100-City Rental vs. Ownership Study

The Center for Economic and Policy Research (CEPR) has come out with it October 2008 report titled "Ownership, Rental Costs and the Prospects of Building Home Equity: An Analysis of 100 Metropolitan Areas," which compared the ownership and rental costs in 100 major U.S. metropolitan areas and projected the potential for a first-time homebuyer in those cities to accumulate home equity.  Since the publication of that paper, housing prices have continued their steep descent in much of the country and rents have risen modestly.  The study shows that recent price declines indicate many communities are moving back toward the historical track of modest equity increases for homebuyers. The findings point out that is still unwise for policy makers to attempt to directly intervene in housing markets to maintain what are historically unprecedented high home prices.  

OFHEO STATEMENT

Sent: Thursday, December 06, 2007 12:04 PM
To: OFHEO-NEWS@LISTS.OFHEO.GOV
Subject: OFHEO STATEMENT

Contact Corinne Russell (202) 414-6921 Stefanie Mullin (202) 414-6376
For Immediate Release December 06, 2007
	STATEMENT OF OFHEO DIRECTOR JAMES B. LOCKHART
“As Director of OFHEO, the regulator of Fannie Mae and Freddie Mac, I believe that the foreclosure prevention initiative announced by President Bush is a major step forward. I thank Secretary Paulson and Jackson and everybody from the private-sector involved. Fannie and Freddie are the largest investors in AAA subprime mortgage backed securities. They hold $160 billion of these securities and they are the major buyers of the refinanced subprime mortgages. This plan is a win-win for homeowners, neighborhoods, investors and the markets. But more has to be done. Fannie Mae and Freddie Mac have played an extremely important role in supporting the mortgage market as all the problems erupted this summer. Since then, they have been buying and securitizing almost $100 billion a month in mortgages. Their market share of all new mortgages has grown from 38 percent last year to over 60 percent. We need to make sure that they will continue supporting the mortgage markets. That is why we need now, as President Bush and the Secretaries have just said, GSE reform to strengthen the regulator of Fannie Mae, Freddie Mac and the Federal Home Loan Banks. For the last six years Congress has been considering GSE reform legislation. Given the problems faced by Fannie Mae and Freddie Mac and the current market conditions, it is time to act to ensure that they will be here to support the mortgage market, especially affordable mortgages for lower income families, now and in the future.” ###
OFHEO's mission is to promote housing and a strong national housing finance system by ensuring the safety and soundness of Fannie Mae and Freddie Mac.

Californians more likely to bite off more than they can chew

The University of the Pacific in Stockton has a great website, in which the Center produces quarterly economic forecasts of the United States, California and 11 Metropolitan areas from Sacramento to Fresno and San Francisco Bay Area. The Eberhardt School of Business is one of a handful of Business schools producing comprehensive quarterly forecasts of the U.S. economy. In addition, the quarterly metropolitan forecasts cover several regions in California's Central Valley not covered by other forecasts.

This week's Graph of the Week discusses two fundamental factors which determine a household's ability to own a house...

There are two fundamental factors which determine a household’s ability to own a house: the price of the house and income. The price of houses in California has always been among the highest in the nation. Data from the California Association of Realtors (CAR) shows that in 2006, the median price of a single family home in the state was over $556K - more than twice the national average of $221K.

In general, the difference between housing affordability index and home-ownership rate represents the gap between the number of households who can afford a house and the number who actually buy a house. The larger the gap suggests that relatively more households, knowingly or unknowingly, are willing to live beyond their normal means. The larger the gap also suggests the higher likelihood that more households are involved in riskier mortgage loans.

Such large gaps in California and San Joaquin County represent the occurrence of excessive demand for housing in the two regions, which tend to make housing highly over-priced. When the market cools down to get back to normal, more market correction is needed in the regions. This partly explains why in the summer 2007 the state of California and San Joaquin County are among those with the largest proportion of sub-prime mortgage loans and the highest number of foreclosures in the nation.

Rumor: Is the City of Stockton looking to take advantage of the banks?

I spoke with a lender rep this morning (responsible for meeting with defaulted homeowners and trying to work-out a feasible solution with the lender and homeowner - instead of putting the home thru the foreclosure process) and he heard that the City of Stockton is looking to fine defaulted homeowners and bank-owned properties $500/day for the lack of attention to the appearance of blighted homes in city neighborhoods (remember that San Joaquin leads the nation in foreclosure activiy in the US).

This could potentially put the banks in a more tenuous situation (as if they don't need more bad news) that would find a superior lien placed on their assets prior to foreclosure and the potential for the city to take possession of the property.

On another note, this ad in craigslist in Dallas is worth passing along..

