Tuesday, November 29, 2011

Luxury Home Values Rise in Third Quarter of 2011

SAN FRANCISCO, Nov 28, 2011 (BUSINESS WIRE) -- Luxury home values rose in Los Angeles, San Diego and San Francisco in the third quarter of 2011 compared to the second quarter. In the quarter ended Sept. 30, 2011, the Index indicated the following:

-- Los Angeles area values rose 0.7% from the second quarter of 2011 and increased 2.5% from the third quarter a year ago. The average luxury home in Los Angeles is now $2.01 million.
-- San Diego area values increased 1.1% from the second quarter and fell 3.9% year-over-year. The average luxury home in San Diego is now $1.63 million.

-- San Francisco Bay Area values climbed 1% from the second quarter and declined 1.4% from a year ago. The average luxury home in San Francisco is now $2.53 million.
"Luxury home prices in many California communities increased due to low inventories, low interest rates, and home prices that have declined over the past few years. This has improved the economics of investing in residential real estate," said Katherine August-deWilde, President and Chief Operating Officer of First Republic Bank. "All three major metropolitan areas in California experienced gains in home prices in the third quarter, which is the first time that has occurred since the fourth quarter of 2010."

Los Angeles Area Values
In Los Angeles, values have increased in three of the past four quarters. The highest end of the luxury market appeared to be the most robust, agents said.
"For homes priced at $5 million and up, the market remains active," said Jane Brill Graven of Coldwell Banker Beverly Hills East. "There are well-qualified buyers who are looking for properties at the very top end and they have the upper hand. Owners are having to reduce prices to where the market is."

Along the beach communities, the market was largely unchanged from a year ago. "If we had more and better product, we would have had more transactions in the past 12 months," said Barry Host of South Bay Brokers in Manhattan Beach. "Buyers with money are out there, but there is also a lot of uncertainty. Unless the news starts to settle, the market will continue to bump along."

San Diego Area Values
San Diego prices turned positive again after declining in the first half of 2011.
Despite the modest quarterly increase, luxury home prices remain soft, and many buyers remain uncertain. "We are very busy, but every single deal is a major struggle," said Lucy Kelts of Prudential California Realty in Rancho Santa Fe. "You have to talk realistically with sellers up front. We're not going to get out of this mess until the jobless rate goes down by half."
Greg Noonan of Prudential California Realty in La Jolla said the lower end of the luxury market was picking up. "I'm seeing a bit of pent up demand in the $1.5 million to $3 million range. At $4 million and above, it is a fairly soft market. Buyers are being extremely aggressive in their thinking about price. If a property is on the market for $4 million, buyers want to pay $3.5 million to build in some downside protection."

San Francisco Bay Area Values
In San Francisco and Silicon Valley, the luxury market is strong due to technology-driven wealth creation, lower interest rates and lower home prices. The market also benefitted from higher rents, which further enhances the attractiveness of residential real estate as an investment.
"The higher end market has been pretty strong," said Hugh Cornish of Coldwell Banker in Menlo Park. "There has been less inventory in the higher end and more from $2.5 million to $5 million. Palo Alto has been the strongest market, followed by Menlo Park and Atherton. We are seeing multiple offers, but not for every property."

In San Francisco, the higher end of the luxury market was active. "Above $5 million, the market is healthy," said Mary Lou Castellanos of Sotheby's International Realty. "Smart money is buying now and is taking advantage of lower prices and lower interest rates. At the same time, a growing number of sellers are getting more realistic about price."

In the Wine Country, a number of high-dollar sales have taken place over the past few months. "We're seeing a real surge in the upper end of the market," said Jim Perry of Pacific Union in St. Helena. "People have been waiting on the sidelines. With interest rates so low and prices down, that's hard to pass up." Businesswire

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

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Monday, November 28, 2011

Home Affordability Near Highest Level in 20 Years

It’s easy to drown in real estate statistics, but looking at “affordability” — the homes that someone on a median income could buy — is a fascinating gauge of housing markets.
(Plus, it’s a statistic that can be fine-tuned to the local level).

The recent release of the Housing Opportunity Index from the National Association of Home Builders/Wells Fargo shows that we’re still in a uniquely affordable phase of the market cycle. If you’re looking for good news to come from the housing slump, this is it.

One driver is prices that have fallen shockingly — in many places, by half — from 2006 highs. The national median average price has dropped less but still substantially, from $248,000 in 2006 to $176,000 in this year’s third quarter. Another factor is continued low interest rates.

Rates for a 30-year conforming loan (that is, a loan with a balance of $417,500 or less) were 4.23% last week, according to data released today by the Mortgage Bankers Association.
(MORE: Survey: Americans Will Pull $185 Billion Out of Big Banks Next Year)

As a result, families earning the median income of $64,200 could afford 72.9% of the homes sold in the third quarter. (Another reason I like this statistic is that it’s calculated using actual sales prices of new and existing homes, not list prices).

That 72.9% is in real contrast with the way things looked five years ago during the boom, when the number dipped to 40.4%. Housing market bulls read the current high affordability number as a sign that there is buying power to bring the real estate market out of its slump, at least at current prices.

