Some housing analysts have made the case that home prices have stabilized in recent months, in part, because foreclosure moratoria earlier this year helped to limit the supply of homes coming on the market during the spring and summer—just as the policymakers simultaneously goosed demand by lowering mortgage rates and offering a tax credit to first-time home buyers.
That raises some big questions: What happens when those new foreclosures accelerate later this year, and more supply hits the market? Will prices decline further if those demand-side incentives run their course? Have government efforts simply hit the pause button on the housing market downturn?
The answers to those questions produce different estimates about how much further the housing market has to fall, and a new forecast from Lazard Asset Management offers several different scenarios. The most probable scenario forecasts that home prices have another 10-15% decline from the current level, though prices are expected to rise slightly through the end of the summer as government intervention helps boost the housing market.
But Lazard also offers two additional scenarios: a “bull” market forecast that predicts an 8% home price decline from May, and a “bear” market scenario that forecasts a 19% price decline from the first quarter of 2009.
“Even in our bear case, it is clear that the government intervention to increase affordability and demand through lower mortgage rates, and to decrease supply through foreclosure moratoria and modifications, are having a positive impact on house prices relative to what would have occurred in the short term,” writes Ronald Temple, portfolio manager and co-director of research at Lazard Asset Management. ”The key question is how sustainable the benefits of such intervention will be.”
Even if government efforts simply delay an onslaught of new bank-owned supply of homes, the government’s attempt to kick the supply can down the road could have a positive benefit–provided that the economy is in better shape and consumer confidence has improved when that supply becomes available, there could be more buyers ready to soak up the inventory.
Also, various moratoria and foreclosure modification programs have increased the average time it takes for a lender to move a home from foreclosure to sale to around 11 months (and longer in some states, such as Florida and New York), according to Lazard. That means that homes slated for foreclosure last November might not sell until later this year or early 2010, providing some tailwinds for home prices through next year.
Wednesday, August 19, 2009
Monday, August 17, 2009
Home Prices: There's No Quick Recovery Ahead
By BRETT ARENDS, Wall Street Journal
So, is our long national nightmare over? Has the housing market finally hit bottom?
There has been some muted -- albeit exhausted -- cheering from homeowners in recent weeks. But before we break out the champagne, look out for further potential problems just down the road.
The good news? According to the closely watched Case-Shiller Home Price Index, which tracks home prices across 20 major cities nationwide, the three-year housing slump slowed sharply in April and May.
May's decline was just 0.2%, the slowest in two years. And several cities actually saw prices rise -- among them Denver, Washington, D.C., Chicago, Boston, Cleveland and Dallas.
Even Miami only fell about 1% in May. That's a great month down there. Previously, prices had been falling 3% a month.
We'll get an even better picture of the situation when the Case-Shiller figures for June are released on Aug. 25.
But these data aren't the only hopeful signs.
Inventories of unsold homes have come down. According to the National Association of Realtors, there were about 3.8 million unsold homes on the market at the end of June. That's down a long way from 4.5 million a year ago.
And yes, housing affordability is dramatically better. People, obviously, need to live somewhere. At some point, housing gets cheap enough that the fundamentals start to look good.
The average home is about a third cheaper than it was at the peak three years ago, a plunge unprecedented since the Great Depression. In the hardest-hit places, such as Phoenix, Las Vegas and Miami, average prices have been halved or better from their bubble peaks.
Cheap Mortgages, Too
Factor in falling mortgage rates as well, and housing starts to look cheap by many measures. Thirty-year mortgage rates, at around 5.5%, are still low by historic standards. A few months ago, when they fell below 5%, they were very cheap.
There's some other good news for homeowners from the rest of the economy. July's job losses were better than feared: The unemployment rate, which was heading vertical a few months ago, eased to 9.4% last month from 9.5%.
Some are saying the worst is behind us, for the economy and the housing market. No wonder the iShares Dow Jones U.S. Home Construction exchange-traded fund (ITB), which tracks shares of home-building stocks, has bounced sharply since early July.
So, is that it?
Not so fast.
Prices may -- may -- be nearing the bottom in many markets. But beyond the headlines, there are plenty of reasons to stay cautious. There may even be fresh dangers just ahead.
And even if prices have stopped falling, it may be years before they start rising sharply again.
First, late spring is traditionally the strongest season in the real-estate market.
And it's hardly a surprise the market saw some green shoots this time around. It's enjoying not one, but two, gigantic taxpayer subsidies -- an $8,000 refundable tax credit, or gift, for first-time buyers, as well as those cheap mortgage rates. The Federal Reserve has been spending billions of dollars to keep interest rates down.
Both are only short-term fixes. Any sustained economic upturn would be expected to send long-term mortgage rates rising again, dousing the real-estate market with fresh cold water.
Glut of Empty Houses
The picture on inventories isn't as good as it sounds, either. A lot of unsold homes have simply been put up for rent instead, especially in the most difficult markets like Miami. The result? A glut of empty rentals as well.
New waves of foreclosures and distressed sales may be coming, too. In states such as California, it can take many months for delinquencies to turn to foreclosures, which means last winter's bad news may still be coming down the pike. Meanwhile, vast tranches of teaser-rate mortgages are due to reset later this year and in 2010.
