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MBA – 1.2 million households lost
According to the Mortgage Bankers Association (MBA), 1.2 million households were lost from 2005 to 2008, despite the population increase of 3.4 million in the study area. This decline in households is likely what contributed significantly to the excess supply of apartments and single family homes on the market. The study, “What Happens to Household Formation in a Recession,” was conducted by Professor Gary Painter of USC and sponsored by the Research Institute for Housing America (RIHA). It analyzes the impact of economic and housing conditions on household formation and how the recent recession has affected Americans’ propensity to form new households, mobility trends, and changes in the rate of overcrowding. Key trends are:
- In a recession, the likelihood that a young adult will form an independent household falls by up to 4 percentage points depending on the age of the person and severity of the changes in unemployment rates. In this particularly severe recession, this prediction has been borne out with data through 2008 revealing a reduction of nearly 1.2 million households nationwide despite the continued increase in population and likely even more households lost in 2009.
- Though the national homeownership rate has fallen from a peak above 69% to
just over 67%, this decline may be understating the magnitude of the change when we take into account the simultaneous drop in renter household formation. In fact, the rental market saw a steeper decline in new households formed than the homeownership market. As a result of this drop, the denominator in the homeownership rate calculation has been reduced, mitigating the decline in homeownership.
- This recession has also caused a dramatic increase, almost five-fold, in the rates of overcrowding (defined as having more than one person per room in the household), indicating that many families are doubling up in response to the downturn.
- Overall, there was a greater impact on the creation of new households among native born Americans over new immigrant households. The data show native born Americans experienced a larger decline in household formation and a larger increase in overcrowding rates than immigrants.
- Children whose parents have higher incomes are more likely to remain at home, with this effect largest for youths moving into the rental market. However, children whose parents have higher financial wealth are more likely to form their own new rental households.
Retail sales up
Sales tracker Thomson Reuters, which looks at monthly same-store sales for 28 chains, said 10 of the first 12 retailers due to report beat estimates for sales. If the other reports continue this trend, it will mark the seventh straight month of improving sales, according to data from Thomson Reuters. Last year, retailers posted a 5% decline in March. Analysts have forecast that discount retailers would report an 8.5% increase in March, the most of any group. Department stores, among the worst hit during the downturn, were expected to report gains of 8.2%, led by Kohl’s Corp with a forecast 12.4% jump. Teen retailers are expected to show the most dramatic turnaround, with a 7.4% rise.
That would be a marked improvement over the year-earlier plunge of 13.6%. Other retailers, including Macy’s Inc, TJX Cos Inc, JC Penney Co Inc and Saks Inc, are set to report March sales later on Thursday morning. On average, analysts are expecting same-store sales to be up 6.2% in March. But analysts and some retailers have warned that much of the boost came from an early Easter holiday that may have simply shifted sales to March from April. And in a sign of how Wall Street expectations may be getting ahead of actual performance, Abercrombie & Fitch came in short of forecasts with a 5% rise. Family Dollar Chief Executive Officer Howard Levine warned on a conference call on Wednesday that the timing of the holiday would hurt April sales. And retailers were grappling with the worst consumer spending slump in decades in March 2009, when same-store sales fell 5%, making comparisons easy.
Changing mindset about strategic default
Mortgage-holding homeowners that owe more than their homes are worth show a greater tendency toward mortgage delinquency behavior, according to a recent Fannie Mae housing survey of more than 3,400 Americans. While this may not be jaw-dropping news to most of you, the survey points to a changing mindset among homeowners that may be significant. Although Fannie found that two-thirds of survey respondents prefer owning a home to renting — even in the face of economic challenge and the downturn in housing prices — the mentality of strategic default is spreading. A contagion effect within communities is leading borrowers to consider default as an acceptable option in the face of financial hardship, Fannie found.
Both delinquent and current mortgage borrowers are more than twice as likely to have seriously considered stopping payment if they know someone who has already defaulted. Despite a growing acceptance of strategic default on the community level, thinking about walking away and actually walking away are separate events, according to Kathleen Day, a representative at the Center for Responsible Lending. Slightly more than half (53%) of respondents to Fannie’s survey believe homeowners bear the responsibility for taking out loans they cannot afford. But 58% of delinquent borrowers believe the mortgage lender is to blame, since the lenders “know better what people can afford and should help guide people.” A separate poll recently found that 24% of mortgage borrowers believe they are underwater.
