This is another in a series of blog posts in which I intend to excerpt and expand upon portions of a recent book, "Reckless Endangerment".
The authors of this book investigate and take apart the various factors that led to the current recession or depression (you pick the term) in the real estate market.
From 2000 through 2006, the average price of a single family house in Delaware County increased by 61%. (From $160,000 to $257,000 as per MLS, Trend). Since then we have had a market correction that has driven the average resale price down by 27% nationally. In Pennsylvania, the average decline since 2006 has been 13% (Freddie Mac, 05/11).
One of the predictable results of that kind of a decline is a glut of houses on the market. As per MLS Trend, in Delaware county, there are 4,103 single family houses for sale as of June, 2011. Back in the height of the good old (or was it really) seller's market, the inventory of single family houses was around 1,600. Wow, a 256% increase in inventory. No wonder prices are down.
One other indicator of stress in the housing market is the rate at which single family houses are either 90+ days behind in mortgage payments or in foreclosure. According to CalculatedRiskBlog.com, the rate for Fannie Mae purchased loans was under 1% until late 2007. Since then, in 2010, it spiked to a heretofore unheard of 5+%, a five fold increase.
Along with this glut has come the now all too familiar litany of high unemployment, declining incomes and immense pain on the part of a lot of people.
What caused this dramatic shift and all of the corresponding misery? More on that in the next blog post which will be out next week. Suffice it to say, it came about because lenders made way too many easy loans, with standards that were way too lax.
However, was it because of the "Greedy Bankers and Wall Street Sharks" who
"Took Advantage of Government De Regulation to mess up the economy? That is the basic line that has been pushed by most of the major media in this country.
However, as I think you will see, the answer is Not Really. It was caused by deliberate policies of our federal government interfering in and, in effect, over regulating the loan market.
I would welcome your comments and thoughts.
Friday, July 15, 2011
Tuesday, July 5, 2011
WHY ARE WE IN THE DUMPER THAT WE ARE IN, OR, "THANK YOU AGAIN FEDERAL GOVERNMENT"
There have been a number of critiques written about how greedy bankers, deregulated financial markets, capitalism run amok caused the current economic holes in which we find ourselves. A few brave souls have also hinted around the edges that maybe, just maybe the federal government through it's sponsorship of Fannie Mae and the repurchase of mortgage debt from private lenders had a huge part in the debacle. Now there is a new book on the subject called "Reckless Endangerment" that blows the lid off Fannie's real role in causing all of this world wide pain and suffereing.
More about this in a future blog, but here is a quote from a July 1 column by George Will.
The 1977 Community Reinvestment Act pressured banks to relax lending standards to dispense mortgages more broadly across communities. In 1992, the Federal Reserve Bank of Boston purported to identify racial discrimination in the application of traditional lending standards to those, Morgenson and Rosner write, “whose incomes, assets, or abilities to pay fell far below the traditional homeowner spectrum.”
In 1994, Bill Clinton proposed increasing homeownership through a “partnership” between government and the private sector, principally orchestrated by Fannie Mae, a “government-sponsored enterprise” (GSE). It became a perfect specimen of what such “partnerships” (e.g., General Motors) usually involve: Profits are private, losses are socialized.
There was a torrent of compassion-speak: “Special care should be taken to ensure that standards are appropriate to the economic culture of urban, lower-income, and nontraditional consumers.” “Lack of credit history should not be seen as a negative factor.” Government having decided to dictate behavior that markets discouraged, the traditional relationship between borrowers and lenders was revised. Lenders promoted reckless borrowing, knowing they could offload risk to purchasers of bundled loans, and especially to Fannie Mae. In 1994, subprime lending was $40 billion. In 1995, almost one in five mortgages was subprime. Four years later such lending totaled $160 billion.
As housing prices soared, many giddy owners stopped thinking of homes as retirement wealth and started using them as sources of equity loans — up to $800 billion a year. This fueled incontinent consumption.
