Archive May 2010
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More Bank-Owned Homes Likely to Hit the Market
It’s a bit like guessing how many pennies are in a gallon jug at the state fair, but housing analysts keep trying to count how many foreclosed homes banks and mortgage investors own.
Why should we care? Unlike at the state fair, there is no prize for guessing right. Still, if we can track the number of these REO (“real estate owned”) homes, we can get some sense of how banks and others are doing in their efforts to dispose of the properties and how much longer they will be weighing on the housing market.
The good news is that two of the leading contenders in this guesstimating game–Tom Lawler, an independent housing economist and gentleman farmer in Leesburg, Va., and Robert Tayon, an analyst at Barclays Capital in New York–have been comparing their methods recently and learning from each other. Both are in the same ballpark and both say the REO count is on the rise.
Mr. Lawler estimates there were 574,000 one- to four-family REO homes at the end of the first quarter, up from 518,000 at the end of 2009 but well below a peak of 668,000 in the third quarter of 2008. More modest (honest?) than most economists, Mr. Lawler describes his estimates as “crude” and “a work in progress.” He figures his tally is too low–he can’t find good data on all of the thousands of REO owners– but still “indicative” of the trend.
Mr. Tayon of Barclays estimates that REOs totaled 522,000 in March, up from 479,000 at the end of 2009 but below the peak of 688,000 in September 2008.
After soaring in 2008, the REO total shrank for most of 2009 as foreclosure-prevention efforts slowed the flow of defaulted loans toward resolution and investors rushed to buy what they saw as bargains in hard-hit areas such as Phoenix and Las Vegas. Now, as banks and other loan servicers work their way through the backlog of loan-modification applicants and reject many of them, the REO count is rising again. Mr. Tayon expects it to peak at 538,000 in August 2011 before starting to decline gradually.
Fannie Mae and Freddie Mac, two of the biggest holders of REO, both expect their REO inventories to increase in the next few quarters, Mr. Lawler says.
The expected rise in REO supply will “challenge” housing markets in areas with high concentrations of foreclosures, Mr. Lawler adds. But he doesn’t think the effect on prices will be as severe as it was in late 2008 and early 2009, when loan servicers dumped huge amounts of property on the market.
There are still plenty of struggling borrowers at risk of losing their homes. The Mortgage Bankers Association, a trade group, last week reported that 14% of mortgage loans on one-to-four-unit homes were 30 days or more delinquent or in the foreclosure process as of March 31. That represents about 7.3 million households. The rate was 12% a year earlier. At the same time, fewer people have fallen behind in recent months as the economy has improved.
Those who want to guess how many REOs will be in the jug two years from now will have to take a view on whether the economy is going to produce enough jobs to create demand for all those houses.
Please follow me for housing news on Twitter @jamesrhagerty
Median Home Price Rises 16%
An exceptionally limited inventory restrained sales of existing single-family homes during March throughout the San Fernando Valley with multiple offers common on many of the 594 homes that closed escrow, the Southland Regional Association of Realtors said.
Compared to a year ago, single-family sales fell 7.2 percent, but were up 29.7 percent from the February 2010 tally.
Realtors also closed escrow on 211 condominium sales last month, up 1.9 percent from March 2009 and 11.1 percent ahead of this February’s tally.
"Rising resale prices and multiple offers typically indicate a sellers’ market," said Patti Petralia, president of the Southland Regional Association of Realtors. "While that rule doesn’t totally fit this market, because the lender is the one making the decision in a foreclosure or short sale, it’s still a much better time for traditional sellers to list a home for sale.
"There are plenty of qualified buyers," Petralia said, "and simply not enough properties listed for sale to satisfy pent-up demand."
Petralia and Jim Link, the Association’s chief executive officer, said that with fewer bank-owned properties coming on the market and traditional sellers still hesitant to list their properties, the selection of homes listed for sale is concentrated on properties being sold through a short sale, where a lender is willing to accept less than what is owed to avoid the typically higher expense of foreclosure.
"Some lenders are being more proactive in working with short pays," Petralia said, "but it remains unpredictable. Some lenders respond quickly, others take six months or longer to say yes or no."
"Along with the lack of inventory, the biggest problem Realtors have right now is that short sales are taking too long to close escrow," Link said. "Even traditional sales are taking longer as lenders are being more than cautious.
"You can’t blame lenders for being a little gun shy," Link said, "but we’re confident that sales would be much higher if lenders acted faster and if there were more homes listed for sale."
While new listings showed signs of improvement - which typically happens every Spring - the total active inventory remains low, tipping the scale in favor of sellers.
