Who is buying all of these homes? And what does it mean?

I just finished going over NAR’s 2012 Investment and Vacation Home Buyers Survey,which covered existing- and new-home transactions in 2011. The report showed that investment-home sales surged an extraordinary 64.5 percent to 1.23 million last year from 749,000 in 2010. Vacation-home sales rose 7.0 percent to 502,000 in 2011 from 469,000 in 2010. Owner-occupied purchases fell 15.5 percent to 2.78 million.

A recent CNBC article (excerpted below) notes the risk of what the NAR report exposed:

While nearly half of investment buyers said they were likely to purchase another property within two years, housing and mortgage analyst Mark Hanson calls them a “thin cohort” and worries that they add ever more volatility to the current housing recovery.

“They are fickle and volatile. They will go away on the slightest of conditions changes. They also won’t chase prices higher or buy new homes from builders. Lastly, without the heavy flow of distressed supply, there is no U.S. housing market recovery. Distressed sales ARE the market,” says Hanson.

Remember…investment is all about the numbers. Change anything where the numbers aren’t as attractive — even something as minor as HOA fees — and investor demand dries up. To an investor, a house is not a home: it’s cashflow + equity. These investors analyze a house in exactly the same way they would analyze a bond or a stock.

Even if house prices remain stable, if rent rates drop, that changes the investment equation. Now the investor isn’t interested even if the price remains at $200K, because his cashflow projections are all out of whack.

Any hint of rent regulation, and an investor would have to be a fool, politically connected, or pay such a low price that he’ll still make money under rent control, to even consider buying rental properties.  

Stan Humphries, from Zillow recently said, “some markets have likely seen their bottom (think Washington DC or Phoenix, both of which we forecast to see appreciation in 2012),but nationally, the bottom in home values is some way off. Your cautions all fall in line with exactly what we at Zillow have been observing – high percentages of cash buyers, investors flocking to the market to take advantage of rising rental rates (with rents up 3% nationally during 2011). We’re forecasting the national bottom in home values for 2013, and we expect that most large markets will continue to see depreciation throughout 2012. We introduced a formal forecast in our Q1 reports. (You can see the Zillow report here: http://bit.ly/yRwRj7.

As I always tell my clients…”take every news report you read/see/hear with a grain of salt”. Most agencies who put out the stories have an agenda to promote…and most reporters no longer look into the details of any story they are given.

The recent great housing news…(i.e. sales/prices up), is being driven by a very narrowly motivated segment of buyer: “investors”. If there is any small shift in the tax laws benefiting income properties, rental rates; any reduction of cash-on-cash return or after tax return…you can bet the investors will be back on the sidelines.

Call me directly and lets talk about how all of this (and more) affect/influences your real estate selling or buying goals.

Thanks for reading…Steve Jackson

561.602.1258

Todays real estate headlines in the news…Pick your flavor

 

1) It's safe to sell your home again:

The Realtors' group's chief economist, Lawrence Yun, opted to look on the bright side of the report -- sales were up 5.2% year-over-year. "We have seen nine consecutive months of year-over-year sales increases," he said. "Existing-home sales are moving up and down in a fairly narrow range that is well above the level of activity during the first half of last year."

2) Housing recovery still sputters:

NEW YORK (CNNMoney) -- The housing market continued to struggle in March, despite low home prices and record low interest rates, an industry report revealed Thursday.

Sales of existing homes fell 2.6% compared with a month earlier, to an annualized rate of 4.48 million homes, the National Association of Realtors said. Gus Faucher, a senior economist at PNC Financial, called the report disappointing. "We were expecting an increase," he said. "We need a turnaround to help the economy recover.

3) No Housing Recovery Until 2020 In 5 Simple Charts

Every day (for the past 3 years) we hear countless fairy tales why housing has bottomed and will improve any minute now. Just consider the latest kneeslapper from that endlessly amusing Larry Yun of the NAR, uttered just today: "pent-up demand could burst forth from the improving economy." Uh, right. Here's the truth - it won't and here is why, in 5 charts (below) directly from Bank of America, so simple even an economist will get it.

• Epic supply backlog
• A secular shift from plunging demand via habitation patterns, as more and more simply opt to live with their parents
• More and more are forced to rent
• Home prices will slide ever more as the American Dream of home ownership is forgotten, leading to even less wealth extraction via home equity loans
• Which all  means there is no hope for a long, long time…not at least until 2020

 

The so called “recovery” is about to get impaled by a tsunami of foreclosures with prices dropping a further 5-10% - recovery will take years with the added bonus that those who have been living rent free are about to direct some of that windfall of "disposable income" to actually paying for shelter…watch how that effects the overall economy!