Fannie Mae became, the authors say, “the largest and most powerful financial institution in the world.” Its power derived from the unstated certainty that the government would be ultimately liable for Fannie’s obligations. This assumption and other perquisites were subsidies to Fannie Mae and Freddie Mac worth an estimated $7 billion a year. They retained about a third of this. (John Herreid comment, translation - they passed about 2/3 of this debt onto bankers, who probably should have known better, but didn't. However, if Fannie and Freddie had not made it possible for the loans to be made, this "Investment Bundle" would not have been made possible)
Morgenson and Rosner report that in 1998, when Fannie Mae’s lending hit $1 trillion, its top officials began manipulating the company’s results to generate bonuses for themselves. ...... Fannie Mae’s political machine dispensed campaign contributions, gave jobs to friends and relatives of legislators, hired armies of lobbyists (even paying lobbyists not to lobby against it), paid academics who wrote papers validating the homeownership mania, and spread “charitable” contributions to housing advocates across the congressional map.
By 2003, the government was involved in financing almost half — $3.4 trillion — of the home-loan market. Not coincidentally, by the summer of 2005, almost 40 percent of new subprime loans were for amounts larger than the value of the properties.
“Reckless Endangerment” is a study of contemporary Washington, where showing “compassion” with other people’s money pays off in the currency of political power, and currency. Although Johnson left Fannie Mae years before his handiwork helped produce the 2008 bonfire of wealth, he may be more responsible for the debacle and its still-mounting devastations — of families, endowments, etc. — than any other individual. If so, he may be more culpable for the peacetime destruction of more wealth than any individual in history.
Morgenson and Rosner report. You decide.
georgewill@washpost.com
Now, here is another tidbit you might find interesting.
If the Fannie/Freddie policies of pressuring lenders to make loans "... appropriate to the economic culture of urban, lower-income, and non traditional consumers" really had an impact, one could logically expect that the impacts of these policies would be greatest in states where there was more opportunity to implement these policies and lesser in states where the opportunity was smaller. Well lo and behold, there is a recent report from our federal government that gives us some insight into just that.
A recent Freddie Mac summary of 5/4/2011 showed Home Price changes by state from June 2006 through March of 2011. According to Freddie, the national average home price decline was -27%.
Taking a swath through the Middle of our country shows the following price changes by state: North Dakota, +11%; South Dakota, -1%; Nebraska, -7%; Kansas, -8%; Oklahoma, -4%; Texas, 0%.
Contrast that with the more densly populated states like: California, -45%; Florida, -49%; Minnesota (right next door to the Dakotas), -31%; Georgia, -31%; Nevada, -59%; Oregon, -32%; Washington, -24%.
HMMMMMM!!!! Like one prominent news network says, We Report, You Decide"
More about this in a future blog, but here is a quote from a July 1 column by George Will.
The 1977 Community Reinvestment Act pressured banks to relax lending standards to dispense mortgages more broadly across communities. In 1992, the Federal Reserve Bank of Boston purported to identify racial discrimination in the application of traditional lending standards to those, Morgenson and Rosner write, “whose incomes, assets, or abilities to pay fell far below the traditional homeowner spectrum.”
In 1994, Bill Clinton proposed increasing homeownership through a “partnership” between government and the private sector, principally orchestrated by Fannie Mae, a “government-sponsored enterprise” (GSE). It became a perfect specimen of what such “partnerships” (e.g., General Motors) usually involve: Profits are private, losses are socialized.
There was a torrent of compassion-speak: “Special care should be taken to ensure that standards are appropriate to the economic culture of urban, lower-income, and nontraditional consumers.” “Lack of credit history should not be seen as a negative factor.” Government having decided to dictate behavior that markets discouraged, the traditional relationship between borrowers and lenders was revised. Lenders promoted reckless borrowing, knowing they could offload risk to purchasers of bundled loans, and especially to Fannie Mae. In 1994, subprime lending was $40 billion. In 1995, almost one in five mortgages was subprime. Four years later such lending totaled $160 billion.
As housing prices soared, many giddy owners stopped thinking of homes as retirement wealth and started using them as sources of equity loans — up to $800 billion a year. This fueled incontinent consumption.
