As Washington policymakers struggle to keep the U.S. out of recession, the swirling confusion over the housing market is making their job a lot tougher. Will American consumers keep shopping or be forced to pull back? Will banks lend freely or be hamstrung by mortgage defaults? What are the best policy options right now? Those and other important questions simply can't be answered without a good idea of whether home prices will rise, flatten out, or keep dropping.
Some experts have begun to suggest that a bottom is in sight. Pali Research analyst Stephen East wrote in a research note to his firm's clients on Jan. 25 that "the sun is not shining very brightly, but at least the worst of the storm has likely passed." With optimism budding, Standard & Poor's beaten-down index of homebuilder stocks soared 49% from Jan. 15 through Jan. 29.
But it's considerably more likely that the storm is still gathering force. On Jan. 30 the government said annual economic growth slowed to just 0.6% in the fourth quarter as home construction plunged at a 24% annual rate. The Standard & Poor's/Case-Shiller 20-city home price index fell 7.7% in November from the year before, the biggest decline since the index was created in 2000.
And that could be just the start. Brace yourself: Home prices could sink an additional 25% over the next two or three years, returning values to their 2000 levels in inflation-adjusted terms. That's even with the Federal Reserve's half-percentage-point rate cut on Jan. 30
While a 25% decline is unprecedented in modern times, some economists are beginning to talk about it. "We now see potential for another 25% to 30% downside over the next two years," says David A. Rosenberg, North American economist for Merrill Lynch (MER), who until recently had expected a much smaller slide.
Shocking though it might seem, a decline of 25% from here would merely reverse the market's spectacular appreciation during the boom. It would put the national price level right back on its long-term growth trend line, a surprisingly modest 0.4% a year after inflation. There's a recent model for this kind of return to normalcy after the bursting of a financial bubble. The stock market decline that began in 2000 erased most of the gains of the boom of the second half of the 1990s, leaving investors with ordinary-sized returns.
Why might housing prices plunge violently from here? Remember the two powerful forces that pushed them up: lax lending standards and the conviction that housing is a fail-safe investment. Now both are working in reverse, depressing demand for housing faster than homebuilders can rein in supply. By reinstituting safeguards such as down payments and proof of income, lenders have disqualified thousands of potential buyers. And many people who do qualify have lost the desire to buy. "A down market is getting baked into expectations," says Chris Flanagan, head of research in JPMorgan Chase's (JPM) asset-backed securities group. "People say: I'm not buying until prices are lower.'" He predicts prices will fall about 25%, bottoming in 2010.
Nobody can be sure how far prices will decline. Still, if prices drop that much, it could mean big trouble for the U.S. economy, which is already on the brink of recession. It would blow a hole in the balance sheets of banks and households, slicing more than $5 trillion off household wealth. That's roughly the size of the drop in stock market wealth from the peak in early 2000, a big reason for the recession of 2001. Yale economist Robert J. Shiller, a longtime housing bear, points out that a housing decline that started in 1925 and ran until 1932 weakened banks and contributed to the Great Depression, which started in the U.S. in 1929
Saturday, March 29, 2008
Thursday, March 27, 2008
The affluent, too, couldn’t resist adjustable rates
The New York Times
Affluent consumers increasingly are ensnared in the home mortgage crisis thanks to adjustable-rate mortgages they can’t refinance. Here’s what some are doing about it.
They took out adjustable-rate mortgages at the peak of the housing bubble to buy homes they would otherwise not be able to afford. Or they refinanced existing mortgages to take cash out. And now, two or three years later, the day of reckoning is here.
These are not lower- and middle-income borrowers, but more affluent consumers with annual incomes of $100,000 or more who are increasingly being ensnared in the home mortgage crisis.
People in all income categories “are facing the shock of new payments that can be twice as much as previous ones,” said Susan M. Wachter, professor of business and a real estate specialist at the Wharton School of the University of Pennsylvania.
Nor will falling interest rates help most of these homeowners, as their low initial payments skyrocket and the worth of their homes erodes, said Allen Fishbein, director of housing and credit policy at the Consumer Federation of America.
