Richard Maize Comments on Real Estate Trends

Richard Maize, one of America's most respected businessmen and philanthropists, responds to current indicators for the US real estate market for 2011. He is a respected leader in the mortgage banking real estate industry, and a mentor to young entrepreneurs, has generously supported organizations and causes including the American Cancer Society, Vista Del Mar Child and Family Services, Hurricane Katrina, Los Angeles Police Foundation, USO, Haiti earthquake relief efforts, Israel Flying Aid, Maccabiah Jewish Olympic Games and the Cedars Sinai Board of Governors.

"Here are a few simplicit factors that have an affect in the US real estate market: interest rates - the lower the rate, the more affordable your real estate is to the buyer (or holder) of property. More than any other asset, real estate ownership will almost always carry a mortgage. Lower interest rates also generate money by means of refinancing (both by cash out and lowering payments allowing for more spendable each month because of the lower payments) that activates employment by the banks and lenders and all the acceleratory jobs such as escrow, title, appraisers, etc."

"My opinion for 2011 is that interest rates will raise from its current very low figures. This factor is a negative for the industry. If we are keeping score we are 0 for 1 as to a positive for 2011 US real estate market."

"The economy - the economy both national and international has a major impact on the real estate market. From the lowest economic level buyers to the most wealthy. The low end we are dealing with basic employment (at an almost all time high unemployment rate in some areas). Without gainfully employed, cannot be in the market for a house (at least unlikely)," says Maize.

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"The other issue for those who had a hard time in their own financial crisis, their credit profile is damaged and will take a number of years to repair itself. What that may equate to is no finance on new cars or new home loans. This could help lead to a stalling economic recovery when the other fundamentals have improved."

"Even those that are employed, they could be overqualified for their position for a salary far less than their value because their profession is not hiring or surviving this recession. Low wages is another factor - no buyers for a new home," says  Maize. "The higher net worth individuals have also reduced their spending limits for a home which will limit the higher end homes sales.

Maize states that national home prices may experience a 3.7 percent year-over-year drop this year, according to the company's 2010 home data index market report - an analysis of the top 50 metro areas. While not as severe as the 4.1 percent year-over-year decline recorded in 2010, price declines are expected to continue as unemployment and real estate owned property levels remain high."

"Housing prices will continue to fall but with more consistency than last year. In 2010, federal incentives offered to home buyers threw the housing market into a tailspin, creating periods of extremes in activity. In 2011, ebb and flow of home prices should be more gradual. People are still spending, says Maize, "but they are limiting what they are spending on." In many cases the spending will be on improvements to make home more comfortable, he said. Others will spend only as needed. If an essential appliance breaks, for example, the replacement will likely need to be a high-performer, with greater value in terms of both pricing and function, Maize said. "It's got to be more for your money."

"So, lets summarize," adds Maize. "The negatives (obviously, this is so simplicit to all the factors that are involved in the price and market improvement) are the upcoming increase in the interest rates and the economy in a whole. The positives are consumer confidence and the prices. I think the first two negatives outweigh the positives and we have a flat outcome in the upcoming year for real estate."

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7 Mortgage Predictions for 2011

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Financial experts suggest that borrowers should apply for a new mortgage loan, or refinance their home loan when the time is right for their individual needs, rather than attempt to time the market. While risk takers may be enthusiastic about waiting until the last minute to lock in a low mortgage interest rate, most homeowners and homebuyers prefer to observe general mortgage market trends and focus more intently on their own finances.


Predicting a specific mortgage rate for a particular time is pretty nearly impossible, but real estate market observers have identified a few trends that they anticipate will impact the mortgage market in 2011:

1. Mortgage rates will slowly rise throughout the year
The Mortgage Bankers Association (MBA) anticipates that rates will rise slightly in 2011, hovering around 5 percent and increasing to about 6 percent in 2012. Holden Lewis of Bankrate wrote this past fall that economists had predicted a rise in mortgage rates by the third quarter of 2010. At the end of 2010, mortgage rates began to climb out of the 4 percent range and slightly above 5 percent. While any increase in mortgage rates is unwelcome to homeowners who want to refinance or to buyers, a 5 percent mortgage rate is still historically in the low range of interest rates.

