Southern California’s housing market couldn’t shake off the doldrums in February despite record demand from investors and all-cash buyers.
The median home price increased 1.9% in February from January to $275,000. That was unchanged from the same month a year earlier, according to DataQuick Information Systems of San Diego.
Sales remained weak, declining 0.6% from January and down 6.4% from February 2010.
With the spring selling season approaching, many real estate professionals found little reason for optimism.
“I don’t see any basis for prices to climb at this point,” said Glenn Kelman, chief executive for the online brokerage site Redfin. “I am not one of those people who think they are going to fall much further. What I am mostly worried about is just the stalemate. The buyers we are talking to are just frustrated. They feel that there is nothing good to buy.”
Robert Kleinhenz, deputy chief economist with the California Assn. of Realtors, said that aside from their concerns over the direction of the economy, potential buyers face difficulties getting a mortgage.
“When they finally get around to looking seriously at a home and wanting to make an offer, they have difficulty finding financing,” Kleinhenz said. “The trouble with trade-up buyers — they may have lost equity because home prices have fallen.”
Although the sales pace remains sluggish, it would not take much to see an improvement, DataQuick analyst Andrew LePage said.
“There is a lot of pent-up demand,” LePage said. “If the economy can improve and people begin to feel more confident about their employment situations, then sales could increase significantly. It’s easy to go up from here.”
House prices in the S&P/Case Shiller index fell 5.3% over the last two quarters of 2010, wiping out the 4.9% growth seen in the previous year and a half and sending the housing market into a double-dip, analysts at Capital Economics said Tuesday.
Not everyone is so pessimistic however. Anthony Sanders, a real estate finance professor at George Mason University said underwhelming home sales, at least in the later months of 2010, should have been expected.
“It’s important to remember that this is winter and it’s normal for sales to be lower,” Sanders said. “The real test is when spring comes in April. That’s when we’ll know if we have a recovery occurring.”
Still, Capital Economics said further price declines are ahead, just how steep remains in question.
“We expect they will slide by a further 5% this year,” analysts said. “The danger, however, is that a vicious circle of falling prices and rising foreclosures pushes prices even lower.”
Distressed home sales, with an estimated market share at between 36% to 47% are a key contributor to the sharp decline as home prices fell in 18 out of the 20 MSAs, according to Scott Buchta, head of investment strategy at Braver Stern Securities.
Buchta said that the downward trending is not likely to end soon.
“We expect to see home prices continue to fall throughout 2011 as the housing market continues to struggle under the weight of high unemployment, growing inventories of distressed properties and rising interest rates,” he said. “Year-over-year comparisons will be difficult as the impact of the 2009/2010 home buyer tax credits will continue to skew the data for the next several reports.”
More than 100,000 struggling homeowners could get help from a $2-billion program that California is launching, including about 25,000 borrowers who owe more than their properties are worth and could see their mortgages shrink.
The Keep Your Home California program, which uses federal funds reserved for the 2008 rescue of the financial system, has the potential to make a sizable dent in California’s foreclosure crisis and help the general housing market. State officials hope to fend off foreclosure for about 95,000 borrowers and provide moving assistance to about 6,500 people who do lose their homes.
Consumer advocates have criticized other attempts at foreclosure prevention as falling short, particularly the Obama administration’s $75-billion program to help troubled borrowers. They were heartened by the scope of California’s effort but concerned it would be hampered if the state can’t get major banks on board.
Out of the five major mortgage servicers — Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Ally Financial and Citigroup Inc. — only Ally has formally signed on to a key part of the plan: reducing mortgage principal on homes that are “underwater,” or worth less than the size of the mortgage. A Bank of America spokesman said the bank intends to participate but hasn’t yet reached a formal agreement with the California Housing Finance Agency, which designed the program.
“If they can actually stave off foreclosures and the people stay in the homes, then that is a great thing for the market,” said Stan Humphries, chief economist at Zillow.com. “It would be great because the continuing flow of foreclosures on the marketplace exerts downward pressure on home prices, and it also creates more supply of inventory on the marketplace, so foreclosures are really a double whammy.”
The biggest of the plan’s four parts allocates $875 million as temporary financial help to people who have seen their paychecks cut or have lost their jobs, providing as much as $3,000 a month for six months to cover home payments and associated costs. The second-largest chunk of money, $790 million, is slated for a principal reduction program that would write down the value of an estimated 25,135 underwater mortgages.
