Archive for January, 2012

More people are moving into Virginia than out

Moving in and out

In another positive sign for Virginia’s economy and thus housing market, there seem to be more people moving into Virgina than out of Virginia.

Of note, Virginia is one of only 9 states where this is the case!

Source: KCM Blog

 

“Normal” is “now”.

Homeownership Rates - via Calculated Risk

  • Human settlement patterns (where people are living and working)
  • Gas prices
  • Expectation of permanence/transience
  • Interest rates
  • Property tax rates
  • Monetary supply
  • The internet’s availability and impact

Those are just a few of the ways that 1999 differs from 2011, and makes application of “normal” challenging.

Here’s something that hasn’t changed – people need homes. Buying a house is a choice, and one that comes with greater responsibility than renting – you’re accepting on the maintenance, the permanence, the mortgage, the community, the risk. If you’re not ready for those, don’t buy a house. If you’re ready to buy a home, do your due diligence and consider it.

Guest post by VAR member and Charlottesville Realtor® Jim Duncan. Originally posted at the Charlottesville real estate blog, RealCentralVA.com.

Inventory, foreclosures, and tidal waves

A couple of interesting pieces Out There about housing inventory. Keep in mind as you read them, of course, that so much about inventory is estimates; take it all with a grain of salt.

First there’s good ol’ “shadow inventory,” aka the foreclosure pipeline: homes that are not on the market yet, but are in or near foreclosure and thus will soon be available. There is much hand-wringing about how this lurking wave of distressed property will affect the rest of the market.

The problem, though, is that there isn’t an official definition of “near foreclosure.” As a Wall Street Journal story points out, how much is coming down the pike depends on who you ask. In the paper’s quick survey, the numbers ranged from CoreLogic’s guess estimate of 1.6 million homes to Amherst Securities’s 10.3 million guess estimate.

Why the range? Because you’re trying to guess how many homes will be in foreclosure based on things like “days past due” that are far from reliable indicators.

So why should you care about shadow inventory? Because foreclosures (as we know) can play havok with property values. The more distressed sales that come out of the shadows, the greater the impact on existing prices.

It’s like trying to guess the size of the earthquake so you can decide how big a tsunami is coming. (But you don’t have a seismograph, and there are a lot of other factors that will determine the tidal wave’s power.)

But wait, there’s more!

So you’ve got all these foreclosures in the pipeline. Some of them take months, some take years (and some will never happen). Now add the fact that the foreclosure process across the country ground to a halt when lenders were caught with the whole fake paperwork, forged signature, robo-signing mess. Those homes will eventually make it back into the system, adding power to the forthcoming wave.

Meantime, because lenders are being careful (and legal) this time, foreclosures are taking a lot longer than they had been.

Some people say we need to speed up the foreclosure process — let’s get this mess over with (and the market back to ‘normal’) ASAP. Others point out that that lenders have shown they aren’t exactly trustworthy, so we need to make sure things are kosher before we kick people out of their homes.

And the Fed says that A) unnecessary foreclosures are hurting the market, and B) we need to put foreclosed homes back on the market slowly to avoid a shock to the system.

Messy, huh?

What’s the bottom line? Prices have been falling. The shadow inventory will eventually — quickly or slowly — see the light of day. That will probably push prices down, but it’s impossible to say whether it will be by a lot or a little.

How’s that for a Monday afternoon reading list?

2011 home sales: ick

What do 2011, 2010, 2009, and 2008 have in common? They’re all among the top worst years for home sales since the Census Bureau started tracking them.

Here’s the full list:

2011    302,000 sold
2010    323,000
2009    375,000
1982    412,000
1981    436,000
1969    448,000
1966    461,000
1970    485,000
2008    485,000
1967    487,000

(Note: If you guessed “They were in the top-10 warmest years on record, you’d be wrong. 2011 was the 11th warmest, and 2008 was #12.)

We’ve released the 4th Quarter 2011 Virginia Home Sales Report, and for the second consecutive quarter there has been an increase in the annualized pace of home sales in Virginia.

