By Zachary A. Goldfarb
Washington Post Staff Writer
Tuesday, November 25, 2008; D03
Freddie Mac increased its support for the nation's ailing home loan market in October, in part playing the role the government desired when it seized the mortgage finance giant.
The McLean-based company and its bigger sibling, Fannie Mae of the District, are two vital cogs in the nation's mortgage market, buying loans from lenders, insuring them against default and supplying fresh cash to make more loans. Some of these loans are sold to investors; others are kept by Fannie and Freddie. Under severe financial pressure, Freddie -- and to a lesser extent, Fannie -- pulled back last summer from its purchases of pools of these home loans known as mortgage-backed securities.
The company said yesterday that it bought $27 billion in mortgage-backed securities in October, growing its portfolio at an annual rate of 44 percent. The company's portfolio now stands at $764 billion; it may grow to $850 billion by the end of next year under the government's plan.
The purchases by Freddie -- and Fannie, which hasn't released its October data yet -- may have kept mortgage rates from skyrocketing amid the credit crisis. But they haven't reduced them, one of the goals of the government takeover.
One reason: The companies' debt costs -- what they pay to borrow money, which they then use to buy mortgage-backed securities -- have been rising. Those higher costs are passed on to borrowers.
"Freddie accelerated around corners last month to rebuild its balance sheet in a major catch-up move," Jim Vogel, an analyst at FTN Financial, wrote in a research note. "That it could do this . . . in a tough market is a minor positive for the mortgage market."
However, there were a few warning signs. Freddie's business of pooling mortgage loans, guaranteeing them and selling them to investors contracted slightly last month -- the first time that's happened in years. This business is much larger than its portfolio business, suggesting that lenders are making fewer home loans and private investors are growing more reluctant to buy mortgage securities.
Freddie also shifted dramatically toward using short-term debt to fund its operations, issuing $58 billion. Freddie has not been able to issue much long-term debt as doubts about its future and chaos in the credit market make investors reluctant to lend it money for any more than a one-year term. Analysts say short-term debt must constantly be repaid and exposes Freddie to risks, such as wide fluctuations in interest rates that might make it difficult to raise new funding as some debt matures.
Delinquencies on loans guaranteed by Freddie Mac also accelerated in October, rising to 1.34 percent from 1.22 percent in September.
Tuesday, November 25, 2008
Monday, November 24, 2008
Fannie, Freddie to Suspend Foreclosures During Holidays
By APARAJITA SAHA-BUBNA
Mortgage giants Fannie Mae and Freddie Mac will suspend foreclosure sales and evictions on certain properties until after the holiday season, as they prepare to implement a previously announced loan-modification program.
The temporary foreclosure suspension announced Thursday applies to 10,000 borrowers with Fannie-owned mortgages and 6,000 with Freddie-owned mortgages in occupied single-family and two- to four-unit properties with foreclosure sales scheduled between Nov. 26 and Jan. 9. Fannie and Freddie, which are under government control, last week said they would begin to modify the loan terms on potentially hundreds of thousands of mortgages that are at least 90 days past due.
The voluntary plan would enable certain borrowers to receive more affordable loans that would make their mortgage payments at most 38% of their monthly income. Although Fannie and Freddie hold a relatively small percentage of all the troubled mortgages, government officials hope their moves will be adapted by other mortgage holders, lenders and mortgage-servicing companies.
Freddie is trying to find buyers for a rapidly growing number of foreclosed homes, totaling 28,089 at the end of the latest quarter, up from 11,916 a year earlier. Fannie is also struggling to sell foreclosed homes as their prices drop. Its inventory of single-family foreclosed homes on Sept. 30 was 67,519, up from 54,173 three months earlier and 33,729 at the end of 2007.
—Lauren Pollock contributed to this article.
Mortgage giants Fannie Mae and Freddie Mac will suspend foreclosure sales and evictions on certain properties until after the holiday season, as they prepare to implement a previously announced loan-modification program.
