Daily Real Estate News March 30, 2009
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6 Reasons - Why It's Still a Good Time to Buy
The housing market is looking healthier. Here are six reasons why now is the time to jump into the market.
1. Uncle Sam is willing to help. First-time buyers (defined as anyone who hasn’t owned a home in the last three years) are entitled to a maximum $8,000 tax credit; interest rates are at record lows; and the Federal Reserve is doing its best to make mortgage loans available. (Sign up for a Webinar to learn more about the home buyer tax credit)
2. People have to live somewhere. About 800,000 new households are formed each year in this country, ensuring that the housing market will tighten, even if the economy doesn’t soar.
3. Borrowers leverage their investment. If you put $10,000 into the stock market and it earns 10 percent, you’ve earned $1,000. If you put $10,000 down on a home and its values increases 10 percent, you’ve made $10,000.
4. When prices come back up, you’ll have instant equity. In parts of the country where foreclosures have driven down prices, better times will mean the price of the home you buy will rise rapidly.
5. Mortgage costs stay the same. If you get a fixed-rate mortgage, the monthly payment stays the same – while everything else, including rent, goes upward.
6. You own it. There is something comforting in the notion that your home is your own. You can paint it any color you want, let the dog run in the back yard and hang a swing for the kids in the front.Source: The Wall Street Journal, June Fletcher (03/27/2009)
Daily Real Estate News March 30, 2009 Share
NAR: Outlook Favorable for Second-Home Market Despite weakening second home purchases in 2008, the long-term demand looks favorable for the second-home market because there are large numbers of people in the prime years for buying a second home. Currently, 39.2 million people in the United States are ages 50 to 59—a group that dominated sales in the first part of this decade. An additional 44.8 million people are between 40 and 49, and another 40.7 million are 30 to 39.“While economic factors can affect sales from one year to the next, the fundamental demand from these large population groups will remain,” says Lawrence Yun, NAR chief economist. “Given that most people become interested in buying a second home in their 40s, the bulge of population approaching middle age should drive the second-home market over the next decade.”The median price of a vacation home was $150,000 in 2008, down 23.1 percent from $195,000 in 2007. The typical investment property cost $108,000 last year, which is 28 percent below the 2007 median of $150,000. “As in the market for primary residences, it appears that many sales of deeply discounted distressed homes are pulling down the median price in the second-home market as well,” Yun says. Yun says lifestyle considerations are the single most important factor in the vacation home market. “People are buying weekend homes or recreational property to use themselves or for a family retreat—investment considerations are secondary for most vacation-home buyers with relatively modest interest in renting,” he says.2008 Second-Home Market DeclinesThe combination of vacation- and investment-home sales slipped to 30 percent of all existing- and new-home transactions in 2008, according to the NATIONAL ASSOCIATION OF REALTORS ®' latest report.However, more than four out of 10 investment buyers and more than three in 10 vacation-home buyers paid cash for their properties, with large percentages indicating that portfolio diversification was a factor in their purchase decision.The market share of homes purchased for investment was 21 percent last year, unchanged from 2007, while another 9 percent were vacation homes, compared with a 12 percent market share in 2007. The total share of second homes declined from 33 percent of all transactions in 2007. In 2005, the peak year for home speculation, 40 percent of sales were second homes.NAR’s 2008 Investment and Vacation Home Buyers Survey shows vacation-home sales dropped 30.8 percent to 512,000 last year from 740,000 in 2007. Meanwhile, investment-home sales fell 17.2 percent to 1.12 million in 2008 from 1.35 million in 2007. Primary residence sales declined 13.2 percent to 3.77 million in 2008 from 4.34 million in 2007.Yun says the findings are understandable given the economic backdrop. “We expected vacation-home sales to fall given the impact of a declining economy on discretionary purchases,” he says. “A steady share of investment-home sales results from buyers taking advantage of deeply discounted prices in many areas, with a smaller portion of new homes in the sales mix.”Vacation Home Market SnapshotThe typical vacation-home buyer in 2008 was 46 years old, had a median household income of $97,200, and purchased a property that was a median of 316 miles from their primary residence; 35 percent were within 100 miles and 36 percent were 500 miles or more.When asked about their reasons for purchasing a vacation home, 89 percent of buyers wanted to use the home for vacation or as a family retreat; 27 percent to diversify investments; 27 percent to rent to others; 26 percent to use as a primary residence in the future; and 17 percent for use by a family member, friend or relative.Some other findings on this market:
In terms of location, 26 percent of vacation homes were purchased in small towns, 23 percent in a rural area, 23 percent in resorts, 20 percent in a suburb, and 8 percent in an urban area or central city.
