Posts Tagged ‘Distressed properties’

Existing-House Sales Spike in April

Tuesday, May 29th, 2012

If you want to sell a product, price it correctly. That theory at long last appears to be working in the U.S. housing market.  The National Association of Realtors (NAR) reported that sales of existing homes rose 3.4 percent in April when compared with March.  One reason is that asking prices were remarkably affordable.  The interest rate on a 30-year fixed-rate mortgage was 3.79 percent, the lowest since record-keeping began in 1971, according to Freddie Mac.  The Realtors’ index of affordability hit a record high in the 1st quarter and factors in sales prices of existing homes, mortgage rates, and household income, which is gradually strengthening as the labor market improves.

The average sales price was 10.1 percent higher when compared with one year ago.  That has the potential to lure buyers who decide they can’t wait for even cheaper prices.  “Today’s data provide further evidence that the housing sector is turning the corner,” said economist Joseph Lavorgna of Deutsche Bank Securities.  The numbers could see more improvement in coming months.  Action Economics Chief Economist Michael Englund said that “The existing home sales data generally continue to underperform the recovery in the new home market and other indicators of real estate market activity.”  But, he added, “the trend is upward.”

Owner-occupied houses and condominiums dominated the market, a change from all-cash deals by investors snapping up distressed properties.  Employment gains and record-low mortgage rates may make houses affordable Americans, eliminating a source of weakness for the world’s largest economy just as risks from the European debt crisis rise.  “We are making incremental progress,” said Millan Mulraine, a senior U.S. strategist at TD Securities, Inc., who correctly forecast the sales pace.  “People are becoming more confident about job prospects and about taking on mortgages.  This is all positive for the economy.”

Even with this uptick, sales are well below the nearly six million per year that economists equate with healthy markets.  The mild winter encouraged some people to buy homes, which drove up sales in January and February, while making March weaker.

First-time buyers, a key segment critical to residential recovery, rose in April and accounted for 35 percent of sales, up from 32 percent in March.  “First-time homebuyers are slowly making their way back,” said Jennifer Lee, an economist at BMO Capital Markets.  “That is still below the 40-to-45 percent range during healthy times, but the highest in almost half a year.”  Homes at risk of foreclosure accounted for 28 percent of sales.  That’s approximately the same as was seen in March sales statistics, but down from 37 percent of sales in April 2011.

Wall Street analysts expressed caution about seeing the increase as a sign that home values are about to make a big comeback.  NAR’s price calculations may have been skewed by larger homes coming onto the market, analysts said.  According to NAR economist Lawrence Yun, seasonal factors might have played a role in the price increase because families tend to buy in the spring, which means bigger homes comprise a larger share of total sales.  “It does echo the message sent by most other related measures that have shown house prices stabilizing or firming,” said Daniel Silver, an economist at JPMorgan.  Home prices, according to the S&P/Case Shiller composite index, have fallen by approximately one-third since the middle of 2006.  “Although the data seem to imply that there is a relative good balance between buyers and sellers, it is unlikely that home prices can recover on a sustained basis until the number of distressed properties is more significantly reduced,” said Steven Wood, chief economist at Insight Economics.

The housing inventory climbed 9.5 percent to 2.54 million, representing a 6 ½-month supply.  CoreLogic estimates that the shadow inventory — homes that aren’t on multiple listing services that are either seriously delinquent, in foreclosure or real-estate-owned — totaled 1.6 million units as of January.

CNBC’s Diana Olick is unimpressed with the price spike.  “The median price of an existing home that sold in April of this year was $177,400, an increase of just over 10 percent from a year ago.  That is the biggest price jump since January of 2006.  The difference between now and then, though, is the 2006 price jump was real, this latest spike is not.  As we reported here on the Realty Check last month, a lack of distressed supply, that is foreclosures and short sales, is pushing overall home sales lower.  That’s because the majority of the sales action for the past few years has been on the low end of the market.  Now, as banks try to modify more delinquent loans to comply with the recent $25 billion mortgage servicing settlement, and as investors rush in to buy distressed properties and take advantage of the hot rental market, the distressed market is drying up.  The share of home sales in the $0 — 250,000 price range made up over 73 percent of all sales in February; that has already dropped to 67 percent in April.  If you look at sales by price category, you see the most startling evidence of this shift in what’s selling on the low end out west.  Sales of homes $0 — 100,000 dropped over 26 percent out west in April, but rose 21 percent in the $250 — 500,000 price range.”