The temporary foreclosure suspension announced Thursday applies to 10,000 borrowers with Fannie-owned mortgages and 6,000 with Freddie-owned mortgages in occupied single-family and two- to four-unit properties with foreclosure sales scheduled between Nov. 26 and Jan. 9. Fannie and Freddie, which are under government control, last week said they would begin to modify the loan terms on potentially hundreds of thousands of mortgages that are at least 90 days past due.
The voluntary plan would enable certain borrowers to receive more affordable loans that would make their mortgage payments at most 38% of their monthly income. Although Fannie and Freddie hold a relatively small percentage of all the troubled mortgages, government officials hope their moves will be adapted by other mortgage holders, lenders and mortgage-servicing companies.
Freddie is trying to find buyers for a rapidly growing number of foreclosed homes, totaling 28,089 at the end of the latest quarter, up from 11,916 a year earlier. Fannie is also struggling to sell foreclosed homes as their prices drop. Its inventory of single-family foreclosed homes on Sept. 30 was 67,519, up from 54,173 three months earlier and 33,729 at the end of 2007.
—Lauren Pollock contributed to this article.
Thursday, November 20, 2008
The Top 6 Mistakes of Foreclosed-Home Buying
By Luke Mullins, U.S. News
Nothing illustrates the devastation of America's housing bust more vividly than the abandoned properties now blighting the nation's communities. In the third quarter alone, foreclosure filings were reported on more than 750,000 properties in the United States, a 71 percent increase from the same period last year, according to RealtyTrac. But for real estate investors, one person's tragedy can be another's good fortune. With so many foreclosures on the market, "this is a once-in-a-generation opportunity for many people," says Steve Dexter, a foreclosure expert and author of the forthcoming book Buy and Hold Forever-Building Real Estate Wealth Far Into the 21st Century.
Still, the purchase of foreclosed property—an often complex and involved process—presents would-be buyers with plenty of opportunities to make costly mistakes. In an effort to help consumers avoid such pitfalls, U.S. News spoke with a handful of experts to create a list of six common blunders that individuals make when attempting to buy foreclosed properties.
1. Flying solo. While enterprising do-it-yourselfers can certainly get away with going through the traditional home buying process without an agent, foreclosed real estate is another matter. Such complex transactions require the expertise of not just any real estate agent but one with a background in buying and selling foreclosed homes. "In today's uncertain times it's important to be working with someone who has been through market cycles before," says Patrick McGilvray, president of TheHomeBuyingCenter.com, which links homeowners and owners of foreclosure real estate with potential house buyers. So unless you are truly a real estate expert, do some research and find an agent with foreclosure experience in your market.
2. Being unfamiliar with the law. It's important to remember that real estate agents aren't lawyers, and foreclosure laws can change significantly from state to state. "A lot of people don't realize [that] foreclosures are heavily regulated and every state has its own set of laws," says Alexis McGee, the president of Foreclosures.com. "If you don't have the language proper in your contract, or if you have even the font size wrong, it's criminal and civil damages-don't count on every Realtor knowing this." As such, McGee advises against relying on a real estate agent for legal advice. Instead, consumers should review the foreclosure laws in their state and then get qualified legal advice from a local real estate attorney.
3. Thinking short term. Since many foreclosed homes may decline further in value in the coming months, it's important that buyers approach the transaction from a long-term perspective." If you are not looking at a piece of foreclosed property from a 10-year time horizon-as an investor or as an owner occupant-then you will likely suffer," McGilvray says. So if you are just trying to cash in on a quick flip, don't buy a foreclosure. Only investors with the resources and patience for a long-term real estate investment and homeowners who can afford a fully amortized fixed-rate mortgage should consider buying foreclosed property, McGilvray says.
4. Seeing only the sticker. While the price you negotiate for a foreclosed home may be significantly less than its value just a few years back, many such homes may require substantial repairs. McGilvray says that anyone buying a foreclosed property should make sure to set aside an additional 10 percent of its price tag for repairs. "Make sure you have 10 percent, especially if the home is a few years old," he says. "It is amazing how quickly houses can deteriorate." Prospective buyers should keep these additional repair costs in mind when they are negotiating the home's price.