According to Loan Performance, a unit of First American CoreLogic, a real estate information company based in Santa Ana, Calif., about 870,000 borrowers took jumbo ARMs — mortgages of $417,000 or more — from 2005 to 2007.
In the fourth quarter of 2007, 8.10 percent were two or more payments late, it found, while 2.62 percent were in the foreclosure process and 1.35 percent had been foreclosed. All the numbers were up from the third quarter.
Mark Zandi, chief economist for Moody’s Economy.com, predicted that eventually 8 percent of these jumbo ARMs will be foreclosed. In the first quarter of 2008, “the delinquency and foreclosure rate will clearly be higher,” he said.
Today’s ARMs were “designed to fail, so you have to refinance,” Ms. Wachter said. “It shouldn’t be surprising that values go up and down in this kind of situation. And when you most need to refinance you can’t — the crux of the crunch.”
Jeffrey Conner, a San Francisco real estate lawyer, says he regularly hears from his clients “that lenders assured them they could always refinance.”
So what are these homeowners to do now?
Refinancing requires some equity. Even if homeowners put a substantial amount of money down, many have no equity because their homes are worth less than they owe. In real estate parlance, their mortgages are under water.
Richard Geller, founder of Mortgage Relief Formula, a for-profit venture based in Fairfax, Va., that counsels troubled ARM borrowers, said he received calls from affluent consumers in almost every major metropolitan area. At the moment, Manhattan appears to be the only exception in the weakening market, Mr. Geller said. “It’s really late in the schedule and will be the last place prices soften,” he added.
The first step for distressed homeowners, said Rhonda Porter, a certified mortgage planning specialist and broker in Seattle, is to pull out their loan documents and see what they say.
Sean O’Toole, founder of ForeclosureRadar.com, which tracks California foreclosures, divided borrowers into two camps. “If you have equity, you have choices,” he said. “If you don’t, you have to work on a loan modification with your lender.”
Consumers with substantial equity, high credit scores and documented income should be able to find conventional refinancing, he said.
Homeowners with at least 3 percent equity may qualify for refinancing through the Federal Housing Administration. On March 6, it began making loans up to $729,750, a new higher limit that expires Dec. 31 unless Congress extends it. Limits are 125 percent of median home prices, by county. Consumers can find their local limits at https://entp.hud.gov/idapp/html/hicost1.cfm.
To find a qualified lender or broker, consumers may call (800) CALL-FHA, look in the Yellow Pages or visit www.fha.gov for the four regional centers.
Loan modifications entail freezing or reducing interest rates and may also include balance reductions.
“But if your payments are still going to be more than half your gross income, the lenders won’t do it because they figure you’re going to default later,” Mr. Geller said. “It’s not rational to dedicate your life to making the next $5,000 monthly payment on an asset declining in value.”
Negotiating a loan modification means understanding that in most cases “the lenders really don’t want to force people into foreclosure because that virtually guarantees large losses in the market,” said Dean Baker, an economist with the Center for Economic and Policy Research in Washington.
Affluent consumers increasingly are ensnared in the home mortgage crisis thanks to adjustable-rate mortgages they can’t refinance. Here’s what some are doing about it.
They took out adjustable-rate mortgages at the peak of the housing bubble to buy homes they would otherwise not be able to afford. Or they refinanced existing mortgages to take cash out. And now, two or three years later, the day of reckoning is here.
These are not lower- and middle-income borrowers, but more affluent consumers with annual incomes of $100,000 or more who are increasingly being ensnared in the home mortgage crisis.
People in all income categories “are facing the shock of new payments that can be twice as much as previous ones,” said Susan M. Wachter, professor of business and a real estate specialist at the Wharton School of the University of Pennsylvania.
Nor will falling interest rates help most of these homeowners, as their low initial payments skyrocket and the worth of their homes erodes, said Allen Fishbein, director of housing and credit policy at the Consumer Federation of America.
According to Loan Performance, a unit of First American CoreLogic, a real estate information company based in Santa Ana, Calif., about 870,000 borrowers took jumbo ARMs — mortgages of $417,000 or more — from 2005 to 2007.
In the fourth quarter of 2007, 8.10 percent were two or more payments late, it found, while 2.62 percent were in the foreclosure process and 1.35 percent had been foreclosed. All the numbers were up from the third quarter.