Another piece would use $129 million to provide as much as $15,000 apiece to help homeowners get current on their mortgages, and another would take $32 million to provide moving assistance for people who can’t afford to remain in their homes.
The program is aimed at helping low- and moderate-income people who own only one property. To qualify in Los Angeles County, for instance, a family couldn’t earn more than $75,600 a year. The maximum benefit for any household participating in the program is $50,000. Homeowners who refinanced their homes to take cash out of their properties won’t be allowed to participate.
The principal-reduction component would pay lenders $1 for every dollar of mortgage debt forgiven. Many experts have said reducing principal on such underwater loans would go far toward reducing foreclosures because home values have fallen so steeply that homeowners are tempted to walk away from their obligations.
But banks have been reluctant to significantly reduce principal on loans other than on certain kinds of risky mortgages that are now seen as having been highly imprudent.
Thanks to strengthening in consumer spending and growing policy clarity at the end of 2010, the economy is finally poised to accelerate and sustain above-par, less volatile growth, according to the January 2011 Economic Outlook released by Fannie Mae’s Economics & Mortgage Market Analysis Group. The economy is expected to grow by 3.6% in 2011, compared to an estimated 2.8% in 2010. The group expects some increase in housing activity during 2011, however, a growth-oriented view of housing is not expected until 2012.
“The economy has regained momentum entering 2011 and we see significant improvement in the economy’s ability to grow compared to 2010,” said Fannie Mae Chief Economist Doug Duncan. “We expect a small rise in home sales this year, but significant amounts of supply and shadow inventory of expected foreclosures will continue to hamper a robust housing picture for some time.”
After controlling for age, income, wealth and a number of other factors, regression analysis indicates that married couples are 2.5 times more likely to own than other respondents.
Having children is cited as a major reason to buy a home by approximately three quarters (76 percent) of all households.
The immigrant population in the U.S. is projected to grow by nearly 130 million people over the next 40 years, according to the U.S. Census Bureau.
Sixty-six percent of respondents say they believe that housing is a safe investment – as safe as a savings or money market account.
More than half say they believe that owning is a good idea, even if they plan to stay in the home less than three years.
Eighty-six percent identify tax benefits as a reason to buy, even though tax benefits are small or non-existent for many homeowners.
The substantial majority of homeowners (89 percent), as well as nearly half of renters (44 percent), believe they would be better off owning their homes, given their current financial situations.
The housing crisis has had the greatest impact on younger Americans. Since the housing crisis, homeownership for those 25 to 29 years old has declined 10 percent since peak rates, compared with a decline of 5 percent among those 35 to 44 and less for those 45 and older.
“Our research helps us better understand the views of homeowners and renters across specific demographics, ethnicities, and regions so that we can provide the best support possible for the market.” – Doug Duncan
Vice President and Chief Economist
There’s a company called Local Market Monitor, who claims on their website that they have “over twenty years of proven expertise and trend analysis in evaluating residential property values”.
Lately they have been ranking which towns across America have the best chance of having their real estate appreciate in 2011. Except they are apparently conflicted:
In December, their top 5 towns were quoted in msn.com as:
If you are going to say that you feel pretty good about San Diego or any town, that’s one thing. But if you’re ranking them a month apart, do you mind being consistent? The credibility is suspect when people see stuff like this, plus how you can predict the future anyway?
This is what the president said in the Forbes article:
LMM tracks 315 American real estate markets, assessing values and applying Investment Suitability ratings based on multiple factors. For the Forbes lists, LMM President Ingo Winzer and his researchers started with a U.S. Census-defined list of Metropolitan Statistical Areas with populations of 500,000 residents or more. They then analyzed key economic factors that directly affect housing markets: unemployment and job growth rates, as reported by the Bureau of Labor Statistics. LMM tracks real estate markets’ valuations based on the theory that markets go through cycles.
Whatever….a consistent message goes a lot further!
Here’s my 2-part MERS settlement. 1. Have the banks fund Sheila’s “foreclosure claims commission” to dole out settlements to those who were harmed, and 2. Have the servicers pay all the back recording fees owed (or settlement). MERS is then allowed to continue operations and be required to record all transfers/pay the fees.