5. Searching too broadly. With so much inventory coming onto the market these days, it's easy for buyers to become overwhelmed. To that end, Dexter recommends that anyone in the market for a foreclosure target a specific neighborhood and contact an agent with experience there. Make sure to specify the type of property you are looking for in order to avoid being inundated with listings. Tell the agent, "I want all these kinds of houses in this neighborhood that are bank listings [and] I want to know about them all as they come on the market," Dexter says. The agent will then be able to shoot you all the listings that meet your requirements as they become available. "If [the buyer is] patient enough and they get plugged in to the flow of new bank listings coming in, they can pick up some awfully good deals."
6. Taking no prisoners. While buyers can certainly get good deals on foreclosed homes, it's a mistake to assume that banks will accept any and all offers. (Unless, of course, the listing specifically says so.) Banks aren't set up to sell houses, so they typically outsource their foreclosed properties to real estate agents, McGee says. In such cases, agents can receive listings in bulk, perhaps 50 at a time. While these agents want to get the properties sold off quickly, they also want to get a good price for the seller so that the bank will give them additional business in the future. "Saving face is important for them," McGee says. "A lot of people just assume that because this property is bank-owned they will just take half off. Well, that's just not true." As such, insultingly low offers have the potential to tank the negotiations over foreclosed homes, McGee says. So make sure you present your wholesale offer case well both in writing and verbally with the listing agent.
Nothing illustrates the devastation of America's housing bust more vividly than the abandoned properties now blighting the nation's communities. In the third quarter alone, foreclosure filings were reported on more than 750,000 properties in the United States, a 71 percent increase from the same period last year, according to RealtyTrac. But for real estate investors, one person's tragedy can be another's good fortune. With so many foreclosures on the market, "this is a once-in-a-generation opportunity for many people," says Steve Dexter, a foreclosure expert and author of the forthcoming book Buy and Hold Forever-Building Real Estate Wealth Far Into the 21st Century.
Still, the purchase of foreclosed property—an often complex and involved process—presents would-be buyers with plenty of opportunities to make costly mistakes. In an effort to help consumers avoid such pitfalls, U.S. News spoke with a handful of experts to create a list of six common blunders that individuals make when attempting to buy foreclosed properties.
1. Flying solo. While enterprising do-it-yourselfers can certainly get away with going through the traditional home buying process without an agent, foreclosed real estate is another matter. Such complex transactions require the expertise of not just any real estate agent but one with a background in buying and selling foreclosed homes. "In today's uncertain times it's important to be working with someone who has been through market cycles before," says Patrick McGilvray, president of TheHomeBuyingCenter.com, which links homeowners and owners of foreclosure real estate with potential house buyers. So unless you are truly a real estate expert, do some research and find an agent with foreclosure experience in your market.
2. Being unfamiliar with the law. It's important to remember that real estate agents aren't lawyers, and foreclosure laws can change significantly from state to state. "A lot of people don't realize [that] foreclosures are heavily regulated and every state has its own set of laws," says Alexis McGee, the president of Foreclosures.com. "If you don't have the language proper in your contract, or if you have even the font size wrong, it's criminal and civil damages-don't count on every Realtor knowing this." As such, McGee advises against relying on a real estate agent for legal advice. Instead, consumers should review the foreclosure laws in their state and then get qualified legal advice from a local real estate attorney.
3. Thinking short term. Since many foreclosed homes may decline further in value in the coming months, it's important that buyers approach the transaction from a long-term perspective." If you are not looking at a piece of foreclosed property from a 10-year time horizon-as an investor or as an owner occupant-then you will likely suffer," McGilvray says. So if you are just trying to cash in on a quick flip, don't buy a foreclosure. Only investors with the resources and patience for a long-term real estate investment and homeowners who can afford a fully amortized fixed-rate mortgage should consider buying foreclosed property, McGilvray says.