Mark Zandi, chief economist for Moody’s Economy.com, predicted that eventually 8 percent of these jumbo ARMs will be foreclosed. In the first quarter of 2008, “the delinquency and foreclosure rate will clearly be higher,” he said.
Today’s ARMs were “designed to fail, so you have to refinance,” Ms. Wachter said. “It shouldn’t be surprising that values go up and down in this kind of situation. And when you most need to refinance you can’t — the crux of the crunch.”
Jeffrey Conner, a San Francisco real estate lawyer, says he regularly hears from his clients “that lenders assured them they could always refinance.”
So what are these homeowners to do now?
Refinancing requires some equity. Even if homeowners put a substantial amount of money down, many have no equity because their homes are worth less than they owe. In real estate parlance, their mortgages are under water.
Richard Geller, founder of Mortgage Relief Formula, a for-profit venture based in Fairfax, Va., that counsels troubled ARM borrowers, said he received calls from affluent consumers in almost every major metropolitan area. At the moment, Manhattan appears to be the only exception in the weakening market, Mr. Geller said. “It’s really late in the schedule and will be the last place prices soften,” he added.
The first step for distressed homeowners, said Rhonda Porter, a certified mortgage planning specialist and broker in Seattle, is to pull out their loan documents and see what they say.
Sean O’Toole, founder of ForeclosureRadar.com, which tracks California foreclosures, divided borrowers into two camps. “If you have equity, you have choices,” he said. “If you don’t, you have to work on a loan modification with your lender.”
Consumers with substantial equity, high credit scores and documented income should be able to find conventional refinancing, he said.
Homeowners with at least 3 percent equity may qualify for refinancing through the Federal Housing Administration. On March 6, it began making loans up to $729,750, a new higher limit that expires Dec. 31 unless Congress extends it. Limits are 125 percent of median home prices, by county. Consumers can find their local limits at https://entp.hud.gov/idapp/html/hicost1.cfm.
To find a qualified lender or broker, consumers may call (800) CALL-FHA, look in the Yellow Pages or visit www.fha.gov for the four regional centers.
Loan modifications entail freezing or reducing interest rates and may also include balance reductions.
“But if your payments are still going to be more than half your gross income, the lenders won’t do it because they figure you’re going to default later,” Mr. Geller said. “It’s not rational to dedicate your life to making the next $5,000 monthly payment on an asset declining in value.”
Negotiating a loan modification means understanding that in most cases “the lenders really don’t want to force people into foreclosure because that virtually guarantees large losses in the market,” said Dean Baker, an economist with the Center for Economic and Policy Research in Washington.
Wednesday, March 26, 2008
how do Short Sales differ from a standard Real Estate Purchase?
Simply put they are the same with some added nuances.
- Your Purchase Agreement is not binding until the bank accepts it. This can take up to 120 days from submitting.
- Your funding has to be in place prior to submitting offer. If you are paying cash monies, then a verified statement is needed. If you are financing, then you must have an Approval in place from a qualified lender or bank. A Pre-Approval will not suffice
There are other items that may arise, however they are usually unique to a transaction and are not the norm.
Always use a Real Estate Agent with Short Sale knowledge...no exception!
Short Sales...What are they?
Q: What is a Short Sale?
A: Short sale is where the Lender or investor agrees to accept an amount less than the actual amount owed on the property. The criteria for a Short Sale are that the borrower demonstrates a verifiable, long-term hardship...
A: Short sale is where the Lender or investor agrees to accept an amount less than the actual amount owed on the property. The criteria for a Short Sale are that the borrower demonstrates a verifiable, long-term hardship...
Short Sales...What the bank expects from you the buyer.
As the buyer of a Short Sale property you can expect very little from the bank except for a very reduced price. They are taking a loss ( a huge loss if Kris & Kim represent you) and the bank looks at this loss as a gift. As the buyer be prepared to pay almost all closing costs, professional home inspection, termite, etc... These charges can be spelled out before you begin the process. What you get in return...a home at 30% to 50% below current market value.
www.KandKDarney.com
www.KandKDarney.com
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