Despite the improvement in the long-term sales pace, as shown above, median home prices have continued to decline in most regions of the state.

 

The increases in the pace of home sales have all taken place in price ranges under $200,000 – pictured above – with higher price ranges showing anywhere from a 3% to 24% decline over the past year.

Continue reading Virginia housing market shows signs of returning stability

Obama on housing in State of the Union

In his State of the Union address, President Obama called for a significant new law to help struggling homeowners reduce their debt load.

He asked for new legislation that would give all homeowners who are current on their mortgages — not just those whose loans are backed by Fannie and Freddie — the opportunity to refinance at record low mortgage rates. (“No more red tape. No more runaround from the banks.”)

Right now, because home values have plummeted and so many people have lost income, refinancing may be impossible. A new law would remove the roadblock … at least for borrowers who are current.

Of course, there are issues and questions. Would these refinanced loans be backed up by Fannie/Freddie/FHA? Is that putting taxpayers at risk? (Answer: Probably not, because it’s only for people who are making payments, so we’re not talking about overly risky loans.)

But just in case, the Obama Administration wants to impose a fee on the financial institutions that got us into this mess — money that would be used to alleviate any losses.

And speaking of those companies, the President also wants to create a task force to prevent future mortgage fraud by lenders. (“Some financial firms violate major anti-fraud laws because there’s no real penalty for being a repeat offender. That’s bad for consumers, and it’s bad for the vast majority of bankers and financial service professionals who do the right thing.”)

Obviously, these two plans — easier refinancing, fraud prevention — aren’t expected to solve the housing issue alone. There is no magic bullet or single, simple policy that will. But NAR, among other organizations, recognized them as important steps.

Romney supports principal reductions

In a speech in Florida, presidential candidate Mitt Romney said he supports the idea of principal reduction.

Quoth Romney:

We’re just so overleveraged, so much debt in our society, and some of the institutions that hold it aren’t willing to write it off and say they made a mistake, they loaned too much, we’re overextended, write those down and start over. They keep on trying to harangue and pretend what they have on their books is still what it’s worth.

Romney said, essentially, that he realizes that without some sort of principal reduction or debt forgiveness, the door to a bigger problem might open: more “strategic defaults” where homeowners walk away because lenders won’t work with them:

In some cases, if the debt is not in something you can service, it’s like you have to move on and start over away from those debts. It’s helpful if you get an institution that’s willing to work with you, but if you don’t you have no other option.

Lenders, he says, are afraid of losing their shirts. But he doesn’t consider their position reasonable:

They just want to pretend all of this is going to get paid someday so they don’t have to write it off and potentially go out of business themselves.

Finally, his message to lenders:

My own view is you recognize the distress, you take the loss and let people reset. Let people start over again, let the banks start over again. Those that are prudent will be able to restart, those that aren’t will go out of business.

And finally what almost sounds like a scolding of the banks:

This effort to try and exact the burden of their mistakes on homeowners and commercial property owners, I think, is a mistake.

(This jibes with a quote from the day before, also in Florida: “Too many institutions aren’t willing to write it off and say, we made a mistake, we over-leveraged, we loaned too much.”)

Click here for more VARbuzz stories on principal reduction.

Worthwhile reading from today’s Washington Post op-ed page, “Why the Federal Reserve slept before the housing crisis.” Unlike the typical blame-the-people-whose-politics-I-disagree-with piece, this one points to a much more mundane explanation of why, in 2006, the Fed apparently ignored all the signs of a major problem.

It wasn’t that they didn’t see the housing boom or recognize that it was ending. At 2006’s first meeting, a senior Fed economist noted “that we are reaching an inflection point in the housing boom. The bigger question now is whether we will experience (a) gradual cooling . . . or a more pronounced downturn.”

At that same meeting, Fed Governor Susan Bies warned that mortgage lending standards had become dangerously lax [...] But [members of the Federal Open Market Committee] — and most private economists — didn’t draw the proper conclusions.

