2012 Housing Market Predictions: Prices and Rates to Remain Low

Home prices in 20 U.S. cities probably declined at a slower pace and consumer confidence improved, signs the economy gained strength heading into 2012, economists said before reports this week.

Property values dropped 3.2 percent in October from the same month in 2010, the smallest year-over-year decrease since January, according to the median forecast of 20 economists before a Dec. 27 report from S&P/Case-Shiller. Consumer confidence rose to a five-month high in December and more people signed contracts to buy previously owned homes than a month earlier, other data may show.

Rising builder confidence, fewer unsold new properties on the market and a pickup in construction point to improvement in the industry that triggered the last recession. Real estate is still facing another wave of foreclosures that may keep pressure on home prices, making for an uneven housing recovery.

“We’ll continue to see prices drop,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The middle of 2012 is when we think prices will actually bottom.”

Economists surveyed projected the gauge of residential real-estate values declined 0.3 percent in October from the prior month, when it fell 0.6 percent. The index was down 31 percent in September from its July 2006 peak. The year-over-year gauge provides a better indication of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

Pending Home Sales
Figures on Dec. 29 may show pending sales of previously owned homes rose 1.5 percent in November after a 10 percent jump, economists said before a report from the National Association of Realtors.

Reports last week showed a pickup in demand for houses. Sales of previously owned homes, which make up about 94 percent of the market, rose 4 percent to a 4.42 million annual pace, the most since January, the National Association of Realtors said Dec. 21.

Purchases of new single-family properties advanced 1.6 percent to a 315,000 annual pace, a seven-month high, figures from the Commerce Department showed Dec. 23. The increase pushed the number of new homes on the market to a record low.

Those gains have buoyed builders’ stocks since the end of the third quarter. The Standard & Poor’s Supercomposite Homebuilding Index, which includes Toll Brothers Inc. and Lennar Corp., has climbed 32 percent, while the broader S&P 500 has gained 12 percent.

Consumer Confidence
As housing stabilizes and employment strengthens, consumers are becoming more optimistic. Confidence rose to 58.6 from 56 last month, according to the Bloomberg survey median before a Dec. 27 report from the New York-based Conference Board.

Other surveys reflect gains in optimism. The Bloomberg Consumer Comfort Index improved to minus 45 in the period ended Dec. 18 from a reading of minus 49.9 the prior week, marking the biggest seven-day gain since January. The Thomson Reuters/University of Michigan index of consumer sentiment rose to a six-month high in December. Some homebuilders say an increase in sentiment is needed to help boost demand.

“We need a higher level of confidence to get back to the traditional move-upstream or first-time buyer out of the rental,” Jeffrey Mezger, chief executive officer of KB Home, said on a Dec. 21 conference call with analysts. “A lot of consumers are surprised, frankly, at how low home payments are compared to rent.”

Policy makers are promoting programs designed to reinvigorate the housing market. The Obama administration this month started a new version of the federal Home Affordable Refinance Program, or HARP, after the original plan helped less than a quarter of the people targeted to lock in lower mortgage rates.

Officials at the Federal Reserve this month reiterated that they will keep the benchmark interest rate near zero until at least mid-2013. The central bank in September decided to reinvest maturing housing debt into new mortgage-backed securities instead of Treasuries.

California Pending Home Sales Decline in November, but Year-to-Year Sales Post Higher for Seventh Straight Month

Pending home sales in California fell in November but were up from the previous year for the seventh consecutive month. Additionally, distressed home sales dropped in November from both the previous month and year, the CALIFORNIA ASSOCIATION OF REALTORS(R) (C.A.R.) reported today.


Pending home sales:
California pending home sales fell 9.1 percent in November but were up from a year ago, according to C.A.R.'s Pending Home Sales Index (PHSI)*. The index was 109.8 in November, based on contracts signed in that month, down from October's index of a revised 120.9. However, the index was up 11 percent from November 2010, marking the seventh consecutive month that pending sales rose from the previous year. Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market.

"The strong year-over-year growth in pending sales observed in the last several months suggests we should see an increase in December's closed sales over the same month last year," said C.A.R. President LeFrancis Arnold.

Distressed housing market data:
*At 55.1 percent, equity sales made up more than half of home sales in November, up from 53.9 percent in October and 54.4 percent in November 2010.

*The total share of all distressed property types sold statewide fell to 44.9 percent in November, down from October's 46.1 percent and 45.6 percent in November 2010.

*Of the distressed properties sold statewide in November, 21 percent were short sales, up slightly from the previous month's share of 20.7 percent and up from last November's share of 19 percent.

*At 23.5 percent, the share of REO sales was down from October's 24.9 percent, and down from the 26.2 percent reported in November 2010

Why the VA Home Loan is the Better Choice for Veterans

Within the last year conventional lending programs have lessened their strict lending requirements, but that doesn't mean that obtaining a conventional home loan has become any easier. In fact, conventional lending is just as unaffordable and inaccessible as it has ever been to the average American which has led many to either avoid homeownership altogether or seek the aid of government program.


For veterans and active duty service members, a unique government lending option is available through the Department of Veteran Affairs – the VA Home Loan. Catering to the distinct financial needs of service members, the VA home loan provides military members with money saving benefits that they would otherwise not be able to obtain including:

No Down Payment
Perhaps one of the biggest perks to the VA Home Loan program is that borrowers can secure a mortgage loan without having to put down a down payment. Even though conventional lending programs have lessened their income requirements, they haven't exactly lessened their need of a high down payment. Borrowers wishing to obtain prime interest rates can still expect to have to pay a 20 percent or more down payment which isn't always an affordable option, especially in this economy.

No Private Mortgage Insurance Required
Conventional lending programs require that borrowers purchase private mortgage insurance (PMI) to reduce their risk in the mortgage. PMI, depending on the size of your mortgage, can be incredibly costly adding a couple hundred dollars on to your mortgage payment. Because a VA home loan is backed by the government, there is no need for PMI, which can save you thousands over the life of your loan.

Low Mortgage Interest Rates
Conventional lenders are allowed to set their own loan interest rates to entice customers; however, unless you are able to put at least 20 percent down on the home you wish to purchase and have a credit score well into the 700s, you aren't going to qualify for those low interest rates they are boasting. Because the VA home loan program is regulated by the government, interest rates are constant. What you see is what you get, and because the government partially backs each loan given, interest rates are generally competitive to those borrowers were find with conventional lenders.

The VA Home Loan also has high loan limits, which can be a big money saver for qualified borrowers. The average VA Home Loan limit is $417,000, but can be even higher in more expensive real estate markets, allowing borrowers the opportunity to purchase the home they desire without having to seek additional financing.

Who is Eligible for the Program?
The VA loan requirements are quite lax, making eligibility for the program easy to obtain. In order to become initially eligible for the VA Home Loan program, service members must:

*Have served on active duty for 90 days during wartime or 181 during peacetime


*Or have served for at least 6 years in the Reserves or National Guard

Veterans and active duty service members will also be required to submit their Certificate of Eligibility in order to become eligible for the program. The VA home loan program does have lenient eligibility requirements; however, VA approved lenders will require that veterans and active duty service members present proof of a stable income and reasonable credit history in order to obtain financing.

Content provided By: Kevin Pearia

Mortgage Commentator for http://www.veteransunited.com/”

Housing Market Bottoming Out: Clear as Egg Nog

Since the beginning of the house-price crash in 2007, analyst after analyst has predicted that "the bottom" in house prices is just around the corner - only to be wrong every time.


But now, finally, it looks as though house prices may actually be nearing a bottom. Why?
Because, after falling nearly 35% from their 2007 peak, nationwide house prices are finally approaching "normal" levels on two key valuation measures: The "price-to-rent ratio," which measures house prices relative to what the houses might rent for, and the "price-to-income ratio," which measures house prices relative to average incomes.

Using the first ratio, economists at Goldman Sachs have concluded that national house prices will decline another 2.5% in 2012 and then bottom over the course of the following year.

