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Housing Market Gets Tax Credit Payback
Tweet Share on Facebook January 5, 2010 Comment (10)After they rushed to cash in on a government tax perk the previous month, Americans signed a great deal fewer sales contracts in November, according to a report released Tuesday by the National Association of Realtors. NAR's index of pending home sales—which uses signed contracts, not closings—dropped 16 percent from October to November. Although the measure remained 15.5 percent above its year-earlier level, November's reading was significantly less encouraging than October's, when the index jumped nearly 32 percent higher than October 2008. While economists had predicted a modest monthly decline, the report was much worse than expected. "The consensus was for [pending home sales] to be down 2% ... instead they were down a big daddy whopper 16%," Mark Hanson of the Field Check Group said in a report. "Now that's a miss."
[Check out Home Sales Poised to Dip After Tax-Credit Rush.]
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Obama Housing Rescue: Hardly Any Permanent Fixes
Tweet Share on Facebook December 11, 2009 Comment (8)While the Obama administration is temporarily reducing mortgage payments for a growing number of troubled borrowers, it has failed to find permanent fixes for all but a precious few. A little more than 4 percent—or 31,382—of the more than 728,000 modifications underway through November have advanced from the program's trial period to the permanent phase. News of the dismal conversion rate comes shortly after the administration announced new efforts to pressure mortgage servicers to do more to keep struggling borrowers in their homes. "Our focus now is on working with servicers, borrowers, and organizations to get as many of those eligible homeowners as possible into permanent modifications," Phyllis Caldwell, who heads Treasury's Homeownership Preservation Office, said in a statement. Here are four things you need to know about the development:
[Check out Obama's Loan Modification Plan: 7 Things You Need to Know.]
1. Trial period: The Obama administration announced its $75 billion antiforeclosure initiative in February. Under the terms of the modification program, the government offers cash incentives to lenders and servicers to bring borrowers' monthly payments down to more affordable levels. But before borrowers can land a permanent modification, they must make payments in an initial, three-month trial period. Additional paperwork is also required to convert a trial modification into a permanent one. Although the administration had extended only 387,000 trial modifications through August, the figure jumped to nearly 700,000 by the end of November. But getting those borrowers into permanent modifications has been tricky.
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Obama Housing Rescue Whiffs on 'Underwater' Headaches
Tweet Share on Facebook December 8, 2009 Comment (4)The Treasury Department proudly reported last month that it had extended more than 650,000 trial loan modifications through the end of October, putting it on track to hit its goal of reducing monthly payments for as many as 4 million struggling homeowners. Now the bad news: More than 1 in 4 borrowers who received a modified loan are already behind on payments, the Washington Post reported Saturday. What's behind this high redefault rate? With the unemployment rate at 10 percent, the rickety labor market is certainly one factor. But the epidemic of negative equity—which can tempt homeowners to simply walk away from their properties—is playing a key role as well. Here are four things you need to know about the development.
[See 10 Things to Know About Getting a Mortgage in 2010.]
1. One in four: The historic plunge in home values has dragged an alarming number of borrowers underwater, which means they owe more on their home loan than their property is worth. With home prices having dropped roughly 29 percent from their 2006 peaks, nearly 1 in every 4 American homes—or 10.7 million—was underwater in the third quarter, according to real estate information firm First American CoreLogic. And while the housing market has shown recent signs of stability, analysts project an increase in foreclosures to push home prices down even more. If that's the case, the number of underwater homeowners could rise still higher.
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Home Buyer Discounts Keep Shrinking
Tweet Share on Facebook December 4, 2009 Comment (37)As the market shows signs of stabilizing, buyers are continuing to lose leverage in home price negotiations, according to new data from real estate company Zillow. Home buyers squeezed a median of 2.7 percent off listing prices in October, or $5,741. That's down from 2.9 percent the previous month and 4.6 percent in January. Here is a look at the markets where buyers are landing the largest discounts:
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3 Mortgages Get Worse For Each 1 that Improves
Tweet Share on Facebook December 3, 2009 Comment (1)One of the big headaches the Obama administration faces in rescuing troubled homeowners is that the size of the problem doesn't seem to stop growing. Even as some struggling borrowers find ways to make mortgage payments again, a great deal more fall further behind. Lender Processing Services' November 2009 Mortgage Monitor Report provides two visuals to illustrate this trend. First, the six-month average deterioration ratio shows that for every mortgage that improves in status three others get worse. Although it declined from the all-time high reached last month, the ratio remains elevated and indicates that the "shadow inventory" of foreclosed homes will continue to sandbag a housing recovery for some time.