Quicksand

The Boston Herald reported today that a bill has recently passed the Mass. State Senate and is awaiting State House approval to protect renters that would otherwise be thrown out of a foreclosed home that they were renting. Under the measure, anyone who acquires property through foreclosure would have to let tenants stay until the renter's existing leases run out.

The problem arises when the savvy "subprime" borrower (speculator) leases the property to his children/relatives at below market rents for extended terms allowing the banks (hedge funds) to foreclose the property. Now, the banks would be saddled with foreclosed property years later waiting for these "sweatheart" leases to expire.

Yet another fallout from the foreclosure crisis has been large numbers of renters who lose their housing through no fault of their own, said State Sen. Sue Tucker, an Andover Democrat who sponsored the bill. The Senate felt very strongly that tenants deserve some protection.

The speculator's children sublease the property for market rent and make more money off the banks. Under this bill, the State Government's intervention will only prolong the agony of this down cycle and create more quicksand for the market to wade through.

Northwest: Smaller Cities Buck Housing Slump

In an attempt to find some promising news about the housing market and the indicators that I've found over the last month to give us exactly what we all knew would happen (especially here in California - having seen the developers over the past four years fall all over themselves to option up anything that could be entitled quickly at astronomical prices per acre), I wanted to find areas that still had a retail market for Bay area developer clients. It will be these smaller markets that provide retail buyers for those modest developments (so long to the 1,000 acre master planned communities wanting entitlements in this market when the inventory of foreclosures show-up through these delinquencies. Below is the AP article from 7/19..

"SALEM, Ore. (AP) -- Aside from being Oregon's capital city, Salem doesn't have much to boast about. Most downtown restaurants close by 7:00 p.m. and Lefty's -- the only cool bar in town, according to local college students -- is known for its karaoke fundraisers.

But the real estate market here is buzzing. For-sale signs litter front yards and the local paper is fat with ads for homes.

The community of 150,000 or so souls is a prime example of an overlooked phenomenon in the country's overheated housing market: While demand for homes has nose-dived from Florida to California, some smaller metropolitan pockets continue to thrive.

Sleepy towns like Salem, Ore.; Wenatchee, Wash.; and Provo-Orem, Utah may lack glamor but they are among the few places in the country where housing prices are growing at double-digit rates, according to a recent federal study...

..Between the first quarters of 2006 and 2007 homes in Salem appreciated 13.4 percent, 14.5 in Boise City-Nampa, Idaho, and 16.8 percent in Grand Junction, Colo."

View article..

CNNMoney: Subprime woes hit junk bonds

This article yesterday from CNN confirms an earlier post (July 16, 2007) I found regarding the two prong approach of identifying the losses from the subprime market (and recasting those losses to junk status) and its affects on the market..

NEW YORK (CNNMoney.com) -- Woes plaguing the subprime mortgage market are spreading to junk bonds, according Bill Gross, manager of the world's largest bond fund.

Credit markets are facing a "sudden liquidity crisis" in the high-yield bond sector as a growing lack of confidence has frozen future lending, the PIMCO bond manager wrote in an August investment newsletter posted on the PIMCO Web site.

Video More video CNNMoney.com's Allen Wastler looks at adjustable rate mortgages resetting from their low teaser rates. Play video

"Both borrowers and lenders may have bitten off more than they can chew, and even those that swallow their hot dogs whole -- Nathan's Famous Coney Island style -- are having a serious bout of indigestion," he wrote.

The subprime mortgage market, in which loans are granted to high risk borrowers despite little or poor credit, has been battered by rising default rates and delinquencies.

U.S. mortgage lenders, including bankrupt New Century Financial, as well as Countrywide Financial (down $3.92 to $30.14, Charts, Fortune 500), which slashed its full-year earnings estimates Tuesday, have been stung by massive losses. Two Bear Stearns (down $2.86 to $131.39, Charts, Fortune 500) hedge funds were also virtually wiped out.

View article..

National: Mortgage Delinquency Map

Mortgage delinquencies continued to climb in the second quarter, new data show.

The map below shows how delinquency rates have increased in those metro areas as the housing market has slowed. The pickup in delinquencies has been particularly notable in parts of Florida and California. Nationwide, delinquency rates climbed to 3.15% in the second quarter, compared with 2.87% in the first quarter.

The map below shows the two counties in Northern California, San Joaquin and Merced, that lead the way in delinquencies over the period.

View article..

National: When the housing rebound comes

(Money Magazine) -- If you're the sensitive type of homeowner, you may want to skip the rest of this paragraph, which recounts the unrelentingly grim news about home prices.

At least 42 percent of major housing markets are in decline, with some projected to fall by double digits over the next five years.

One alarming sign: The National Association of Realtors has reversed its usually sunny outlook and is now predicting a 1 percent drop nationwide in existing home prices in 2007, the first such prediction in the four decades since NAR started tracking prices.

