Posts Tagged ‘housing market’

Generation Gap in Americans’ Net Worth

Wednesday, November 23rd, 2011

Households headed by older adults have made impressive gains when compared with those headed by younger adults in their economic well-being over the past 25 years, according to a Pew Research Center analysis. In 2009, households headed by adults aged 65 and older had 42 percent more net worth (assets minus debt) than households headed by their same-aged counterparts had in 1984.  During this same period, the wealth of households headed by younger adults declined.  In 2009, households headed by adults younger than 35 reported 68 percent less wealth than in 1984.

As a result of these trends, in 2009 the typical household headed by someone in the older age group had 47 times as much net wealth as the average household headed by someone younger – $170,494 versus $3,662 in 2010 dollars.  In 1984, this had been a less asymmetrical ten-to-one ratio.  This means that the oldest households in 1984 had median net wealth $108,936 higher than that of the youngest households.  By 2009, the disparity had grown to $166,832.

Writing for CNN Money, Annalyn Censky notes that “So why the growing chasm?  Housing trends have played a major role, the Pew Center said.  While rising home equity helped drive wealth gains for the older generation over a long timeframe, the younger generation has had less time to ride out the housing market’s volatility — especially its most recent boom and bust.  Meanwhile, the younger generation is also taking longer to enter the labor force and get married.  And surging college costs are also leaving them burdened by more student loans than prior generations.”

According to the Pew report, “Most of today’s older homeowners got into the housing market long ago, at ‘pre-bubble’ prices.  Along with everyone else, they’ve been hurt by the housing market collapse of recent years, but over the long haul, most have seen their home equities rise.  For young adults who are in the beginning stages of wealth accumulation, there has been no such luck, at least so far.”

The impact of the Great Recession on individual wealth was taken into account by the Pew Researchers. We don’t know what the future will bring, but things are happening much more slowly for this generation,” said Paul Taylor, director of Pew Social & Demographic Trends and co-author of the analysis.  “If this pattern continues, and this difficult start plays out and slows this generation down, then you start to call into question the basic tenets of the American dream, which is that every generation does better than the one before.”

While the recession hurt people of all ages, the older group was much better sheltered, and saw its median net worth drop just six percent between 2005 and 2009.  Generally speaking, it has increased 42 percent since 1984 when the Census Bureau first began measuring wealth according to age.  The median net worth for the younger-age households fell 55 percent since the recession and 68 percent when compared with 25 years ago.

Net worth consists of the home’s value, possessions and savings, minus debt such as mortgages, college loans and credit-card debt.  Fully 37 percent of younger households reported that they have a net worth of zero or less, nearly double the amount reported in 1984.  That percentage remained at approximately eight percent for households headed by a person 65 or older.  “It makes us wonder whether the extraordinary amount of resources we spend on retirees and their healthcare should be at least partially reallocated to those who are hurting worse than them,” according to Harry Holzer, a labor economist and public policy professor at Georgetown University.

The news isn’t all bad for young people.  For example, they may have more student debt.  That’s good news because it means that more of them are going to college, a choice that will show returns in the long-run, according to the study.  Education is essential  to making money in today’s economy, said Steven Klineberg, a professor of sociology at Rice University.  Unlike in the past, the availability of blue-collar jobs and unions that could boost a worker into the middle class no longer exist.  “The ability to keep learning is a critical requirement,” Klineberg said.

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.

How Canada Avoided a Housing Bust

Wednesday, March 2nd, 2011

Canada avoided the collapse in housing prices that devastated American homeowners and the U.S. economy, thanks to tighter financial regulations, the lack of subprime lending and securitized mortgages. Foreclosures are rare.  As a result, Canadian real estate steadily appreciated while property values in Florida, Arizona and other hard-hit American markets tanked.

According to James MacGee of the Federal Reserve Bank of Cleveland, The United States’ and Canada’s “Monetary policy was very similar in both countries from 2000 to 2008, but housing prices rose much faster in the U.S. than in Canada. This suggests that some other factor both drove the more rapid appreciation in U.S. prices and set the stage for the housing bust.

And what is that other factor?  Canadians are a bit plodding: Perhaps the simplest story is that Canada was ‘lucky’ to be a late adopter of U.S. innovations rather than an innovator in mortgage finance.  In addition, bank capital regulation in Canada treats off-balance sheet vehicles more strictly than the U.S., and the stricter treatment reduces the incentive for Canadian banks to move mortgage loans to off-balance sheet vehicles.”

