bring the months of supply back down. Now that support is over, the months of supply are still elevated, and thus housing prices are falling. Unfortunately this graph is not updated with the December price data, and we will not get the months of supply data for existing homes until tomorrow.
The tax credit was not a very effective means of stimulus, but it did help prop up prices, and that is a pretty important accomplishment, even if it proves to be ephemeral. The credit cost the government about $30 billion. A large part of that money went to people who would have bought anyways, but perhaps would have done so in July or August rather than May or June.
New Homes = Big Stimulus
To the extent it rewarded people for doing what they would have done anyway, it did nothing to stimulate the economy. Also, turnover of existing houses really does not do a lot to improve the economy. It is the building of new houses that generates economic activity.
It is not just about the profits of D.R. Horton (DHI: 12.01 -0.79 -6.17%). A used house being sold does not generate more sales of lumber by International Paper (IP: 27.735 -1.285 -4.43%) or any of the building products produced by Berkshire Hathaway (MAS: 13.005 -0.295 -2.22%). It does not put carpenters and roofers to work. New homes do.
While housing prices are important to the economy, the level of turnover in used houses is not. Home equity is, or at least was, the most important store of wealth for the vast majority of families.
The Current State of Home Equity
Houses are generally a very leveraged asset — much more so than stocks. Using your full margin in the stock market still means you are putting 50% down. In housing, putting 20% down is considered conservative, and during the bubble was considered hopelessly old fashioned. As a result, as housing prices declined, wealth declined by a lot more. For the most part we are not talking vast fortunes here, but rather the sort of wealth that was going to finance the kids college educations and a comfortable retirement.
With that wealth gone, people have to put away more of their income to rebuild their savings if they still want to be able to send the kids to college or to retire. The decline in housing wealth is a very big reason why retail sales have been so weak. With everyone trying to save, aggregate demand from the private sector is way down. If customers are not going to spend and buy products, employers have no reason to invest to expand capacity. They have no reason to hire more workers.
Also, as housing prices fell, millions of homeowners found themselves owing more on their houses than the houses were worth. That greatly increases the risk of foreclosure. If the house is worth more than the mortgage, the rate of foreclosure should be zero. Regardless of how bad your cash flow situation is — due to job loss, divorce or health problems, for example — you would always be better off selling the house and getting something, even if it is less than you paid for the house than letting the bank take it and get nothing.
By propping up the price of houses, the tax credit did help slow the increase in the rate of foreclosures. Still, a quarter of all houses with mortgages are worth less than the value of the mortgage today. Another five percent or so are worth less than five percent more than the value of the mortgage. If prices start to fall again, those folks well be pushed under water as well.
The final graph below (from this source) shows where the underwater people are by state. Red means houses underwater, medium and dark blue indicate people with solid equity stakes in their homes.
On the other hand, it is not obvious that propping up the prices of an asset class is really something that the government should be doing. After all, it is hurting those who don’t have homes and would like to buy one.
Support for housing goes far beyond just the tax credit. The biggest single support is the deductibility of mortgage interest from taxes. Since homeowners are generally wealthier and have higher incomes than those who rent, this is a case of the lower middle class subsidizing the upper middle class. Also, even if they are homeowners, people with lower incomes are more likely to take the standard deduction rather than itemize their taxes. The mortgage interest deduction only applies if you itemize.
There has been much discussion of trying to rationalize the tax system and bringing down tax rates, but to do so the base would have to be broadened through the elimination of deductions. The mortgage interest deduction is one of the biggest of these. An attempt that leaves the mortgage interest deduction in place would have to be mere tinkering around the edges. While the concept of lower rates and fewer deductions is a good one, transitioning from here to there in the current weak housing market is going to be difficult to say the least.
The real problem though is that, now that the tax credit is over, prices will find their more natural level. Fortunately, relative to the level of incomes and to the level of rents, housing prices are now in line with their long-term historical averages, not way above them as they were last year.
In other words, houses are fairly priced — not exactly cheap by historical standards, but not way overvalued either. That will probably limit how much price fall over the next six months to a year to about 5% more from here, rather than the 30% decline we saw from the top of the bubble. That, however, is more than enough of a decline to do some serious damage.
A Weak Report, but Not Unexpected
The Case Schiller report was weak, but in line with what the consensus expected. The second leg down in housing prices is underway, but fortunately will probably be a much shorter leg than the first one.
Still, that is bad news for the economy. Used homes make very good substitutes for new homes, and with a massive glut of used homes on the market, there is little or no reason to build any new ones. Residential investment is normally the main locomotive that pulls the economy out of recessions. It is derailed this time around and there seems to be little the government can do to get it back on track.
Case-Schiller: Home Prices Fall Again
By Dirk Van Dijk on February 22, 2011
American Eagle Realty, we are a realty company not a legal firm, we can help with all of your real estate needs including foreclosure. American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Loan Mods, too. Contact us we can help, We have helped others we can help you...
Whether you want buy, rent, or sell a home we can assist you.
American Eagle Realty
www.american-eagle-realty.com
502-969-1801
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