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According to a report released by CoreLogic yesterday, 23.1 percent of residential properties with a mortgage were underwater at the end of 2010. That is up slightly from 22.5 percent earlier in the year, and represents a 300,000-home increase in just three months[1]. These numbers do not surprise many analysts, but they do worry them since underwater homes are a “drag” on the market because they prevent homeowners from exiting those homes via traditional routes like selling and they also stifle the “trade-up” market in real estate, which consists of homeowners buying better, more expensive homes and selling their old ones.

Mark Fleming, CoreLogic’s chief economist, says that these high levels of negative equity will keep housing and mortgage finance markets sluggish even if the rest of the economy begins to recover. Perhaps of equal concern is that 2.4 million borrowers have “near-negative” equity, meaning that they have less than 5 percent equity in their homes. This could quickly turn negative if CoreLogic predictions that home prices will fall another 5 to 10 percent in the coming year.

In light of this news, many in the Obama administration are protesting Republican proposals to cut HAMP (Home Affordable Modification Program) as part of the budget adjustment even more vehemently. In fact, the White House has threatened to veto attempts to do so, saying that the program is a “cost-effective approach to assisting underwater borrowers”[2]. However, the program, which was intended to help as many as 4 million homeowners, has thus far only helped a few hundred thousand and wasted massive amounts of taxpayer money, say HAMP critics.

For many real estate investors, these types of numbers mean more involvement in the real estate market thanks to creative financing and other alternative methods for buying property. Do you think that this is the way out of this mess?

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Let us know what you think should be done about the underwater housing situation below.

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[1] http://blogs.wsj.com/developments/2011/03/08/report-more-borrowers-underwater/

[2] http://online.wsj.com/article/BT-CO-20110308-714971.html

According to the National Quarterly Housing Survey, only 64 percent – slightly less than 2/3 – of Americans think that “owning their own home is a safe investment.” That is down from 70 percent at the beginning of 2010 and from 83 percent in 2003[1]. And while home sales rose in January 2011 for the third straight month, the median home price hit its lowest point since April 2002. What does this mean for homeownership as “The American Dream?” It could mean that that particular concept has run its course.

There are disagreements on the part of experts about whether or not this is a bad thing. Some point out that a shift in perception of homeownership will cause rents to rise and could lead to an adoption of the “common-sense, rational concepts disregarded during the housing bubble years”[2]. Furthermore, as renting becomes more acceptable, it could lead to a prevalence of more desirable rental options in which favorable locations, “multi-modal transportation options,” pleasing layouts that feel more like homes and “higher levels of aesthetic and construction quality” dominate the market and make both renting and ownership of rental units a pleasant and profitable experience.

Doug Duncan, Fannie Mae’s chief economist, believes that this change in perspective is going to lead to “the demand side increase [being] in the rental market, not the housing [purchase] market.” And some experts believe that since high rental vacancies have “weighed on the core consumer price index” that a new focus on rental properties and multifamily housing could help the economy as a whole. Do you think that it is necessarily a bad thing – in the grand scheme of things – if owning your own home is no longer considered part of “The American Dream?”

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Describe your perception of “The American Dream” below.

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[1] http://www.huffingtonpost.com/2011/02/28/buying-a-home_n_829138.html

[2] http://www.washingtonpost.com/wp-dyn/content/article/2011/02/25/AR2011022500045.html

October has just begun yet it seems like Halloween came in early for the real estate market: September reflects horror stories for the market, much like the previous months of the year. Recent reports and surveys for the month of September show staggering figures for the economy and personal finances. But if there is some grim news, there are also light and fun stories for real estate watchers.

The highlight for the month of September is the record low rates for 15- and 30-year mortgages. A September 30 report from Freddie Mac reveals that both 15- and 30-year mortgage rates have either met or exceeded what is currently on record, with 30-year mortgage rates averaging 4.32% for fixed mortgages. Though this bit of good news was expected to encourage people from purchasing a home, it did not create too much of a dent on home sales.

Consumer confidence is also at a low, making buyers less willing to make that leap to home ownership despite the low mortgage rates. Though the August to July existing home sales had a 7.6% difference in favor of the recent month, National Association of Realtors chief says this is subpar. Considering how mortgage rates are for the month, he had a point.