Hardly anyone asked whether lax mortgage lending would trigger a broad financial crisis, because America had not experienced a broad financial crisis since the Great Depression [...] Because it hadn’t happened in decades, it was assumed that it couldn’t happen.

Click here to read the whole piece by Robert Samuelson.

RESO wants to standardize listing data

The Real Estate Standards Organization wants to standardize some of the more confusing parts of a listing by creating an industry-wide “data dictionary” of definitions.

Two of the notable definitions the group would like to set are number of bathrooms and days on market.

Hmm... should we call it 5/8ths?“Number of bathrooms,” you might think, is pretty straightforward. You’ve got full baths and half baths, so a home might have 2 baths, 3 baths, or 2 1/2 baths, and so on. But that raises the question of what constitutes a fractional bath.

If it has a sink and toilet, is that half? What if it’s just a toilet? (My wife’s family’s 19th-century farmhouse has such a room.) What if it has a shower stall but not a bathtub — is that 3/4? Is a two-seater outhouse “1″ or “1/2 + 1/2″?

And how do you do the math? If you read that a house has “2.5 baths” does that mean…

  • Bath A: Toilet, sink, shower
  • Bath B: Toilet, sink, shower
  • Bath C: Toilet, sink

or

  • Bath A: Toilet, two sinks, shower, Jacuzzi
  • Bath B: Toilet, sink, shower

or

  • Bath A: Toilet, bidet, two sinks, two-person shower, Jacuzzi
  • Bath B: Toilet

Yep, they built 'em. or

You see the issue.

So RESO wants to not only standardize definitions, but break them down, so a listing would include not only total baths, but “baths full,” “baths half,” “baths three-quarter,” and “baths one-quarter.”

Read all about it — click here for the Inman News article.

A principal reduction update

Principal reduction is back (still?) in the news. Here’s a quick update.

The basic idea is that, as part of a workout package with homeowners, lenders would reduce the principal owned along with or instead of the interest rate. But it’s not simply a matter of homeowners asking for a handout. (One way to think of it is a short sale — to the same owners.)

More and more economists are saying that, if we want out of the housing crisis, principal reduction has to be on the table. (Here’s one. Here’s another.)

The Spiral of Doom: More than one in five homeowners is underwater. Thanks in large part to foreclosures, supply of homes is way higher than demand. That pushes values lower — and puts more homeowners underwater. That makes them more likely to default and be foreclosed upon… you get the picture.

The any-day-now deal between the states attorneys general and lenders who broke various laws in the robo-signing scandal is going to include principal reductions.

But if you think that’s letting people off the hook, think again. Most principal reduction plans don’t just forgive a chunk of a mortgage. A common caveat is that if the homeowner sells for a profit, that profit goes to the lender or investors. (So you can’t get a $300K loan written down to $250K, then sell the house for $300K and keep all the proceeds.)

The Obama Administration appears to favor some sort of wider principal reduction plan — or at least the general idea. It would keep people in their homes and reduce the glut of foreclosures — and thus protect property values.

But… the Federal Housing Finance Agency (which now runs Fannie Mae and Freddie Mac) doesn’t support the idea. FHFA Acting Director Edward DeMarco said he’s afraid it would lead to losses that would end up on Fannie or Freddie’s shoulders, and those agencies are already hurting from bailing out the nation’s banks.

About four million loans owned (now) by Fannie and Freddie are currently underwater, meaning the property is worth less than the loan on the home.

An analysis from Fitch Ratings found that principal reductions would have a major and positive effect by reducing delinquencies and foreclosures.

FHFA did its own analysis and promised to share the results — but never has. Congress is considering subpoenas to force the agency to disclose what it found. (The logic being that if FHFA’s analysis supported DeMarco’s contention, the agency would have released the numbers.

The Obama Administration has said that it’s going to be more aggressive in pushing FHFA to offer plans that would protect homeowners and property values.

Finally, principal reduction isn’t all that unusual. Corporations do it all the time. Eastman Kodak, for example, is asking the government to require its lenders to accept principal reduction on the company’s loans. It’s called “filing for Chapter 11 bankruptcy.”