Fannie Mae became, the authors say, “the largest and most powerful financial institution in the world.” Its power derived from the unstated certainty that the government would be ultimately liable for Fannie’s obligations. This assumption and other perquisites were subsidies to Fannie Mae and Freddie Mac worth an estimated $7 billion a year. They retained about a third of this. (John Herreid comment, translation - they passed about 2/3 of this debt onto bankers, who probably should have known better, but didn't. However, if Fannie and Freddie had not made it possible for the loans to be made, this "Investment Bundle" would not have been made possible)
Morgenson and Rosner report that in 1998, when Fannie Mae’s lending hit $1 trillion, its top officials began manipulating the company’s results to generate bonuses for themselves. ...... Fannie Mae’s political machine dispensed campaign contributions, gave jobs to friends and relatives of legislators, hired armies of lobbyists (even paying lobbyists not to lobby against it), paid academics who wrote papers validating the homeownership mania, and spread “charitable” contributions to housing advocates across the congressional map.
By 2003, the government was involved in financing almost half — $3.4 trillion — of the home-loan market. Not coincidentally, by the summer of 2005, almost 40 percent of new subprime loans were for amounts larger than the value of the properties.
“Reckless Endangerment” is a study of contemporary Washington, where showing “compassion” with other people’s money pays off in the currency of political power, and currency. Although Johnson left Fannie Mae years before his handiwork helped produce the 2008 bonfire of wealth, he may be more responsible for the debacle and its still-mounting devastations — of families, endowments, etc. — than any other individual. If so, he may be more culpable for the peacetime destruction of more wealth than any individual in history.
Morgenson and Rosner report. You decide.
georgewill@washpost.com
Now, here is another tidbit you might find interesting.
If the Fannie/Freddie policies of pressuring lenders to make loans "... appropriate to the economic culture of urban, lower-income, and non traditional consumers" really had an impact, one could logically expect that the impacts of these policies would be greatest in states where there was more opportunity to implement these policies and lesser in states where the opportunity was smaller. Well lo and behold, there is a recent report from our federal government that gives us some insight into just that.
A recent Freddie Mac summary of 5/4/2011 showed Home Price changes by state from June 2006 through March of 2011. According to Freddie, the national average home price decline was -27%.
Taking a swath through the Middle of our country shows the following price changes by state: North Dakota, +11%; South Dakota, -1%; Nebraska, -7%; Kansas, -8%; Oklahoma, -4%; Texas, 0%.
Contrast that with the more densly populated states like: California, -45%; Florida, -49%; Minnesota (right next door to the Dakotas), -31%; Georgia, -31%; Nevada, -59%; Oregon, -32%; Washington, -24%.
HMMMMMM!!!! Like one prominent news network says, We Report, You Decide"
Tuesday, June 21, 2011
Another Snapshot of Price Changes, How Bad Is It (Or Is Not)?
Behind all the gloom and doom about house prices, there are cold, hard numbers to document what is going on. I took a look at some of those numbers for Delaware county to try and get a more factual handle on house price changes from 2006 through 2010.
This time I did it by school district. I looked at resale prices (not new construction) of a 4 bedroom, 2 full bath, 0-1 half baths, single family house with a basement, garage and central air. Here is what I found out.
Garnet Valley School District:
+ 2006, 70 houses sold, average price of $485,773
+ 2010, 48 houses sold, average price of $458,022
+ Differences, Sales down 31%; average price down 5.8%
Marple Newtown School district:
+ 2006, 42 houses sold, average price of $477,367
+ 2010, 42 houses sold, average price of $412,302
+ Differences, Sales were unchanged; average price down 13.6%
Radnor School District
+ 2006, 47 houses sold, average price of $740,100
+ 2010, 27 houses sold, average price of $568,561
+ Differences, Sales down 43%; average price down 23.2%
Wallingford Swarthmore School district
+ 2006, 32 houses sold, average price of $434,996
+ 2010, 19 houses sold, average price of $405,174
+ Differences, Sales down 41%; average price down 6.9%
Rose Tree Media School District
+ 2006, 48 houses sold, average price of $472,848
+ 2010, 36 houses sold, average price of $440,221
+ Differences, Sales down 25%; average price down 7.0%
So, what does it mean? As usual, like my dad used to say, figures do not lie - but sometimes liars figure. Not trying to lie here, but the trends are more uneven than you might expect.
Some Overall Conclusions:
+ Common belief is that more expensive houses have taken a bigger hit. This is backed up by the price decline in Radnor, -23.2%
+ Sales Volume is down everyplace, again the more expensive Radnor area took the biggest hit at -43%.
