The Home Front
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Why Foreclosures Rise Even as the Economy Expands
Continue reading… 4 CommentsEven as the U.S. economy expanded in the third quarter, the nation's eroding labor market sent the mortgage delinquency rate to new heights and created fresh headaches for the Obama administration. About 1 in every 7 home loans in the country was either past due or in foreclosure at the end of the third quarter, according to the Mortgage Bankers Association's most recent National Delinquency Survey. That's the highest delinquency rate in the survey's history (the data begin in 1972). "Despite the recession ending in midsummer, the decline in mortgage performance continues," said Jay Brinkmann, the MBA's chief economist. "Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP." Here are six things you need to know about the development:
1. Moving upstream: The MBA report provides an inside look into the evolution of the foreclosure crisis. Initial problems in the mortgage market were largely rooted in subprime loans and other exotic products. But with the national unemployment rate hitting 10.2 percent last month, the eroding labor market has emerged as the most fundamental factor behind the mortgage crisis. A job loss, after all, can prevent even borrowers with sound credit histories from paying the mortgage. "The infection is spreading out, and it is now prime borrowers that are in trouble," says Mark Zandi, the chief economist at Moody's Economy.com. From the third quarter of 2008 through the same period this year, the rate of foreclosure starts increased 0.53 percentage points for prime loans—made to borrowers with good credit—while it fell 0.47 percentage points for subprime loans, the MBA said in the survey.
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Behind the Home Building 'Shocker'
Continue reading… 0 CommentsThe fitful nature of the housing sector's healing process was apparent Wednesday when a government report on new-home construction came in much weaker than economists had expected. The Commerce Department reported that October housing starts dropped nearly 11 percent from September and almost 31 percent from a year earlier. "The headline number is a shocker," Patrick Newport, U.S. economist at IHS Global Insight, said in a report. Here are four things you need to know about the development:
1. Single and multifamily drop: While single-family housing starts dropped nearly 7 percent from the previous month, multifamily-housing starts—that's condominium, townhouse, and apartment projects—fell off a cliff, plunging more than 34 percent and hitting an all-time low. Newport says the multifamily sector is being hammered by broader problems that are plaguing the market for commercial real estate. "Property values are down, rental vacancy rates are at an all-time high and rising, too many units were put up during the good years, the securitization market imploded in 2008, banks are not lending, the job market is still in recession, and a tax credit is encouraging renters into becoming first-time homeowners," he said in his report. "Going forward, multifamily starts should start growing later this year—but only because new construction in this sector is at rock-bottom levels. The recovery will also last two to three years."
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Cheaper Prices—More Than Tax Credit—Motivating Home Buyers
Continue reading… 5 CommentsAs the deadline approached, the National Association of Realtors urged lawmakers to extend the $8,000 first-time home buyer tax credit, insisting that the perk had played such a vital role in the housing market's recent stability that its expiration was too risky. "Without congressional action now, the market and our national economy may freeze again—possibly as soon as this month," Ron Phipps, NAR's first vice president, told a Senate panel on October 20.
Congress complied, passing bills to generously extend and expand the credit. The legislation—which President Obama signed on November 6—means $10.8 billion in lost revenue for Uncle Sam on top of the more than $10 billion that first-time home buyer tax credits have already cost.
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What's Behind the Foreclosure Decrease
Continue reading… 1 CommentEven as the housing market continues to stagger, foreclosure filings in October declined for the third month in a row. Foreclosure filings were reported on 332,292 properties last month, or 3 percent fewer than September's tally, real estate firm RealtyTrac said today. Even though filings remained 19 percent higher than a year earlier, "[t]hree consecutive monthly declines is unprecedented for our report," RealtyTrac CEO James Saccacio said in a statement. But with unemployment busting through the 10 percent threshold and a slew of state and federal initiatives against foreclosures in place, foreclosure trends aren't as optimistic as they may appear in this report. Here are five things you need to know:
1. Obama rescue: The monthly foreclosure decline comes as the Obama administration ramps up its sweeping effort to get as many as 4 million struggling homeowners into more affordable mortgages. On Tuesday, the Treasury Department said it had extended more than 650,000 trial loan modifications through October, putting it on track to meet its ambitious goals. However, mortgage modifications have a checkered history of success, and it remains unclear how many of these borrowers will simply fall behind on their new loans. The concern is that the program may be delaying foreclosures rather than preventing them. "Every loan servicer or lender I have spoken to in the last couple months has basically told me that they have had to slow down foreclosure initiations because they have had to re-evaluate their portfolio of loans to see which ones qualify for [a rescue program]," says Rick Sharga, RealtyTrac's vice president of marketing. "There are about 5.5 million delinquent loans. It just takes an awful lot of time to go through each loan individually."
