Thursday, August 26, 2010
U.S. home sales plummeted in July to a level not seen in more than a decade, spurring fears of renewed weakness in housing prices and the broader economy.
Sales of previously owned homes fell 27.2% from June to a seasonally adjusted annual rate of 3.83 million, the National Association of Realtors said Tuesday,( the lowest level since the industry group started its tally in 1999). Sales of previously owned homes fell 27% in July as market signals Tuesday deepened worries over growth
The expiration of a home-buyer tax credit in the spring was expected to damp buying, though less severely. Economists said the sales drop—together with a corresponding rise in the inventory of unsold homes—meant another decline in housing prices was on the horizon. House prices had stabilized last year after declining since 2006.
High unemployment and meager wage growth already are driving many Americans' reluctance to make major purchases, so a return of falling home equity could further depress confidence and consumer spending.
"At this point in the recovery, every little bit counts," said economist Paul Dales of Capital Economics. "A double dip in the housing market and house prices would not be enough to generate another recession. It would certainly help to hold back the recovery." He expects home prices to fall another 5% after a 30% decline during the recession.
Weitz- This bugs me…Economists claim that we are not in a recession because GDP is increasing…GDP can be tweaked to look a lot better than it actually is. Tell the hundreds of thousands of those that continue to be un-employed or are underwater in their homes that we are no longer in recession.
The renewed worry about housing comes as economists downgrade their forecasts for the economy this year and early next year. Traditionally, the housing sector, along with purchases of durable goods such as furniture, would help pull the economy out of a recession as lower interest rates spurred higher demand. But this time, potential home buyers either don't have the jobs or savings to jump in or are wary of another decline in the market.
A sharp drop in mortgage rates in recent months appears to be doing little to stimulate demand. The average rate on a 30-year fixed-rate mortgage has fallen to less than 4.5%, reaching 50-year lows, but demand for new loans is weak. Many borrowers face challenges qualifying for loans because they have lost their jobs or aren't making as much money. Some are simply growing more cautious.
While tax credits to spur home sales helped stabilize housing markets across the country over much of the past year, the expiration of that stimulus in April has revealed lingering problems that have restrained housing.
Buyers who signed contracts by April 30 have until the end of next month to close on those sales and receive credits worth as much as $8,000. Sales of homes priced between $100,000 and $250,000, which would have received the biggest benefit from the tax credit, were off 35% in July from a year ago.
The number of unsold homes on the market grew by 2.5% to nearly four million in July. At the current sales pace, it would take 12.5 months to clear that inventory, the highest level in more than a decade.
Weitz – this coupled with the lack of demand almost guarantees continued price declines.
How long the hangover from the tax credit will last depends on how long the economy takes to recover. Tuesday's housing report was "a wake-up call to anyone who's trying to understand why housing has not been recovering," said Ivy Zelman, president of housing-research firm Zelman & Associates. "The artificial boost from the tax credit masked the impediments."
Nearly one in four homeowners with a mortgage owes more than their home is worth, which means many are unlikely to sell unless their lender approves a short sale, in which the home sells for less than the amount owed.
Price declines could be shaped largely by how banks manage the volumes of more than five million loans that are either seriously delinquent or in foreclosure. If more of those loans are modified, or if the homes sell through short sales, that could spare the housing market from bigger price declines.
Weitz – This is a hugely important issue. The ‘shadow’ inventory (ie. Bank owned homes) is enormous. If the banks decide to start putting homes on the market, it will further increase the inventory of homes and provide further price declines provided the demand remains anemic.
One troubling sign for the market is that banks appear to be listing more homes for sale, just as demand has dropped. The number of bank-owned listings increased 12% in August from the previous month. The figures, tracked by Zelman & Associates, include listings for the top 10 U.S. banks in 20 states and from mortgage companies Fannie Mae and Freddie Mac.
Price declines could lead to more delinquencies and foreclosures, and additional subsequent price drops. "You end up in a home-price-depreciation death spiral," said Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York. "It's not clear there's enough demand to handle this overhang without another round of price declines."
The median sale price increased 0.7% from one year ago to $182,600 in July, but that was down 0.2% from June. Median prices largely show the shift in the mix of homes that are selling, and analysts attributed the annual increase to a declining share of entry-level home sales.
While prices are expected to fall, fewer analysts expect double-digit plunges, in part because prices in many markets have already fallen sharply.
Weitz – I would highly disagree with this. Given the imbalances in supply vs. demand, I anticipate significant declines 10%+ (unfortunately).
For more information on your options in an underwater mortgage, consider talking to a Bellevue Foreclosure Attorney.
Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
at 8:11 AM
Friday, August 20, 2010
I recently got off the phone with a BOA representative. I thought I would inform readers of the home modification process for the Making Home Affordable Plan.
What is the Making Home Affordable Plan?:
Government mandated program instituted by most of the larger banks to lower payments to 33% of the borrowers monthly income.
How do they get to 33% of income?
1) First, they lower the interest to as low as 2%. If that does not get the payment to the 33% threshold, they will possibly extend term(s) of the loan, or have a principal forbearance.