House prices differ markedly depending on where you live, of course, and Goldman's analysts have considerably different predictions for different markets. Prices in New York, Portland and Atlanta, Goldman predicts, will still see significant declines. While prices in Detroit, Miami and Cleveland should rise.

Importantly, after a price bubble similar to the one the U.S. just experienced, prices often don't stop at "average" levels on the way down. On the contrary, they often plunge straight through "fair value" and spend years below average levels. And that certainly could happen to house prices this time around.

But Goldman's economists believe house prices will level out in a year or two. And unlike other analysts who have made similar predictions in prior years, Goldman's economists actually have data on their side: The price-to-rent ratio really has fallen to normal levels.

Of course, even if house prices do bottom in 2013, that doesn't mean that they'll quickly shoot up again - or that housing will once again be the "great investment" that everyone thought it was back in the boom years.

One of the reasons house prices are expected to bottom soon is that houses are currently more affordable than they have been in the past. But housing "affordability" is judged, in large part, on mortgage rates, and mortgage rates are currently near an all-time low. If and when the economy begins to recover in earnest, mortgage rates will likely rise, and, as they do, houses will become less affordable. So it is likely that, even after they bottom, U.S. house prices will face headwinds for a long time.

2012 Commercial Real Estate Forecast: Gradually Improving

Commercial real estate markets have been relatively flat this year, but improving fundamentals mean a more positive trend is expected in 2012, according to the National Association of Realtors.

Lawrence Yun, NAR chief economist, said there is little change in most of the commercial market sectors. “Vacancy rates are flat, leasing is soft and concessions continue to make it a tenant’s market,” he said. “However, with modest economic growth and job creation, the fundamentals for commercial real estate should gradually improve in the coming year.”

The commercial real estate market is expected to follow the general economy. “Vacancy rates are expected to trend lower and rents should rise modestly next year. In the multifamily market, which already has the tightest vacancy rates in any commercial sector, apartment rents will be rising at faster rates in most of the country next year. If new multifamily construction doesn’t ramp up, rent growth could potentially approach 7 percent over the next two years,” Yun said.

Looking at commercial vacancy rates from the fourth quarter of this year to the fourth quarter of 2012, NAR forecasts vacancies to decline 0.6 percentage point in the office sector, 0.4 point in industrial real estate, 0.8 point in the retail sector and 0.7 percentage point in the multifamily rental market.

The Society of Industrial and Office Realtors, in its SIOR Commercial Real Estate Index, an attitudinal survey of 231 local market experts,1 shows the broad industrial and office markets were relatively flat in the third quarter, in step with macroeconomic trends. The national economy continues to affect the sectors, with 92 percent of respondents reporting the economy is having a negative impact on their local market.

Even so, the SIOR index, measuring the impact of 10 variables, rose 0.6 percentage point to 55.5 in the third quarter, following a decline of 2.6 percentage points in the second quarter. In a split from the recent past, the industrial sector advanced while the office sector declined.

The SIOR index is notably below the level of 100 that represents a balanced marketplace, but had seen six consecutive quarterly improvements before the last two quarters. The last time the index reached the 100 level was in the third quarter of 2007.

Construction activity remains low, with 96 percent of respondents indicating that it is lower than normal; 88 percent said it is a buyers’ market in terms of development acquisitions. Prices are below construction costs in 83 percent of markets.

NAR’s latest COMMERCIAL REAL ESTATE OUTLOOK offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas were provided by REIS, Inc., a source of commercial real estate performance information.

Office Markets
Vacancy rates in the office sector are expected to fall from 16.7 percent in the current quarter to 16.1 percent in the fourth quarter of 2012.

The markets with the lowest office vacancy rates presently are Washington, D.C., with a vacancy rate of 9.3 percent; New York City, at 10.3 percent; and New Orleans, 12.8 percent. After rising 1.4 percent in 2011, office rents are forecast to increase another 1.7 percent next year. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is projected to be 20.2 million square feet this year and 31.7 million in 2012.

Industrial Markets
Industrial vacancy rates are projected to decline from 12.3 percent in the fourth quarter of this year to 11.7 percent in the fourth quarter of 2012.

The areas with the lowest industrial vacancy rates currently are Los Angeles, with a vacancy rate of 5.2 percent; Orange County, Calif., 5.7 percent; and Miami at 8.4 percent.

Annual industrial rent should decline 0.5 percent this year before rising 1.8 percent in 2012. Net absorption of industrial space nationally should be 62.0 million square feet this year and 41.2 million in 2012.

Retail Markets
Retail vacancy rates are likely to decline from 12.6 percent in the current quarter to 11.8 percent in the fourth quarter of 2012.

Presently, markets with the lowest retail vacancy rates include San Francisco, 3.7 percent; Long Island, N.Y., and Northern New Jersey, each at 5.7 percent; and San Jose, Calif., at 6.0 percent.

Average retail rent is seen to decline 0.2 percent this year, and then rise 0.7 percent in 2012. Net absorption of retail space is seen at 1.2 million square feet this year and 13.5 million in 2012.

Multifamily Markets
The apartment rental market - multifamily housing - is expected to see vacancy rates drop from 5.0 percent in the fourth quarter to 4.3 percent in the fourth quarter of 2012; multifamily vacancy rates below 5 percent generally are considered a landlord’s market with demand justifying higher rents.

Areas with the lowest multifamily vacancy rates currently are Minneapolis, 2.4 percent; New York City, 2.7 percent; and Portland, Ore., at 2.8 percent.

Average apartment rent is projected to rise 2.5 percent this year and another 3.5 percent in 2012. Multifamily net absorption is likely to be 238,400 units this year and 126,600 in 2012.

Real Estate: Why Home Prices Won't Bottom Out

Watching the U.S. home market struggle to rebound is like listening to children in the back of a car. No, we're not there yet. The National Association of Realtors reported that ten real estate markets are "leading the nation toward a general recovery and stability of the housing sector," but myriad problems are going to weigh down the housing market for months to come.

The lingering malaise in the economy has triggered a new wave of defaults and foreclosures. After five straight quarterly drops, foreclosures nationwide shot up 14 percent from the second to third quarter this year, according to data released by Realtytrac, the foreclosure information service (see link.reuters.com/kaw94s), in October.

While RealtyTrac doesn't foresee that the latest foreclosure wave will equal the severity of the 2007-2010 pattern -- in which three million borrowers lost their homes -- it's going to slam on the brakes where areas are getting hit the hardest.

In theory, it should be a good time to buy a home. In the worst-hit areas, properties have lost more than half their value. Yet as the average 30-year mortgage rate has slipped below 4 percent, the combination of employment insecurity and unusually tight standards for lending are discouraging buyers en masse. Lenders are asking for extensive income verification and tax returns. One lender I contacted for refinancing even wanted me to get an accountant to certify that I wasn't lying to the IRS.

Here are some of the biggest roadblocks:

Even in bruised cities where price appreciation is evident, unemployment is still too high. Six out of 10 of the "top turnaround towns" listed by Realtor.com (see link.reuters.com/maw94s) for the third quarter had jobless rates above 10 percent. People can't buy homes if they're not working or soon to lose their jobs. Those cities, which include four of the largest cities in Florida, still have a long way to go to recover from the housing bust.

Although at a record low, the home mortgage rate may still be high relative to home prices. This may sound counterintuitive, but research from the Leuthold Group in their November newsletter shows that a "real" mortgage rate -- which factors in the falling market value of the home prices -- is 8 percent. Leuthold says that real cost of buying must include the 4 percent interest rate and the 3.9 percent average home prices decline over the past 12 months. That cost is still scaring away buyers.

The combination of unemployment, high housing inventory and foreclosures is hurting places where there wasn't an excessive price run-up. Realtor.com found that the largest year-over year median listing price decreases through October were in cities like Chicago, Detroit and Atlanta. This three-punch combination will continue to ravage markets where there's a sluggish economy

Possible solutions to the housing blockage range from the radical to the necessary. A group called Remortgage America (www.remortgageamerica.com/) is calling for the government to loan Americans mortgages at 1 percent to finance a new or existing residence.