Seventy percent of vacation homes purchased in 2008 were detached single-family homes, 18 percent condos, 5 percent townhouses or rowhouses, and 7 percent other.
Sixty-nine percent of vacation home buyers and 84 percent of investment home buyers purchased existing homes; the rest purchased new homes.
Investment-home buyers in 2008 had a median age of 47, earned $85,000, and bought a home that was fairly close to their primary residence – a median distance of 19 miles.
When asked about the most important reasons for purchasing an investment home, 58 percent said to provide rental income; 38 percent to diversify investments; 19 percent for use by a family member, friend or relative; and 15 percent to use for vacations or as a family retreat.
Twenty-eight percent of investment homes were purchased in a suburb and another 20 percent in an urban or central city area, 23 percent in a rural area, 22 percent in a small town, and 6 percent in a resort area.
Sixty-four percent of investment homes purchased in 2008 were detached single-family homes, 22 percent condos, 8 percent townhouses or rowhouses, and 6 percent other.
Vacation-home buyers plan to keep their property for a median of 12 years; 58 percent plan to keep their vacation home for 11 years or more. Investment buyers plan to hold their property for a median of five years.
Eight in 10 second-home buyers consider it a good time to invest in real estate, compared with 71 percent of primary residence buyers.The size of the second-home market is significant. NAR’s analysis of U.S. Census Bureau data shows there are 8.1 million vacation homes and 40.5 million investment units in the United States, compared with 75.5 million owner-occupied homes.NAR’s 2008 Investment and Vacation Home Buyers Survey, conducted in March 2009, is based on 1,924 responses. The survey controlled for age and income, based on information from the larger 2008 NAR Profile of Home Buyers and Sellers, to limit any biases in the characteristics of respondents.
Thursday, April 2, 2009
Monday, January 26, 2009
What will it take to get out of the housing mess?
Many experts don't see a real-estate recovery happening for another two years. Here are the key things they say are needed to turn things around.
By Melinda Fulmer of MSN Real Estate
A deepening foreclosure crisis has many economists and real-estate experts predicting two more years of a real-estate slump unless more action is taken by government and private industry.
Lenders' unwillingness or inability to effectively modify loans is leading the country into a downward spiral of job loss and foreclosures — one that is getting harder and harder to correct, experts say.
"It's been almost a backward cycle," says Rick Sharga, vice president of foreclosure data firm RealtyTrac. "Usually you have an economic downturn followed by unemployment, which leads to foreclosure. In this case, foreclosures ... have led to an economic downturn, which has led to joblessness, which will lead to more foreclosures."
Foreclosure filings were reported on more than 2.3 million properties — or one in 54 homes — in 2008. That's an 81% increase from 2007 and a 225% increase from 2006, according to RealtyTrac. (RealtyTrac is an MSN Real Estate partner.)
Sharga and other real-estate watchers expect that number to jump substantially in 2009, as stated-income loans (also called "liars' loans") begin resetting and a 16-year high in unemployment starts to cause defaults even in fixed-rate prime loans.
Obama's proposed solution. One solution the administration of President Barack Obama is seeking is a change to federal bankruptcy laws that would allow federal judges to restructure mortgages of struggling borrowers.
Senate Democrats are advancing legislation that would allow judges to reduce the principal or "cram down" the amount owed for the primary residences of borrowers who have sought Chapter 13 bankruptcy protection. Chapter 13 is a bankruptcy status that allows debtors to retain assets and pay back their debts over three to five years.
Judges can currently modify the terms of credit-card and other debt, including vacation homes, but haven't been able to modify primary residences since 1979, when the U.S. bankruptcy code was enacted.
Giving judges the ability to restructure mortgages would help borrowers who have been unable to get their loans modified because the loans have been packaged into securities and sold to multiple investors, who won't agree on a solution.
One sign that this may be inevitable: Giant lender Citigroup recently supported this bill, much to the dismay of rival lenders. Rod Dubitsky, Credit Suisse managing director and lead housing analyst, also would like to see money from the government's Troubled Asset Relief Program being used to buy up loan portfolios and modify them as part of a national government program.