As for the economy: Both unemployment and household debt levels remain at extremely high levels by the standards of postwar history. Either is bad news for housing. The combination is very bad.
Dean Baker, co-director of the Center for Economic and Policy Research, argued in a recent paper that the fundamentals still aren't great. It still remains cheaper to rent than to own in many markets, he says.
The biggest bubbles usually produce the deepest busts. And the 2002-2006 bubble was a doozy. The bad news may have ended after three terrible years, but maybe not. Japanese housing prices still haven't recovered from the late 1980s bubble. Western U.S. markets took six or seven years to recover after the last big bubble burst there in the early 1990s.
Yes, there are some hopeful signs, but don't let them fool you into thinking it's all clear. It might not be. As ever, anyone making a major financial decision needs to think more about his or her own situation than what "the market" is doing. A real-estate purchase needs to make sense on its own terms. And measure it on cash flow today, not the hope for capital gains tomorrow. When you factor in all the costs, is the purchase cheaper than renting?
If you get a cheap mortgage and you are aggressive on price, you may get a bargain. That's especially true if the owner has to sell. Foreclosures and other distressed sales are selling for about 20% below the rest of the market. There are opportunities out there. But you can afford to take your time to shop around.
So, is our long national nightmare over? Has the housing market finally hit bottom?
There has been some muted -- albeit exhausted -- cheering from homeowners in recent weeks. But before we break out the champagne, look out for further potential problems just down the road.
The good news? According to the closely watched Case-Shiller Home Price Index, which tracks home prices across 20 major cities nationwide, the three-year housing slump slowed sharply in April and May.
May's decline was just 0.2%, the slowest in two years. And several cities actually saw prices rise -- among them Denver, Washington, D.C., Chicago, Boston, Cleveland and Dallas.
Even Miami only fell about 1% in May. That's a great month down there. Previously, prices had been falling 3% a month.
We'll get an even better picture of the situation when the Case-Shiller figures for June are released on Aug. 25.
But these data aren't the only hopeful signs.
Inventories of unsold homes have come down. According to the National Association of Realtors, there were about 3.8 million unsold homes on the market at the end of June. That's down a long way from 4.5 million a year ago.
And yes, housing affordability is dramatically better. People, obviously, need to live somewhere. At some point, housing gets cheap enough that the fundamentals start to look good.
The average home is about a third cheaper than it was at the peak three years ago, a plunge unprecedented since the Great Depression. In the hardest-hit places, such as Phoenix, Las Vegas and Miami, average prices have been halved or better from their bubble peaks.
Cheap Mortgages, Too
Factor in falling mortgage rates as well, and housing starts to look cheap by many measures. Thirty-year mortgage rates, at around 5.5%, are still low by historic standards. A few months ago, when they fell below 5%, they were very cheap.
There's some other good news for homeowners from the rest of the economy. July's job losses were better than feared: The unemployment rate, which was heading vertical a few months ago, eased to 9.4% last month from 9.5%.
Some are saying the worst is behind us, for the economy and the housing market. No wonder the iShares Dow Jones U.S. Home Construction exchange-traded fund (ITB), which tracks shares of home-building stocks, has bounced sharply since early July.
So, is that it?
Not so fast.
Prices may -- may -- be nearing the bottom in many markets. But beyond the headlines, there are plenty of reasons to stay cautious. There may even be fresh dangers just ahead.
And even if prices have stopped falling, it may be years before they start rising sharply again.
First, late spring is traditionally the strongest season in the real-estate market.
And it's hardly a surprise the market saw some green shoots this time around. It's enjoying not one, but two, gigantic taxpayer subsidies -- an $8,000 refundable tax credit, or gift, for first-time buyers, as well as those cheap mortgage rates. The Federal Reserve has been spending billions of dollars to keep interest rates down.
Both are only short-term fixes. Any sustained economic upturn would be expected to send long-term mortgage rates rising again, dousing the real-estate market with fresh cold water.
Glut of Empty Houses
The picture on inventories isn't as good as it sounds, either. A lot of unsold homes have simply been put up for rent instead, especially in the most difficult markets like Miami. The result? A glut of empty rentals as well.
New waves of foreclosures and distressed sales may be coming, too. In states such as California, it can take many months for delinquencies to turn to foreclosures, which means last winter's bad news may still be coming down the pike. Meanwhile, vast tranches of teaser-rate mortgages are due to reset later this year and in 2010.
As for the economy: Both unemployment and household debt levels remain at extremely high levels by the standards of postwar history. Either is bad news for housing. The combination is very bad.
Dean Baker, co-director of the Center for Economic and Policy Research, argued in a recent paper that the fundamentals still aren't great. It still remains cheaper to rent than to own in many markets, he says.
The biggest bubbles usually produce the deepest busts. And the 2002-2006 bubble was a doozy. The bad news may have ended after three terrible years, but maybe not. Japanese housing prices still haven't recovered from the late 1980s bubble. Western U.S. markets took six or seven years to recover after the last big bubble burst there in the early 1990s.