Drilling down, the most affordable metro region in the country is Fairbanks, Alaska, where the median income is $91,700, and the average family can afford 97.8% of the homes on the market. The second most affordable city is Kokomo, Ind., where the median family could buy 96.9% of the homes sold. In terms of larger metros — those with a population of half a million or more — the top prize goes to Lakeland, Fla., where the region’s median family income of $53,800 was sufficient to buy 92.5% of the homes sold in the third quarter.

The other top affordable large metros in the U.S.? Toledo, with an affordability of 90.9%; Youngstown and its environs in Ohio and Pennsylvania, with 90%; Indianapolis-Carmel, Ind., also with 90%, and Ogden-Clearfield, Utah, with 89.8%.

The least affordable metro area is in New York/New Jersey: the New York/White Plains/Wayne metroplex, where only 23.3% of the homes sold are affordable to a buyer with the region’s median income of $67,400. New York has reigned as the most expensive metroplex for the last 14 quarters, a title held solidly through most of the 1990s by San Francisco and rotating after that through a succession of California locations, including the Los Angeles metroplex, Santa Barbara-Santa Maria, and San Luis Obispo-Paso Robles.

In fact, housing in California remains hyper-expensive, with L.A., San Francisco, and Santa Ana-Anaheim-Irvine all making the top 10 least affordable big metros list, and Santa Cruz, San Luis Obispo, and Santa Barbara making the top 10 least affordable small metros list. California dreaming is tantalizing, but it doesn’t come cheap.

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

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Thursday, November 24, 2011

Sales of Existing U.S. Homes Unexpectedly Increase: Economy

Sales of previously owned homes in the U.S. unexpectedly rose in October, a sign falling prices may be attracting buyers.

Purchases increased 1.4 percent to a 4.97 million annual rate, the National Association of Realtors said today in Washington. The median forecast of 75 economists surveyed by Bloomberg News was for a 4.8 million rate. The median house price dropped 4.7 percent from a year earlier, and the number of properties for sale was the lowest for any October since 2005.
Borrowing costs near a record low are helping homebuyers take advantage of housing that’s growing more affordable as prices drop. At the same time, the end of a temporary halt on foreclosures may push more properties onto the market, triggering further slides in value that may prevent the industry from recovering for years.

“The housing market is stabilizing, but it has a long road to a full recovery,” said Sal Guatieri, a senior U.S. economist at BMO Capital Markets in Toronto. “There are still a lot of depressed properties in the pipeline that will hit the market, and demand likely needs to strengthen above a 5 million annual rate to absorb the overhang of unsold homes and alleviate the downward pressure on prices.”

Stocks dropped, extending last week’s decline, as U.S. lawmakers failed to agree on budget cuts. The Standard & Poor’s 500 index fell 1.9 percent to close at 1,192.98 in New York. Treasury securities rose, sending the yield on the benchmark 10- year note down to 1.97 percent from 2.01 percent late on Nov. 18.

Reports from Asia and Europe today underscored concern the global economy is slowing.
Germany Slows Growth in Germany, Europe’s largest economy, may cool to a near standstill next year as the region’s debt crisis saps demand for exports, the Bundesbank said.

Japanese exports dropped 3.7 percent in October from a year earlier, Singapore said its growth may slow to as little as 1 percent in 2012 from 5 percent this year, and China signaled the global economy faces an extended slide.

The world economic situation is “extremely severe,” Chinese Vice Premier Wang Qishan said, according to state news agency Xinhua. “The global economic recession triggered by the international financial crisis will be long-term,” he said.

Economists’ estimates for U.S. existing home sales ranged from 4.5 million to 5.14 million. The agents’ group today revised September’s initially reported 4.91 million pace down to 4.9 million.

Total Sales

Existing-home sales, tabulated when a contract closes, rose 12 percent from the same month last year before adjusting for seasonal variations. Total sales in 2010 were 4.9 million, compared with a peak of 7.07 million in 2005 during the boom.

The number of previously owned homes on the market dropped to 3.33 million last month, the fewest since January 2010, the group said today.

At the current sales pace, it would take 8 months to sell those houses, down from 8.3 months at the end of September. A range of seven months to eight months supply is consistent with stable home prices, the group has said.

“Maybe we are very close” to seeing home prices stabilize, Lawrence Yun, the group’s chief economist, said in a news conference today as the figures were released.

Sales increased even as 33 percent of the group’s members reported having problems with contracts or cancelations in October, jumping from 18 percent the prior month, Yun said. The surge last month was not easily explained, he said, citing changes to conforming loan limits in September and “consistent frustration” over the loan-approval process for short sales as possible explanations.

Cash Transactions

Of all purchases, cash transactions accounted for about 29 percent, compared with 30 percent in September. Distressed sales, comprised of foreclosures and short sales in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for 28 percent of the total in October.

Sales of existing single-family homes increased 1.6 percent to an annual rate of 4.38 million. Purchases of multifamily properties, including condominiums and townhouses, were little changed at 590,000.

Purchases rose in three of four regions, led by a 4.4 percent gain in the West. Demand dropped 5.1 percent in the Northeast.