Pending Home Sales Rose Two Percent in January

Monday, March 12th, 2012

The Pending Home Sales Index grew by two percent during January from the previous month to 97.0 — considerably above the 1.1 percent growth forecast by economists.  The index has risen eight percent when compared with one year ago.  Relaxed mortgage lending criteria, historically low interest rates and an improving labor market contributed to this growth in pending home sales, said Ian Shepherdson, High Frequency Economics‘ chief U.S. economist.  The index measures the quantity of sales contracts signed on existing home sales.  Created by the National Association of Realtors (NAR), it’s considered a leading indicator that predicts growth throughout the broader residential market.

“Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year,” said NAR chief economist, Lawrence Yun.  “With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations.”  Pending home sales rose impressively in the Northeast and South, but declined in the Midwest and West.

“Housing demand has bottomed, and we should see some gradual improvement in sales,” said Yelena Shulyatyeva, an economist at BNP Paribas, who predicted a two percent gain in pending sales.  “The dark side of the story is still the oversupply and the expected pickup in foreclosures.  That’s what policymakers really need to think about.”  On the downside, lower appraisals and rejected mortgage applications have broken down more deals.  In January, one-third of Realtors said they experienced contract failures, an increase when compared with the nine percent who said so one year ago, according to the association.

Existing home sales rose to 4.57 million a year in January.  While it was the best report since May of 2010, distressed properties constituted the largest portion of all purchases since April.  Additionally, the median price fell two percent when compared with January of 2011.  “We’re optimistic,” Doug Yearley, CEO at Horsham, PA-based Toll Brothers, said.  “We have orders that are up significantly.  We’re seeing deposits up, we’re seeing traffic up.”

Borrowing costs are still affordably low. The average rate on a 30-year fixed loan was little changed at 4.09 percent in mid-February, , according to the Mortgage Bankers Association. It averaged 4.05 percent the week of February 3, its lowest reading on record since 1990.

Another reason why home sales may be on the rise is because of an April deadline for higher mortgage application fees for Fannie Mae and Freddie Mac-backed home loans.  The government-controlled mortgage buyers own or guarantee approximately 50 percent of all U.S. mortgages and 90 percent of new loans and have been telling customers to submit their applications now.  Even with the good news, analysts warn that the damage from the housing bust is deep and the industry is years away from full recovery.

According to Paul Dales, senior U.S. economist at Capital Economics, prices are unlikely to stop falling until the second half of 2012, having dropped 34 per cent over the last five years.  This, and the decline in the supply of homes on the market, which fell last month to the lowest since January 2006, will provide support to the housing recovery.

August Foreclosures Rise 33 Percent Over July

Tuesday, October 11th, 2011

Default notices sent to delinquent U.S. homeowners soared 33 percent in August when compared with July, evidence that lenders are accelerating the foreclosure process after almost one year of delays, according to RealtyTrac, Inc.  First-time default notices were filed on 78,880 homes, the highest number in nine months.  Total foreclosure filings, which also include auction and home-seizure notices, rose seven percent from a four-year low in July to 228,098.  One in 570 homes received a notice during August.  “The industry appears to be hitting the reset button and the logjam may finally be breaking up,” Rick Sharga, RealtyTrac senior vice president, said.  Foreclosure filings in 2011 have been “artificially low.”

