Prices will fall 1% in 2012 and rise 2% in 2013, Frank Nothaft,
chief economist for mortgage-finance company Freddie Mac, said in
a Dec. 14 report.  “A full-fledged recovery in the housing sector
will likely elude the US in 2012, but new construction and home
sales are expected to be greater than in 2011,” Nothaft wrote.
Beating 2011 shouldn’t be hard.  Sales of new single-family homes
this year are on pace to fall to 301,000 from 323,000 in 2010,
which was the lowest in Commerce Department data going back to
1963. While housing starts hit a 19-month high in November, led
by a surge in multifamily construction, the annual rate of
685,000 for the month compares with a January 2006 high of 2.27
million.  Existing home sales rose to an annualized 4.42 million
in November, the highest in 10 months after figures were revised,
the National Association of Realtors said yesterday. The data
showed that annual sales were an average of 14% lower than
previously reported since 2007, magnifying the impact of the
downturn.  “Even before the revisions things were bad,” Lawrence
Yun, the group’s chief economist, said at a news conference
yesterday. “Now they are even worse.”

As lenders tightened credit standards, 33% of Realtors reported
sales being canceled last month because of problems such as
mortgage denials or low appraisals, the Chicago-based group said
yesterday. That’s up from 9% a year earlier.  Americans are
taking advantage of low interest rates to refinance rather than
buy, according to the Mortgage Bankers Association. Refinancing
accounted for 80.7% of home-loan applications for the week ending
Dec. 16, the most in 13 months, the Washington-based group
reported yesterday.  Foreclosure filings, which slowed in 2011 as
banks and loan servicers faced investigations over the use of
improper documentation to seize homes from delinquent borrowers,
are expected to be little changed in 2012, according to
RealtyTrac Inc. A total of 224,394 properties received default,
auction or repossession notices in November, down 14% from a year
earlier, the Irvine, California-based real estate data service
reported Dec. 15.

Freddie Mac says the rate on the 30-year home loan fell from 3.94 percent the previous week. The average on the 15-year fixed mortgage was unchanged at 3.21 percent. That’s also a record.

Low rates combined with lower prices are making home ownership more affordable than it has been in many years.  It is an incredible opportunity to buy property.  The low rate also offers a historic opportunity for those who can afford to buy a home or refinance. It is an incredible opportunity to buy property.

But many Americans either can’t take advantage of the rates or have already done so.  As a result, this year will be among the lowest for home sales in decades.  Sellers need to be brutally realistic in pricing their property in order for it to sell.

Standard & Poors released their Third Quarter 2011 Shadow Inventory Update yesterday.   Standard & Poors included in the Shadow Inventory all stages of financially distressed properties.  And as I keep reminding people, do not forget about the deep shadow inventory, consisting of all those people who are not financially distressed but for many reasons need and want to sell but do not have their property on the market.

The KCM Blog, one of the most reputable sources of real estate information reported the following:

“Is this inventory increasing?”

“The report shows that shadow inventory is decreasing in many parts of the country as banks are starting to release distressed properties to the market. From the report:

“We estimate that it will take 45 months to clear the national shadow inventory [emphasis added].  This is seven months below our peak estimate but three months longer than our estimate a year ago. Twelve of the top 20 MSAs recorded declines in months-to-clear during the quarter, while eight reported increases.”

“What impact will shadow inventory have on real estate?”

One of two things will happen:

1. The inventory will continue to mount and be a hindrance to a housing recovery
2. The inventory will be placed on the market and impact prices

“Bottom Line:”

“We believe the inventory will come to market impacting prices now but bringing about a housing recovery in a much shorter period of time.”

Rates ARE at Historic Lows!

Interest rates are indeed at historic lows and, for most people, it makes economic sense to refinance. At this time last year, consumers heard the same drumbeat about low rates. And the news was all true – rates were at historic lows, with 30 year rates at about 4.5%. Today, many banks are offering rates of 3.85% on a 30 Year mortgage. Once again, rates have hit record lows. But many home owners just don’t believe the hype.

Lender and Realtors will tell you that there is no better time to borrow or buy. From the standpoint of interest rates, this certainly appears accurate. Indeed, even if a homeowner purchased or refinanced this summer, it can still make perfect financial sense to refinance again. With interest rates almost a full point (ten basis points in lending terms) lower than early summer, a homeowner with a $225,000 mortgage can save over $130 per month. And, a first time homebuyer has incredible purchase power, with the combination of lower home values and incredibly low interest rates.

Is an ARM an Option?

