home prices

Detroit sales down, prices up

The best inventory on the market in metro Detroit — where foreclosures and short sales account for 36% of the listings — attracts multiple bids and pushed the median sales price to $70,000 last month, up 18.6% from $59,000 in April 2011, according to Realcomp, a Farmington Hills-based multiple listing service.  Its members reported 4,351 closed sales in April, which is down by 2.2% from the 4,439 homes and condos that sold in the same month a year ago.  Sales gains were seen in Macomb County, up 8.9% to 922, and Oakland County, up 1.5% to 1,448. Pulling down the metro area results were Livingston County, with a 9.5% drop to 182 homes sold in April, followed by Wayne County, with a 9% decline to 1,789 home sales from 1,965 last April.  All four counties included in the metro Detroit stats — Livingston, Oakland, Macomb and Wayne — saw median sales price increases in April. Here’s the breakdown:

-  Livingston: $150,000, up 7.1% from $140,000.

-  Macomb: $72,500, up 13.3% from $64,000.

-  Oakland: $114,500, up 9% from $105,000.

-  Wayne: $38,000, up 27.1% from $29,900.

The Detroit area, which is defined as Detroit, Hamtramck, Harper Woods and Highland Park, saw median prices rise to $9,000, up 2.3% from a year ago, but sales dropped 22% to 539 in April.  Nearly half, or 48%, of sales last month were cash sales and homes were selling an average of three days faster with 87 days on market, Realcomp said.  Inventories dropped 18.3% in April to 26,896 homes for sale in the entire multiple listing service compared with 32,910 in April 2011. The MLS includes metro Detroit plus parts of the Thumb and Genesee County.

Retail sales up slightly

Sales at US retailers barely rose in April as the boost from an unseasonably warm winter faded, pointing to some loss of momentum in consumer spending early in the second quarter.  Retail sales edged up 0.1%, held back by a decline in receipts from building materials and clothing stores, the Commerce Department said on Tuesday. That was the smallest gain since December when sales were flat.  Other data showed manufacturing remained resilient, with a gauge of factory activity in New York state bouncing higher this month as new orders and shipments rose.  The New York Federal Reserve said its Empire State general business conditions index jumped to 17.09 in May from 6.56 in April, outpacing economists’ expectations of 8.50.  “Growth is there, but it’s not that convincing,” said David Sloan, senior economist at 4CAST in New York.  March’s sales were revised slightly down to show a 0.7% rise rather than the previously reported 0.8% increase. Economists polled by Reuters had expected retail sales to gain 0.2% last month.  In the 12 months to April, sales rose 6.4%.

Olick – Obama’s “responsible” homeowners

“As part of his ‘To Do List,’ President Barack Obama visited Val and Paul Keller on Friday. The White House described them as ‘responsible’ homeowners who owe more on their mortgage than their Nevada home is currently worth.  They owe $168,000 on their mortgage, but their Reno home is currently valued at $100,000.  The president is doing so to, ‘help demonstrate a concrete and tangible example as to why this broader push [to refinance] is so important not only for millions of Americans but for our economy,’ said Shaun Donovan, secretary of Housing and Urban Development, in a conference call with reporters before the event.  During that call, Donovan used the words ‘responsible homeowners’ more than a dozen times, in describing whom the administration’s proposed refinance programs should help.  It is not the Kellers’ fault that home prices in Reno are down 52% from the peak, right? The Kellers bought their house 14 years ago, and they have not been late on a mortgage payment, according to Donovan. They were able to take advantage of the newly expanded government refinance program through Fannie Mae and Freddie Mac for severely underwater borrowers, and they are in fact putting some of their savings on the monthly mortgage toward paying down principal.  But were they responsible? 

The Kellers bought their home before the height of the housing boom. The trouble I’m having understanding this whole scenario is that the median home price in Reno is actually 7% higher today than it was 14 years ago. If the Kellers had a ‘responsible’ loan, that would be a 30-year fixed, in which case they should have paid at least some principal on the loan over the last 14 years. And didn’t these ‘responsible’ borrowers, the Kellers, put some money down on the home?  We went looking: According to Washoe County records, the Kellers purchased their home in June 1998 for $127,000. So why do they have, according to the White House, a $168,000 mortgage?  White House officials now confirm to CNBC that the Kellers did a cash-out refinance in 2007, when their home had appreciated to $250,000. Again, it’s not illegal, but are these the ‘responsible’ borrowers that the administration is looking to help? They took out a $178,000 loan, using the $51,000 to pay down debt on the family construction business, so Paul could retire. Had they not taken that money out, and continued paying on the original mortgage, they would not be underwater today.  ‘This is a family, first and foremost, that has met their responsibility, remained on time with their mortgage and used their equity in their home in a way that so many Americans do, to send their kids to college, support a small business or save for retirement,’ said Donovan, whom we contacted after learning of the refinance. ‘They deserve the chance to benefit from these record low interest rates because they have met their responsibilities.’