As always…thanks for reading!

Steve Jackson

561.602.1258

Home Affordable Foreclosure Alternatives (HAFA) for Palm Beach County Residents extended through 2013

The Making Home Affordable (MHA) Program was introduced by the Obama Administration in 2009 in an attempt to stabilize the housing market and help struggling homeowners obtain relief and avoid Foreclosure. The program consisted of several smaller programs including the Home Affordable Modification Program (HAMP), the Home Affordable Refinance Program (HARP and the new HARP 2.0) and the Home Affordable Foreclosure Alternatives Program (HAFA).

HAFA is a government-sponsored initiative assisting all Home Affordable Modification Program (HAMP) eligible homeowners in avoiding foreclosure through a short sale or deed-in-lieu of foreclosure.

The program recently announced updates and changes that will take effect June 1st.

These changes will allow a greater number of distressed homeowners to seek assistance.

The major changes from March's updates to the HAFA program include:

• Extending the deadline for submitting for HAFA eligibility will be extended a full year, from December 31, 2012, to December 31, 2013.
• The removal of occupancy requirements. Previously, HAFA required homeowners to have lived in the property within the last 12 months.
• $3,000 relocation incentives will be limited to properties occupied by an owner or tenant at the time of the short sale.
• Mortgage payments will be allowed to exceed 31% of the homeowner's gross monthly income. This update will allow a homeowner to stay current on their mortgage and still qualify, minimizing the overall impact to their credit.
• Secondary lienholders may receive up to a maximum of $8,500, up from $6,000 previously.
• And one of the most dramatic changes: The Credit Bureau Reporting will be Account Status Code 13 (paid or closed account/zero balance) or 65 (account paid in full/a foreclosure was started), as applicable.

With these updates, a homeowner can be current on their mortgage, qualify for HAFA, continue to make their payments, and execute a short sale with minimum impact on their credit!

If you are upside down on your home…call me today. My direct line is 561.602.1258

Thanks For Reading…Steve Jackson

Bloomberg Law with an insightful commentary on the recent $25B mortgage fraud settlement

Fourth Quarter and Year-End 2011 U.S. Foreclosure Sales Report: Shifting Toward Short Sales

RealtyTrac® (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its Q4 and Year-End 2011 U.S. Foreclosure Sales Report™, which shows that sales of homes that were in some stage of foreclosure or bank owned accounted for 24 percent of all U.S. residential sales during the fourth quarter — up from 20 percent of all sales in the previous quarter, but down from 26 percent of all sales in the fourth quarter of 2010.

“We continued to see a shift toward pre-foreclosure sales, or short sales, and away from REO sales in the fourth quarter,” Moore continued. “Nationally, pre-foreclosure sales increased 15 percent from a year ago while REO sales decreased 12 percent. Pre-foreclosure sales outnumbered REO sales in several bellwether markets, including Los Angeles, Miami and Phoenix, where REO sales had outnumbered pre-foreclosure sales a year ago. That trend will likely show up in more local markets in 2012 as lenders recognize short sales as a better option for many of their non-performing loans.”

PLEASE READ THIS: 2012 is shaping up  to be the “perfect storm” in the realm of short sales. A) the banks FINALLY realize that it is in their best interests to approve a short sale rather than take a home back in foreclosure, B) the Mortgage Debt Forgiveness Act  is still in place, but only until the end of 2012 (and I wouldn’t bet the farm on the deadlocked politicians/bureaucrats in Washington easily coming to an extension agreement),  C) the inventory of decent single family homes here in Palm Beach County is extremely low, and D) many lenders are offering cash incentives to underwater and delinquent homeowners if they complete a short sale and meet other, minor benchmarks.

If you are upside-down..don’t wait..call me today, please. This year may be your best opportunity to sell your home in a manageable and dignified way.

My direct line is 561-602-1258.

Thanks for reading, Steve Jackson

Foreclosure Fraud Settlement Update…

Full and complete details are still not available as of today. We have been given only the main points of the agreement. Missing still are the most important aspects; the implementation and enforcement details. As the well known saying goes…’The devil is in the details’ (see below).