The median price of a previously owned home decreased to $162,500 from $170,600 in October 2010, today’s report showed. The value plunged from a July 2006 record of $230,300 to a low of $156,100 in February, NAR data show.

Seized Properties

A growing glut of seized properties threatens to weigh on prices even more. In the third quarter, U.S. lenders started foreclosures on more homes, the first increase in a year, as bank moratoriums that clogged the pipeline dissipated.
With the housing market weighing on growth, Federal Reserve officials have called for more accommodative policy.

Fed Bank of New York President William C. Dudley said last week that if the central bank opted to purchase more bonds to lower interest rates and stimulate the economy, “it might make sense” for much of those to consist of mortgage-backed securities, which would have a “greater direct impact on the housing market.”

A few additional signs point to stabilization in housing. Builders broke ground on more homes than forecast in October and construction permits climbed to the highest level since March 2010, Commerce Department figures showed Nov. 17. The National Association of Home Builders/Well Fargo index of builder confidence rose to 20 in November, the highest level since May 2010. Readings below respondents said conditions were poor.

“Sales were generated in spite of a near total lack of consumer confidence caused by a litany of factors, including capital markets volatility, stubbornly high unemployment, depressed home prices and an extremely difficult mortgage origination environment,” Allan Merrill, chief executive officer of Beazer Homes USA Inc. (BZH), said during a Nov. 15 call with analysts. New home sales for the Atlanta-based company’s fiscal 2011 rose 30 percent from a year earlier, he said.
To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

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Wednesday, November 23, 2011

European Shakeup: What Happened and What It Means For U.S. Markets

If you haven’t been following the news lately, you probably have zero interest in what is going on with our friendly neighbors across the pond in Europe.  Take it one step further and I can guarantee you that you probably have no clue why or how what happened in Europe impacts the United States stock market.

So, let’s start unpacking what happened in Europe over the past couple of weeks.
Silvio Berlusconi, the former Prime Minister of Italy, resigned and ended a tenure that was full of controversy and scandals.  He left Italy with an abundance of debt problems and divided as a people.

Taking over for Berlusconi will be Mario Monti, a former European competition commissioner.  With Monti’s takeover, he will also bring what is called a “technocratic” government, consisting of primarily technical experts as opposed to more political-type.

Defending his technocratic stance, Monti explained, “The absence of political personalities in the government will help rather than hinder a solid base of support for the government in parliament and in the political parties because it will remove one ground for disagreement.”

The idea of a technocracy was toyed around within the United States for a little bit during the Great Depression.  However, as Roosevelt’s New Deal came to light, support dwindled and technocracy was out of the picture.

Italy wasn’t the only country to have a shakeup as a result of the Eurozone debt crisis.
George Papandreou over in Greece was forced to step down as prime minister as well after deciding to put an unpopular European bailout plan to a referendum.  His position will be taken over by Lucas Papademos, who is expected to win a significant endorsement from the country’s 300-seat parliament.

Papademos is pretty decorated.  He received his bachelor’s, master’s, and doctoral degrees from the Massachusetts Institute of Technology, and taught at Columbia University for almost a decade.  While serving as an economic adviser to Papandreou, he was a visiting professor at Harvard’s Kennedy School of Government.

To put it succinctly: he’s a pretty smart dude.
So, when the smoke settles in Europe, how will the US markets be impacted?

That’s a great question and does not have a clear-cut answer by any means.
The crisis in Europe has directly affected the stock market lately.  The other day, there were negative headlines on the European newspapers and the stock market plummeted. 

Whenever optimism comes out of Europe, stocks rise, and whenever pessimism from Europe emerges, stocks tumble.  There’s definitely a direct correlation.

The market is already directionless, which makes matters worse.  One day its up, one day its down.  Monday it skyrockets, Tuesday it nosedives.

What I can tell you is this – when Europe gets their act together, expect Wall Street to have a little more direction, just don’t expect it to happen anytime soon.  Dramatically changing the governments of two major Eurozone contributors will not happen overnight.


The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

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Tuesday, November 22, 2011

Home Sales Show 13.5% Annual Gain

Existing home sales edged up slightly last month, increasing 1.4 percent to a seasonally adjusted annual rate of 4.97 million, the National Association of Realtors announced today.
Though the monthly increase was modest, it represents a 13.5 percent annual gain since Oct. 2010. The figure includes single-family, townhomes, condominiums and co-ops.

Home prices slip from last year

Meanwhile, the inventory of homes available for sale continued to shrink, falling to 3.33 million, a 2.2 percent decrease from last month and a 13.8 percent annual decline since Oct. 2010. While a shrinking inventory usually boosts home prices, the median sales price fell from last year, down 4.7 percent to $162,500, down from $170,600 one year ago.
Prices declined from last year despite distressed homes, including foreclosures and short sales, making up a smaller share of home sales than they did one year ago. Distressed sales accounted for 28 percent of all sales in October, down from 34 percent 12 months earlier.
The number of homes for sale represents an 8.0 month supply at current sales rates, down from a 10.6 month supply one year ago. A six-month supply is generally considered a healthy balance between supply and demand.

