short sales riches

June 15 is the short sale day

Fannie Mae and Freddie Mac, the nation’s two largest mortgage backers, will implement their new short sale guidelines on June 15. The changes require mortgage servicers to make a decision within 30 days of receiving a short sale offer. They also must consider requests for pre-approved short sales within that same timeframe.  If the lender needs more than 30 days, it must give borrowers weekly status updates and a decision within 60 days of the initial application. This extension gives lenders more time to determine the value of the property or to get the approval of a mortgage insurer.  The moves are aimed at streamlining the short sale process, which often takes months to complete. Faster response times could help thousands of homeowners. Short sale transactions can get so complicated that many prospective buyers won’t even consider making an offer on a short sale property. And many of those who bid often walk away from the offer because lenders take so long to make a decision.  ”Short sales are more complex than routine home sales since they may involve multiple parties and long-distance negotiating,” said Tracy Mooney, a Freddie Mac senior vice president. The new rules “are intended to help make the decision process more transparent and timely.”

Banks have also caught on to the benefit of approving short sales. Foreclosures take more time for the bank to recoup their money, and it costs upwards of $50,000 to process a foreclosure. But in the wake of the robosigning scandal, banks are more apt to help and even encourage a homeowner to pursue via a short sale.  In addition to the benefits of the bank, the homeowner comes out much better in the long run.  Along with a new home, their credit has been salvaged to a respectable level as opposed to letting a home go due to foreclosure. With a foreclosure it can take up to seven years for your credit to show signs of improvement.

Jobless claims stay high, jobs stall

Initial claims for state unemployment benefits dropped by 1,000 to a seasonally adjusted 388,000, the Labor Department said today. The prior week’s figure was revised up to 389,000 from the previously reported 386,000.  The four-week moving average for new claims, a closely followed measure of labor market trends, rose 6,250 to 381,750, its highest since the week that ended Jan. 7.  Economists polled by Reuters had forecast new claims falling to 375,000 last week. The reading was the latest example of fizzling momentum in the labor market recovery. New claims fell sharply during early winter but the improvement has largely stalled in recent weeks.  The number of people still receiving benefits under regular state programs after an initial week of aid rose 3,000 to 3.315 million in the week ended April 14.  The number of Americans on emergency unemployment benefits fell 45,930 to 2.73 million in the week ended April 7, the latest week for which data is available.  A total of 6.68 million people were claiming unemployment benefits during that period under all programs, down 87,160 from the prior week.  Employers added 120,000 new jobs to their payrolls in March, the least since October, after averaging 246,000 jobs per month over the prior three months.  Many economists believe a mild winter boosted payrolls growth earlier in the year and view recent stagnation as payback for those gains.

Foreclosures up in half of all American cities

More than half of US major cities showed an increase in foreclosures since the end of last year, according to RealtyTrac.  Mortgage servicers put a freeze on the process in 2010 to correct affidavit problems and resolve investigations from federal regulators and the state attorneys general. A $25 billion settlement approved in March brought new standards and relief requirements for struggling homeowners.  As servicers adjusted, foreclosures began to increase in different areas of the country during the first quarter.  Filings increased in 26 of 50 largest cities, led by Pittsburgh, where foreclosures jumped 49% from the previous three months.  Some cities still showed continued declines from the end of last year. Filings dropped 28% in Portland, Ore. and fell 26% in Las Vegas. Servicers put Vegas filings on pause since a new state law took effect bringing new affidavit requirements and stronger enforcement for violations. As a result, Stockton,

California held the highest metro foreclosure rate in the first quarter, where one in every 60 homes received a filing.  Vegas dropped all the way to eighth on a 61% decline from the first three months of last year, but it wasn’t the only city with filings well below year-ago levels.  Of the 50 major cities, 33 reported filings were down from the first quarter of 2011. Vegas showed the largest drop over that time, followed by a 53% decrease in Seattle and a 51% drop in Austin, Texas.  “First quarter metro foreclosure trends were a mixed bag,” said Brandon Moore,CEO of RealtyTrac. “While the majority of metro areas continued to show foreclosure activity down from a year ago, more than half reported increasing foreclosure activity from the previous quarter — an early sign that long-dormant foreclosures are coming out of hibernation in many local markets.”

Fed doing more harm than good?

The Federal Reserve is doing more harm to the US economy than good by keeping interest rates artificially low and continuing its “monetary medicine”, Peter Boockvar, portfolio manager and equity strategist at Miller Tabak said.  “Bernanke has put the US economy over the past bunch of years into monetary Fantasyland,” Boockvar said today. “When you have rates at zero, when you have an expanded balance sheet of about $3 trillion, the economy is not real.”  Boockvar’s comments followed the Fed’s policy statement on Wednesday that it would hold its key interest rate near zero. The Fed also indicated the economy would have to improve before it changes its policy. A 9-1 vote accompanied the statement, which renewed the pledge to keep rates low through 2014.  Boockvar said the Fed’s policy of keeping rates at zero misallocates capital and does not create a firm foundation for growth because “the cost of money is artificial.  It’s on monetary medicine, painkillers you can say,” he said. “The Fed to me is an impediment, not a boost, and they should just stop what they are doing.”  The Fed’s quantitative easing or bond-buying over the past several years has coincided with gains in stock markets, but it has also stoked fears of inflation and worries the Fed won’t be able to exit without causing turmoil in the bond markets and a jump in interest rates.  “At some point, the extraordinary policy (of bond buying) has to be reversed and it’s going to be a complete mess when it happens,” Boockvar said. “If they (the Fed) think they’re going to do it orderly, I have a big problem with that belief.”

NAR – recovery is here!

Pending home sales increased in March and are well above a year ago, another signal the housing market is recovering, according to the National Association of Realtors (NAR).  The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 4.1% to 101.4 in March from an upwardly revised 97.4 in February and is 12.8% above March 2011 when it was 89.9.  The data reflects contracts but not closings.  The index is now at the highest level since April 2010 when it reached 111.3.  The PHSI in the Northeast slipped 0.8% to 78.2 in March but is 21.1% above March 2011.  In the Midwest the index declined 0.9% to 93.3 but is 16.9% higher than a year ago.  Pending home sales in the South rose 5.9% to an index of 114.1 in March and are 10.6% above March 2011.  In the West the index increased 8.7% in March to 108.0 and is 9.0% above a year ago.

Lawrence Yun, NAR chief economist and incorrigible optimist, said 2012 is expected to be a year of recovery for housing.  Of course, he said that about 2010 and 2011 as well, but who’s counting?  “First quarter sales closings were the highest first quarter sales in five years.  The latest contract signing activity suggests the second quarter will be equally good, ” he said.  “The housing market has clearly turned the corner.  Rising sales are bringing down inventory and creating much more balanced conditions around the county, which means home prices will be rising in more areas as the year progresses.”

Olick – noisy numbers or recovery?

“The spring housing numbers aren’t coming in along expectations.  That can’t be, right?  Unemployment has been easing, mortgage delinquencies falling, and affordability is off the charts. That means housing should be bouncing back with verve and vigor this Spring, except it’s not.  It’s not crashing again, it’s just bouncing along a bottom, which means the recovery, as we’ve been warning all along, becomes increasingly local.  Let’s look at some data out this week:  Sales of new homes dropped, but only after a large upward revision in February. That of course leads everyone to blame the weather.  S&P/Case-Shiller’s home price index reached new lows, but the amount of the annual drop was smaller than the previous month, so that’s an improvement, sort of.  Mortgage applications fell, even as the rate on the thirty year fixed hit a new low on the Mortgage Bankers Association’s weekly survey. Refis fell hard and purchase applications rose a little, although the four week moving average is down.  Zillow.com reports that home values rose from February to March (0.5%), ‘marking the largest monthly increase since May 2006, before home values peaked.’ That led analysts there to exclaim the headline: ‘Majority of Markets Covered by Zillow Home Value Forecast to Hit Bottom by Late 2012.’  Trulia.com released a report which mixes three indicators, construction starts, existing home sales and delinquency and foreclosure rates in order to gauge the housing recovery. Apparently it slipped backward in March ‘after a few strides forward.’  Then Federal Reserve Chairman Ben Bernanke said, ‘The ongoing weakness in the housing market still represents a headwind to economic recovery.’

No wonder economists at Freddie Mac concluded in its April forecast that the data are, ‘noisy.’ Then they too blamed it all on the weather.  So what are we to think, and how are we to play housing, here at the almost, sort of, bottom in some markets but not in others?  ‘Investor demand will drive many markets this spring and summer,’ says David Stiff, chief economist at Fiserv. ‘This means that, at the moment, the MBA purchase application index is a less reliable predictor of sales activity.’  Stiff says he thinks the housing market has bottomed out, but that won’t be obvious until next year. He also makes clear that the recovery will be driven by investors, and investors largely buy in the lower cost markets.  The one truth I heard in all the heated talk of housing today came from CNBC’s Jim Cramer, with whom I often disagree. He said, ‘aggregate numbers make you no money.’ He was talking specifically about housing.”

Short sales new normal in Seattle and California

As the housing market works to find a new direction, new data shows short sales may be the way to go.  The number of distressed properties is on the rise and in some places, account for more than half of all home sales in the first three months of 2012.  According to Washington Property Solutions, a third of all home sales in Seattle and on the Eastside were short sales or bank-owned properties.  In Pierce and Snohomish counties the numbers are even higher. 51% of home sales in Snohomish County involved distressed properties. In Pierce County, it’s 54%.  Many banks, including Chase and Bank of America, now have incentive programs for homeowners to complete a short sale.  Banks forgive the debt, and the homeowner can pocket up to $30,000 to help maintain the property and see the sale through. 

California mortgage defaults fell to their lowest level in almost five years as banks cut their backlog of distressed property with more short sales, in which homes are sold for less than the amount owed, DataQuick said.  First-time notices of default totaled 56,258 in the first quarter, down 8.5% from the previous three months and 18% from a year earlier, the San Diego-based data seller said today in a statement. Default notices are the beginning of the foreclosure process in the most populous US state.  Short sales increased to an estimated 20% of deals, up from 18% a year earlier. Areas in the state with median home values of less than $200,000 had the most defaults, at 8.9 per 1,000 homes, almost four times the number in neighborhoods with a median greater than $800,000, where the rate was 2.3 per 1,000.

Durable goods down

Durable goods orders tumbled 4.2%, the largest decline since January 2009, the Commerce Department said on Wednesday after a downwardly revised 1.9% increase in February.  Economists had forecast orders for durable goods, which range from toasters to aircraft, falling 1.7% after a previously reported 2.4% rise in February.  Orders were dragged down by a 12.5% plunge in bookings for transportation equipment — the most since November 2010.  Excluding transportation, orders fell 1.1% after a 1.9% rise in February. Economists had forecast this category rising 0.5%.  The report added to signs that manufacturing exited the first quarter with less momentum. Data last week showed industrial production was flat in March for a second straight month, while some gauges of regional factory activity weakened in April.

The plunge in orders for transportation equipment reflected a 47.6% drop in bookings for civilian aircraft. Boeing received only 53 orders for aircraft, according to the plane maker’s website, down from 237 in February.  Orders for motor vehicles barely rose last month.  Adding to the report’s weak tenor, non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 0.8% after an upwardly revised 2.8% rise the prior month.  Economists had expected this category to rise 0.9% after a previously reported 1.7% increase.  But shipments of non-defense capital goods orders excluding aircraft, which go into the calculation of gross domestic product, rose 2.6% after increasing 1.4% in February.  This suggests that growth in business investment in capital goods increased in the first quarter, but probably not as much as in previous periods.

MBA – mortgage applications down

Mortgage applications decreased 3.8% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 20, 2012.  The Market Composite Index, a measure of mortgage loan application volume, decreased 3.8% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 3.3% compared with the previous week.  The Refinance Index decreased 5.6% from the previous week, with the Conventional Refinance Index decreasing by 6.1% and the Government Refinance Index decreasing by 2.1%.  The seasonally adjusted Purchase Index increased 2.7% from one week earlier. The unadjusted Purchase Index increased 3.6% compared with the previous week and was essentially unchanged from the same week one year ago. 

The four week moving average for the seasonally adjusted Market Index is up 1.23%.  The four week moving average is down 0.67% for the seasonally adjusted Purchase Index, while this average is up 1.92% for the Refinance Index.  The refinance share of mortgage activity decreased to 73.4% of total applications from 75.2% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.6% from 5.3% of total applications from the previous week.  Within refinance applications taken in March 2012, 58.8% were for fixed-rate 30-year loans, 23.1% for 15-year fixed loans and 5.2% for ARMs.  The share of refinance applications for “other” fixed-rate mortgages with amortization schedules other than 15 and 30-year terms was 12.8% of all refinance applications.

Hundreds of banks struggling to repay TARP

A total of 390 banks, many of them community firms, still struggle to repay a Troubled Asset Relief Program (TARP) recapitalization fund with no clear exit plan, according to the Special Inspector General of TARP.  “The status of those banks is one of the major issues facing TARP nearly four years after the financial crisis,” according to a SIGTARP report sent to Congress Tuesday.  There is still $118.5 billion outstanding under TARP. The massive bailout package is expected to cost taxpayers $60 billion in the end, according to the most recent estimate.  The Treasury Department paid $204.9 billion in TARP Capital Purchase Program money to 707 banks ranging from smaller operations in local communities to global firms with more than $1 trillion in assets.  As of March 31, only 43% of the banks left TARP by actually paying back the taxpayer.  In September 2011, the Treasury allowed 137 healthier banks to refinance their dividend and capital repayments and exit TARP through a special program called the Small Business Lending Fund. 

Those remaining face a dividend raise to 9% in late 2013 from 5% owed now. Of the 351 remaining banks that received funds through the specific TARP CPP, one-third missed five or more dividend payments and face formal enforcement actions by regulators.  “We’ve already recovered more than we invested in TARP’s bank programs through repayments and other income,” said Treasury Assistant Secretary Tim Massad. “Moving forward, while there’s no one-size-fits-all approach, you’ll continue to see us make significant additional progress winding down the program in the year ahead through repayments, sales, and other methods.”  Law required the Treasury to allow banks to refinance out of TARP. Roughly $2 billion in bailouts were refinanced using the SBLF program, equal to about 1% of the $245 billion spent through all of the TARP bank programs.  Capital levels at banks gone from the program are in far better shape than those remaining. According to SIGTARP, less than 4% of the banks able to refinance out of TARP held a Tier 1 common capital ratio below 7%. Of those still in the program, more than 20% have a Tier 1 level that low.  Banks in the Southeast and Midwest had the most trouble exiting the program.  SIGTARP recommended Treasury develop a clear exit path to ensure as many community banks can exit the program as possible and “prepare to deal with the banks that cannot.”  “It is unclear how the remaining banks will exit TARP,” said SIGTARP Director Christy Romero. “Getting these banks back on their feet without government assistance must remain a high priority of Treasury and the federal banking regulators.”

Olick – short sales up, prices down

“Buyer traffic is strong, supply of homes for sale is low, and yet home prices continue to defy the usual formula, falling again in March. Prices usually rise as supply shrinks, but demand is still too low to make those historical ‘norms’ compute, not to mention that the type of supply available is largely distressed.  Foreclosures and short sales accounted for 47.7% of sales, in a three month running average measured by Campbell/Inside Mortgage Finance. That’s the 25th month in a row that distressed sales have topped 40% of the market.  ‘With nearly half of the market being distressed, we’re a long way from a return to a normal market,’ said Thomas Popik, research director at Campbell Surveys. ‘Agents responding to our survey say that homeowners with well-maintained properties in good locations are very reluctant to list at today’s prices. That’s why inventory is low–and also why forced REO and short sales are such a big proportion of the remaining market.’  Home prices for non-distressed properties fell 5.7% in March year-over-year, according to the survey. Prices for ‘damaged’ REO (bank-owned properties) fell 5.7% and for move-in ready REO fell 2.5% during the same period. The real sticker shock is in short sales. Prices of those homes fell 14.3% from March of 2011.

Short sales have been ramping up of late, as banks attempt to comply with the so-called ‘robo-signing’ mortgage settlement. Those are part of the losses the banks are required to take in the $25 billion deal. Over the past six months, short sales have moved from 17.8% of all sales to 19.9%, according to the Campbell/IMF survey. They now represent the number one segment for distressed properties.  That share is likely to grow, as the conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), last week announced it was directing the two mortgage giants to ‘develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure.’ It includes a requirement that mortgage servicers review and respond to short sale requests within thirty days.  Lengthy timelines have long been the biggest complaint in the short sale sector.

Fannie Mae and Freddie Mac hold hundreds of thousands of distressed loans, and accelerating the process will surely move the numbers up quickly, although the rules don’t go into effect until June 1. The FHFA is requiring the two make final decisions on these sales within 60 days. Previously, short sales could take up to a year and even beyond, with buyers often dropping out in frustration.  ‘This could put short-term downward pressure on home prices, as short sales by their nature occur more quickly than foreclosures,’ writes Jaret Seiberg, analyst at Guggenheim Partners. ‘That could raise questions about the status of the housing recovery, which could be negative for those with housing exposure. That would include homebuilders, mortgage lenders and mortgage insurers.’  On the plus side, short sales tend to sell at higher prices than foreclosures. It appears, however, that regardless of the FHFA edict, banks are already ramping up the short sales. Some began doing so in the aftermath of the robo-signing scandal, as foreclosures stalled. Even now, foreclosures falling as short sales rise. The good news is that sales of distressed properties are rising, but the headlines will likely focus more on the falling prices, than the much-needed clearing of these homes.”

No QE expectations

Wall Street is not expecting additional quantitative easing (QE) from the Federal Reserve at its meeting this week but increasingly believes in the Fed’s promise to keep interest rates low until late 2014, according to the latest CNBC Fed Survey.  Just a third of the 53 economists, fund managers, and strategists who responded to the CNBC survey see additional QE from the Fed in the next 12 months, unchanged from the March survey. And just a quarter expect Operation Twist to be extended beyond its expiration in June.  The survey found that 49% now believe the Fed will keep interest rates “exceptionally low” through late 2014, up from just 40% in March. The same percentage, however, disagree, showing that while there has been improvement, Fed Chairman Ben Bernanke has not yet made believers of all investors.  James Paulsen of Wells Capital Management called on the Fed “to move beyond its crisis mindset and appropriately normalize policy to reflect the maturation of the US economic cycle from crisis to recovery. Failure to do so soon risks creating another crisis — an inflation crisis!”  In fact, 42% of respondents agreed with the statement that the Fed’s forecast that it will keep interest rates low through 2014 is a mistake that could undermine the Fed’s credibility; 38% said it’s a good decision that has helped drive down interest rates.

Home prices drop

Home prices dropped in February in most major US cities  for a sixth straight month, a sign that modest sales gains haven’t been  enough to boost prices.  The Standard & Poor’s/Case-Shiller home-price index shows that prices dropped in February from January in 16 of the 20 cities it tracks.  The steepest declines were in Atlanta, Chicago and Cleveland. Prices rose in Phoenix, San Diego and Miami. They were unchanged in Dallas.  The declines partly reflect typical offseason sales. The month-to-month prices aren’t adjusted for seasonal factors.  Still, prices fell in 15 of the 20 cities in February compared with the same month in 2011. That indicates that the housing market remains far from healthy despite the best winter for sales in five years.

Bloom – economy stuck in “Death Valley”

Having raised hopes of a self-sustaining recovery, the US economy has disappointed and finds itself stuck in “Death Valley”, says David Bloom, the global head of the FX strategy team at HSBC.  He believes the data is neither weak enough to guarantee a third round of quantitative easing nor strong enough to convince the market the Federal Reserve is about to end its extraordinary measures.  “At this stage the economy worsened markedly, eventually leading the Fed to its commitment to keep rates low for an extended time period. The point is that we are now neither at the stage where the economy has deteriorated markedly, nor are we seeing the economy improve to the extent where the Fed is certain not to add stimulus” said Bloom in a research note.  With the market looking for clues on what the Fed will do next when Ben Bernanke holds a press conference on Wednesday, Bloom believes euro/dollar is stuck in a tight range as a game of chicken and egg is played out in the euro zone.  “We have the uncertainty of the French and Greek elections and the recent blow-out in Spanish bond yields. Meanwhile, the ECB (European Central Bank) is sending out signals that it is reluctant to engage in another LTRO (long-term refinancing operation). Once again a game of chicken is being played out in the euro zone,” said Bloom.  So until we get confirmation of which direction the US economy is heading into or evidence that investors are negative on the euro area as a whole and not just Spain, Bloom believes the euro will remain on the sidelines despite volatility elsewhere.

WSJ – ready for another Dodd-Frank spat?

Get ready for another spat over Dodd-Frank mortgage lending rules.  It’s been more than a year since regulators unveiled the first set of proposed (and yet-to-be completed) mortgage rules resulting from the 2010 financial overhaul law.  Now a new consumer regulator is hashing out a separate rule that will define what kind of loans mortgage lenders will be able to make.  At issue is a part of the Dodd-Frank law, known as the “qualified mortgage” rule. It is designed to protect consumers from the kind of risky lending practices that shook the financial system in 2008.

The Consumer Financial Protection Bureau (CFPB), also created by the Dodd-Frank law, has the difficult task of completing these rules, which were initially proposed by the Federal Reserve last year. The idea is to provide an incentive for the industry to make safer loans, and ensure that they lenders consider a borrower’s ability to repay the loan.  Loans made under the qualified-mortgage standard will receive a degree of protection from lawsuits, though the level of that shield is a matter of intense debate.  In a speech last week, Raj Date, the consumer bureau’s deputy director, gave some broad outlines of the consumer bureau’s thinking:  “We want to ensure that consumers are not sold mortgages they do not understand and cannot afford. We want to minimize compliance burden where possible, in part through the careful definition of those lower-risk “qualified mortgages.” We want to ensure that, as the market stabilizes over time, every segment of prudent loans has the benefit of sufficient investor appetite and a competitive market.”

It’s a daunting challenge, given that the mortgage-lending market has contracted since the housing market went bust. Mortgage lenders have tightened their standards dramatically, eliminating most of the problem loans that helped cause the housing market’s woes. Many argue that tight lending is hampering the economic recovery, so a misstep by the CFPB could harm the housing market further.  The Dodd-Frank law mandates that the mortgage rule exclude certain exotic varieties of loans that fed the housing boom — such as “option” adjustable-rate mortgages, which only require low minimum payments and allow the principal balance to increase, and “interest-only” loans, which don’t require principal payments for several years.

Other pieces are much less clear. One key issue that’s been debated in policy circles is how much limits the mortgage rule should place on the amount of debt that consumers can take on.  One joint proposal between an industry group and three consumer organizations attempts to solve this problem.  It says that qualified mortgages should automatically include any loans made to borrowers who are spending no more than 43% of their pretax income on all debt, including home loans, credit card debt and car loans. Loans could be allowed up to a 50% debt-to-income ratio if the borrower’s housing costs only comprise 31% of income, or if the borrower demonstrates stable income or cash reserves.

Still, it remains to be seen whether the consumer bureau will accept this approach. And many in the lending and real estate industry say they are worried that the regulator will enact requirements that could crimp lending.  One big concern, particularly for small lenders, is that the rule will lack the industry’s top priority — a shield against lawsuits for loans that meet guidelines set out by the consumer bureau.  Without those legal protections “lending is going to become more conservative,” said Bill Cosgrove, chief executive of Union National Mortgage Co. in Strongsville, Ohio. “That is a problem. It’s a problem for the housing recovery.”  Richard Cordray, the consumer bureau’s director, told lawmakers last month that the legal protections sought by the industry wouldn’t necessarily choke off lawsuits, although reducing litigation is one of the bureau’s goals. “We don’t want this to be punted into the courts,” Mr. Cordray said.  Consumer groups say they aren’t trying to spark a barrage of lawsuits against the mortgage industry. Instead, they argue that the threat of litigation will give lenders an incentive to comply with the new lending rules.

Illinois prices turn around

Median home prices in Illinois snapped a 20-month streak of price declines in March, a turnaround coinciding with the start of the spring selling season.  The statewide median price in March came in at $130,000, even with March 2011, according to the Illinois Association of Realtors. It’s the first time the state’s median price hasn’t decreased since June 2010.  “There’s no doubt that these are strong numbers to open the spring selling season,” said IAR President Loretta Alonzo. “To see such good sales numbers, coupled with a measure of price stability is encouraging news no matter what side of a real estate transaction you happen to be on.”  Illinois home sales posted the best March sales numbers since 2007. Home sales (including single-family homes and condominiums) in the month totaled 9,575, expanding 21.1% from 7,904 home sales a year earlier.  In the nine-county Chicago Primary Metropolitan Statistical Area, 6,590 homes were sold in March, up 23.8% from March 2011 sales of 5,323 homes. The median price in March was $151,850 in the Chicago PMSA, down 3.9% compared to a year earlier when it was $158,000.  “Sales volumes are up, time-on-the-market levels are down significantly from a year ago and prices appear to be stabilizing in Illinois although continuing to fall in Chicago,” said Geoffrey Hewings, director of the Regional Economics Applications Laboratory at the University of Illinois.  “Further, in the last month there was a more even spread of sales prices compared to previous months where homes sold for less than $200,000 dominated the market,” Hewings added.

Hiring going up?

The National Association of Business Economics’ (NABE) industry survey found that 39 percent of respondents expect hiring will pick up in their companies and industries during the next six months, up from 27 percent in January.  Some 48 percent of respondents expect hiring will hold steady. While that is down from 64 percent in January, it still underscores the slow pace of recovery in the labor market following the 2007-2009 recession.  The survey was conducted between March 20 and April 10.  The NABE surveyed 55 members from companies and trade organizations. Not all responded to every question.  The uptick in demand for labor could be leading companies to offer bigger paychecks. Some 44 percent of respondents said wages and salaries were rising, up from 26 percent in January.  The poll also showed 63 percent of respondents expected U.S. gross domestic product to grow between 2.1 and 3 percent in the fourth quarter from a year earlier.  In the NABE’s previous poll released in January, 60 percent of respondents expected growth in that range.

Olick – Phoenix turns around

“Mike Ripson hasn’t built a home in three years, but he is about to. He has been sitting on one hundred sixty acres of land just outside Phoenix, Arizona, which he intends to divide into 121 one-acre lots.  ‘Now’s the time because we’ve been studying the marketplace, and we noticed beginning late last summer, early fall, that for homes priced less than $100,000, the market was becoming very tight,’ says Ripson, whose company is celebrating its ten year anniversary this week.  ‘Over the last several months that price point has increased such that today, homes priced less than 300,000 dollars, there’s less than a thirty-day supply in the marketplace,’ Ripson adds.  The supply of homes for sale in the Phoenix area is down 42 percent from a year ago, and foreclosures are down 52 percent, according to Michael Orr, of the Real Estate Center at ASU. That is bringing demand back to the builders.  Ripson is building about 40 miles outside of Phoenix in Wittmann, where there is less competition from foreclosures.  ‘To give you an example, within a five mile radius of where we sit here at Sonoran Acres, two months ago there were 18 homes on the market. Today there’s only one,’ says Ripson.  That’s why he re-opened his model home two weeks ago, and immediately saw high buyer traffic. He filed permits for two new homes, which he expects to sell in the next few weeks, thanks to his low, $200,000 price point. 

Closer in to Phoenix, prices are a bit lower, thanks to a higher supply of distressed properties, but those properties are selling fast as well, as large scale and institutional investors flood the market.  ‘I really think we’re at the top of the first inning in terms of this opportunity, and there will be ebbs and flows, ups and downs, people will come in and come out,’ says Justin Chang, principal at Colony Capital, which intends to invest over a billion dollars in distressed properties this year.  ‘But if you’re looking to build a business over the next five to seven years, this is the first inning, and we’re pretty excited about it,’ Chang goes on to say.  Colony has a history of investing in commercial real estate, but about a year ago they saw the potential as well in the single family rental market. They began building an infrastructure, and started buying homes last month from banks, the government and at auction.  They own 170 homes in three states so far and intend to close on fifty more this week. They spend $3,000 to $5,000 rehabbing each home and readying it to rent. Their team is entirely internal, which they say saves them extra costs.  ‘We’ve got our internal team doing acquisitions, we’ve got our internal team doing the rehab and we’ve got an internal team doing the property management. These are employees,’ explains Jay McKee, COO of Colony American Homes.  ‘We have 120 people on our payroll, W-2 employees, right now doing this work. A lot of other folks are doing it by outsourcing to third parties,’ says McKee. ‘We think by doing it in house, we can do it without markups.’