Still, no bear market lasts forever, and indeed, predictor NAR, quickly recovering from its unusual flash of pessimism, is forecasting that prices will bottom out this quarter.

How will you know?

Because housing markets are intensely local, it won't do much good to check national figures. Instead, stay alert to leading indicators of recovery in your local market, such as:

Inventory is declining

A local broker should be able to tell you the months' worth of inventory - that is, the estimated amount of time, given the current pace of sales, that it would take to sell all the homes currently up for sale.

In markets with fewer than 6.5 months of inventory, homes tend to be appreciating faster than inflation, says Mark Dotzour, chief economist at the Real Estate Center at Texas A&M; above 6.5, prices are lagging inflation.

Above nine or 10 months, prices start to drop, creating an ice-cold market for sellers. Compare the current data with that of the previous few quarters to see whether the trend is downward or upward.

View article..

Home Buyer Tip: A 6-step plan for boosting credit score to buy home

WASHINGTON (MarketWatch) -- Question: I need some assistance in cleaning up my very poor credit score of 638 from Trans Union and 559 from Equifax. It's not the result of any credit cards but poor choices (which I admit) and a divorce with little to no child support of three girls. I'm in my mid-forties and all three girls are over the age of 18.

My question is how do I increase my FICO score within the next 6-10 months and is there a reputable agency that can work on my behalf? I would like to purchase a home early next year. I know there's a lot of work that needs to be done and would greatly appreciate any assistance you or an agency can provide.

List below.. View article for details..

1. Settle collections
2. Get rid of the 'black marks'
3. Clean up late pays
4. Get even
5. Remain open
6. Remain active

National: The Great Mortgage Party Hangover

This is a recent article I pulled from Inman and the assessment of the troubles that has yet to affect our industry. Lou Barnes discusses the premature "housing crash" that the bond market buyers anticipated a year ago, only to get clobbered with resilient market data ("People are buying cars, going to restaurants, taking vacations in Tahoe.. just not buying houses" from a recent Sacbee article). Now, the market pundits and bond agencies are acknowledging their timing errors and are re-rating their methodologies with stricter guidelines, leading to a two-part "end game": (i) where are the loses? and (ii) what is the effect?

Part one, the mortgage losses. Very little money has been "lost." The market value of the securitized mortgages in question has fallen 30-70 percent, but if you don't sell, you don't have to recognize loss. The re-rating of this stuff to junk will force institutional investors to sell, to recognize, and probably depress value farther. We will also learn who has lost, and it's going to be an embarrassing and painful parade. This week, S&P, Moody's and Fitch downgraded no more than 1 percent of the trash outstanding; the outcome for the other 99 percent is sure as sunrise, the holders in frozen panic. Market losses from forced sales are near, but there is still little actual credit loss from defaulted mortgages -- that's still ahead, and the loss magnitude will depend on the depth and length of the housing recession.

Part two, the housing market. Housing moves slowly, in an aching grind. Sellers resist discount, preferring to hold vacant, or to rent at a loss, or to stay put. Loan servicers are slow to foreclose: they are not staffed to do so (or to do anything except to send you all that mail trying to get you to buy insurance and pre-pay programs), fiddle endlessly and pretend to negotiate workouts of hopeless cases. The housing picture is changing -- not selling, just changing. Foreclosure data is notoriously bad (every county and state has different procedures and law), but RealtyTrac's trend is probably about right, if only in consistency of error. The pattern is stark: national foreclosure filings are up 56 percent year-to-date, but mortgage defaults are up 86 percent -- foreclosure lag. Based on housing markets early to the distress party, Colorado the leading example, Bubble Zone foreclosures will increase for at least the next three years (announcements of bottom in 2008 are fantasy-based). Do some math. Home resales run a tad over 6 million annually, plus another 1 million new-builds. Re-sellers still want to re-sell, and builders, desperate to unload land and to maintain survival volume, are still building at undercut prices. Demand is off (un-affordability and anxiety), but a new seller has arrived: first-half '07 foreclosure filings just short of 1 million. Pull-through from filing to foreclosure is unpredictable, but it looks as though re-sellers and builders will soon be joined by another million foreclosure re-sellers (or two, or three...). That's market saturation, not clearing. We are going to get spillover into GDP. Book it. And we're going to see a serial credit panic. However, the disaster mongers are mistaken. Credit losses are distributed globally, and there is great long-term strength in housing (population growth, land scarcity, wealth...). The forecast here continues to be for a long period of flat prices in the Bubble Zones, but vastly more foreclosure damage from flat prices than previously modeled or imagined, the Great Hangover from the '01-'06 Mortgage Credit Party.