2. Overall demand for mortgages will decrease
The MBA predicts that total mortgage originations for 2011 will decline to less than $1 trillion, driven by subdued economic growth and a lack of consumer confidence.

3. Mortgage refinancing applications will drop
Mortgage refinancing has represented a large portion of all mortgage applications in any given week this year, with the refinancing applications accounting for about 80 percent of all mortgages written this year. The MBA predicts that refinancing activity will drop below 40 percent of mortgages in 2011 and decline further to 26 percent of mortgages in 2012. Not only will rising mortgage rates reduce the demand for refinancing, but the pool of qualified homeowners will shrink. Homeowners who could qualify are likely to have done so in 2010, and others have difficulty obtaining a loan approval because of reduced equity or credit or income challenges.

4. Mortgage applications for a home purchase will become a greater part of the market
The MBA predicts that stabilizing home prices and modest increases in home sales will increase the number of applications for a mortgage for a home purchase.

5. Jumbo loan mortgages will be more attractive
In 2009 and earlier in 2010, mortgage rates for jumbo loans (loans over $417,000 in most housing markets and above $729,750 in high-cost housing markets) were far higher than mortgage rates for conforming loans. The higher rates prevented homeowners from refinancing and kept some purchasers out of the market for more expensive homes. In the Q4 of 2010, mortgage rates on jumbo loans decreased, which will likely spur refinancing applications and purchase applications for the high-end housing market.

6. All-cash purchases will become a larger part of the market
Lawrence Yun, chief economist of the National Association of Realtors, says that all-cash purchases represented about a quarter of all existing home purchases in the last four months of 2010. He anticipates all-cash purchases to continue to represent a significant portion of the market in 2011.

7. The mortgage loan process will remain slow and complex
Holden Lewis at Bankrate says even if the number of loan applications drops, lenders anticipate that the time between application and closing will continue to take as much as 60 days. In fact, many lenders recommend a loan lock of 60, 75 or even 90 days to ensure that the loan process will be complete within the lock period. One issue is simply the new level of documentation and verification that is required for a loan approval. Another issue that slows refinancing applications is the existence of a second mortgage or a home equity line of credit, which must be re-subordinated to the first loan when refinancing. Getting a lender to agree to keep the home equity loan in the second position can be time-consuming.

Related articles

• Mortgage rates ease slightly (hsh.com)
• Mortgage Rates Rise, Refinancing Drops (blogs.wsj.com)

California Man Wins Lawsuit Against B of A Over Failed Loan Modification

A California man won a judgment in small claims court against Bankof America over a failed loan modification.The Huffington Post reports that David Graham was strung along for three years by the bank after he applied for a loan modification under the Home Affordable Mortgage Program (HAMP), the federal program meant to help homeowners keep their property. Graham said he wouldn't have bothered applying had he not been sent the material without solicitation. He supplied all requested data and sat back to wait to learn if he qualified.
The program requires that the bank turn around the request with a thumbs up or down no later than three months from receipt of all information from the applicant. If qualified, the program is meant to restructure the homeowner's property loan for a period of five years, with the hope that the financial circumstances of the applicant improve.

During that period, which extended for three years in Graham's case, he paid his reduced monthly mortgage payment every month and on time. He spoke to innumerable representatives of Bank of America who all told him to keep paying the reduced amount and hope for the best.

Graham was eventually turned down. He was then told that he faced immediate foreclosure if he didn't pony up the difference between what he paid and what was owed under the original terms of his mortgage. He sued the bank for that precise amount, saying they strung him along in violation of HAMP's requirements, leaving him vulnerable to losing his home. He won $7,595 and is waiting to find out if B of A will appeal.

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4 Experts Comment: When Will California Real Estate Return to Normal?

