By Tami Luhby, senior writerDecember 2, 2010: 8:06 AM ET
NEW YORK (CNNMoney.com) -- Don't even think of touching the mortgage interest tax deduction in the midst of a fragile housing market.
That was the immediate response of the housing industry, which has come out with guns blazing against the presidential deficit commission's proposal to overhaul the coveted tax provision.
"We will fight this proposal," said Joe Stanton, chief lobbyist for the National Association of Home Builders. "From everything we've read, it will end up being a tax hike."
Charged with finding ways to reduce the nation's exploding federal debt, the bipartisan debt panel recommended Wednesday a wide range of controversial spending cuts and tax changes that would slash $4 trillion in deficits over the next 10 years.
Among the proposals was a major change to the mortgage interest deduction, which costs the Treasury Department an estimated $131 billion a year.
Currently, taxpayers who itemize their deductions can deduct the interest on mortgages of up to $1 million for their principal and second residences, plus on home equity loans of up to $100,000. The provision generally benefits higher-income Americans since they are more likely to itemize.
The panel recommends turning the deduction into a 12% non-refundable tax credit available to everyone. The mortgage size would be capped at $500,000. Interest on mortgages for second homes and on home equity loans would not be eligible.
That did not sit well with the trade associations for the real estate and home building industries, which have contributed a total of $51.2 million to Congress for 2010, according to the Center for Responsive Politics.
"It would immediately stop in its tracks any stabilization we are seeing in the housing market and would effectively increase the cost of homeownership for millions upon millions of people," said Michael Berman, chairman of the Mortgage Bankers Association.
Under the panel's proposal, a homeowner in the 25% income tax bracket would get a credit worth less than half the amount of the deduction, according to the home builders association.
The industry groups argue that the deduction makes owning a house more affordable. A recent study commissioned by the National Association of Realtors showed that nearly three-quarters of homeowners said the deduction was extremely or very important to them.
"Any changes to the [deduction] now or in the future could critically erode home prices and the value of homes by as much as 15%," said Ron Phipps, president of the Realtors' group.
Not everyone agrees, however.
Researchers have found that the deduction does not promote homeownership, according to a report by the Urban Institute, Tax Policy Center and What Works Collaborative. That's because the tax provision's main beneficiaries are not individuals on the margin between renting and owning. Wealthier taxpayers are likely to own homes regardless of the deduction.
The mortgage interest deduction has been the target of previous presidential commissions. In 2005, a panel appointed by then-President Bush recommended allowing homeowners to claim a mortgage interest credit of 15% on loans of up to about $412,000. The proposal went nowhere.
In the end, the trade associations may be able to hold their fire. The commission's recommendations may not even garner enough support among its 18 members to make official recommendations to Congress. The report itself said its aim is to offer a "starting point for a serious national conversation."
Sunday, December 19, 2010
Sunday, September 12, 2010
Five Things To Know About Home Insurance
By Sarah Max, contributing writerSeptember 2, 2010: 3:14 PM ET
(MONEY Magazine) -- 1. Loyalty is overrated
Many insurers have been raising rates to make up for losses they suffered during the financial crisis, industry experts say. At the same time, insurers are competing hard for new customers, which means some of them are cutting better deals for new policy holders than for existing ones, says Deeia Beck, executive director of the Office of Public Insurance Counsel, a state consumer agency in Texas.
diggEmail Print CommentWhen your annual renewal statement lands in your mailbox, check InsWeb.com and NetQuote.com to see if you can snag a better deal elsewhere. Consider moving your auto policy too; bundling home and auto coverage with the same insurer can cut your total premiums by 5% to 15%.
2. You may have too much coverage
It's common for policies to contain inflation-protection provisions that automatically increase your coverage amount. "In most years, that's a good thing," says Scott Richardson, director of the South Carolina Department of Insurance. Now that construction costs have fallen? Not so much.
For now, pass on inflation protection and adjust your coverage amount to a more realistic figure. Lowering replacement value from, say, $300,000 to $250,000 might shave 10% off your premium.
3. A bad rep can cost you
Just as lenders check your credit history before figuring out what rate to charge you, insurers tap into national databases such as the Comprehensive Loss Underwriting Exchange (CLUE) to see what claims you've filed in the past. Those records can be full of errors, warns Doug Heller, executive director of Consumer Watchdog, an insurance advocacy group.
Check your insurance report for mistakes at choicetrust.com; it's free if you've been denied coverage ($19.50 otherwise).
4. Small claims can cost you, too
Go with the highest deductible you can afford and bank the savings to cover the cost of minor repairs. Filing a claim for every broken window or leaky pipe can drive up your premiums by 10% to 15%, says Don Griffin, a vice president at Property Casualty Insurers Association of America. (Some experts say that even inquiring about making a claim can raise a red flag.)
Increasing your deductible from, say, $500 to $1,000 can lower your annual premium by as much as 25%, according to the Insurance Information Institute.
5. A home's history matters
In the market for a new house? It may seem unfair, but claims associated with the property before you buy it can result in your paying more than you would otherwise. "Certain locations [such as those vulnerable to flooding] may be more prone to claims," explains Kiran Rasaretnam, CFO of InsWeb.
To get info on past claims, ask for a copy of the seller's CLUE disclosure report (see No. 3). Yes, you're stuck with the history of the house you buy, but you can use what you find to negotiate a lower price with the seller.
(MONEY Magazine) -- 1. Loyalty is overrated
Many insurers have been raising rates to make up for losses they suffered during the financial crisis, industry experts say. At the same time, insurers are competing hard for new customers, which means some of them are cutting better deals for new policy holders than for existing ones, says Deeia Beck, executive director of the Office of Public Insurance Counsel, a state consumer agency in Texas.
diggEmail Print CommentWhen your annual renewal statement lands in your mailbox, check InsWeb.com and NetQuote.com to see if you can snag a better deal elsewhere. Consider moving your auto policy too; bundling home and auto coverage with the same insurer can cut your total premiums by 5% to 15%.
2. You may have too much coverage
It's common for policies to contain inflation-protection provisions that automatically increase your coverage amount. "In most years, that's a good thing," says Scott Richardson, director of the South Carolina Department of Insurance. Now that construction costs have fallen? Not so much.
For now, pass on inflation protection and adjust your coverage amount to a more realistic figure. Lowering replacement value from, say, $300,000 to $250,000 might shave 10% off your premium.
3. A bad rep can cost you
Just as lenders check your credit history before figuring out what rate to charge you, insurers tap into national databases such as the Comprehensive Loss Underwriting Exchange (CLUE) to see what claims you've filed in the past. Those records can be full of errors, warns Doug Heller, executive director of Consumer Watchdog, an insurance advocacy group.
Check your insurance report for mistakes at choicetrust.com; it's free if you've been denied coverage ($19.50 otherwise).
4. Small claims can cost you, too
Go with the highest deductible you can afford and bank the savings to cover the cost of minor repairs. Filing a claim for every broken window or leaky pipe can drive up your premiums by 10% to 15%, says Don Griffin, a vice president at Property Casualty Insurers Association of America. (Some experts say that even inquiring about making a claim can raise a red flag.)
Increasing your deductible from, say, $500 to $1,000 can lower your annual premium by as much as 25%, according to the Insurance Information Institute.
5. A home's history matters
In the market for a new house? It may seem unfair, but claims associated with the property before you buy it can result in your paying more than you would otherwise. "Certain locations [such as those vulnerable to flooding] may be more prone to claims," explains Kiran Rasaretnam, CFO of InsWeb.
To get info on past claims, ask for a copy of the seller's CLUE disclosure report (see No. 3). Yes, you're stuck with the history of the house you buy, but you can use what you find to negotiate a lower price with the seller.
Sunday, August 22, 2010
4 Big Money Mistakes of First-Time Homebuyers
by Michele Lerner
Wednesday, August 18, 2010
First-time homebuyers almost always make a few mistakes when buying their home. Perhaps they pay too much, choose the wrong type of mortgage or neglect to budget for needed home improvement
Working with a trustworthy, experienced lender can help prevent such mistakes. But consumers also need to take responsibility for their budgets and choices.
"Before buying a home, consumers need to develop a short- and long-term perspective on their purchase," says Michael Harrison, area director for MetLife Home Loans in Southwest Ohio.
Following are the four biggest financial mistakes of first-time homebuyers:
1. Spending the Maximum on Housing
Lenders qualify buyers based on their incomes and debt-to-income ratios without considering how much the borrowers spend on items such as transportation, savings, food and other necessities
"A lot of first-time buyers are optimistic about the future and excited about buying a home, so they borrow the absolute maximum they can afford instead of allowing themselves wiggle room for a partial loss of income or for future expenses such as children," Harrison says.
Financial experts recommend that consumers decide how much they want to spend each month on housing before meeting with a lender.
"Every buyer should create their own budget and know their limits," says Stephen Adamo, president of Weichert Financial Services in Morris Plains, N.J.
Adamo says many first-time homebuyers experience a sizable change in their housing payments. Some new owners may go from $500 per month in rent to a monthly mortgage payment of $2,000, he says.
"You need to deal with payment shock," Adamo says.
2. Not Getting Prequalified Early Enough
Meeting with a lender for a buyer consultation and prequalification for a mortgage should be the first step toward homeownership. Yet many first-time homebuyers wait until they are ready to start house hunting before contacting a lender.
"It's never too early to set up a free buyer consultation with a lender," Adamo says. "Every buyer needs to get prequalified early enough in the process so that they can make some changes if they need to or correct errors on their credit report."
Some buyers may need to spend up to a year saving more money, increasing their incomes or cleaning up their credit before making an offer on a home.
A buyer consultation should include creating long-term financial goals and strategies for buying property, Adamo says.
3. Misunderstanding the Importance of a High Credit Score
While most consumers know it's important to have a high credit score, not everyone understands how costly a low score can be.
"All mortgage lending is done with a tier of interest rates and terms based on consumer credit scores," Harrison says. "A credit score of 720 or above will earn you the best rates and can potentially save you thousands of dollars."
A score of 680 to 720 can get you good mortgage rates, while a FICO score of 620 is usually about the lowest score to qualify for most loans, Harrison says.
Consumers should learn about credit scores the minute they start working, Harrison says.
Websites such as Bankrate provide information about how to improve your credit score.
Even after a mortgage approval, consumers must avoid applying for new credit or taking on new debt, Adamo says, because a second credit check is often required before settlement.
4. Choosing the Wrong Mortgage Product
First-time homebuyers today typically opt for a 30-year fixed-rate mortgage. Their conservatism is a reaction to stories about the dangers of interest-only mortgages and adjustable-rate mortgages.
But Harrison says home loan alternatives to a 30-year-fixed sometimes make more sense. For example, buyers certain they will be relocated by their companies within five years may find a 5/1 ARM "could be a much better mortgage," he says.
"There's no reason to pay a premium for a product you don't need like a 30-year loan," Harrison says.
Homebuyers eager to build equity in their homes or who are older and want to live mortgage-free in retirement should consider a 15-year fixed-rate loan or, if they can afford it, even a 10-year mortgage to reach their goals.
Copyrighted, Bankrate.com. All rights reserved.
Wednesday, August 18, 2010
First-time homebuyers almost always make a few mistakes when buying their home. Perhaps they pay too much, choose the wrong type of mortgage or neglect to budget for needed home improvement
Working with a trustworthy, experienced lender can help prevent such mistakes. But consumers also need to take responsibility for their budgets and choices.
"Before buying a home, consumers need to develop a short- and long-term perspective on their purchase," says Michael Harrison, area director for MetLife Home Loans in Southwest Ohio.
Following are the four biggest financial mistakes of first-time homebuyers:
1. Spending the Maximum on Housing
Lenders qualify buyers based on their incomes and debt-to-income ratios without considering how much the borrowers spend on items such as transportation, savings, food and other necessities
"A lot of first-time buyers are optimistic about the future and excited about buying a home, so they borrow the absolute maximum they can afford instead of allowing themselves wiggle room for a partial loss of income or for future expenses such as children," Harrison says.
Financial experts recommend that consumers decide how much they want to spend each month on housing before meeting with a lender.
"Every buyer should create their own budget and know their limits," says Stephen Adamo, president of Weichert Financial Services in Morris Plains, N.J.
Adamo says many first-time homebuyers experience a sizable change in their housing payments. Some new owners may go from $500 per month in rent to a monthly mortgage payment of $2,000, he says.
"You need to deal with payment shock," Adamo says.
2. Not Getting Prequalified Early Enough
Meeting with a lender for a buyer consultation and prequalification for a mortgage should be the first step toward homeownership. Yet many first-time homebuyers wait until they are ready to start house hunting before contacting a lender.
"It's never too early to set up a free buyer consultation with a lender," Adamo says. "Every buyer needs to get prequalified early enough in the process so that they can make some changes if they need to or correct errors on their credit report."
Some buyers may need to spend up to a year saving more money, increasing their incomes or cleaning up their credit before making an offer on a home.
A buyer consultation should include creating long-term financial goals and strategies for buying property, Adamo says.
3. Misunderstanding the Importance of a High Credit Score
While most consumers know it's important to have a high credit score, not everyone understands how costly a low score can be.
"All mortgage lending is done with a tier of interest rates and terms based on consumer credit scores," Harrison says. "A credit score of 720 or above will earn you the best rates and can potentially save you thousands of dollars."
A score of 680 to 720 can get you good mortgage rates, while a FICO score of 620 is usually about the lowest score to qualify for most loans, Harrison says.
Consumers should learn about credit scores the minute they start working, Harrison says.
Websites such as Bankrate provide information about how to improve your credit score.
Even after a mortgage approval, consumers must avoid applying for new credit or taking on new debt, Adamo says, because a second credit check is often required before settlement.
4. Choosing the Wrong Mortgage Product
First-time homebuyers today typically opt for a 30-year fixed-rate mortgage. Their conservatism is a reaction to stories about the dangers of interest-only mortgages and adjustable-rate mortgages.
But Harrison says home loan alternatives to a 30-year-fixed sometimes make more sense. For example, buyers certain they will be relocated by their companies within five years may find a 5/1 ARM "could be a much better mortgage," he says.
"There's no reason to pay a premium for a product you don't need like a 30-year loan," Harrison says.
Homebuyers eager to build equity in their homes or who are older and want to live mortgage-free in retirement should consider a 15-year fixed-rate loan or, if they can afford it, even a 10-year mortgage to reach their goals.
Copyrighted, Bankrate.com. All rights reserved.
Sunday, July 25, 2010
Price Cuts Galore on Mega - Mansions
By Les Christie, staff writerJuly 16, 2010: 6:23 AM ET
NEW YORK (CNNMoney.com) -- For deep-pocketed plutocrats purchasing trophy homes, times are good. There is a glut of mega-mansions on the market -- at deep discounts.
On Realtor.com alone there are currently 6,610 listings of houses with interiors larger than 10,000 square feet.
What's surprising is that these homes are starting to move again. "Maybe not quickly, but they're selling," Filice said.
The super-wealthy fled the mega-mansion market in the wake of the Lehman Brothers collapse in the fall of 2008. But with the stock market recovering and real estate markets stabilizing, they're ready to deal again. But only if the price is right.
The $100 million home
"The super wealthy were watching and waiting," said Jonathan Miller, a New York-based appraiser, who follows real estate in Manhattan and the Hamptons. "It's always been my feeling that the high-end market comes in waves. I looked at the Hamptons in 2009 and you just weren't seeing trophy property sales. Now you are -- but not at the prices you saw during the boom."