Home sales steady, but weak

Home sales have been generally steady through most of 2011, though at relatively weak levels, according to NAR figures.
“Home sales have been stuck in a narrow range despite several improving factors that generally lead to higher home sales, such as job creation, rising rents and high affordability conditions,” said Lawrence Yun, NAR chief economist. “Many people who are attempting to buy homes are thwarted in the process.”
The NAR has been vocal about problems with home appraisals, which it blames for high rates of sales cancellations. Yun said one-third of NAR members reported cancelled sales in October, up from 18 percent in September and only 8 percent one year early.
Home appraisals can lead to cancelled sales if the appraised price comes in lower than the agreed-upon sales price. Sales can also be cancelled due to rejected mortgage applications, failed home inspections and uncertainty over the National Flood Insurance Program, which has not been reauthorized by Congress. 
The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

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By: Kara Johnson | November 21, 2011

Friday, November 18, 2011

Refinancing Guidelines Are Reassuring to Investors

NEW YORK — Mortgage-backed securities issued by Fannie Mae and Freddie Mac jumped Wednesday, as investors grew more confident that new incentives to boost refinancing for borrowers stuck with high-interest-rate loans would have a limited impact.

Fannie Mae 6% mortgage-backed securities—backed by 6.5% home loans—rose 8/32 to 109 14/32, outpacing gains in Treasurys by about 7/32 after accounting for the change in interest rates, according to Credit Suisse's Locus analytics.

Prices fell late in the day, after Fitch Ratings warned about the European debt exposures of large U.S. banks, which are some of the biggest buyers of mortgage-back securities.

To speed refinancings, the two government-sponsored enterprises said Tuesday they would allow refinancing regardless of property value, lower some fees and uniformly waive most requirements that lenders be responsible for the original loan.

They left in place some potential liability to lenders and costs to borrowers, easing fears that the White House was pressing for more-sweeping aid under its Home Affordable Refinance Program.

Since 2009, 894,000 borrowers have used HARP, of which 70,000 were significantly "under water." Underwater borrowers owe more than their properties are worth. About 10.9 million, or 23%, of all residential mortgages exceeded the value of the property at the end of the second quarter of 2011, according to CoreLogic.

The new Fannie and Freddie guidelines sparked a flurry of mortgage-backed bond buying Wednesday—especially for securities backed by 6% and 6.5% mortgages—since investors can get above-market monthly payments without fear that refinancings will return their principal sooner than anticipated.

Such "prepayments" are made at par—100 cents on the dollar—causing losses on bonds trading above par. Virtually the entire market is trading at a premium, with some trading at 110 cents on the dollar or higher.

"There was a big fear that you'd see a big rise in prepayments, and, based on what [Fannie Mae and Freddie Mac] said, that has receded," said Todd Abraham, co-head of the government- and mortgage-bond group at Federated Investors in Pittsburgh. "It doesn't look like they've done anything big here."

The changes to HARP come after more than a year of speculation that the administration would enact major overhauls of mortgage programs to help lift home buying out of its five-year slump. The talk persisted even as banking groups and some investors warned that rewriting rules could discourage buyers of the securities and result in higher interest rates.

The mortgage industry has been facing stepped-up demands from Fannie Mae and Freddie Mac to buy back bad loans made during the housing bust, and Tuesday's changes to ease some potential liability were designed to relieve some of that risk. But changes didn't waive the "representation and warranty" responsibility for new loans, or fraud on original loans.

Revisions were outlined without full detail by the Federal Housing Finance Agency last month. Some investors, including mortgage real-estate-investment trust Apollo Residential Mortgage, bought high-coupon mortgage-backed securities then, but others held back until the new HARP guidelines were finalized.

High-rate loans were seen as targeted by the changes because those borrowers are most likely to have lost so much home equity in the housing downturn that they can't take advantage of today's rates around 4%. By AL YOON 

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

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Will home prices hit bottom soon?


(Reuters) - Watching the U.S. home market struggle to rebound is like listening to children in the back of a car. No, we're not there yet.The National Association of Realtors reported that ten real estate markets are "leading the nation toward a general recovery and stability of the housing sector," but myriad problems are going to weigh down the housing market for months to come.

The lingering malaise in the economy has triggered a new wave of defaults and foreclosures. After five straight quarterly drops, foreclosures nationwide shot up 14 percent from the second to third quarter this year, according to data released by Realtytrac, the foreclosure information service (see link.reuters.com/kaw94s), in October.

While RealtyTrac doesn't foresee that the latest foreclosure wave will equal the severity of the 2007-2010 pattern -- in which three million borrowers lost their homes -- it's going to slam on the brakes where areas are getting hit the hardest.


In theory, it should be a good time to buy a home. In the worst-hit areas, properties have lost more than half their value.

Yet as the average 30-year mortgage rate has slipped below 4 percent, the combination of employment insecurity and unusually tight standards for lending are discouraging buyers en masse. Lenders are asking for extensive income verification and tax returns. One lender I contacted for refinancing even wanted me to get an accountant to certify that I wasn't lying to the IRS.