Others would like to see Fannie Mae and Freddie Mac take the foreclosed homes they own and either auction them off or offer them in a huge fire sale.

The seized mortgage agencies account for up to one-third of foreclosed homes -- about 250,000. American taxpayers are pouring tens of billions into propping up these two wards of the state, which were taken over by the U.S. Treasury in late 2008. The Obama Administration has yet to announce what it wants to do with the companies. Will they be restructured, liquidated or privatized?

A third option, which may have the least impact on a battered market, is to offer foreclosed homes in rent-to-own deals. Prospective homeowners get a place to live under reasonable leases and can build equity toward a purchase.

It's estimated that some 3.4 million foreclosed homes will be on the books of banks and mortgage companies by the end of this year. As regulators, banks, mortgage companies and state attorneys general move sheepishly to unblock mortgage modifications, refinancings and resales, only one certainty prevails: The open market will not be able to properly price every property until all government restrictions are lifted on their sales and re-financing.

Bay Area Real Estate: Finally Some Good News!

SAN JOSE, Calif. (KGO) -- Here's the best news you've heard in years about Bay Area real estate. A new report offers not just a glimmer of hope in California's housing market, but predicts a roaring comeback over the next six years. We could be poised for a dramatic comeback.


ABC7 spoke with the California director of the Economic Forecast and he's predicating a rise in home prices is going to be the convergence of a number of factors. He is suggesting that more jobs, fewer distressed properties, and those historic low interest rates will all play a role in this turnaround.

The same panel of economists who warned the California housing bubble was going to burst is now predicting homes prices are ready to rebound. "I am absolute thrilled that we are finally coming out with something positive," said Cherie Colon from Windermere Real Estate.

UCLA economists are predicting a steady climb in the median price of existing California homes. The UCLA Anderson Forecast anticipates an 11.5 percent price jump next year. The forecast calls for another 10 percent increase in 2013 and a median price of nearly $440,000 by 2017 -- that would represent a 52 and a half percent increase over today's prices.

Mike Sibilia is president of the Santa Clara County Association of Realtors. He said, "52 percent by 2017 for median price, that is aggressive, but we've seen it before, and what I like is the steady growth is what I like to see."

The National Bureau of Economic Recovery says the recession ended in June 2009, but the foreclosure crisis and high unemployment have weighed heavily on any recovery. Now, Jean Haneke is seeing signs of life. She's looking to sell her home in Morgan Hill.

"There are houses that are closing in our area, there are good sales, we've seen statistics on it, and we're looking for that sort of thing as a seller," said Haneke.

Foreclosures still count for about one third of all home sales in California and bay Area prices are especially zip code driven, but the UCLA Anderson Forecast suggests as a whole, home prices have hit bottom.

"I think locally we have already seen the start of it in some markets, but also don't expect it all to come because there are still the statistics that show that we're probably not going to be at 2006 levels again for 10 years or more," said Colon.

While the UCLA economist predict double-digit increases in terms of home prices, they say that home sales will remain relatively flat, bouncing in the 3 to 5 percent range, with the most sales activity taking place between 2013 and 2015

How To Properly Evaluate a Real Estate Opportunity

Properly evaluating a real estate investment opportunity can sometimes be a tricky endeavor. There are many factors that can come into play, and it can be hard to focus in on the things that really matter. While I don’t propose to have a magical formula for finding great real estate investments, I do have over 15 years of experience investing in real estate, and have bought and sold hundreds of homes. Along the way, I’ve learned a thing or two about what makes a good investment, and a bad one. In this article, I plan to share some of these things I’ve learned with you. (My investing expertise is with rental homes in particular, so for the purposes of this article, I will focus in on that specific type of real estate investment.)

Look Beyond Yields
One of the biggest mistakes a real estate investor can make is to get so enamored with the yield a property appears to be netting, that they forget to look at all the other factors. Sure, high yields are great – that means they property is making more money. But, typically there is a reason why the yield is so high. After all, if the property was raking in a ton of cash for the owner, why sell it? If you look deeper, you can generally find out why. Some common reasons you might encounter are:

• The neighborhood is on the decline (think “Rust Belt”). There are a lot of negatives that come with this scenario, but the biggest ones to keep in mind are falling home and rental values. As people leave these neighborhoods, things get worse before they get better. People no longer want to live there, and finding tenants or buyers for the property can become nearly impossible. One number that can give you an idea of where a neighborhood is going is the proportion of rental homes to owner occupied homes. As the rate of rental homes in an area increases, typically this signals the area is on the decline. There is good reason why many lenders won’t lend in communities that exceed certain rental to owner occupant thresholds.

• The property is in disrepair. This one you can typically spot with a good home inspection, but not always. While legally the home owner is required to disclose any known defects with the house, that doesn’t always happen. If the home is a known fixer upper, just make sure you are prepared for what that means. If you are planning to rent out the home in its current state, make sure you fully understand the laws in your state. Typically landlords are required to maintain the home a “safe and livable condition”. Keeping a property in less than excellent move-in ready condition is also asking for poor quality tenants, and the various issues they can create. If you aren’t sure what exactly that means in your state, find out before you move forward on the deal. In addition, make sure to factor in that the home will most likely be vacant while you make the necessary repairs.

• The rental market is saturated. If an area has become, or will soon be, saturated with an abundance of rental properties, you can rest assured that rental rates will fall. The more options potential tenants have, the less they are going to be willing to pay - the law of supply and demand. Make sure to do your homework on this one. Before purchasing a rental property in a certain area, make sure you fully understand the supply coming on market, along with how many new tenants are coming into the area. If the supply outweighs the demand, make sure you take into account that rents will likely fall. Ideally you want to find an area that is exactly the opposite. Demand is increasing, but supply is flat or shrinking. I specifically look for this trait in areas I invest.

Yields can tell investors part of the story when it comes to evaluating real estate opportunities, but don’t get caught up solely in this one number. It is great if the property is cash flowing now, but make sure it is still going to be cash flowing a year down the road.

Exit Strategy
Speaking of looking down the road, properly evaluating a potential real estate investment opportunity must include planning your exit strategy. An exit strategy can be anything from holding the property and eventually passing it on to your children, to remodeling and selling it when the market rebounds in two years. There are lots of ways you can plan to exit a real estate investment, but the important thing is thinking them through at the beginning. If you choose to purchase a home in a neighborhood consisting mainly of renters, don’t expect to be able to sell it to an owner occupant down the road. Make sure you plan realistic exit strategies.

If there is one thing I can share from experience, is that investments don’t always go as planned. For this reason, I always make sure I have two realistic exit strategies before I move forward on a property. If for some reason Plan A doesn’t work out, I need to have a Plan B, and maybe even a Plan C. If you don’t think these through now, you are asking for trouble later on.

Investing in real estate can be an extremely rewarding experience, or it can be a dreadful one. Properly evaluating a potential real estate investment opportunity from the start will undoubtedly increase your odds for success. Don’t focus in on one factor – like yields – but rather look at the full picture. In addition, remember to plan out multiple exit strategies. Hopefully you only need Plan A, but if that doesn’t work out – which unfortunately tends to happen a lot – you’ll be glad you have another plan to fall back on.

Revamped mortgage program: Will homeowners be able to refinance?

President Obama flew to Las Vegas, ground zero of the housing crisis, to unveil a revamp of the Home Affordable Refinance Program.


With mortgage interest rates at near historic lows, millions of homeowners have refinanced to rates as low as 4 percent for a 30-year fixed-rate mortgage or 3 percent for a 10-year fixed-rate mortgage.However, millions of other homeowners are underwater with their mortgages (i.e., their mortgage balance is higher than the value of the home) and cannot refinance.

The original HARP program was designed to help borrowers up to 125 percent underwater (i.e., borrowers who have a first mortgage balance of up to 125 percent of the home's current value). It has been a colossal failure, having helped only 70,000 underwater homeowners take advantage of lower mortgage rates.


The new program eliminates the requirement of an appraisal in most cases. To qualify, homeowners must have been on time with their mortgage payments for at least the last six months and must not have missed more than one payment in the past year. Borrowers may not be in foreclosure or bankruptcy.