4. Seeing only the sticker. While the price you negotiate for a foreclosed home may be significantly less than its value just a few years back, many such homes may require substantial repairs. McGilvray says that anyone buying a foreclosed property should make sure to set aside an additional 10 percent of its price tag for repairs. "Make sure you have 10 percent, especially if the home is a few years old," he says. "It is amazing how quickly houses can deteriorate." Prospective buyers should keep these additional repair costs in mind when they are negotiating the home's price.
5. Searching too broadly. With so much inventory coming onto the market these days, it's easy for buyers to become overwhelmed. To that end, Dexter recommends that anyone in the market for a foreclosure target a specific neighborhood and contact an agent with experience there. Make sure to specify the type of property you are looking for in order to avoid being inundated with listings. Tell the agent, "I want all these kinds of houses in this neighborhood that are bank listings [and] I want to know about them all as they come on the market," Dexter says. The agent will then be able to shoot you all the listings that meet your requirements as they become available. "If [the buyer is] patient enough and they get plugged in to the flow of new bank listings coming in, they can pick up some awfully good deals."
6. Taking no prisoners. While buyers can certainly get good deals on foreclosed homes, it's a mistake to assume that banks will accept any and all offers. (Unless, of course, the listing specifically says so.) Banks aren't set up to sell houses, so they typically outsource their foreclosed properties to real estate agents, McGee says. In such cases, agents can receive listings in bulk, perhaps 50 at a time. While these agents want to get the properties sold off quickly, they also want to get a good price for the seller so that the bank will give them additional business in the future. "Saving face is important for them," McGee says. "A lot of people just assume that because this property is bank-owned they will just take half off. Well, that's just not true." As such, insultingly low offers have the potential to tank the negotiations over foreclosed homes, McGee says. So make sure you present your wholesale offer case well both in writing and verbally with the listing agent.
Wednesday, November 19, 2008
Realtors® Tell Congress Increased Housing Demand Will Stabilize the Market
WASHINGTON, November 18, 2008
In a statement to the House Financial Services Committee today, the National Association of Realtors® recommended a four-point plan to stimulate home sales and stabilize housing valuations.
“The only way to overcome today’s economic turmoil is to motivate and encourage worried or cautious housing consumers to enter the marketplace,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “Stabilizing the housing market will lead to a quicker and greater economic recovery. Our goal is to ensure there is a healthy market and sufficient capital to support mortgage lending to qualified borrowers.”
NAR developed the plan for consideration by the current lame-duck session of Congress, and for the 111th Congress and the new administration. The four-point plan’s principles are consumer-driven to help foster a housing recovery to support an economic rebound. The plan calls for eliminating the repayment of the first-time home buyer tax credit that was passed in the February stimulus bill, and to expand the tax credit to include all home buyers. The plan also recommends making the increased FHA and conventional loan limits permanent to stimulate home sales and stabilize prices. In addition, the plan urges that the Troubled Asset Relief Program be put back on track by targeting the funds for mortgage relief through a mortgage interest rate buy-down. Finally, the plan recommends finalizing legislation to prohibit banks from entering into the business of real estate brokerage and property management.
“The federal government must ensure there is sufficient capital to support mortgage lending not only in strong markets but also in tumultuous ones,” said McMillan. “Realtors® are frustrated with the current mortgage lending environment that places a variety of barriers on families who wish to buy a home, impeding sales and price stabilization. We look forward to working with the Congress and the new administration to transition out of current instabilities and move toward strong and stable financial and housing markets.”
In a statement to the House Financial Services Committee today, the National Association of Realtors® recommended a four-point plan to stimulate home sales and stabilize housing valuations.
“The only way to overcome today’s economic turmoil is to motivate and encourage worried or cautious housing consumers to enter the marketplace,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “Stabilizing the housing market will lead to a quicker and greater economic recovery. Our goal is to ensure there is a healthy market and sufficient capital to support mortgage lending to qualified borrowers.”
