Home prices post their first monthly gain in 3 years
Real Estate News & Commentary by Chris McLaughlin, July 28, 2009
http://www.shortsalesriches.com
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Home prices post their first monthly gain in 3 years
The Standard & Poor’s/Case-Shiller index, which measures movement of home prices in 20 major U.S. cities, rose 0.5% in May from April, the first monthly gain since June 2006. Analysts say that the housing market is showing signs of stabilization. “The housing market looks like it has found a floor and we may be on the way to some kind of gradual improvement,” said Ken Mayland, president of ClearView Economics. “After three years of this nasty housing recession, I think we’ve got to be pleased with such an improvement in a relatively short period,” said Harm Bandholz, economist at UniCredit Research.
Analysts feel that unless there is improvement in employment, home prices will not rebound. According to the Federal Reserve, household net worth dropped by $13.9 trillion in the first quarter of this year on account of drop in home prices and stocks. Homebuyers’ confidence has been hit and many have deferred their decision to purchase homes. “We are preparing for this recovery to take a while to pick up steam,” said Frits van Paasschen, chief executive officer of Starwood Hotels & Resorts, the third-largest U.S. lodging company.
Lenders prefer foreclosure to loan modification in certain cases
The government program for preventing foreclosures is not in the best interest of lenders in all cases. If a borrower is likely to default even after participating in mortgage modification program, the lender is better-off opting for foreclosure. Michael Fratantoni, vice president at the Mortgage Bankers Association, said: “There is going to be this narrow slice of borrowers for which modifications is the right answer.” Fratantoni said it is tough to estimate the size of that slice and “the industry and policymakers have been grappling with that.” According to a study conducted by the Federal Reserve Bank of Boston, about a third of the borrowers who miss 2 payments can get back on track without help from their lender.
“These are the people who will get a second job, borrow from their family to keep up,” said Paul Willen, a senior economist at the Federal Reserve Bank of Boston. “From a cold-blooded profit-maximizing standpoint, these are the people the banks will help the least.” Michael Barr, assistant Treasury secretary for financial institutions, while commenting on the mortgage modification program, said: “We will continue to refine the program as new data becomes available. We are committed to studying the effectiveness and efficiency of the program, and we welcome outside analysis.”
Government mulls more housing sops for troubled homeowners
With foreclosures rising, the Obama administration officials are set to meet this week to discuss new initiatives to help homeowners. Rising unemployment is impacting the effectiveness of the administration’s current foreclosure prevention program. “Unemployment is making the job of doing loan modifications more difficult,” William Apgar, a Housing Department senior adviser, told a congressional committee last week. “We are exploring other options related to how to provide assistance to unemployed folks.” According to RealtyTrac, over 1.5 million homes received at least one foreclosure filing in the first half of 2009.
Unemployment accounts for a large number of foreclosures. The loan modification program introduced by the administration has not been effective so far for a variety of reasons including operational problems. “Loan modifications will not reduce by any sizable amount the number of homes going into foreclosure,” said Morris Davis, an assistant professor at the Wisconsin School of Business. Experts feel that a new foreclosure prevention program may not find favor with lawmakers given the low success rate of existing program. “Any measures taken to help people avoid foreclosure will only prolong the pain by using taxpayer money to prop up unsustainable mortgages,” said Kurt Bardella, press secretary for California Rep. Darrell Issa. “The best thing we can do for the unemployed is adopt policies that will create jobs,” Bardella said.
Were senators given special mortgage deals by Countrywide?
In a secret testimony to Congress, an official of Countrywide Financial Corp. has said that Senators Kent Conrad (D-N.D.) and Chris Dodd (D-Conn.) received favored treatment from Countrywide. Dodd, who heads the Banking Committee, got 2 mortgages from Countrywide in 2003, while Conrad, who heads the budget Committee, got 2 Countrywide mortgages in 2004. “You don’t say ’no’ to the VIP,” Robert Feinberg, the Countrywide official, told Republican investigators for the House Oversight and Government Reform Committee.
Both senators were part of the “friends of Angelo” program. Angelo Mozilo, the former chief executive of Countrywide, has been charged with civil fraud and illegal insider trading by the Securities and Exchange Commission. Feinberg could face criminal prosecution if his statements are found to be incorrect. Feinberg’s testimony is at odds with the senators’ assertions that they did not receive any special treatment from Countrywide. The ethics committee would determine whether the senators violated standards of conduct. The committee could recommend a censure vote by the Senate, if it finds the senators’ conduct inappropriate.
Precipitous drop in private equity deal flow
From $131 billion in the first half of 2008, deal size in the private equity industry dropped to just $24 billion in the first half of 2009; this is the lowest since 1996. Large players such as KKR, Blackstone and Bain Capital have been quiet in the last 6 months. According to private equity research firm PitchBook, private equity players have $400 billion available for investment. Then why aren’t investments happening? Experts say that the industry is still digesting deals executed in the past and do not have appetite for new deals.
“The business has changed radically,” says John Howard, head of Irving Place Capital. “What was essentially a business of creating financial options is becoming more concerned with growth and enhancing profitability.” Two-thirds of players in the industry believe there will be no improvement in the environment till next year. “The environment has changed, and the holding period is expected to be a lot longer,” says James Quella, Blackstone’s senior managing director. ”
Now on to our real estate investor education section…
Top 10 Reasons Realtors Hate Short Sales & Why You Should Love Them!