A 48,000-square-foot home in Bel Air, Calif., was recently reduced by $13 million to $72 million. A 16,000-square-foot nouveau Mediterranean in Las Vegas went to $11.9 million from $14 million. And a 15,000-square-foot Dallas domain is down to $15 million from $17.5 million after more than two years on the market.
Don't like those prices? There are plenty more to choose from. So many homes started during the boom, when owners were flush, were not completed until the bust, when owners' fortunes had changed. And they're ready to unload them.
"A number of people back in the 2003, 2004 and 2005 boom built very large homes," said Philip White, president of Sotheby's International Realty. "Then, with the adjustment in the economy, it proved to be too much house for some of them."
0:00 /3:09NYC's $60M apartment - view included
In Alpine, N.J., developer Richard Kurtz broke ground in October 2007 on a home for himself. He calls it Stone Mansion, a 30,000-square-foot spread with 12 bedrooms, 15 full baths, a screening room, wine grotto and indoor basketball court. The house was finished just a couple of months ago.
Between then and now, Kurtz decided to buy a house in Florida and sell the Stone Mansion. Asking price: $68 million.
A house near Orlando has been under construction for more than three years and is not done yet. Business has been slow for owner David Siegel, who also owns Westgate Resorts, so he is putting his house on the market.
The 67,000-square-foot house sits on 10 acres and is called Versailles because it incorporates many of the design features of the French palace. Siegel hopes to get $100 million if the buyer wants the 67,000-square-foot property finished.
Or he'll take $75 million as is.
NEW YORK (CNNMoney.com) -- For deep-pocketed plutocrats purchasing trophy homes, times are good. There is a glut of mega-mansions on the market -- at deep discounts.
On Realtor.com alone there are currently 6,610 listings of houses with interiors larger than 10,000 square feet.
What's surprising is that these homes are starting to move again. "Maybe not quickly, but they're selling," Filice said.
The super-wealthy fled the mega-mansion market in the wake of the Lehman Brothers collapse in the fall of 2008. But with the stock market recovering and real estate markets stabilizing, they're ready to deal again. But only if the price is right.
The $100 million home
"The super wealthy were watching and waiting," said Jonathan Miller, a New York-based appraiser, who follows real estate in Manhattan and the Hamptons. "It's always been my feeling that the high-end market comes in waves. I looked at the Hamptons in 2009 and you just weren't seeing trophy property sales. Now you are -- but not at the prices you saw during the boom."
A 48,000-square-foot home in Bel Air, Calif., was recently reduced by $13 million to $72 million. A 16,000-square-foot nouveau Mediterranean in Las Vegas went to $11.9 million from $14 million. And a 15,000-square-foot Dallas domain is down to $15 million from $17.5 million after more than two years on the market.
Don't like those prices? There are plenty more to choose from. So many homes started during the boom, when owners were flush, were not completed until the bust, when owners' fortunes had changed. And they're ready to unload them.
"A number of people back in the 2003, 2004 and 2005 boom built very large homes," said Philip White, president of Sotheby's International Realty. "Then, with the adjustment in the economy, it proved to be too much house for some of them."
0:00 /3:09NYC's $60M apartment - view included
In Alpine, N.J., developer Richard Kurtz broke ground in October 2007 on a home for himself. He calls it Stone Mansion, a 30,000-square-foot spread with 12 bedrooms, 15 full baths, a screening room, wine grotto and indoor basketball court. The house was finished just a couple of months ago.
Between then and now, Kurtz decided to buy a house in Florida and sell the Stone Mansion. Asking price: $68 million.
A house near Orlando has been under construction for more than three years and is not done yet. Business has been slow for owner David Siegel, who also owns Westgate Resorts, so he is putting his house on the market.
The 67,000-square-foot house sits on 10 acres and is called Versailles because it incorporates many of the design features of the French palace. Siegel hopes to get $100 million if the buyer wants the 67,000-square-foot property finished.
Or he'll take $75 million as is.
Sunday, July 18, 2010
Mortgage Market Specific Summary of the Financial Reform Bill
by Adam Quinones
--------------------------------------------------------------------------------
After much ado our political "leaders" have finally come to an agreement on the broadest regulatory overhaul since the Glass Steagal Act of 1933.
By a vote of 60-39, the Senate yesterday passed HR 4173: WALL STREET REFORM AND CONSUMER PROTECTION ACT. The House already gave their seal of approval so the legislation heads to President Obama's desk where he is expected to sign it into law next week.
The bill includes several reforms aimed directly at the housing and mortgage industries. Instead of trying to translate the text into comprehensible English I chose to rely on the Mortgage Bankers Association's outlines. Once again they came through in the clutch...
HERE is an indepth summary of the text. Below are some excerpts from the MBA's overview.
Credit Risk Retention (Section 941) – Requires federal banking agencies and SEC to jointly prescribe rules requiring securitizers to retain economic interest of at least five percent of credit risk of assets they securitize. Regulations must include separate requirements for different asset classes, and may allocate the retention amount between originator and securitizer. HUD and the Federal Housing Finance Agency must participate in joint rulemaking process for residential mortgage backed securities (MBS) risk retention requirements. The statute requires an exemption for “qualified residential mortgages” which shall be defined by regulators based on statutory criteria to ensure sound underwriting and lower risk of default such as:
Documentation of borrower’s financial resources;
Debt- to-income standards;
Mitigating potential for payment shock on adjustable rate mortgages through product features and underwriting standards;
Mortgage insurance or other credit enhancements to reduce risk of default; and
Prohibiting use of loan features that have been demonstrated to exhibit a higher risk of borrower default.
Exempts loans insured or guaranteed by U.S. from risk retention requirements. For commercial MBS, regulators must give consideration to other types, forms and amounts of risk retention such as representations and warranties, underwriting criteria and first-loss positions. Within 90 days of enactment, requires FRB to complete study on combined impact of risk retention and accounting standards requiring securitizations to be brought on balance sheet.
Prohibition on Steering Incentives (Section 1403)
Prohibition: Prohibits mortgage originator from receiving from any person, or any person from paying mortgage originator, directly or indirectly, compensation that varies based on terms of loan (other than amount of the principal). With the exceptions below, generally prohibits a mortgage originator from receiving from any person other than consumer and any person other than consumer, who knows or has reason to know that a consumer has directly compensated or will directly compensate mortgage originator, from paying mortgage originator any fee or charge except bona fide third-party charges not retained by creditor, mortgage originator, or affiliate of creditor or mortgage originator. Intended to prohibit yield spread premiums or other similar compensation based on terms including rate that would cause originator to “steer” borrower to particular mortgage products.
Exceptions: Does not limit compensation to originator based on principal amount of loan. Also, does not restrict person other than consumer from receiving, or person other than consumer from paying, origination fee or charge if: (1) originator does not receive any compensation directly from consumer; and (2) consumer does not pay discount points, origination points or fees however denominated (other than bona fide third-party charges not retained by originator, creditor or affiliate of creditor or originator), except that Board may, by rule, waive or provide exemptions to restriction if Board determines waiver is in interest of consumers and public.
Regulations: Requires CFPB to prescribe regulations prohibiting mortgage originators from: (1) steering any consumer to loan that (a) consumer lacks reasonable ability to repay, or (b) has predatory characteristics or effects such as equity stripping, excessive fees or abusive terms; (2) steering any consumer from a “qualified mortgage” to “not qualified” mortgage when consumer qualifies for ”qualified mortgage;” (3) abusive or unfair lending practices that promote disparities among consumers of equal creditworthiness but of different race, ethnicity, gender, or age; (4) mischaracterizing the credit history of consumer or residential loans available to consumer, (5) mischaracterizing or inducing mischaracterization of appraised value of property securing extension of credit; or (6) if unable to suggest, offer or recommend to consumer loan that is not more expensive than loan for which consumer qualifies, discouraging consumer from seeking mortgage from another originator.
Rules of Construction: While expressly prohibiting any yield spread premium or similar compensation that would permit total amount of direct and indirect compensation from all sources to originator to vary based on loan terms other than amount of principal, expressly permits compensation to a creditor upon the sale of a consummated loan to a subsequent purchaser, i.e. compensation to lender from secondary market for sale of consummated loan. Also does not restrict: (1) consumer’s ability to finance at option of consumer through principal or rate, any origination fees or costs as long as fees or costs do not vary based on terms of loan or consumer’s decision to finance such fees; or (2) incentive
Definitions of Mortgage Originator (Section 1401) – Means any person who for direct or indirect compensation or gain: (i) takes residential mortgage loan application, (ii) assists consumer in obtaining or applying to obtain residential mortgage loan; or (iii) offers or negotiates terms of residential mortgage loan as well as any person who represents to the public that it will provide any of services in (i)-(iii). Does not include any person who: (1) performs purely administrative or clerical tasks; (2) is employee of manufactured home retailer who does not advise consumer on loan terms; (3) only performs real estate brokerage activities and is licensed or registered in accordance with applicable state law, unless such person or entity is compensated by lender, mortgage broker, or other originator or their agents; (4) person, estate or trust that provides mortgage financing for sale of 3 properties in any 12 month period provided loan is fully amortizing, where borrower has ability to repay and is either fixed or adjustable only after five years and meets other conditions; (5) is servicer or servicer employee, agent or contractor, including but not limited to those who offer or negotiate terms of residential mortgage loan for purposes of renegotiating, modifying, replacing and subordinating principal of existing mortgage where borrower is behind in payments, in default, or has reasonable likelihood of being in default or falling behind; and (6) Excludes creditor except the creditor in a table funded transaction under anti-steering provisions.
Consumer Financial Protection Bureau (CFPB) Established – Establishes CFPB as independent entity housed within FRB. Assigns CFPB broad authority to write rules to protect consumers from unfair or deceptive financial products, acts or practices and reassigns to CFPB responsibility for major consumer protection laws including RESPA, TILA, HOEPA, HMDA and more, detailed below.
Appraisals, AMCs and AVMs – Prohibits appraiser coercion and requires rulemaking by FRB, OCC, FDIC, NCUA, FHFA and the CFPB on appraiser independence. Requires: interim rules by CFPB within 90 days of enactment on appraiser independence to replace Home Valuation Code of Conduct (HVCC); physical appraisal for every subprime mortgage and two appraisals for subprime mortgage when there has been purchase or acquisition of property at lower price within 180 days; Appraisal Subcommittee of the Federal Financial Institutions Examination Council to monitor state and federal efforts to protect consumers from improper appraisal practices and unlicensed appraisers; FRB, OCC, FDIC, NCUA, FHFA and the CFPB to prescribe minimum requirements for appraisers, appraisal management companies and standards for AVMs.
CFPB Authority – Assigns CFPB regulatory and supervisory authority to examine and enforce consumer protection regulations respecting all mortgage-related businesses, large non-bank financial companies, and banks and credit unions with greater than $10 billion in assets. Makes CFPB primary regulator for nondepository lenders. Exclusions from CFPB authority for real estate brokers, persons regulated by state insurance regulators, auto dealers, accountants, tax preparers, and others.
CFPB Transfer Date – Requires Treasury, in consultation with FRB, FDIC, FTC, NCUA, OCC, OTS, HUD and OMB, to designate date for transfer of functions to CFPB within 60 days after enactment. Date generally must be between 180 days and 12 months of enactment. Authorizes Treasury to revise date after further consultation with agencies. If determined transfer of functions is not feasible within 12 months, Treasury must report to Congress.
Coverage of Mortgage Lending Provisions – Includes mortgage originators who take or assist applications and negotiate terms of mortgages. Excludes creditors (except creditor in table funded transaction for anti-steering provisions) servicer employees, agents and contractors, persons or entities performing real estate brokerage activities and certain employees of manufactured home retailers from “originator” definition.
Duty of Care – Requires loan originators to be qualified and licensed and registered, when required, and include on all loan documents the unique identifier of mortgage originator provided by the Nationwide Mortgage Licensing System and Registry (NMLSR).
Minimum Standards for Mortgages/Ability to Repay – Prohibits creditors from making residential mortgage loans unless creditor makes good faith determination, based on verified and documented information that, at time loan was consummated, consumer had reasonable ability to repay loan according to its terms, and all applicable taxes, insurance and assessments.
Presumption/Safe Harbor for Qualified Mortgages – Allows any creditor and any assignee or securitizer of “qualified mortgage” to be presumed to meet “Ability to Repay” requirements, although presumption may be rebuttable.
Qualified Mortgages – Includes loans that meet several requirements including that the income relied on to qualify borrowers is verified and documented, underwriting and ratios are consistent with statutory and regulatory requirements, and total points and fees payable in connection with loan do not exceed 3 percent of total loan amount.
3 Percent Limit – Applies definition in TILA with following exclusions: (1) up to and including 2 bona fide discount points depending on interest rate; (2) any government insurance premium and any private mortgage insurance (MI) premium up to amount of the FHA insurance premium, provided the MI premium is refundable on pro rata basis, and (3) any MI premium paid by the consumer after closing, e.g., monthly.
Liability for Mortgage Originators – Establishes mortgage originators are liable for violations of duty of care and anti-steering prohibitions up to greater of actual damages or amount equal to 3 times total amount of direct and indirect compensation or gain accruing to mortgage originator for loan involved, plus costs and reasonable attorney’s fees.
Discretionary Regulatory Authority – Grants broad discretionary regulatory authority to CFPB to prohibit or condition terms, acts or practices relating to residential mortgage loans found abusive, unfair, deceptive, predatory.
Prepayment Penalties – Prohibits prepayment penalties for “not qualified mortgages.” Restricts prepayment penalties to loans that are not adjustable and do not have APR that exceeds Average Prime Offer Rate (APOR) by 1.5 or more percentage points for first lien loans, 2.5 or more percentage points for jumbo loans, or 3.5 or more percentage points for subordinate lien loans. Also, requires three-year phase-out of prepayment penalties for qualified mortgages and prohibits offering loan with a prepayment penalty without offering loan that does not have prepayment penalty.
Average Prime Offer Rate (APOR) – Means the average prime offer rate for a comparable transaction as of the date on which the interest rate for the transaction is set, as published by FRB.
Arbitration – Prohibits mandatory arbitration for residential mortgages and open-end consumer credit secured by principal dwellings, except on reverse mortgages.
HOEPA Expansion – Expands coverage of HOEPA and its restrictions governing high-cost mortgages to purchase mortgages. Also lowers the APR triggers to cover loans with an APR more than 6.5 percent above comparable APOR for first lien loans (8.5 percent if the dwelling is personal property and transaction is less than $50,000) and 8.5 percent above for subordinate loans. Also, lowers point and fees trigger from 8 percent of the total loan amount to 5 percent (the lesser of 8 percent or $1000 for loans under $20,000).
Servicing – Requires escrows for certain mortgages and new escrow disclosures, shortens time frames for qualified written requests, establishes timelines for pay-off statements and crediting of payments, and limits late fees for high-cost mortgages. Requires monthly statements on ARM loans. Establishes new requirements for force-placed insurance including notices to borrower. Expands scope of Protecting Tenants at Foreclosure Act.
Counseling – Establishes Office of Housing Counseling within HUD headed by Director to carry out wide range of counseling related activities including research, public outreach and policy development as well as coordinating and administering HUD counseling related programs.
Reach of Bill – The bill directs certain provisions to all residential mortgage loans and other provisions to specified categories of mortgages, defined below, which include “qualified mortgages,” “not qualified mortgages,” “higher risk mortgages,” and “high-cost” or “HOEPA mortgages.”