Relaxed lending standards in the United States, highlighted by the rise in subprime lending, played a vital role in creating the housing bubble. This weakening of standards led to an increase in housing demand.  Mortgages were frequently given to people who were likely to have trouble making payments.  Extending credit to risky borrowers helped fuel the housing boom and set the stage for the resulting surge in defaults and foreclosures, which were a big factor in the housing bust.  Additionally, according to the Case-Shiller Index, house prices in the United States from 2000 through 2006 appreciated at a rate nearly double that of Canadian residential real estate.  In contrast with the United States, Canadian house prices continued to appreciate until late 2008, and are now nearly 80 percent higher in value than in 2000.

MacGee said “The potential risks of increased household mortgage debt depend critically upon its distribution across borrowers. To see how the distribution of mortgage debt has changed, we examined the distribution of the ratio of the outstanding loan to house value (the LTV) of borrowers.  A high LTV implies that a small decline in the house price would leave the owner with negative equity.  Negative equity is problematic as it removes the option for a homeowner who is unable to meet their mortgage payments to sell their home to repay the mortgage.”

Canadian home prices are leveling off in 2011, though, with an overall decline of 0.9 percent anticipated for the year.  A home worth $100,000 will likely decline by $900 in 2011.  In some areas, home prices might actually increase while other areas might see prices fall two or three times as much. The Canadian Real Estate Association (CREA) expects a 7.3 percent decline in home sales in 2011.

“Canadians are debt-averse,” said Kevin Fritz, a Canadian who recently purchased a home and made a 40 percent downpayment. This is an attitude that is partly cultural and partly shaped by banking practices and regulations designed to keep people out of homes unless they can clearly afford them.  “People here don’t leverage.”

“It is a regulatory structure in Canada that created the Canadian mortgage system, and it was a regulatory and political structure in the U.S. that created the U.S. mortgage system,” said Ed Clark, chief executive of TD Bank.  “The irony is…that one of the primal causes of the crisis was the U.S. mortgage system.”

In an interesting aside, more Canadians are finding housing bargains in Florida, and today account for eight percent of residential sales in the state.  Doug Flood, who relocated to the Sunshine State from Toronto in 2008, now runs a business that helps his fellow Canadians find the home they want.  “There’s clearly a perfect storm.  If you’re Canadian, you’ve got very low interest rates at home if you want to borrow against your house.  You’ve got a foreign exchange par, dollar-for-dollar.  And prices down here that are 40 to 50 percent lower than what they were five years ago.”

To listen to our interview with the Brookings Institution about financial regulations, click here.

Washington, D.C., Housing Market Shines in a Bleak Landscape

Thursday, January 13th, 2011

Washington, D.C., Housing Market Shines in a Bleak LandscapeAlthough the Washington, D.C., residential market has held up surprisingly well over the past few years in an environment hammered by unemployment and foreclosures,  there is a question of whether the nation’s capital will spur recovery or if the rest of the country will drag down the local market.  Washington’s relatively low unemployment rate and availability of well-paying jobs has helped cushion the city’s housing market.  During the 3rd quarter, the District of Columbia’s average home price rose 3.1 percent over the 2nd quarter to $410,839, according to Delta Associates, a real estate research firm.  That is 6.2 percent higher than average home prices during the 3rd quarter of 2009.  The region’s foreclosure rate as of September was 2.1 percent, according to CoreLogic.  Nationally, the foreclosure rate was 3.3 percent.

According to Mark Zandi, chief economist at Moody’s Analytics, more than 4 million homes were in or near foreclosure nationally in 2010.  That’s over and above the 6.2 million homes that were foreclosed between 2007 and 2010.  Those 10.2 million foreclosures equal the combined populations of Vermont and North Carolina.  Approximately 57 percent of economists and real estate experts surveyed by Macro Markets don’t think that home prices will recover until 2012; another 35 percent believe that real recovery won’t happen until 2013.

In recent testimony before the Congressional Oversight Panel, Treasury Secretary Timothy Geithner said that 24 percent of homes in the United States are under water – which puts their owners in the unenviable position of being unable to refinance or sell.  “The most important thing that’s going to affect the trajectory of home prices, the overall number of foreclosures, the ability of people to stay in their homes, is what the government is able to do to get the unemployment rate down,” Geithner said.