Yes, there are some hopeful signs, but don't let them fool you into thinking it's all clear. It might not be. As ever, anyone making a major financial decision needs to think more about his or her own situation than what "the market" is doing. A real-estate purchase needs to make sense on its own terms. And measure it on cash flow today, not the hope for capital gains tomorrow. When you factor in all the costs, is the purchase cheaper than renting?
If you get a cheap mortgage and you are aggressive on price, you may get a bargain. That's especially true if the owner has to sell. Foreclosures and other distressed sales are selling for about 20% below the rest of the market. There are opportunities out there. But you can afford to take your time to shop around.
Friday, August 14, 2009
Mortgage Rates Will Drop - Are We in a Bull Market Yet ?
Dear Clients,
If you’re waiting for interest rates to drop, a pull back in the equities market will be a catalyst. I side with the author of this article, that we are in a ‘bear market rally’ and a pull back is eminent.
If you are a client of mine who has already received lender approval, as a service to you, I have placed you on my daily ‘rate watch’ monitor and you should expect regular updates on rate drops so I can get your permission to lock. Please make sure you have provided me with the best number to reach you, because rates can change at a moment’s notice, so you have to strike while the iron’s hot.
For most people, the article below is “too much information”. I happen to love economics, and actively trade stocks, so I stay on top of financial and economic news on a daily basis. By doing this, I am able to provide my clients with factual guidance so they can make informed decisions.
Feel free to contact me if you have any questions.
The time to lock is here.
Tom
Thomas L. Drasler
HomeQuest Mortgage Corporation
CA DRE#01775516
FHA - VA - Conventional
Direct: 714-478-3153
Office: 949-460-7799/877-966-3696
Fax: 949-460-7797
www.TomDrasler.com
To Complete a Loan Application: http://www.tomdrasler.com/loanapplication
Visit my Blog: http://tomdrasler.blogspot.com/
Join My Professional Network: http://www.linkedin.com/in/tomdrasler
_____________________________________________________________________________________
Are We in a Bull Market Yet?
By MICHAEL KAHN
The technical evidence suggests that we're still in a bear-market rally. So get ready for a pullback.
WITH SO MANY PUNDITS arguing that we have finally entered into a bonafide stock-market recovery, it's worth studying how the current stock rally stacks up with the last true early bull market in 2002-2003.
While there are many structural similarities on the charts, there is one factor that is very different.
As of this month, the current rally has not yet reached, let alone broken through, a trendline that defined the bear market from its October 2007 peak. That makes the current rally still officially of the bear-market variety.
To be sure, bear-market rallies can carry on for a long time, and that means it is possible for the market to touch its bear-market trendline before all is said and done. If the trend continues at its current pace from March, then it is possible that 1100 on the Standard & Poor's 500 is in the cards.
That is a tough pill for a bear like me to swallow.
One precedent for this possibility comes from the 1972-1974 bear market when the index shed just under half its value. The ensuing bear-market rally lasted nearly two years and regained more than three-quarters of what was lost before the next bearish cycle took hold.
I am not saying the current rally will last that long, and I do not believe it will reach 1100. The point is that after brutal bear markets, when panic sets in and the world seems as if it is about to end, recoveries can also go "too far" before equilibrium is restored. The pendulum swings too far in both directions.
Before moving on, let me restate that I do not think this type of gain is likely. But ignoring the evidence on the charts that does not fit in with one's theories is always a bad move.
Several months ago, I began to look at the exact slopes of the two bear markets starting in 2000 and 2007, respectively. Using basic trendline drawing techniques, I was amazed to see that the two bear markets had exactly the same initial rates of decline. In other words, the trendlines drawn from their respective peaks were exactly parallel.
The big difference was that the 2007-2009 bear was 17 months from top to bottom while the 2000-2002 bear was 24 months for the S&P 500 and even longer for the Nasdaq. What this means is that the market fell much harder during the most recent bear, and to me that means it needs more time to recover.
Much has been written about a huge inverted head-and-shoulders pattern that was broken to the upside last month. When a similar pattern completed in 2003, the market never really looked back so it is no wonder people are excited now.
However, the bear-market trendline was already broken to the upside so the move above the huge pattern was confirmation of what had already triggered -- a bull market. Fast forwarding to today, the corresponding bear-market trendline, as mentioned, has not been broken.
We can debate how high the rally will continue and reaction in the post-Fed days to come should be telling. My thesis is that the gyrations and emotional disruptions of the bear market have not been fully resolved. That means that I do not believe the bear-market trendline will be broken during this bear-market rally.
For the S&P 500, there is a level I am watching very closely in the short term. Several factors are converging on 950 as the do-or-die level, where my thesis is proved right or wrong. At that level, the rising trendline from March, the horizontal support from June, and both the 50- and 200-day exponential moving averages all meet.
If I am right and 950 does not hold as support, then another scary selloff is in the cards. However, I do not see new lows being reached.
If I am wrong and 950 serves as a springboard for the next leg up, then I will have to admit that 1100 is entirely possible.
If you’re waiting for interest rates to drop, a pull back in the equities market will be a catalyst. I side with the author of this article, that we are in a ‘bear market rally’ and a pull back is eminent.