Here are some of the biggest roadblocks:
--Even in bruised cities where price appreciation is evident, unemployment is still too high. Six out of 10 of the "top turnaround towns" listed by Realtor.com (see link.reuters.com/maw94s) for the third quarter had jobless rates above 10 percent. People can't buy homes if they're not working or soon to lose their jobs. Those cities, which include four of the largest cities in Florida, still have a long way to go to recover from the housing bust.


--Although at a record low, the home mortgage rate may still be high relative to home prices. This may sound counterintuitive, but research from the Leuthold Group in their November newsletter shows that a "real" mortgage rate -- which factors in the falling market value of the home prices -- is 8 percent. Leuthold says that real cost of buying must include the 4 percent interest rate and the 3.9 percent average home prices decline over the past 12 months. That cost is still scaring away buyers.

--The combination of unemployment, high housing inventory and foreclosures is hurting places where there wasn't an excessive price run-up. Realtor.com found that the largest year-over year median listing price decreases through October were in cities like Chicago, Detroit and Atlanta. This three-punch combination will continue to ravage markets where there's a sluggish economy.

Possible solutions to the housing blockage range from the radical to the necessary. A group called Remortgage America (www.remortgageamerica.com/) is calling for the government to loan Americans mortgages at 1 percent to finance a new or existing residence.


Others would like to see Fannie Mae and Freddie Mac take the foreclosed homes they own and either auction them off or offer them in a huge fire sale.
The seized mortgage agencies account for up to one-third of foreclosed homes -- about 250,000. American taxpayers are pouring tens of billions into propping up these two wards of the state, which were taken over by the U.S. Treasury in late 2008. The Obama Administration has yet to announce what it wants to do with the companies. Will they be restructured, liquidated or privatized?

A third option, which may have the least impact on a battered market, is to offer foreclosed homes in rent-to-own deals. Prospective homeowners get a place to live under reasonable leases and can build equity toward a purchase.


It's estimated that some 3.4 million foreclosed homes will be on the books of banks and mortgage companies by the end of this year. As regulators, banks, mortgage companies and state attorneys general move sheepishly to unblock mortgage modifications, refinancings and resales, only one certainty prevails: The open market will not be able to properly price every property until all government restrictions are lifted on their sales and re-financing.
--
The author is a Reuters columnist. The opinions expressed are his own.
(Editing by Lauren Young and Beth Gladstone)

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

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Thursday, November 17, 2011

FHA Loan Misconception: Only applicable to first time buyers.

Many first time home buyers would have no problem paying mortgage payments, and could keep up the maintenance and taxes on a home.

The biggest problem facing them is having enough money to make a down payment.  There are governmental agencies and organizations that are aware of this, and are willing to help in time of need.  This article will discuss these organizations and how they can benefit the first time home buyer.

Some background information is called for here.
Down payment assistance programs are a way for home buyers to be able to get into their prospective home without a large down payment.  The seller of the home will assist the buyer with closing costs through giving a portion of their proceeds from the sale to the buyer at closing time. Because the seller is not allowed to give the buyer down payment funds, gift assistance programs provide a work around for the sale to happen, staying within HUD law guidelines.
The amount of this "gift" is determined by the type of loan that the buyer is applying for.

What happens here is the seller enrolls their home in a suitable down payment assistance program, and then contributes to that program in a like amount of what the buyer needs for closing.  There is generally a small fee for this.  At closing time, the organization will then wire the necessary funds to the closing agent.  The seller is to have no part in this transfer of funds.

Probably the best source of this type of funding comes through the Federal Housing Assistance (FHA) program.  In 1965, the Department of Housing and Urban Development (HUD) was formed.  Within this department is the FHA.  The FHA's prime responsibility is administering government home loan programs.  First time home buyers that otherwise might not be able to close on a home can apply for an FHA loan.  The lender is protected, because the FHA insures these loans.

Another big advantage of an FHA loan is credit criteria for the first time buyer.  Typically, the debt to income ratio is 28/36%.  With the FHA, this ratio is set at their standard of 29/41%, giving the first time buyer much more leeway in making the loan.

A common misconception about the FHA is that people think the loan is only applicable to first time buyers.  This is not the case.  There is no limitation on the number of loans you can obtain through the FHA.  The single most prominent disadvantage of the FHA program is the FHA limits loan size.  Because this varies from state to state, a keyword search using the keyword phrase "fha guidelines" will lead you to the appropriate information on FHA rulings.

It is noteworthy to know that HUD does not approve "gift" programs that are managed by charitable organizations.  Mortgage lenders are held responsible to insure that these organizations meet HUD guidelines as listed in the HUD Handbook 4155.1 REV-4, CHG-1 Paragraph 2-10(C).  If attempting a loan through any charitable organization, the responsibility lies with the lender to insure these guidelines are met. 
 
There are also other down payment assistance programs available today.  A search of the internet reveals that The Nehemiah Program, AmeriDream Inc. and Partners In Charity are the most prominent today. To be sure that you are dealing with an above board organization, insure that the organization in question is a member of the Home Gift Providers Association (HGPA).

The HGPA has a set list of guidelines for best practice and code of ethics. 