Foreclosures in California are still high. Sales of new homes are at historic lows. And millions of homeowners are underwater on their mortgages. So what's the outlook for 2011 and beyond?

• Emile Haddad, chief executive of FivePoint Communities Inc., expects home prices to "stabilize" in 2011 but declined to make a specific price prediction. Determining whether the housing market is on steady footing is essential to developers such as Haddad, the former chief investment officer for Lennar Corp. Haddad, along with Lennar, is now part owner of FivePoint, which is managing the development of the Valencia community in Los Angeles County and other high-profile projects. He believes a recovery has yet to take hold in California.

"We are bumping along the bottom," Haddad said. "And that is a good thing, because that is the first thing that you need in order to start seeing a housing recovery. You need to have a period where values are not going down and the trend is moving in a different direction. California's coastal markets will come back once the job market returns, he said, lifting consumer confidence. But California's inland areas are more likely to lag behind, and builders will have to reconsider the kind of product they offer in such places."

"In the Central Valley, values have changed a lot," Haddad said. "You are not going to be able to really have enough depth in the market to sell large, expensive homes, because the ceiling of value is way down." "If you pick on a market like Orange County," he said, "it is still a place that once people feel confident.... I believe people will be out buying homes."

• Leslie Appleton-Young, chief economist for the California Assn. of Realtors, predicts home prices will rise 2% in 2011. There are few professionals who would like more to see the housing market bounce back to the heady days of old than Realtors. Real estate agents made a killing when the housing market soared and then took a pounding when it tanked. During the boom years, Appleton-Young said, she espoused the theory that rising prices mattered more than making solid loans. That theory appeared correct as long as values kept rising.

"What happened this time was prices plummeted and everyone was in trouble," she said." These days, the economist sees little chance of the market returning to its previous heights anytime soon. We are in a very slow-moving recovery with prices stabilized at the moderate and low end," Appleton-Young said. "We are still seeing price attrition and price softening at the upper ends of the market. " 2011 will be lackluster, she said, but that does not mean California is not improving."

"We are almost two years into a price recovery. The problem is not to look at 2007 as the normal market that you are moving back up to, because it wasn't a normal market. We are back in an underwriting environment that actually makes sense. "You are seeing prices recovering throughout the state," she added. "It is just going to take time."

• Christopher Thornberg, founding principal of Beacon Economics, predicts home prices will remain flat in 2011. Once a senior economist for the UCLA Anderson Forecast, Thornberg was one of the first to predict the housing crash, pointing to prices that were way out of line with what people earned.

In that vein, he views the plunge in home values as its own recovery of sorts "because that is when prices went from stupid-high levels to levels that made sense again," Thornberg said. "Now we are in a post-recovery recovery, if you will. This is not the bust. A bust implies that prices have fallen to levels that are too low. And I would argue that prices today are relatively high. It's interest rates that have given us this degree of affordability, and from that perspective that is why I don't expect prices to come down."

Since helping found Beacon in 2006, Thornberg has become chief economist for state Controller John Chiang and chair of the Controller's Council of Economic Advisors. He serves on the advisory board of New York hedge fund Paulson & Co. He has been a forceful critic of the Obama administration's policy attempts to right the market."The administration has tried, through a variety of policy methods, to try and spike the market," he said.

• Bruce Norris, president of Norris Group in Riverside, expects home prices to fall 5% in 2011. The real estate slump has been good to Norris, an investor in foreclosed homes. But he believes the market is being artificially boosted by government programs and is set to fall further this year."We are in an artificial recovery," Norris said. "It's government controlled and manipulated. We have extremely favorable interest rates that we really should not have, based on our debt. We have supported real estate with tax rebates, and we have prevented inventory from showing up by allowing people to be two and three years behind on their mortgages."

"Foreclosed homes, in particular, are being kept off the market through loan modification attempts and other policies. You've had a slew of programs trying to prevent inventory from showing up, and that prevents reality from happening," Norris said. "It's definitely standing in the way of the natural process."