If you are a client of mine who has already received lender approval, as a service to you, I have placed you on my daily ‘rate watch’ monitor and you should expect regular updates on rate drops so I can get your permission to lock. Please make sure you have provided me with the best number to reach you, because rates can change at a moment’s notice, so you have to strike while the iron’s hot.
For most people, the article below is “too much information”. I happen to love economics, and actively trade stocks, so I stay on top of financial and economic news on a daily basis. By doing this, I am able to provide my clients with factual guidance so they can make informed decisions.
Feel free to contact me if you have any questions.
The time to lock is here.
Tom
Thomas L. Drasler
HomeQuest Mortgage Corporation
CA DRE#01775516
FHA - VA - Conventional
Direct: 714-478-3153
Office: 949-460-7799/877-966-3696
Fax: 949-460-7797
www.TomDrasler.com
To Complete a Loan Application: http://www.tomdrasler.com/loanapplication
Visit my Blog: http://tomdrasler.blogspot.com/
Join My Professional Network: http://www.linkedin.com/in/tomdrasler
_____________________________________________________________________________________
Are We in a Bull Market Yet?
By MICHAEL KAHN
The technical evidence suggests that we're still in a bear-market rally. So get ready for a pullback.
WITH SO MANY PUNDITS arguing that we have finally entered into a bonafide stock-market recovery, it's worth studying how the current stock rally stacks up with the last true early bull market in 2002-2003.
While there are many structural similarities on the charts, there is one factor that is very different.
As of this month, the current rally has not yet reached, let alone broken through, a trendline that defined the bear market from its October 2007 peak. That makes the current rally still officially of the bear-market variety.
To be sure, bear-market rallies can carry on for a long time, and that means it is possible for the market to touch its bear-market trendline before all is said and done. If the trend continues at its current pace from March, then it is possible that 1100 on the Standard & Poor's 500 is in the cards.
That is a tough pill for a bear like me to swallow.
One precedent for this possibility comes from the 1972-1974 bear market when the index shed just under half its value. The ensuing bear-market rally lasted nearly two years and regained more than three-quarters of what was lost before the next bearish cycle took hold.
I am not saying the current rally will last that long, and I do not believe it will reach 1100. The point is that after brutal bear markets, when panic sets in and the world seems as if it is about to end, recoveries can also go "too far" before equilibrium is restored. The pendulum swings too far in both directions.
Before moving on, let me restate that I do not think this type of gain is likely. But ignoring the evidence on the charts that does not fit in with one's theories is always a bad move.
Several months ago, I began to look at the exact slopes of the two bear markets starting in 2000 and 2007, respectively. Using basic trendline drawing techniques, I was amazed to see that the two bear markets had exactly the same initial rates of decline. In other words, the trendlines drawn from their respective peaks were exactly parallel.
The big difference was that the 2007-2009 bear was 17 months from top to bottom while the 2000-2002 bear was 24 months for the S&P 500 and even longer for the Nasdaq. What this means is that the market fell much harder during the most recent bear, and to me that means it needs more time to recover.
Much has been written about a huge inverted head-and-shoulders pattern that was broken to the upside last month. When a similar pattern completed in 2003, the market never really looked back so it is no wonder people are excited now.
However, the bear-market trendline was already broken to the upside so the move above the huge pattern was confirmation of what had already triggered -- a bull market. Fast forwarding to today, the corresponding bear-market trendline, as mentioned, has not been broken.
We can debate how high the rally will continue and reaction in the post-Fed days to come should be telling. My thesis is that the gyrations and emotional disruptions of the bear market have not been fully resolved. That means that I do not believe the bear-market trendline will be broken during this bear-market rally.
For the S&P 500, there is a level I am watching very closely in the short term. Several factors are converging on 950 as the do-or-die level, where my thesis is proved right or wrong. At that level, the rising trendline from March, the horizontal support from June, and both the 50- and 200-day exponential moving averages all meet.
If I am right and 950 does not hold as support, then another scary selloff is in the cards. However, I do not see new lows being reached.
If I am wrong and 950 serves as a springboard for the next leg up, then I will have to admit that 1100 is entirely possible.
Tuesday, August 11, 2009
Don't Make Rookie Home Buyer Mistakes
By JUNE FLETCHER, WSJ
Like many first-time buyers who want to take advantage of the $8,000 tax credit before it expires on November 30, Brendt Montgomery was in a rush to buy a home. And what better than a seemingly bargain-priced distressed property?
Mr. Montgomery, a 25-year-old manufacturing engineer, recently moved to Atlanta from Pittsburgh. After looking around for a day, he quickly found a condo that had been repossessed by the bank. He gave it a quick tour, made an offer and then embarked on a short vacation. While he was gone, a bidding war erupted, and spurred by the competition, he upped his bid to $143,100. His offer was accepted, and as soon as he returned, he signed a 33-page contract without really reading it. He was thrilled.
Before You Buy Your First Home…
Research properties online, but don't make a decision until you've toured a number of places, talked to neighbors, and developed a feel for the community.
Prepare a monthly budget, and factor in costs for taxes, association fees, insurance, maintenance and repairs, as well as the mortgage.
Make sure that any contract that you sign, even for a foreclosed property being sold "as is," has a clause that allows you to have an inspector examine the property, and to cancel the deal without penalty if you don't like the findings. That will give you an out should the cost of repairs be too high.
