Short Sale Commander Blog

Home sales in the Midwest surged in October as first-time home buyers sought to beat the initial deadline for a federal tax credit and difficult market conditions last year made comparisons favorable.
The National Association of Realtors released that there were 111,000 resales in the Midwest, up 26 percent from October last year and the best showing in the country. The median sale price for the region rose 1 percent — also leading the country — to $146,600.
In Southern Indiana the home sales also rebounded, but still have a way to go, Realtors say.
“I would say we were along those same lines as the national average [in home sales],” said Pat Harrison, chairwoman of the Southern Indiana Realtors Association.
Nationally, home resales rose 21 percent from a year ago, without adjusting for seasonal factors. The median sale price fell 7 percent to $173,100, the Realtors association said.
In the area, 298 homes were sold in October, and the median sale price was lower than the national average, at $124,950.
“I think there are a lot of auction and foreclosures [sales] in that,” said Lisa Feiock, with Semonin Realtors and board chair-elect with SIRA, of the median home prices drop.
Foreclosures and short-sales have also had an impact on the amount of pending homes sales, at 458. Some of those homes were placed under contract as long ago as August and September, but it often takes longer to clear through escrow than a normal home sale, Feiock said.
The big boost to October’s sales came from the extension of the federal tax credit for first-time home buyers worth up to $8,000, economists and local real estate experts said. The tax credit originally was supposed to end this month, but Congress recently agreed to extend it to cover contracts signed by April 30, and that has local Realtors excited.
“I’m so glad they extended that $8,000 rebate,” Harrison said.
Feiock reinforced Harrison’s zeal.
“I truly feel the extension for the first time home buyers and move-up home buyers is a really good idea,” Feiock said.
However, another tax credit may also boost sales through November and December and into the first of the year, traditionally slow months for home sales, according to Feiock. It’s a federal tax credit targeted for move-up buyers of $6,500 for current homeowners that have been at their residence for at least five years and are looking for an upgrade.
“It should stimulate the whole market for move-up buyers,” Feiock said.
For those looking to cash in before the tax credits run out again in April, there are still 2,153 active listings in Southern Indiana; 2,350 residential homes have been sold for the year.
“I feel like our first quarter is going to be very good,” Feiock said.
More optimism for those looking to buy in the Midwest was the region lacked the big increases in home prices and frenzied selling seen along the coasts, so the region was expected to have an easier time recovering. But the Midwest relies heavily on manufacturing, and the unemployment rate has risen to 10 percent in October, well above the 6.6 percent of a year ago.
All 12 major Midwestern cities tracked in the Associated Press-Re/Max Monthly Housing Report, released Monday, also showed annual increases in sales in September, all but three by double digits. All but four showed median sale price declines.
The report analyzed sales transactions in the metropolitan statistical areas recorded by all real estate agents, regardless of company affiliation.