[Check out Obama's Loan Modification Plan: 7 Things You Need to Know.]
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How Struggling Homeowners Can Stay in Their Homes as Renters
Continue reading… 10 CommentsWith foreclosures continuing to mount, housing finance giant Fannie Mae has introduced a fresh approach to keeping struggling borrowers in their homes: turning them into tenants. Fannie Mae—which, along with Freddie Mac, owns or guarantees nearly $5.5 trillion in mortgages—announced last week its Deed for Lease initiative, in which property owners facing foreclosure can remain in their homes as renters. Under the program, a borrower who qualifies can transfer the deed for a home over to the lender and lease the home back for up to 12 months. "The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for [loan] modifications," Jay Ryan, vice president of Fannie Mae, said in a statement. "This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities."
Here are five things you need to know about the program:
[See Foreclosure Epidemic Reaching More Expensive Homes.]
1. Soften the blow: The program is designed to soften the blow that foreclosures can have on families and neighborhoods by giving borrowers time to plot their next step, says Keith Gumbinger of HSH.com. Only borrowers with loans owned or guaranteed by Fannie Mae can participate. (Borrowers can use this tool to find out if Fannie Mae owns their loan.) Interested borrowers with loans owned by Fannie Mae should call their loan servicer, who will contact a property manager to determine eligibility.
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Expanded First-Time Home Buyer Tax Credit Becomes Law
Continue reading… 82 CommentsIn the hopes of sustaining the real estate market's recent momentum, Uncle Sam has made more than two-thirds of current homeowners and nearly all first-time buyers eligible for thousands of dollars in tax perks when they purchase a house. President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009 into law Friday, a day after the House of Representatives approved it by a 403-to-12 vote. The legislation includes language that significantly expands the popular first-time home buyer tax credit that was enacted in February. The development represents a big victory for the real estate and home building industries, which had to overcome concerns about the measure's costs while rallying support for its enactment. Here are five things you need to know about the development:
[See First-Time Home Buyer Tax Credit Gets Obama Nod.]
1. For first-time home buyers: While the value of the credit remains as high as $8,000, the new law pushes back the deadline by which qualified first-time home buyers must make their transaction in order to claim it. (The legislation defines "first-time home buyers" as anyone who has not owned a principal residence in the three years prior to making the purchase.) Under the previous law that went into effect in February, buyers needed to close the transaction by Nov. 30. However, under the terms of the new law, home buyers must have a signed sales contract before May 1, 2010, but they have until the end of June to actually close the transaction. At the same time, the new law raises the annual income limits from $75,000 to $125,000 for singles and from $150,000 to $225,000 for married couples. The changes make nearly all first-time home buyers eligible for the credit, according to Goldman Sachs economist Alec Phillips.
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Fed Not Raising Rates Anytime Soon: 5 Things to Know
Continue reading… 1 CommentAs the once free-falling economy shows tentative signs of stability, economists and investors are wondering when the Federal Reserve will reverse course and begin raising interest rates. But in a statement Wednesday after its meeting in Washington, the central bank's Federal Open Market Committee moved to maintain its benchmark interest rate at as low as zero percent, and pledged to keep rates at "exceptionally low levels" for "an extended period" of time. "While the language was subtle, the clear message is to keep inflationary concerns to a minimum and to curb talk of higher rates," Michael Woolfolk, a senior currency strategist at The Bank of New York Mellon, said in a report. "The Fed has no intention of reversing its zero interest rate policy or quantitative easing measures before the end of the year." Here are five things to know about the development.
[Check out Mortgage Rates Seen Below 6% Through 2010]
1. Extended period: While reiterating its plans to keep rates low for quite some time, the Fed on Wednesday went a step further than it had in previous statements by laying out three key factors--"low rates of resource utilization, subdued inflation trends, and stable inflation expectations"--behind its outlook. By communicating its reasons for keeping rates so low, the Fed is also calling attention to the specific factors it will use to determine when--and by how much--to increase rates. "The Fed will reconsider this stance over time if growth utilization rates rise significantly, or if inflation or inflation expectations begin to increase in a way that threatens the Fed's price stability objective," Dean Maki, of Barclays Capital Research, said in a report. "Importantly, the statement suggests the Fed will not be raising rates in the near term even as economic growth picks up, given that levels of resource utilization are likely to remain low for some time even if growth is solid."