A previously ‘settled’ suit by Nevada/Arizona against Bank of America for failing to follow their responsibilities in the Countrywide settlement will be folded into the deal. In that settlement, BofA promised to deliver $8.5 billion in relief for Countrywide borrowers who fell victim to deceptive practices in the mortgage process. In reality, only $236 million was ever spent. Weak settlement terms allowed BofA to take credit merely for offering loan modifications to borrowers. And the Nevada suit alleged that BofA immediately started abusing borrowers who tried to get relief under the deal. But that suit is now gone.

State and federal regulators insist that they learned their lesson with that botched settlement and that this one has tight enforcement guidelines. (Sure!) However, the monitoring process begins with a self-assessment from the banks through quarterly reports, which will then be reviewed by a govt. determined committee. This enforcement process is likely to take months to ‘properly assess’ the settlement.

What has been made public is that 5 billion will go as a hard cash penalty to the states, which can use the monies, for what appears to be, any reason. As a matter of fact, one official close to the talks stated that he feared that much of that cash payout will go in some states toward filling their budget holes. The federal government will get a cash penalty as well (how much? for what purposes?)  Out of that $5 billion, up to 750,000 borrowers wrongfully foreclosed upon will get (up to) a $2,000 check if they sign up for it and it is determined that they qualify (who can qualify and what the process is has yet to be disclosed). For someone wrongfully foreclosed on, foreclosed on with fraudulent documents or denied due process, this is the equivalent of saying to them “sorry we broke the law and stole your home, here’s one months rent, now go away quietly.”

The bulk of the money, NOT actually a payment of any kind, around $17 billion, will go towards loan modifications, principal write-downs, short sales and other foreclosure avoidance efforts.

This figure pales in comparison to the negative equity in the country, which sits at, at least, $700 billion. Nationally, 1 in 5 mortgages is currently under water…here in Florida, almost 1 in 2 mortgages is under water. AND the banks have 3 years to implement these processes and procedures.

It will be many years into the future, after this ‘landmark settlement’ has faded from scrutiny, before it can be determined if the promises on loan modifications, etc., have been fulfilled. 

Do you think this multi-billion-dollar settlement is tough on the banks?Lets look at the stock prices of the banks involved in this settlement…did they fall through the floor as a result of the drastic penalties invoked?

• Well, just before Christmas, Bank of America stock dipped below the $5.00 mark; on Friday, it closed over $8.00…UP OVER 60% in 60 days! Nice…and one would have to have their head firmly in the sand to think that the terms of this settlement were not widely distributed to the ‘in’ crowd in the past 60 days.
• Citi..again, from a low point of about $25 the same day, just before Christmas, to a close of about $33 on Friday…a 30% return in 60 days…not as good as BofA, but still not bad for the insiders.

**and the mention of insiders brings up this point: Our elected officials do not have to comply with the rules/laws governing the trading of equities on inside information. I’d like to see how many of the ‘peoples representatives’ (privy to the details/impact of this settlement) bought bank stock in the past 60-90 days.

• JPMorgan Chase…Same date of the low…just before Christmas at just under $31, to a close on Friday of just under $38.00…only a 22% return (and that's NOT annualized) on that trade.
• Wells Fargo…SAME low date just before Christmas, of about $25.50 to a close on Friday of $30.30. Another tidy return of about 20% in 60 days.

If you laid these charts on top of one another…they are almost identical in movement! The terms were leaked, the impact evaluated, and then the party started!

I’ll post again on this when the FULL details are finally released, whenever that may be!

 

Thanks for reading and putting up with my heavy dose of cynicism…Steve Jackson

Call or email me any time with your take on the matter, 561-602-1258

The BIG bank settlement…

Here are the main details of todays multi-state bank fraudclosure settlement…my analysis and opinion will come in a few days, after I have had time to read and digest the full settlement (which I have to diligently search for because it is not readily available)

NEW YORK (CNNMoney) -- The nation's five largest banks have finally struck a deal with 49 states to settle charges of abusive and negligent foreclosure practices dating back to 2008.

Under a deal announced Thursday, the banks will commit $26 billion to help underwater homeowners and compensate those who lost their homes due to improper foreclosure practices…

What did the mortgage lenders and loan servicers agree to do? The banks and servicers have committed at least $17 billion to reduce principal for borrowers who 1) owe far more than their homes are worth 2) are behind on payments.

The amount of principal reduction will average about $20,000 per borrower.