Here are some of the highlights from the region:
• Biggest sales gain: Des Moines, Iowa, saw the number of sales jump 39 percent from a year ago. Meanwhile, median price declined about 5 percent year-over-year to $144,000.
John Knox, an agent with Iowa Realty in Ankeny, a northern suburb of Des Moines, said 37 percent of sales in his office’s pipeline are first-time home buyers looking to take advantage of the tax credit.
“Overall, our projections for 2009 were pretty dismal and it’s been an exceptional year,” Knox said. “We have historically low [interest] rates and we have great inventory and it’s at or below market price. So we kind of have a perfect wave, a perfect storm.”
• Smallest sales gain: Sales in Wichita, Kan., were the worst in the region, nudging ahead only 1 percent from a year ago. The median sales price declined 5 percent to $120,850.
The city’s aviation industry has been hit hard by the economy as orders for business jets and other aircraft have dried up, leading to large layoffs. Wichita’s unemployment rate in October was 7.9 percent, well above the 4.3 percent rate a year ago.
Rodney Blockyou, an agent with JP Weigand & Sons, said the market is in a holding pattern as potential customers and sellers get a feel for when the job losses will cease.
“They can give all the stimulus they want but if [buyers] are going to lose their job or are fearful of losing their job they’re not going to do it,” Blockyou said, referring to the first-time home buyer credit.
• Biggest price gain: Cleveland led the region with the median sale price rising 15 percent year-over-year to $117,500. Overall sales also rose, gaining almost 6 percent from October 2008.
Colleen Rock, an agent with Re/Max Crossroads, said she’s seeing some stability returning to parts of town and more interest in higher-priced homes, possibly because people are relocating to the area.
But she stopped short of saying the Cleveland market has recovered. The city’s economy is still struggling with job losses and she expects another round of foreclosures that could depress prices again.
“Without having a crystal ball, just because we’re stabilizing I can’t comfortably tell you we’re back to a normal market,” Rock said. “It might be another year.”
On a related note, the Detroit market saw its median sale price rise 6 percent to $69,000, the first year-over-year increase in more than a year. Sales, meanwhile, increased 8 percent.
• Biggest price decline: Chicago, the region’s priciest market, posted a 15 percent drop in the median sale price to $185,000. Sales, however, were brisk, rising 34 percent from a year ago.
Earl Ruthman, an agent with Coldwell Banker Leader Realty in Chicago, estimated 70 percent of his office’s sales have been with first-time home buyers, but he’s also seeing people looking to move up to the next level of housing.
At the same time, he said, cautious lenders and low appraisals are keeping prices down.
“Even if I sold a house for $250,000 and the appraisal comes out at $230,000, nine out of 10 times the sellers will have to renegotiate the price and be closer to $230,000,” he said. “The appraisals are causing a lot of this fall in prices.”
• Inventory highlight: The number of unsold homes fell in every Midwestern city last month from a year ago except Des Moines, according to the AP-Re/Max report. Indianapolis, Detroit and Cleveland again led the region, with inventory drops of more than 28 percent each. Des Moines added 24 percent its October 2008 backlog.
Housing experts say reducing the existing inventory of unsold homes is key to sustaining a resurgence in home prices.

http://www.newsandtribune.com/clarkcounty/local_story_332163847.html

Data show that banks may be more willing to work with homeowners

By HUBBLE SMITH
LAS VEGAS REVIEW-JOURNAL

The mix of home sales in Las Vegas has changed.

There has been a sharp increase in short sales, an indication that banks may be more willing to work with homeowners to avoid foreclosure, real estate industry sources said.

Short sales, or homes sold for less than the mortgage balance, comprised 16 percent of October home sales, compared with 8 percent in the first quarter, Robin Camacho of Realty One Group in Las Vegas said.

Camacho said she probably has as many short sales in escrow as real estate-owned, or bank-owned, homes.

“Short sales are no longer merely a niche market — they are becoming the market,” the distressed-property expert said. “Of course, the number of pending short sales is much higher, but many of those won’t be approved. Still, that’s a substantial shift. That’s double the percentage of short sales.”

REOs still dominate the market, with 64 percent of sales, but that’s down from 81 percent earlier in the year. The median foreclosure price was $125,000. Regular third-party home sales account for 20 percent of sales, with a median price of $186,000, Camacho reported.

While short sales have become an increasingly favorable option to foreclosure, they must be approved by the lender for hardship reasons and usually take longer to complete.

Neil Schwartz, REO specialist with Coldwell Banker Premier Realty in Las Vegas, likened the short-sale process to an hourglass. At the top of the hourglass are 8,647 short sales in escrow; at the bottom are 1,579 short sales that have closed in the past three months.

“What’s keeping them from going from the top to the bottom is the banks. They control the narrowness of that hourglass,” Schwartz said. “I’m seeing some opening, but a very small percentage are getting through.”

Nevada Title Co. reported 428 short-sale closings in October and 1,261 failed closings, about a 25 percent success rate. There are 3,692 short sales on the market and 6,554 in escrow. The percent selling and market speed, or the rate of conversion of listings to closings, is inching up slowly.

The price of short-sale properties in escrow is holding steady at about $150,000, while the closing price is down $8,000 from September’s $158,000, Nevada Title reported. The median asking price is down $4,000.

Not everyone qualifies for a short sale, Schwartz said. There has to be a reason for the bank to approve the sale such as loss of job, death of a spouse or debilitating medical condition.

Banks need to streamline the process by hiring additional staff and establishing better guidelines on what they’ll accept for a short sale, he said.

Keith McIntyre was approved for a short sale of his home in Las Vegas, but backed out when he received a letter from Bank of America that included a clause for deficiency judgment on the remaining balance of about $120,000. The clause allows the bank to recoup its losses from any assets accrued by McIntyre in the next six years.