Many realtors hate short sales but like the old adage – one person’s problem is another’s opportunity. Once you learn the inside secrets to short sales success, these top ten reasons most realtors avoid working with short sales will become your best opportunity to build wealth. Learn, Listen and then take steps to act…
- Waste of Time. The majority of realtors have never taken the time to truly learn how to properly handle short sales. They typically spend a lot of time and effort on one property only to see the deal fall through. Of course, information is power especially when it comes to short sales. Educate yourself and learn how to work smarter not harder.
- Government Involvement. Once again, the perception of ‘red tape’ frightens away those without a system in place to process all that paperwork. Fortunately, our short sale system provides exactly the system you need to tackle red tape with ease.
- Legal/Attorney Involvement. Because legal fees must be paid whether the property sells or not, this is a cost most brokers shun. Fortunately, it works both ways. Our short sales package was designed by a legal mind – making it less likely you will encounter extensive legal fees or consultations. Why recreate the wheel when you can have it all right from the start?
- Hours on the Phone. Plain and simple if you are spending all day long on the phone trying to deal with lenders, you simply don’t have the right tools or information. Again, let misinformation and failure to properly plan or invest into short sales education work FOR – rather than against – you while others run away from the profit potential of short sales.
- “5 times the work for half the pay”. Some brokers have been at the short end of an unpleasant surprise when lenders discount commission’s right before closing. If sloppy paperwork is your problem then get the help you need to seal the deal rather than walking away from nearly half of all properties on the market today.
- Don’t like to play tough or “be the bad guy”. When times are great and properties go for full price, selling is simple. You show the property and viola’…instant income. However, some realtors and others are uncomfortable actually negotiating. It separates the “men from the boys” so start negotiating or sit on the sidelines while others rake in the profit.
- Bank woes. Yes, by now we all know the bank might misplace paperwork or require additional documentation but once again, that is why it is essential to have a time tested process in place before making your first offer.
- “Buyers get frustrated and walk away”. Well heck yes – especially if they are dealing with a realtor who spends months on one property, takes hours each week to deal with paperwork that should be automated, doesn’t like to negotiate and then eventually doesn’t close on the deal!
- Stuck in the middle…once again, this is what realtors do…those that do it best go on to reap the rewards of learning how to communicate and negotiate a ‘win-win’ for all involved. Sellers, buyers and banks each are important stakeholders that require different needs to be met for the deal to work. Learn how to structure the deal for success straight from the start.
10. Feeling of helplessness. Many agents believe there is nothing they can do to speed up the process. While it’s not possible to control every step along the way, there certainly are many things that can be done to assure a successful outcome and smooth purchase. Get informed and don’t fall for the common fallacies keeping millions of realtors from profiting from short sales.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com
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According to Stan Liebowitz, professor of economics at the University of Texas, popular explanations such as sub-prime lending and rise in unemployment and interest rates do not adequately explain the high rise in foreclosures since 2007. Liebowitz’s study of foreclosure data, pertaining to the period after the third quarter of 2006 when foreclosures started rising significantly, shows that 51% of all foreclosed homes had prime loans, not subprime. In addition, the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures. In today’s Wall Street Journal, Liebowitz says negative equity — the balance of the mortgage being greater than the value of the house — is the single most important factor driving foreclosures. While one may argue that negative equity does not mean a loss of homeowners’ ability to pay their mortgage, it does point to the possibility that homeowners may be more willing to walk away from their mortgages. Liebowitz argues that methods behind the government’s $2 trillion package for stabilizing house prices are poorly targeted. Liebowitz highlights the importance of underwriting standards, including a requirement of high down payments in mortgages. High down payments would have limited the growth of the housing bubble and the impact of negative equity would have been much smaller when home prices fell. If homeowners have positive equity, they would have lesser incentive to default on mortgages and the lenders’ salvage value, in the event of a default, would be much higher. Liebowitz exhorts politicians to “face up to the actual causes of the mortgage crisis, not fictitious causes that fit political agendas and election strategies.”
According to Freddie Mac, rates for 30-year fixed home loan dropped this week to an average of 5.32% from an average of 5.42% last week. The rate was 6.35% this time last year. Rates on 30-year mortgage rose from a low of 4.78% earlier this year to 5.6% in June on account of rising yields on government securities. Analysts were worried about the rising mortgage rates hampering the recovery of the housing market. Yields on government securities have dropped in the recent past, leading to a drop in mortgage rates. “Lower mortgage rates are helping to support the housing market,” said Frank Nothaft, Freddie Mac’s chief economist. The average rate on a 15-year fixed-rate mortgage dropped to 4.77%, down from 4.87% last week, while rates on five-year, adjustable-rate mortgages averaged 4.88%, down from 4.99% last week. These rates do not include add-on fees.
Data drives everything in our economy. The government makes important decisions on the basis of data. But what if the data is incorrect? Robert Kleinhenz, Deputy Chief Economist for the California Association of Realtors (CAR), has said in an interview that the California home sales data for the current year had mistakes. Home sales data pertaining to San Diego county was incorrect on account of a computer error. The CAR had previously reported a 63% increase in April’s San Diego home sales from a year earlier and an 89% increase in May from a year earlier. Thomas Lawler, an independent economist, said last week the numbers reported by the CAR vastly exceeded those reported by other agencies. The CAR has now revised the gain in April to 20% and the gain in May to 6.5%. The mistake is confined to just San Diego data and the state-level data will not be impacted significantly by the downward revision. “It’s going to reduce the statewide number by a couple percentage points, but it’s not going to make a huge difference in the statewide,” said. Kleinhenz.