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Are Home Sales Headed for a Late Fall Slide?
Continue reading… 0 CommentsA gauge of home-purchasing activity came in stronger than expected in September as buyers moved to take advantage of falling home prices, attractive mortgage rates, and a tax perk from Uncle Sam. The National Association of Realtors said Monday that its pending home sales index for September increased 6 percent from August and was more than 21 percent higher than in September of 2008—the largest year-over-year jump on record. (Pending home sales are measured by contract signings, as opposed to closings.) The index has now posted eight monthly increases in a row, representing the longest winning streak in its eight-year history. "Contract signings haven't been running this hot in almost three years," analyst Mike Larson of Weiss Research said in a report. Here are three things you need to know about the development:
1. Low prices, attractive mortgage rates: Home sales have firmed up in recent months as falling property values and cheap mortgage rates have increased the affordability of the housing stock. Through August, home prices in 20 major U.S. cities had returned to autumn 2003 levels, down more than 29 percent from their 2006 peaks, according to the most recent S&P/Case-Shiller report. Rates on 30-year fixed mortgages, meanwhile, dropped to an average of 5.18 percent in the last week of September, down from 6.22 percent a year earlier, according to HSH.com.
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First-Time Home Buyer Tax Credit Gets Obama Nod
Continue reading… 100 CommentsAn extension of the $8,000 first-time home buyer tax credit appears all but certain after the Obama administration called on Congress to give house hunters more time to claim the popular tax perk. The move comes shortly after Senate lawmakers stuck an agreement to not only push back the measure's looming deadline but expand it to allow current homeowners and more affluent buyers to claim the credit. "We welcome efforts taken by Congress to extend the first-time home buyers tax credit for a limited period," Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan said in a joint statement today. "This credit has brought new families into the housing market and contributed to three consecutive months of rising home prices nationwide." Here are five things you need to know about the development:
[See New Home Buyer Tax Credit: 7 Things You Need to Know.]
1. Roots and impact: A tax credit of as much as $8,000 for certain qualified first-time home buyers was included in the Obama administration's sweeping economic stimulus package, which the president signed in mid-February. The measure was designed to stimulate additional demand for residential real estate and help absorb the overhang of unsold properties that was putting downward pressure on home prices. Along with cheaper home prices and attractive mortgage rates, the perk has helped reduce the glut of unsold properties. Mark Zandi, the chief economist at Moody's Economy.com, expects the tax credit to result in as many as 400,000 additional home sales by the time of its scheduled expiration at the end of November. But trade groups—like the National Association of Home Builders and the National Association of Realtors—have been lobbying Congress to push the deadline back, arguing that failing to do so would jeopardize recent signs of stability in the housing market. The NAHB, for example, blamed yesterday's weaker-than-expected new home sales report on the tax credit's impending expiration.
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Weak Home Sales Suggest a Slog of a Recovery
Continue reading… 0 CommentsEven before housing market bulls had finished celebrating their strong September existing-home sales report and the encouraging drop in the rate of price declines, a fresh set of figures on the residential real estate market has—once again—hosed down the outlook for a quick recovery. The Commerce Department today reported that new-home sales fell 4 percent from August and 8 percent from a year earlier. The decline puzzled housing market experts, who had projected sales to increase by nearly 3 percent, and suggests that the recovery will be a lengthy, fitful slog. "Even in the strongest recoveries, [data don't] march higher month after month after month," says Zach Pandl, an economist at Nomura Global Economics. The September new-home sales report "suggests that the recovery is going to proceed somewhat slowly and that we are not definitely out of the woods yet." Here are six things you need to know about the development.
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Home Price Declines Becoming Less Jarring
Continue reading… 0 CommentsWhile still falling at a double-digit clip, annual home price declines have eased off the breakneck pace we endured several months back. The S&P/Case-Shiller Home Price Index for 20 major U.S. cities fell 11.3 percent in August from a year earlier. That's a significant improvement from the January reading, which showed a 19 percent year-over-year drop in property values. "We have seen a very nice deceleration in the pace of [home price] declines," says Zach Pandl, an economist at Nomura Global Economics. "It really does look like price trends in the housing market have turned a corner and are improving—but I think we need to wait a little bit before calling the bottom." Here are four things you need to know about the development:
[Check out Home Building Figures Come in Weaker Than Expected.]