When dealing with down payment assistance programs, be prepared to ask questions to help you determine if they are on the up and up.  Ask for such things as a current financial stability record.  Ask them if they are active in the community, with partnerships with businesses and organizations.  Does the organization allow borrowers to use the down payment gifts to pay off bad debt, or settle liens or judgments?

If they do, then be aware that the HGPA does not approve of this method.  Try your best to determine if the organization gives kickbacks to realtors, mortgage lenders, or anyone involved with the transaction.  This is a sure sign of shady practices, and it is best to shy away from these programs.

Be aware that the buyer may inflate the price of the home you are interested in to cover the money gifted to the organization you are dealing with.  A worthy real estate agent will tell you if the home is priced realistically.

Following these simple guidelines can put you on the road to success if you are struggling with a down payment on a home.  Always do your own due diligence, and the results will be much more in your favor.

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

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Wednesday, November 16, 2011

Helping Buyers Overcome Tight Mortgage Credit Conditions

(SOURCE: National Association of Realtors)
Home buyers face unprecedented hurdles in qualifying for a mortgage in today’s market, but getting a loan is possible for those who know how to overcome the obstacles, according to a presentation on Cracking the Credit Code at the 2011 Realtors(R) Conference & Expo.

Data from the National Association of Realtors(R) shows that 18 percent of NAR members reported contract failures in recent months, which are double the levels of a year earlier. Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems. In many cases, understanding how the credit system works would help buyers avoid problems.

“We need to get back to reasonable lending standards,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “That’s why NAR, as the leading advocate for homeownership and real estate issues, is working closely with policymakers and lenders to ensure that mortgages are available and accessible for qualified buyers and real estate investors.”

During the session, Chandra Hall, a Realtor(R) and real estate instructor from Colorado Springs, Colo., explained that an individual’s credit score is the key to his or her personal economic health. “Your credit score can affect where you work, what car you can drive, how much you pay for insurance and where you live,” Hall said. “It’s imperative to know how credit scoring works and how to achieve the highest possible score.”

Even so, Hall said that many home buyers with good credit are challenged by tight lending restrictions.
Credit scores are derived from payment histories using a wide range of creditors, including credit card companies, home loans, car loans, and department stores. Information also is obtained from court records, which can include bankruptcy filings, tax liens and judgments. “A credit score is simply a numerical representation of your statistical likelihood to repay credit that has been extended to you,” Hall said.

The most widely used model for assigning the statistical probability of repaying debt was developed by Fair Isaac & Company, and is called a FICO score. The scores range from 300 to 850; the higher the score, the better the credit rating. A newer system called VantageScore, developed by the credit reporting bureaus, has gained traction in recent years, with scores ranging from 501 to 990.

NAR analysis shows the average credit score for home buyers using conventional mortgages rose to 760 in 2010 from 717 in 2007. A score of 640 is considered to be a minimum score to get a mortgage, but varies among lenders.

Weighted average FICO scores for conventional loans purchased by Fannie Mae and Freddie Mac eased a bit in the second quarter of 2011, declining to 755, but remain well above historic norms. Less than one percent of loans were offered to buyers with credit scores of 620 or below, and 70 percent of loans were provided to borrowers with credit scores of 740 or higher.
Twenty-five percent Americans have credit scores below 599, almost double the level of two years ago.

Homeowners who have experienced a foreclosure on a conventional loan can expect to have a negative credit score for at least seven years, while a foreclosure on an FHA loan can have a three-year impact. The impact for an owner in a short sale can vary widely, but is much less severe if the owner was current on the mortgage payments.

Realtors(R) can help educate buyers on how to improve their credit score, including things to do and avoid, such as paying all bills on time and not taking on new sources of debt before applying for a mortgage, such as buying a car or making any other installment purchase.

The Fair Credit Reporting Act protects consumers from unfair treatment as a result of inaccurate information in personal credit files. Individuals may obtain a free copy of their report and have the right to examine, revise, delete old information, inform others of a dispute, or trace who pulled or issued a report. Consumers may check their credit score with one of three credit reporting companies: Equifax, Experian or TransUnion.

“Many credit reports have detrimental errors, such as duplicate items or incorrect credit limits, so it’s important to check yours,” Hall said. “If you’re planning to apply for a mortgage, don’t close an account within six to 12 months in advance. Keep older accounts, even if they’re unused, because the average age of credit accounts is a factor in scoring performance over time.”
There are a number of online resources available, including www.myfico.com/crediteducation which provides basic credit education; www.annualcreditreport.com, where consumers can get free credit reports with no strings attached; and NAR’s Field Guide to Credit Scoring at www.realtor.org/library/library/fg706a

by Alex Ferreras on in Real Estate
The National Association of Realtors(R), “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

Information about NAR is available at www.realtor.org
This and other news releases are posted in the News Media section.
REALTOR(R) is a registered collective membership mark which may be used only by real estate professionals who are members of the NATIONAL ASSOCIATION OF REALTORS(R) and subscribe to its strict Code of Ethics. Not all real estate agents are REALTORS(R). All REALTORS(R) are members of NAR.
For further information contact: Walter Molony 202-383-1177
The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

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Home Builders offer second master bedrooms, kitchenettes and separate entrances.