Another administration official familiar with the Kellers’ case says the couple were responsible because despite the incredible runup in home prices, they did not take all the equity out of the house. ‘She did not use her home as an ATM in the sense that we saw during the crisis, because she didn’t cash out all of the equity leaving her no cushion. She had a 71% LTV (loan to value ratio), or 30% equity in her home. That is by almost any definition a very responsible position to be in,’ he added. In the past, Obama has criticized borrowers, who at the peak of the housing bubble, pulled money out, referring to it as using their house as an ATM.  LTV, Donovan and the other administration official claim, is not a minor issue. So it seems they are defining ‘responsible’ as a borrower who maintains an equity cushion in the house, even when that house price has nearly doubled in just eight years.  ‘This was truly 100 year flood, and so lots of people who had 20, 30, 40% equity in their homes now find themselves underwater,’ says the White House official, who also commends the Kellers for not walking away from their mortgage.”

Europe barely dodges formal recession

Stronger-than-expected growth in Germany was enough to help the European Union and the 17-nation eurozone avoid falling into recession for the second time since 2009 during the first three months of this year.  Initial readings on gross domestic product, the broadest measure of an economy’s health, released Tuesday showed Germany’s economy grew 0.5% in the first quarter, an improvement from the decline of 0.2% at the end of 2011.  The forecast had been for growth of only 0.1% for Germany, the continent’s largest economy, and there were some fears that it could report a drop in GDP for the second straight quarter, the common definition of an economy in recession.  The growth in Germany was enough to have GDP in the 27-nation EU and the 17-nation eurozone that uses the common currency both remain unchanged compared to the previous quarter, following a 0.3% decline on that basis at the end of last year. Economists had forecast that both would fall into recession with another quarter of falling GDP.

Decline in foreclosure activity in California hurting the market

The pace of foreclosures in California is slowing to a crawl, according to figures for the month of April compiled by foreclosure information company ForeclosureRadar Inc. of Discovery Bay.  In California, Notice of Default filings were down 69.8% from the peak in March 2009, and 15.8% from April 2011.  Foreclosure sales also declined, however, foreclosure investors purchased a record percentage of the limited inventory that was actually sold. California investors purchased 41.3% of foreclosure sales last month, the report says.  The low number of sales, combined with record% purchased on the courthouse steps left very little to become Bank Owned (REO). This further depletes the inventory of Bank Owned homes as REO sales continue to outpace the addition of new inventory, says ForeclosureRadar.

Despite investors purchasing a higher percentage of foreclosure sales, margins have rapidly declined in recent months. In California the discount between market value and winning bid have on average declined to 12.3%. This leaves investors who intend to resell their purchases with record low profits after eviction, repairs, and closing costs.  “Foreclosure declines would be wonderful news if they were being driven by a true market recovery in which hundreds of thousands were no longer unable to make payments, and millions were no longer upside down,” says Sean O’Toole, founder and CEO of Foreclosure Radar.  “That is not the reality today. Instead we are seeing unprecedented government intervention into the foreclosure process leaving underwater homeowners in limbo, while stealing opportunity from investors and first time buyers,” he says.  “California’s pending legislation, which is similar to laws we previously saw enacted in Nevada, will almost certainly bring foreclosure activity to a near halt there if passed. The reality is that these laws don’t solve anything as they fail to address the real problem – negative equity – while instead they punish real estate professionals, homebuyers, and investors far more than the banks they were aimed at.”

Fed governor Duke wants certainty

Federal Reserve Gov. Elizabeth Duke on Tuesday urged policymakers to finalize regulations and rules to provide more certainty for the housing market.   Establishing regulations and deciding on the future of government-controlled mortgage giants Fannie Mae and Freddie Mac will help reduce the uncertainty contributing to tight mortgage lending, Duke said in remarks prepared for a National Association of Realtors conference on Tuesday. She did not discuss monetary policy in her remarks.  “The most important solution that I am suggesting today is that policymakers move forward with the difficult decisions that will affect the future of the mortgage market,” Duke said. “If lenders tighten more than is warranted, it will hamper the recovery of the housing market and, in doing so, restrain economic growth.”  Duke did not make specific policy recommendations, but she stressed that questions around the future of Fannie Mae and Freddie Mac must be resolved. More than three years after the government took the two mortgage giants into conservatorship, there still is no consensus about how they should be structured and what the government’s role should be, potentially discouraging private companies, Duke said.  “Private capital might be reluctant to enter the market until the future parameters of government support are resolved,” she said.