NAR developed the plan for consideration by the current lame-duck session of Congress, and for the 111th Congress and the new administration. The four-point plan’s principles are consumer-driven to help foster a housing recovery to support an economic rebound. The plan calls for eliminating the repayment of the first-time home buyer tax credit that was passed in the February stimulus bill, and to expand the tax credit to include all home buyers. The plan also recommends making the increased FHA and conventional loan limits permanent to stimulate home sales and stabilize prices. In addition, the plan urges that the Troubled Asset Relief Program be put back on track by targeting the funds for mortgage relief through a mortgage interest rate buy-down. Finally, the plan recommends finalizing legislation to prohibit banks from entering into the business of real estate brokerage and property management.
“The federal government must ensure there is sufficient capital to support mortgage lending not only in strong markets but also in tumultuous ones,” said McMillan. “Realtors® are frustrated with the current mortgage lending environment that places a variety of barriers on families who wish to buy a home, impeding sales and price stabilization. We look forward to working with the Congress and the new administration to transition out of current instabilities and move toward strong and stable financial and housing markets.”
Tuesday, November 18, 2008
HUD Unveils New Rules for Mortgages
By JAMES R. HAGERTY
The Department of Housing and Urban Development announced rules aimed at helping Americans shop for mortgages more effectively, but said it lacks powers to enforce those rules.
The rules update requirements of the Real Estate Settlement Procedures Act, known as Respa, a 1974 law that sets standards for home-purchase transactions. HUD Secretary Steve Preston said changes were needed because "many people made uninformed decisions" in taking out loans. That, he said, contributed to a surge in mortgage defaults.
[house for sale] Associated Press
HUD, which pushed ahead with the rules despite opposition from lenders and others involved in mortgage transactions, estimated the changes will bring savings of nearly $700 in loan-closing costs for the typical consumer.
In a news conference, HUD officials conceded they lack legal authority to penalize violators of the rule. Legislation would be required to give HUD those powers. But they said state and federal regulators of lenders and brokers can insist on compliance with federal rules and that the threat of class-action suits may keep lenders in line.
The rules require a three-page "good-faith estimate" for borrowers explaining rates, fees, any prepayment penalties and the possibility of later increases in monthly payments. HUD said it shrank that form from four pages to three in response to industry complaints.
The rules also limit to 10% the maximum amount certain fees can increase from the initial estimate. A new HUD-1 form, provided to consumers before they sign loan documents, is designed to help consumers more easily compare what they were promised with what they are actually being charged. One problem is that consumers may see that HUD-1 form only shortly before the closing, when they are pressed for time and may feel it is too late to resume their mortgage shopping.
HUD said the rules will help consumers understand how much a broker is being paid in fees, often called "yield spread premiums." But Rebecca Borne, a lawyer at the Center for Responsible Lending, a nonprofit group pushing for changes in mortgage regulation, said the new HUD forms fail to make those fees clear and won't prevent abuses of them.
Lenders and brokers will have until Jan. 1, 2010, to start using the forms. HUD dropped a provision that would have required a lengthy "script" to be read to borrowers at the closing table, setting out terms of the loan.
Write to James R. Hagerty at bob.hagerty@wsj.com
The Department of Housing and Urban Development announced rules aimed at helping Americans shop for mortgages more effectively, but said it lacks powers to enforce those rules.
The rules update requirements of the Real Estate Settlement Procedures Act, known as Respa, a 1974 law that sets standards for home-purchase transactions. HUD Secretary Steve Preston said changes were needed because "many people made uninformed decisions" in taking out loans. That, he said, contributed to a surge in mortgage defaults.
[house for sale] Associated Press
HUD, which pushed ahead with the rules despite opposition from lenders and others involved in mortgage transactions, estimated the changes will bring savings of nearly $700 in loan-closing costs for the typical consumer.
In a news conference, HUD officials conceded they lack legal authority to penalize violators of the rule. Legislation would be required to give HUD those powers. But they said state and federal regulators of lenders and brokers can insist on compliance with federal rules and that the threat of class-action suits may keep lenders in line.