(Updates with builder confidence index in 14th paragraph.)
Nov. 16 (Bloomberg) -- Kevin Barnes figures buying a newly built home saved him money. That’s because he chose a model with a second master bedroom for his mother-in-law.
“She’s a free babysitter,” said the 42-year-old chemical salesman, who in June purchased a four-bedroom house in Orlando, Florida, built by KB Home. “Day care costs about $200 a week.”

The Barnes residence is part of a growing line of new homes marketed to multigenerational families, a category that increased by 30 percent from 2000 to 2010, according to the U.S. Census Bureau. KB Home, Lennar Corp. and PulteGroup Inc. are among the builders that offer models with second master bedrooms, kitchenettes and separate entrances.

Those features may help lure buyers at a time when new homes are selling at a record slow pace and more Americans are living with extended families, said Megan McGrath, a homebuilding-industry analyst with MKM Partners LP.
“When builders are still fighting for every sale, hitting on something that resonates with your local demographic can make a difference,” McGrath, based in Stamford, Connecticut, said in an e-mail.

The number of households comprising three generations rose to almost 5.1 million in 2010 from 3.9 million a decade earlier, according to the Census Bureau. An estimated 51 million Americans, or 16.7 percent of the population, lived in homes with at least two generations of adults in 2009, up from 42 million in 2000, the Pew Research Center said in an October report.

Niche Area

“This is a niche area that appears to be solid and growing,” Stephen Melman, director of economic services at the Washington-based National Association of Home Builders, said in a telephone interview. “It’s a demographic thing.”

The increase in multigenerational families won’t stimulate demand for new houses because it represents a slowing of household formation, Lawrence Yun, chief economist for the National Association of Realtors, said at a Nov. 11 conference in Anaheim, California. It’s also not clear the trend will continue once the economy recovers, he said.

“The past few years is really about economic hardship,” Yun said. “More people in multigenerational households just means there are more people under one roof.”

Falling Household Formations Household formations fell to about 515,000 in 2009 from as high as 1.48 million in 2004, according to the Census Bureau’s American Community Survey. The number of formations in 2010 was about 981,000. The percentage of men aged 25 to 34 who live with their parents grew by almost a third during the past five years, as so-called boomerang children returned home from college or the military or lost their jobs, census figures show.
At the same time, aging baby boomers are moving in with their children to save money and share the task of child care.

“Clearly it’s not all because of the bad economy,” D’Vera Cohn, a senior writer with Pew, said in a telephone interview from Washington. “But it accelerated during the bad years.”

Those “bad years” hammered new home sales, which are expected to fall to 305,000 this year, according to the National Association of Home Builders. Last year, 323,000 new single- family homes sold, down from a peak of 1.28 million in 2005 and the fewest since the Commerce Department began tracking data in 1963, as unemployment lingered around 9 percent and discounted prices for foreclosed homes made it tough for builders to compete.

Homebuilder Confidence

A gauge of confidence among U.S. homebuilders climbed this month to the highest level since May 2010, a sign the outlook for construction may be stabilizing. The National Association of Home Builders/Wells Fargo index rose to 20 from 17 in October, the Washington-based group said today. Readings below 50 mean more respondents said conditions were poor.
While building homes for extended families won’t increase aggregate demand, it may spur interest in new designs that appeal to buyers in an era of economic stress, said Robert Shiller, a Yale University professor of economics and the co- creator of the S&P/Case-Shiller home price indexes.
“The bubble years before 2006 seemed to be a time when people were indulging in conspicuous consumption,” Shiller said in a telephone interview from his New Haven, Connecticut, home, which he has opened to student boarders for the past two decades. “These days, we don’t feel so good about showing off like that. If you have a relative who’s been unemployed for a year, it doesn’t feel the same. So you buy a house that has quarters for your mother and that feels better.”

Home Within Home

A steady stream of shoppers visited Lennar’s Next Gen models, dubbed “the home within a home,” at a grand opening in the Rosena Ranch community in San Bernardino, California, on Nov. 5. The houses have two front doors, two kitchens, two washer-dryer sets and two living rooms.

Prices start at $318,890 for the three-bedroom main house and built-in suite with an option of one or two bedrooms. The smallest home in the development -- a 1,404-square-foot (130- square-meter), one-story house -- starts at $241,070.
Dan Alvarez, owner of a risk-management company in Rancho Cucamonga, California, said he was attracted to the option of buying the house with a separate unit for his three college-aged children.

No Dorms

“If I were to move into a place like this, it eliminates having to rent another place if you’re funding college,” he said during a tour of the model home. “You wouldn’t have to pay for their college dorms.” For Alvarez, 60, the drawbacks are the location -- more than an hour’s drive from his daughter’s college in Orange County -- and the weak local real estate market.

The San Bernardino-Riverside County region had the fifth- highest foreclosure rate among metropolitan areas with a population over 200,000 in the quarter ended Sept. 30, according to RealtyTrac Inc., a real estate information service in Irvine, California. Home starts are likely to fall to less than 1,000 in San Bernardino County this year, compared with 10,416 in 2005, according to Houston-based MetroStudy, which tracks housing construction.