“I wasn’t big on the idea,” McIntyre said from Denver, where he now lives. “I got an approval letter from Bank of America without the deficiency clause before they took over Countrywide. I don’t know if the legal department at the bank has gotten more creative or if one bank is just doing things differently from another. It just leaves a real bad taste in your mouth.”

People looking to short-sell are “trying to do the right thing,” McIntyre said, but they’ll let their homes go to foreclosure if banks stand firm on seeking deficiency judgments, especially after taking government bailout money.

J.J. Bell of Las Vegas looked at a 6,000-square-foot home in the gated Palisades Canyon enclave of northwest Las Vegas listed for $975,000, reduced from $1.8 million in February.

“I don’t know if I’m going to make an offer,” said Bell, who’s also looking at high-end golf course properties in Eagle Hills and Tournament Hills. “You can find darned near as good a deal on the regular market. It really doesn’t matter.”

The difference between the $116,900 median price of an REO sale and the $150,000 median price of a short sale “speaks volumes” on what the banks should be doing, housing analyst Larry Murphy of Las Vegas-based SalesTraq said.

Foreclosure homes aren’t properly maintained and lose value when they sit empty, he said. Banks also incur longer holding costs when they complete the foreclosure process.

“The only way we can avoid foreclosures next year is if the banks wise up,” Murphy said. “The trend is increasing in short sales. I wouldn’t be surprised in 2010 if the percentage of short sales equals or exceeds the REO percentage because it’s the smart thing.”

David Brownell of Keller Williams Realty said private sellers are having more success negotiating short sales with their mortgage lenders.

One of the statistics that caught his attention in September was the 117 percent increase in short sale closings from a year ago. Second was the declining inventory. His figures show single-family home inventory falling from 21,349 in October 2008 to 10,956 in October of this year — a drop of 49 percent.

He’s seeing such things as “reverse foreclosures” whereby banks are undoing a recent foreclosure, putting the previous loan back in place and working out terms with the homeowners in an effort to seek alternative solutions to foreclosure.

California-based real estate consultant John Burns said he expects to see an increase in short sales with the Treasury department’s recently announced $2,500 subsidy — $1,000 to the servicer and $1,500 to the seller — to encourage short sales as a way to clear excess inventory.

The fees are designed to help compensate the loan servicer for the extra effort and to give the seller incentive to cooperate and leave the home in good condition.

“Short sales have developed a bad reputation as frustrated buyers have had limited success,” Burns said. “We’ll see if the Treasury can change this, but we are skeptical.”

Banks and real estate agents must figure out how to work together, Burns said. Banks have been slow to approve the sale, particularly when the high bid is below the last appraisal on file. Realtors typically don’t want to deal with the extra work involved in a short sale. Buyers don’t want to deal with the bank’s bureaucracy, which can take four to five months for a short sale.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.

October market report

The economy and the stock market may be recovering from their swoon, but more homeowners than ever are having trouble making their monthly mortgage payments, according to figures released Thursday.

Nearly one in 10 homeowners with mortgages was at least one payment behind in the third quarter, the Mortgage Bankers Association said in its survey. That translates into about five million households.

The delinquency figure, and a corresponding rise in the number of those losing their homes to foreclosure, was expected to be bad. Nevertheless, the figures underlined the level of stress on a large segment of the country, a situation that could snuff out the modest recovery in home prices over the last few months and impede any economic rebound.

Unless foreclosure modification efforts begin succeeding on a permanent basis — which many analysts say they think is unlikely — millions more foreclosed homes will come to market.

“I’ve been pretty bearish on this big ugly pig stuck in the python and this cements my view that home prices are going back down,” said the housing consultant Ivy Zelman.

The overall third-quarter delinquency rate is the highest since the association began keeping records in 1972. It is up from about one in 14 mortgage holders in the third quarter of 2008.

The combined percentage of those in foreclosure as well as delinquent homeowners is 14.41 percent, or about one in seven mortgage holders. Mortgages with problems are concentrated in four states: California, Florida, Arizona and Nevada. One in four people with mortgages in Florida is behind in payments.

Some of the delinquent homeowners are scrambling and will eventually catch up on their payments. But many others will slide into foreclosure. The percentage of loans in foreclosure on Sept. 30 was 4.47 percent, up from 2.97 percent last year.