Jobless claims jump
According to the Labor Department’s weekly report, there were 460,000 initial jobless claims filed in the week ended April 3, up 18,000 from an upwardly revised 442,000 the previous week. Economists surveyed by Briefing.com expected new claims to fall to 435,000 in the week. The number of new claims were just below the level reached in the Feb. 27 week, when initial claims totaled 466,000. The Labor Department also tracks the 4-week moving average of initial claims, and that number was 450,250 for the week, up 2,250 from the previous week’s downwardly revised average of 448,000. The report also said that 4,550,000 people filed continuing claims in the week ended March 20, the most recent data available. The 4-week moving average for continuing claims was 4,648,250, a decrease of 36,000 from the preceding week’s revised average of 4,684,250. But keep in mind that continuing claims data exclude people whose benefits expired or those who have moved to state or federal extensions. It only reflects those filing each week after their initial claim until the end of their standard benefits, which usually last 26 weeks.
2MP program slow to launch
The Home Affordable Foreclosure Alternatives (HAFA) program launched this week, but a much longer-anticipated mortgage aid program, the Second Lien Modification Program (2MP) is yet to get off the ground. Details of 2MP released recently by the US Treasury Department disappointed first lien investors, in part because the program requires the borrower’s consent, according to analyst commentary from Amherst Securities Group. An automatic enrollment in the second lien program when the trial modification on the first mortgage begins would increase the success rate on both. “[W]e strongly recommend that the second lien be modified (or placed in a trial modification) automatically, with the borrower simply informed that the modification has occurred,” Amherst analysts wrote in commentary this week. “The second lien modification would become ‘official’ at the same time the first lien modification is made permanent, and incentive payments could begin on that date.”
According to the Amherst team it is also unclear what happens to the second liens when principal is forgiven on the first lien. Laurie Goodman, who heads up the mortgage-backed strategy group at Amherst, notes that initial guidance from the Treasury seems to indicate that, if principal is reduced on the first lien, then the second would be reduced by at least the same proportion. But language urging the “extinguishment” of second liens carries the effect of principal forgiveness, rather than forbearance. And Goodman writes that “it is unlikely” the Treasury has decided whether 2MP will implement proportional or complete forgiveness. Late in March, Citigroup became the fourth big lender to sign up for the 2MP. Bank of America first signed on in January.
Now on to our real estate investing education section …
Seven Reasons Women Are Turning to Real Estate in Record Numbers
Think short sales and real estate investing is a guys game? Think again. Women are making in-roads into real estate in a big way. Forget clipping coupons or trying to save up for a vacation, research shows that women have been making the majority of home buying decisions related to the purchase of a family home for several years but now many are taking it one step further. Women are now making investment decisions on a regular basis including the purchase of short sale real estate and other investment assets. In fact, nearly 1 out of every 4 real estate transactions are conducted by women buyers.
Below are the most important reasons women are turning to real estate in record numbers
1. Profits. Women have historically lagged behind men in earning capacity even with the same education and job experience. Short sale real estate provides an exceptional opportunity for women to supplement income without having to work second or even third jobs.
2. Retirement. Even after the most recent rebound, many investment portfolio’s are far from healthy. A few well-timed short sale deals are able to replace much of that lost income.
3. Convenience. Real estate is flexible allowing women the time to interact with family and friends without sacrificing a life they love.
4. Security. A few well timed deals or rental properties afford women an independent means of income aside from those of their spouse or significant other. Statistically women live longer than men which often results in a dramatic decline in their standard of living towards the end of life. Holding a few long term assets that appreciate over time can assure access to funds at any time of life.
5. Empowered. Not surprisingly, men have been harder hit by the recent downsizing and lay-off’s than women. Experts believe higher overall income levels are acting as an inverse incentive to eliminate men while keeping less expensive staff. The shift in income is increasingly shifting the focus of power in the household.
6. Credit Changes. Gone are the day when women must have a co-signer but lower income levels combined with children and more obligations often resulted in a practical need for two income applications. As women earn more and build solid credit reputations independent from their spouse or significant other, they are asking for…and getting…more favorable terms. Combined with federal incentives such as tax breaks, it’s a winning combination.
7. Fun. Women have learned to enjoy the freedom, prestige and game of negotiation once thought to be the exclusive domain of men. Of course, communication skills combined with social savvy, independent wealth and a bit of encouragement has resulted in a record number of women learning that wheeling and dealing is not only a great way to make money but a lot of fun!
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2009.
All Rights Reserved.
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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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