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First-Time Home Buyer Tax Credit: All Sorts of Sketchy Claims
Continue reading… 26 CommentsSince the Obama administration enacted it in mid February, the first-time home buyer tax credit has been immensely popular with Americans brave enough to jump into the battered real estate market. But now, it appears the tax perk may have become too popular. Using computer programs and other means, a Treasury Department inspector general has identified more than 90,000 cases totaling more than $600 million questionable first-time home buyer tax claims, while flagging shortcomings in Internal Revenue Service controls. In one extreme case, at least one 4-year-old received the credit. The IRS, meanwhile, has uncovered 167 criminal schemes, launched 115 criminal investigations, and frozen more than 110,000 refunds pending examinations. "There are possibly hundreds of millions of dollars that have been paid to taxpayers who are not entitled to the credit," Rep. John Lewis, a Georgia Democrat, said during a Congressional subcommittee hearing Thursday. "We want to, and we need to, stop this fraud and abuse." Here are five things to know about the development.
[Check out New Home Buyer Tax Credit: 7 Things You Need to Know]
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Mortgage Rates Inch Higher, Refinancing Applications Drop
Continue reading… 0 CommentsAs mortgage rates come off their near-record lows, fewer property owners are interested in refinancing home loans. That's according to the Mortgage Bankers Association's most recent mortgage application survey, which reported a 17 percent drop in its refinancing index for the week ending October 16. The slide in refinancing applications is linked to an uptick in mortgage rates. Thirty-year, fixed mortgage rates inched marginally higher, to 5.07 percent, from 5.02 percent the previous week.
[Check out Mortgage Rates Seen Below 6% Through 2010]
Rates have been nudged higher by bond investors, who have demanded moderately higher yields on 10-year Treasury notes. Ten-year Treasury yields fell to 3.21 percent on October 7—the lowest they had been since early summer. By Tuesday, however, yields had crept back up to 3.41 percent, according to HSH.com. (Fixed mortgage rates tend to track the yields on 10-year Treasuries.)
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Home Building Figures Come in Weaker Than Expected
Continue reading… 0 CommentsIn the face of growing optimism about a potential real estate recovery, a report on new home construction came in weaker than expected for the second straight month. The Commerce Department on Tuesday reported that September housing starts inched up 0.5 percent from the previous month but remained more than 28 percent below year-earlier levels. The results were below the 2 percent gain that economists had projected. Permits for new home construction, meanwhile, slipped more than 1 percent from August and were about 29 percent below the level of September 2008. "After a steady upward march, the housing market appears to be stopping to catch its breath," Mike Larson of Weiss Research said in a report.
Here are five things you need to know about the September new home construction report.
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Obama Expands Housing Rescue (Again): 5 Things to Know
Continue reading… 6 CommentsIn another attempt to reinvigorate the housing market, the Obama administration has announced new steps designed to make it easier for state and local agencies to reduce mortgage costs for low- and moderate-income home buyers. The two-pronged effort—which includes a bond-buying initiative and a credit facility—will enable state and local housing finance agencies, or HFAs, to extend "hundreds of thousands" of new, affordable home loans, the administration said Monday. The program represents Uncle Sam's latest stab at stimulating enough housing demand to mop up the glut of unsold properties that is putting downward pressure on home prices. “Through the years, many low and moderate income Americans have been well served by state and local HFAs, but the housing downturn has hit these organizations too," Treasury Secretary Tim Geithner said in a statement. "Through this initiative, the Administration aims to help HFAs jumpstart new lending to borrowers who might not otherwise be served and to better support the financing costs of their current programs—key components in stabilizing the housing market overall.” Here are five things you need to know about the program.
[See Obama's Loan Modification Plan: 7 Things You Need to Know]
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Foreclosure Epidemic Reaching More Expensive Homes
Continue reading… 5 CommentsA recent report by a congressional oversight panel highlighted the changing nature of the housing crisis by suggesting that the Obama administration's sweeping anti-foreclosure initiative might not be suited to address the mortgage delinquency epidemic as it exists today. The initial portion of the foreclosure mess was triggered in large part by over-leveraged borrowers who got in over their heads with resetting mortgage products and homes they couldn't really afford. But today, as the unemployment rate heads for 10 percent, a growing number of borrowers with good credit are heading into foreclosure after losing their jobs. However, the Obama administration's housing rescue "was not designed to address foreclosures caused by unemployment, which now appears to be a central cause of nonpayment," the panel said in the October 9 report. "The foreclosure crisis has moved beyond subprime mortgages and into the prime mortgage market. It increasingly appears that [the Obama administration's housing rescue] is targeted at the housing crisis as it existed six months ago, rather than as it exists right now."