"We have outsourced the housing recovery to loan servicers who are inadequately staffed and don't have the freedom to do what is needed to minimize housing costs," Dubitsky says.Ron Faris, president of Ocwen Financial, a publicly traded servicer of subprime loans, says there is no financial incentive for most servicers to help strapped borrowers stay in their homes.
"Mostly it's 50 basis points to the servicer whether (the borrower) is paying or not paying," Faris says.
Writedowns and rewards for helpful servicers. That's part of the reason why we've seen such a dismal success rate with loan modifications to-date, Faris says. The other reason is that many servicers lack the know-how or staff to carefully study a borrower's total financial picture and tailor a solution.
Most of the loan modifications done to date, analysts say, do not involve reductions in principal, rate or term, but rather forestall the inevitable by rolling delinquent payments into a new and still unaffordable loan.
According to the comptroller of the currency, 52% of the loans modified in the first quarter of last year fell delinquent again in six months.
"Something is wrong if you are getting that kind of default rate," Faris says.
With these kinds of inefficient solutions, and with prices continuing their downward slide, more borrowers are simply choosing to walk away from their homes, says Mark Zandi, chief economist of Moody's Economy.com.
"Millions of homeowners are underwater, deeply underwater on their house and with any increase in expenses they are stepping away from their home," Zandi says. "I think the only way to mitigate the surge in foreclosures is to have a government plan to have mortgage write-downs.
"It's costly, but at the end of the day, not doing that and allowing these millions of dollars to go into foreclosure will cost more people their jobs."
Faris, whose firm has received some attention for its successful foreclosure mitigation efforts for subprime loans, would like to see government get more involved in monitoring the performance of servicers and allocating work to those companies that are returning calls and helping borrowers keep their homes.
Jobs and incentives. However, the two biggest drivers needed to set a real-estate recovery in motion are jobs and sales. Economists are hoping that Obama's economic stimulus plan will jump-start the former.
But with real-estate values continuing to slide, buyer incentives may be the only way to resurrect sales.
Economists and industry analysts are urging government to back low, incentive mortgage rates that lenders can offer to qualified buyers, especially those in high-foreclosure areas such as California, Nevada, Florida, Arizona, Ohio and Michigan.
To be sure, rates are already historically low, with the benchmark 30-year fixed-rate mortgage falling 5 basis points, to 5.28%, the week ending Jan. 16, according to the Bankrate.com national survey of large lenders.
The Treasury is working on a plan to get rates down to 4.5%. But rates as low as 3.5% would help offset declining values, getting more people off the fence and improving the character of communities, Dubitsky adds.
"It basically allows you to run the numbers and say, 'I'm getting 2% lower mortgage rates; the home price would have to drop another 20% before I would break even' " on the deal. A drop less than that and you'd still be in the black, he explains.
A slow recovery. However, even with these loan-modification programs and concessions in place, a real stabilization in the market probably wouldn't be seen until sometime in 2010, Zandi says.
"(Foreclosures) will rise for another six months no matter what the government does," he says. So, extending state moratoriums until new government programs are in place might make sense.
Credit Suisse, for one, expects home prices to drop 10% nationwide over the next 12 months and an additional 5% in the following year, and grow 3% annually thereafter.
And that's if Obama's economic stimulus plan works and unemployment doesn't continue to ramp up, as it has in the past month.
"I don't think we'll see any real rebound in the housing market over the next two years," Faris says.
By Melinda Fulmer of MSN Real Estate
A deepening foreclosure crisis has many economists and real-estate experts predicting two more years of a real-estate slump unless more action is taken by government and private industry.
Lenders' unwillingness or inability to effectively modify loans is leading the country into a downward spiral of job loss and foreclosures — one that is getting harder and harder to correct, experts say.
"It's been almost a backward cycle," says Rick Sharga, vice president of foreclosure data firm RealtyTrac. "Usually you have an economic downturn followed by unemployment, which leads to foreclosure. In this case, foreclosures ... have led to an economic downturn, which has led to joblessness, which will lead to more foreclosures."
Foreclosure filings were reported on more than 2.3 million properties — or one in 54 homes — in 2008. That's an 81% increase from 2007 and a 225% increase from 2006, according to RealtyTrac. (RealtyTrac is an MSN Real Estate partner.)
Sharga and other real-estate watchers expect that number to jump substantially in 2009, as stated-income loans (also called "liars' loans") begin resetting and a 16-year high in unemployment starts to cause defaults even in fixed-rate prime loans.