+ Although the overall percentage price declines are not in wipe out territory, if your house was worth $500,000 in 2006, even the smallest price decline area was 6-10%. $30,000 to $50,000 feels like a real big hit to your bottom line, especially if you borrowed to the maximum and took out a big home equity line of credit. Unfortunately, that is where a lot of home owners find themselves right now.
Would appreciate your thoughts and comments.
This time I did it by school district. I looked at resale prices (not new construction) of a 4 bedroom, 2 full bath, 0-1 half baths, single family house with a basement, garage and central air. Here is what I found out.
Garnet Valley School District:
+ 2006, 70 houses sold, average price of $485,773
+ 2010, 48 houses sold, average price of $458,022
+ Differences, Sales down 31%; average price down 5.8%
Marple Newtown School district:
+ 2006, 42 houses sold, average price of $477,367
+ 2010, 42 houses sold, average price of $412,302
+ Differences, Sales were unchanged; average price down 13.6%
Radnor School District
+ 2006, 47 houses sold, average price of $740,100
+ 2010, 27 houses sold, average price of $568,561
+ Differences, Sales down 43%; average price down 23.2%
Wallingford Swarthmore School district
+ 2006, 32 houses sold, average price of $434,996
+ 2010, 19 houses sold, average price of $405,174
+ Differences, Sales down 41%; average price down 6.9%
Rose Tree Media School District
+ 2006, 48 houses sold, average price of $472,848
+ 2010, 36 houses sold, average price of $440,221
+ Differences, Sales down 25%; average price down 7.0%
So, what does it mean? As usual, like my dad used to say, figures do not lie - but sometimes liars figure. Not trying to lie here, but the trends are more uneven than you might expect.
Some Overall Conclusions:
+ Common belief is that more expensive houses have taken a bigger hit. This is backed up by the price decline in Radnor, -23.2%
+ Sales Volume is down everyplace, again the more expensive Radnor area took the biggest hit at -43%.
+ Although the overall percentage price declines are not in wipe out territory, if your house was worth $500,000 in 2006, even the smallest price decline area was 6-10%. $30,000 to $50,000 feels like a real big hit to your bottom line, especially if you borrowed to the maximum and took out a big home equity line of credit. Unfortunately, that is where a lot of home owners find themselves right now.
Would appreciate your thoughts and comments.
Thursday, June 9, 2011
What is Really Going on in the Mortgage Market
One of the refrains that I hear from sellers and buyers in this market is this. One of the reasons that house prices are low and going lower is that "NOBODY IS LENDING ANY MONEY - THE BANKS ARE SITTING ON ALL OF THEIR CASH".
As with a lot of urban legends, there is some truth to that, but below is the best explanation that I have seen about what is really happening. And, Buyers and Sellers - Take Heart. If your credit is good and you have a dependable job, you will be able to qualify for a loan - it just may take a little bit longer. (Reprinted with permission of KeepingCurrentMatters.com.
As people go through the mortgage process today, I believe that they wonder if their lender has gone insane. Lenders ask for documentation repeatedly, constantly updating, asking for further clarification and explanation for everything. Income, credit, assets and appraisals are scrutinized at a level unseen in my 25+ years. It almost seems like they are trying to find reasons NOT to lend.
But, I assure you, that is not the case. The only way lenders can stay in business is to lend money. It is what funds the operation and pays for salaries, rent and paper clips. Lending is what creates the value of the company. No closings, no revenue, no company.
So why the perception of over-documentation and over analysis when we know the lenders have to make loans? This is the reality of a post-subprime world. Lenders got too liberal and under-documented files and forgot the primary role of underwriting (judging a borrower’s ABILITY and WILLINGNESS to repay the loan) as they approved files. And now, the pendulum has swung back to a very conservative stance. Common sense seems to have been replaced by a “Cover Your Butt Mentality”.
No one is immune. Appraisers error on the side of lower valuations and heightened criticism of a home’s condition. Underwriters labor over pay stubs, tax returns, bank statements and credit information. Closing agents meticulously examine title and closing documents. Each of them has learned that their mistakes, miscalculations, or errors in judgment (no matter how minor) can result in a loss of their job, a bad loan, and/or monetary damages to their companies.