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4 Real Estate Predictions for 2011

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The days when anyone could claim to have a reliable crystal ball for the real estate market have long passed. Nevertheless, what's past is prologue: There's a lot going on in the market right now that is likely to have a pretty predictable impact on real estate in 2011. Let's look at how homebuyers can expect to fare next year with these four real estate predictions:

Prediction #1
Prices and mortgage rates will stay low in most areas, but will rise in affluent areas and markets experiencing job/population growth. Buyers will have plenty of time to take advantage of low prices, which will stay low next year, except in markets with positive job and population growth.

If you've been watching the housing market bottom out over the past few years, cursing the fact that as soon as prices dropped, down payment requirements ticked upward, stop cursing and start saving. Any fears that you'll quickly be priced out of the market are relatively unfounded, in most areas. High numbers of homes for sale, the continued influx of distressed properties like short sales and foreclosures into the housing market, the overall economy's stagnation and high unemployment, and the probable lack of new government incentives for home buying will all combine to keep the supply/demand imbalance tilted pretty heavily in favor of buyers. That, in turn, will keep prices relatively low, especially compared to their 2006 peak. And when buyer activity is low, the Fed keeps interest rates low, too.

The exceptions? Affluent areas where wealthy households will continue to take advantage of relatively low home prices to buy homes; for example, San Francisco has had a double digit increase in home prices over the last 12 months. High unemployment rates in some of these high-end markets are misleading, as there may be job growth in the sector of high-income jobs requiring skills not possessed by many in the unemployment lines. Also, home prices will stay supported and possibly even creep up in cities that have had job and population growth over the past decade -- including Texas cities like Austin, Houston and San Antonio; Midwestern towns like Oklahoma City and Des Moines; and Salt Lake City, which Newsweek's Joel Kotkin deemed a "New Silicon Valley."

Prediction #2
Loan guidelines will tighten up, and down payments and loan costs may rise.

We've all seen lenders tighten up mortgage guidelines over the last few years, requiring bigger down payments and forcing buyers to document their income and assets. With its low 3.5% down payment requirement, loans insured by the Federal Housing Administration (FHA) have skyrocketed in popularity in this post-subprime era, going from about 3% of loans originated pre-bubble to about 30% of loans originated in 2010. Buyers' favoritism of FHA loans will only continue to increase in 2011; a recent study by the Home Buying Institute revealed that 87% of home buyers said they plan to use an FHA loan to finance their purchase, with easier qualifying guidelines being cited as the primary reason for preferring FHA loans to conventional.

The tight debt-to-income ratios and other standards do seem to be working; the National Association of Realtors recently noted that "mortgages that were recently originated show an outstanding performance, even better than during the pre-housing bubble years." As FHA loans look poised to dominate the lending market, the FHA faces two pressing needs: (a) cash, and (b) to ensure that default rates stay very, very low. In fact, this year, Congress considered (but refrained from passing) a bill proposing to boost FHA's bankroll by hiking the down payment requirement up to 5%. The same proposal called for eliminating buyers' ability to have sellers pay their closing costs as part of the deal; in fact, FHA did actually drop the permissible seller-paid closing costs guideline from 6% to 3% in 2010. FHA also raised the costs of mortgage insurance this year. You can expect this trend in tweaking FHA lending guidelines to require buyers to put more of their own skin in the game to continue in 2011.

Prediction#3
Condos will become even more difficult to buy. As more condo owners find they can't sell their units and unit values fall, more will fall behind on their dues, walk away or rent their tough-to-sell homes out -- all of which will undoubtedly make it harder to finance and buy a condo in 2011.

Most lenders require that no more than 15% of home-owner's association (HOA) members be 30 days or more behind on their dues, and conventional (non-FHA) loans require at least 25% of the units be owner-occupied. While FHA guidelines allow loans on units in HOAs with up to 49% tenants, the condo complex must be FHA-approved to use an FHA loan to buy a unit.