Obama's proposed solution. One solution the administration of President Barack Obama is seeking is a change to federal bankruptcy laws that would allow federal judges to restructure mortgages of struggling borrowers.
Senate Democrats are advancing legislation that would allow judges to reduce the principal or "cram down" the amount owed for the primary residences of borrowers who have sought Chapter 13 bankruptcy protection. Chapter 13 is a bankruptcy status that allows debtors to retain assets and pay back their debts over three to five years.
Judges can currently modify the terms of credit-card and other debt, including vacation homes, but haven't been able to modify primary residences since 1979, when the U.S. bankruptcy code was enacted.
Giving judges the ability to restructure mortgages would help borrowers who have been unable to get their loans modified because the loans have been packaged into securities and sold to multiple investors, who won't agree on a solution.
One sign that this may be inevitable: Giant lender Citigroup recently supported this bill, much to the dismay of rival lenders. Rod Dubitsky, Credit Suisse managing director and lead housing analyst, also would like to see money from the government's Troubled Asset Relief Program being used to buy up loan portfolios and modify them as part of a national government program.
"We have outsourced the housing recovery to loan servicers who are inadequately staffed and don't have the freedom to do what is needed to minimize housing costs," Dubitsky says.Ron Faris, president of Ocwen Financial, a publicly traded servicer of subprime loans, says there is no financial incentive for most servicers to help strapped borrowers stay in their homes.
"Mostly it's 50 basis points to the servicer whether (the borrower) is paying or not paying," Faris says.
Writedowns and rewards for helpful servicers. That's part of the reason why we've seen such a dismal success rate with loan modifications to-date, Faris says. The other reason is that many servicers lack the know-how or staff to carefully study a borrower's total financial picture and tailor a solution.
Most of the loan modifications done to date, analysts say, do not involve reductions in principal, rate or term, but rather forestall the inevitable by rolling delinquent payments into a new and still unaffordable loan.
According to the comptroller of the currency, 52% of the loans modified in the first quarter of last year fell delinquent again in six months.
"Something is wrong if you are getting that kind of default rate," Faris says.
With these kinds of inefficient solutions, and with prices continuing their downward slide, more borrowers are simply choosing to walk away from their homes, says Mark Zandi, chief economist of Moody's Economy.com.
"Millions of homeowners are underwater, deeply underwater on their house and with any increase in expenses they are stepping away from their home," Zandi says. "I think the only way to mitigate the surge in foreclosures is to have a government plan to have mortgage write-downs.
"It's costly, but at the end of the day, not doing that and allowing these millions of dollars to go into foreclosure will cost more people their jobs."
Faris, whose firm has received some attention for its successful foreclosure mitigation efforts for subprime loans, would like to see government get more involved in monitoring the performance of servicers and allocating work to those companies that are returning calls and helping borrowers keep their homes.
Jobs and incentives. However, the two biggest drivers needed to set a real-estate recovery in motion are jobs and sales. Economists are hoping that Obama's economic stimulus plan will jump-start the former.
But with real-estate values continuing to slide, buyer incentives may be the only way to resurrect sales.
Economists and industry analysts are urging government to back low, incentive mortgage rates that lenders can offer to qualified buyers, especially those in high-foreclosure areas such as California, Nevada, Florida, Arizona, Ohio and Michigan.
To be sure, rates are already historically low, with the benchmark 30-year fixed-rate mortgage falling 5 basis points, to 5.28%, the week ending Jan. 16, according to the Bankrate.com national survey of large lenders.
The Treasury is working on a plan to get rates down to 4.5%. But rates as low as 3.5% would help offset declining values, getting more people off the fence and improving the character of communities, Dubitsky adds.
"It basically allows you to run the numbers and say, 'I'm getting 2% lower mortgage rates; the home price would have to drop another 20% before I would break even' " on the deal. A drop less than that and you'd still be in the black, he explains.
A slow recovery. However, even with these loan-modification programs and concessions in place, a real stabilization in the market probably wouldn't be seen until sometime in 2010, Zandi says.
"(Foreclosures) will rise for another six months no matter what the government does," he says. So, extending state moratoriums until new government programs are in place might make sense.
Credit Suisse, for one, expects home prices to drop 10% nationwide over the next 12 months and an additional 5% in the following year, and grow 3% annually thereafter.
And that's if Obama's economic stimulus plan works and unemployment doesn't continue to ramp up, as it has in the past month.
"I don't think we'll see any real rebound in the housing market over the next two years," Faris says.
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