The good news for trouble real estate investors is that a second home or investment property may now qualify for a refinance. If it is an investment property, the building must have no more than four units. The property may be a single-family home, a condo or a co-op.

The existing mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009. The new HARP program will come in phases, starting with loan applications dated December 1, 2011 or after. For borrowers who are more than 125 percent underwater, the start date will be sometime in the first quarter of 2012.

The HARP program was originally set to expire in 2012. The new rules extend HARP through December 31, 2013. President Obama said the process would be streamlined in order to make it less onerous on borrowers.

Nevertheless, the devil is in the details. The four biggest mortgage companies -- Chase, Wells Fargo, Bank of America and CitiMortgage -- have agreed to participate, but that participation is voluntary and each of the banks has the right to make changes to the program. That could make it difficult for borrowers to understand what the program at their bank is and why it is different from what they've been hearing from other news sources.

HARP's aim has been to reduce the borrowers' monthly payment by providing a new loan at a lower interest rate, and it also may be used to replace an adjustable-rate or interest-only loan with a standard fixed interest rate loan. It does not usually cut the principal balance of the mortgage, something that borrowers have been asking for but that lenders have been reluctant to provide.

Until the software is rewritten and tested, until the rules are written and published, and until borrowers have gone through the system and successfully emerged, loan modification in hand, there's no telling exactly what this latest revision of HARP will do for the housing crisis, or the economy.

Santa Cruz County Median Home Price Drops Below $500K in September

SANTA CRUZ --" The median sales price for a single-family home in Santa Cruz County in September was $490,000, the same as in August. The median, which is the midpoint of what sold, has topped $500,000 only one month this year unlike last year, when the median topped half a million for most of the year.

There were 145 sales in September, about the same as a year ago, but 41 percent involved distressed properties, slightly more than a year ago. Banks sold 37 homes, the third-highest tally this year, and short sales, where the lender accepts an offer for less than what is owed, dipped to 22. Real estate agents have been pushing to streamline approval of short sales since those homes tend to retain more value than foreclosed homes.

The local housing market remains clogged from the aftermath of the bubble that burst. About 1,170 homes are in the foreclosure process, according to the Santa Cruz Record, with another 1,160 having received a default notice for failure to make payments.

This is down from a year ago, when 1,400 were in foreclosure and nearly 1,400 had default notices, but with about 50 homeowners a week entering the foreclosure pipeline or advancing in the process, the pace of recovery seems slow.

In September, default notices were up in Felton but down in Aptos, yet several Aptos homes with loans for more than $1 million are scheduled for a foreclosure auction, according to ForeclosureRadar, which tracks foreclosure data.


Cancellations spiked in Scotts Valley, indicating a successful short sale or loan modification, according to ForeclosureRadar, while in Boulder Creek the number of bank-owned homes is the same as it was a year ago. About 20 percent of mortgage-holders in the county are underwater, according to CoreLogic, which tracks that data.

These borrowers bought or refinanced at the peak when the median home price raced up from $600,000 to $775,000 and now that prices have fallen, they owe more than what their home is worth. Yet million-dollar homes are being sold. About 7 percent of the September sales were for more than $1 million. It was the same percentage sold in that price range in March and May.

The condo market has seen the median price fall from $500,000 during the boom to less than $300,000 for the past year.September's median was $285,000, with 36 percent of the 33 sales involving distressed properties. The Dr. Housing Bubble blogger contends federal policies are pushing an articial recovery for housing "in bubble states like California and New York."

The Senate voted to restore the FHA loan limit to $729,500 from $625,500 as part of a spending bill. This measure requires House approval. Last week, Sen. Charles Schumer D-N.Y. and Sen. Mike Lee R-Utah. introduced a bill that would grant visas to foreigners who spend at least $500,000 on residential property, letting them to live in the United States.

Mortgage-Backed Securities Plunge As Refinance Plan Emerges

Mortgage-backed securities issued by Fannie Mae (FNMA) and Freddie Mac (FMCC) plummeted in price on Monday after the top housing regulator surprised investors by expanding an existing refinancing program to more borrowers and removing a key hurdle that has kept banks from approving new loans.


MBS tied to loans with high interest rates fell the most as those mortgages are the ones most likely backed by properties whose values have fallen below the loan balance, reducing the equity needed for a typical refinance.

Under the new plan, the Federal Housing Finance Agency will allow refinancing of loans guaranteed by Fannie Mae and Freddie Mac no matter the home's value, and extend the term of its Home Affordable Refinance Program through next year and 2013, the FHFA said. It will waive some liabilities to banks, making the lenders more willing to make a new loan with risky characteristics.

Since 2009, only 894,000 borrowers have used the HARP, of which just 70,000 were significantly underwater. The FHFA said the changes "may roughly double or more" the number of homeowners who enroll.

Investors had been speculating about an expansion of the plan for months but the announcement's breadth surprised many, said Scott Buchta, head of mortgage strategy at Sandler O'Neill in Chicago. Some investors expected the changes would be more limited, and thus have little impact on the pace of refinancing.

"They went for shock and awe," said Buchta, who added that the impact will likely be seen in early 2012.

As a loan is refinanced, the principal is returned to the investor at face value, or 100 cents on the dollar. But with high-rate MBS, such as those with 6% coupons trading at 109 cents on the dollar, prepayments cause steep losses.

Fannie Mae 6% MBS fell 19/32 to 109-3/32, underperforming Treasury benchmarks by the same degree, according to Credit Suisse's Locus analytics. Fannie Mae's 4% MBS declined 5/32 to 103-4/32 -- lagging their benchmarks by just 2/32 -- helped by purchases by the Federal Reserve.

The Fed buying of those MBS, which are most closely tied to current mortgage rates, could be expanded, New York Fed President William Dudley said Monday.

While changes help address responsible borrowers who have been plowed under as the housing bubble burst, the new policy runs the risk of alienating the investors that provide the bulk of all credit to homeowners by purchasing the securities packaged by Fannie Mae and Freddie Mac, analysts said. Investors who value MBS based on the level of refinancing have seen portfolios whipsawed as the government tweaked its rules, leading them to raise the premium they require to accept greater uncertainty.

Vast changes could mean unintended consequences of higher mortgage rates if investors begin to back away from the $5-trillion market, David Stevens, chief executive officer of the Mortgage Bankers Association, said earlier this month.

"I think we could potentially run the risk of robbing Peter to pay Paul," he told reporters on Oct. 11.

Analysts said the most significant change is that banks will be largely shielded from the risk that they will have to buy back HARP mortgages. They only will have to verify that borrowers have made their last six payments, have no more than one missed payment in the last year and that they have a job or another source of passive income.

The relief applies to most "representations and warranties," or the legal assurances of loan quality that have cost banks tens of billions of dollars as Fannie Mae, Freddie Mac and private investors hold them accountable for faulty lending during the housing boom. As a new HARP loan is made, the lender would be off the hook for quality of the initial loan.

Edward DeMarco, acting director of the FHFA, on a conference call Monday underscored that the new plan would give "substantial relief" from the representations and warranties. There are instances in which relief would be inappropriate, however, such as cases of mortgage fraud, he said.

"It's clear they listened to the originators," Buchta said, of the FHFA. "The representations and warranties were the friction, and to me nothing else works without that."

CA Pending Home Sales Post Lower in September

Pending home sales in California fell in September, as is typical for this time of year, but were up from the previous year for the fifth consecutive month. Additionally, distressed home sales increased slightly in September from both the previous month and year, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported today.Pending home sales:


California pending home sales fell 5.2 percent in September, but were up from a year ago, according to C.A.R.’s Pending Home Sales Index (PHSI)*. The index was 118.5 in September, based on contracts signed in that month, down from August’s index of 125.0. The index was up 8.4 percent from September 2010. September marked the fifth consecutive month that pending sales rose from the previous year. Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market.