It is hard to believe that mortgage rates could go any lower. Of course, we’ve all been saying this for 10 years. Still, most people would say it is crazy to pass on locking in on a 30 year mortgage at rates in the 3′s. Then again, how many people own the same house for more than 30 years? Most people move before the end of 10 years. Indeed, it is very common to move every 5-7 years. If you know that you will not be in the same house 4 or 5 years from now (your kids will be in college, your family will outgrow the house, your already thinking of a move), then an adjustable rate loan (an ARM) could be an incredible cost savings. Some banks are offering 5-Year Adjustable Rate Loans at 3.2% or lower. Using the same example above, a homeowner with a 5% interest rate might save $235 per month for the next 3-5 years.

The Challenges of Refinancing

There are challenges to refinancing. Of course, there is the paperwork and time. And there is also the increased standards and scrutiny. Gone are the days when a poor credit score could be overlooked. And gone are the days of easy appraisals. With housing values near or below levels seen 8-10 years ago, many homes simply don’t appraise for enough to support a new loan. For homeowners with decent credit and a lot of equity in their homes, these are not insurmountable hurdles. And, any homeowner thinking of refinancing should work with their lender and never assume they simply won’t qualify.

All of this is to say, believe the hype. Interest rates ARE at historic lows and it IS a great time to buy or refinance. Don’t pass up an incredible opportunity to save money or buy the home of your dreams.

Homestead Title is not a lender and does not provide any loan products. We do provide incredible service and great rates for Wisconsin buyers, sellers, and home owners wishing to refinance their loans.

The new innovation driven economy demands a highly mobile workforce and that is only going to be possible if many people rent or homes are highly liquid assets and easily sold for purchase price plus transaction costs.  The latter certainly is not the case now and nor will it be for the foreseeable future.  So the solution is investor purchase of single family homes on a large scale, converting them to rentals in a wide range of prices.   This will also allow the US government agencies to dispose of their vast inventory of repossessed properties.  Hooray for some pragmatic thinking!

Big investors are showing interest in an evolving Obama
administration plan to sell off foreclosed homes, although the
government will have to make the offer sweet enough to coax
private funds.  The White House is assessing how best to
encourage private companies and investors to snap up foreclosed
properties held by the government and convert them into rentals.
Officials want private partners to take over as much as $30
billion in single-family properties that are currently on the
books of government-run Fannie Mae, Freddie Mac and the Federal
Housing Administration.  Several money managers with large fixed
income funds are interested, according to sources, and a request
for ideas on how to construct a program received nearly 4,000
responses.  The foreclosure conversion program would come as the
next step to complement other government supports for housing,
including an expanded refinance program announced on Monday.

The main question for prospective investors, which include
broker-dealers and firms already overseeing similar rental
programs, is the type of financing the government will make
available—an issue officials are still struggling with.  “In
order to get a better bid, there has to be some incentive
involved to get qualified investors involved,” said Ron D’Vari,
co-founder and chief executive of NewOak Capital. “The reality is
not a lack of interest, but so far it looks like a lack of
financing.”  Incentives could include low interest rates, tax
benefits or some type of rental assistance, said D’Vari, a
portfolio adviser who has been involved in mini-bulk auctions of
real estate-owned properties, or REOs, in California.  REO
properties are those acquired by a lender, whether a bank or the
government, after an unsuccessful auction attempt. Fannie Mae,
Freddie Mac and the FHA own about 250,000 properties, close to a
third of the country’s REO pool.

One key challenge would be finding big enough blocks of
properties in specific geographic areas that could be sold at one
time. Analysts say this is what it would take to make the program
attractive to large institutional investors.  The transaction and
liability costs property managers will face as they try to bring
deserted units back up to code also pose a hurdle.  The
government also needs to determine how it will protect taxpayers,
and it might explore ways to pair up with investors and allow
Fannie Mae, Freddie Mac and FHA to keep some type of an ownership
stake in the rental properties.  A public-private partnership,
somewhat along the lines of a program the Treasury tried to use
to soak up toxic bank assets during the financial crisis, would
allow the government to gain from the sales.  Fannie Mae, Freddie
Mac and the FHA have already undertaken some small efforts to
reduce the backlog of foreclosed homes. They have donated a few
vacant properties for demolition and have held some small
auctions.  Having already received $141 billion in taxpayer
support since being seized by the government in 2008, Fannie Mae
and Freddie are under enormous pressure to make sure they
maximize the returns from the properties they hold.  “This has
got to be thought out. Fannie and Freddie would need to assess if
they are getting the return they need from a rental,” said Ken H.
Johnson, a real estate professor at Florida International
University. Johnson said one way to get over the hurdle would be
for the two agencies to be given an explicit mission of market
stabilization.

At the risk of being repetitive, if you want to sell your property in the next year or longer, you must reduce the price so it is the best property for the money on the market or it will not sell. Over-priced properties will languish on the market and grow stale. Empty properties will feel stale to anyone walking in the door.