So, today I just wanted to counsel home buyers. Your lender WANTS to make your loan. However, understand that they have been burned by borrowers, burned by their bad judgment, burned by moronic industry trends of the past. Lenders are going to be a little gun shy. If you can prove that you are willing and able to repay the loan, lenders have lots of money available at incredible (once-in-a-lifetime) rates. When you think your lender is asking for too much, know it’s because they want to say “yes” AND know that their decision is both a good and defendable one.
As with a lot of urban legends, there is some truth to that, but below is the best explanation that I have seen about what is really happening. And, Buyers and Sellers - Take Heart. If your credit is good and you have a dependable job, you will be able to qualify for a loan - it just may take a little bit longer. (Reprinted with permission of KeepingCurrentMatters.com.
As people go through the mortgage process today, I believe that they wonder if their lender has gone insane. Lenders ask for documentation repeatedly, constantly updating, asking for further clarification and explanation for everything. Income, credit, assets and appraisals are scrutinized at a level unseen in my 25+ years. It almost seems like they are trying to find reasons NOT to lend.
But, I assure you, that is not the case. The only way lenders can stay in business is to lend money. It is what funds the operation and pays for salaries, rent and paper clips. Lending is what creates the value of the company. No closings, no revenue, no company.
So why the perception of over-documentation and over analysis when we know the lenders have to make loans? This is the reality of a post-subprime world. Lenders got too liberal and under-documented files and forgot the primary role of underwriting (judging a borrower’s ABILITY and WILLINGNESS to repay the loan) as they approved files. And now, the pendulum has swung back to a very conservative stance. Common sense seems to have been replaced by a “Cover Your Butt Mentality”.
No one is immune. Appraisers error on the side of lower valuations and heightened criticism of a home’s condition. Underwriters labor over pay stubs, tax returns, bank statements and credit information. Closing agents meticulously examine title and closing documents. Each of them has learned that their mistakes, miscalculations, or errors in judgment (no matter how minor) can result in a loss of their job, a bad loan, and/or monetary damages to their companies.
So, today I just wanted to counsel home buyers. Your lender WANTS to make your loan. However, understand that they have been burned by borrowers, burned by their bad judgment, burned by moronic industry trends of the past. Lenders are going to be a little gun shy. If you can prove that you are willing and able to repay the loan, lenders have lots of money available at incredible (once-in-a-lifetime) rates. When you think your lender is asking for too much, know it’s because they want to say “yes” AND know that their decision is both a good and defendable one.
Wednesday, June 1, 2011
Should You Rent or Buy in this Market? Some Recent Thoughts
Reprinted with permission from Keeping Current Matters (www.KCM.com)
Families are trying to determine whether or not now is the time to buy a home. Some are advising these families to sit out the current real estate market and instead rent for the next year or two. We do not agree with this advice. Homeownership means a lot to a family. We also realize that the financial aspects of purchasing a home today can be a concern. The challenge is any advice given by someone in the real estate community is immediately dismissed as self-serving.
For this reason, we want to give you the advice of three entities not involved in real estate sales:
Citigroup
“When we examine the relationships between mortgage payments and income and mortgage payments and rent, we see that these relationships have also reverted back to or below equilibrium points. In some cases, particularly when mortgage payments are compared to the cost of renting, home prices actually appear cheap.”
JP Morgan
“JPMorgan analysts said ‘the continuation of falling rental vacancies and rising rental demand will make home buying increasingly attractive’, especially as rental prices increase.”
Business School professors Eli Beracha and Ken H. Johnson
“Fundamental drivers now appear to be in place that favor homeownership over renting in the near term future…
The second finding might seem unwise to many given the recent crash in the real estate markets around the country. However, rent-to-price ratios now seem to be in place along with other fundamental drivers that favor ownership over renting…
Conditions (historically low mortgage rates and relatively low rent-to-price ratios) now seem in place to favor future purchases.”
Bottom Line
Is it better to rent or buy? According to those quoted above, it seems it may be becoming a no-brainer.
Families are trying to determine whether or not now is the time to buy a home. Some are advising these families to sit out the current real estate market and instead rent for the next year or two. We do not agree with this advice. Homeownership means a lot to a family. We also realize that the financial aspects of purchasing a home today can be a concern. The challenge is any advice given by someone in the real estate community is immediately dismissed as self-serving.