So why were people not buying homes in September? Census Bureau’s American Community Survey provided an answer in a September 28 report: more than 20% of Americans can barely afford to rent what more to buy a home. Including utilities, housing costs take 35% of income according to two-fifths of the respondents.

Even commercial real estate properties are seeing plummeting prices. Current prices are only a 0.9% improvement versus what was seen in the October 2009 recession low, as reflected in the Moody’s/REAL All Property Type Aggregate Index.

Perhaps next to the mortgage rates, another thing that really caught the attention of real estate watchers is the ongoing investigations on lenders. The month of September was first buzzed with news of GMAC Mortgage, a unit of Ally Financial, being under investigation by attorneys general in Iowa, Illinois and Texas because of a December 2009 allegation by an employee that the lending company signed off on foreclosures without verifying accuracy of borrower’s loan records. Before the month ended, JPMorgan Chase and Co. was also put under scrutiny by lawyers in Florida.

As always, though, there are exceptions to the rule as the month of September also includes successful property purchases and sales by celebrities. Both Chris Bosh and LeBron James scored real estate slam dunks: Bosh bought a $12.5 million, seven-bedroom house in Miami Beach and James paid for a four-bedroom pad in Coconut Grove. Even the Olsen twins were able to sell their unoccupied 6,000-square foot condo in New York – the property sold for less than the initial asking price of $11.995 million at $7.7 million, which is still $300,000 more than what the twins paid for the unit back in 2004.

Perhaps in time for Halloween, the Amityville Horror House – a Dutch Colonial house in Long Island, New York – gets a new owner in the person of Caroline and David D’Antonio, who paid $950,000 for the house which they are calling their “dream house”. First known as the site of a brutal 1974 murder by Ronald DeFeo Jr. of his mother, father and four siblings, the Amityville Horror House became more famous as Jay Anson wrote a book on the Lutz family’s horrific experience in the house. The D’Antonios claim that they are not afraid that the house may be haunted but are worried about the possible throng of fans for Halloween.

It has been written many times, many ways: the real estate market has to hit bottom before it can finally find its way up. With the way low mortgage are being ignored by home buyers, perhaps the theory is gaining a stronger proof that it is high time the housing market be left to free fall.

It has been reported that mortgage rates have not been as low as they currently are. Earlier in September, the 30-year fixed rate mortgages are at an all-time low of 4.32%. Even with that figure, people are still not rushing to take advantage of the low mortgage rates; the total number of people who bought homes and refinanced is even higher in 2003 when mortgages were 1.5 percentage points higher than what we have now.

Refinancing may have seen a little boost, especially from January to June of this year, but it’s not a big a dent as was seen last year or even in 2003. New home sales were at its second slowest pace on record in the month of august. Even existing home sales are not faring well, with a 19% decline from the year 2009.

IBISWorld’s housing analyst Robert Andrews said, “Anemic demand continues to hamper real (economic) growth. The housing market needs to find its true bottom before things can finally turn around.”

He is not the first to say that. And perhaps he also won’t be the last.

Read the rest of this entry »

The number of foreclosed homes is increasing and it does not surprise analysts that it comprises the biggest chunk of sold homes this year. The figures for the second quarter of the year show exactly that – foreclosed homes still account for almost a quarter of the residential sales in that period.

RealtyTrac, a firm that looks at the foreclosure market and the real estate market in general, revealed the home sales statistics for the second quarter of 2010. The statistics show that 24% of the residential homes sold from April to June were foreclosed homes. In different stages of foreclosure – default, scheduled for auction or bank repossession – some 248,534 U.S. properties have been handed over to third parties through a sale. Though this number is 5% higher than that of the January to March number, it still represented a 20% decline from last year’s.

The good news does not end there.

RealtyTrac CEO James J. Saccacio says, “While foreclosure sales increased in the second quarter, non-foreclosure sales increased even more, spurred on by the home buyer tax credit that expired during the quarter.”