Regulatory Authority – Provisions assign regulatory authority to FRB, CFPB, federal banking agencies – FRB, OCC, FDIC and NCUA--and other agencies under various sections of bill. Provisions assigned to FRB under title XIV are reassigned to CFPB, except for provisions relating to housing counseling and certain appraisal-related matters. Assigns HUD regulatory responsibility for housing counseling provisions.
Now we wait and see how lenders interpret these reforms....
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After much ado our political "leaders" have finally come to an agreement on the broadest regulatory overhaul since the Glass Steagal Act of 1933.
By a vote of 60-39, the Senate yesterday passed HR 4173: WALL STREET REFORM AND CONSUMER PROTECTION ACT. The House already gave their seal of approval so the legislation heads to President Obama's desk where he is expected to sign it into law next week.
The bill includes several reforms aimed directly at the housing and mortgage industries. Instead of trying to translate the text into comprehensible English I chose to rely on the Mortgage Bankers Association's outlines. Once again they came through in the clutch...
HERE is an indepth summary of the text. Below are some excerpts from the MBA's overview.
Credit Risk Retention (Section 941) – Requires federal banking agencies and SEC to jointly prescribe rules requiring securitizers to retain economic interest of at least five percent of credit risk of assets they securitize. Regulations must include separate requirements for different asset classes, and may allocate the retention amount between originator and securitizer. HUD and the Federal Housing Finance Agency must participate in joint rulemaking process for residential mortgage backed securities (MBS) risk retention requirements. The statute requires an exemption for “qualified residential mortgages” which shall be defined by regulators based on statutory criteria to ensure sound underwriting and lower risk of default such as:
Documentation of borrower’s financial resources;
Debt- to-income standards;
Mitigating potential for payment shock on adjustable rate mortgages through product features and underwriting standards;
Mortgage insurance or other credit enhancements to reduce risk of default; and
Prohibiting use of loan features that have been demonstrated to exhibit a higher risk of borrower default.
Exempts loans insured or guaranteed by U.S. from risk retention requirements. For commercial MBS, regulators must give consideration to other types, forms and amounts of risk retention such as representations and warranties, underwriting criteria and first-loss positions. Within 90 days of enactment, requires FRB to complete study on combined impact of risk retention and accounting standards requiring securitizations to be brought on balance sheet.
Prohibition on Steering Incentives (Section 1403)
Prohibition: Prohibits mortgage originator from receiving from any person, or any person from paying mortgage originator, directly or indirectly, compensation that varies based on terms of loan (other than amount of the principal). With the exceptions below, generally prohibits a mortgage originator from receiving from any person other than consumer and any person other than consumer, who knows or has reason to know that a consumer has directly compensated or will directly compensate mortgage originator, from paying mortgage originator any fee or charge except bona fide third-party charges not retained by creditor, mortgage originator, or affiliate of creditor or mortgage originator. Intended to prohibit yield spread premiums or other similar compensation based on terms including rate that would cause originator to “steer” borrower to particular mortgage products.
Exceptions: Does not limit compensation to originator based on principal amount of loan. Also, does not restrict person other than consumer from receiving, or person other than consumer from paying, origination fee or charge if: (1) originator does not receive any compensation directly from consumer; and (2) consumer does not pay discount points, origination points or fees however denominated (other than bona fide third-party charges not retained by originator, creditor or affiliate of creditor or originator), except that Board may, by rule, waive or provide exemptions to restriction if Board determines waiver is in interest of consumers and public.
Regulations: Requires CFPB to prescribe regulations prohibiting mortgage originators from: (1) steering any consumer to loan that (a) consumer lacks reasonable ability to repay, or (b) has predatory characteristics or effects such as equity stripping, excessive fees or abusive terms; (2) steering any consumer from a “qualified mortgage” to “not qualified” mortgage when consumer qualifies for ”qualified mortgage;” (3) abusive or unfair lending practices that promote disparities among consumers of equal creditworthiness but of different race, ethnicity, gender, or age; (4) mischaracterizing the credit history of consumer or residential loans available to consumer, (5) mischaracterizing or inducing mischaracterization of appraised value of property securing extension of credit; or (6) if unable to suggest, offer or recommend to consumer loan that is not more expensive than loan for which consumer qualifies, discouraging consumer from seeking mortgage from another originator.
Rules of Construction: While expressly prohibiting any yield spread premium or similar compensation that would permit total amount of direct and indirect compensation from all sources to originator to vary based on loan terms other than amount of principal, expressly permits compensation to a creditor upon the sale of a consummated loan to a subsequent purchaser, i.e. compensation to lender from secondary market for sale of consummated loan. Also does not restrict: (1) consumer’s ability to finance at option of consumer through principal or rate, any origination fees or costs as long as fees or costs do not vary based on terms of loan or consumer’s decision to finance such fees; or (2) incentive
Definitions of Mortgage Originator (Section 1401) – Means any person who for direct or indirect compensation or gain: (i) takes residential mortgage loan application, (ii) assists consumer in obtaining or applying to obtain residential mortgage loan; or (iii) offers or negotiates terms of residential mortgage loan as well as any person who represents to the public that it will provide any of services in (i)-(iii). Does not include any person who: (1) performs purely administrative or clerical tasks; (2) is employee of manufactured home retailer who does not advise consumer on loan terms; (3) only performs real estate brokerage activities and is licensed or registered in accordance with applicable state law, unless such person or entity is compensated by lender, mortgage broker, or other originator or their agents; (4) person, estate or trust that provides mortgage financing for sale of 3 properties in any 12 month period provided loan is fully amortizing, where borrower has ability to repay and is either fixed or adjustable only after five years and meets other conditions; (5) is servicer or servicer employee, agent or contractor, including but not limited to those who offer or negotiate terms of residential mortgage loan for purposes of renegotiating, modifying, replacing and subordinating principal of existing mortgage where borrower is behind in payments, in default, or has reasonable likelihood of being in default or falling behind; and (6) Excludes creditor except the creditor in a table funded transaction under anti-steering provisions.
Consumer Financial Protection Bureau (CFPB) Established – Establishes CFPB as independent entity housed within FRB. Assigns CFPB broad authority to write rules to protect consumers from unfair or deceptive financial products, acts or practices and reassigns to CFPB responsibility for major consumer protection laws including RESPA, TILA, HOEPA, HMDA and more, detailed below.
Appraisals, AMCs and AVMs – Prohibits appraiser coercion and requires rulemaking by FRB, OCC, FDIC, NCUA, FHFA and the CFPB on appraiser independence. Requires: interim rules by CFPB within 90 days of enactment on appraiser independence to replace Home Valuation Code of Conduct (HVCC); physical appraisal for every subprime mortgage and two appraisals for subprime mortgage when there has been purchase or acquisition of property at lower price within 180 days; Appraisal Subcommittee of the Federal Financial Institutions Examination Council to monitor state and federal efforts to protect consumers from improper appraisal practices and unlicensed appraisers; FRB, OCC, FDIC, NCUA, FHFA and the CFPB to prescribe minimum requirements for appraisers, appraisal management companies and standards for AVMs.
CFPB Authority – Assigns CFPB regulatory and supervisory authority to examine and enforce consumer protection regulations respecting all mortgage-related businesses, large non-bank financial companies, and banks and credit unions with greater than $10 billion in assets. Makes CFPB primary regulator for nondepository lenders. Exclusions from CFPB authority for real estate brokers, persons regulated by state insurance regulators, auto dealers, accountants, tax preparers, and others.
CFPB Transfer Date – Requires Treasury, in consultation with FRB, FDIC, FTC, NCUA, OCC, OTS, HUD and OMB, to designate date for transfer of functions to CFPB within 60 days after enactment. Date generally must be between 180 days and 12 months of enactment. Authorizes Treasury to revise date after further consultation with agencies. If determined transfer of functions is not feasible within 12 months, Treasury must report to Congress.
Coverage of Mortgage Lending Provisions – Includes mortgage originators who take or assist applications and negotiate terms of mortgages. Excludes creditors (except creditor in table funded transaction for anti-steering provisions) servicer employees, agents and contractors, persons or entities performing real estate brokerage activities and certain employees of manufactured home retailers from “originator” definition.
Duty of Care – Requires loan originators to be qualified and licensed and registered, when required, and include on all loan documents the unique identifier of mortgage originator provided by the Nationwide Mortgage Licensing System and Registry (NMLSR).
Minimum Standards for Mortgages/Ability to Repay – Prohibits creditors from making residential mortgage loans unless creditor makes good faith determination, based on verified and documented information that, at time loan was consummated, consumer had reasonable ability to repay loan according to its terms, and all applicable taxes, insurance and assessments.
Presumption/Safe Harbor for Qualified Mortgages – Allows any creditor and any assignee or securitizer of “qualified mortgage” to be presumed to meet “Ability to Repay” requirements, although presumption may be rebuttable.
Qualified Mortgages – Includes loans that meet several requirements including that the income relied on to qualify borrowers is verified and documented, underwriting and ratios are consistent with statutory and regulatory requirements, and total points and fees payable in connection with loan do not exceed 3 percent of total loan amount.
3 Percent Limit – Applies definition in TILA with following exclusions: (1) up to and including 2 bona fide discount points depending on interest rate; (2) any government insurance premium and any private mortgage insurance (MI) premium up to amount of the FHA insurance premium, provided the MI premium is refundable on pro rata basis, and (3) any MI premium paid by the consumer after closing, e.g., monthly.
Liability for Mortgage Originators – Establishes mortgage originators are liable for violations of duty of care and anti-steering prohibitions up to greater of actual damages or amount equal to 3 times total amount of direct and indirect compensation or gain accruing to mortgage originator for loan involved, plus costs and reasonable attorney’s fees.
Discretionary Regulatory Authority – Grants broad discretionary regulatory authority to CFPB to prohibit or condition terms, acts or practices relating to residential mortgage loans found abusive, unfair, deceptive, predatory.
Prepayment Penalties – Prohibits prepayment penalties for “not qualified mortgages.” Restricts prepayment penalties to loans that are not adjustable and do not have APR that exceeds Average Prime Offer Rate (APOR) by 1.5 or more percentage points for first lien loans, 2.5 or more percentage points for jumbo loans, or 3.5 or more percentage points for subordinate lien loans. Also, requires three-year phase-out of prepayment penalties for qualified mortgages and prohibits offering loan with a prepayment penalty without offering loan that does not have prepayment penalty.
Average Prime Offer Rate (APOR) – Means the average prime offer rate for a comparable transaction as of the date on which the interest rate for the transaction is set, as published by FRB.
Arbitration – Prohibits mandatory arbitration for residential mortgages and open-end consumer credit secured by principal dwellings, except on reverse mortgages.
HOEPA Expansion – Expands coverage of HOEPA and its restrictions governing high-cost mortgages to purchase mortgages. Also lowers the APR triggers to cover loans with an APR more than 6.5 percent above comparable APOR for first lien loans (8.5 percent if the dwelling is personal property and transaction is less than $50,000) and 8.5 percent above for subordinate loans. Also, lowers point and fees trigger from 8 percent of the total loan amount to 5 percent (the lesser of 8 percent or $1000 for loans under $20,000).
Servicing – Requires escrows for certain mortgages and new escrow disclosures, shortens time frames for qualified written requests, establishes timelines for pay-off statements and crediting of payments, and limits late fees for high-cost mortgages. Requires monthly statements on ARM loans. Establishes new requirements for force-placed insurance including notices to borrower. Expands scope of Protecting Tenants at Foreclosure Act.
Counseling – Establishes Office of Housing Counseling within HUD headed by Director to carry out wide range of counseling related activities including research, public outreach and policy development as well as coordinating and administering HUD counseling related programs.
Reach of Bill – The bill directs certain provisions to all residential mortgage loans and other provisions to specified categories of mortgages, defined below, which include “qualified mortgages,” “not qualified mortgages,” “higher risk mortgages,” and “high-cost” or “HOEPA mortgages.”
Regulatory Authority – Provisions assign regulatory authority to FRB, CFPB, federal banking agencies – FRB, OCC, FDIC and NCUA--and other agencies under various sections of bill. Provisions assigned to FRB under title XIV are reassigned to CFPB, except for provisions relating to housing counseling and certain appraisal-related matters. Assigns HUD regulatory responsibility for housing counseling provisions.
Now we wait and see how lenders interpret these reforms....
Sunday, June 27, 2010
Lenders Reprice For The Better. Rates At Record Lows Again
by Victor Burek -
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Refinance RatesPurchase RatesRefinance Rates, June 27th Product: Today Last Week 30 yr Fixed Rate
15 yr Fixed Rate
5/1 ARM
Compare rates in your area: Refinance rates provided by Refinance RatesPurchase RatesPurchase Rates, June 27th Product: Today Last Week 30 yr Fixed Rate
15 yr Fixed Rate
5/1 ARM
Compare rates in your area: Refinance rates provided by Mortgage rates were priced at the most aggressive levels of our era on Wednesday following a steady stream of disappointing housing data that sent stock indexes lower. Rates did back up a few basis points yesterday for what seemed like no reason besides rally exhaustion, but we got those losses back today...
Consumer borrowing costs were influenced by two economic reports today. First out was the final revision to first quarter Gross Domestic Product (GDP).
GDP is the broadest measure of total economic activity. It reports on the output of every economic sector. It's basically our economic report card. A rapidly growing economy can lead to price inflation, the bond market prefers stable growth while stocks generally enjoy a faster pace of economic expansion.
--------------------------------------------------------------------------------
Refinance RatesPurchase RatesRefinance Rates, June 27th Product: Today Last Week 30 yr Fixed Rate
15 yr Fixed Rate
5/1 ARM
Compare rates in your area: Refinance rates provided by Refinance RatesPurchase RatesPurchase Rates, June 27th Product: Today Last Week 30 yr Fixed Rate
15 yr Fixed Rate
5/1 ARM
Compare rates in your area: Refinance rates provided by Mortgage rates were priced at the most aggressive levels of our era on Wednesday following a steady stream of disappointing housing data that sent stock indexes lower. Rates did back up a few basis points yesterday for what seemed like no reason besides rally exhaustion, but we got those losses back today...
Consumer borrowing costs were influenced by two economic reports today. First out was the final revision to first quarter Gross Domestic Product (GDP).
GDP is the broadest measure of total economic activity. It reports on the output of every economic sector. It's basically our economic report card. A rapidly growing economy can lead to price inflation, the bond market prefers stable growth while stocks generally enjoy a faster pace of economic expansion.
Sunday, April 18, 2010
6 housing trends in a still-shaky market
By Amanda Gengler, writerApril 1, 2010: 10:37 AM ET
(Money Magazine) -- The drama is nearly over. After a decade of extremes -- the ebullient highs of the real estate boom, then the devastating lows of the bust -- calmer forces are beginning to prevail in the housing market.
The big fall-off in home values, which has taken the median price of a house down almost 30% since 2006, looks to be in its final stages in most places: Three-quarters of the nation's 384 metropolitan areas will see prices down less than 5% a year from now, according to projections from Fiserv and Moody's Economy.com; 10% seem poised for modest increases. Meanwhile, Uncle Sam is lending a steadying hand with programs designed to prop up the market -- at least for a while yet.
Facebook Digg Twitter Buzz Up! Email Print Comment on this story
In this quieter environment lie new challenges and opportunities for homebuyers, sellers, owners, and investors. For the first time in years you aren't completely at the mercy of market forces: You can really affect how much you make (or lose).
To come out on top, though, you need to understand the key trends shaping the shifting market. You'll find them outlined below, along with smart moves that should help you exploit them.