[Check out Obama's Loan Modification Plan: 7 Things You Need to Know]
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Why Obama's Housing Rescue Hasn't Prevented Record Foreclosures
Continue reading… 25 CommentsAfter taking withering criticism for the Department-of-Motor-Vehicles pace of its initial efforts to keep struggling borrowers out of foreclosure, the Obama administration proudly announced last week that it had hit its goal of 500,000 trial loan modifications almost a month ahead of schedule. But with the foreclosure rate hitting a new record in the third quarter, the government's ability to put a meaningful dent in the tally of housing-crisis victims faces renewed skepticism.
Foreclosure filings were reported on 937,840 homes in the three-month period, a 23 percent jump from a year earlier, according to a report real estate firm RealtyTrac released Thursday. Home foreclosures in September, meanwhile, decreased 4 percent from August but remained 29 percent higher than a year earlier. "REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts, and high volumes of distressed properties," RealtyTrac CEO James Saccacio said in a press release. Here's a look at why home foreclosures continue to break records even in the face of the Obama administration's expansive efforts to prevent them.
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Mortgage Rates Seen Below 6% Through 2010
Continue reading… 0 CommentsEven as mortgage rates remain near record lows, the Mortgage Bankers Association believes that the looming expiration of a key Federal Reserve program may increase home loan costs next year. Still, the MBA expects rates to remain extremely attractive throughout 2010, helping to juice home sales and insert a floor underneath real estate values. Here are five things you need to know about the MBA's 2010 economic outlook:
[See 10 Secrets of Off-Season Home Buying.]
1. Opposing forces: The MBA expects subdued inflation and high unemployment to put downward pressure on 30-year fixed mortgage rates next year. However, "there is a lot of uncertainty regarding rates immediately following the termination of the Federal Reserve's purchase of mortgage-backed securities," Jay Brinkmann, MBA's chief economist and senior vice president for research and economics, said in a statement accompanying the economic outlook's release. "No doubt the Fed will do its best to minimize adverse effects, but the elimination of these purchases will put upward pressure on all long-term rates as well as the spread between mortgage rates and Treasuries."
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House Votes to Extend First-Time Home Buyer Tax Credit for Service Members
Continue reading… 78 CommentsAmid mounting speculation over the future of the $8,000 first-time home buyer tax credit, Congress moved today to give American service members another 12 months to claim the popular incentive. The House of Representatives voted 416 to 0 to pass the Service Members Home Ownership Tax Act of 2009, which pushes the credit's current November 30 deadline back an additional year for members of the military, Foreign Service, and intelligence corps who served at least three months of qualified overseas duty in 2009. "This bill makes sure that the brave men and women who put their lives on the line every day get to enjoy the same benefits as every other American who benefits from their service," said Rep. Charles Rangel, the New York Democrat who introduced the bill. "By extending the first-time homebuyer tax credit for service members overseas, we give these families more time to utilize the benefit, while also helping our economy continue its recovery." Here are five things you need to know about the development:
[Will the $8,000 First-Time Home Buyer Tax Credit Be Extended?]
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Top 10 Cities for Reduced-Price Listings
Continue reading… 0 CommentsMore than a quarter of homes on the market as of October 1 have had their listing prices reduced at least once, according to a report released Thursday by real estate website Trulia. In an effort to unload their properties into the still-slumping market, these homeowners dropped listing prices by an average of 10 percent. All told, sellers with listings on Trulia have reduced asking prices by roughly $1 billion since June.
Pete Flint, Trulia's co-founder and CEO, says seasonality may be a factor in the development. “Interest in real estate typically wanes at the end of the year, which means that sellers who didn’t aggressively price their homes may find themselves making difficult decisions to reduce their prices or delay the sale until interest piques again in January,” Flint said in a statement accompanying the release. “We are seeing the beginning of this trend in the Northeast and Western United States with discounting happening at all price points, and expect it to continue.”
Here is a look at the ten housing markets with the highest percentage of reduced-price listings:
