Category: housing market

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Should you buy a home?

Last year I attempted to answer the question everyone was asking, “Should I buy a home in today’s economy?” (see: Is now the time to buy a home? The question continues to be as legitimate (or more so) today than it was a year ago.

The recent big surprise (or not) is the increased chatter about a double dip recession. Unlike last year’s mixed economic data and discussion of a sluggish economy, recent economic data suggest continued angst on many fronts, including housing. Unlike previous years’ economic hardships, when stimulus plans and tax cuts encouraged optimism; recent housing data may not only fail to illicit optimism, but has many experts talking about a deeper recession- or even a depression.

But there are bright spots as well!

Although we have not yet reached the levels to declare an economic depression, consider that Zillow (Zillow.com) reported in January of this year that the decrease in national home values from November 2010 further pushed the fifty-three month decline of the Zillow Home Value Index to 26% from the all time high in 2006. Zillow pointed out that the 26% decrease from the all time high in home values exceeds the 25.9% decline of home values between the “depression-era years” of 1928 and 1933.

Further adding to the buzz in the housing industry is the most recent S&P/Case-Shiller Home Price Indices (standardandpoors.com), released May 31st. Analyzing housing data through March 2011, the conclusion was that nationwide home prices are now where they were in 2002. Data indicated that the U.S. National Home Price Index fell 4.2% during the first quarter of this year; compared to the first quarter of 2010, the index revealed an annual decrease of home prices of 5.1%. The Washington DC region was the only city in this press release where there was a quarterly and annual increase in home prices.

Unemployment continues to be a drag on the economy. Solving this issue might very well be the key to solving the continued housing doldrums. A study conducted by the Florida Realors® (“The Face of Foreclosure”; floridarealtors.org) points out the correlation between unemployment and foreclosure. The April 6th 2010 press release quoted, Florida Realtors® vice president of public policy, John Sebree, as saying “”…In most cases, it was a combination of rising living costs, unemployment or decreased pay, health issues and other factors that caused homeowners to get into trouble. Simple answers and trite political responses just don’t tell the whole story.”

Renting is the other side of the housing equation. Although renting is becoming trendy, it is also becoming more expensive. Trulia’s (Trulia.com) most recent rent vs. buy index of second quarter data, released April 28th, indicated that buying a home is more affordable than renting in 80% of the major cities polled! It was more expensive to buy a home compared to renting in the Kansas City, Fort Worth, and New York City regions of the country; the Washington DC region was rated as one of the areas where it was “Much Less Expensive To Buy Than To Rent.”

Home ownership is not for everyone. If you’re thinking of buying a home, consider that timing the market typically yields mixed results. A better approach to home buying is reviewing your long term plans and goals with your financial planner; as well as a keeping tabs on the local market with your Realtor®.

By Dan Krell
Copyright © 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Sustained economic growth is the solution to housing stagnation

If you haven’t yet heard the comparison of today’s housing market to depression era housing, the latest Zillow Home Value Index (ZHVI) has fallen 26% since its June 2006 peak. The June 10th ZHVI Report indicated an additional decline of national home values to an average of $177,412. Stan Humphries, Zillow Chief Economist, was keen to point out that the 53 month housing value decline of 26% has officially exceeded the housing value decline of the Great Depression (which is reported to be 25.9% from end-of-year 1928 to end-of-year 1933).

Although the ZHVI indicated that the Washington, DC regional data fared slightly better than the national data, foreclosures may not be a factor. The Zillow Home Value Index indicates that the national home value index declined 5.1% from the previous year, whereas the ZHVI for the Washington DC region declined 4.7%; while the national foreclosure rate for the same time was 0.094% compared to the Washington region’s foreclosure rate of 0.067%.

Zillow’s dramatic news was reported 11 days after the National Association of Realtors® release of the latest Pending Home Sale Index (PHSI) data (Realtor.org). Although the latest PHSI data indicated a 3.5% increase in pending home sales in November 2010 compared to October 2010, the data revealed a decrease in pending home sales compared to November 2009. Because the PHSI is a precursor measure of home sales, it is reasonable to conclude that the number of home sales also decreased from the same time last year.

Although past home value and home sale declines have been attributed to foreclosure and distressed property activity, the recent (albeit brief) decline in foreclosure activity may indicate that other factors are affecting the housing market. Foreclosure activity has recently decreased to resolve issues that arose from legal challenges to alleged lender procedural irregularities.

However, a recent article by Quinn Eddins entitled, “The Problem with Housing” (Mortgage Banking; Dec 2010; 71, 3) alleges that continued sale and value declines are due to excess foreclosure inventory and shadow inventory (homes in foreclosure but not yet foreclosed upon or released for sale). Eddins points out that slight increases in home buyer activity and slight home price increases in early 2010 were mostly due to short term interventions; he states “…The fundamental problem facing housing markets is one of supply. Even if the demand for homes… were to return to peak levels it would take years to absorb the current supply of homes for sale, in foreclosure and in the inventories of financial institutions. The longer it takes to reduce this supply, the longer home prices will languish.”

Eddins solution to the problem is to decrease the number of distressed home owners through equity sharing, which allows a lender to significantly reduce a home owner’s monthly mortgage payment by allowing a third party to invest in the loan in return for sharing in the home’s equity. The idea of equity sharing is not new; it has been incorporated in various home ownership programs and has even been introduced in the last two Congresses as a means to sustain FHA and support home ownership (most recently as H.R.6256: Strengthening FHA Through Shared Equity Homeownership Act of 2010 by Rep. Gary Mill [R-CA]).

Unfortunately, the reality is that regardless of interventions to sustain the housing market, stagnation will continue until there is sustained significant economic growth.

By Dan Krell
Copyright© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Housing recovery may be in jeopardy; Allegations of foreclosure processing irregularities

by Dan Krell © 2010

For a housing market that seemed to have begun the healing process, the bandages appear to be unraveling. Recent reports of fraud during the foreclosure process as well as questions of mortgage note ownership have had several lenders, most recently Bank of America, freezing their foreclosure process until they can assure the foreclosure process is conducted legally and with integrity.

At first, everyone seemed shocked to learn of the alleged fraud involved in preparing foreclosure documents necessary to pursue a foreclosure. Some allege that the fraud, although not rampant within the industry, is systemic; it is a symptom of a high volume industry that is typically understaffed. Reports of robo-signing of thousands of documents per week (used to attest to the accuracy of the foreclosure documents) have become so vociferous that some state Attorney Generals are seeking investigations.

Most recently, news of a mortgage registry set up to facilitate the bundling and sale of mortgages on the secondary market cannot foreclose on delinquent home owners. The recent accounts of denying MERS (Mortgage Electronic Registration Systems) during the foreclosure process are just another blow to an already fragile housing market.

Much like allegations that foreclosure processing fraud is not new, the MERS situation should also not be a surprise. Way back in 1989, Henley Saltzburg (“Avoiding Legal Pitfalls”, Mortgage Banking; Apr 1989; 49, 7; pg. 38) highlighted documentation problems in secondary market by stating, “Incomplete or inaccurate documentation is a primary source of contractual litigation in the secondary market…” Furthermore, according to Steve Cook, of Real Estate Economy Watch, since 2006 Fannie Mae has ordered servicers to not name MERS as a plaintiff in foreclosure proceedings (“Straightening Out the MERS Mess”).

homeownerThe recent media coverage of these developments have people wondering about the short and long term affects on the housing market. Many fear that delaying the disposition of foreclosed properties by prolonging the foreclosure process may push home prices even lower. Even Mark Zandi, chief economist at Moody’s Analytics, was quoted in an October 4th Wall Street Journal article (Robbie Whelan. “U.S. News: Foreclosure? Not So Fast”) describing the current foreclosure situation as a “…growing mess in the foreclosure process…” and will be looking to a now prolonged housing recovery.

Industry experts are looking to clear up these matters as soon as possible. Fannie Mae Executive Vice President, Terry Edwards, issued a statement on October 1st saying that “steps” are being taken in coordination with regulators to ensure that servicers adhere to “the exact requirements of the law” as well as strengthen the review and due diligence procedure to protect borrowers’ rights while conducting the default process.

To highlight this crisis, the Senate Banking Commission Chair, Senator Chris Dodd (D-CT) announced that the commission will hold a hearing on November 16th to investigate allegations of impropriety in mortgage servicing and foreclosure processing.

Although some home owners are not fighting their lenders during the foreclosure process, some are clearly taking advantage of the foreclosure freeze by attempting to renegotiate their mortgage terms with the actual note holders. However, if you’ve purchased a foreclosure or short sale or you’re considering doing so- consult with your title attorney to ensure that your owner’s title insurance covers claims that may arise from such disputes.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 11, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

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Shadow inventory dictates direction of housing market

by Dan Krell © 2010

Housing markets are not out of the woods yet. To know where housing is headed, you need to follow the “shadow inventory.” It is estimated that the shadow inventory will be dictating the direction of the housing market for the next twelve to thirty-six months; and contrary to some recent optimistic reports, it could get ugly.

“Shadow inventory,” simply put, is the term used to describe properties that are not yet for sale, but is expected to be listed for sale. The term is loosely used and generally refers to homes that are already owned by banks as well as homes in the process of foreclosure. However, some analysts broaden the scope of the term to also include homes that have seriously delinquent mortgages and/or in the process of a short sale.

