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Housing sales down
The National Association of Realtors’ (NAR) report says existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 16.7 percent to a seasonally adjusted annual rate1 of 5.45 million units in December from 6.54 million in November, but remain 15.0 percent above the 4.74 million-unit level in December 2008. For all of 2009 there were 5,156,000 existing-home sales, which was 4.9 percent higher than the 4,913,000 transactions recorded in 2008; it was the first annual sales gain since 2005. Economists polled by Thomson Reuters say sales of previously occupied US homes completed in December fell 7.3 percent to a seasonally adjusted annual rate of 6.06 million, down from 6.54 million in November. Last year, first-time buyers were the main driver of the housing market, but their presence is on the decline, according to a survey of real estate agents released last week by research firm Campbell Communications. NAR practitioner survey shows first-time buyers purchased 43 percent of homes in December, down from 51 percent in November and 47 percent in October. Repeat buyers rose to 42 percent of transactions in December from 37 percent in November; the remaining sales were to investors. “The majority of people who are going to use [the $8000 tax credit] have used it already,” said Thomas Popik, who conducted the survey.
Missing Loan Mod paperwork may mean 450,000 more in foreclosure
450,000 at risk of foreclosure
Hundreds of thousands of homeowners who are making lower mortgage payments on a trial basis are at risk of being kicked out of President Obama’s foreclosure-prevention program. The goal is to clear up the backlog of borrowers stuck in trial modifications, in which a homeowner’s monthly payments are lowered to no more than 31% of pre-tax income, but it has some bank regulators concerned. Mortgage servicers have until Jan. 31 to review all trial modifications that have been underway under the Home Affordable Modification Program (HAMP). During the review period, servicers must determine whether borrowers have made all their payments and have handed in all the necessary paperwork. Those who haven’t will get letters giving them 30 days to comply. The Treasury Dept. said it would issue new guidelines next week, but wouldn’t give details. “About 450,000 homeowners currently have HAMP trial modifications and have demonstrated a willingness and ability to make timely payments for at least three months,” said Richard Neiman, superintendent of the New York State Banking Department. “Now, unfortunately and very alarmingly, these same homeowners face the prospect of foreclosure strictly on account of documentation issues,” he said. Paperwork has been a major stumbling block for the president’s foreclosure-prevention program. Homeowners complain that their servicers continuously lose the documents they send in, while financial institutions argue that borrowers have not been sending in their paperwork. The Treasury Dept. said it would issue new guidelines next week, but wouldn’t give details.
Bank bashing and presidential politics
President Obama’s proposals to place new limits on the size and activities of big banks has experts perplexed as to how his plan will work. Moreover, it was unclear if the twin proposals — to ban banks with federally insured deposits from casting risky bets in the markets, and to resist further consolidation in the financial industry — would have done anything to stop the financial crisis in 2008. In fact, it looks like the president is just playing populist politics and bank bashing, since as soon as he announced the plan, he walked away and left the details to congress to wrangle over. In the meantime in the real world, shares of big banks — potentially the biggest losers should the proposals be enacted — fell sharply, dragging the broader market down by about 2 percent. But even then Mr. Obama — still stinging from the Democrats’ loss of the Massachusetts seat formerly held by Senator Edward M. Kennedy — ramped up his populist approach, one week after he proposed a new tax on large financial institutions to recoup projected losses from the 2008 bailout. Mr. Obama said the banks had nearly wrecked the economy by taking “huge, reckless risks in pursuit of quick profits and massive bonuses.” All that might be true, even though the bonuses are a drop in the bucket compared to the trillions of dollars of cash this administration is shoveling into the furnace with little to show for it, but is this really the right time to destroy the banks and the stock market in a fit of rage? For no real gain?