The rules require a three-page "good-faith estimate" for borrowers explaining rates, fees, any prepayment penalties and the possibility of later increases in monthly payments. HUD said it shrank that form from four pages to three in response to industry complaints.
The rules also limit to 10% the maximum amount certain fees can increase from the initial estimate. A new HUD-1 form, provided to consumers before they sign loan documents, is designed to help consumers more easily compare what they were promised with what they are actually being charged. One problem is that consumers may see that HUD-1 form only shortly before the closing, when they are pressed for time and may feel it is too late to resume their mortgage shopping.
HUD said the rules will help consumers understand how much a broker is being paid in fees, often called "yield spread premiums." But Rebecca Borne, a lawyer at the Center for Responsible Lending, a nonprofit group pushing for changes in mortgage regulation, said the new HUD forms fail to make those fees clear and won't prevent abuses of them.
Lenders and brokers will have until Jan. 1, 2010, to start using the forms. HUD dropped a provision that would have required a lengthy "script" to be read to borrowers at the closing table, setting out terms of the loan.
Write to James R. Hagerty at bob.hagerty@wsj.com
Friday, November 14, 2008
Home sales see biggest gain since July 2003
By Patrick Rucker
WASHINGTON (Reuters) - Sales of previously owned U.S. homes rose 5.5 percent last month, the biggest gain since July 2003, and the inventory of unsold homes fell, a hopeful sign for a housing market mired in a long slump.
The National Association of Realtors said on Friday that sales of existing homes rose to a 5.18 million-unit annual rate from the 4.91 million unit pace set in August. Economists had expected sales to rise to only a 4.93 million unit rate.
It was the first time the sales pace had risen above its year ago level in nearly three years, a sign the market could be stabilizing.
The surprisingly large jump in sales pushed the inventory of unsold homes down by 1.6 percent to 4.27 million, or a 9.9 months' supply at the current pace, the lowest since February.
"We're not out of the woods yet by any means when it comes to falling house prices and our fundamental problem of an oversupply of homes, but we're getting near to the bottom every day," said White House spokeswoman Dana Perino.
Home prices, however, showed no signs of escaping their long, deep slide and economists said the number of homes on the market would likely have to fall further before they do.
The median national home price declined 9 percent from a year ago to $191,600, the lowest level since April 2004.
"As the median price continues to decline, seeking out that new equilibrium level, demand is -- slowly and hesitantly -- moving back into the market," said Lindsey Piegza, an economic analyst at FTN Financial in New York.
A Reuters poll taken October 21-24 found economists expect prices to continue to fall through next year. The median forecast from the survey was for a 15 percent drop this year and a 6.4 percent fall in 2009. Economists expect prices to turn up in 2010, but by a meager 1 percent.
'VULTURE INVESTORS'
Rising U.S. mortgage defaults have sent credit markets into a tailspin, threatening economies worldwide. A majority of economists polled said finding a floor for house prices is an essential condition for ending the financial crisis.
In order for prices to recover, the glut of unsold homes needs to be whittled down further, analysts said.
"Most, if not all, the rise in sales is due to vulture investors buying cheap foreclosed homes, but all sales reduce inventory," said Ian Shepherdson, the chief U.S. economist at High Frequency Economics in Valhalla, New York.
"If this continues, people will stop expecting further price falls and activity will start to recover."
Lawrence Yun, the chief economist for the Realtors' trade group, also pointed to a rise in foreclosure and other 'distress' sales in regions hard-hit by the housing downturn.
"In some regions, the lower prices are seeing buyers return to the marketplace," he said. "This was a nice jump and hopefully this trend can continue because the first step to stabilizing the market is an increase in home sales."
Sales jumped 16.8 percent in the West, while rising 4.4 percent in the Midwest and 2.2 percent in the South. In the Northeast, sales fell 1.2 percent.