“This is really the first time we’ve seen a significant increase in the number of new foreclosure actions,” Sharga said. “It’s still possible this is a blip, but I think it’s much more likely we’re seeing the beginning of a trend here.”  Foreclosure activity started declining last year after problems surfaced with the way many lenders were handling foreclosure paperwork, such as shoddy mortgage paperwork comprising several shortcuts known as robo-signing.

Additional factors have also stalled the pace of new foreclosures.  In some cases, the process has been held delayed by courts in states where judges are involved in the foreclosure process, a possible settlement of government investigations into mortgage-lending practices, and lenders’ reluctance to take back properties because of slowing home sales.  A rise in foreclosures also means a potentially faster turnaround for the U.S. housing market.  Experts say that revival won’t occur as long as the glut of potential foreclosures remains on the market. 

Foreclosures depress home values and create uncertainty among potential homebuyers who worry that prices may further decline as more foreclosures hit the market.  There are approximately 3.7 million more homes in some phase of foreclosure at present than there would be in a normal housing market, according to Citi analyst Josh Levin.  “This bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery,” he said.

Although negotiations between some banks and state attorneys general regarding foreclosure practices are still unresolved, several restarted foreclosure actions after an April settlement with federal regulators.  JPMorgan Chase & Co., as of the end of June, had resumed foreclosure actions in nearly all of the 43 states where it had suspended its efforts.  So-called “shadow inventory,” or the looming foreclosures that are still expected to hit the market, is a major threat for a housing sector that already has a glut of unsold homes.  In spite of everything, default notices had fallen 18 percent when compared with August of 2010 and down 44 percent from the peak reached in April 2009 during the tail end of the recession.

Writing for The Consumerist website, Chris Morran says that “Last year, several of the country’s largest mortgage servicers — Bank of America, GMAC/Ally, JPMorgan Chase, among others — were forced to hit the pause button on foreclosure procedures after it was revealed that many foreclosure documents were being rubber stamped by untrained, ill-informed ‘robo-signers.’  This delay caused a bottleneck of foreclosure-worthy properties waiting to be reviewed.  But now it looks like those homes are starting to trickle out into what could be a flood in early 2012.  According to Bank of America, “We are on an ongoing path to return foreclosures to normal levels. Strong gains like that from July to August demonstrate our progress – primarily in judicial states — clearing more volume to advance to foreclosure once we pass the numerous quality controls we have in place and exhaust all options with homeowners.  Our progress each month builds upon foreclosure levels lower than the market realities would dictate.”

A more optimistic view of the dismal report was offered by Gregory Tsujimoto, who performs market research for John Burns Real Estate Consulting in Irvine, CA, and views the data as reflecting more of a stall in an improving market than a new downtrend.  Despite the sharp increase in monthly figures, Tsujimoto attaches more weight to an 18 percent decline in default notices on a yearly basis.  Tsujimoto believes that the uptick in default notices is “a leading indicator for future foreclosures, which is not coming at a great time when measures of consumer confidence have declined.”  But, he says that we must address the backlog of distressed inventory and “vacant homes in the marketplace before we get true improvement.”  The other key, he says, is “creating jobs to spur demand.”

Among the states with the highest foreclosure rates, California led in new foreclosures with an increase of 55 percent over July, according to RealtyTrac.  Cities in inland California posted big jumps, with Riverside and San Bernardino counties soaring 68 percent, Bakersfield 44 percent and Modesto 57 percent.  “Scratch beneath the surface and there’s not a lot to cheer about this month.  Home sales were up from a year earlier but remained far below average,” DataQuick President John Walsh said.  “Many would-be buyers can’t find financing, and others who want to make a move now are stuck because they owe more than their homes are worth.”

The decision to move ahead is an important one since RealtyTrac has long maintained that property values won’t rise until a large number of distressed properties are purchased.  “We don’t know yet if this is a beginning of a trend, but there is a good chance we might see a return to more realistic foreclosure numbers,” Sharga concluded.