Duke did note some encouraging signs in the housing market, including a slowdown in the pace of home prices’ decline and an edging up in housing starts and permits. And she expressed confidence that as the economy slowly improves, some elements of the housing market will strengthen, as confidence increases.  Lenders seem to be reluctant now to make loans in part because of concerns over the higher cost of servicing delinquent loans and worries over regulations still being shaped, Duke said.  “Collectively, these uncertainties about the future are likely contributing significantly to the tight lending standards in the mortgage market today,” she said. The Federal Reserve will use its “best judgment to weigh the cost and availability of credit against consumer protection, investor clarity, and financial stability as it writes rules,” she said.  Duke stressed that lenders need clarity to shape business models and plan for the future.  “I don’t want to diminish the importance of any individual policy decision, but I do believe that the most important prescription for the housing market is for these decisions to be made and the path for the future of housing finance to be set,” she said.

NAHB – builder confidence up in May

Builder confidence in the market for newly built, single-family homes gained five points in May from a downwardly revised reading in the previous month to reach a level of 29 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), released today. This is the index’s strongest reading since May of 2007.  Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.  Each of the index’s components rebounded from declines in the previous month. The component gauging current sales conditions and the component gauging traffic of prospective buyers each rose five points in May to 30 and 23, respectively, with the traffic component hitting its highest level since April of 2007. The component gauging sales expectations in the next six months rose three points to 34.  Three out of four regions registered improving builder sentiment in May. This included a six-point gain to 32 in the Northeast, and five-point gains to 27 and 28 in the Midwest and South, respectively. The West posted a two-point decline, to 29.

ResCap filed for bankruptcy

Residential Capital (ResCap), the besieged mortgage unit of Ally Financial, filed for bankruptcy.  “The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us,” said Ally CEO Michael Carpenter. “This action, along with pursuing alternatives for the international businesses, will allow Ally to focus 100% of its energies on further strengthening its already leading US auto finance and direct banking franchises.”  Ally expects to take a $1.3 billion charge in the second quarter for the filing.  The parent bank said ResCap will continue servicing and originating home loans during the process.  In a separate announcement Monday, Nationstar Mortgage Holdings, a servicer based in Texas, paid $700 million to acquire $374 billion in mortgage servicing rights from ResCap. Included in the deal are $201 billion in primary servicing rights and $173 billion in subservicing contracts.  Ally executives said the prearranged plan will settle all existing and potential claims between Ally and ResCap along with actions from third parties.  Ally will make a $750 million cash injection into ResCap as part of the plan.

Nationstar, which is mostly owned by Fortress Investment Group, will also make a stalking-horse bid on the entire mortgage unit of $1.6 billion or 45% of the unpaid principal on loans owned by ResCap. This bid will serve as a benchmark for companies looking to buy ResCap or its assets.  A $150 million financial facility will be created for the bankruptcy as well.  Investors holding at least a 25% stake in 290 mortgage-backed securities issued by ResCap gave support to the action as part of a settlement. These bonds, out of the 392 total from ResCap, have an original principal balance of $164 billon.  The company will also set up a $130 million mortgage repurchase reserve to buy back defaulted loans from investors. It will replace the reserve originally held at Ally.  The Treasury Department held a 74% stake in Ally before the filing. The bank said it paid back an additional $5.5 billion Monday, to reduce the taxpayer interest in the company by one-third. After completing the bankruptcy, Ally said it would pay back another third.  Timothy Massad, assistant secretary for financial stability at the Treasury, supported the action today.  “We believe that by addressing the legacy mortgage liabilities at ResCap, the action taken today will put taxpayers in a stronger position to maximize the value of their remaining investment in Ally,” Massad said in a statement.

Stocks take a tumble

Stocks tumbled Monday, with the S&P 500 falling below its key 1350 milestone, as Greece’s failure to form a coalition government increased fears that the nation would leave the euro zone.  In Europe, Greece’s socialist leader Evangelos Venizelos said efforts to form a coalition government failed over the weekend. And with new elections in June becoming increasingly likely, investors worry that the debt-ridden nation may eventually be forced out of the euro zone.  Concerns over Greece’s exit pushed the 10-year Spanish bonds yields to the highest since last December.  European shares fell to 4-month lows, with the FTSEurofirst 300 index hitting its lowest point since early January, at 1,002.90 points.

Conservative mortgages have risks too

Could troubled mortgage-financing giants Fannie Mae and Freddie Mac become victims of their rediscovered conservative financial practices ?  Fannie Mae controls 51% of mortgages reported net income of $2.7 billion in 2012′s first quarter. This comes on the heels of Freddie Mac, its smaller sibling, reporting a $577 million profit.  Both companies improving financial conditions give some clues about the nation’s brighter housing market conditions. But with a big caveat.  Less significant declines in home prices and the expectation of stabilizing home prices. A recent Fiserv Case-Shiller report says that in the fourth quarter of 2011 home prices in 70 markets, representing 18% of the 384 metro areas were unchanged or had increased compared to the fourth quarter of 2010. In 32% of the markets (122 metro areas), the price declines were under 2%.  A decline in the Fannie’s inventory of foreclosed homes, as sales of lender-owned property (REO) exceeds new foreclosures. Some people think foreclosures might pick up again after the mortgage servicer settlement tied to the robo-signing scandal. But for-sale inventory conditions are tight, suggesting that the market can handle more foreclosure supply.  Furthermore, higher foreclosures may not be as big as feared since single-family serious delinquency rates in the Fannie Mae portfolio dropped from a peak rate of 5.47% in March 2010 to 3.67% in March 2012. While this improvement is due to loan modifications, short sales, and refinancing initiatives, a bigger factor is probably a shift by Fannie Mae to borrowers with better credit scores.