In the first stage of the housing collapse, defaults and foreclosures were driven by subprime loans. These loans had low introductory rates that quickly moved to a level that was beyond the borrower’s ability to pay, even if the homeowner was still employed.

As the subprime tide recedes, high-quality prime loans with fixed rates make up the largest share of new foreclosures. A third of the new foreclosures begun in the third quarter were this type of loan, traditionally considered the safest. But without jobs, borrowers usually cannot pay their mortgages.

“Clearly the results are being driven by changes in employment,” Jay Brinkmann, the association’s chief economist, said in a conference call with reporters.

In previous recessions, homeowners who lost their jobs could sell the house and move somewhere with better prospects, or at least a cheaper cost of living. This time around, many of the unemployed are finding that the value of their property is less than they owe. They are stuck.

“There will be a lot more distressed supply entering the market, and it will move up the food chain to middle- and higher-price homes,” said Joshua Shapiro, chief United States economist for MFR Inc.

Many analysts say they believe that foreclosures, instead of peaking with the unemployment rate as they traditionally do, will most likely be a lagging indicator in this recession. The mortgage bankers expect foreclosures to peak in 2011, well after unemployment is expected to have begun falling.

There was one sliver of good news in the survey: the percentage of loans in the very first stage of default — no more than 30 days past due — was down slightly from the second quarter. If that number continues to decline, at least the ranks of the defaulted will have peaked.

“It’s arguably a positive, but it doesn’t undermine the fact that there are still five or six million foreclosures in process,” Ms. Zelman said.

The number of loans insured by the Federal Housing Administration that are at least one month past due rose to 14.4 percent in the third quarter, from 12.9 percent last year. An additional 3.3 percent of F.H.A. loans are in foreclosure.

The mortgage group’s survey noted, however, that the F.H.A. was issuing so many loans — about a million in the last year — that it had the effect of masking the percentage of problem loans at the agency. Most loans enter default when they are older than a year.

When the association removed the new loans from its calculations, the percentage of F.H.A. mortgages entering foreclosure was 30 percent higher.

The association’s survey is based on a sample of more than 44 million mortgage loans serviced by mortgage companies, commercial and savings banks, credit unions and others. About 52 million homes have mortgages. There are 124 million year-round housing units in the country, according to the Census Bureau.

A new report from Zillow.com says that banks are facing more obstacles to making short sales, Diana Olick of CNBC reported. While the percentage of borrowers who are underwater on their mortgages declined in the third quarter, to 21 percent from 23 percent, the abundance of negative home equity, coupled with the growing number of homeowners who have taken on second mortgages, has made it harder for banks to complete short sales, the report says. Tim Wilson, president of Long & Foster Companies real estate group, the largest real estate company in the mid-Atlantic, said that the short sale situation has grown so complicated that his firm has designated a specific team just to handle short sales.

by: Chris Palmeri

Trillions spent on propping up banks, buying mortgages, tax credits and new programs designed to lower payments and prevent foreclosures. And yet a new survey from Move Inc., the parent of Realtor.com, says Americans are growing increasingly dissatisfied with how Washington is handling the housing mess.

The October 2009 survey found that the federal government’s approval rating by consumers on housing issues has slipped since March 2009. By a six-percent margin, Americans said they don’t think the government is doing enough to stabilize the housing market (48.2% compared to 42.2% five months ago). According to the survey, consumers still want low interest rates (31.4%) and action by the government to help homeowners prevent foreclosures (28.5%), the same two top priorities expressed by survey respondents in March.

The survey found that public participation in the programs to prevent foreclosures is much lower than anticipated. In March 2009, several days after the details of the Making Home Affordable program were announced; Move’s survey found that 17.6 percent of those interviewed said they intended to participate in the Administration’s program. Now only 8.8 percent said they actually did participate.
The number of consumers interested in investing in real estate has doubled since March. One out of eight (12.1%) homebuyers today plan to purchase a home as an investment property, compared to 5.6 percent seven months ago.

Fear of foreclosure is fading. In March 52.5 percent of all survey respondents said they were concerned that they or someone they know may face foreclosure in the next 6 to 12 months. That number dipped slightly to 45.1 percent in October.

The survey of 1,000 people was conducted the third week of October.

by Carrie Bay

The number of applications filed for home purchases last week was the lowest seen since December 2000, the Mortgage Bankers Association reported Thursday. The slump comes despite favorable mortgage interest rates, which are still averaging well below the 5 percent threshold.