Understand that any contract that's prepared by the seller will protect the seller's interests, not yours. Read it carefully and question any provisions that you disagree with or don't understand. And have your own attorney review it.
Realize that if you back out of a contract, you may lose your deposit and be liable for brokers' fees. If you don't have a valid reason to cancel, legally you may be obligated to go through with the sale.
.But the high didn't last more than a week or two. After paying $2,000 for an earnest money deposit, plus $250 for an inspection and $85 to the condo association—but before the deal closed--he again toured the condo.
There were problems: dirty carpets, mold in the air conditioning system, holes in the wall. He had second thoughts about how secure the first-floor location might be, and realized that the north-facing windows would never let in much light. "It was a little depressing," he says. "I realized I'd acted hastily."
Mr. Montgomery called his agent and asked how he could unwind his deal. He quickly learned that backing out wouldn't be easy or cheap. He agreed to talk about his mistakes so that other first-time buyers wouldn't duplicate them.
His first mistake was to sign a contract after looking at listings for only one day, even though he'd spent considerable time beforehand doing online research. But one day, he now realizes, really isn't enough time to get to know a neighborhood or to explore all of the potential deals, and he's sorry now that he rushed. Just to get a tax credit, "it's not worth buying a property you're not satisfied with," he says.
His second mistake was to decide on a condo based just on the purchase price, without taking into consideration taxes, homeowners' association fees, and the cost to fix up and maintain a distressed property. He admits in the excitement of a bidding war, he didn't calculate these costs; he was focused only on winning the deal. He started doing the math only after he'd signed the papers, and soon regretted not adding up these expenses before he'd committed himself. "There were little issues I hadn't anticipated that would add up in the long run," he says.
Associated Press
.His third—and probably most important—mistake was not to read the contract carefully before he signed it. The contract stipulated that if he backed out of the deal, he'd lose his $2,000 earnest money deposit, plus other out-of-pocket expenses, and also made him responsible for paying the entire 6% brokers' commission. He wishes now that he'd negotiated those provisions.
Luckily, there was a contractual loophole: His parents rescinded the down payment money that they were gifting him, so he no longer qualified for a mortgage. The agents involved didn't press for the commission, but he lost his deposit.
Mr. Montgomery was much more cautious in his next round of house-hunting. Eventually, he found a new condo that has more space and better views than his original choice, and made an offer. But this time, before he signed any papers, he had his agent run comparable sales prices, figured out his total monthly expenses, and had an attorney read over the fine print. The offer was accepted, and Mr. Montgomery is looking forward to closing the deal. "I've learned some valuable lessons," he says.
Like many first-time buyers who want to take advantage of the $8,000 tax credit before it expires on November 30, Brendt Montgomery was in a rush to buy a home. And what better than a seemingly bargain-priced distressed property?
Mr. Montgomery, a 25-year-old manufacturing engineer, recently moved to Atlanta from Pittsburgh. After looking around for a day, he quickly found a condo that had been repossessed by the bank. He gave it a quick tour, made an offer and then embarked on a short vacation. While he was gone, a bidding war erupted, and spurred by the competition, he upped his bid to $143,100. His offer was accepted, and as soon as he returned, he signed a 33-page contract without really reading it. He was thrilled.
Before You Buy Your First Home…
Research properties online, but don't make a decision until you've toured a number of places, talked to neighbors, and developed a feel for the community.
Prepare a monthly budget, and factor in costs for taxes, association fees, insurance, maintenance and repairs, as well as the mortgage.
Make sure that any contract that you sign, even for a foreclosed property being sold "as is," has a clause that allows you to have an inspector examine the property, and to cancel the deal without penalty if you don't like the findings. That will give you an out should the cost of repairs be too high.
Understand that any contract that's prepared by the seller will protect the seller's interests, not yours. Read it carefully and question any provisions that you disagree with or don't understand. And have your own attorney review it.
Realize that if you back out of a contract, you may lose your deposit and be liable for brokers' fees. If you don't have a valid reason to cancel, legally you may be obligated to go through with the sale.
.But the high didn't last more than a week or two. After paying $2,000 for an earnest money deposit, plus $250 for an inspection and $85 to the condo association—but before the deal closed--he again toured the condo.
There were problems: dirty carpets, mold in the air conditioning system, holes in the wall. He had second thoughts about how secure the first-floor location might be, and realized that the north-facing windows would never let in much light. "It was a little depressing," he says. "I realized I'd acted hastily."
Mr. Montgomery called his agent and asked how he could unwind his deal. He quickly learned that backing out wouldn't be easy or cheap. He agreed to talk about his mistakes so that other first-time buyers wouldn't duplicate them.
His first mistake was to sign a contract after looking at listings for only one day, even though he'd spent considerable time beforehand doing online research. But one day, he now realizes, really isn't enough time to get to know a neighborhood or to explore all of the potential deals, and he's sorry now that he rushed. Just to get a tax credit, "it's not worth buying a property you're not satisfied with," he says.
