January 27, 2009

The Real Estate Mortgage and Credit Meltdown How Did We Get Here and Where Do We Go?

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Panel discussion at USC featuring: Larry Harris, Fred V. Keenan Chair in Finance and former Chief Economist of the U.S. Securities and Exchange Commission. Richard Green, Lusk Chair in Real Estate.

January 19, 2009

Southern California Home Prices End Year 2008 down 35%

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In a recent LA Times article written by Peter Y. Hong, Southern California home prices continued their decline at the end of 2008, closing the year at 2003 price levels, a real estate research firm reported today. The December median sales price for all Southern California homes fell to $278,000, a 35% drop from the same month a year prior, according to San Diego-based MDA DataQuick.

Recent foreclosure news suggests that short sales and re-defaults from unsuccessful loan modification plans, may be misleading the severity of the foreclosure crisis in Southern California.

Los Angeles County’s median sales price of $320,000 was down 32% from December 2007, while Orange County’s median price fell 30% to $397,000. San Diego’s median price dropped 30% from December 2007, to $300,000. Ventura County’s $338,000 median December sales price was down 36% from the prior year. Reduced sales prices drove the number of Southern California homes sold in December up by 51% over the previous year. “It does look like the spigot is being opened a little bit, at least for low-cost home purchases,” said John Walsh, MDA DataQuick president. The typical monthly mortgage loan payment that California homebuyers committed themselves to paying was $1,239 last month, down from a revised $1,380 for the previous month, and down from a revised $2,060 for December year ago. Read the complete LA Times article.

January 16, 2009

Falling Home Prices Hitting Hard

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Foreclosures are closely tied to home prices – they tend to rise as prices fall. And nationally, home prices have fallen more than 21% from their peak, according to the S&P/Case-Shiller Home Price index. In many areas, the decline has been much worse. In Los Angeles, San Francisco and Miami prices are down 30% or more. They’ve fallen more than 40% in Phoenix and nearly that much in Las Vegas. Loan modifications are helping thousands of borrowers avoid foreclosure, but the home that are lost to foreclosure are sold at such a discount the effects in the housing markets are astounding.

Declining prices put many homeowners “underwater” on their mortgage loans, owing more than their homes are worth, which makes them more likely to default. And adding a flood of bank-owned homes to already slow markets further outstrips demand and dampens prices, creating a spiral of lower prices and higher foreclosures. As a result, more homeowners who fall behind on their mortgage payments end up losing their homes, according to Jay Brinkman, the chief economist for the Mortgage Bankers Association. Foreclosure news seems to arise daily as foreclosure rates rose 81% in 2008.

In California and Florida 80% of the homeowners who miss a loan payment end up in foreclosure, according to the MBA. That’s a much, higher percentage than in the past. “The number of mortgages 30 days past due are still below what they were during the 2001 recession,” said Brinkman. But the proportion of those loans that went into foreclosure was much lower, he added – about 10%. “Delinquency itself has become a much clearer predictor of foreclosure,” said Sharga. If home prices keep plunging, the foreclosure scourge will likely continue. And S&P’s chief economist, David Wyss, expects home prices to continue to decline, bottoming in early 2010 roughly 33% below their 2006 peak.

January 13, 2009

Predicting the Bottom of the Real Estate Market

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Suze Orman discuss on when do you know if the Real Estate has reached the bottom. When has the housing market reached the bottom? In most cases, when the prices begin to go back up, then you have reached the bottom.

Watch this video to learn more about the real estate market reaching the low point.

According to KMG president Jason Cardiff, “Timing the real estate market is very difficult.” Cardiff continued, “Like the stock market, predicting the bottom can be a great way to make money quickly, but even most experts are unable to call the bottom.” Sign up now and have the latest real-estate news delivered to you as it is reported.

December 22, 2008

Will Credit and Mortgage Markets Rebound in 2009?

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Real estate news continues to dominate main stream media because of the housing sales slumps, foreclosure crisis and historic mortgage rate cuts. The Existing Home Sales release will be released soon from the National Association of Realtors and the Department of Housing and Urban Development. The Commerce Department will also release a report with new home sales data.  These three reports should help the experts measure the strength of the housing sector and home loan credit demand, however, neither consider to be of high importance. Both of the reports are expected to show a decline in sales.

In a recent article, Kelly Media Group President, Jason Cardiff said, “2009 may see the housing sectors and mortgage refinance markets rebound after all.” Cardiff continued, “The Federal Reserve showed their commitment with record low rate cuts to fight deflation and many believe the President Elect, Barrack Obama will be aggressive in an effort to stem the foreclosure mess.” HUD continues to release new FHA loan products that offer solutions for mortgage refinancing with Hope for Homeowners and FHA Secure. FHA continues promoting rehabilitation and home remodeling to foreclosed home-buyers with the 203k rehab loans. FHA actually insures rehabilitation mortgages for owner-occupants and non-profit housing providers who finance the rehabilitation of an existing property or the purchase and rehabilitation of a property.

December 17, 2008

Low Mortgage Rates May Stimulate Real Estate Markets in 2009

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The Federal Reserve continued with their rate cutting campaign that promotes home financing and lending directly to damaged financial markets and companies. Its statement Tuesday came with a promise to extend those efforts. “The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the Fed said.

Two large Federal lending programs are still being ramped up. In one, the central bank will buy up to $600 billion of debt issued or guaranteed by Fannie Mae, Freddie Mac and other government-backed mortgage businesses. So far, the Fed has only committed $8 billion to purchasing bad credit home loans. Officials have been relieved that mortgage rates have come down since announcing the program. 