This introduces the caveat and points to a more holistic risk. Aggregate foreclosure inventories for Fannie Mae, Freddy Mac, another government agency FHA and private label mortgage firms have been declining since 2010 Q3. That’s the good news. However, some would say that the risk in new mortgage origination has been “dumped” to FHA.  While Fannie Mae and Freddie Mac are basically getting good results by “creaming” the mortgage market for higher average FICO-scores clients (763 for Fannie Mae), FHA is taking on all the credit risk. FHA is a government agency that finances first-time home buyers with poor credit and less down-payment cash. Its delinquencies and credit losses are rising. If home prices do not pick up, this could force FHA to go back to Congress for more support.  If FHA doesn’t get that help, the budding housing recovery upon which Fannie Mae and Freddie Mac depend so much could be jeopardized. First-time buyers, who are the FHA’s main clients, represent about one third of all buyers these days. It would be better if Fannie Mae and Freddie Mac loosen up their credit spigot a bit now that they are better off financially, and take some of the credit risk away from FHA to provide it with some relieve. Maybe that requires too much common sense, however.

JPMorgan – loss not life threatening

Although JPMorgan Chase suffered a trading loss of at least $2 billion due to a failed hedging strategy, it will not be life threatening to the bank, CEO Jamie Dimon said in an interview aired yesterday.  “This is a stupid thing that we should never have done but we’re still going to earn a lot of money this quarter so it isn’t like the company is jeopardized,” he said in an interview with NBC’s “Meet with Press.” “We hurt ourselves and our credibility, yes — and that you’ve got to fully expect and pay the price for that.”  In response to JPMorgan’s trading loss, the Securities and Exchange Commission has begun an investigation into the bank’s trades. Dimon said the company is also doing its own internal investigation.  “So we’ve had audit, legal, risk, compliance, all of our best people looking at all of that,” Dimon responded. “We know we were sloppy. We know we were stupid. We know there was bad judgment. We don’t know if any of that is true yet. But of course regulators should look at something like this. That’s their job.”  “We intend to fix it and learn from it and be a better company when it’s done,” he added.

Major foreclosure case set to start

The Florida Supreme Court is set to hear oral arguments Thursday in a lawsuit that could undo hundreds of thousands of foreclosures and open up banks to severe financial liabilities in the state where they face the bulk of their foreclosure-fraud litigation.  The court is deciding whether banks who used fraudulent documents to file foreclosure lawsuits can dismiss the cases and refile them later with different paperwork.  The decision, which may take up to eight months to render, could affect hundreds of thousands of homeowners in Florida, and could also influence judges in the other 26 states that require lawsuits in foreclosures.  Of all the foreclosure filings in those states, sixty-three per cent, a total of 138,288, are concentrated in five states, according to RealtyTrac, an online foreclosure marketplace. Of those, nearly half are in Florida. In Congressional testimony last year, Bank of America, the US’s largest mortgage servicer, said that 70% of its foreclosure-related lawsuits were in Florida.  The case at issue, known as Roman Pino v. Bank of New York Mellon, stems from the so-called robo-signing scandal that emerged in 2010 when it was revealed that banks and their law firms had hired low-wage workers to sign legal documents without checking their accuracy as is required by law.

If the Supreme Court rules against the banks, “a broad universe of mortgages could be rendered unenforceable,” Coffey says. “The cost to the financial industry is difficult to estimate, but it could be substantial.”  For comparison, some legal experts point to the Massachusetts Supreme Court’s decision in January 2011 that ruled a foreclosure invalid because at the time of the foreclosure the bank couldn’t prove it had a valid assignment of mortgage — a similar issue to the one in the Pino case.  In the wake of the decision, hundreds of house titles in Massachusetts became void, says foreclosure attorney Tom Cox, who brought what was one of the first foreclosure fraud suits in the country.  “If the Florida court takes a strong stand, it sends a strong signal to the mortgage servicing industry in the rest of the country,” says Cox. Judges in other states could start penalizing banks with sanctions and overturning foreclosure suits, he says.