Sales of single-family homes, which represent the lion's share of the market, rose 6.2 percent. Sales of condominiums held steady.
"We're still struggling with falling home prices and we will for a while, but we're forming a bottom here," said Bob Walters, chief economist at Quicken Loans in Livonia, Michigan.
(Additional reporting by Pedro Nicolaci da DaCosta, Ellen Freilich and Nick Olivari in New York; Polling by Bangalore polling unit; Editing by Andrea Ricci)
WASHINGTON (Reuters) - Sales of previously owned U.S. homes rose 5.5 percent last month, the biggest gain since July 2003, and the inventory of unsold homes fell, a hopeful sign for a housing market mired in a long slump.
The National Association of Realtors said on Friday that sales of existing homes rose to a 5.18 million-unit annual rate from the 4.91 million unit pace set in August. Economists had expected sales to rise to only a 4.93 million unit rate.
It was the first time the sales pace had risen above its year ago level in nearly three years, a sign the market could be stabilizing.
The surprisingly large jump in sales pushed the inventory of unsold homes down by 1.6 percent to 4.27 million, or a 9.9 months' supply at the current pace, the lowest since February.
"We're not out of the woods yet by any means when it comes to falling house prices and our fundamental problem of an oversupply of homes, but we're getting near to the bottom every day," said White House spokeswoman Dana Perino.
Home prices, however, showed no signs of escaping their long, deep slide and economists said the number of homes on the market would likely have to fall further before they do.
The median national home price declined 9 percent from a year ago to $191,600, the lowest level since April 2004.
"As the median price continues to decline, seeking out that new equilibrium level, demand is -- slowly and hesitantly -- moving back into the market," said Lindsey Piegza, an economic analyst at FTN Financial in New York.
A Reuters poll taken October 21-24 found economists expect prices to continue to fall through next year. The median forecast from the survey was for a 15 percent drop this year and a 6.4 percent fall in 2009. Economists expect prices to turn up in 2010, but by a meager 1 percent.
'VULTURE INVESTORS'
Rising U.S. mortgage defaults have sent credit markets into a tailspin, threatening economies worldwide. A majority of economists polled said finding a floor for house prices is an essential condition for ending the financial crisis.
In order for prices to recover, the glut of unsold homes needs to be whittled down further, analysts said.
"Most, if not all, the rise in sales is due to vulture investors buying cheap foreclosed homes, but all sales reduce inventory," said Ian Shepherdson, the chief U.S. economist at High Frequency Economics in Valhalla, New York.
"If this continues, people will stop expecting further price falls and activity will start to recover."
Lawrence Yun, the chief economist for the Realtors' trade group, also pointed to a rise in foreclosure and other 'distress' sales in regions hard-hit by the housing downturn.
"In some regions, the lower prices are seeing buyers return to the marketplace," he said. "This was a nice jump and hopefully this trend can continue because the first step to stabilizing the market is an increase in home sales."
Sales jumped 16.8 percent in the West, while rising 4.4 percent in the Midwest and 2.2 percent in the South. In the Northeast, sales fell 1.2 percent.
Sales of single-family homes, which represent the lion's share of the market, rose 6.2 percent. Sales of condominiums held steady.
"We're still struggling with falling home prices and we will for a while, but we're forming a bottom here," said Bob Walters, chief economist at Quicken Loans in Livonia, Michigan.
(Additional reporting by Pedro Nicolaci da DaCosta, Ellen Freilich and Nick Olivari in New York; Polling by Bangalore polling unit; Editing by Andrea Ricci)
Thursday, November 13, 2008
Foreclosed Home Sales Likely Driving Up U.S. Pending Home Sales
Economists say the second unexpected rebound in three months in the U.S. pending home sales index is likely due to sales of foreclosed homes. The June report from the National Association of Realtors (NAR) defied expectations for a 1.0% decline and rebounded 5.3% in June, following the 4.9% loss of sales in May.
The bounce is better than the most optimistic forecasts beforehand.