Read the rest of this entry »

In more than a year, U.S. home builders are seeing the lowest confidence level. A lot of factors have contributed to this, starting with the expiration of the government tax credit.

When the federal government launched a home buyer tax credit, which allowed home buyers a maximum tax credit of $8,000, the housing industry was able to breathe a sigh of relief. But the relief was but temporary – with the expiration in April, home sales went down again. Though there was no change in the August to September confidence index of the National Association of Home Builders/Wells Fargo – which is pegged at 13 – this only matches the reading in August, which is the lowest since March of 2009.

A forecast made by 50 economists say the gauge may rise to 14 though not everyone is optimistic.

“It’s hard to see where the impetus for growth for housing is going to come from. The employment situation keeps people very much on the back foot and remaining in their existing homes,” says New York Standard Chartered Bank’s David Semmens.

Read the rest of this entry »

The US Commerce Department announced on Wednesday that new homes sales for the month of July plummeted by 12.4 percent, the biggest slide since the federal government started recording sales data in 1963.

The commerce department attributed the decline to soft spots in the housing market following the expiration of tax breaks for home buyers who also face the prospect of further slow downs in the job market.

Also, the department reported that new single-family home sales dipped by 32.4 percent to 276,000 units in the same period while sales of previously owned homes retreated by 27. 2 percent from the previous month as analysts raised their concerns on the true state of the country’s economic recovery.

While experts had anticipated a decline in the country’s home sales figures following the April 30 expiration of the $8,000 home buyer’s federal tax credit, the magnitude of the decline came as a shock for many.

A Bloomberg new report even reported that some economist were actually optimistic that a rebound could happen in July after the slide seen in May and the recovery achieved in June.

FTN Financial chief economist Christopher Low said that the big drop pointed to the possibility that apart from the disappearance of the tax break, people were simply unwilling to part from their hard-earned money.

Low said that considering that mortgage rates were not really that high, the plunging numbers were “reminders of how much work there is still left to do before housing can be deemed healthy again.”

Freddie Mac said that a 30-year fixed home loan tumbled by 4.42 percent on the whole month of July as Guy Cecala of Inside Mortgage Finance explained that while rates were very low at these times, banks were enforcing very strict mortgage underwriting requirements.

That translates, Cecala said, to the present reality that “a third or more of the borrowers who bought homes between the 2005 and 2007 period can’t qualify now,” effectively eliminating them from the list of trade-up buyers.

The Commerce Department also reported on Tuesday that new homes sales prices were being slashed while the housing inventory was running behind from the ideal numbers.

The department said that average sales price for new homes in July was $204,000, dropping by 4.2 percent from June and lower by 2.9 percent from prices carried by freshly-built homes in July 2009.

On the other hand, the commerce department revealed that as of the end of July this year, new home inventory was 210,000, which corresponded for a 9.1 month supply at the current sales pace.

The department reported too that weak spending were also seen from businesses in the same period as new purchases for manufactured durable goods shot up only by 0.3 percent as against the market projection of three percent increase.

Despite the upward crawl, analysts still expressed concerns as the minuscule gains were delivered by movements in aircraft orders, which experts agreed as a traditionally volatile sector.

Phoenix, Arizona has seen some ups and downs in its June home sales, with the biggest high for the overall sales. The region has boosted its monthly sales by 11%, as compared to the previous month. Even the median sale price rose, for the fourth month in a row, above last year’s level.

A lot of factors can be thanked for this positive turn to Phoenix’s home sales. The biggest one, most probably, is the tax credit. Also, more $200,000-plus homes were sold in that month. Even the number of sold foreclosed properties went down.

San Diego’s MDA DataQuick, which started tracking the Phoenix-area statistics in 1994, released the numbers for Phoenix’s June sales. The company says it is normal to see a rise in May and June sales, with gains averaging 1.4%. They do admit, though, that this year’s June rise is 4.8% lower than the average of 10,951.

In the combined Maricopa-Pinal counties metropolitan area, 10,430 new and resale condo units and houses were sold. This figure is up 11.2% from the previous month though down 2.8% from June of 2009.

Resale of both existing houses and condos are 8.5% more than May’s but 5.9% less than 2009’s. There was a dip of 8.5% in sales of existing detached houses but a boost of 17.5% in resale condos.