For this reason, we want to give you the advice of three entities not involved in real estate sales:
Citigroup
“When we examine the relationships between mortgage payments and income and mortgage payments and rent, we see that these relationships have also reverted back to or below equilibrium points. In some cases, particularly when mortgage payments are compared to the cost of renting, home prices actually appear cheap.”
JP Morgan
“JPMorgan analysts said ‘the continuation of falling rental vacancies and rising rental demand will make home buying increasingly attractive’, especially as rental prices increase.”
Business School professors Eli Beracha and Ken H. Johnson
“Fundamental drivers now appear to be in place that favor homeownership over renting in the near term future…
The second finding might seem unwise to many given the recent crash in the real estate markets around the country. However, rent-to-price ratios now seem to be in place along with other fundamental drivers that favor ownership over renting…
Conditions (historically low mortgage rates and relatively low rent-to-price ratios) now seem in place to favor future purchases.”
Bottom Line
Is it better to rent or buy? According to those quoted above, it seems it may be becoming a no-brainer.
Thursday, May 19, 2011
HOUSE PRICES IN OUR AREA, WHAT DO THE TEA LEAVES SAY NOW?
As new economic data become available, it is possible to try and read the tea leaves and divine what is going to happen to house prices over the next year or so. This is my shot to do just that. Thanks for reading and I hope that it makes sense.
First a little background. It is generally understood that house prices peaked in our area (and in most of the country) in mid to late 2006. That means we have been in a downturn going on five years now.
According to CNN Money, prices kept declining until April of 2009, at which point they began to recover. A few pundits felt this was the bottom. However, the national number dipped again and hit a new low in February of 2011.
Further, numbers of foreclosures are still accelerating. According to the OCC and OTS Mortgage Metrics Report of 3/20/11, forclosures in process nationwide were 1,290,253 in the fourth quarter of 2010. That is up by 19.6% from the same quarter a year earlier.
According to the same report, new short sales are up by 30.3% from a year earlier, although the pace is down a little from the third quarter of 2010.
One nice thing about history is that at least you know where you have been. With respect to forecasts, the only thing you know for sure is that you will be wrong. You never know if you will be wrong early, wrong late, wrong high or wrong low - just that you will be wrong. However, knowing about general directions in advance can be real helpful in making plans, so here goes.
One of the factors driving real estate price declines across the country has been the number of foreclosures and short sales. California, Nevada and Arizona have been cited as worst examples of the basket cases in real estate. However, the S&P Report of 4/20/11 shows that many areas in those three states are projected to be clearing up their backlogs in from 18 to 36 months. On the other hand, many areas in SE Pennsylvania are projected to need between 72 to as much as 120 months to clear the backlog. If true, that would say that we are in for a long spell of working off excess inventory which will keep prices low.
Reuters News Service in February stated, "...economists now expect home prices will fall 2.3 percent in 2011 and then begin a slight recovery in 2012..."
David Stiff, chief economist of Fsserv said this in February, 2011. "Large supplies of foreclosed properties will continue to be the biggest downside risk for home prices..."
Radar Logic reported in March, 2011, "The supply of homes for sale and potentially for sale is very large relative to demand, and it continues to be fed by high rates of mortgage defaults and foreclosures. At the same time, demand for houses is constrained by tight lending standards. Unfortunately, delcining home prices are likely to exacerbate these challenges to the housing market"
I could quote more of the same, but you get the idea. My bottom line and what I am advising people is this:
+ If you absolutely need to sell, sell now. This is as good a time as you will probably have in the next two years.
+ If you can afford to stay in your present house for two years or more, it may be best to do that.
+ However, you really need to consider what you will do if you sell. It could be that the low mortgage rates and prices will help you to make up more in your next purchase than you will lose in selling now.
Where is the bright side you ask? - it is a fantastic time to buy. Prices are soft and going lower; mortgage interest rates are at historic lows. If you have equity in your house and want to move up, now is a great time.
How can a seller make use of these current trends? Well if you need to sell, now is probably the best time that you will have in the next couple of years. If you can wait for more than two years to sell, my advice would be to do it. I certainly hope that prices will be better by then. Of course, if somebody had asked me two years ago if prices would still be going down, I would have said probably not.