1. Distressed properties will keep prices under pressure.
For a while last year it might have seemed as if the long-awaited housing recovery was just about here. Home prices stopped falling in spring, and have stayed fairly stable since, according to the Case-Shiller housing index. Sales rose from their recessionary lows, and inventories came down from their highs.
But the pickup turned out to be short-lived. Sales of existing homes dropped sharply in January from the previous month, and inventories crept back up. Economists predict that the national median price for a single-family home will dip another 5% to 10% before finally bottoming by year-end or early 2011.
Place much of the blame squarely on the glut of distressed properties spilling onto the market. More than 3 million homes are expected to get foreclosure notices this year, according to RealtyTrac, a foreclosure listing website, as job losses strain with their mortgage payments.
In addition, one in every four homeowners with a mortgage now owes more on that loan than the house is worth. A growing number of these owners are making a strategic decision to default -- 18% of delinquent borrowers were purposely behind, according to a recent study by Experian and Oliver Wyman. They're choosing to walk away rather than pour money into a home that will take years to regain its value.
0:00 /3:10Homeowners walking away
Meanwhile, short sales -- when a lender agrees to let a homeowner sell for less than he owes -- are also expected to spike, reports Moody's Economy.com. Contributing to the jump: a streamlined approval process and a new government program that gives servicers financial incentives to arrange short sales instead of foreclosing on a troubled property.
Your move.
If you're in the market for a new home, you may be tempted by the low prices on bank-owned properties, which are going for about 30% less than seller-owned homes. But be prepared to come in with a hefty down payment (at least 20% to 25%) to compete with investors offering banks all-cash or significant cash deals.
Be aware too that many of these homes need serious repairs, and you don't always have a chance to check them out before bidding. If you can't get a thorough inspection, walk away. And don't focus on short sales if you have to move quickly. Last year such transactions often took as long as six months. While some banks have streamlined the process, you can't count on a speedy deal.
But you don't have to take on the risks of a distressed property to nab a bargain. If you're shopping in an area with a growing number of foreclosures, use that fact to wring price concessions from owners anxious to sell. And ask the homeowner to fix anything wrong with the house flagged in the inspection, or to give you a discount to account for it.
Hoping to sell your house this year? Don't try to compete with repossessed properties on price. Instead, play up your advantages: a home in move-in condition (get your house inspected and do the repairs before you list it) and the possibility of a quick deal. To reassure prospective buyers that they're not getting a lemon, advises Pat Lashinsky, CEO of the online brokerage ZipRealty, toss in a one-year home warranty that will pay to fix problems like a broken furnace or hot-water heater. Cost: about $350.
2. Big homes are lagging small ones in the recovery.
Rushing to take advantage of what was then the expiring federal tax credit for first-time buyers, newcomers accounted for 50% of sales in October and November vs. 31% a few months earlier. That's helped stabilize prices on smaller, more affordable homes.
But the market for larger, more expensive homes is hurting. The inventory of homes for sale priced at $750,000 to $1 million is now 20 months, vs. 11 months for homes in the $100,000 to $250,000 range, the National Association of Realtors reports. Many people don't feel comfortable making a large financial commitment these days, and fewer can meet stricter standards for the jumbo loans often needed to buy these homes. Shifting tastes are also a factor.
"If you asked someone 10 or 15 years ago what they wanted in a house, the reply likely would have been 'space, space, space,' but not anymore," says Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard. In response to dwindling demand for bigger residences, the median size of a new home shrank to 2,100 square feet in 2009, down from 2,300 three years ago, the National Association of Home Builders says. Size typically dips in a recession, but Retsinas believes this time the trend will stick beyond the recovery.
"Americans now view their home primarily as a place to live, not as an investment," he says. "They're willing to give up some room for shorter commutes and lower energy bills."
Your move
Trade-up buyers who want bigger houses will find the best deals this year. The big question is when to make your move. Act swiftly if prices are already stabilizing in your area (go to cnnmoney.com/realestate2010 for price projections for the country's 384 metropolitan areas). Otherwise, hold off for a few months if you can, in anticipation of further price drops, since the high end of the market will be especially hard hit.
Whenever you make your move, base your bid on comparable sales over the prior 60 days rather than the home's list price. Coming in 5% to 10% lower than the comps is a smart starting point, says Ellen Klein, a realtor in Rockaway, N.J.
If you want to sell a big house, try to unload your property quickly before prices dip further. Setting the right price at the outset is key: If you go too high, many buyers won't even look, knowing you'll probably have to go lower later. "One price reduction is okay, but when you start to see multiple reductions, it raises a red flag," says Ken Shuman of Trulia.com.
Are homes in your area affordable?
You may be able to expedite a sale with aggressive pricing, listing your home for slightly below what comparable homes have sold for in the past couple of months. Another ploy to attract more traffic: Offer a larger cut -- say, 3.5% vs. 3% -- to the buyer's agent. True, you'll pay a little more in total commissions. But that's preferable to having to lower your price by 5% to 10% later if your house doesn't sell.
As for smaller homes, investors and first-time buyers will have a tougher time finding deals. Homes in good locations are getting multiple bids and are often selling above the listing price, says Alan Wagner, a Sacramento realtor. So if you find a house you love, don't bid less than similar homes have sold for in the past two months. You can find the median difference between listing and sales prices in your area at zillow.com under Market Reports.
3. Mortgage rates will rise as Uncle Sam exits the market.
Say goodbye to the lowest mortgage rates in about 50 years. For the past 16 months the Federal Reserve has helped keep rates low -- around 5% for a 30-year loan -- by purchasing mortgage-backed securities. But that program was scheduled to end in March, and private investors aren't expected to step in to fill the void at the same low rates. As a result, the consensus among economists is that rates will climb to between 5.3% and 6% by year-end. "It will be a gradual rise," says Mark Zandi, chief economist at Moody's Economy.com. "If rates spike, the Fed will get back into the market."
One exception to the rising-rate outlook: Rates on jumbo mortgages (typically loans larger than $417,000, but up to $729,750 in some high-cost areas) are expected to hold steady at 6% or so. That's because the government wasn't propping up the jumbo market, so these loans won't be affected much by the Fed's exit.
Your move
Here's the dilemma if you're in the market for a new home: Do you move quickly to lock in low rates, or would you be better off waiting?
For anyone who is house hunting in the majority of areas where prices are expected to drop 5% or less, locking in low rates now will probably be more valuable.
See home price forecasts in your state
Consider this: Taking out a $300,000 30-year loan at 5% today will cost $1,610 a month. Wait until the end of the year, and maybe you can land the house for $15,000 less. But by then rates may have climbed to 5.75%, so your monthly payment will be $50 more, and you'll pay almost $34,000 more in interest over the life of the loan.
For homeowners, the decision is much clearer. If today's rates are at least one point below your current loan, or you have an adjustable rate and plan to stay put for at least five years, refinance pronto. On a $300,000 30-year loan, shifting from a 6% rate to 5% could cut your payments by $300 a month.
4. Financing for condos, second homes, and jumbo loans are especially tough to get.
To qualify for a new mortgage at the lowest rates, however, you'll have to meet some stiff requirements. You'll need at least 10% down or 10% equity in your home and a credit score of 720 or higher; your mortgage, insurance, and property taxes shouldn't exceed 31% of your gross income; and no more than 41% can go to paying debts of any kind.
Exceptions: You usually need only 3.5% down for an FHA loan, and can refinance with less than 10% equity through the HARP program. (Makinghomeaffordable. gov has details.)
The standards are even more onerous for anyone buying a condo or a vacation or investment home, or who will need a jumbo. Many banks will approve a condo loan only if the building is at least 70% occupied by owners, which is often problematic for new construction. Meanwhile, jumbo borrowers and investors must often put 30% to 35% down. "These loans are often riskier, so lenders make you jump through more hoops to get one," says Keith Gumbinger of HSH Associates, a mortgage publishing website.
Your move
Don't even think about shopping for a new home without being pre-approved for a mortgage. You don't want to fall in love with a house only to discover you don't have enough cash for the down payment the bank requires or you fail to meet some other requirement. Plus, most sellers and realtors won't even work with you unless they're sure you'll qualify for financing.
If a bank turns you down, try other lenders. Local banks and credit unions may be more lenient about whom they approve and often offer better rates than national banks. Can't prove income because you're self-employed or rely heavily on commissions? Apply at the bank where you have business or personal accounts; familiarity may help the lender get to yes. Buyers in the market for a condo should also make sure to research the association's financial health and the building's occupancy rate.
5. Buyers, rushing to beat the tax-credit deadline, will set off a flurry of spring deals.
One more reason prospective buyers and sellers may be tempted to move quickly: the looming expiration of valuable tax credits that have been dangled by Uncle Sam to spur sales.
Homeowners who move can get up to $6,500, first-time buyers as much as $8,000, as long as they have a joint income of less than $245,000 (or $145,000 for singles). But there isn't much time left to act because buyers must be under contract on the new home by April 30 and close by June 30 to qualify for the credit.
Look for transactions to pick up as the deadline nears. When the credit for first-time buyers was originally set to expire last November, sales surged in the three months before the cutoff. Experts expect a similar pattern this spring.
Your move
If you're looking to buy a home in an area where prices are still expected to fall more than 5% over the next year, don't rush to purchase just to get the tax break -- a substantial drop in home prices in your desired town could more than offset the value of the credit. Otherwise, strictly from a price standpoint, there's no reason not to house hunt in earnest in case you find a place you love and can afford by the government deadline.
But homeowners hoping to buy have to consider another factor: how long it will take you to sell the place you live in now, since the cost of carrying two properties would quickly offset the credit. To avoid that double whammy, you'd need to unload your house in less time than the 110 days or so that the average home is now on the market. (Find out how long it's taking to sell homes in your area at zillow.com; click on Market Reports.)
Of course, the anticipated pickup in traffic among prospective buyers does enhance the prospect of a quick sale. But you'll have to move fast to get your house listed, and be prepared to negotiate a speedy deal.
6. Going green this year can save you more money.
Hoping to save the earth and a few extra bucks while you're at it? Well, the payback on energy-saving home improvements recently got a whole lot sweeter, thanks to a government program that extended and expanded tax breaks that had been scheduled to expire for those upgrades. You can get a federal credit for 30% of the cost of products like highly energy-efficient heating and air-conditioning systems, windows, and insulation up to $1,500 for 2009 and 2010 combined. (For details on the available tax credits, go to ase.org.)
Your move
To figure out which upgrades will save you the most, do an energy audit to identify your biggest leaks. Ask your utility company if it offers this service free (many do) or DIY using the kit at energysavers.gov. Sealing leaks and adding insulation, including in your attic and basement, typically provide the best bang for your buck.
And keep your eyes open for other incentives from Uncle Sam. In March, President Obama outlined an idea for a new program that would give homeowners even larger rebates right at the cash register for renovations that boost energy efficiency. More greenbacks for going green could be a deal you won't want to miss
(Money Magazine) -- The drama is nearly over. After a decade of extremes -- the ebullient highs of the real estate boom, then the devastating lows of the bust -- calmer forces are beginning to prevail in the housing market.
The big fall-off in home values, which has taken the median price of a house down almost 30% since 2006, looks to be in its final stages in most places: Three-quarters of the nation's 384 metropolitan areas will see prices down less than 5% a year from now, according to projections from Fiserv and Moody's Economy.com; 10% seem poised for modest increases. Meanwhile, Uncle Sam is lending a steadying hand with programs designed to prop up the market -- at least for a while yet.
Facebook Digg Twitter Buzz Up! Email Print Comment on this story
In this quieter environment lie new challenges and opportunities for homebuyers, sellers, owners, and investors. For the first time in years you aren't completely at the mercy of market forces: You can really affect how much you make (or lose).
To come out on top, though, you need to understand the key trends shaping the shifting market. You'll find them outlined below, along with smart moves that should help you exploit them.
1. Distressed properties will keep prices under pressure.
For a while last year it might have seemed as if the long-awaited housing recovery was just about here. Home prices stopped falling in spring, and have stayed fairly stable since, according to the Case-Shiller housing index. Sales rose from their recessionary lows, and inventories came down from their highs.
But the pickup turned out to be short-lived. Sales of existing homes dropped sharply in January from the previous month, and inventories crept back up. Economists predict that the national median price for a single-family home will dip another 5% to 10% before finally bottoming by year-end or early 2011.
Place much of the blame squarely on the glut of distressed properties spilling onto the market. More than 3 million homes are expected to get foreclosure notices this year, according to RealtyTrac, a foreclosure listing website, as job losses strain with their mortgage payments.
In addition, one in every four homeowners with a mortgage now owes more on that loan than the house is worth. A growing number of these owners are making a strategic decision to default -- 18% of delinquent borrowers were purposely behind, according to a recent study by Experian and Oliver Wyman. They're choosing to walk away rather than pour money into a home that will take years to regain its value.
0:00 /3:10Homeowners walking away
Meanwhile, short sales -- when a lender agrees to let a homeowner sell for less than he owes -- are also expected to spike, reports Moody's Economy.com. Contributing to the jump: a streamlined approval process and a new government program that gives servicers financial incentives to arrange short sales instead of foreclosing on a troubled property.
Your move.
If you're in the market for a new home, you may be tempted by the low prices on bank-owned properties, which are going for about 30% less than seller-owned homes. But be prepared to come in with a hefty down payment (at least 20% to 25%) to compete with investors offering banks all-cash or significant cash deals.
Be aware too that many of these homes need serious repairs, and you don't always have a chance to check them out before bidding. If you can't get a thorough inspection, walk away. And don't focus on short sales if you have to move quickly. Last year such transactions often took as long as six months. While some banks have streamlined the process, you can't count on a speedy deal.
But you don't have to take on the risks of a distressed property to nab a bargain. If you're shopping in an area with a growing number of foreclosures, use that fact to wring price concessions from owners anxious to sell. And ask the homeowner to fix anything wrong with the house flagged in the inspection, or to give you a discount to account for it.
Hoping to sell your house this year? Don't try to compete with repossessed properties on price. Instead, play up your advantages: a home in move-in condition (get your house inspected and do the repairs before you list it) and the possibility of a quick deal. To reassure prospective buyers that they're not getting a lemon, advises Pat Lashinsky, CEO of the online brokerage ZipRealty, toss in a one-year home warranty that will pay to fix problems like a broken furnace or hot-water heater. Cost: about $350.
2. Big homes are lagging small ones in the recovery.
Rushing to take advantage of what was then the expiring federal tax credit for first-time buyers, newcomers accounted for 50% of sales in October and November vs. 31% a few months earlier. That's helped stabilize prices on smaller, more affordable homes.
But the market for larger, more expensive homes is hurting. The inventory of homes for sale priced at $750,000 to $1 million is now 20 months, vs. 11 months for homes in the $100,000 to $250,000 range, the National Association of Realtors reports. Many people don't feel comfortable making a large financial commitment these days, and fewer can meet stricter standards for the jumbo loans often needed to buy these homes. Shifting tastes are also a factor.
"If you asked someone 10 or 15 years ago what they wanted in a house, the reply likely would have been 'space, space, space,' but not anymore," says Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard. In response to dwindling demand for bigger residences, the median size of a new home shrank to 2,100 square feet in 2009, down from 2,300 three years ago, the National Association of Home Builders says. Size typically dips in a recession, but Retsinas believes this time the trend will stick beyond the recovery.
"Americans now view their home primarily as a place to live, not as an investment," he says. "They're willing to give up some room for shorter commutes and lower energy bills."
Your move
Trade-up buyers who want bigger houses will find the best deals this year. The big question is when to make your move. Act swiftly if prices are already stabilizing in your area (go to cnnmoney.com/realestate2010 for price projections for the country's 384 metropolitan areas). Otherwise, hold off for a few months if you can, in anticipation of further price drops, since the high end of the market will be especially hard hit.