New homes also enjoyed a significant growth in sales, with the numbers rising 35.1% vis-à-vis May’s numbers. Though the number is also 26.9% higher than June 2009’s, it is still the second lowest turnout for the month of June in more than 10 years.

Home buyers paid an average of $139,500 – 0.4% up from May – for both new and resale houses in June 2010. This median is also 7.3% more compared to last year’s $130,000. This is the fourth month that the figure has increased year-over-year; prior to

February of 2010, the median has been falling for 36 consecutive months.

Even with the good numbers, though, DataQuick points out that June still fell 47.2% short of the $264,100 peak in June 2006. And though highest for this year, June’s median is still lower than the high for the last 12 months, which was $142,700 in November. The lowest median since the post-housing boom is $125,000 in April 2009.

Resale condos saw a bleak median at $89,900 – lower by 8.3% from May, lower by 13.6% from 2009, and lower by 51.8% from the $186,500 peak in June 2007. The median for resale single family homes, though 49.3% lower than the $268,000 peak of June 2006, is still 8.7% higher than last year’s at $135,875.

As for foreclosures, 5,467 houses and condos were closed – this may be 19.5% increase from may but it is also 7.1% decrease from last year. In the first half of 2010, a total of 30,797 housing units have been foreclosed, up by 9.9% versus the same period in 2009.

Government officials and finance executives are set to meet on Tuesday to possibly discuss the resolution of the nation’s housing market industry, which alarmingly emitted signals of reverting to its troubled state two years ago.

Many would recall that in 2008, Fannie Mae and Freddie Mac became household names not because they facilitated the acquisition of volumes of American homes but because they represented the housing market ills which saw the collapse of the industry as thousands of homes were foreclosed while the two companies ran to the federal government begging for succor.

They got the reprieve that they sought for and with government guarantees, the industry was afforded a shot in the arm as sales raced back to normal levels thanks to federal tax credits and affordable mortgage rates, home-buyers were convinced to put their stake back in the property market.

Yet that could be ending after the Tuesday meet as housing policy-makers endeavor to lend some semblance of normalcy on the industry long dominated by Fannie and Freddie, which admittedly provided the buffer zone for up to 90 percent of new housing loans.

That comfort zone, of course, was laid out with considerable assistance from the Federal Housing Administration, characterized by industry consultant Howard Glaser as a semi-permanent housing crisis with some little helpings from the big brother feds.

That role has been quite effective for some time now but something previously feared simply just happened: home sales tumbled after the April lapse of home-buyers tax rebates, and not to mention that mortgage rates then were being held at record lows.

Denver, Minneapolis and Milwaukee markets all posted remarkable declines in home sales that analysts could only explain that a persistent problem has reared its ugliest head the second time, which never went away anyway during the first time.

Efforts by property industry and federal officials to address the problem by mortgages modification seemed to have accomplished nothing but to delay foreclosure incidents from rattling the market, which is short of saying that federal intervention has so far failed in its goal.

Amherst Securities Group’ Laurie Goodman flatly said that the government have yet to find the right solutions for the ever-present problem, warning that “we have another round of home prices going down a little more.”

However, the Tuesday meet could bring about some better answers for the lingering issue that nags the industry as market veterans, economists and the academe converge to offer, discuss and maybe formulate a lasting solution for the housing market woes.

Reports are ripe that the government is bent on ditching the Fannie and Freddie ownership model, which were not too coy on exploiting their implied government guarantee by gobbling cheap loans, with investors comforted by the idea that the feds would come to the rescue once trouble brews.

On the other hand, the academe floated the idea that the government must not totally withdraw its guarantee on mortgages that could meet pre-agreed standards, which got the nod of Treasury Secretary Timothy Geithner who agreed that government guarantee must allow deserving individuals to still acquire properties even when times are hard.

The issue now is how to reconcile the two goals of bringing back the private sector to the forefront of absorbing credit risk while the government withdraws considerable presence but with enough guarantees to maintain a stable market and finally shielding the nation’s taxpayers from unnecessary bleeding too much cash.