At a Colony home in Laveen, AZ, a suburb of Phoenix, workers were installing new appliances into a former foreclosure, as the old ones had been stolen. Nearby, a large development from Pulte Homes advertised new construction starting at $100,000. McKee is not concerned.  ‘There are people who cannot buy those homes, and those are our clients. The people that lost their home to foreclosure, are repairing their credit, or just decided they don’t want to be owners of properties anymore, they’re our client,’ confirms McKee.  Colony is considering a program to help their renters become buyers, much like some rent-to-own programs being considered by banks and the government. Colony has also been pre-approved to bid on Fannie Mae foreclosures through a new pilot program by the Federal Housing Finance Agency (FHFA).  ‘We really understand what they want to accomplish, and we think we can be good partners,’ says Chang. ‘The pilot programs that are out there now are very smart, and I hope they are the first of many.  Colony is just one of a growing cadre of investment teams buying distressed real estate to rent. Chang expects to see returns of anywhere from 15 to 25 percent on his investment. Cash flow is almost immediate. He says he can rehab a home in three days and have it rented in less than a month. 85 percent of Colony’s homes are already rented.  As for competition in the space, which Chang calls a pioneering asset class, he’s not concerned.  ‘The opportunity is so vast that there’s room for a lot of companies,’ Chang says. ‘Eight to ten million homes will be foreclosed over next 3-5 years. That’s $800 billion in capital required. Fifty other firms could do it, and it still would be a drop in the bucket. We’re really just a small part of the game at this point.’”

Gas prices down

The average retail price of a gallon of gasoline in the United States declined for the first time since mid-December, dropping 5.44 cents over the past two weeks, the nationwide Lundberg Survey showed.  The national average for a gallon of regular gasoline fell to $3.9127 on April 20, from $3.9671 on April 6, according to the survey of gasoline retailers in the continental United States.  Still, drivers are paying 3.27 cents more for a gallon than they did a year ago.  “The decline began in California about six weeks ago,” survey editor Trilby Lundberg said, adding that prices peaked there on March 9 at $4.3162 and fell in subsequent surveys by nearly 15 percent to $4.1669.  Drivers in Chicago continued to pay the most at the pump — $4.26 per gallon — even though prices fell nearly 19 cents from April 6.  Prices in Tulsa, Oklahoma, remained lowest at $3.52 per gallon.  “If crude oil does not shoot back up we may find another price decline of 5-10 cents in the coming weeks,” Lundberg said.  Average diesel prices fell 4.15 cents to $4.1735 compared with two weeks earlier.

California Bay area sales up

March home sales in California’s Bay Area reached their highest level for the month in five years, the result of lower prices, low interest rates and an improving economy.  About 7,700 new and resale houses and condos sold in the nine-county Bay Area in March, up 34.9% from 5,702 in February, and up 9.1% from 7,051 a year earlier, according to San Diego-based DataQuick.  The February to March sales jump is normal for the season, but the latter’s sales count was the highest for the month since 8,317 homes were sold in 2007. Since 1988, March sales have ranged from 4,898 in 2008 to 12,645 in 2004, with an average of 8,812.  “This is the time of year when buying patterns usually start to normalize,” said DataQuick President John Walsh. “And while the changes we’re seeing are incremental, they’re incremental in a positive direction. That said, there’s a long way to go.”  The median price paid for all new and resale houses and condos sold in the Bay Area in March totaled $358,000, a 10.2% increase from $325,000 in February, but down 0.6% from $360,000 in March 2011. 

To put these figures in perspective, the low point of the current real estate cycle fell to $290,000 in March 2009, while the peak rose to $665,000 in June/July 2007.  Statewide median home prices posted their first year-over-year increase in 16 months. The California Association of Realtors members said tight inventory (4.1 months) throughout the state and particularly robust sales in the San Francisco Bay area helped fuel the price increase.  “Two of the big issues to watch closely are how fast distressed properties are being put on the market, and the availability of, or lack of availability of, mortgage financing,” DataQuick’s Walsh said.  Distressed property sales, according to the firm, made up 44.3% of the resale market, down from 48.8% in February and 48.2% a year earlier.  Foreclosure resales accounted for 24.9% of resales in March, falling from 26.4% in February, and down from 31.5% in the year-ago period. Foreclosure resales averaged about 10% over the past 17 years.  Short sales made up 19.4% of Bay Area resales in the month, down from 22.4% in the previous month and up from 16.7% a year earlier.