“While recent pending home sales have increased from last year’s levels, housing inventory remains lean across all property types, particularly REOs (real estate-owned), which currently is at a 2.6-month supply,” said C.A.R. President Beth L. Peerce. “However, some major lenders recently announced they would accelerate the release of REOs onto the market, which should help alleviate the current shortage of housing inventory.”

Distressed housing market data:
The total share of all distressed property types sold statewide rose to 44.4 percent in September, up from August’s 43.7 percent and 43.6 percent in September 2010.

Of the distressed properties sold statewide in September, 20.2 percent were short sales, up from the previous month’s share of 18.9 percent and last September’s share of 19.5 percent.

At 24 percent, the share of REO sales was down slightly from August’s 24.4 percent, but up from the 23.8 percent reported in September 2010.

Equity sales made up the remaining share of home sales in September at 55.6 percent, down from 56.3 percent in August and 56.4 percent in September 2010.

*Note: C.A.R.’s pending sales information is generated from a survey of more than 70 associations of REALTORS® and MLSs throughout the state. Pending home sales are forward-looking indicators of future home sales activity, offering solid information on future changes in the direction of the market. A sale is listed as pending after a seller has accepted a sales contract on a property. The majority of pending home sales usually becomes closed sales transactions one to two months later. The year 2008 was used as the benchmark for the Pending Homes Sales Index. An index of 100 is equal to the average level of contract activity during 2008.

Home Short Sales Rise in ‘Dramatic Shift’ That May Boost Prices

U.S. home prices may get a boost from an unlikely source: a pickup in sales of properties in default before they reach the stage where they are repossessed by the bank and sold. There has been a “dramatic shift” in banks’ willingness to sell a property for less than the mortgage balance to avoid foreclosing, said Ron Peltier, chairman and chief executive officer of HomeServices of America Inc., the second-biggest U.S. residential brokerage.


The transactions, known as short sales, typically change hands at a discount of about 20 percent to homes not in financial distress, compared with a 40 percent price cut for bank-owned homes, according to RealtyTrac Inc. Short sales jumped 19 percent in the second quarter from the prior three months while foreclosure sales were flat, the data seller said.

“Banks have become much more supportive of short sales,” said Peltier, whose Minneapolis-based company is a unit of Warren Buffett’s Berkshire Hathaway Inc. “That’s better for the lenders, who have smaller losses on a short sale, and it’s going to be better for homeowners, who won’t have as much psychological distress as a foreclosure.”

Distressed sales brokered by HomeServices used to be 60 percent foreclosures and 40 percent short sales, Peltier said in an interview at Bloomberg headquarters in New York. Now, that ratio has flipped, according to the CEO, whose company is second in size to NRT LLC, a unit of Realogy Corp. in Parsippany, New Jersey, that owns the Coldwell Banker brand.

Default Backlog
“There’s a huge backlog of homes in default that the banks want to get rid of,” said Thomas Popik, research director for Campbell Surveys in Washington. “They don’t want to be homeowners.”

Banks are being more agreeable to short sales as foreclosures slow following a yearlong probe of so-called robo- signing, or pushing through unverified default documents. Foreclosure filings have fallen for 12 straight months through September as banks work through a backlog of paperwork, according to RealtyTrac.

Almost a third of all home transactions in August were foreclosures or short sales, according to the National Association of Realtors. While short sales were flat compared with a year earlier, the trade group’s count only includes deals completed with a broker, and short sales often are handled directly with lenders.

Quicker Approvals
Banks are not only approving more short sales, they’re doing it in less time. In the second quarter, short-sale homes, also known as pre-foreclosures, sold an average 245 days after default, down from 256 days in the previous period, according to Irvine, California-based RealtyTrac. That reversed three straight quarters of increases.

The time frame remains a lot longer than traditional sales. In a normal transaction, a buyer bids on a home and gets a decision from its owners within days, if not hours. Getting a bank response to a short-sale offer can take two months or more.

“No matter how streamlined a short sale may be, it’s always going to be a frustrating experience,” Popik said. “Too many people are involved -- investors, servicers, owners, real estate brokers, mortgage insurance companies.”

Half of troubled mortgages have so-called second liens, such as home equity lines of credit, according to the Treasury Department, so there may be two mortgage holders with a stake in a short sale. If the property has mortgage insurance, that company may be involved in the negotiations as well.

Neighborhood Values
Because short sales typically are occupied soon after the deal, neighboring properties take less of a hit in values, according to Popik. Prices for distressed homes often are used by appraisers to gauge surrounding values, even if the nearby homes aren’t in default. Also, owners who voluntarily give up their homes tend to leave them in better shape than people who are evicted, reducing costs for banks, he said.

“Anytime a short sale can be substituted for a foreclosure, it’s going to prop up prices and it’s going to cut losses because it’s going to sell for more,” he said. Home values have declined 31 percent in the last five years, according to the S&P/Case-Shiller index of values in 20 U.S. cities, as competition from foreclosures pressures sellers to lower their asking prices. The resulting crash was worse than the 27 percent plunge in values during the Depression, said Stan Humphries, chief economist of Zillow Inc., a Seattle-based real estate information company.

Underwater Borrowers
The drop in home values has pushed almost a quarter of U.S. mortgage borrowers underwater, meaning their debt is more than their homes are worth, according to a report by CoreLogic Inc. (CLGX), a real estate data company in Santa Ana, California. That so- called negative equity prevents owners from conducting traditional deals because they would have to pay the difference between their loan balance and the sale price.

Short-sellers can negotiate with banks to forgive the unpaid portion, according to Steve Beede, an attorney in Fair Oaks, California, who specializes in dealing with loans in default. Even if they succeed, a second-lien holder in most states can pursue people for mortgage-payoff shortfalls, he said.

Banks are starting to “get their act together” with short sales, said Cameron Novak, a broker with The Homefinding Center in Corona, California. The company handles about 15 of the transactions a month, he said.

“There’s been improvement in the last few months, and response times are getting to be a little quicker,” Cameron said in a telephone interview. “It’s about time.”

US Foreclosure Activity Increases

Foreclosure activity increased during the third quarter of 2011, driven largely by a spike in early filings in August. Data for September showed a return to the trends reported in earlier months. This information came Thursday in quarterly U.S. Foreclosure Market Report issued on Thursday by RealtyTrac. The report also includes statistics on September activity.


The Irvine, California firm issues regular reports on foreclosure activity throughout the United States, tracking foreclosure filings in three categories:

Notice of Default (NOD) and Lis Pendens (LIS)
This is the first legal notification from a lender that the borrower on a mortgage loan has defaulted under the terms of their mortgage and the lender intends to foreclose unless the loan is brought current.

Auction - Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS)
If the borrower does not catch up on their payments the lender will file a notice of sale (the lender intends to sell the property). This notice is published in local paper and contains information pertaining to the date, time and subject property address.

Real Estate Owned or REO properties : "REO"
REO stands for "real estate owned" and typically refers to the inventory of real estate that banks and mortgage companies have foreclosed on and subsequently purchased through the foreclosure auction if there was no offer higher than the minimum bid.

There were foreclosure filings on 610,337 properties during the third quarter, an increase of 0.35 percent over Quarter Two and a drop of 34 percent from the third quarter of 2010. One out of every 213 U.S. housing units received some type of foreclosure filings during the third quarter.

During September there were 214,855 filings affecting one in every 605 homes. This was a decrease of 6 percent since August and was 38 percent lower than September 2010. This was the sixth straight month when the filing rate was lower than it had been one year earlier.

Default notices were filed on 195,878 properties in the third quarter up 14 percent from the second quarter. Much of the increase occurred in August which set a nine month high in this category. September filings totaled 70,710, down 10 percent from the August numbers. Year-over-year comparisons improved for both quarterly and monthly data. Quarterly filings were 27 percent lower than Q3 2010 and September's numbers were down 31 percent from the same period a year earlier.

During the quarter foreclosure auctions were scheduled for the first time on 217,929 properties, 79,098 of these filings were in September. The second quarter figures were down quarter over quarter and year-over-year by 6 percent and 41 percent respectively and September's figures were down 6 percent from August and 45 percent from one year earlier.