Gold down, dollar up

Gold futures, which saw modest losses during Asian trading hours, accelerated declines during European electronic trading Monday, as a push to the safety of the US dollar weighed on demand for metals.  Gold for June delivery (GCM2) dropped $12.90, or 0.8%, to $1,570.90 an ounce on the Comex division of the New York Mercantile Exchange.  The soft start to the trading week came after the metal settled at its lowest level this year on Friday, as political turmoil in Europe prompted investors to flock to the US dollar over other asset classes.  Talks between potential coalition partners collapsed in Greece on Sunday, raising the likelihood of fresh elections and stirring fears about the future of the euro zone. Greece’s political turmoil.  Against the backdrop of European uncertainty, the dollar continued its climb higher on Monday, with the ICE dollar index, which measures the US unit against a basket of six other currencies, at 80.463, from 80.250 in late North American trading Friday.  A stronger greenback adds further pressure to dollar-priced commodities such as gold, as it drives up to cost of the metal for holders of other currencies.  The market brushed aside weekend news that the People’s Bank of China will lower the ratio of reserves banks must set aside as deposits at the central bank by a half percentage point. The move was came recent data showing a slowdown for the nation, which is a big user of natural resources.

WSJ – to buy or not to buy?

It’s been a scary few years for the housing market. But at some point, the nightmare has to end (please?). Is now the time? Should first-time home buyers consider jumping into the market?  After all, home prices have fallen 34% from their 2006 peak and mortgage rates are hovering at or near record lows.  On one side are those who argue that homes are more affordable than they have been in decades, based on how much monthly income a mortgage consumes and whether owning is less costly than renting.  An uptick in home buying by investors already is under way, they say—an indication that those who wait may miss out on a good buying opportunity.  On the other side, pessimists insist that the housing slump is far from over, and that prices will continue falling—perhaps as much as 20% or more.  Excess inventories, they say, are the problem, and some estimate it could be four years before the market absorbs all of that extra supply.  Eric Lascelles, the chief economist at money-management firm RBC Global Asset Management Inc., says this is a remarkable time to be a first-time home buyer. A. Gary Shilling, president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J., says buying now is a terrible idea.

Eric Lascelles – Yes: It’s a Rare Opportunity

This could be the best time in a generation to be a first-time home buyer.  Investors get this. While households dither, investors ramped up their home buying by 64% across 2011. They understand that this is the mother of all buyer’s markets, and won’t last forever. The prospect of making a profit by flipping these properties is still rather distant, so they lay in wait for an eventual rebound and in the meantime make money by renting out their properties for more than the monthly mortgage payment.  Investors get this. While households dither, investors ramped up their home buying by 64% across 2011. They understand that this is the mother of all buyer’s markets, and won’t last forever. The prospect of making a profit by flipping these properties is still rather distant, so they lay in wait for an eventual rebound and in the meantime make money by renting out their properties for more than the monthly mortgage payment.  Could home prices fall further? Yes they could. The home-inventory overhang is still quite large and credit availability remains poor. Home prices are unlikely to bloom in earnest for quite some time. But inventories are finally shrinking and mortgage availability has at least stabilized, and if you wind up buying a house on sale for one-third off its fair value instead of discounted by 40%, you still got one heck of a deal.

A. Gary Shilling – No: The Fall Isn’t Over

Don’t buy your first house now unless you’re willing to lose 20% of its market value in the next several years. Maybe more.  It will take a 22% drop to return median single-family house prices to the trend identified by Robert Shiller of Yale University that stretches back to the 1890s and prevailed until the housing bubble began. (It adjusts for inflation and the tendency of houses to get bigger over time.) And corrections usually overshoot on the downside just as bubbles do on the upside.  The problem is excess inventories. They are the mortal enemy of prices, and we’ve calculated an excess of two million housing units, over and above normal working levels of inventories of new and existing homes. That is huge, considering that before the housing market collapsed, about 1.5 million new homes were being built annually, a figure that shrank to 568,000 in February. At current rates of housing starts and household formation, it will take four years to work off the excess inventory, plenty of time for those surplus houses to drag down prices. 

Our estimate of two million excess homes takes into account those on the market as well as hidden inventories, such as foreclosed homes not yet listed for sale and those withdrawn from the market because owners couldn’t stomach the bids they received. A US Census Bureau category that measures such hidden inventories has leapt by one million units since 2006.  Additionally, our inventory estimate doesn’t even include future foreclosures, some five million of which are waiting in the wings. The 49% drop in new foreclosures since the second quarter of 2009 is a mirage, and was partly due to the Obama administration pressuring mortgage lenders to try to modify troubled mortgages to keep people in their homes. (They were largely unsuccessful.)  Sure, the always optimistic National Association of Realtors tells you that based on mortgage rates, incomes and house prices, single-family houses have never been more affordable. But according to their index, that was also true in December 2008, and prices have fallen 9.2% since then. Ugh! Home prices may have dropped 34% since the peak in early 2006, but that doesn’t make them cheap if prices continue to decline.