Whenever you make your move, base your bid on comparable sales over the prior 60 days rather than the home's list price. Coming in 5% to 10% lower than the comps is a smart starting point, says Ellen Klein, a realtor in Rockaway, N.J.
If you want to sell a big house, try to unload your property quickly before prices dip further. Setting the right price at the outset is key: If you go too high, many buyers won't even look, knowing you'll probably have to go lower later. "One price reduction is okay, but when you start to see multiple reductions, it raises a red flag," says Ken Shuman of Trulia.com.
Are homes in your area affordable?
You may be able to expedite a sale with aggressive pricing, listing your home for slightly below what comparable homes have sold for in the past couple of months. Another ploy to attract more traffic: Offer a larger cut -- say, 3.5% vs. 3% -- to the buyer's agent. True, you'll pay a little more in total commissions. But that's preferable to having to lower your price by 5% to 10% later if your house doesn't sell.
As for smaller homes, investors and first-time buyers will have a tougher time finding deals. Homes in good locations are getting multiple bids and are often selling above the listing price, says Alan Wagner, a Sacramento realtor. So if you find a house you love, don't bid less than similar homes have sold for in the past two months. You can find the median difference between listing and sales prices in your area at zillow.com under Market Reports.
3. Mortgage rates will rise as Uncle Sam exits the market.
Say goodbye to the lowest mortgage rates in about 50 years. For the past 16 months the Federal Reserve has helped keep rates low -- around 5% for a 30-year loan -- by purchasing mortgage-backed securities. But that program was scheduled to end in March, and private investors aren't expected to step in to fill the void at the same low rates. As a result, the consensus among economists is that rates will climb to between 5.3% and 6% by year-end. "It will be a gradual rise," says Mark Zandi, chief economist at Moody's Economy.com. "If rates spike, the Fed will get back into the market."
One exception to the rising-rate outlook: Rates on jumbo mortgages (typically loans larger than $417,000, but up to $729,750 in some high-cost areas) are expected to hold steady at 6% or so. That's because the government wasn't propping up the jumbo market, so these loans won't be affected much by the Fed's exit.
Your move
Here's the dilemma if you're in the market for a new home: Do you move quickly to lock in low rates, or would you be better off waiting?
For anyone who is house hunting in the majority of areas where prices are expected to drop 5% or less, locking in low rates now will probably be more valuable.
See home price forecasts in your state
Consider this: Taking out a $300,000 30-year loan at 5% today will cost $1,610 a month. Wait until the end of the year, and maybe you can land the house for $15,000 less. But by then rates may have climbed to 5.75%, so your monthly payment will be $50 more, and you'll pay almost $34,000 more in interest over the life of the loan.
For homeowners, the decision is much clearer. If today's rates are at least one point below your current loan, or you have an adjustable rate and plan to stay put for at least five years, refinance pronto. On a $300,000 30-year loan, shifting from a 6% rate to 5% could cut your payments by $300 a month.
4. Financing for condos, second homes, and jumbo loans are especially tough to get.
To qualify for a new mortgage at the lowest rates, however, you'll have to meet some stiff requirements. You'll need at least 10% down or 10% equity in your home and a credit score of 720 or higher; your mortgage, insurance, and property taxes shouldn't exceed 31% of your gross income; and no more than 41% can go to paying debts of any kind.
Exceptions: You usually need only 3.5% down for an FHA loan, and can refinance with less than 10% equity through the HARP program. (Makinghomeaffordable. gov has details.)
The standards are even more onerous for anyone buying a condo or a vacation or investment home, or who will need a jumbo. Many banks will approve a condo loan only if the building is at least 70% occupied by owners, which is often problematic for new construction. Meanwhile, jumbo borrowers and investors must often put 30% to 35% down. "These loans are often riskier, so lenders make you jump through more hoops to get one," says Keith Gumbinger of HSH Associates, a mortgage publishing website.
Your move
Don't even think about shopping for a new home without being pre-approved for a mortgage. You don't want to fall in love with a house only to discover you don't have enough cash for the down payment the bank requires or you fail to meet some other requirement. Plus, most sellers and realtors won't even work with you unless they're sure you'll qualify for financing.
If a bank turns you down, try other lenders. Local banks and credit unions may be more lenient about whom they approve and often offer better rates than national banks. Can't prove income because you're self-employed or rely heavily on commissions? Apply at the bank where you have business or personal accounts; familiarity may help the lender get to yes. Buyers in the market for a condo should also make sure to research the association's financial health and the building's occupancy rate.
5. Buyers, rushing to beat the tax-credit deadline, will set off a flurry of spring deals.
One more reason prospective buyers and sellers may be tempted to move quickly: the looming expiration of valuable tax credits that have been dangled by Uncle Sam to spur sales.
Homeowners who move can get up to $6,500, first-time buyers as much as $8,000, as long as they have a joint income of less than $245,000 (or $145,000 for singles). But there isn't much time left to act because buyers must be under contract on the new home by April 30 and close by June 30 to qualify for the credit.
Look for transactions to pick up as the deadline nears. When the credit for first-time buyers was originally set to expire last November, sales surged in the three months before the cutoff. Experts expect a similar pattern this spring.
Your move
If you're looking to buy a home in an area where prices are still expected to fall more than 5% over the next year, don't rush to purchase just to get the tax break -- a substantial drop in home prices in your desired town could more than offset the value of the credit. Otherwise, strictly from a price standpoint, there's no reason not to house hunt in earnest in case you find a place you love and can afford by the government deadline.
But homeowners hoping to buy have to consider another factor: how long it will take you to sell the place you live in now, since the cost of carrying two properties would quickly offset the credit. To avoid that double whammy, you'd need to unload your house in less time than the 110 days or so that the average home is now on the market. (Find out how long it's taking to sell homes in your area at zillow.com; click on Market Reports.)
Of course, the anticipated pickup in traffic among prospective buyers does enhance the prospect of a quick sale. But you'll have to move fast to get your house listed, and be prepared to negotiate a speedy deal.
6. Going green this year can save you more money.
Hoping to save the earth and a few extra bucks while you're at it? Well, the payback on energy-saving home improvements recently got a whole lot sweeter, thanks to a government program that extended and expanded tax breaks that had been scheduled to expire for those upgrades. You can get a federal credit for 30% of the cost of products like highly energy-efficient heating and air-conditioning systems, windows, and insulation up to $1,500 for 2009 and 2010 combined. (For details on the available tax credits, go to ase.org.)
Your move
To figure out which upgrades will save you the most, do an energy audit to identify your biggest leaks. Ask your utility company if it offers this service free (many do) or DIY using the kit at energysavers.gov. Sealing leaks and adding insulation, including in your attic and basement, typically provide the best bang for your buck.
And keep your eyes open for other incentives from Uncle Sam. In March, President Obama outlined an idea for a new program that would give homeowners even larger rebates right at the cash register for renovations that boost energy efficiency. More greenbacks for going green could be a deal you won't want to miss
Sunday, March 14, 2010
From Robert Kiyosaki's book Conspiracy of The Rich
The Root of All Evil
Is the love of money the root of all evil? Or, is it the ignorance of money?
What did you learn about money in school? Have you ever wondered why our school systems do not teach us much—if anything—about money? Is the lack of financial education in our schools simply an oversight by our educational leaders? Or is it part of a larger conspiracy? Regardless, whether we are rich or poor, educated or uneducated, child or adult, retired or working, we all use money. Like it or not, money has a tremendous impact on our lives in today's world.
Changing the Rules of Money
In 1971, President Richard Nixon changed the rules of money: Without the approval of Congress, he severed the U.S. dollar's relationship with gold. He made this unilateral decision during a quietly held two-day meeting on Minot Island in Maine, without consulting his State Department or the international monetary system.
President Nixon changed the rules because foreign countries being paid in U.S. dollars grew skeptical because the U.S. Treasury was printing more and more money to cover our debts, and they began exchanging their dollars directly for gold in earnest, depleting most of the U.S. gold reserves. The vault was being emptied because the government was importing more than it was exporting and because of the costly Vietnam War. As our economy grew, we were also importing more and more oil.
Is the love of money the root of all evil? Or, is it the ignorance of money?
What did you learn about money in school? Have you ever wondered why our school systems do not teach us much—if anything—about money? Is the lack of financial education in our schools simply an oversight by our educational leaders? Or is it part of a larger conspiracy? Regardless, whether we are rich or poor, educated or uneducated, child or adult, retired or working, we all use money. Like it or not, money has a tremendous impact on our lives in today's world.
Changing the Rules of Money
In 1971, President Richard Nixon changed the rules of money: Without the approval of Congress, he severed the U.S. dollar's relationship with gold. He made this unilateral decision during a quietly held two-day meeting on Minot Island in Maine, without consulting his State Department or the international monetary system.
President Nixon changed the rules because foreign countries being paid in U.S. dollars grew skeptical because the U.S. Treasury was printing more and more money to cover our debts, and they began exchanging their dollars directly for gold in earnest, depleting most of the U.S. gold reserves. The vault was being emptied because the government was importing more than it was exporting and because of the costly Vietnam War. As our economy grew, we were also importing more and more oil.
Saturday, February 27, 2010
Duck! Watch out for falling home prices
NEW YORK (CNNMoney.com) -- Despite signs that the real estate market might be lurching forward, prices are expected to fall further this year and next.
The average home price in the United States will fall by about 6% by September 2011, according to a joint report between Fiserv and Moody's Economy.com. And that's after plunging more than 27% in the past three years.
Most of the projected home price decline will occur during the usually slow summer months of 2010. After that, prices should begin to stabilize, according to Fiserv, and stay almost flat through fall of 2011.
The main reason for continued decline, according to Mark Zandi, economist and co-founder of Economy.com, is foreclosures -- the same thing that's plagued markets for the past three years.
"Foreclosure sales will pick up this spring as mortgage servicers figure out who can qualify for a modification and who can't," said Zandi.
He figures there are at least 4.5 million mortgage loans either in foreclosure or clearly headed in that direction. When that additional inventory hits the market, it will provide numerous choices for buyers and encourage sellers to drop their listing prices.
Check the home price forecast in your city
The end of two federal programs, which have been propping up markets, will also tamp down prices.
The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities. But the Fed's program lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates.
Any resulting rise in rates will cause some buyers to withdraw from the market and others to look for lower priced homes. Either way, demand for homes drops and so do prices.
A month after the Fed bows out of the mortgage-buying market, the homebuyer tax credit will start to expire. To qualify for the $8,000 credit, homebuyers must sign a contract before April 30 and close by June 30. When the first date passes, many buyers are expected to vacate the market, weakening the demand for homes.
In a broader sense, home prices are ultimately decided by employment. "If [the job market] improvement is stronger than expected, prices will get better. If it's weaker than expected, prices will be worse," Zandi said.
Worst of the worst
The worst performing market will be Miami, Fla. Moody's projects prices there to drop a heart-stopping 29.2% by Sept. 30. That follows a 47.7% decline the metro area recorded in the past three years. Grand total: 64% drop.
Other disastrous performances will be turned in by the Hanford, Calif., metro area, where prices are projected to plummet 27.2% through Sept. 30, 2010 following their 36.9% drop for the previous 36 months. Ft. Lauderdale and West Palm will also register steep drops.
There's some good price news coming out of California's Central Valley for a change; prices will begin to emerge from their free fall toward the end of this year.
In Merced, for example, which crashed and burned by 71.8% in the past three years (through last September), they'll only fall only another 6.2% in the next six months before bouncing back with a rise of 10.1% by Sept. 30, 2011.
The average home price in the United States will fall by about 6% by September 2011, according to a joint report between Fiserv and Moody's Economy.com. And that's after plunging more than 27% in the past three years.
Most of the projected home price decline will occur during the usually slow summer months of 2010. After that, prices should begin to stabilize, according to Fiserv, and stay almost flat through fall of 2011.
The main reason for continued decline, according to Mark Zandi, economist and co-founder of Economy.com, is foreclosures -- the same thing that's plagued markets for the past three years.
"Foreclosure sales will pick up this spring as mortgage servicers figure out who can qualify for a modification and who can't," said Zandi.
He figures there are at least 4.5 million mortgage loans either in foreclosure or clearly headed in that direction. When that additional inventory hits the market, it will provide numerous choices for buyers and encourage sellers to drop their listing prices.
Check the home price forecast in your city
The end of two federal programs, which have been propping up markets, will also tamp down prices.
The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities. But the Fed's program lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates.
Any resulting rise in rates will cause some buyers to withdraw from the market and others to look for lower priced homes. Either way, demand for homes drops and so do prices.
A month after the Fed bows out of the mortgage-buying market, the homebuyer tax credit will start to expire. To qualify for the $8,000 credit, homebuyers must sign a contract before April 30 and close by June 30. When the first date passes, many buyers are expected to vacate the market, weakening the demand for homes.
In a broader sense, home prices are ultimately decided by employment. "If [the job market] improvement is stronger than expected, prices will get better. If it's weaker than expected, prices will be worse," Zandi said.
Worst of the worst
The worst performing market will be Miami, Fla. Moody's projects prices there to drop a heart-stopping 29.2% by Sept. 30. That follows a 47.7% decline the metro area recorded in the past three years. Grand total: 64% drop.
Other disastrous performances will be turned in by the Hanford, Calif., metro area, where prices are projected to plummet 27.2% through Sept. 30, 2010 following their 36.9% drop for the previous 36 months. Ft. Lauderdale and West Palm will also register steep drops.
There's some good price news coming out of California's Central Valley for a change; prices will begin to emerge from their free fall toward the end of this year.
In Merced, for example, which crashed and burned by 71.8% in the past three years (through last September), they'll only fall only another 6.2% in the next six months before bouncing back with a rise of 10.1% by Sept. 30, 2011.
Sunday, February 21, 2010
Real Estate Looks Risky, but Less So for Bargain Hunters
By PAUL SULLIVAN
Published: February 19, 2010
EVEN a cursory glance at recent events in commercial real estate would make you think the next big collapse is upon us.
Skip to next paragraph
Chester Higgins Jr./The New York Times
Thomas N. Bohjalian of Cohen & Steers sees opportunities in real estate investment trusts.
Wealth Matters
Paul Sullivan writes about strategies that the wealthy use to manage their money and their overall well-being.
Chester Higgins Jr./The New York Times
David Frame of J. P. Morgan Private Bank tells investors to be sure that “ ‘bad’ is priced in.”
First, there was the default last month by Tishman Speyer Properties and BlackRock Realty on billions of dollars in loans on Stuyvesant Town and Peter Cooper Village, the huge apartment complexes in Manhattan. When the deal was done, in 2006, it was the biggest of its kind in American history.
And this week, Simon Properties tried to buy General Growth Properties, its shopping mall rival, for $10 billion, a price General Growth says is too low even though the company is in bankruptcy.
Yet in the midst of this, financial advisers are telling their wealthy clients that there is tremendous opportunity in real estate. What is equally intriguing is that these investors are looking again at something as illiquid as a building, which goes to show just how quickly people can reacquire their appetite for risk if it means higher returns.
“The trick with investing in commercial real estate is not knowing if something is bad, but knowing if that ‘bad’ is priced in,” said David Frame, global head of alternative investments at J.P. Morgan Private Bank.