Another $3 billion will go toward refinancing mortgages for borrowers who are current on their payments. This will enable them to take advantage of the historic low interest rates currently available.

The banks will pay $5 billion directly to the states, the only hard money involved in the deal. Out of that fund will come payments of $1,500 to $2,000 to homeowners who lost their homes to foreclosure. Other funds will be paid to legal aid and homeowner advocacy organizations to help individuals facing foreclosure or experiencing servicer abuses.

Another $1 billion will be paid directly by Bank of America to the Federal Housing Administration to settle charges that its subsidiary, Countrywide Financial, defrauded the housing agency.

In addition, the banks agreed to eliminate robo-signing altogether and to use proper and legal procedures when putting homeowners through the foreclosure process. They also agreed to end servicer abuses, like harassing delinquent borrowers for payments, and to include principal reductions more often in their mortgage modifications programs.

Is my mortgage lender taking part in this settlement? Bank of America, Wells Fargo , JPMorgan Chase, Citigroup and Ally Financial
are taking part in the settlement.

In addition, nine other unnamed loan servicers may join the settlement later, and that would bring its value to $30 billion.

Loans owned or backed by Fannie Mae and Freddie Mac, however, are not part of the deal. The Federal Housing Finance Agency, which oversees the two government-sponsored mortgage giants, will not allow any balance reductions for loans insured by the companies under the settlement.

I lost my home to foreclosure; how do I know if I qualify for payment? If you were foreclosed on in the calendar years 2008 through 2011, you may be be eligible for a payment of up to $2,000. People who think they may qualify should notify their bank.

What should I do if I think I may qualify for a principal reduction or refinanced mortgage? Contact your lender/servicer and ask them to review your case.

If I take the money, what rights do I give up? Individual borrowers do not give up any right to sue.

As part of this deal, state attorneys general gave up the right to sue the mortgage servicers for foreclosure abuses arising out of the robo-signing scandal. However, they reserve the right to sue if they uncover improper acts when the loans were originated or when they were securitized.

When will the new rules and bank policies be put into place? Most of them have already become part of bank policies.

When will homeowners get paid? HUD said the settlement will be put before a court for approval within two weeks. It is unknown how long it will then take for a court to rule.

The relief for homeowners has to be completed within three years, but the state attorneys general and HUD want it to be front-loaded and completed within 12 months.

Would I have to pay taxes on the principal reductions or the pay-outs? If the principal is reduced in 2012, it will not be subject to income tax.

That's because the Mortgage Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their principal residence. The act is scheduled to expire at the end of this year, however.

So if the act is not extended and the principal reduction occurs in 2013, borrowers may be on the hook to pay taxes on the settlement amount.

It's not clear whether you would have to pay taxes on the $1,500 to $2,000 payout. The IRS declined to comment on the question.

Will the settlement make it harder to get a mortgage? The new rules and regulations the banks have agreed to under the settlement should have little impact on future mortgage borrowing since most of practices are already in place, said Keith Gumbinger of HSH Associates, a mortgage information provider.

Only $5 billion of the $26 billion settlement will be a direct cost to the banks. The remainder will be the cost of modifying mortgages. Many of those modifications may be in the best interests of the banks to make, however, since the alternative may be foreclosure, which can cost banks more than modifications.

Come back in a day for my insight and analysis of the States Attorneys General settlement with these 5 banks! I’m certain it will be a bit different than the popular spin being put on it now.

 

Thanks for reading…Steve Jackson

561 602 1258 (direct)

Home price trend…Florida job prospects…

CNN: Unanticipated home price declines in November.

NEW YORK (CNNMoney) -- Home prices posted a steep, month-over-month drop in November, falling 1.3%, according to the latest S&P/Case-Shiller 20-city report. Prices fell in 19 of the 20 cities the index covers.

Prices are down 3.7% from a year ago, and off 32.8% since they peaked in the summer of 2006. The index is currently only 0.6% above its March, 2011 low. "Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall," said David Blitzer, spokesman for S&P.

The drop in home prices was more than housing bear Peter Morici, professor at the University of Maryland Smith School of Business, anticipated. He had forecast a 0.8% drop. "We've had more robust sales activity in the housing market lately," he said.

Morici thinks recent home price weakness stems at least partially from the fact that more sellers have accepted the weak market conditions and are putting their homes up for sale. Retirees and other home owners had postponed sales, trying to wait out the decline. "Sooner or later, you have to get rid of that house," he said.