The extension and expansion of the homebuyers tax credit that passed Congress November 5, and is expected to be signed in later today by President Obama, allows more first-time buyers to qualify and creates an entirely new credit for existing homeowners who buy a new home.

The effective date is Tuesday, December 1 for the enhanced first-time buyer credit and for the new credit. It is not retroactive. However, first-time buyers who have been rushing the meet the November 30 deadline for the existing program need not worry. They can qualify under the new one. Existing homeowners who are also in the process of buying a home should consider delaying closing until December 1 or later to qualify for the credit.

Both credits expire next spring. Buyers must have a contract on a home before May 1, 2010 and they have until June 30, 2010 to close in order to qualify.

Key Provisions

Amounts:

• The first-buyer credit remains 10 percent of the cost of the home or $8ooo, whichever is less.

• The credit for existing homeowners is 10 percent of the value of the new home or $6500, whichever is less.

Definitions:

• A first-time homebuyer cannot have owned a home during the past three years.

• Existing homeowners must have owned and lived in their current home five out of the preceding eight years.

• Only principal residences qualify. No second homes or investment properties.

Income limits:

• The measure raises the income limits for those claiming the credit to $125,000 a year for individuals and $225,000 for couples, up from $75,000 and $150,000 in the previous first-time buyer credit. After that, the value of the credit phases out.

• The cost of the new home cannot exceed $800,000.

Cost:

Expanding the home buyers’ credit will cost about $11 billion. The total cost of extending the first-time buyer credit and adding the existing owners’ credit is $16.7 billion.

How to Apply::

• Use IRS form 5405, which you file with an amended tax return.

• For more information on applying, go to http://www.irs.gov/newsroom/article/0,,id=204671,00.html

By Brian Summerfield, Online Editor, REALTOR® Magazine

Amid several news reports that the first-time home buyer tax credit will almost certainly be extended, I’ve seen more than a few blogs and online comments arguing against it. Some of them say the government can’t afford it, and lament the fact that we’re borrowing from our children and grandchildren to pay for this. Others maintain that the tax credit artificially stimulates demand, and the market will resume its slump whenever it does expire. Still others claim that it hasn’t really motivated enough buyers who would not have otherwise purchased a home to justify the program.

I may disagree with some of these arguments, but I’m glad people are making them. It’s essential that we have a healthy debate on this important subject rather than move forward with our eyes closed and our mouths shut.

However, there is one argument that I take issue with: The tax credit and the “Cash for Clunkers” program are essentially the same thing. I’ve read this line of reasoning in a few places, and in each instance, it seems to confuse rather than clarify. It seems to me that the two initiatives are very different in a few significant ways:

• Appreciating vs. Depreciating Assets: Most of the time—and the past couple of years notwithstanding—a home will appreciate in value, whereas an automobile will always depreciate (unless it’s some sort of rare collectible). The tax credit encourages spending on something people can use to build and preserve wealth; Cash for Clunkers does not.
• Capital Flows: One criticism of the Cash for Clunkers program was that the biggest beneficiaries were Japanese auto manufacturers. Six out of top 10 vehicles purchased through Cash for Clunkers were Japanese (Toyota alone accounted for nearly 20 percent of all sales), yet all of the top 10 cars traded in were manufactured by American companies. With the tax credit, much more of the money remains in the U.S. economy.
• Distribution: The Cash for Clunkers program was a credit at the point of sale, meaning if you traded in your car for one with better mileage, you got an amount somewhere between $3,500-4,500 knocked off the price, depending on fuel efficiency. Although the tax credit can be—and has been—monetized up front in many instances to help with closing costs and down payments, it’s structured to be doled out the following year as a refund.
• Target: In the case of Cash for Clunkers, the aim was to boost sales of a certain kind of product: new cars that get good mileage. With the tax credit, the goal is to encourage a certain kind of consumer: the first-time home buyer. The distinction is important because the latter should have a greater and more enduring impact on the economy.

I understand why people are skeptical about whether the tax credit extension will produce the desired outcome and how it will be financed. But to me, the tax-credit-is-the-same-as-Cash-for-Clunkers argument falls flat, and isn’t helping people make their case.

http://speakingofrealestate.blogs.realtor.org/2009/10/30/the-tax-credit-vs-cash-for-clunkers/