Foreclosures were completed on 196,530 properties during the quarter, 4 percent less than in Q2 and nearly one third less than a year earlier. Foreclosures in September totaled 65,047; an increase of less than 1 percent from August and down 36 percent from September 2010 which was the peak month for bank repossessions in RealtyTrac's reporting history.

The timeline for all processes related to foreclosures continues to grow. RealtyTrac found that it now takes 336 days to complete the foreclosure process compared to 318 days in the second quarter. The time required to sell property keeps climbing as well. It took a record high average of 318 days during the quarter to sell a property in process of foreclosure - usually via a short sale - compared to 245 days in the second quarter. REO sales were occurring, on average, 193 days after the banks took possession of the property compared to 178 in the previous quarter.

"U.S. foreclosure activity has been mired down since October of last year, when the robo-signing controversy sparked a flurry of investigations into lender foreclosure procedures and paperwork," said James Saccacio, chief executive officer of RealtyTrac. "While foreclosure activity in September and the third quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up.

"Third quarter foreclosure activity increased marginally from the previous quarter, breaking a trend of three consecutive quarterly decreases that started in the fourth quarter of 2010," Saccacio continued. "This marginal increase in overall foreclosure activity was fueled by a 14 percent jump in new default notices, indicating that lenders are cautiously throwing more wood into the foreclosure fireplace after spending months spent trying to clear the chimney of sloppily filed foreclosures."

It took an average of 986 days to foreclose on a property in New York, the longest of any state and a record high for the state. The second longest average foreclosure process was in New Jersey, at 974 days, and the third longest average foreclosure process was 749 days in Florida. In contrast, the Texas average is 86 days and in Tennessee a typical foreclosure takes 94 days.

As usual Nevada, California, and Arizona were the most active states for foreclosure filings although the numbers are shrinking in all three states. The incidence of filings was one in 44 in Nevada, one in 88 in California and one in 93 in Arizona. Other states with high rates of filings were Georgia, Florida, Utah, Michigan, Idaho, Illinois, and Colorado.

Several states bucked the national trend with significant quarterly increases in REO activity during the quarter. These states and their quarter-over-quarter increases are Massachusetts (62 percent); Oregon (47 percent); Georgia (42 percent); and Illinois (27 percent).

There were also large increases in default notices during the quarter: Massachusetts (65 percent); New Jersey (29 percent); Florida 24 percent); Ohio and California (21 percent each).

Economy Delays Boomers Plans to Sell Home

In a survey by Coldwell Banker Real Estate, results found that 9 out of 10 brokers said “the economy is delaying baby boomers’ plans to sell their homes, compared to a few years ago.”

The big issue is the huge number of foreclosures we are seeing. Jim Gillespie, CEO of Coldwell Banker Real Estate said it really depends on how long it will take to work through the foreclosures in the system. No one seems to have a definitive answer on the timeline. All of this is based on Americans going back to work and consumer confidence coming back. That’s the big overhang.

However, the survey pointed out the baby boomers desire to purchase and own a home remains strong. The reason? Gillespie believes the American dream of owning a home is alive and well.

Home ownership is still American dream. “60-75% of Americans say investing in a home is the safest or second safest investment,” said Gillespie. It all boils down to life style. “Long-term future of the housing market looks good,” added Gillespie.

Gillespie pointed out a lot of the young people are living with their parents, grandparents or other family members. Once we see job creation, consumer confidence bounce back, Gillespie expects demand to pick up. Right now, many young people out there are renting because the economy is weak, there may be not as much funds available to them.

Is this just a temporary trend? Gillespie dismisses the idea we are turning into renter’s society.“That is not the case,” added Gillespie.

Currently, the baby boomer generation accounts for 79 million Americans. The survey divided up the boomers into two groups, younger baby boomers (ages 47 -55) and older baby boomers (ages 56 – 64). “31 percent of respondents say that younger baby boomer clients are selling their current home and looking for a larger home, compared to 6 percent of older boomers,” based of results of the survey.

4 out of 5 agents said that ‘older’ baby boomers are two times more likely to want to downsize than ‘younger’ ones. Gillespie stressed that half are downsizing for simpler lifestyle, not downsizing for economic reasons.

According to the survey, “49 percent of agents say the primary reason boomers want to downsize is because they desire a simpler lifestyle, while only 28 percent said the leading reason boomers are downsizing is to save money.”

US Real Estate Recovery Years Away Experts Say

It really is a tale of two trends when it comes to the U.S. housing market. Over the short term, things are looking a bit better: According to the Standard & Poor's Case-Schiller Home Price Index, the housing market has shown four straight months of home value growth, with S&P's 10-city and 20-city indices, both up 0.9% in July. The Case-Schiller reading, taken Sept. 27, shows that even sluggish markets such as Detroit and Minneapolis showed improvement on a month-to-month basis.

"With July's data we are seeing not only anticipated monthly increases, but some fairly broad improvement in the annual rates of change in home prices," David Blitzer, chairman of the index committee at S&P Indices, said in an official statement. "While we have now seen four consecutive months of generally increasing prices, we do know that we are still far from a sustained recovery."

Now, new data show recovery could be further off than homeowners had hoped. The Fair Isaac Corp.'s(FICO) latest quarterly survey of bank risk managers, released Sept. 30, estimates that a U.S. housing recovery won't happen before 2020. And that's a rosy scenario.

Specifically, the FICO survey asked bank risk managers if U.S. housing prices would return to 2007 levels before 2020, and 49% of the bank managers said "no," with 21% answered in the affirmative.

And that's not all -- FICO has some more bad news for the housing market:

73% of bankers say mortgage defaults would "remain elevated" for five more years.


46% of bankers say mortgage delinquencies will rise over the next six months.


Only 15% of bankers say mortgage delinquencies will fall over the next six months.

FICO analysts are talking about a "generational" timeline for home prices to recover -- that's the kind of talk Americans haven't heard since the Great Depression. "Housing has been an enormous drag on the economy for over three years as U.S. households lost trillions of dollars in equity," Dr. Andrew Jennings, chief analytics officer at FICO, noted in a statement. "While the housing sector will almost certainly gain strength during the next nine years, many bankers clearly believe prices will remain depressed for half a generation. This puts the devastation of the housing crash into perspective."

Beyond housing, the FICO survey looks pretty grim across the board. Bank managers say credit card accounts, student loans and auto loans should all see a rise in delinquent borrowers through the first quarter of 2012. The survey says consumers will continue cutting back on credit card use for at least five more years, and that could be a drag on the U.S. economy.

Furthermore, only 34% of bank professionals expect credit to small businesses -- widely considered a harbinger of economic growth -- to increase through the same period.

Comparisons to Japan's recent "lost decade" have started bubbling up in the financial media over the past month or so. With a full-blown housing recovery at least nine years off, those comparisons are starting to look more prescient every day.

SOCAL Commercial Real Estate Market Going Backwards

Inland Southern California is running out of industrial space, especially for the users of high-profile, big-box distribution centers. But while developers are purchasing and building new warehouses in Riverside and San Bernardino counties, the head count in its office buildings is getting even lighter. The vacancy rate for the office market is expected to end 2011 at 25 percent, one commercial real estate operator predicted late last month.

That means that, in two years, one of the unhealthiest facets of the Inland economy has gotten worse, not better. However, there are a few subsets of this sector that would take exception to the definition of “worse.” One would be investors, who have been able to buy distressed properties for far less than the cost of a new building.

Another is the existing office tenant. Many are locking up very favorable long-term lease rates. Marcus & Millichap is predicting a 25 percent vacancy rate at the end of the year, one of the highest in the nation. If the forecast holds true, it will mean a slight worsening of the 24.8 percent at the end of 2010. Some 2- or 3-year-old buildings are still mostly empty or unoccupied.

Professionals in the industry say they have to look no further than the latest statistics from the state on job growth to explain why one in every four square feet of Inland office space is empty. Right now, few employers are in position to put new people at Inland desks. “Whether it’s government or education or consulting, it’s just not getting better,” said Mary Sullivan, a commercial real estate consultant. “The office market is tied more to employment than the other commercial markets.”