His second mistake was to decide on a condo based just on the purchase price, without taking into consideration taxes, homeowners' association fees, and the cost to fix up and maintain a distressed property. He admits in the excitement of a bidding war, he didn't calculate these costs; he was focused only on winning the deal. He started doing the math only after he'd signed the papers, and soon regretted not adding up these expenses before he'd committed himself. "There were little issues I hadn't anticipated that would add up in the long run," he says.
Associated Press
.His third—and probably most important—mistake was not to read the contract carefully before he signed it. The contract stipulated that if he backed out of the deal, he'd lose his $2,000 earnest money deposit, plus other out-of-pocket expenses, and also made him responsible for paying the entire 6% brokers' commission. He wishes now that he'd negotiated those provisions.
Luckily, there was a contractual loophole: His parents rescinded the down payment money that they were gifting him, so he no longer qualified for a mortgage. The agents involved didn't press for the commission, but he lost his deposit.
Mr. Montgomery was much more cautious in his next round of house-hunting. Eventually, he found a new condo that has more space and better views than his original choice, and made an offer. But this time, before he signed any papers, he had his agent run comparable sales prices, figured out his total monthly expenses, and had an attorney read over the fine print. The offer was accepted, and Mr. Montgomery is looking forward to closing the deal. "I've learned some valuable lessons," he says.
Saturday, August 8, 2009
Help, We're Underwater!!
Q: In October 2007, my wife and I bought a two-bedroom condo for $525,000. About a year later, we both lost our jobs. We put our condo on the market for $512,000 last November, and dropped the price in January to $499,000. We got zero offers. As far as we can tell, prices for condos similar to ours are now $465,000; we now owe more than the condo is worth. We approached our lender early this year, seeking a loan modification and were turned down because we still had some emergency funds available. But we are running through this money fast, and expect it will be gone in six months. We do have some retirement funds, as well; if we do a short sale, will the lender be able to come after us? What other options do we have?
--Chicago
A: I'm sorry to hear about your problems. Many others are in the same predicament, as property prices continue to slide. In Illinois, according to Moody's Economy.com, more than one out of five homeowners are upside-down on their mortgages.
Although the Chicago market is improving on a month-to-month basis -- median prices for condominiums went up 1%, to $282,500, in June from May -- prices are still down 14% from a year earlier, according to ChicagoCondosOnline.com. And since there's an almost 13-month supply of condos on the market, according to ChicagoCondos, it's unlikely that you'll be able to sell your place for as much as you paid for it before your emergency funds run out.
But don't despair. You do have options:
■Try again for a loan modification: The federal government rolled out its Making Home Affordable program on Feb.18, giving lenders new financial incentives to refinance or modify loans. To qualify for a refinance, you must be up-to-date on your loan payments and your first lien can't exceed 125% of the current market value of your house. For a loan modification that lowers interest rates and perhaps even reduces the principal owed, you must document hardship, have a monthly mortgage payment that's more than 31% of current gross income and have an unpaid balance on a principal residence of less than $729,750. Normally, a lender would probably require that either you or your wife have a job or other steady income stream before changing the terms of your loan. But, says Chicago real estate attorney J. Kelly Bufton, "these are not normal times." Your lender may decide it's better to stick with you if you can make the payments for a few more months, she says, rather than foreclosing and trying to sell in an over-supplied market.
Getty Images
Condo prices in Chicago have stablized but they haven't bounced back.
.■Declare bankruptcy: Filing for bankruptcy could automatically forestall your foreclosure and discharge your debts—or allow you to repay them over a long period of time. (More information.) Though bankruptcy will hurt your credit, you'll be able to rebuild it faster if you have a clean slate.
■Try a short sale: Many buyers are concentrating on distressed properties these days. So you may be able to find one who will pay enough for your place to satisfy your lender, even if it's less than you owe. Accepting short sales saves lenders from the carrying and processing costs of foreclosure. However, they won't agree to this solution unless you prove that you don't have the money to pay off the debt (retirement funds are exempted from this calculation, by both federal and Illinois state law). Chicago real estate attorney Michael McCormick says to make sure that the agreement that you sign with your lender forgives the debt permanently. Don't agree to a "release of lien" that requires you to pay back the shortfall sometime after the sale.
Related
Developments: More homeowners upside down on mortgages.
Developments: Strategies for backing out of condo deals.
.■Return the condo to the lender: If all else fails, you can return the keys to the lender (deed in lieu of foreclosure), or simply stop paying the mortgage, which will eventually lead to foreclosure and your home being sold at auction. In the former instance, you transfer ownership of the property to the lender; in return, you get a document that marks your note "paid" as well as a waiver for a right to a deficiency judgment, meaning the lender can't make you pay for the difference between what you owe and the price the condo fetches on the courthouse steps. A "deed in lieu" won't hurt your credit rating as much as a foreclosure. However, you'll have to leave your home immediately; in a foreclosure, the rent-free period between when you stop making payments and you're evicted can last more than a year.
■A note on taxes: Normally, you have to pay tax on any forgiven debt, which is considered income to you. But the Mortgage Forgiveness Debt Relief Act gives many financially-strapped homeowners a pass until January 1, 2010.