Foreclosed Homes Total a Three-Year Supply

Tuesday, June 14th, 2011

The current national inventory of foreclosed homes represents a three-year supply, according to RealtyTrac.  Not surprisingly, that is depressing home prices.  “This is very bad for the economy,” said Rick Sharga, a RealtyTrac spokesman.

In Las Vegas, the foreclosure situation is so dire that more than half of all homes sold in Nevada are foreclosures.  In California and Arizona, 45 percent of sales are foreclosures; that totals 28 percent of all existing home sales during the 1st quarter of 2011.

Additionally, the nation’s stock of foreclosed homes are selling at deep discounts, particularly REOS, which are bank-owned homes.  The typical REO sold for about 35 percent less than comparable properties, according to RealtyTrac.  In some areas, the discounts were ever steeper: In New York, the discount for REOs was 53 percent during the 1st quarter and almost 50 percent in Illinois, Ohio, and Wisconsin.

“Short sales,” homes where the selling price is less than what is owed by the borrowers, are also dragging down the market.  These sell for an average nine percent discount.  When you consider both REOs and short sales, Ohio had the biggest discount of any state, at 41 percent.

During the 1st quarter, there were 158,000 sales involving distressed properties nationally, less than half the nearly 350,000 during the same period of 2009.  With the slower pace of sales, it will take three years to sell off the inventory of 1.9 million distressed properties, according to Sharga.  “Even if you look at REOs alone, it will take 24 months to clear them and that’s without any new foreclosures at all coming into the system,” he said.

RealtyTrac found that the average sales price of properties in some stage of foreclosure, scheduled for auction or bank-owned — was $168,321, down 1.89 percent from the 4th quarter of 2010.

A total of 158,434 bank-owned homes and those in some stage of foreclosure were purchased during the 1st quarter, a 16 percent decline from the 4th quarter of last year and down 36 percent from the 1st quarter 2010 total.  Bank-owned properties that sold in the 1st quarter had been repossessed an average of 176 days before the sale, while properties that sold in earlier stages of foreclosure in the 1st quarter were in foreclosure an average of 228 days before they were sold.  According to James J. Saccacio, chief executive officer of RealtyTrac, “While this is probably helping to keep home prices relatively stable, it is also delaying the housing recovery.  At the first quarter foreclosure sales pace, it would take exactly three years to clear the current inventory of 1.9 million properties already on the banks’ books, or in foreclosure.”

Foreclosures are particularly attractive to all-cash buyers who demand discounts,  pushing down the value of all properties.  More than 75 percent of American cities experienced price declines in the 1st quarter.  Bank-owned homes totaled 107,143 sales in the 1st quarter, down 11 percent from the 4th quarter and almost 30 percent from 2010.  Sales of homes in default or scheduled for auction totaled 51,291, a 26 percent decline, according to RealtyTrac.  That was less than half the peak of 348,629 distressed deals in the 1st quarter of 2009.

Writing on the website 24/7wallstreet.com,  Douglas A. McIntyer offers an interesting perspective.  “Any economist will say that when some homes are sold at 27 percent below the normal market, all home prices will be pulled lower.  That may be the key to the home market recovery.  Foreclosure inventory will continue to rise as banks put more backlogged homes onto the market.  The glut will probably push down the average of all homes by several percent. This may be a reason home prices are predicted to fall another 10 percent this year.  Buyers will not come back to the housing market until they believe that prices are too good to resist.  That may mean homes that sold for $500,000 in 2005 will have to sell for $300,000 next year.  Prices will not be driven down quickly without the reduction in inventory of foreclosed homes.  There has to be a bottom to prices.  The sooner it is found the better.  The housing market is more than half dead.  The only tonic is a belief by buyers that prices are so remarkably low that new buyers will make money on a house and not lose it.  If the housing market is to continue to drop, the drop needs to be swift.  Mortgage rates are near all-time lows.  Inflation and concerns about the value of Treasuries due to the U.S. national deficit could change that.  Home prices that are viewed as affordable need to be married with low mortgage rates for the market to catch fire.”