Not an easy set of trade offs to manage, but it can be done. If anyone would like some help in that or has another related real estate question, please feel free to email me at delcorealestate@gmail.com or call me at 484-468-1306.
Would appreciate your thoughts and comments.
First a little background. It is generally understood that house prices peaked in our area (and in most of the country) in mid to late 2006. That means we have been in a downturn going on five years now.
According to CNN Money, prices kept declining until April of 2009, at which point they began to recover. A few pundits felt this was the bottom. However, the national number dipped again and hit a new low in February of 2011.
Further, numbers of foreclosures are still accelerating. According to the OCC and OTS Mortgage Metrics Report of 3/20/11, forclosures in process nationwide were 1,290,253 in the fourth quarter of 2010. That is up by 19.6% from the same quarter a year earlier.
According to the same report, new short sales are up by 30.3% from a year earlier, although the pace is down a little from the third quarter of 2010.
One nice thing about history is that at least you know where you have been. With respect to forecasts, the only thing you know for sure is that you will be wrong. You never know if you will be wrong early, wrong late, wrong high or wrong low - just that you will be wrong. However, knowing about general directions in advance can be real helpful in making plans, so here goes.
One of the factors driving real estate price declines across the country has been the number of foreclosures and short sales. California, Nevada and Arizona have been cited as worst examples of the basket cases in real estate. However, the S&P Report of 4/20/11 shows that many areas in those three states are projected to be clearing up their backlogs in from 18 to 36 months. On the other hand, many areas in SE Pennsylvania are projected to need between 72 to as much as 120 months to clear the backlog. If true, that would say that we are in for a long spell of working off excess inventory which will keep prices low.
Reuters News Service in February stated, "...economists now expect home prices will fall 2.3 percent in 2011 and then begin a slight recovery in 2012..."
David Stiff, chief economist of Fsserv said this in February, 2011. "Large supplies of foreclosed properties will continue to be the biggest downside risk for home prices..."
Radar Logic reported in March, 2011, "The supply of homes for sale and potentially for sale is very large relative to demand, and it continues to be fed by high rates of mortgage defaults and foreclosures. At the same time, demand for houses is constrained by tight lending standards. Unfortunately, delcining home prices are likely to exacerbate these challenges to the housing market"
I could quote more of the same, but you get the idea. My bottom line and what I am advising people is this:
+ If you absolutely need to sell, sell now. This is as good a time as you will probably have in the next two years.
+ If you can afford to stay in your present house for two years or more, it may be best to do that.
+ However, you really need to consider what you will do if you sell. It could be that the low mortgage rates and prices will help you to make up more in your next purchase than you will lose in selling now.
Where is the bright side you ask? - it is a fantastic time to buy. Prices are soft and going lower; mortgage interest rates are at historic lows. If you have equity in your house and want to move up, now is a great time.
How can a seller make use of these current trends? Well if you need to sell, now is probably the best time that you will have in the next couple of years. If you can wait for more than two years to sell, my advice would be to do it. I certainly hope that prices will be better by then. Of course, if somebody had asked me two years ago if prices would still be going down, I would have said probably not.
Not an easy set of trade offs to manage, but it can be done. If anyone would like some help in that or has another related real estate question, please feel free to email me at delcorealestate@gmail.com or call me at 484-468-1306.
Would appreciate your thoughts and comments.
Friday, May 6, 2011
HELP, I'M GETTING BEHIND ON MY MORTGAGE AND DO NOT KNOW WHAT TO DO
To begin here is a shocking statistic. 28% of the homeowners in the United States are "Under Water". That means they owe more on their mortgage than their house is worth.
Now, that does not mean that every one of these homeowners is in trouble. Many are still making their payments on time and plan to continue.
The folks who are in real trouble are the ones who are "Under Water and who also lose a job, need to sell right now to move to another part of the country, have a serious illness that interrupts employment, undergo a divorce or other big family upset. If they owe more than the house is worth and also encounter anything that undermines their ability to pay, they can be in a real pickle.
In other words, they find themselves in a place where they need to sell their house but the proceeds are too small to pay off the lender(s). What in the world can they do? Is foreclosure the only option? Most people would probably say yes to this question, but they would be wrong. A homeowner in this position has options other than foreclosure, but they need to get help. An experienced realtor, backed up with the right kind of legal and accounting help can provide this help.