The latest report on job growth for Inland Southern California shows a decline of more than 12,000 government jobs in the last year. More than two thirds of those lost jobs are in education, but many are desk jobs. There have also been year-over-year job losses in professional and technical offices, and the financial sector, an area that saw companies fight each other for the best office space five years ago, is barely growing now.

VACANCIES ON THE RISE
Vacancies are highest in Ontario and Rancho Cucamonga, the cities considered the Inland Empire’s economic center. In the last 12 months, the vacancy rate increased faster in the Temecula and Murrieta area.
Eastern San Bernardino County, including San Bernardino and Redlands, will likely be the only submarket to see its vacancy rate drop in 2011, and only by about half of one percent, Marcus & Millichap is predicting.

The office market’s struggles mirror the Inland area’s residential housing situation in many ways. There was a construction fervor that started in 2005 and 2006, but by the time many office buildings were completed the area was in the grips of a recession and few firms wanted to expand.
But while there are few new buyers coming to the area, it does not mean the commercial real estate industry is fallow. Burback said many tenants already in the Inland area are either trying to renegotiate their leases or are willing to look for cheaper space that offers similar amenities.

That means there’s lots of activity, none of which drives the vacancy rate down. Burback said that, for tenants, deals like those make sense. “If my lease were up I would renegotiate or move to a comparable Class A space, probably at a 15 to 20 percent lower rate,” Burback said. “I know I could do that.”

‘BURN OFF’ EXCESS
There are no plans for new larger buildings. “We have to burn off that excess inventory and have a reason to build new buildings,” John said. “But that won’t be here for a while.”

Investors could be another beneficiary of a depressed market. About three months ago, Newport Beach-based TA Realty Advisors purchased the four-story Empire Corporate Center, a Class A tower in Ontario, for $9.25 million. The $113-per-square-foot price tag was significantly less than the replacement value, which was probably about $150 per square foot.

Also, in the last two months, smaller buildings in Corona and Murrieta were sold by lenders. Neither had anywhere close to a full roster of tenants, but the upside was the price. The depressed market is an opportunity for doctors who, in search of a nest egg, might want to buy a property that will provide retirement income.

Neither of those trends will dent the 25 percent vacancy rate. But Sullivan predicted that, when companies are ready to expand, the region’s Class A buildings will be noticed.

For homeowners in trouble, a tough decision to make

The time is limited for homeowners who want to ensure they aren’t hit with a big tax bill because they had to walk away from a mortgage obligation.

At the height of the housing crisis, when foreclosures across the country began a troubling increase, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007, designed to provide at least some consolation to folks who had lost their homes.  

But it gets complicated.
If you borrow money and the lender then cancels or forgives the debt, you generally have to include the canceled amount as income for tax purposes. As the IRS explains, you aren’t taxed on borrowed money because you have an obligation to repay it. However, if the debt is wiped out, the lender is then required to report the amount of canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
You can imagine the frustration that many people had with this seemingly unfair tax rule. They had lost their homes and then discovered in a “you’ve-got-to-be-kidding-me” moment that they owed taxes on the forgiven debt.

That’s where the mortgage debt relief act comes in. It allows people to exclude income from the discharge of debt on their principal place of residence. In addition to foreclosure, debt reduced because of a mortgage restructuring also qualifies for relief under the new law.

As always, there’s a catch.
The law says that only debt forgiven in calendar years 2007 through 2012 is eligible. Up to $2 million of forgiven debt qualifies for this exclusion ($1 million if married filing separately). To get the relief, debt must have been used to buy, build or substantially improve a principal residence and be secured by that residence. So if you refinanced and took money out of the house to pay off credit card debt, you won’t receive the exclusion. Debt forgiven on second homes, rental property, business property, credit cards or car loans also does not qualify for the tax relief.

If you’re clinging to your house but it’s looking as though you won’t be able to hang on, the best time to get out from under the mortgage is before the debt relief law sunsets. This is particularly true if you are thinking about a short sale. That’s when the lender allows the borrower to sell the house for less than what is owed. Often, the borrower can negotiate to have the remaining balance on the mortgage forgiven.

Some states have made it easier for folks to go through the short-sale process. For example, a new law in California says that if lenders agree to a short sale — whether they hold a first or second lien — they have to forgive all outstanding loan balances.

The tax rule has become particularly important as more homes are sold through short sales, which accounted for 12 percent of all housing sales in the second quarter, up from 10 percent for the same period last year, according to RealtyTrac.

However, here’s the problem if you wait too long to start the process: Short sales are being dragged out for months. Talk to real estate professionals and many might suggest the term short sale be changed to “long sale.” I’ve seen several people who wanted to buy a home through a short sale walk away because the transaction was moving too slowly.

Pre-foreclosures sold in the second quarter took an average of 245 days to sell after receiving the initial foreclosure notice, according to RealtyTrac.

In a survey released earlier this year, 71.9 percent of real estate agents interviewed reported that a short sale could take four to nine months to complete, according to Equi-Trax Asset Solutions, a company that provides property valuations. Almost 10 percent of short-sale transactions require more than 10 months to complete.

When agents are asked to select ways to make short sales easier, 57.6 percent think lenders should move faster to close the transactions.

A short-sale survey conducted by the California Association of Realtors found similar results. More than three-fourths (77 percent) of California real estate agents reported closing short-sale transactions as “difficult” or “extremely difficult,” the group said.

You shouldn’t rush into a short sale or let your home go to foreclosure just to avoid a tax debt. But the impending end of the favorable tax rule on forgiven mortgage debt should be one of the things to consider if you conclude you can’t afford to keep your house.

California Clawing Its Way Back

California experienced a small rebound in its real estate market in August, outperforming July and August 2010, and just a ten thousand homes shy of hitting the average number of sales on record for the month according to statistics provided by DataQuick. The average price of homes has dropped in the state and more than half of the sales are comprised of distressed homes that were short sales or in foreclosure, but good news is welcome in a state that has been battered by the slumping sales in the U.S. housing market. 


An estimated 37,734 new and resale houses and condos were sold in California last month. That was up 8.8 percent from 34,695 in July, and up 10.2 percent from 34,239 for August 2010. An increase from July to August is normal for the season.

California sales for the month of August have varied from a low of 29,764 in 1992 to a high of 73,285 in 2005, while the average is 48,344. DataQuick's statistics go back to 1988.
The median price paid for a California home last month was $249,000, down 1.2 percent from $252,000 in July, and down 4.2 percent from $260,000 for August a year ago. The year-over-year decrease was the 11th in a row after 11 months of increases. The bottom of the current cycle was $221,000 in April 2009, while the peak was $484,000 in early 2007.

Distressed property sales continued to make up more than half of California's resale market last month.
Of the existing homes sold last month, 34.6 percent were properties that had been foreclosed on during the past year. That was up from a revised 34.5 percent in July and down from 35.6 percent in August a year ago. The all-time high was in February 2009 at 58.5 percent.

Short sales -- transactions where the sale price fell short of what was owed on the property -- made up an estimated 17.8 percent of resales last month. That was up from 17.3 percent in July and down from 18.0 percent a year earlier. Two years ago short sales made up an estimated 14.3 percent of the resale market.
The typical mortgage payment that home buyers committed themselves to paying last month was $982, the lowest on record. That was down from $1,027 in July, and down from $1,045 in August 2010. Adjusted for inflation, last month's mortgage payment was 56.1 percent below the spring 1989 peak of the prior real estate cycle. It was 64.4 percent below the current cycle's peak in June 2006.

DataQuick Information Systems monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.
Indicators of market distress continue to move in different directions. Foreclosure activity increased last month. Financing with multiple mortgages is low, down payment sizes are stable, cash and non-owner occupied buying is flat at a high level, DataQuick reported.

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California Still Has Plenty of Homes Worth Less Than Mortgages

Nearly one in four homes in Virginia with a mortgage attached to it is “under water” – with the property owner owing more than the home currently is worth – according to new figures from the second quarter of the year. Virginia’s rate of 23.3 percent is nearly a full percentage point higher than the national average, according to new statistics released by CoreLogic, a California firm that tracks real estate data and trends.