Alarms about a threatened housing recovery due to the nationwide shadow inventory have been ringing since early 2010. Although recent reports of increased sales have been undeniably due to home buyer tax credits, economists doubt that any gains in the housing market will carry into July (one qualification for the home buyer tax credit is to close by June 30th). Even Lawrence Yun, Chief Economist for the National Association of Realtors, stated in a May 24th NAR press release (Realtor.org) that although there was an expected increase in existing home sales in April, sales will “temporarily fall back” when the home buyer tax credit expires.

Although it is expected that home buyer demand will diminish in the absence of a home buyer tax credit, a sudden exponential growth of home inventory has the potential to erode not only home buyer confidence but home values as well. It is clear that such an inventory surge can wreak havoc, as evidenced by the foreclosure surge of 2007-2008; but analysts cannot agree on the extent of the problem. Estimates of shadow inventory range from a conservative 1 million units to an astounding 6 million units.

A Standard and Poors analysis published February 16, 2010 (The Shadow Inventory Of Troubled Mortgages Could Undo U.S. Housing Price Gains) made clear the correlation between property liquidation and home value depreciation. And although the reduced number of foreclosures in the past year was due in part to attempts in assisting home owners to keep their homes (through mortgage modification programs), the inevitability of liquidating $473.4 billion in loans (which is equated to 1.75 million homes) was temporarily delayed. It is possible that home prices may again begin to depreciate as these troubled loans are liquidated (standardandpoors.com).

First American Corelogic appears to concur (Home Price Index Report – April 2010) with the premise of the S&P’s report. Although Corelogic’s Loan Performance Home Price Index (HPI) revealed an increase from February 2009 to February 2010, the report states that market stabilization has been widely due to government intervention through foreclosure prevention programs, Federal Reserve purchases of mortgage backed securities, and home buyer tax credits. Due in part to the expected conclusion of Federal Reserve purchases of MBS and home buyer tax credits, the HPI forecast from February 2010 to February 2011 is projecting a decline (corelogic.com).

Housing will undoubtedly be affected by shadow inventory. However, the affects of shadow inventory disposition may largely depend on other economic factors and government intervention; which includes (but is not limited to) employment, interest rates and foreclosure prevention programs.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 24, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

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Pending optimism for housing market

by Dan Krell © 2009

Last week, the National Association of Realtors (NAR) announced that pending home sales are up for the seventh straight month. The October 1st press release indicated that the number of signed contracts increased to the highest level since March of 2007; the August pending home sales index is up 6.4% from July and up 12.4% from August 2008 (Realtor.org).

Not to be confused with the existing home sale index, (which calculates the actual number of closed transactions as well as median home prices), the pending home sales index reports activity that is based on the number of signed contracts in any given month; the index is used to compare monthly home buyer activity.

Alone, the pending home sales index doesn’t say much other than that home buyers are interested in getting into the market. However, when combined with the recent existing home sales index, which recently reported that August home sales slightly decreased compared to July of this year (but still remained above the August 2008 sales figures); the story that emerges is one we are not used to hearing.

Although it may be true that some home buyers are being turned down for loans due to a rapidly changing mortgage industry, however, the disparity between the indices may also indicate that the state of the present market is based on delayed home sales. Until about a year ago, it was unusual for anyone to write an offer that had a closing date of forty five days or more. During the real estate boom earlier this decade, a home seller would almost certainly pass over your offer if you could not settle in thirty days or less. However, since a large number of distressed properties have penetrated the market, multi month closing delays and even unsuccessful closings (sometimes banks foreclose before a successful close of a short sale) have become common and sometimes expected. Lawrence Yun, NAR Chief Economist, stated in the October 1st press release that, “The rise in pending home sales shows buyers are returning to the market and signing contracts, but deals are not necessarily closing because of long delays related to short sales…”

Pending sales are also outpacing home sales here in Montgomery County (as reported by the Greater Capitol Association of Realtors, Homes Sales Statistics for Single Family Homes; August 2009); however sales indicators show an overall increase from 2008. Home sales increased 24.8% in August 2009 as compared to August of 2008, however decreased approximately 16% from July 2009.

The missed story, however, may actually be the shrinking local home sale inventory. Although, national home inventory is slowly decreasing, local inventory of homes for sale has decreased significantly from last year (as reported by the Greater Capitol Association of Realtors, Homes Sales Statistics for Single Family Homes; August 2009). Single family homes available for sale in Montgomery County decreased about 47% comparing the inventories of August 2009 to August 2008!

Although a shrinking inventory often means increased home buyer competition, don’t expect another historic seller’s market anytime soon. An expiring home buyer tax credit combined with an expected new wave of foreclosures and a changing mortgage industry may have a significant effect on the market. But for now, pending optimism remains for a stable real estate market.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 5, 2009. Copyright © 2009 Dan Krell

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