Housing Sales Plummet, Set Off New Economic Jitters

Wednesday, September 8th, 2010

Housing market has a 12 ½-month supply to work through.  Double dip ahead?  Are housing prices about to experience a double dip?  Existing home sales fell 27 percent in July to the lowest level reported since 1995.  The plunge occurred even though mortgage rates are at their lowest levels in decades and houses in most regions are priced to sell.  July sales fell to a seasonally adjusted annual rate of 3.83 million, according to the National Association of Realtors (NAR).  This was the largest monthly drop dating back to 1968, and the numbers raise questions about the overall health of the economy.

“The housing market is undermining the already faltering wider economic recovery,” said Paul Dales, U.S. economist with Capital Economics.  “With the increasingly inevitable double-dip in prices yet to come, things could yet get a lot worse.”  The weakest sales occurred in the lower- to mid-range prices.  In the Midwest, for example, homes priced between $100,000 and $250,000, plummeted by approximately 47 percent.

Although sales in spring were strong – spurred by a tax credit for first-time homebuyers that expired at the end of April – the inventory of unsold homes soared to nearly four million nationally at the end of July.  At the current pace of sales, that’s a 12.5-month supply and the highest level seen in more than 10 years.  A healthy level is considered to be six months.

“A pause period for home sales is likely to last through September,” Lawrence Yun, the NAR’s chief economist, said. “However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs.”

“A sustained upturn (in the housing market) will depend on an improvement in the jobs market, which at the moment is slowing down rather than gathering pace,” said Nigel Gault, an economist at IHS Global Insight.

May Foreclosures, Seizures Reach an All-Time High

Wednesday, July 7th, 2010

Bank repossessions of homes rose 44 percent in May over the same month last year, reaching an all-time high and with increases occurring in every state as lenders stepped up the rate of seizures. Realty Trac, Inc., an Irvine, CA-based data company that tracks foreclosures, reports that bank repossessions totaled 93,777 in May, with filings — including default and auction notices — soaring to 322,920.  In other words, one out of every 400 households in the United States has now received a filing.Banks seized 93,777 homes in May setting record.

According to Rick Sharga, Realty Trac’s senior vice president for marketing, “We’re nowhere near out of the woods.  We’re likely to set a record for home seizures if June is anything like May.  The second quarter won’t be the peak.  I’m not even sure 2010 will be.”  April previously held the record for the most seizures – 92,432 of them.  Sharga believes that an additional 5,000,000 delinquent mortgages will end in foreclosure.

Approximately 25 percent of American homeowners are under water – they owe more than their homes are worth – notes Bank sales of foreclosed houses comprised more than 20 percent of all transactions in March.  Some of the largest lenders – primarily Wells Fargo & Company and Bank of America – are giving homeowners who owe more than 120 percent of what their houses are worth a helping hand by cutting the principal.  “Marginal people, those types who were working as laborers, are most affected by foreclosures,” said Albert Kyle, a finance professor at the University of Maryland’s R. M. Smith School of Business.  “A lot of foreclosures are occurring in modest homes.”

New Economic Reality Impacts Everyday Life

Tuesday, September 29th, 2009

The long recession has dramatically impacted the lives of all Americans, according to demographic data released by the U.S. Census Bureau.  Commutes are lengthier; people are not moving; immigration is down; and couples are delaying marriage.  The annual American Community Survey report, based on information gleaned from three million households, highlights how deeply the recession impacted all Americans.car_pool_only_lane

The number of people who drive solo to work fell last year to 75.5 percent, the lowest in a decade.  Yet, the average commute time rose to 25.5 minutes, as people left home earlier in the morning to pick up car-pooling co-workers.  Mobility is at a 60-year low, which will impact congressional district reapportionment based on 2010 census data.  The number of foreign-born individuals living in the United States fell to less than 38 million, after reaching an all-time high in 2007.

Of Americans over the age of 15, 31.2 percent reported that they had never been married, the highest percentage in a decade.  According to the survey, the number of unmarried Americans started climbing when the housing market downturn started in 2006.  Sociologists believe that young people are taking more time to achieve economic independence because they are having trouble landing well-paying jobs or are studying for advanced degrees.

“The recession has affected everybody in one way or another as families use lots of different strategies to cope with a new economic reality,” according to Mark Mather, associate vice president of the not-for-profit Population Reference Bureau.  “Job loss – or the potential for job loss – also leads to feelings of economic insecurity and can create social tension.”  With unemployment still rising, Mather notes that “It’s just the tip of the iceberg.”