■And a caveat: Whichever option you pick will affect both your ability to borrow and your financial stability for years to come. Don't go it alone. Before you decide what to do, call 1-888-995-HOPE for free mortgage advice. The National Foreclosure Mitigation Counseling Program, administered in your area by the Illinois Housing Development Authority, also provides free counseling and legal assistance.
To find out if you qualify for the Home Affordable Refinance Program, launched as part of Obama's economic stimulus program in February. I am approved to provide these programs with most all major lenders and get homeowners quickly approved and into a more stable loan product and lower monthly payment.
Call me directly to arrange for a no-cost consultation at 714-478-3153 or apply at www.tomdrasler.com/loanapplication.
--Chicago
A: I'm sorry to hear about your problems. Many others are in the same predicament, as property prices continue to slide. In Illinois, according to Moody's Economy.com, more than one out of five homeowners are upside-down on their mortgages.
Although the Chicago market is improving on a month-to-month basis -- median prices for condominiums went up 1%, to $282,500, in June from May -- prices are still down 14% from a year earlier, according to ChicagoCondosOnline.com. And since there's an almost 13-month supply of condos on the market, according to ChicagoCondos, it's unlikely that you'll be able to sell your place for as much as you paid for it before your emergency funds run out.
But don't despair. You do have options:
■Try again for a loan modification: The federal government rolled out its Making Home Affordable program on Feb.18, giving lenders new financial incentives to refinance or modify loans. To qualify for a refinance, you must be up-to-date on your loan payments and your first lien can't exceed 125% of the current market value of your house. For a loan modification that lowers interest rates and perhaps even reduces the principal owed, you must document hardship, have a monthly mortgage payment that's more than 31% of current gross income and have an unpaid balance on a principal residence of less than $729,750. Normally, a lender would probably require that either you or your wife have a job or other steady income stream before changing the terms of your loan. But, says Chicago real estate attorney J. Kelly Bufton, "these are not normal times." Your lender may decide it's better to stick with you if you can make the payments for a few more months, she says, rather than foreclosing and trying to sell in an over-supplied market.
Getty Images
Condo prices in Chicago have stablized but they haven't bounced back.
.■Declare bankruptcy: Filing for bankruptcy could automatically forestall your foreclosure and discharge your debts—or allow you to repay them over a long period of time. (More information.) Though bankruptcy will hurt your credit, you'll be able to rebuild it faster if you have a clean slate.
■Try a short sale: Many buyers are concentrating on distressed properties these days. So you may be able to find one who will pay enough for your place to satisfy your lender, even if it's less than you owe. Accepting short sales saves lenders from the carrying and processing costs of foreclosure. However, they won't agree to this solution unless you prove that you don't have the money to pay off the debt (retirement funds are exempted from this calculation, by both federal and Illinois state law). Chicago real estate attorney Michael McCormick says to make sure that the agreement that you sign with your lender forgives the debt permanently. Don't agree to a "release of lien" that requires you to pay back the shortfall sometime after the sale.
Related
Developments: More homeowners upside down on mortgages.
Developments: Strategies for backing out of condo deals.
.■Return the condo to the lender: If all else fails, you can return the keys to the lender (deed in lieu of foreclosure), or simply stop paying the mortgage, which will eventually lead to foreclosure and your home being sold at auction. In the former instance, you transfer ownership of the property to the lender; in return, you get a document that marks your note "paid" as well as a waiver for a right to a deficiency judgment, meaning the lender can't make you pay for the difference between what you owe and the price the condo fetches on the courthouse steps. A "deed in lieu" won't hurt your credit rating as much as a foreclosure. However, you'll have to leave your home immediately; in a foreclosure, the rent-free period between when you stop making payments and you're evicted can last more than a year.
■A note on taxes: Normally, you have to pay tax on any forgiven debt, which is considered income to you. But the Mortgage Forgiveness Debt Relief Act gives many financially-strapped homeowners a pass until January 1, 2010.
■And a caveat: Whichever option you pick will affect both your ability to borrow and your financial stability for years to come. Don't go it alone. Before you decide what to do, call 1-888-995-HOPE for free mortgage advice. The National Foreclosure Mitigation Counseling Program, administered in your area by the Illinois Housing Development Authority, also provides free counseling and legal assistance.
To find out if you qualify for the Home Affordable Refinance Program, launched as part of Obama's economic stimulus program in February. I am approved to provide these programs with most all major lenders and get homeowners quickly approved and into a more stable loan product and lower monthly payment.
Call me directly to arrange for a no-cost consultation at 714-478-3153 or apply at www.tomdrasler.com/loanapplication.
Friday, August 7, 2009
Strong Economic Data Pushes Mortgage Rates Higher
With just minor exceptions, all of the economic data released this week beat the consensus forecast, indicating that the economy is improving more quickly than expected. While current inflation levels remain low, faster economic growth generally leads to higher future inflation, which is negative for mortgage rates. As a result, mortgage rates ended the week higher.
Early in the week, stronger than expected manufacturing and housing data convinced economists to revise higher their forecasts for economic growth, and Friday's Employment data supported the improved economic outlook. Against a consensus forecast for a loss of -300K jobs, the economy lost -247K jobs in July, and the May and June data was revised to show fewer job losses as well. This was the 19th straight month of job declines, but it was the smallest level of losses since August 2008. The July Unemployment Rate fell to 9.4% from 9.5% in June, its first decline in 15 months. In addition, wages and the length of the average workweek increased. Overall, this report revealed unexpected improvement in nearly every area.