If a homeowner is really "Under Water" and cannot make ongoing mortgage payments, the better avenue is to present the lender, who holds the first mortgage, with all of the facts in the case. If the lender agrees that the homeowner has a legitimate case, they will probably agree to a "Short Sale".
What is a "Short Sale" you say? That is an agreement wherein the lender agrees to accept whatever proceeds come from the sale of the home, even if it is less than what is owed, as full satisfaction of the debt. The lender will insist on the right to approve the deal, but in most cases, they will accept significantly less than the total amount owed.
Stated differently, if the lender(s) agree and the homeowner sells the house, all of the debt/liens that were on the house can be forgiven.
There are lots of advantages to this course of action as opposed to foreclosure. A few of them are:
Person who undergoes foreclosure is ineligible for another Fannie Mae backed mortgage for 5 years. A person who closes a short sale may become eligible after only 2-3 years.
After foreclosure, the former homeowner may find that he or she still owes the bank a lot of money. With a short sale, whatever the bank does not recover from the sale is forgiven and the homeowner owes nothing more.
Foreclosure lowers credit scores from 150 to 300 points, typically for over 3 years. A short sale can lower the credit score by as little as 50 points and the impact can be as short as 12 to 18 months.
Short sales are also better for the banks. On average, a short sale property sells for 89% of the full market value of the house. If the bank has to foreclose, that typically costs the bank another $60,000. For that reason, if the bank becomes convinced that the homeowner really cannot be expected to pay, it is also in their best interest to arrange for a short sale.
For the above and a lot of other reasons, a short sale is a lot better than foreclosure.
If you or anyone you know would like to learn more, in confidence, please email me at DelcoRealEstate@Gmail.com or call me at 484-574-4088.
Now, that does not mean that every one of these homeowners is in trouble. Many are still making their payments on time and plan to continue.
The folks who are in real trouble are the ones who are "Under Water and who also lose a job, need to sell right now to move to another part of the country, have a serious illness that interrupts employment, undergo a divorce or other big family upset. If they owe more than the house is worth and also encounter anything that undermines their ability to pay, they can be in a real pickle.
In other words, they find themselves in a place where they need to sell their house but the proceeds are too small to pay off the lender(s). What in the world can they do? Is foreclosure the only option? Most people would probably say yes to this question, but they would be wrong. A homeowner in this position has options other than foreclosure, but they need to get help. An experienced realtor, backed up with the right kind of legal and accounting help can provide this help.
If a homeowner is really "Under Water" and cannot make ongoing mortgage payments, the better avenue is to present the lender, who holds the first mortgage, with all of the facts in the case. If the lender agrees that the homeowner has a legitimate case, they will probably agree to a "Short Sale".
What is a "Short Sale" you say? That is an agreement wherein the lender agrees to accept whatever proceeds come from the sale of the home, even if it is less than what is owed, as full satisfaction of the debt. The lender will insist on the right to approve the deal, but in most cases, they will accept significantly less than the total amount owed.
Stated differently, if the lender(s) agree and the homeowner sells the house, all of the debt/liens that were on the house can be forgiven.
There are lots of advantages to this course of action as opposed to foreclosure. A few of them are:
Person who undergoes foreclosure is ineligible for another Fannie Mae backed mortgage for 5 years. A person who closes a short sale may become eligible after only 2-3 years.
After foreclosure, the former homeowner may find that he or she still owes the bank a lot of money. With a short sale, whatever the bank does not recover from the sale is forgiven and the homeowner owes nothing more.
Foreclosure lowers credit scores from 150 to 300 points, typically for over 3 years. A short sale can lower the credit score by as little as 50 points and the impact can be as short as 12 to 18 months.
Short sales are also better for the banks. On average, a short sale property sells for 89% of the full market value of the house. If the bank has to foreclose, that typically costs the bank another $60,000. For that reason, if the bank becomes convinced that the homeowner really cannot be expected to pay, it is also in their best interest to arrange for a short sale.
For the above and a lot of other reasons, a short sale is a lot better than foreclosure.
If you or anyone you know would like to learn more, in confidence, please email me at DelcoRealEstate@Gmail.com or call me at 484-574-4088.
Subscribe to:
Posts (Atom)