The next few years are expected to be bad for commercial real estate largely because the rosy predictions made when the buildings were purchased in 2005 and 2006 have not come true. First, the values of those buildings have plummeted, as much as 45 percent in some instances. That is going to make it difficult for the owners to refinance their mortgages over the next few years. Second, the recession has reduced the rents and occupancy rates on which those inflated values were based.
But what’s bad for an owner may be good for an investor.
STATE OF PLAY The opportunities in commercial real estate run the gamut of risk, from buying undeveloped land to buying stock in real estate investment trusts, or REITs, which invest in property and mortgages.
Mike Ryan, head of wealth management research for the Americas at UBS Wealth Management, said while there were risks in commercial real estate, they would not be as bad as many bearish analysts had predicted and certainly not on the level of the residential real estate crash.
“The notion that the other shoe is about to drop and we’ll see a wholesale liquidation of property is overdone,” he said. But, he added, “We’re not saying people should plow in.”
Yet Mr. Frame said he saw the coming refinancing crisis in commercial real estate as a continuum of what has been happening with other securities in the last 18 months. “Our job has been to look through the capital markets and identify where there’s been a scarcity of capital,” he said, meaning where investors sold their positions quickly and fearfully. The first opportunities to take advantage of a turnaround were with convertible bonds and private equity. “Now,” Mr. Frame said, “we think the opportunity in real estate is much broader than it was 12 months ago.”
OPTIONS So how are people seeking to profit in commercial real estate? This depends on whether they are passive investors, who want to allocate some money to real estate, or entrepreneurs seeking to buy buildings.
Many investors who did not make their fortunes in real estate remain cautious. “You have to help them view real estate as private equity because you’re locking up your money for some period of time,” said Joanne Jensen, a private banker at Deutsche Bank Private Wealth Management.
But if they’re going to invest in real estate, they want the security of high-quality investments. “I’m speaking to a lot of real estate investors, and what they’ve been telling me is there’s been a bifurcation between the ‘A’ quality buildings and everything else,” Ms. Jensen said.
One intriguing strategy is to buy the underlying mortgage debt of buildings whose value was inflated. The debt is now trading at a deep discount. This may sound risky, particularly if the owner walks away from that debt, as happened with Stuyvesant Town. But Mr. Frame sees it as a way to make either a little or a lot of money.
He described one possibility: a building was purchased for $100 million in 2006. It is now worth less, but the underlying mortgage is still $50 million, and it is coming due next year. The owner is probably going to have a tough time refinancing the mortgage without putting in more money. That uncertainty is reflected in the price of the debt.
“Say it’s 70 cents on the dollar, or $40 million for the first-lien mortgage,” he said. “If, in the next year, I get paid off, I get a 12 percent return. If not, I own the building at 60 percent off the original purchase price.”
In many cases, he said, clients are hoping they do not get paid back because the return from owning the building could be far greater. But the risk is they may have to hold that property for at least several years.
Some of his other ideas carry the same caveat: they require time. In this category, he included buying land prepared for developments that have stalled or buying loans from the Federal Deposit Insurance Corporation. The agency acquired these from banks and has bundled them into packages to be sold off.
Hotels are one area in which the investment turnaround could come faster. Their occupancy rates plummeted in the recession, and many were further hurt by having too much debt. “The most upside can come from hotels, if we get an uptick in the economy,” Mr. Frame said. “But the risk is high.”
Still, he said he believed that all these seemingly risky investments were actually predicated on caution. “We’re not taking an optimistic view of the recovery,” he said. “As long as it doesn’t get dramatically worse, we’ll be O.K.”
REIT stocks are a more liquid alternative. They went through their own steep decline last year. In March 2009, REIT stocks were down 75 percent from their February 2007 high, according to the leading REIT index. The index had rebounded to half of its peak, but REIT stocks slid again after the Federal Reserve raised its lending rate to banks on Thursday. This is not necessarily a bad thing for long-term investors.
“We think REITs are trading roughly at the net-asset value” of the properties they own, said Thomas N. Bohjalian, a portfolio manager at Cohen & Steers, a real estate investment firm. “And that is not the ceiling; it’s the floor.”
What is more significant than stock price, he said, is Cohen & Steers’s prediction that dividends on REIT stocks will grow by an average of 12 percent over each of the next five years. REITs are legally required to pay out 90 percent of their taxable income annually. In flush times, they were paying out a good portion of their cash flow as well. As income from REIT-owned properties rebounds, so will the dividends.
CAUTION All these investment ideas are predicated upon patience and a healthy stomach for risk. With REITs, for example, Mr. Bohjalian said he did not expect double-digit dividend growth to start until 2011.
This patience works two ways. Ms. Jensen has several clients who have made their fortunes in real estate but have struggled to find properties at the discounts they expected. “They’re not willing to do a deal that doesn’t make sense,” she said.
That may be a good mantra for any investor.
Published: February 19, 2010
EVEN a cursory glance at recent events in commercial real estate would make you think the next big collapse is upon us.
Skip to next paragraph
Chester Higgins Jr./The New York Times
Thomas N. Bohjalian of Cohen & Steers sees opportunities in real estate investment trusts.
Wealth Matters
Paul Sullivan writes about strategies that the wealthy use to manage their money and their overall well-being.
Chester Higgins Jr./The New York Times
David Frame of J. P. Morgan Private Bank tells investors to be sure that “ ‘bad’ is priced in.”
First, there was the default last month by Tishman Speyer Properties and BlackRock Realty on billions of dollars in loans on Stuyvesant Town and Peter Cooper Village, the huge apartment complexes in Manhattan. When the deal was done, in 2006, it was the biggest of its kind in American history.
And this week, Simon Properties tried to buy General Growth Properties, its shopping mall rival, for $10 billion, a price General Growth says is too low even though the company is in bankruptcy.
Yet in the midst of this, financial advisers are telling their wealthy clients that there is tremendous opportunity in real estate. What is equally intriguing is that these investors are looking again at something as illiquid as a building, which goes to show just how quickly people can reacquire their appetite for risk if it means higher returns.
“The trick with investing in commercial real estate is not knowing if something is bad, but knowing if that ‘bad’ is priced in,” said David Frame, global head of alternative investments at J.P. Morgan Private Bank.
The next few years are expected to be bad for commercial real estate largely because the rosy predictions made when the buildings were purchased in 2005 and 2006 have not come true. First, the values of those buildings have plummeted, as much as 45 percent in some instances. That is going to make it difficult for the owners to refinance their mortgages over the next few years. Second, the recession has reduced the rents and occupancy rates on which those inflated values were based.
But what’s bad for an owner may be good for an investor.
STATE OF PLAY The opportunities in commercial real estate run the gamut of risk, from buying undeveloped land to buying stock in real estate investment trusts, or REITs, which invest in property and mortgages.
Mike Ryan, head of wealth management research for the Americas at UBS Wealth Management, said while there were risks in commercial real estate, they would not be as bad as many bearish analysts had predicted and certainly not on the level of the residential real estate crash.
“The notion that the other shoe is about to drop and we’ll see a wholesale liquidation of property is overdone,” he said. But, he added, “We’re not saying people should plow in.”
Yet Mr. Frame said he saw the coming refinancing crisis in commercial real estate as a continuum of what has been happening with other securities in the last 18 months. “Our job has been to look through the capital markets and identify where there’s been a scarcity of capital,” he said, meaning where investors sold their positions quickly and fearfully. The first opportunities to take advantage of a turnaround were with convertible bonds and private equity. “Now,” Mr. Frame said, “we think the opportunity in real estate is much broader than it was 12 months ago.”
OPTIONS So how are people seeking to profit in commercial real estate? This depends on whether they are passive investors, who want to allocate some money to real estate, or entrepreneurs seeking to buy buildings.
Many investors who did not make their fortunes in real estate remain cautious. “You have to help them view real estate as private equity because you’re locking up your money for some period of time,” said Joanne Jensen, a private banker at Deutsche Bank Private Wealth Management.
But if they’re going to invest in real estate, they want the security of high-quality investments. “I’m speaking to a lot of real estate investors, and what they’ve been telling me is there’s been a bifurcation between the ‘A’ quality buildings and everything else,” Ms. Jensen said.
One intriguing strategy is to buy the underlying mortgage debt of buildings whose value was inflated. The debt is now trading at a deep discount. This may sound risky, particularly if the owner walks away from that debt, as happened with Stuyvesant Town. But Mr. Frame sees it as a way to make either a little or a lot of money.
He described one possibility: a building was purchased for $100 million in 2006. It is now worth less, but the underlying mortgage is still $50 million, and it is coming due next year. The owner is probably going to have a tough time refinancing the mortgage without putting in more money. That uncertainty is reflected in the price of the debt.
“Say it’s 70 cents on the dollar, or $40 million for the first-lien mortgage,” he said. “If, in the next year, I get paid off, I get a 12 percent return. If not, I own the building at 60 percent off the original purchase price.”
In many cases, he said, clients are hoping they do not get paid back because the return from owning the building could be far greater. But the risk is they may have to hold that property for at least several years.
Some of his other ideas carry the same caveat: they require time. In this category, he included buying land prepared for developments that have stalled or buying loans from the Federal Deposit Insurance Corporation. The agency acquired these from banks and has bundled them into packages to be sold off.
Hotels are one area in which the investment turnaround could come faster. Their occupancy rates plummeted in the recession, and many were further hurt by having too much debt. “The most upside can come from hotels, if we get an uptick in the economy,” Mr. Frame said. “But the risk is high.”
Still, he said he believed that all these seemingly risky investments were actually predicated on caution. “We’re not taking an optimistic view of the recovery,” he said. “As long as it doesn’t get dramatically worse, we’ll be O.K.”
REIT stocks are a more liquid alternative. They went through their own steep decline last year. In March 2009, REIT stocks were down 75 percent from their February 2007 high, according to the leading REIT index. The index had rebounded to half of its peak, but REIT stocks slid again after the Federal Reserve raised its lending rate to banks on Thursday. This is not necessarily a bad thing for long-term investors.
“We think REITs are trading roughly at the net-asset value” of the properties they own, said Thomas N. Bohjalian, a portfolio manager at Cohen & Steers, a real estate investment firm. “And that is not the ceiling; it’s the floor.”
What is more significant than stock price, he said, is Cohen & Steers’s prediction that dividends on REIT stocks will grow by an average of 12 percent over each of the next five years. REITs are legally required to pay out 90 percent of their taxable income annually. In flush times, they were paying out a good portion of their cash flow as well. As income from REIT-owned properties rebounds, so will the dividends.
CAUTION All these investment ideas are predicated upon patience and a healthy stomach for risk. With REITs, for example, Mr. Bohjalian said he did not expect double-digit dividend growth to start until 2011.
This patience works two ways. Ms. Jensen has several clients who have made their fortunes in real estate but have struggled to find properties at the discounts they expected. “They’re not willing to do a deal that doesn’t make sense,” she said.
That may be a good mantra for any investor.
Property owners were overcharged
ByMichelle E. Shaw
Published: Feb 18, 2010
Briana Henry-Frisby and Rae Anne Harkness both own homes in DeKalb County, and both suspect they’re paying too much in property taxes. The fact that both work in the DeKalb tax commissioner’s office doesn’t actually help.
“Now is not the time to leave any money laying on the table, or anywhere,” Henry-Frisby said.
But she may well be leaving behind a tidy pile of cash when it comes to property taxes.
A report to be released today concludes that property owners in the five core metro Atlanta counties overpaid their property taxes by an average of $244 in 2009. And people who live in areas hard hit by foreclosures, as do Henry-Frisby and Harkness, overpaid by even more, says an analysis commissioned by the Atlanta Neighborhood Development Partnership.
AJC findings confirmed
The Atlanta Journal-Constitution in December reported that tens of thousands of homes across metro Atlanta were overvalued last year by county tax assessors, who didn’t adjust values sufficiently after the historic real estate collapse. Homeowners, the newspaper reported, were being taxed on values their property no longer held. The report today tends to confirm the AJC’s findings and also, for the first time, calculates an average overpayment.
John O’Callaghan, ANDP president, said the report focuses on property tax values from 2009 for neighborhoods with the highest foreclosure rates in metro Atlanta.
“What this does is give a picture of the average homeowner,” he said. “Some are underpaying and others are overpaying by a larger margin. We hope this data and research will lead to changes in the system.”
Calvin Hicks, chief assessor in DeKalb County, balks at the idea that people have “overpaid” taxes.
“County services still cost what they cost,” Hicks said. “So maybe it is that property [valuations] should have gone down, but the millage rate should have gone up. That still may have equaled the same amount of tax money, but coming from different directions.”
Hicks said foreclosures affect neighborhood values in different ways and said county officials are working on the best way to reflect those properties in future valuations.
ANDP’s report, prepared by Robert Charles Lesser & Co., breaks out the three ZIP codes with the most foreclosures in Clayton, Cobb, DeKalb, Fulton and Gwinnett counties and the average amount homeowners overpaid their taxes for 2009.
The study took sales values from the second half of 2008 and contrasted those numbers to the value the county set on the same property.
Analysts then calculated what the tax assessment would have been based on sales figures, compared to actual assessments on the same properties.
Ammo for appeals?
In the 15 ZIP codes with the most foreclosures, the average overpayment for 2009 was $491, the report says. Here are the ZIPs and the total estimated overpayment in each:
? Clayton: 30238, 30274 and 30296, $17 million overpayment.
? Cobb: 30168, 30127, and 30126, $8 million overpayment.
? DeKalb: 30038, 30058 and 30032, $16 million overpayment.
? Fulton: 30310, 30315 and 30331, $24 million overpayment.
? Gwinnett: 30039, 30045 and 30044, $17 million overpayment.
In DeKalb’s 30058, Henry-Frisby’s ZIP code, the average overpayment in 2009 was $391.
“There is a lot I can do with that money,” she said.
Harkness said she doesn’t have much hope of getting back the $513 ANDP’s report says was the average overpayment in her ZIP, 30032.
“But it is good to know, and it gives me something else to work with when I appeal this year,” she said.
Both said that working in the tax commissioner’s office does them no good when it comes to their own tax valuations.
“No, I only work for the county,” Henry-Frisby said. “When it comes to my house and things outside of the office, I’m in the same boat as everybody else. I’ve got to call the same people they do and I’ve got to wait for them to call me back, too.”
Said Harkness: “The only advantage I can think of is I know how the system works and who to call, but that doesn’t help change my situation at all.”
Charles Bowman, a DeKalb teacher who lives in Gwinnett’s 30039 ZIP code, said he wasn’t surprised to hear homeowners in his area overpaid by an average of $503 last year.
“This information makes me feel more inclined to act and appeal my assessment than before,” he said of the report. “That money, had we gotten a refund from our escrow account, could have been used to do some badly needed repair on our home.”
Bowman, who has two children with his wife, Tamiko, said that money could have gone to a number of other things, including his Ph.D. studies.
“I think everyone everywhere is trying to be smart about how and when they spend money,” he said. “And right now it just hurts to think there may have been some money that could have been used differently, if we’d had the chance.”
Published: Feb 18, 2010
Briana Henry-Frisby and Rae Anne Harkness both own homes in DeKalb County, and both suspect they’re paying too much in property taxes. The fact that both work in the DeKalb tax commissioner’s office doesn’t actually help.
“Now is not the time to leave any money laying on the table, or anywhere,” Henry-Frisby said.
But she may well be leaving behind a tidy pile of cash when it comes to property taxes.
A report to be released today concludes that property owners in the five core metro Atlanta counties overpaid their property taxes by an average of $244 in 2009. And people who live in areas hard hit by foreclosures, as do Henry-Frisby and Harkness, overpaid by even more, says an analysis commissioned by the Atlanta Neighborhood Development Partnership.