If you decide to rent the property until the market improves, know that this is a long term solution. When you put the property back on the market–buyers are picky because they can afford to be–so you will likely need to repaint, refinish or recarpet floors, and maybe even replace kitchen appliances. Are you prepared to do that? If not, lower the price.

Two key indices of home prices likely fell in August, suggesting large numbers of foreclosures and continued high joblessness are acting as a drag on the market, according to a new forecast. The Case-Shiller 20-city composite home price index, scheduled to be released on Tuesday, likely fell 3.8% in August from a year
earlier and 0.3% from July on a seasonally adjusted basis, said a forecast from Zillow Inc. chief economist Stan Humphries. The downward trend will continue through the end of the year, he predicts. “We expect to see continued home value depreciation as unemployment and negative equity remain high,” said Humphries. “The large foreclosure pipeline will produce relatively low priced REOs in the market, putting downward pressure on prices going forward, and we do expect the pace at which homes exit this pipeline to pick up in the near-term.” The Case-Shiller 10-City composite index is expected to register a seasonally adjusted decline of 3.5% in August from the previous year, and 0.2% compared to July.

“After showing monthly appreciation earlier this year and building some momentum, recent weak economic data is starting to be reflected in home values,” Humphries said. “Existing home sales have been disappointing, with September sales down 3% from August.” Humphries is bearish on the overall housing market for at least the next year. A survey of more than 100 economists by Pulsenomics shows the median expectation for that group is a decline in the Case-Shiller 20-city index of 2.8% in the fourth quarter from the final three months of 2010. Zillow, on the other hand, is projected a 4.5% decline, and then another 2.5% drop from the fourth quarter of 2011 to 2012. Zillow has a strong
track record of accurately forecasting changes in these Case-Shiller indices. Zillow’s July forecast for the non-seasonally adjusted 20-city index was off by just 0.1 percentage point, coming in at 4.0% compared to the actual number of 4.1%

Many years, the spring market appeared to favor the sellers with the number of houses coming onto the market not be as great as the number of buyers entering the market, thus causing prices to tick upwards.

The spring of 2012 likely will be different. The supply of homes coming to the market will be increased dramatically by foreclosed properties being released by lenders. Simultaneously the number of buyers will be held down by stringent new lending standards.

So what are the real estate gurus predicting?

–Zillow believes we will not see a bottom in prices until the first quarter of 2012.
–Standard & Poors thinks prices will drop %5 in the next few months.
–JP Morgan Chase believes prices will depreciate 6 to 7% over the next six months.
–Barclays says prices will fall 7% by the end of the first quarter of 2012.

I would not rely on the real estate gurus, few of whom predicted the real estate and subsequent economic crash.  I would rely on thoughtful assessment of the facts, and those facts point to continued declining real estate prices.

REO or lender owned properties will continue to have a major impact on real estate market for years to come.

Rick Sharga Says Market Will Hit Rock Bottom This Year

The US housing market hit bottom this year and will remain flat
until 2014, when it will start to slowly recover, said Rick
Sharga, an executive vice president with Carrington Mortgage
Holdings.  “We’re looking at a catfish recovery,” he told
attendees at the Asian Real Estate Association of America
conference in San Francisco Friday, saying the market will bump
along the bottom for some time before starting to revive.  More
than a million foreclosure actions that should have taken place
this year have not yet moved forward, and that delay pushes a
resolution of the housing market’s problems into next year and
beyond, he said, citing data from RealtyTrac, where Sharga served
as a senior vice president until this week.  “We can’t expect
to see home price appreciation until we work through these
distressed assets,” he said.  Since 2005, there’s only been one
quarter in which US banks have sold more properties than
they’ve taken back through foreclosure, leaving a huge overhang
of real estate-owned assets that need to be cleared out.

Banks hold about 800,000 REOs, and three-quarters of those are
not listed for sale, said Sharga. Another 800,000 homes are in
foreclosure and 1.5 million loans are delinquent.  This “shadow
inventory” will slow down a housing market recovery, he said, as
monthly foreclosure numbers will remain elevated through 2012 and
REO inventories will stay high through 2013.  Even with the
continuing distress in the housing market, the country is not
likely to enter a double-dip recession, said Eugenio Aleman, a
director and senior economist at Wells Fargo & Co.  Although US
workers have suffered as the nation has lost 9 million jobs over
a two-year period, the manufacturing and service sectors are
expanding, he noted.  “The rest of the economy is not booming,
but it’s doing fine,” said Aleman. Wells Fargo is projecting
that the US economy will expand over the next few years, but at
anemic rates: 1.6% this year, 1.4% in 2012 and 1.9% in 2013.  “We
are standing firm,” said Aleman of Wells Fargo’s economic
forecast. “We are not going to go into a recession.”