Most difficult place to find another job? Florida!

NEW YORK (CNNMoney) -- If you lose your job in Florida, chances are you won't find another one any time soon.

The Sunshine State has the highest rate of long-term unemployment in the nation. Some 53% of jobless Floridians were out of work for more than six months in 2011, according to Brookings' Hamilton Project, which crunched Census data

"During the boom, the Florida economy was going gangbusters," said Sean Snaith, economics professor at the University of Central Florida. "We lost hundreds of thousands of jobs."

Although the market is starting to loosen up, there are four jobseekers for every open position in Florida, said Mason Jackson, chief executive of the WorkForce One career center in Fort Lauderdale. Businesses are still hesitant to hire because of continued uncertainty in the economy. "If we filled every job we could find, 75% would still be unemployed," Jackson said.

The housing market continues to weigh on the Florida economy and its job market. More than one in five borrowers are behind in payments, while 44% of homeowners owe more than their property is worth.

This prevents homeowners from moving away to look for work, said Tony Villamil, dean of St. Thomas University's School of Business in Miami.

"They are locked in their homes," he said.

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To any home owners reading this: If selling your home may be a consideration in the next 36 months, we should discuss the information contained in the two news releases, above, and the other housing and economic factors that may have an impact on your present and future real estate plans.

Call me directly at 561-602-1258

Thanks for reading…Steve Jackson

––For Every Two Homes Available for Sale, There Is One “In The Shadows”––

 

CoreLogic® (NYSE: CLGX), a leading provider of information, analytics and business services, reported today that the current residential shadow inventory as of October 2011 remained at 1.6 million units, representing a supply of 5 months. This was down from October 2010, when shadow inventory stood at 1.9 million units, or 7-months’ supply, but approximately the same level as reported in July 2011. Currently, the flow of new seriously delinquent loans into the shadow inventory has been offset by the roughly equal flow of distressed (short and real estate owned) sales.

CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on multiple listing services (MLSs) that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders. Transition rates of “delinquency to foreclosure” and “foreclosure to REO” are used to identify the currently distressed non-listed properties most likely to become REO properties. Properties that are not yet delinquent but may become delinquent in the future are not included in the estimate of the current shadow inventory. Shadow inventory is typically not included in the official metrics of unsold inventory.

Data Highlights:

• As of October 2011, shadow inventory remained at 1.6 million units, or 5-months’ supply and represented half of the 3 million properties currently seriously delinquent, in foreclosure or in REO.
• Of the 1.6 million properties currently in the shadow inventory (Figures 1 and 2), 770,000 units are seriously delinquent (2.5-months’ supply), 430,000 are in some stage of foreclosure (1.4-months’ supply) and 370,000 are already in REO (1.2-months’ supply).
• Florida, California and Illinois account for more than a third of the shadow inventory. The top six states, which would also include New York, Texas and New Jersey, account for half of the shadow inventory.
• The shadow inventory is approximately four times higher than its low point (380,000 properties) at the peak of the housing bubble in mid-2006. A healthy housing market should have less than one-month’s supply of shadow inventory, which would be an easily absorbed stock of distressed assets with little or no discernable impact on house prices, unless the inventory was geographically concentrated.
• Despite 3 million distressed sales since January 2009, a period when home prices were declining at their fastest rate, the shadow inventory in October 2011 is at the same level as January 2009.
• Because shadow inventory is often concentrated in suburban and exurban submarkets, where distressed sales compete with new construction sales, it is one of the reasons why new home sales continue to be weak. In normal times, new home sales account for 12 percent of all sales, but they are currently running at 7 percent of all sales.
• Based on current estimates of the visible inventory (both distressed and non-distressed), the shadow inventory is approximately half of all visible inventory listings. For every two homes available for sale, there is one home in the “shadows”

“The shadow inventory overhang is a large impediment to the improvement in the housing market because it puts downward pressure on home prices, which hurts home sales and building activity while encouraging strategic defaults,” said Mark Fleming, chief economist for CoreLogic.

The full report can be found at http://www.corelogic.com/ShadowInventoryOct2011.

 

I do follow CoreLogic reporting every month…however, there are other, credible, estimated of the shadow inventory of 3-4 times what CoreLogic reports. And this is what is going to keep our values from increasing any time soon.

Thanks for reading…Steve Jackson

Call me directly at 561-602-1258

What if the Federal deficit was your household debt?