The days when a quick FHA "spot" approval could be done on a unit-by-unit basis are long gone. Now, the whole complex must be approved before a unit can be bought or refinanced with an FHA loan. HOAs can apply for HUD approval, but it takes 2-3 months to obtain. The expedited, 10-day approval some lenders are authorized to bestow is increasingly hard to get, as lenders don't want to bear the burden of guaranteeing all loans made -- by them or another lender -- based on that approval. Foreclosed condo units tend to both be delinquent on their dues and non-owner occupied, making the problem even worse.

The HOA-related challenges around obtaining either FHA or conventional loan approval has stopped many units from being sold across the country, and that has already started to spiral into declining condo values and even more dues delinquencies and walkaways in condo complexes. And FHA condo HOA approval criteria are set to already get even tighter in 2011! Complexes with high delinquency rates or lots of non-owner occupied foreclosure units won't even qualify for non-FHA loan.

Prediction #4
Conservative buying will be the name of the game.

Not using every cent you possess for your down payment. Buying a home with a mortgage payment you can comfortably afford, even if you were approved for more. Negotiating already-good list prices downward and asking the seller to help you buy your interest rate down.

Next year, we'll start to see the aggressive general consumer bargain-seeking that some call "the New Frugality" take expression in buyers who first started saving up for home ownership at the start of the housing crisis, and have scrimped and conserved to buy at post-bubble pricing. We also may see the first wave of post-foreclosure buyers -- former homeowners who lost their homes during the sub-prime implosion around 2007-2008, and are fresh out of the 3-year post-foreclosure waiting period to qualify for an FHA loan.

We'll also see a significant number of buyers who have been sitting on the fence, waiting for the bottom and may have missed it, but believe they can make up for any missed timing opportunity with the right deal. All three of these groups, as well as any other buyers who decide to pull the trigger on buying a home next year, will be looking for low prices, and the sense that they're getting an amazing value for the price.

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Economic Forecast for 2011

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The Forecast
Here's a mediocre forecast for you. It's not a double dip or a doomsday story, but it's decidedly lackluster. At this rate of growth, the economy underperforms its potential for . . . as far as the eye can see.

Key motivator of the stagnant view: slow monetary growth. In recent months I commented on the Fed's "quantitative tightening" and why economic growth has been so slow. Second quarter GDP data confirm the slower rate of expansion.

The Good News
The Good News for the Economic Outlook: The Fed will shift gears and stimulate the economy. There's starting to be a recognition at the Fed that slow growth will be prolonged, and that some more easing would not be inflationary. In addition, the Fed board is about to get three new members, who are likely to be more inclined toward stimulus. One, it was pointed out to me, could be an inflation hawk. I replied that I, too, would be an inflation hawk if only I could find some inflation.

The Bad News
The Bad News for the Economic Outlook: Monetary policy takes time. The slow growth of the money supply over the past 12 months will have persistent effects. The new policy will impact the economy with a long time lag. I use 12 months as a very rough rule of thumb. Milton Friedman (happy birthday, by the way) famously observed that the times lags are "long and variable." So I forecast sluggish growth for four quarters, then a small pickup. I think there's the potential for a stronger pickup late in 2011, but the Fed would have to get working on that this month.

The Forecast
Double Dip Recession? Not in my forecast, but the slower economic growth is, the less cushion we have against another downward force. A European debt crisis seems the greatest risk at this time, but there are always risks. We simply do not have much margin for error.

What Actions to Take
What Should a Business Leader Do? Begin with a conservative sales forecast. Then add in some contingency planning for a second recession. You might also want to consider how to manage your business when sales are hard to forecast

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Authentic Real Estate: Foreclosure Volume Expected to Peak in 2011

Authentic Real Estate: Foreclosure Volume Expected to Peak in 2011: "Image via WikipediaNext year could very well be a peak year for foreclosures, says Rick Sharga, a senior vice president at RealtyTrac, an on..."