ECRI says new recession inevitable

Weakness in leading economic indicators has become so pervasive
the Economic Cycle Research Institute now predicts a new
recession is unavoidable.  “The vicious cycle is starting where
lower sales, lower production, lower employment and lower income
[leads] back to lower sales,” co-founder Lakshman Achuthan
declares in the accompanying video.  Whereas Achuthan said the
jury is still out in late August, the weakness in leading
economic indicators — and ECRI uses a dozen for the US alone,
he notes — has become a “contagion” that is spreading like
“wildfire.”  Although the recovery has been “subpar” by nearly
every measure, Achuthan refutes the idea the economy never got
out of recession in the first place. “Just because it looks and
feels a certain way doesn’t mean it’s a recession,” he says. “You
haven’t seen anything yet. It’s going to get a lot worse.”  It’s
too soon to predict just how bad it’s going to get, but he
expects another spike in unemployment and further expansion of
the federal government’s $1 trillion deficit. This forecast has
huge ramifications for the 2012 election and the already
struggling US consumer and Achuthan says a “mild” recession is
the best-case scenario.  By now you may be wondering what
separates ECRI’s recession call from the myriad other recession
calls out there. First, ECRI’s primary raison d’etre is
predicting recession and recovery calls. Second, and more
importantly, The Economist reports ECRI has never issued a “false
alarm” on a recession call, meaning many of the Chicken Littles
currently declaring “the sky is falling” might actually be right
this time around.

Mortgage help for unemployed disappears

The federal government can’t even give money away to help the
unemployed pay their mortgage.  A $1 billion program to assist
the jobless will likely end up spending only half the funds, at
most, because so few people met the strict criteria.  The Housing
Department, which had to approve the applications for the
Emergency Homeowners’ Loan Program by Friday, expects that only
10,000 to 15,000 people will qualify. That’s only a small sliver
of the roughly 100,000 who applied.  “No one could have
anticipated how difficult the statutory requirements make it to
reach homeowners,” said Lemar Wooley, a HUD spokesman.  Those who
make the cut are expected to receive between $35,000 and $45,000
in aid, he said.  Many had high hopes for the loan program
because it was targeting a segment of delinquent homeowners not
being helped by other federal initiatives, such as mortgage
modifications.

The initiative quickly became a quagmire of delays and
requirements, however. The rollout was postponed for months,
finally launching in late June. HUD originally gave people less
than six weeks to apply, but then pushed back the deadline to
mid-September.  But it was the income and delinquency guidelines
that prevented many seemingly eligible people from getting
assistance, housing counselors say. HUD used a complicated
formula that took into account monthly payments, income and
arrears.  Only 34 of the 174 homeowners who came to Tierra del
Sol Housing Corp. in Las Cruces, N.M., met the criteria, said
Rose Garcia, the agency’s executive director. Some people were
turned away because they were already too far behind in their
payments or because their income fell because of a family
member’s illness.  “This program could have made a difference to
save people from being homeless,” she said. “But it doesn’t meet
people’s needs.”  In Philadelphia, Michelle Lewis is waiting to
see how many of the 400 applications her Northwest Counseling
Service received will be approved. She fears it will be few.  One
problem she ran into was that many applicants lost their jobs
more than a year ago. Under HUD’s rules, the circumstance that
caused the delinquency had to have occurred within the past 12
months.  The Pennsylvania loan program, which ended in June
because of state budget cuts, allowed for many more hardship
conditions so it was able to reach more people than the federal
effort, she said.  “The [HUD] guidelines were so restrictive that
it knocked out a lot of otherwise eligible and worthy consumers,”
said Lewis, the agency’s chief executive.

The findings, which authors called “a decidedly pessimistic outlook”, are a sharp reversal from cautious optimism the survey respondents expressed late last year and in early 2011.  Of  course, each community and each neighborhood is a mirco-market, not the national average.  Nevertheless, those holding out for a housing market recovery are likely to be sorely disappointed.

In addition, 73 percent of surveyed bankers say they expect mortgage defaults to remain elevated for at least another five years.

Home prices could dip another 6% to 7%, before hitting rock bottom in early 2012, according to analysts at JPMorgan Chase.   If that is the case, prices will fall about 37% from peak levels reached before the 2008 housing meltdown. In the banking giant’s September home price monitor report, analysts said the outlook is bleak, noting persistently weak housing demand. The firm said existing home sales in July hit a disappointing annualized pace of 4.67 million units, while mortgage applications plunged 14% in August. JPMorgan Chase analysts warned policymakers are running out of tools to boost housing demand.

CNBC’s Diana Olick concludes that “housing’s recovery will not be founded on anything having to do with housing; as I have argued previously, over and over and over, housing’s recovery is all about jobs and consumer confidence. It is about the bigger economy, which needs to improve before anyone can or will want to buy a house. The trouble of course is that historically, economic recovery is often driven by housing, not the other way around.”

I agree with Olick.