NABE – Economic outlook better
In a quarterly survey by the National Association for Business Economics (NABE), all 75 respondents expect gains in gross domestic product (GDP) this year, and 61% expect growth to exceed 2%. In the last survey in October, fewer than half of respondents expected 2%-plus growth. “NABE’s January 2010 Industry Survey provides new evidence that the U.S. recovery from the Great Recession continues, albeit at a slow pace,” said William Strauss, a senior economist at the Federal Reserve Bank of Chicago, who helped conduct the analysis for the report. The outlooks were particularly strong for the financial and services sectors, with about 40% of economists expecting those industries to add jobs. Less than 15% of economists from the goods-producing and transportation sectors expect those industries to hire workers. Signs point to a mildly easing credit crunch, with 35% of respondents reporting that credit conditions are “adversely impacting” their businesses — a high number, but down substantially from the last two reports.
Home prices falling
Many experts project home prices, which started to rise last summer, will fall again over the winter. That’s because foreclosures make up a larger proportion of sales during the winter months, when fewer sellers choose to put their homes on the market. According to First American CoreLogic’s Loan Performance Home Price Index (HPI), home prices declined 5.7% year-over-year in November. That’s an improvement from October’s year-over-year decline of 7.6%, but prices also declined 0.2% in November compared to October. Excluding distressed sales, prices declined 5.1% year-over-year in November, compared to a 5.7% decline in non-distressed sales prices in October. Including distressed transactions, the HPI has fallen 30.0% nationally through November from its peak in April 2006. Excluding distressed properties, the national HPI has fallen 21.8% from the same peak, First American CoreLogic said. Nevada experienced the worst year-over-year price decline at 22.5%, followed by Arizona (14.9%), Florida (13.7%), Michigan (12.6%) and Idaho (11%). Excluding distressed sales, the worst five states for year-over-year price declines were only slightly different. Nevada (19.7%) still holds the top spot, followed by Arizona (14.1%), Florida (12.3%), Michigan (10.6%) and West Virginia (9.6%).
How on to our real estate investing educational section…
The Coming ARM Storm
First it was the sub-prime market and now experts agree, adjustable rate mortgages combined with rising unemployment and falling property values could create another economic storm capable of ravaging the weak economic recovery. Here’s a quick breakdown of the ARM Storm-Tracker for those savvy short sale investors to beginning their planning:
Resetting Rates: Current interest rates are at or near historic lows with 30 year fixed mortgages below 5 percent while ARM’s are likely to readjust and drive the cost of monthly mortgage payments to double their former payments. Unfortunately, many current ARM holders do not qualify for refinancing due to changes in employment status, high loan to value ratios and increased debt to income percentages.
Evaporating Equity: Not only did millions of Americans take out Adjustable rate mortgages but they built additions and over-improved their homes based upon loans. As home values fell, so did the equity reserves required to refinance their ARM mortgages. Whether it was a first mortgage with minimal down payment or a second (and even third) mortgage, lower property values have all but erased excess equity from a large number of buyers.
Cheaper to Walk: Many homeowners are finding it less expensive to simply walk away from rapidly rising mortgage, rent for awhile then repurchase. According to industry experts, a significant number of homeowners are capable of making the mortgage payment but simply don’t desire to do so given the cost of purchasing the same home after foreclosure. Current homeowners are eligible for FHA loans in as few as three years after default – creating an inverse incentive to continuing paying on a property worth tens (or even hundreds) of thousands dollars less than the existing mortgage.
Renting an Increased Option: Throughout the nation lenders are getting creative in order to reduce the inflow of defaulting properties on their portfolio; one of the more popular options among existing homeowners is the ability to rent your current property for a specified period of time.
ReFi with an ARM? It’s true, the FHA has a 3.87 five year adjustable rate mortgage option designed to help keep payments affordable. Unfortunately, it may simply delay the pain until interest rates continue to rise later. However, with a 2 percent cap on each adjustment/rate increase, it could conceivably buy time for those in unusual short term situations such as temporary illness, job loss of other large expenses. It also has the benefit of “buying time” for the banks and lenders who are in no hurry to acquire even more properties given the current backlog of non-performing properties in their portfolio.
What is a savvy short sale investor to do? Get ready for the coming wave of ARM properties to hit the market. Be sure your credit is in place and position yourself to solve problems for both homeowners and lenders in need of a new start.
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2009.
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
400 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
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