This week's housing market data also came in stronger than expected. June Pending Home Sales rose 4%, the fifth consecutive monthly increase. Pending Home Sales are a leading indicator for future housing market activity, meaning that Existing and New Home Sales reports may show improvement in coming months. According to the chief economist of the National Association of Realtors (NAR), affordable home prices, low mortgage rates, and a rush to take advantage of the $8,000 first-time homebuyer tax credit have helped increase home sales.
Early in the week, stronger than expected manufacturing and housing data convinced economists to revise higher their forecasts for economic growth, and Friday's Employment data supported the improved economic outlook. Against a consensus forecast for a loss of -300K jobs, the economy lost -247K jobs in July, and the May and June data was revised to show fewer job losses as well. This was the 19th straight month of job declines, but it was the smallest level of losses since August 2008. The July Unemployment Rate fell to 9.4% from 9.5% in June, its first decline in 15 months. In addition, wages and the length of the average workweek increased. Overall, this report revealed unexpected improvement in nearly every area.
This week's housing market data also came in stronger than expected. June Pending Home Sales rose 4%, the fifth consecutive monthly increase. Pending Home Sales are a leading indicator for future housing market activity, meaning that Existing and New Home Sales reports may show improvement in coming months. According to the chief economist of the National Association of Realtors (NAR), affordable home prices, low mortgage rates, and a rush to take advantage of the $8,000 first-time homebuyer tax credit have helped increase home sales.
Tuesday, August 4, 2009
Mortgage-Servicer Performance Is 'Uneven'
By MAYA JACKSON RANDALL and JESSICA HOLZER
WASHINGTON -- Some 9% of eligible borrowers have received trial modifications under the Obama administration's ambitious effort to help struggling homeowners, according to data released by the Treasury Department Tuesday.
More
Econ: List of Banks' Progress
.The administration announced its highly anticipated plan to stabilize the housing market in February through a program that provides $75 billion in incentives for borrowers, mortgage servicers and investors. However, foreclosures are still mounting amid ongoing weakness in the labor market. U.S. foreclosure activity in the second quarter was up 11%, according to a July RealtyTrac report.
The administration Tuesday acknowledged that the performance of participating mortgage servicers has been "uneven."
For instance, Bank of America Corp. has started trial modifications with only 4% of the eligible mortgages in its servicing portfolio, according to a report Treasury provided. Meanwhile, J.P. Morgan Chase & Co. has started trial modifications on behalf of 20% of its eligible delinquencies. Wells Fargo Bank's share is 6% while trial modifications started by Wachovia Mortgage make up just 2% of estimated eligible delinquent loans, the data show.
Despite the low numbers, Treasury still says the "Making Home Affordable" loan modification program is on pace to offer assistance to up to 4 million homeowners over the next three years.
For each homeowner who makes regular payments for three months, the loan servicer collects $1,000 from the government. If the borrower stays current for three years, the servicer gets a maximum of $4,500.
The administration said it has asked servicers to more than double the total of trial modifications started by Nov. 1, which would bring the cumulative total to 500,000 in a few months. Currently, only 235,247 modifications have been started.
Additionally, the administration said it has asked Freddie Mac to audit loan modification applications that have been declined.
Meanwhile, Treasury on Tuesday announced plans to provide transparency reports on modifications on a monthly basis.
WASHINGTON -- Some 9% of eligible borrowers have received trial modifications under the Obama administration's ambitious effort to help struggling homeowners, according to data released by the Treasury Department Tuesday.
More
Econ: List of Banks' Progress
.The administration announced its highly anticipated plan to stabilize the housing market in February through a program that provides $75 billion in incentives for borrowers, mortgage servicers and investors. However, foreclosures are still mounting amid ongoing weakness in the labor market. U.S. foreclosure activity in the second quarter was up 11%, according to a July RealtyTrac report.
The administration Tuesday acknowledged that the performance of participating mortgage servicers has been "uneven."
For instance, Bank of America Corp. has started trial modifications with only 4% of the eligible mortgages in its servicing portfolio, according to a report Treasury provided. Meanwhile, J.P. Morgan Chase & Co. has started trial modifications on behalf of 20% of its eligible delinquencies. Wells Fargo Bank's share is 6% while trial modifications started by Wachovia Mortgage make up just 2% of estimated eligible delinquent loans, the data show.
Despite the low numbers, Treasury still says the "Making Home Affordable" loan modification program is on pace to offer assistance to up to 4 million homeowners over the next three years.
For each homeowner who makes regular payments for three months, the loan servicer collects $1,000 from the government. If the borrower stays current for three years, the servicer gets a maximum of $4,500.
The administration said it has asked servicers to more than double the total of trial modifications started by Nov. 1, which would bring the cumulative total to 500,000 in a few months. Currently, only 235,247 modifications have been started.
Additionally, the administration said it has asked Freddie Mac to audit loan modification applications that have been declined.
Meanwhile, Treasury on Tuesday announced plans to provide transparency reports on modifications on a monthly basis.
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