If local governments succeed in the fight against how banks have recorded the transfer of mortgage notes through the Mortgage Electronic Registration Systems, home loans could become as expensive as credit cards,K&L Gates Partner Laurence Platt said Wednesday.
At the last panel of the Mortgage Bankers Association summit on the future of mortgage servicing, Platt and Adam Levitin, an associate professor at Georgetown University Law Center, discussed the validity of MERS. The company was created by major lenders to become the single title holder of a mortgage as the owners of the note made transfers back and forth through securitization.
This, Platt said, was a solution to “antiquated filing systems” at the local level. In Chicago’s Cook County, for example, it can take up to a year for a lender to receive a recorded mortgage back at the time of foreclosure, prepayments and other actions.
But local jurisdictions such as the states of California and Virginia are fighting to void foreclosures completed where the lender lays claim to the enforceability of the credit – meaning if the lender can use MERS to prove it has the right to foreclose – on two basis, Platt said.
One, MERS replaces the fees lenders used to pay to local governments for recording these notes, and these governments are claiming the banks still have to pay fees for the transfers. Second, Platt said, they are trying to score political points, which will only end up hurting borrowers in the future.
“My biggest concern is that local jurisdictions are enacting laws that change the centuries old law on recorded assignments in their locales, and that would void all mortgages in their jurisdiction,” Platt said. “But Virginia didn’t require assignments in the past. So, if that law passes, you will not be able to foreclose in the commonwealth in Virginia. It’s turning real property law on its head.”
But Levitin pointed out the inaccuracies and full-out holes in the MERS system. In cases he looked up, often the investor or the servicer on the MERS system did not match what was on the note.
“MERS ceases to track transfers once the loan is moved into another system,” Levitin explained.
Platt admitted there were issues with the system, but he warned that scoring short-term political points could be the end of affordable housing.
“They are making secured credit unenforceable,” Platt said. “If you think you’re going to get 4% mortgages on unsecured loans, you’re wrong. You’re going to get credit card rates. MERS was designed to make it easy to transfer assignments in modern economics.”
She doesn’t say it specifically, but this should be the first step in resolving the MERS/robo-signing debacle with well-rounded settlements for all – fromMND:
Federal Deposit Insurance Corporation (FDIC) Chairman Sheila C. Bair called today for a “foreclosure claims commission” to address complaints from homeowners who have been harmed by flaws in the foreclosure process. This was one of several improvements suggested by Bair, an outspoken critic of the servicing industry, at a “summit” on Mortgage Servicing for the 21st Century sponsored by the Mortgage Bankers Association (MBA).
Bair said that throughout the mortgage crisis “the most persistent adversary has been inertia in the servicing and foreclosure practices applied to problem loans,” and that prompt action to modify unaffordable subprime loans in 2007 could have helped to limit the crisis in its early stages. Still, 18 months into an economic recovery and with hundreds of thousands of mortgage modifications completed, “mortgage markets remain deeply mired in a cycle of credit distress, securitization markets remain frozen, and now chaos in mortgage servicing and foreclosure is introducing a dangerous new uncertainty into this fragile market.”
Bair spoke, as she has several times in recent months, of misaligned incentives in the servicing business model which she said drove the origination of trillions of dollars of unaffordable subprime and Alt-A mortgages that triggered the crisis. Now, she said, the fixed fee structure based on volume does not provide sufficient incentives to effective manage large volume of problem loans during a period of crisis. “Mortgage servicers have remained behind the curve as the problem has evolved to include underwater mortgages and, now, foreclosure practices that sow confusion and fear on the part of homeowners and fail to fully conform to state and local legal requirements.”
This compensation structure drove automation, cost cutting, and consolidation to the point where the market share of the top five servicers has gone from 32 percent to almost 60 percent since 2000. “When mortgage defaults began to mount in 2007 and 2008, third-party servicers were left without the expertise, the contractual flexibility, the financial incentive, or the resources they needed to engage in effective loss-mitigation programs.”
Responding to the crisis, Bair said, requires all parties involved to recognize that loss mitigation is not just socially desirable, it is wholly consistent with safe and sound banking and has macroeconomic consequences. “The bottom line is that we need more modifications and fewer foreclosures. When foreclosure is unavoidable, we need it to be done with all fairness to the borrower and in accordance with the law. Only by committing to these principles can we begin to move past the foreclosure crisis and rebuild confidence in our housing and mortgage markets.