“This is promising news for July/August existing home sales as the pending sales figures become an existing home sale a month or two down the road (assuming they’re not cancelled),” wrote Jennifer Lee, economist at BMO Capital Markets.
Pending home sales represent homes that have been signed for but not finalized, a process that takes another month or two. The value of the index lies in its ability to forecast existing home sales, which represent eight-tenths of the market.
Lee said the gains likely represent sales of homes in foreclosure, which economists also believe were responsible for April’s gain. She pointed to a USA Today story that said home sales were rebounding in Las Vegas, 60% of which were foreclosed properties.
Millan Mulraine, economics strategist at TD Securities, added, “Despite the unexpected surge in pending home sales in June, with most other housing-related indicators pointing downward, there is little to suggest an imminent abatement in the U.S. housing market correction.”
The PHSI now stands at 89.0, up from 84.5 in the previous month. From a year prior, the index has declined by 12.1%, compared with an annual 15.7% decline in the previous month. An all-time low in the seven-year index was reached in March at 83.0.
On the plus side, each of the four regions saw improvement in the month as sales in the Midwest rose 1.3%, the South rose 9.3%, the West advanced 4.6% and the Northeast posted a 3.4% gain.
However, Lee said “the underlying problem remains,” noting that inventories of new and existing homes stand at 4.33 million homes, representing 11 months of overhang at the current pace of sales for existing homes and 10 months for new properties.
HFE chief U.S. economist Ian Shepherdson added, “We doubt sales of non-foreclosed homes are rising, given the recent rise in mortgage rates and continued price declines. Still, anything which reduces inventory, whether of foreclosed homes or not, is a very welcome development.”
Lawrence Yun, chief economist at the NAR, projected home prices would rise between 3% and 6% in 2009, as buyers entering the hardest-hit markets are putting a floor on prices.
“Builders need to further cut production to help trim inventory. However, new home sales are expected to bottom around the second quarter of next year with slight gains in the second half of 2009,” Yun said.
The bounce is better than the most optimistic forecasts beforehand.
“This is promising news for July/August existing home sales as the pending sales figures become an existing home sale a month or two down the road (assuming they’re not cancelled),” wrote Jennifer Lee, economist at BMO Capital Markets.
Pending home sales represent homes that have been signed for but not finalized, a process that takes another month or two. The value of the index lies in its ability to forecast existing home sales, which represent eight-tenths of the market.
Lee said the gains likely represent sales of homes in foreclosure, which economists also believe were responsible for April’s gain. She pointed to a USA Today story that said home sales were rebounding in Las Vegas, 60% of which were foreclosed properties.
Millan Mulraine, economics strategist at TD Securities, added, “Despite the unexpected surge in pending home sales in June, with most other housing-related indicators pointing downward, there is little to suggest an imminent abatement in the U.S. housing market correction.”
The PHSI now stands at 89.0, up from 84.5 in the previous month. From a year prior, the index has declined by 12.1%, compared with an annual 15.7% decline in the previous month. An all-time low in the seven-year index was reached in March at 83.0.
On the plus side, each of the four regions saw improvement in the month as sales in the Midwest rose 1.3%, the South rose 9.3%, the West advanced 4.6% and the Northeast posted a 3.4% gain.
However, Lee said “the underlying problem remains,” noting that inventories of new and existing homes stand at 4.33 million homes, representing 11 months of overhang at the current pace of sales for existing homes and 10 months for new properties.
HFE chief U.S. economist Ian Shepherdson added, “We doubt sales of non-foreclosed homes are rising, given the recent rise in mortgage rates and continued price declines. Still, anything which reduces inventory, whether of foreclosed homes or not, is a very welcome development.”
Lawrence Yun, chief economist at the NAR, projected home prices would rise between 3% and 6% in 2009, as buyers entering the hardest-hit markets are putting a floor on prices.
“Builders need to further cut production to help trim inventory. However, new home sales are expected to bottom around the second quarter of next year with slight gains in the second half of 2009,” Yun said.
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