According to HSH Associate, mortgage rates for conforming thirty year home loans dropped from 6.64% to 5.28% since the Fed’s last meeting, a financial publishing firm. It has been one of the few areas in financial markets where credit costs have shown substantial improvement in the past few weeks. “Over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant,” the Fed said.

Fed officials have high expectations for a separate program through which they will lend up to $200 billion against high-rated securities backed by car loans, student loans, credit-card debt and small-business loans. U.S. officials have said the program, which is called the Term Asset-Backed Securities Loan Facility and is expected to be operational in February, can be expanded to other asset classes — such as commercial real estate loans or mortgages not backed by Fannie Mae and Freddie Mac. FHA loans also got a boost from the Fed’s rate reduction, as FHA mortgage executive, Jeff Moran said, “FHA mortgage applications have surged since last week.” Moran continued, “Our lending office alone saw a 35% increase new loan application volumes, compared to the previous week.”

The latest housing data underscored the grim economic setting. The housing downturn is now more than three years old. “November’s report for new home production and permit issuance indicates not only that conditions aren’t improving in the housing market, but that the situation is getting worse,” said David Crowe, chief economist with the National Association of Home Builders. Real estate news in 2008 has been mostly negative amid the foreclosure crisis and stock market slide. Kelly Media Group President, Jason Cardiff spoke to reporters in Toronto today as the rate cut news hit the wires. Cardiff said, “The Federal Reserve has made their move to lower mortgage rates to these historic levels. Now struggling American homeowner who have been waiting on the sidelines to refinance can now jump into the game.” Cardiff continued, “Let’s take a moment for have a round of applause…Fixed rates at 5% is good news for American homeowners.”

The Federal Open Market Committee had downgraded its unemployment and economic growth projections at its last meeting on October 29th and things have only gotten worse since then. The unemployment rate, at 6.7% in November, was already above the Fed’s October forecast for the fourth quarter and looks sure to go higher still.

Economists at Macroeconomic Advisers LLC, a forecasting firm, say the nation’s gross domestic product is on track to contract by 6.5% in the current quarter. If they’re right, it will be the worst quarter since 1980. “Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment and industrial production have declined. Financial markets remain quite strained and credit conditions tight,” the Fed said.

The recent decline in mortgage rates could help revive housing markets. Federal Reserve officials also are focused on reducing other interest rates relative to Treasury benchmarks, a difference that is known on Wall Street as a ’spread.’ Across a wide-range of consumer lending, spreads have remained painfully high since September, a sign of tight credit conditions.

December 10, 2008

Foreclosures Increase Home Sales

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According to a report from Michael Corkery, the early indications of more housing market gloom October – a month in which one home builder executive declared that “home buyers had essentially gone on strike” — pending home sales were not as low as many real estate experts had anticipated. The National Association of Realtors’ measure pending sales were down 0.7%. in October from the previous month, compared with Wall Street’s estimate of a 3% decline.

The reason for the real estate evaluators to be so far off their predictions was likely to due to foreclosure news. Credit Suisse analyst Dan Oppenheim said his survey of real estate agents showed signs of dismal sales in October, but those real estate agents might have missed the foreclosures being sold by mortgage lenders and banks in bulk or through auctions in the distressed markets of Southern California, Las Vegas Nevada and most of Florida. California short sales continued to dominate the pending real estate sales.

The better than expected pending sales are a mixed blessing. The home foreclosure sales continue to drive down prices and are taking away business from home builders and homeowners trying to sell their homes. But it does suggest that the foreclosure overhang is being whittled away, especially in the South – primarily Florida – where pending home sales were up 7.8% in October.

Will Lower Home Mortgage Rates Salvage the Real Estate Markets?

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Forbes.com’s real estate experts weigh the Treasury’s attempt to regenerate the real estate bubble by reducing home mortgage rates. In a recent article, Stephane Fitch considers the controversial proposal being discussed in which the U.S. government will actually buy down the interest rates from banks to ensure lower mortgage rates to help ignite the housing market that has been hindered by foreclosures and declining real estate in the news nationwide. Forbes magazine brought together their panel of real estate experts who are uniquely qualified to analyze, assess and anticipate movements to escape the housing crisis.

Forbes: The biggest headline of the moment: The government seems to be planning serious action to lower mortgage rates. But there’s a lot of other news happening. (Anybody notice that an obscure developer named Donald Trump is in a legal fight with his mortgage lenders? Both Radar Logic and Zillow.com have released new data and insights about the housing crisis. Mark Zandi’s colleague at Economy.com, Celia Chen, has asked me to share with you all an interesting study of own vs. rent ratios across the nation that is quite alarming.

Let’s go around the horn about the mortgage rates. Treasury reportedly wants to push mortgage rates down to 4.5% from their current level. It’s unclear how they’ll do this or whether it’s wise public policy. But let’s take the 4.5% mortgage rate on its face.

Spencer, Zillow.com is reporting that the going rate for a 30-year fixed rate amortizing mortgage is around 5.3%. That figure doesn’t include the payment of “points.” I believe a no-points thirty-year home loan is solidly above 6% today. So driving down rates by 150 basis points is just huge. What does this mean to a wealthier person, a Forbes reader, say, who is thinking of buying or selling or holding onto a house?

Spencer Rascoff: What a wild last two weeks. The national average interest rate for a thirty-year fixed mortgage in Zillow Mortgage Marketplace is now down 80 basis points from two weeks ago. This dramatically improves the affordability of real estate to the typical home-buyer and has sparked a refinance boom in the last few weeks.