AJC findings confirmed
The Atlanta Journal-Constitution in December reported that tens of thousands of homes across metro Atlanta were overvalued last year by county tax assessors, who didn’t adjust values sufficiently after the historic real estate collapse. Homeowners, the newspaper reported, were being taxed on values their property no longer held. The report today tends to confirm the AJC’s findings and also, for the first time, calculates an average overpayment.
John O’Callaghan, ANDP president, said the report focuses on property tax values from 2009 for neighborhoods with the highest foreclosure rates in metro Atlanta.
“What this does is give a picture of the average homeowner,” he said. “Some are underpaying and others are overpaying by a larger margin. We hope this data and research will lead to changes in the system.”
Calvin Hicks, chief assessor in DeKalb County, balks at the idea that people have “overpaid” taxes.
“County services still cost what they cost,” Hicks said. “So maybe it is that property [valuations] should have gone down, but the millage rate should have gone up. That still may have equaled the same amount of tax money, but coming from different directions.”
Hicks said foreclosures affect neighborhood values in different ways and said county officials are working on the best way to reflect those properties in future valuations.
ANDP’s report, prepared by Robert Charles Lesser & Co., breaks out the three ZIP codes with the most foreclosures in Clayton, Cobb, DeKalb, Fulton and Gwinnett counties and the average amount homeowners overpaid their taxes for 2009.
The study took sales values from the second half of 2008 and contrasted those numbers to the value the county set on the same property.
Analysts then calculated what the tax assessment would have been based on sales figures, compared to actual assessments on the same properties.
Ammo for appeals?
In the 15 ZIP codes with the most foreclosures, the average overpayment for 2009 was $491, the report says. Here are the ZIPs and the total estimated overpayment in each:
? Clayton: 30238, 30274 and 30296, $17 million overpayment.
? Cobb: 30168, 30127, and 30126, $8 million overpayment.
? DeKalb: 30038, 30058 and 30032, $16 million overpayment.
? Fulton: 30310, 30315 and 30331, $24 million overpayment.
? Gwinnett: 30039, 30045 and 30044, $17 million overpayment.
In DeKalb’s 30058, Henry-Frisby’s ZIP code, the average overpayment in 2009 was $391.
“There is a lot I can do with that money,” she said.
Harkness said she doesn’t have much hope of getting back the $513 ANDP’s report says was the average overpayment in her ZIP, 30032.
“But it is good to know, and it gives me something else to work with when I appeal this year,” she said.
Both said that working in the tax commissioner’s office does them no good when it comes to their own tax valuations.
“No, I only work for the county,” Henry-Frisby said. “When it comes to my house and things outside of the office, I’m in the same boat as everybody else. I’ve got to call the same people they do and I’ve got to wait for them to call me back, too.”
Said Harkness: “The only advantage I can think of is I know how the system works and who to call, but that doesn’t help change my situation at all.”
Charles Bowman, a DeKalb teacher who lives in Gwinnett’s 30039 ZIP code, said he wasn’t surprised to hear homeowners in his area overpaid by an average of $503 last year.
“This information makes me feel more inclined to act and appeal my assessment than before,” he said of the report. “That money, had we gotten a refund from our escrow account, could have been used to do some badly needed repair on our home.”
Bowman, who has two children with his wife, Tamiko, said that money could have gone to a number of other things, including his Ph.D. studies.
“I think everyone everywhere is trying to be smart about how and when they spend money,” he said. “And right now it just hurts to think there may have been some money that could have been used differently, if we’d had the chance.”
Nearly 75% of all U.S. homes are affordable
By Les Christie, staff writerFebruary 17, 2010: 2:12 PM ET
NEW YORK (CNNMoney.com) -- An amazing turnabout in the U.S. housing market over the past four years has pushed home prices to near record levels of affordability.
The typical American family, who makes the nation's median income of $64,000 a year, could afford to buy 70.8% of all homes sold in the United States during the last three months of 2009, according a quarterly report from the National Association of Home Builders and Wells Fargo (WFC, Fortune 500).
That's off just a tad from the record 72.5% reached during the first three months of 2009, but up substantially from the second quarter of 2008 when only 55% of homes sold were affordable.
"Favorable mortgage rates and sliding house prices that have now started to stabilize nationally have both contributed to a record year for housing affordability in 2009," said NAHB chairman Bob Jones, a home builder from Bloomfield Hills, Mich.
The NAHB judges a home to be affordable if a family making the metro area's median income could devote no more than 28% of their take-home pay toward housing costs.
There was a huge variation in affordability around the nation. As a rule, Midwestern cities far outperformed coastal communities.
5 most - and least - affordable cities
All five of the most affordable major housing markets were in the Rust Belt, led by Indianapolis, which has been the nation's most affordable major metro area for more than four years. More than 95% of all home sold there were classed as within the budget.
Detroit was the second most affordable major market with 93.4%, followed by three Ohio cities, Dayton (93.2%), Youngstown (93%) and Akron (92.2%).
A few small cities surpassed even Indianapolis. In Kokomo, Ind., 98% of homes sold were priced low enough for median-income families to afford. Monroe (97.1%) and Flint (96.3%) both scored high as well.
New York was the least affordable market; less than 20% of homes met the criteria. San Francisco (22.3%), Honolulu (33.8%), Santa Ana, Calif.,. (34.5%) and Los Angeles (36.8%) filled out the bottom five.
The most unaffordable small market was San Luis Obispo in California, where only 32% of homes sold were attainable for median-income families.
NEW YORK (CNNMoney.com) -- An amazing turnabout in the U.S. housing market over the past four years has pushed home prices to near record levels of affordability.
The typical American family, who makes the nation's median income of $64,000 a year, could afford to buy 70.8% of all homes sold in the United States during the last three months of 2009, according a quarterly report from the National Association of Home Builders and Wells Fargo (WFC, Fortune 500).
That's off just a tad from the record 72.5% reached during the first three months of 2009, but up substantially from the second quarter of 2008 when only 55% of homes sold were affordable.
"Favorable mortgage rates and sliding house prices that have now started to stabilize nationally have both contributed to a record year for housing affordability in 2009," said NAHB chairman Bob Jones, a home builder from Bloomfield Hills, Mich.
The NAHB judges a home to be affordable if a family making the metro area's median income could devote no more than 28% of their take-home pay toward housing costs.
There was a huge variation in affordability around the nation. As a rule, Midwestern cities far outperformed coastal communities.
5 most - and least - affordable cities
All five of the most affordable major housing markets were in the Rust Belt, led by Indianapolis, which has been the nation's most affordable major metro area for more than four years. More than 95% of all home sold there were classed as within the budget.
Detroit was the second most affordable major market with 93.4%, followed by three Ohio cities, Dayton (93.2%), Youngstown (93%) and Akron (92.2%).
A few small cities surpassed even Indianapolis. In Kokomo, Ind., 98% of homes sold were priced low enough for median-income families to afford. Monroe (97.1%) and Flint (96.3%) both scored high as well.
New York was the least affordable market; less than 20% of homes met the criteria. San Francisco (22.3%), Honolulu (33.8%), Santa Ana, Calif.,. (34.5%) and Los Angeles (36.8%) filled out the bottom five.
The most unaffordable small market was San Luis Obispo in California, where only 32% of homes sold were attainable for median-income families.
Monday, February 15, 2010
Where's housing headed? Follow rents
NEW YORK (Fortune) -- It may not be the most widespread measure of housing prices, but if you want to follow a powerful driver, look at rents.
Specifically, it's the rents Americans pay on condos, apartments or houses that are about the same size, and share the same neighborhood as your ranch or colonial, that in the end determine what your house is worth.
"If you look at the trend in rents to see where housing prices are headed, you're looking at the right measure," says Yale economist Robert Shiller.
In recent reports, Deutsche Bank demonstrates how steady or even falling rents have pulled down housing prices, to the point where in many markets it costs about the same amount to own as to lease. That's a golden mean that America hasn't seen in almost a decade. The DB research also offers convincing evidence that the wrenching adjustment in housing prices is finished for much of the nation, with a bit more pain to come in selected areas.
Housing outlook for 2010
Before we get to the numbers, let's examine why rents exercise a kind of gravitational pull over home prices.
In normal times, people won't pay much less to lease a house than to own it. After all, if you're paying rent instead of a mortgage and taxes, you still get to enjoy the same rec room, chef's kitchen, and casita for visiting grandparents. So the surest sign of a frenzy appears when owning becomes far more expensive than renting. That's precisely what happened during the last bubble.
And the surest sign that prices have fully adjusted arrives when the ratio of what people pay in rent versus what owners spend on the same property returns to its historic average.
That brings us to the Deutsche Bank studies. Its REIT research team first established a benchmark for a "normal" ratio of rents to ownership costs -- what it calls ATMP, or after-tax mortgage payment -- for 53 U.S. cities.
On average, DB found that families across America were spending about 87% as much to rent as to own in 1999. Hence, they were traditionally willing to pay a premium as homeowners, though not a big one.
Why we missed the housing crisis
But by mid-2006, with the craze in full swing, the figure fell below 60%. At that point, Americans were spending an incredible 66% more to own than to rent. It was far worse in the bubble markets: In Las Vegas, Phoenix and Miami, homeowners were paying twice as much as renters, and in San Francisco and Orange Country, owners' monthly payments were triple those of their neighbors with leases instead of mortgages.
So how did that happen? During the bubble, rents -- the real engine that drives values -- were inching along at more or less their usual pace. From 1999 to 2007, apartment rents increased only 32%. But home prices jumped more than three times as fast, around 105%.
DB reckoned that housing prices are more or less reasonable when the ratio returns to its 1999 level. Why 1999? Because the ratio was relatively stable throughout the 1990s, and it was the year the steep rise in prices began in earnest.. At the end of the third quarter of 2009, the overall number stood at 83%, meaning renting was just a tad more attractive than owning.
But the picture varies widely from city to city. In 15 of those 53 metro areas, including St Louis, Indianapolis, and remarkably, Phoenix and San Diego, it's now higher than in 1999, meaning that homeowners' costs actually dropped versus what renters pay, courtesy of the steep decline in prices. In California's San Bernadino and Riverside Counties, it now costs 10% less to own than to rent; in 2006, owners paid more than twice as much as renters.
In another 14 cities, a list encompassing Boston, San Jose, and Chicago, the cost of owning exceeds that of renting by 6% or less. In the remaining 24 markets, housing is still moderately to extremely overpriced. The biggest problem areas are Baltimore, Long Island, and Seattle, where the ratio is still between 24% and 32% above the 1999 benchmark.
What does that mean for future prices?
Given that analysis, it's likely that prices will fall another 5% or so nationwide. The drop could even be slightly greater. One reason: Rents, the force that govern housing prices, are still falling.
In 2009, apartment rents dropped 2.3%, and the fall continues. And enormous adjustments are needed in still-exorbitant markets such as New York and Baltimore. Thankfully, the improving economy and decline in the rate of job losses means that rents should soon stabilize and could even start increasing by the end of 2010.
But fortunately, for most of the U.S., the sudden, terrifying fall in prices worked its own black magic. The numbers are back in alignment, or close to it. It had to happen. That's what rents, housing's great master, were telling us all along.
Specifically, it's the rents Americans pay on condos, apartments or houses that are about the same size, and share the same neighborhood as your ranch or colonial, that in the end determine what your house is worth.
"If you look at the trend in rents to see where housing prices are headed, you're looking at the right measure," says Yale economist Robert Shiller.
In recent reports, Deutsche Bank demonstrates how steady or even falling rents have pulled down housing prices, to the point where in many markets it costs about the same amount to own as to lease. That's a golden mean that America hasn't seen in almost a decade. The DB research also offers convincing evidence that the wrenching adjustment in housing prices is finished for much of the nation, with a bit more pain to come in selected areas.
Housing outlook for 2010
Before we get to the numbers, let's examine why rents exercise a kind of gravitational pull over home prices.
In normal times, people won't pay much less to lease a house than to own it. After all, if you're paying rent instead of a mortgage and taxes, you still get to enjoy the same rec room, chef's kitchen, and casita for visiting grandparents. So the surest sign of a frenzy appears when owning becomes far more expensive than renting. That's precisely what happened during the last bubble.
And the surest sign that prices have fully adjusted arrives when the ratio of what people pay in rent versus what owners spend on the same property returns to its historic average.
That brings us to the Deutsche Bank studies. Its REIT research team first established a benchmark for a "normal" ratio of rents to ownership costs -- what it calls ATMP, or after-tax mortgage payment -- for 53 U.S. cities.
On average, DB found that families across America were spending about 87% as much to rent as to own in 1999. Hence, they were traditionally willing to pay a premium as homeowners, though not a big one.
Why we missed the housing crisis
But by mid-2006, with the craze in full swing, the figure fell below 60%. At that point, Americans were spending an incredible 66% more to own than to rent. It was far worse in the bubble markets: In Las Vegas, Phoenix and Miami, homeowners were paying twice as much as renters, and in San Francisco and Orange Country, owners' monthly payments were triple those of their neighbors with leases instead of mortgages.
So how did that happen? During the bubble, rents -- the real engine that drives values -- were inching along at more or less their usual pace. From 1999 to 2007, apartment rents increased only 32%. But home prices jumped more than three times as fast, around 105%.
DB reckoned that housing prices are more or less reasonable when the ratio returns to its 1999 level. Why 1999? Because the ratio was relatively stable throughout the 1990s, and it was the year the steep rise in prices began in earnest.. At the end of the third quarter of 2009, the overall number stood at 83%, meaning renting was just a tad more attractive than owning.
But the picture varies widely from city to city. In 15 of those 53 metro areas, including St Louis, Indianapolis, and remarkably, Phoenix and San Diego, it's now higher than in 1999, meaning that homeowners' costs actually dropped versus what renters pay, courtesy of the steep decline in prices. In California's San Bernadino and Riverside Counties, it now costs 10% less to own than to rent; in 2006, owners paid more than twice as much as renters.
In another 14 cities, a list encompassing Boston, San Jose, and Chicago, the cost of owning exceeds that of renting by 6% or less. In the remaining 24 markets, housing is still moderately to extremely overpriced. The biggest problem areas are Baltimore, Long Island, and Seattle, where the ratio is still between 24% and 32% above the 1999 benchmark.
What does that mean for future prices?
Given that analysis, it's likely that prices will fall another 5% or so nationwide. The drop could even be slightly greater. One reason: Rents, the force that govern housing prices, are still falling.
In 2009, apartment rents dropped 2.3%, and the fall continues. And enormous adjustments are needed in still-exorbitant markets such as New York and Baltimore. Thankfully, the improving economy and decline in the rate of job losses means that rents should soon stabilize and could even start increasing by the end of 2010.
But fortunately, for most of the U.S., the sudden, terrifying fall in prices worked its own black magic. The numbers are back in alignment, or close to it. It had to happen. That's what rents, housing's great master, were telling us all along.
Saturday, January 30, 2010
Property tax legislation in works, Cagle says
Property tax legislation in works, Cagle says
ByNancy Badertscher
Published: Jan 25, 2010
Local governments could see legislation later this week aimed at correcting inequities in the state’s property tax system, Lt. Gov. Casey Cagle said Monday.
The legislation -- the details of which have not been revealed -- will attempt to ensure “fairness and equity” in the tax system for cities, counties and the taxpayers, Cagle said at a breakfast kicking off the Georgia Municipal Association’s annual “Mayors Day” at the Capitol.
Legislators have said changes to the state’s property tax system are a priority for this session of the General Assembly. One of the goals, they have said, is an easier process for appealing the value that county tax appraisers put on a homeowner’s property.