Investors Still Wary of Distressed Assets

Wednesday, September 23rd, 2009

Commercial real estate investors are taking a wait-and-see attitude before jumping in and buying distressed assets, according to an Ernst & Young study.  “We haven’t seen many portfolio transactions so far,” says the study’s author, Chris Seyfarth, who is national director of E&Y’s non-performing loans.  “Given the size and the magnitude of the untitledproblem with banks, I think the expectation is that at some point we’ll start seeing sizable portfolio transactions.”

According to the E&Y study, 53 percent of respondents have purchased distressed or non-performing loans in the last 18 months.  Another 45 percent believe it is too early to even think of buying non-performing loans.  Distressed assets are “piling up faster than they’re being resolved,” Seyfarth says.  “The broad view is that commercial real estate assets are getting worse, not better, and that’s going to impact financial institutions.  The issue is that the price expectations are different between the two players, and in some cases significantly different.”

Only 35 percent of those investors claim to have return requirements above 20 percent, and an equal number actually are shooting for returns in the 10 percent to 15 percent range,” Seyfarth concludes.  Once the anticipated tsunami of distressed assets his the market, it could be met with a rush of pent-up capital, all trying to get the best deals at the same time – which may, ironically, further cushion price declines, resulting in a more competitive investment market.

News about the spike in housing starts and the buoyancy of the stock market, which has recaptured $3 billion in value in just a few months, suggests that the recession has at least stabilized and economic recovery is near.  This should encourage increased liquidity in the credit markets, eventually supporting the commercial real estate investment market.

Paul Krugman is Moving on Up

Thursday, September 10th, 2009

Paul Krugman – winner of the Nobel Prize in Economics, Princeton University professor and New York Times columnist – is taking advantage of falling home prices in a difficult market.  Krugman and his wife, economist Robin Wells, recently paid $1.7 million for a three-bedroom co-op apartment in a pre-war building on Manhattan’s upscale Riverside Drive.  The apartment had been on the market for more than one year and had an original asking price of $2.495 million, according to, a property listing service.

krugman-788178According to Krugman, “We really wanted a place that has the ultimate New York luxury, which is a washer and a dryer.  I do expect New York prices will fall some more, but we need a place.  And I came into some money.”  Krugman’s Nobel Prize included a $1.4 million cash award.  The six-room apartment has nine-foot ceilings, offers “romantic cityscapes” and has a monthly maintenance fee of $1,820.  Krugman’s long-time one-bedroom apartment on West 89th Street is under currently contract for a bargain $599,000.  Additionally, the Krugmans own a house in Princeton, NJ.

Median Manhattan home prices fell 18.5 percent to $835,700 from a year earlier, according to appraiser Miller Samuel, Inc., and broker Prudential Douglas Elliman Real Estate.  The number of sales is half of the 2008 number.

Krugman’s purchase comes at a time when the housing market appears to be stabilizing.  Existing home sales rose 3.8 percent in the second quarter to a seasonally adjusted rate of 4.76 million over the first quarter, according to National Realtor Association statistics.

Global Financial Meltdown? Not in Norway

Tuesday, August 4th, 2009

One European nation has escaped the worldwide financial meltdown and recession.  It’s Norway, which saved its money – rather than spent – through the boom years. As a result of frugal financial management, Norwegian housing prices and consumption are on the upswing and interest rates are affordable.  Norway’s fiscal responsibility of its income from enormous oil and gas reserves has allowed the Scandinavian nation to build one of the globe’s largest investment funds.

norwayAfter large deposits of gas and oil were discovered in the mid-1970s, Norway didn’t go on a spending spree, and channeled its revenues into a state investment fund.  The government – with very few exceptions – can spend only four percent of those revenues annually.  “By the end of this year, I guess we are approaching $400 billion U.S.,” according to Amund Utne, a director general of Norway’s Finance Ministry.  Do the math, and that adds up to $400 billion in a nation whose population is 4.5 million.

Beyond its oil and gas revenues, strict banking regulations – tightened after a banking crisis in the early 1990s – shielded Norway from the credit crisis.  Norwegian banks made loans wisely and stayed away from exotic investments and financial products over the past decade.  “They (the United States) got all the bright guys to make all kinds of fantastic products.  Very creative.  And it turned out it was maybe not the best solution in the end,” Utne said, with typical Norwegian understatement.  “I think Norwegian banks are not as creative.  In this situation, it may be good to be somewhat boring.”

Norway also was immune from the housing bubble.  According to Bjorn Erik Orskaug of DnB NOR, Norway’s largest bank, “Housing prices are back up.  Consumption is up.  Banks are lending normally to the household sector and interest rates are staying low.”