Short sales surged in second quarter: RealtyTrac

Second-quarter pre-foreclosure sales jumped 19% from the previous quarter, suggesting more banks and distressed borrowers are searching for efficient ways to offload properties that are near foreclosure, RealtyTrac said. Third parties acquired 102,407 pre-foreclosures in the second quarter, while 162,680 bank-owned homes were sold in the same period. Pre-foreclosure sales are generally short sales and properties sold within the foreclosure process. As for who is nabbing up distressed and bank-owned properties, RealtyTrac said third parties acquired 265,087 homes classified as in foreclosure or bank-owned in the second quarter. That is up 6% from the revised first quarter figure and down 11% from the second quarter of last year. The average sales price for foreclosures or bank-owned properties hit $164,217 in 2Q, down less than one percent from 1Q and 5% from the second quarter of 2010.  The sales price for distressed real estate was 32% below the average sales price of homes not in foreclosure. States with the largest quarterly increase in pre-foreclosure home sales included Nevada, which experienced a 43% increase; Washington (39%), California (38%); and Texas (34%). The states with the highest number of foreclosure sales included Nevada, Arizona and California.

Budget Deficit Estimate Cut to $1.28 Trillion: CBO

The federal budget deficit will hit $1.28 trillion this year, down slightly from the previous two years, with even bigger savings to come over the next decade, according to congressional projections released Wednesday.  The nonpartisan Congressional Budget Office says budget deficits will be reduced by a total $3.3 trillion over the next decade, largely because of the deficit reduction package passed by Congress earlier this month. Nevertheless, the federal budget will continue to be awash in red ink for years to come. Even with the savings, budget deficits will total nearly $3.5 trillion over the next decade—more if Bush-era tax cuts scheduled to expire at the end of 2012 are extended.  There is more bad news in the report: CBO projects only modest economic growth over the next few years, with the unemployment rate falling only slightly by the end of 2012. The agency projects an unemployment rate of 8.5 percent for the last four months of 2012. The presidential election is in November of that year. 

“The United States is facing profound budgetary and economic challenges,” the new CBO report says. “With modest economic growth anticipated for the next few years, CBO expects employment to expand slowly.” Failure to pass a package would trigger $1.2 trillion in automatic spending cuts, affecting the Pentagon as well as domestic programs.  The new CBO report projects that the legislation will reduce deficits by a total of $2.1 trillion over the next decade. The agency also projects savings of $600 billion over the next decade from lower interest rates.

Diana Olick: Higher-End Housing Hits a Wall

Most of America won’t shed a tear for those who own higher-priced homes, especially given that the median home price in the nation has now fallen to just $174,000, but investors and homeowners alike should take note: Higher priced homes are taking a hit and the outlook for them is worse than the overall market.  That will have ramifications for recovery.  Despite the fact that just eight percent of US loans are currently jumbo, according to Inside Mortgage Finance, and that share will rise to just 10-12 percent when the conforming loan limit is lowered October 1st, high-end housing is already being hit harder than the overall market, which isn’t exactly doing so well itself. For one, weekly mortgage applications to purchase a home have been falling steadily, down 5.7 percent last week. But jumbo loan purchase applications fell 15 percent.

While sales of homes below $250,000 rose nearly 25 percent in July year over year according to the National Association of Realtors (June 2010 was the end of the home buyer tax credit, so July 2010 was artificially low, still….) sales of homes over $500,000 were basically flat.  Demand on the low end of the housing market is boosted by investors largely buying distressed properties; they either fix up and flip the homes or rent them out, waiting for the market to recover. Higher end homes have far fewer investors and may be more sensitive to a volatile stock market, as potential buyers are more likely to be invested there. Suffice it to say, we need all segments of the housing market pushing forward in order to get the full market back to health.

Markets not impacted by rise in jobless claims

Initial jobless claims rose last week, increasing by 5,000 filings for a total of 417,000 claims on a seasonally adjusted basis. That is up from the previous week’s revised figure of 403,500 claims. The Labor Department noted the numbers for the week ending Aug. 20 were impacted by 8,500 claims stemming from a labor dispute between the Communications Workers of America and Verizon Communications. Meanwhile, the advance seasonally adjusted insured unemployment rate hit 2.9% for the week ending Aug. 13, a slight decrease from the previous week’s revised rate of 3% Despite recent volatility in the stock market, analysts with Econoday said Thursday the markets “are showing little reaction to the report, which outside of the Verizon strike, points to mildly improving conditions in the labor market.”

Pre-Foreclosure Short Sales Jump 19% in Second Quarter

Short sales shot up 19 percent between the first and second quarters, with 102,407 transactions completed during the April-to-June period, according to RealtyTrac. Over the same timeframe, a total of 162,680 bank-owned REO homes sold to third parties, virtually unchanged from the first quarter. RealtyTrac’s study also found that the time to complete a short sale is down, while the time it takes to sell an REO has increased. Pre-foreclosure short sales took an average of 245 days to sell after receiving the initial foreclosure notice during the second quarter, RealtyTrac says. That’s down from an average of 256 days in the first quarter and follows three straight quarters in which the sales cycle has increased.  Nationally, REOs had an average sales price of $145,211, a discount of nearly 40 percent below the average sales price of non-distressed homes. The REO discount was 36 percent in the previous quarter and 34 percent in the second quarter of 2010.  Together, REOs and short sales accounted for 31 percent of all U.S. residential sales in the second quarter, RealtyTrac reports. That’s down from nearly 36 percent of all sales in the first quarter but up from 24 percent of all sales in the second quarter of 2010.