The effort comes after The Atlanta Journal-Constitution reported that some county tax appraisers are setting values on residential properties higher than what the properties sold for.
An analysis showed assessors cut $4.2 billion in taxable value last year through adjustments to more than 450,000 parcels. But the AJC found that if tax appraisals had been lowered as much as sales dictated, the loss would have been nearly $25 billion.
Cagle and House Speaker David Ralston (R-Blue Ridge) told the mayors that they both have ruled out raising taxes as a means of solving the state’s current revenue problems.
Both predicted that legislators will have to make tough choices with this year’s budget.
“We have foundational and structural changes that need to occur,” Cagle said, adding that employee furloughs cannot continue to be a major solution.
Ralston said he is open to looking at all ideas, regardless of the political party they come from.
He also said he is committed to making the legislative process more open and transparent, a statement that brought applause from the audience.
Atlanta Mayor Kasim Reed stressed to the mayors and city officials the need to make sure Georgia's population is accurately counted in the upcoming U.S. census.
Because of Georgia's steady growth, an accurate population count could translate into more representation for the state and the city of Atlanta in Washington, Reed said.
It also could mean "billions of dollars to our citizens," said Reed, who suggested a nonpartisan "call to arms" to see that the census count is accurate.
© 2010 The Associated Press. All Rights Reserved.
ByNancy Badertscher
Published: Jan 25, 2010
Local governments could see legislation later this week aimed at correcting inequities in the state’s property tax system, Lt. Gov. Casey Cagle said Monday.
The legislation -- the details of which have not been revealed -- will attempt to ensure “fairness and equity” in the tax system for cities, counties and the taxpayers, Cagle said at a breakfast kicking off the Georgia Municipal Association’s annual “Mayors Day” at the Capitol.
Legislators have said changes to the state’s property tax system are a priority for this session of the General Assembly. One of the goals, they have said, is an easier process for appealing the value that county tax appraisers put on a homeowner’s property.
The effort comes after The Atlanta Journal-Constitution reported that some county tax appraisers are setting values on residential properties higher than what the properties sold for.
An analysis showed assessors cut $4.2 billion in taxable value last year through adjustments to more than 450,000 parcels. But the AJC found that if tax appraisals had been lowered as much as sales dictated, the loss would have been nearly $25 billion.
Cagle and House Speaker David Ralston (R-Blue Ridge) told the mayors that they both have ruled out raising taxes as a means of solving the state’s current revenue problems.
Both predicted that legislators will have to make tough choices with this year’s budget.
“We have foundational and structural changes that need to occur,” Cagle said, adding that employee furloughs cannot continue to be a major solution.
Ralston said he is open to looking at all ideas, regardless of the political party they come from.
He also said he is committed to making the legislative process more open and transparent, a statement that brought applause from the audience.
Atlanta Mayor Kasim Reed stressed to the mayors and city officials the need to make sure Georgia's population is accurately counted in the upcoming U.S. census.
Because of Georgia's steady growth, an accurate population count could translate into more representation for the state and the city of Atlanta in Washington, Reed said.
It also could mean "billions of dollars to our citizens," said Reed, who suggested a nonpartisan "call to arms" to see that the census count is accurate.
© 2010 The Associated Press. All Rights Reserved.
The Rescue
By Les Christie, staff writerJanuary 26, 2010: 12:40 PM ET
NEW YORK (CNNMoney.com) -- Home prices fell in November for the first time in seven months, according to a industry report released Tuesday.
The S&P/Case-Shiller 20-city home price index recorded a non-seasonally adjusted decline of 0.2% from October. Prices were down 5.3% compared with 12 months ago.
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The loss was unexpectedly large. Experts had forecast that prices would be off by only 5% compared with last November, according to Briefing.com. The lone good news is that the rate of year-over-year declines have continued to shrink.
"While we continue to see broad improvement in home prices as measured by the annual rate, the latest data show a far more mixed picture when you look at other details." said David M. Blitzer, spokesman for Standard & Poor's. "Only five of the markets saw price increases in November versus Ocotber."
Four markets covered by the index -- Charlotte, Las Vegas, Seattle and Tampa -- hit their lowest index levels in four years, according to Blitzer. Any gains they recorded in recent months have been erased.
The five markets that showed month-over-month gains were led by Phoenix, where prices rose 1.1%. Thirteen markets had declines, with Chicago being the biggest loser at 1.1% down. Miami and Dallas showed no change.
Blitzer cautioned, however, that November is a weak time of year for home sales so this might not be a harbinger. In fact, when the data are adjusted for seasonal variations, 14 of the markets recorded gains.
Several markets have been on a strong positive run. Prices have risen in Los Angeles, Phoenix, San Diego and San Francisco for at least six consecutive months. Year over year, Dallas, Denver, San Diego and San Francisco have all entered positive territory, something not seen in at least two years in most markets.
The report failed to stir much passion on the part of industry observers, one way or another. Stuart Hoffman, chief economist with PNC Financial Services called it "not disappointing, considering the big run-up in prices for months before."
He expects continued weakness in home prices through the slow winter months followed by some gains in the spring when the current homebuyer tax credit is scheduled to expire. That should bring out a rush of house hunters looking to beat the deadline. Overall, Hoffman forecasts a flat 2010 -- not a bad thing after the steep drops of the past three years.
"The furious ride down on home sales and prices is pretty much behind us," he said. "I don't think we're going up anytime soon. We've hit the flat part of the roller-coaster ride."
Pat Newport, a real estate analyst for IHS Global Insight pointed out the fall had very favorable buying conditions. Not only was the first-time homebuyer tax credit boosting demand for homes, but mortgage rates were at extreme lows with 30-year, fixed-rate loans available for under 5%.
"It was a good time to buy, and we saw that in the sales numbers," he said.
He doesn't believe we have hit the price bottom, yet. "Most experts think prices are going to drop more, 5% or so, by the end of 2010," he said
NEW YORK (CNNMoney.com) -- Home prices fell in November for the first time in seven months, according to a industry report released Tuesday.
The S&P/Case-Shiller 20-city home price index recorded a non-seasonally adjusted decline of 0.2% from October. Prices were down 5.3% compared with 12 months ago.
Facebook Digg Twitter Buzz Up! Email Print Comment on this story
The loss was unexpectedly large. Experts had forecast that prices would be off by only 5% compared with last November, according to Briefing.com. The lone good news is that the rate of year-over-year declines have continued to shrink.
"While we continue to see broad improvement in home prices as measured by the annual rate, the latest data show a far more mixed picture when you look at other details." said David M. Blitzer, spokesman for Standard & Poor's. "Only five of the markets saw price increases in November versus Ocotber."
Four markets covered by the index -- Charlotte, Las Vegas, Seattle and Tampa -- hit their lowest index levels in four years, according to Blitzer. Any gains they recorded in recent months have been erased.
The five markets that showed month-over-month gains were led by Phoenix, where prices rose 1.1%. Thirteen markets had declines, with Chicago being the biggest loser at 1.1% down. Miami and Dallas showed no change.
Blitzer cautioned, however, that November is a weak time of year for home sales so this might not be a harbinger. In fact, when the data are adjusted for seasonal variations, 14 of the markets recorded gains.
Several markets have been on a strong positive run. Prices have risen in Los Angeles, Phoenix, San Diego and San Francisco for at least six consecutive months. Year over year, Dallas, Denver, San Diego and San Francisco have all entered positive territory, something not seen in at least two years in most markets.
The report failed to stir much passion on the part of industry observers, one way or another. Stuart Hoffman, chief economist with PNC Financial Services called it "not disappointing, considering the big run-up in prices for months before."
He expects continued weakness in home prices through the slow winter months followed by some gains in the spring when the current homebuyer tax credit is scheduled to expire. That should bring out a rush of house hunters looking to beat the deadline. Overall, Hoffman forecasts a flat 2010 -- not a bad thing after the steep drops of the past three years.
"The furious ride down on home sales and prices is pretty much behind us," he said. "I don't think we're going up anytime soon. We've hit the flat part of the roller-coaster ride."
Pat Newport, a real estate analyst for IHS Global Insight pointed out the fall had very favorable buying conditions. Not only was the first-time homebuyer tax credit boosting demand for homes, but mortgage rates were at extreme lows with 30-year, fixed-rate loans available for under 5%.
"It was a good time to buy, and we saw that in the sales numbers," he said.
He doesn't believe we have hit the price bottom, yet. "Most experts think prices are going to drop more, 5% or so, by the end of 2010," he said
Sunday, January 3, 2010
3 reasons home prices are heading lower
By Les Christie, staff writerJanuary 1, 2010: 6:22 PM ET
NEW YORK (CNNMoney.com) -- After four months of gains, home prices flattened in October. Worse yet, industry insiders think that they'll soon start to fall.
Prices have risen more than 3% since May, according to S&P/Case-Shiller.
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But most forecasts predict price declines in 2010, with possible losses ranging from anywhere from 3% on up. Fiserv Lending Solutions, a financial analytics firm, forecasts that prices will fall in all but 39 of the 381 markets it covers, with an average drop of 11.3%.
"We've seen recent price stabilization because of low mortgage interest rates and the impact of the first-time homebuyers tax credit," said Pat Newport of IHS Global Research. "But there are really good reasons to think prices will now start going down."
There are three main reasons for the reversal: a coming flood of foreclosures, rising interest rates and the eventual end of the tax credits.
More foreclosures
For Gus Faucher, the director of macroeconomics for Moody's Economy.com, the huge number of foreclosures that remain in the pipeline is the big problem.
Moody's upped its estimate of defaults recently because of shortcomings of the government-led mortgage modification programs. Trial workouts are not being made permanent and completed modifications are redefaulting at high rates.
"There are going to be fewer [successful] modifications than we thought," said Faucher.
Even so, he added, much of the price decline has already occurred and Moody's forecast is for only another 8% drop. The worst-hit markets will be the ones suffering the most foreclosures, places like Arizona, California, Florida and Nevada. (See 7 tips for buying foreclosures)
Resetting option ARMs (adjustable rate mortgages) will also aggravate the foreclosure problem. These mortgages allow borrowers to pick their own payments, which can be so low they don't even cover the interest. Balances swell.
For many of the more than 350,000 option-ARM borrowers, it's time to pay the piper. Their loans will change into fully amortizing mortgages that will carry much higher monthly payments. A very large percentage of these homeowners will default, according to Shari Olefson, author of "Foreclosure Nation: Mortgaging the American Dream."
"We've still only seen the tip of the foreclosure iceberg," she said.
She also predicts more strategic defaults, people deliberately walking away from even fixed-rate mortgages as the value of their homes dips well below the amount they owe.
Olefson's forecast is for price declines of 5% to 15%, depending on the area, with a national median price drop of about 10% for 2010.
Rising interest rates
Also affecting prices will be higher interest rates. Some analysts, according to Newport, think rates for a 30-year mortgage will pass 6% next year as the government curtails housing market support.
The Federal Reserve has helped keep rates low through purchases of mortgage-backed securities. But that program is winding down and will end in March.
"The government is throwing everything at the market but the kitchen sink," said Peter Schiff, president of Euro pacific Capital. "It can't prop up housing markets forever."
Schiff is among the bigger bears. Though he gave no specific prediction, he thinks prices -- already down 29% from the peak -- are only halfway to the bottom.
The end of the tax credit
As a tool for supporting housing markets and prices, the tax credit for homebuyers is a two-edged sword. It reduces taxes dollar-for-dollar by up to $8,000 for new homebuyers and $6,500 for buyers who already own a home and should support home prices. But it ends at the end of April.
Many buyers will push their deals forward to get in before the deadline and then demand for homes could sink afterward.
One of the few bulls out there is NAR, whose chief economist, Lawrence Yun, is counting on the tax credit to provide temporary support for housing markets until the economy recovers enough to start fueling sales. He predicts price improvement in 2010 of more than 3%.
"The headwind we face is rising mortgage interest rates," Yun said, "but the compensating factors will be the homebuyers tax credit in the first half of the year and increased job creation in the second half."
NEW YORK (CNNMoney.com) -- After four months of gains, home prices flattened in October. Worse yet, industry insiders think that they'll soon start to fall.
Prices have risen more than 3% since May, according to S&P/Case-Shiller.
Facebook Digg Twitter Buzz Up! Email Print Comment on this story
But most forecasts predict price declines in 2010, with possible losses ranging from anywhere from 3% on up. Fiserv Lending Solutions, a financial analytics firm, forecasts that prices will fall in all but 39 of the 381 markets it covers, with an average drop of 11.3%.
"We've seen recent price stabilization because of low mortgage interest rates and the impact of the first-time homebuyers tax credit," said Pat Newport of IHS Global Research. "But there are really good reasons to think prices will now start going down."
There are three main reasons for the reversal: a coming flood of foreclosures, rising interest rates and the eventual end of the tax credits.
More foreclosures
For Gus Faucher, the director of macroeconomics for Moody's Economy.com, the huge number of foreclosures that remain in the pipeline is the big problem.
Moody's upped its estimate of defaults recently because of shortcomings of the government-led mortgage modification programs. Trial workouts are not being made permanent and completed modifications are redefaulting at high rates.
"There are going to be fewer [successful] modifications than we thought," said Faucher.
Even so, he added, much of the price decline has already occurred and Moody's forecast is for only another 8% drop. The worst-hit markets will be the ones suffering the most foreclosures, places like Arizona, California, Florida and Nevada. (See 7 tips for buying foreclosures)
Resetting option ARMs (adjustable rate mortgages) will also aggravate the foreclosure problem. These mortgages allow borrowers to pick their own payments, which can be so low they don't even cover the interest. Balances swell.
For many of the more than 350,000 option-ARM borrowers, it's time to pay the piper. Their loans will change into fully amortizing mortgages that will carry much higher monthly payments. A very large percentage of these homeowners will default, according to Shari Olefson, author of "Foreclosure Nation: Mortgaging the American Dream."
"We've still only seen the tip of the foreclosure iceberg," she said.
She also predicts more strategic defaults, people deliberately walking away from even fixed-rate mortgages as the value of their homes dips well below the amount they owe.
Olefson's forecast is for price declines of 5% to 15%, depending on the area, with a national median price drop of about 10% for 2010.
Rising interest rates
Also affecting prices will be higher interest rates. Some analysts, according to Newport, think rates for a 30-year mortgage will pass 6% next year as the government curtails housing market support.
The Federal Reserve has helped keep rates low through purchases of mortgage-backed securities. But that program is winding down and will end in March.
"The government is throwing everything at the market but the kitchen sink," said Peter Schiff, president of Euro pacific Capital. "It can't prop up housing markets forever."
Schiff is among the bigger bears. Though he gave no specific prediction, he thinks prices -- already down 29% from the peak -- are only halfway to the bottom.
The end of the tax credit
As a tool for supporting housing markets and prices, the tax credit for homebuyers is a two-edged sword. It reduces taxes dollar-for-dollar by up to $8,000 for new homebuyers and $6,500 for buyers who already own a home and should support home prices. But it ends at the end of April.
Many buyers will push their deals forward to get in before the deadline and then demand for homes could sink afterward.
One of the few bulls out there is NAR, whose chief economist, Lawrence Yun, is counting on the tax credit to provide temporary support for housing markets until the economy recovers enough to start fueling sales. He predicts price improvement in 2010 of more than 3%.
"The headwind we face is rising mortgage interest rates," Yun said, "but the compensating factors will be the homebuyers tax credit in the first half of the year and increased job creation in the second half."
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