In addition to the homeowners in Virginia whose mortgages exceed the current value of their properties, an additional 6.1 percent are in the “near-negative” category, where property values are within 5 percent of the amount owed on the mortgage. That rate, too, is higher than the national average.

The situation was worse in the Washington metropolitan area: Counting the District of Columbia and Maryland suburbs in addition to Northern Virginia, nearly 290,000 residential properties with a mortgage – 28.3 percent – were in a negative-equity condition in the second quarter, with an additional 5.5 percent approaching that situation.

It is, analysts say, a situation that must continue to show improvement in order for the housing market nationally and at the local level to return to health.“High negative equity is holding back refinancing and sales activity, and is a major impediment to the housing-market recovery,” said Mark Fleming, chief economist of CoreLogic.

“The hardest-hit markets have improved over the past year, primarily as a result of foreclosures,” Fleming said. “But nationally, the level of mortgage debt remains high relative to home prices.”
Local rates may be higher than the national average, but are nowhere near the rates in some parts of the country, where the real estate bubble has hit the hardest:

* In Nevada, 60.4 percent of homeowners with mortgages had negative equity in the second quarter, down from 68 percent a year before due largely to homes being foreclosed on. An additional 4.9 percent are in the near-negative category. The value of homes of Nevada homeowners with mortgages is currently $100.8 billion, but the total owed to lenders is $113.6 billion – the only state where the ratio tops 100 percent.

* In Arizona, 48.7 percent of homeowners with mortgages are under water, with another 4.8 percent close to that mark. Arizonans with mortgages own properties valued at $248 billion and have debt of $231.4 billion, or 93.1 percent.

* In Florida, 45.1 percent of homeowners with mortgages have negative equity, with an additional 4.3 percent approaching it. The total value of their properties is $819.3 billion, with 87.8 percent of that tied up in mortgage debt.

* In California, the largest state in terms of property values, homeowners with mortgages own a collective $2.8 trillion in homes, with $1.96 trillion of that – or 70 percent – tied up in mortgages. California ranks fifth nationally in the percentage of homeowners under water, behind Nevada, Arizona, Florida and Michigan.

* In Virginia, homeowners with mortgages own a collective $426.8 billion in residential real estate, and owe just under $305 billion to lenders – a ratio of 71.7 percent. Nationally, the rate is 69.8 percent, representing $12.6 trillion in property value and $8.8 trillion in mortgage debt.
Figures represent data through May, and include 48 million properties with a mortgage, about 85 percent of all mortgages in the U.S.

CoreLogic also found that homeowners with negative equity tend to be saddled with higher-interest mortgages.

4 Home Buying Lessons We Should Never Forget

Reasonably enough, Americans hate almost everything about the real estate recession. Underwater owners hate that they can neither sell nor refinance, distressed homeowners and consumer advocates hate robo-signing, and just about everyone hates plummeting home values. They even strike fear in the hearts of the buyers who are taking advantage of them. 

So, it might surprise you to hear that there is a list — true, a short list — of real estate trends the recession has triggered that we hope will stick around.

1. Buying for less than you are approved for. A few years ago, mortgage money was easy to come by, and the norm was to buy at or very near the maximum price you were approved for. The theory was that with prices on the rise, it made sense to buy as much house as you could, as soon as you could. Even if you didn’t need the space, you wanted to get as much appreciation as you could for your home buying dollar. Clearly, those tides have dramatically turned, and many home buyers are buying very conservatively when it comes to price. It has become very commonplace for buyers to tell their agents and mortgage brokers how much (or how little, rather) they are willing to spend, regardless of whether their income, assets and credit qualify them for a much higher price range. And buyers now stick within their self-imposed financial bounds when they make offers on homes. In addition to aspiring to a mortgage payment that is sustainable, even in the face of a temporary job loss, buyers are also conscious of the energy and maintenance costs associated with buying “too much” home for their needs.


2. Buying for the long-term. At the peak of the market, people bought homes and took on adjustable rate mortgages (ARMs) with very short-term introductory payments they could just barely afford, expecting to be able to flip that house in sometimes as little as three or four months at a steep profit. We all know how that turned out. And as a result, today’s buyers seem much more committed to their homes, most buying with the expectation that they might need to stay put in those homes for at least seven to 10 years before they can break even. For some, this means they buy in a great school district even before they have kids, and they make sure they have enough space for the family they plan to have five or 10 years in the future. For others, this means not buying at all because their job or career requires mobility. The harder hit your area was by the foreclosure crisis, the longer you should expect it to take break even; conversely, in areas like San Francisco and Manhattan, a shorter, 5-year rule might make sense.

3. Saving up, keeping a steady income, and polishing credit before buying. Obviously, buyers have to do a lot more work to qualify for a mortgage today than they did when subprime lending obliterated all good sense in mortgage lending. Today’s lending guidelines require that buyers document ample, consistent income to afford the mortgage payment, document a strong credit history and put their own skin in the game in the form of down payment money. Are these standards too tight? Arguably. But what no one can dispute is that the buyers who are tightening their belts to save for down payments, taking on mortgages that fall reasonably within their monthly income, and doing the work of paying every bill on time every time — or even paying debt down or off — in order to qualify for a mortgage on today’s market are creating strong financial habits in the process. And those habits will stand them in good stead throughout their tenure as homeowners.


4. Reading your loan docs. Before you roll your eyes, understand this — foreclosed homeowners tend to fall into two categories: those who had crazy ARMs that reset to insane payments they could never afford without refinancing, and those that lost their jobs and couldn’t make the payments as a result. Some fall into both. But the fact is, the first group is full of folks who claim to have never read or understood their loan documents before signing them. Many of those buying into today’s volatile market got the memo and are meticulously scrutinizing the line items and terms of their notes, deeds of trusts and loan disclosures — and they ask questions when they don’t understand. Fancy that!

We’re happy to see most of these buyer-behavior trends and hopeful they will become the norm and stay there — even after home values have recovered.

Coming loan changes could squeeze high-priced home markets

Starting Oct. 1, Fannie Mae and Freddie Mac will cut the size of loans they buy from lenders. That will force many future borrowers into more expensive and harder-to-get jumbo loans.

The Freddie and Fannie limits, which are generally $417,000 for single-family homes nationwide, were raised in 2008 in some high-cost housing markets to stimulate the economy. In many areas, the limits rose to $729,750 and next month they'll fall to $625,500. Limits will drop more sharply in some areas and less in others. 

Major lenders, including Bank of America, Wells Fargoand JPMorgan Chase, have stopped taking new applications for affected loans so that those in process close by the deadline.

Meanwhile, borrowers with offers on homes — who need loans at the current limits — are "panicked to close loans" by the deadline, says Pamela Liebman, CEO of the Corcoran Group, a residential real estate brokerage company in New York City.

Some lenders are "buried" given the rush to close deals before the changes and the mini-refinance boom driven by low rates, says Dean Rizzi of Guarantee Mortgage in San Francisco. He has 10 home buyers who need loans to close before the deadline.

With jumbos, borrowers could see a 4.5% interest rate, for example, go to about 5%. Down payments of 20% will be the norm, says Quicken Loans economist Robert Walters.

Bank of America says it will close its deals in time. It stopped taking new applications for loans affected by the changes in mid-July, spokesman Terry Francisco says. Borrowers starting the loan process now are probably "out of luck" if they want loan terms based on current limits, says LendingTree economist Cameron Findlay.

The changes will affect 2% of the nation's homes, but more in some areas, the National Association of Home Builders estimates.

Liebman expects 10% of New York City's market to be affected — largely the $800,000 to $1 million starter home market. The new loan requirements will "pull a lot of buyers out of the market," she says.

Some buyers may lack needed down payments and others may have to consider less costly homes, says Beth Peerce, president of the California Association of Realtors.

Lobbying efforts to get Congress to extend the higher limits "are not looking great," Peerce says.