Buying a home may never be cheaper

Buying a home may never get any cheaper than this. Several housing experts are predicting that this year will be the last chance for bargain hunters to cash in on the best deals of the weak housing market.  With home prices down 34% nationally since 2006 and mortgage rates at historic lows, homes have never been more affordable — but it won’t stay this way for much longer.  Stuart Hoffman, chief economist for PNC Financial Services, said he expects home prices to flatten out by the third quarter and start climbing by next year.  A number of factors will help bolster the housing market, he said, including a decline in the number of foreclosures and continued job growth. In addition, homebuyers will have better access to mortgages as they get their finances in order and improve their credit scores. 

Some economists, like Trulia’s Jed Kolko, expect home prices to pick up even more quickly. Trulia’s data shows that the national average for asking prices already increased 1.4% in the first quarter of 2012, compared with the last three months of 2011.  “This is a strong indicator that we will start seeing home price indexes, like the S&P/Case-Shiller, start to report home price increases this summer,” he said.  Prospective homebuyers who’ve been sitting on the fence shouldn’t worry if they aren’t quite ready to make the leap. Analysts are predicting that the initial price gains will be modest, at least, in most markets.  Hoffman, for example, is forecasting a 2% increase in 2013 compared with 2012. Meanwhile David Stiff, chief economist for Fiserv, predicts that prices will turn in the last quarter of 2012 and will rise 4.2% for the 12 months through September 2013.

Job cuts up

Planned job cuts increased by 7.1% to 40,559 in April from March, the latest job cut report released by outplacement firm Challenger, Gray&Christmas showed today.  From the same month a year ago, job cuts were up 11.2% and so far this year the number of job cuts has increased by 9.8% to 183,653.  But despite the year-on-year increase, the monthly average in the first four months of this year is below the 12-month average of last year, the report pointed out.  April’s job cuts were led by the education sector, with a total of 9,027 planned cuts, up 142% from March as school districts continue to be under pressure to cut costs amid massive state and local budget deficits. But the pace of downsizing in the sector fell 32% from a year ago, the report added.  Consumer products companies have been the main job cutters for the year, having announced 20,134 planned job cuts through April, 257% more than the cuts announced by this point last year. 

“Even at its best, job creation is falling well short of what is needed to make a substantial dent in unemployment,” John Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement.  “While some would like to attribute the lack of hiring to uncertainty and regulatory roadblocks, the fact is that demand for goods and services simply has not reached a level that warrants accelerated hiring,” Challenger added.  He added that state and local governments, as well as the federal government, were still “in cost-cutting mode,” consumer spending remained soft and although business spending was improving, it was not nearly enough to make up for the shortfall in consumer and government spending.

LPS – foreclosures down

The March Mortgage Monitor report released by Lender Processing Services, Inc. shows that while March foreclosure starts increased a modest 8.1% since last month, overall, they were still down more than 31% year-over-year. Also in March, first-time foreclosure starts hit a five-month high. However, despite the increase, the number of first-time foreclosure starts in March was still far below those seen throughout much of 2011 and all of the previous three years.  As reported in LPS’ First Look, the national foreclosure inventory stayed relatively stable in March, remaining at the historically high levels maintained since the end of 2010. This national performance masks underlying differences between judicial states, where foreclosure inventory levels stand at 6.5%, and non-judicial states, where foreclosure inventory levels are more than 2.5 times lower at 2.45%.

The March data also showed that mortgage delinquencies have continued to decline, reaching their lowest level since August 2008, with seriously delinquent inventory (loans more than 90 days delinquent) declining in both judicial and non-judicial foreclosure states. Likewise, the rate of new problem loans (seriously delinquent loans that were current six months ago) continues to improve nationally, in both judicial and non-judicial states. At the same time, the LPS March mortgage performance data did show that foreclosure sales continued to behave somewhat erratically, dropping to their lowest level since December 2010, and most sharply in non-judicial states.  On the origination front, the data showed that February mortgage originations rebounded somewhat from their January lows, and that, despite slightly higher interest rates, prepayments increased in March. Mortgage prepayment activity – a key indicator of mortgage refinances – increased broadly, across all investor categories.

As reported in LPS’ First Look release, other key results from LPS’ latest Mortgage Monitor report include: 

Total US loan delinquency rate:​  7.09 % ​

Month-over-month change in delinquency rate:​  -6.3 %​

Total US foreclosure pre-sale inventory rate:​  4.14 %​

Month-over-month change in foreclosure pre-sale inventory rate:​  -0.1 %​

States with highest percentage of non-current* loans:​  FL, MS, NJ, NV, IL​

States with the lowest percentage of non-current* loans:​  MT, AK, SD, WY, ND​

*Non-current totals combine foreclosures and delinquencies as a% of active loans in that state.