Mary and Marty Nachman, retirees from Apple Valley, California, said the two-unit Lennar home may be preferable to the house they bought in 2007 in one of Pulte’s Del Webb senior communities, where their children can stay for only two months a year because they’re under age 55.

Moving Back Home
“With this economy, the way things are right now, there are a lot of young adult children who need to move back home for a while,” said Mary Nachman, 68, a retired juvenile court officer and mother of five. “We already know people in our community who’ve had kids move back in, but they’re doing it against the rules and doing it covertly. If they get turned in, their kids will have to leave.”

While duplexes, granny flats and guest houses have a long history, the two-homes-in-one models are new for mass-market builders, said Jeff Roos, president of Lennar’s Western region. Lennar, the third-largest U.S. builder by revenue, unveiled its first Next Gen homes in September in the Phoenix area and expects to offer them in as many as 40 communities by the end of this year, Roos said.

Next Gen homes are being built in Phoenix and California’s Inland Empire and Central Valley, and soon will be constructed in Las Vegas as well. Those regions have among the highest foreclosure rates and biggest price declines since the U.S. housing bubble burst, increasing the need for new designs to boost sales, Roos said.

Competing Well

“We think it will compete very well versus a foreclosure or distressed sale,” he said in a telephone interview from his office in Aliso Viejo, California. “It allows proximity and independence.”
Ronald Cosey, a San Bernardino County government auditor, said he wished the Next Gen model was available when he bought a house last year in Rosena Ranch, so he could either accommodate his mother or take in a renter for extra income.

“In this economy, everyone is struggling,” Cosey, who lives alone, said during a visit to compare the model home with his own. “Maybe you can find a foreclosure cheaper, but with this new home, with the extra income, it’s definitely a benefit.”

Pooling Resources

Zoning rules and building codes prohibit the Next Gen homes from having a full stove in the smaller unit’s kitchen, a restriction to discourage rentals, Roos said. The personal finance benefits may occur as extended families pool resources for down payments and mortgage bills, said John Burns, chairman of John Burns Real Estate Consulting in Irvine, California.

“It’s a real opportunity for homeownership for people that couldn’t get it otherwise,” he said in a telephone interview. “Imagine a young couple that can’t afford a home by themselves but mom can help them. That works out really well.”

The U.S. homeownership rate was 66.3 percent as of Sept. 30, down from a high of 69.2 percent in June 2004, the Census Bureau reported Nov. 2.

Pulte, the nation’s largest builder by revenue, offers new homes with stand-alone smaller units or the option of converting garages to “casitas,” the Spanish word for small houses. Other Pulte features to accommodate extended families include ground- floor master bedrooms for elderly family members who can’t climb stairs.

Doggie Couches

Some Pulte model homes include a room decorated with a doggie couch, chew toys and “dog eye chart” with pictures of a bone, a cat and paw prints -- stretching the extended family concept beyond the human species.
“We heard from our buyers: We have pets and we consider them a part of the family, and we’d rather have space that’s allocated to the pet, just like we would a bedroom for a child,” Scott Thomas, Pulte’s director of architecture, said in a telephone interview from Bloomfield Hills, Michigan.

“Gateway cities” on the coasts and along the Mexican border are prime markets for multigenerational housing because first- and second-generation immigrants are the most likely to live with extended families, said Richard Gollis, a principal at the Concord Group LLC, a real estate consulting firm in Newport Beach, California.

According to Pew, 25.8 percent of Asians, 23.7 percent of blacks and 23.4 percent of Hispanics live in multigenerational households, compared with 13.1 percent of whites.
Luxury-home builders are among developers tapping into the multigenerational trend, Gollis said.

Toll Brothers Inc., the largest U.S. builder of luxury homes, is now offering kitchenettes and second master bedrooms as an option in its “midsized” houses, which are as small as 3,200 square feet, said Tim Gehman, director of design for the Horsham, Pennsylvania-based builder.

At Lambert Ranch in Irvine, California, a 169-lot subdivision where sales are scheduled to begin in April, the New Home Co. plans to offer houses starting at about $900,000 that can be connected to form a two-unit compound, said Joan Marcus- Colvin, vice president for marketing and design at the Aliso Viejo, California-based company.

“It’s not a new concept,” she said in a telephone interview. “But for today’s market it hasn’t been introduced.”

The median price of an existing single-family house in the Orlando area was $128,200 in June, according to the Florida Association of Realtors. That’s when Barnes paid about $280,000 for his 2,565-square-foot house with the additional master bedroom, in KB Home’s Mabel Bridge community, to accommodate his 71-year-old mother-in-law, Linda Roulley.

Her quarters provide space to relax and watch television, and she has privacy from Barnes, his wife, their 3-year-old son, six cats and a Labrador retriever mix, Barnes said.
“We’re not putting her in a box,” he said. “She likes her independence.”

Roulley also enjoys spending time with her grandson, Ethan, and takes comfort knowing she can depend on her daughter Leanne to take her shopping or to the doctor, Barnes said.
There’s just one downside, Barnes joked: “I’ve got my mother-in-law living with me.”
--Editors: Daniel Taub, Christine Maurus
To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net
To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

Visit First Capital Online or call: 310-458-0010