Requirements to qualify (according to the Bank of America Rep):
1) Loan Origination on or before Jan. 1, 2009
2) Home is Owner occupied
3) Hardship Affidavit: (ie. loss of income, new birth)
4) Note: a dis-qualification would arise if the borrow has enough cash that would allow him/ her to pay 3 months of mortgage/ tax / insurance on the home.
IRS 4506-P Form - used to verify tax information
Sign Freddie Mac 1126, or Fannie Mae 1020 Form
2 most recent pay stubs for wage stubs
Self Employed Borrowers - 3 months of bank statements
Most recent signed tax return
Must provide tax and insurance information on the house
Must provide HOA documentation (if applicable)
Partial Payments for the trial modification for 3 months.
Bank of America Default Prevention Department: (877) 77-5842
Weitz: If you have read my past posts, you know that I am not a big believer in these modifications as 1) many borrowers don't qualify, or 2) many that do qualify are simply 'kicking the can down the road'.
For more information on foreclosure rights, or short sale rights in Washington, consider talking to an experienced Bellevue Foreclosure Attorney.
Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
at 11:48 AM
Monday, August 9, 2010
A Reuters Article on the POTENTIAL mortgage foregivness of debt held by Fannie and Freddie:
Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.
The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie.
A few key points:
1) Republican leaders believe this is going to happen since GOPers and Democratic moderates in the Senate are unwilling to spend more taxpayer money on more stimulus. But such a housing plan would allow the White House to sidestep congressional objections and show voters it is doing something tangible about an economy that seems to be weakening.
2) Wall Street banks are alerting their clients privately to this possibility.
Here is what some are cautiously saying publicly.
This from Goldman Sachs:
GSE policies are one of a dwindling number of policy levers the administration has left to pull, so it is conceivable that changes could be made, though there is no sign that a policy change is imminent. The Treasury’s essentially unlimited ability to provide financial support to the GSEs creates an interesting situation over the next twelve months: the GSEs could potentially be used to provide additional support for the housing market and, to a lesser extent, the broader economy in 2H 2001.
And this from Mizuho Securities:
As policy makers ponder their next move the data suggests that they face not only a stalling recovery but a growing risk of deflation taking root in the economy. As a result, the Administration has turned back to industrial policies by approving the purchase of a sub-prime auto lender by GM as a means for pumping up domestic sales, especially since the latest auto sales data indicates that consumers are still responsive to incentives. This precedent increases the risk that the government will use its control of Fannie and Freddie to increase consumer cash flow and juice the economy again.
Moreover, Morgan Stanley is pushing a mortgage relief plan directly to Congress. On August 3, a top Morgan Stanley economist recommended to the Senate Budget Committee that Fannie and Freddie ease their lending standards to allow millions of Americans to refinance their mortgages.
3) Keep in mind the political and economic context. The nascent recovery is already running out of steam. Wall Street economists just downgraded the government’s second-quarter GDP estimate of 2.4 percent to around 1.7 percent. And as even Treasury Secretary Timothy Geithner is warning, the unemployment rate may well begin to rise back toward the politically toxic 10 percent level given such sluggish growth. Many in the White House thought the unemployment rate would be dropping sharply by this point in the recovery.
But that is not happening. What is happening is that the president’s approval ratings are continuing to erode, as are Democratic election polls. Democrats are in real danger of losing the House and almost losing the Senate. The mortgage Hail Mary would be a last-gasp effort to prevent this from happening and to save the Obama agenda. The political calculation is that the number of grateful Americans would be greater than those offended that they — and their children and their grandchildren — would be paying for someone else’s mortgage woes.
4) And don’t think the White House is worried about financial market reaction. If they thought it would pass Congress, they would be submitting a $200 billion Stimulus 2.0 (3.0?, 4.0?) right now.
August is supposed to be a slow month for Washington politics. But maybe not this one.
WEITZ - THIS WOULD BE HUGE! Fannie and Freddie hold the note on A few thoughts on this subject:
1) Its an interesting concept that may have some really poor unintended consequences. Essentially, if I had a 500k loan on a home now worth 300k, I would get to refinance to 300k and not worry about the remainder of the loan.
The good: More people would avoid foreclosure. This would allow folks who bought more than they could afford to stay in their homes.
The bad: Every taxpayer who did not buy more than they could afford is taking it on the chin for those that did....its a bit to socialist for my liking. Most importantly, 4/5 homeowners either 1) own the property clear of any loans; or 2) still have equity. It may be tough to pass this politically.
Overall: I think its a long shot that it actually happens with the political upheaval that could ensue. If it does, there are a lot of small issues that I'd like to hear about before making a final opinion.... What are the effects on credit? How long will the program last? What are the qualifications? Either way, its a 'slippery slope' and I don't see this program stopping the decline of prices...capitalism will still prevail in the long run.
Every state has different laws.For more on your rights in foreclosure or shortsale, consider contacting a Seattle Foreclosure Attorney.
at 10:37 AM