Jobless claims down slightly

Initial claims for state unemployment benefits dropped 27,000 to a seasonally adjusted 365,000, the Labor Department said. That was the biggest weekly drop since early May last year.  The prior week’s figure was revised up to 392,000 from the previously reported 388,000. The four-week moving average for new claims, considered a better measure of labor market trends, edged up 750 to 383,500 – the highest level since December.  Economists polled by Reuters had forecast claims falling to 380,000 last week.  The data has no bearing on the government’s closely watched employment report for April, to be released on Friday. Employers are expected to have added 170,000 new jobs to their payrolls last month, a step up from March’s 120,000 tally, according to a Reuters survey.  However, there is a downside risk to this forecast as initial claims were elevated for much of April. An independent survey on Wednesday showed private employers added only 119,000 jobs last month, the fewest in seven months, and well below economists’ expectations for a gain of 177,000 positions.  Nonfarm payrolls had averaged 246,000 jobs per month between December and February. Most economists have viewed the pull-back in job growth as payback after the weather-induced gains in the previous months.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 53,000 to 3.28 million in the week ended April 21.  The number of Americans on emergency unemployment benefits slipped 4,772 to 2.72 million in the week ended April 14, the latest week for which data is available. The number of people on extended benefits declined 57,528 to 354,883.  Nine states lost eligibility for extended benefits beginning that week and five others reduced the duration of emergency compensation.  A total of 6.60 million people were claiming unemployment benefits during that period under all programs, down 85,523 from the prior week.

WSJ – Beazer homes surges in home sales

Beazer Homes USA Inc. reported a narrower fiscal-second-quarter loss Wednesday as the builder recorded a surge in home closings and sounded a hopeful note for the months ahead.  The Atlanta-based company, one of the largest home builders in the US, said its closings climbed 50% in the latest period to 844 homes. New orders, meanwhile, climbed 29% to 1,512 homes.  The results come as the US housing market has begun to show signs of emerging from the worst downturn in generations, albeit in fits and starts, as buyers get back into the game. With several home builders reporting increased sales and orders in recent weeks, many industry-watchers now think the hard-hit sector is set for a rebound.  “We remain hopeful, but cautious, about the prospects for a sustained market recovery, as a number of factors continue to pose challenges for prospective home buyers,” Chief Executive Allan Merrill said Wednesday in a statement accompanying the results.

For the quarter ended March 31, Beazer posted a loss of $39.9 million, or 51 cents a share, compared with a year-earlier loss of $53.8 million, or 73 cents a share.  The latest period included charges of $1.2 million for inventory impairments and $2.7 million tied to the refinancing of debt. The year-earlier period included charges of $17.8 million for inventory impairments.  Revenue surged 52% to $191.6 million. Analysts expected a loss of 43 cents a share on $192 million in revenue.  The average sales price rose to $224,700 from $216,300, while home-building gross margin narrowed to 10.9% from 12.4% in the prior year. Several of Beazer’s peers are seeing improved margins.  The builder’s cancellation rate rose to 22.5% from 20%, indicating more deals are unraveling before completion. “Given that most peers had declining cancellation rates, we were surprised” by the increase, wrote David Goldberg, a builder analyst with Credit Suisse, in a client note.

Retail slows

Retailers are reporting sales gains for April that show a slowdown in spending from the previous month as cooler weather, an early Easter and renewed worries about the economy dampened shoppers’ enthusiasm to buy.  As merchants report their sales figures Thursday, Costco Wholesale Corp. and Target Corp. posted gains that were smaller than Wall Street expected. Teen retailer Wet Seal Inc. posted a bigger-than-expected sales drop.  The figures are based on revenue at stores open at least a year. That metric is considered a key indicator of a retail health because it measures growth at established locations while excluding results from stores recently opened or closed.

Freddie earns $577 million

Freddie Mac reported net income of $577 million in the first quarter before it made a $1.8 billion dividend repayment to the Treasury Department.  The government-sponsored enterprise and one of the largest mortgage financiers in the country drew $19 million from the Treasury as part of its ongoing conservatorship bailout.  Net income for the quarter dropped from a $676 million gain one year ago because of higher derivative losses and lower net interest income.  Higher valuations of the mortgage bonds Freddie holds available for sale pushed total comprehensive income to $1.78 billion in the first quarter. The $1.8 billion repayment to the Treasury offset this total, forcing the remaining to be drawn from the government.  Freddie financed over $114 billion in mortgages during the first quarter, up from $105 billion one year ago.  Roughly 87% of its business was refinancing. More than 416,000 borrowers refinanced their Freddie-guaranteed home loan in the first three months of 2012, but the company said it is still too early to estimate how many will ultimately qualify for the expanded Home Affordable Refinance Program.