There were 3,091 active listings throughout the San Fernando Valley at the end of March, down 24.5 percent from a year ago. At the current pace of sales, the inventory represents a 3.8-month supply, compared to the 4.8-month supply of March 2009. A 5- to 6-month supply presents a balanced market.
The median price of the 594 single-family homes sold last month was $400,000, up 15.6 percent from a year ago when it stood at $345,900, and 6.7 percent higher than the median reported this February. The median rose to $400,000 in two other months - July and December 2009 - and has been tracking higher since the record-low for this cycle of $339,000 in February 2009.
The condominium median price of $214,000 was up 7.0 percent from a year ago, but down 5.7 percent from February. The condo median price was as high as $240,000 in December and appears to be moving higher, yet remains volatile.
Pending escrows, a measure of future resale activity, suggest that there will be limited resale activity over the coming months. There were 1,272 open escrows at the end of March, down 1.5 percent from a year ago.
With the impending expiration of the federal tax credits, which fueled resale activity in the closing months of 2009, Realtors wonder if the California tax credits will make up the difference and how long the state’s tax credits will be available. Last year’s program was so popular that it ran out of money eight months before it was set to expire, Link noted.
"The new State program is available to new and existing homes and, like last year’s program, will be very popular, so I think the funds will disappear quickly," Petralia said. "The tax credit is worth trying to get if you can move quickly, but first-time buyers should not hinge a decision to buy a home weighted heavily on the availability of the tax credit."
Santa Clarita Valley Home Sales Surge As Buyers Race to Catch Federal Tax Credit
With buyers clamoring for properties priced under $400,000 and eager to capture federal tax credits, home sales in the Santa Clarita Valley increased 13.6 percent during March compared to the prior year, the median increased and the inventory continued to tighten, the Southland Regional Association of Realtors® reported.
Two hundred existing single-family homes closed escrow during March, up 13.5 percent from the 176 sales of March 2009 and 42.9 percent higher than the 140 sales of this February. It was the highest monthly total in seven months and well above the low point of this cycle of 99 sales posted in January 2008.
Realtors® also closed escrow on 91 condominiums throughout the Santa Clarita Valley. That was 59.6 percent higher than a year ago and 42.9 percent ahead of the 140 sales closed this February.
"I expected sales to be higher in March," said Andrew Walter, president of the Association’s Santa Clarita Valley Division. "In December we had lost momentum because most buyers thought that the tax credit was going to expire at the end of November. It took 30 days to gain that momentum back.
"The federal tax credit program truly helped local home sales and its end will definitely have an impact on sales," Walter said. "We’re hopeful that the new California $10,000 tax credit will offset the loss of the federal program, but those funds likely will be used up just as quickly as they were with the 2009 state tax credit."
Walter and Jim Link, the Association’s chief executive officer, agreed that virtually every active listing is being flooded with multiple offers, so long as it is priced correctly.
"The lack of inventory is impeding sales and fueling competition on most listings, pushing prices higher," Link said. "There would have been even more sales if the inventory was larger and if lenders could speed up the review process, especially when it comes to short sales."
Short sales, where a lender agrees to accept less then the outstanding loan to avoid the typically higher cost of foreclosure, continue to play a dominant role in the market. Some lenders are striving to make a decision faster while others take six months or longer to let buyers know if their offer has been accepted.
"Many of the large lenders are only now developing and implementing programs so they can give an answer within 30 days and close escrow within a reasonable time," Link said. "When that happens, we should see the market improve further."
The median price of the 200 homes that closed escrow was unchanged from the $400,000 median of in March 2009, but increased 2.4 percent over the median reported this February.
With activity concentrated in the lower price ranges combined with sporadic sales of higher-priced homes, the median has been bouncing between $400,000 and $420,000 since December of 2008. That was when the median came in at $385,000, the lowest median for this economic cycle.
The median price of condominiums sold last month was $240,000, up 20.3 percent from a year ago and down 4.0 percent from this February.
"Despite the competition, it’s a great market for first-time buyers," Walter said. "Loans are available, although lenders are still cautious and making most buyers jump through numerous hoops to prove their credit worthiness."
The inventory of homes listed for sale continues to drop with only 887 active listings throughout the Santa Clarita Valley at the end of March. That was 25.8 percent below the inventory reported a year ago. At the current pace of sales, the inventory represents a 3.0-month supply, compared to the 5.1-month supply of March 2009. A 5- to 6-month supply is a balanced market.
Pending escrows, a measure of future resale activity, suggest that the market will grow more active in the coming months. There were 471 open escrows at the end of March. That was up 14.3 percent from a year ago