The foreclosure claims commission envisioned by Bair would follow the model used to settle claims arising out of the BP oil spill and the events of 9/11. It would be set up and funded by servicers to address claims submitted by homeowners who have wrongly suffered foreclosure through servicing errors. Bair said that many in the servicing industry will resist such a settlement because of the immediate financial cost, “but every time servicers have delayed needed changes to minimize their short-term costs, they have seen a deepening of the crisis that has cost them – and the rest of us – even more.”
SALEM, Mass.—There’s a certain look and feel to a foreclosed home, and 31 Arbella St. has it: fraying carpet, missing appliances, foam insulation poking through cracked walls.
That doesn’t faze buyer Tony Barletta since he plans a gut renovation anyway. It’s the bad vibes that bother him.
So two weeks before closing, Mr. Barletta followed witch Lori Bruno and warlock Christian Day through the three-story home. They clanged bells and sprayed holy water, poured kosher salt on doorways and raised iron swords at windows.
“Residue, residue, residue is in this house. It has to come out,” shouted Ms. Bruno, a 70-year-old who claims to be a descendant of 16th-century Italian witches. “Lord of fire, lord flame, blessed be thy holy name…All negativity must be gone!”
Alejandro Lazo from the L.A. Times is doing his best to sort through the excuses about why homes aren’t selling, but it’s not easy. He found the usual psycho-babble was to blame – ‘economic woes’, ‘tax credits’, ‘household formation’, and ‘job creation’.
Except one guy had a thought you rarely hear:
San Diego real estate agent Jim Klinge, who maintains the popular blog Bubbleinfo.com, said the key behind the sales slowdown last month was simple: Prices are just too high.
“Sellers are too optimistic on price. They think the market is better than it is, and they think they deserve more money,” Klinge said. “The buyers are smart. The Internet has leveled the playing field, and buyers are paying attention — they are checking the comps closer than ever, and they are not going to overpay for a house.”
Klinge credited those cautious, well-informed consumers as partially to blame for the October sales slowdown. Escrow closed on only 16,744 properties last month, down 24.3% from the same month last year, for the second-worst October since 1988, when DataQuick began its tracking. Sales of newly built homes posted their worst month on record.
Clickherefor Dataquick’s latest press release – some excerpts:
La Jolla, CA—Southern California home sales dropped in October to their lowest level in three years amid doubts about the drawn-out market recovery, tight mortgage lending policies and expired government incentives. The median price paid for a home rose on a year-over-year basis for the 11th consecutive month, but at this year’s slowest pace, a real estate information service reported.
“In addition to a lousy economy, the housing market still has a couple of nasty bottlenecks it has to contend with. First, sales of newly-built homes are at a low, mostly because builders can’t build at a low enough price to compete with the inventory of resale homes, many of which are short sales or foreclosures,” said John Walsh, MDA DataQuick president.
“Also, lenders still haven’t opened the mortgage money spigot for buying move-up and prestige properties. These properties have come down in value by about half as much as entry-level homes. But trying to finance a higher-end purchase can be a real grind, even for well-qualified buyers with a 20 percent down payment,” he said.
High-end sales would be stronger if adjustable-rate mortgages (ARMs) and “jumbo” loans were easier to obtain. Both have become much more difficult to get since the the credit crunch hit three years ago.
Hopefully some day it will occur to these ivory-tower types that the main problem today is that the current home sellers are asking too much – that’s why sales are lagging. As long as you qualify, banks are happy to give you a mortgage, although, yes, they may put you through a bit of a “grind”. But what do you expect? Mortgage underwriters are running scared, and they are double-checking every file.
The banks have money – if the list prices were closer to recent comps, there would be more sales.
The data backs me up, but it’s the numerous stories heard here and elsewhere about how ridiculous elective-sellers are being about their pricing. They insist on tacking on the extra 10% to 20% to their list prices with no justification or comps to back them up – and the listing agents go along.
Today’s data tidbit:
Active SD detached and attached listings: 12,157, with list prices averaging $332/sf.
October SD detached and attached solds: 2,412, averaging $238/sf.
A pricing difference of 39% between actives and solds!