From Lender Processing Services:
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What the FHA's New Criteria Mean for Housing
Tweet Share on Facebook December 2, 2009 Comment (20)After the real estate crash decimated the mortgage market, a tiny government agency has assumed an outsize role in the housing recovery. In 2006, the Federal Housing Administration—which insures home loans against default—backed just 3 percent of new home-purchase mortgages. But today, the agency insures nearly 3 out of every 10 new home loans. That's because while banks have raised their lending standards, credit requirements for FHA-backed loans have remained fairly liberal. But after a recent actuarial study concluded that the housing swoon has dragged the agency's reserves below its congressionally mandated level, the FHA is facing mounting political pressure to increase borrower requirements as well.
[Check out Why Foreclosures Rise Even as the Economy Expands.]
Shaun Donovan, secretary of housing and urban development, responded to such criticism yesterday by outlining a series of steps the agency plans to take to make sure its loans are available and safe. "We want to ensure that we are able to continue to support the housing market in the short term and provide access to homeownership over the long term, while minimizing the risk to the American taxpayer," Donovan told a congressional committee in written testimony. Here are five things you need to know about the development.
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Home Prices: The Next Leg Down
Tweet Share on Facebook November 24, 2009 Comment (17)Although home prices improved again in September, analysts predict property values will resume their decline in the coming months. The S&P/Case-Shiller Home Price report, which was released today, showed that seasonally adjusted home prices increased in September for the fourth month in a row. Prices are now roughly 3.5 percent above the lows they hit in May. At the same time, the third-quarter U.S. National Home Price Index dropped nearly 9 percent from the same period a year earlier. That's significantly better than the second quarter's 14.7 percent annual drop. But economists at Goldman Sachs argue that some of the recent strength in home prices is rooted in "transitory factors." And as a result, "we expect another leg down (5 percent-10 percent) as these wear off." Here are four things you need to know:
[See Home Sales Poised to Dip After Tax-Credit Rush.]
1. Stabilization: Attractive mortgage rates have played a key role in the recent stabilization of home prices. Thirty-year fixed mortgage rates fell below 5 percent in early May from 6.08 percent a year earlier. At the same time, the price stabilization reflects the return of affordability to many parts of the real estate market. In the first half of the decade, the steep run-up in prices made properties too expensive for many consumers. But the real estate crash has pushed prices in many markets back down to levels that more Americans can afford. The first-time home buyer tax credit has also helped prod buyers off the sidelines.
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Home Sales Poised to Dip After Tax-Credit Rush
Tweet Share on Facebook November 23, 2009 CommentAlthough home sales surged last month, many housing experts—and even real estate agents' own trade group—are expecting the market to retrench in the coming months as the jolt from a tax incentive's previously impending deadline subsides. On a seasonal basis, existing home sales jumped 10 percent last month from September and nearly 24 percent from October 2008, the National Association of Realtors reported Monday. But along with declining prices and attractive mortgage rates, sales were goosed by home buyers scrambling to close transactions before the original November 30 deadline for the $8,000 first-time home buyer tax credit, experts say. As that impact wears off, "we expect a partial reversal in December and early next year," Michelle Meyer, an economist at Barclays Capital, said in a report. Here are four things you need to know about the development:
1. Prices, Rates, Credit: Home sales were driven higher by three key factors. First, homes continue to get cheaper. The median price of an existing home in October dropped 7 percent from a year earlier. Meanwhile, 30-year, fixed mortgage rates were extremely attractive during the month, falling to 4.95 percent from 5.06 percent in September. On top of that, sales got a kick thanks to the first-time home buyer tax credit, which was originally scheduled to expire at the end of this month. "We think the story here is that people were rushing to complete transactions—the numbers are captured at the point of sales closing—ahead of the then scheduled expiration of the first-time buyer tax credit," Ian Shepherdson, chief US economist of High Frequency Economics, said in a report. However, on November 6, the president signed legislation pushing the tax credit's closing deadline back to the end of June and making most current home owners eligible for a similar perk of up to $6,500.
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Why Foreclosures Rise Even as the Economy Expands
Tweet Share on Facebook November 19, 2009 Comment (9)Even 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'
Tweet Share on Facebook November 18, 2009 CommentThe 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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