U.S. Commercial Real Estate Prices Decline to Post-Crash Low

U.S. commercial property prices fell to a post-recession low in March as sales of financially distressed assets weighed on the market, according to Moody’s Investors Service.

The Moody’s/REAL Commercial Property Price Index dropped 4.2 percent from February and is now 47 percent below the peak of October 2007, Moody’s said in a statement today.

The national index has fallen for four straight months as sales of distressed properties hurt real estate values. Investor demand is strongest for well-leased buildings in such major markets as New York and Washington as vacancy rates decline and the economy grows.

The index “continues to bounce along the bottom as a large share of distressed transactions preclude a meaningful recovery of overall market prices,” Tad Philipp, Moody’s director of commercial real estate research, said in the statement. “Indeed, the post-peak low in price has been reached in the same period as a post-peak high in distressed transactions has been recorded.”

So-called trophy properties in New York, Washington, Boston, Chicago, Los Angeles and San Francisco are helping those markets avoid the drag caused by distressed asset sales nationwide, Moody’s reported. Prices of properties of $10 million or more have risen 23 percent since their July 2009 low, according to a separate report issued today.

No Recovery Signals
The overall index shows “no sign of recovery,” Moody’s said.

Almost a third of all March transactions measured by Moody’s were considered distressed, meaning the properties’ owners faced foreclosure, had difficulty covering their mortgage payments or experienced other financial problems. It was the largest proportion of distressed property sales in the history of the index, Moody’s said.

Price increases for high-profile properties in major markets “appear to have taken a breather, providing less of a positive effect on overall market results than it has in recent months,” according to today’s report. Transactions involving such assets also fell, meaning that those properties that did sell were more likely to be troubled, Moody’s said.

Bill Proposes Major Mortgage Shake-Up by This Summer

Two lawmakers, a California Republican and a Michigan Democrat, are set to unveil legislation Thursday to replace mortgage giants Fannie Mae and Freddie Mac with at least five private companies that would issue mortgage-backed securities with explicit federal guarantees.

The measure is a compromise between conservative Republicans who have advanced bills to build a mostly private mortgage-finance system and Democrats, who say the government shouldn't abandon the mortgage market.

Fannie and Freddie were taken over by the government in 2008 as rising mortgage losses wiped out thin capital cushions. Taxpayers are on the hook for $138 billion to keep the companies afloat and stabilize mortgage markets.

Amid an uneven housing recovery, lawmakers have largely shied away from fashioning a successor to the failed mortgage giants.

Analysts say that the compromise proposed by Rep. John Campbell (R., Calif.) and Rep. Gary Peters (D., Mich.) may be the only plan likely to attract sufficient support from both parties on a politically explosive subject, particularly at a time when gridlock looms over issues such as how to curb federal spending.

Other policy makers, including Treasury Secretary Timothy Geithner, have publicly discussed the merits of a limited but explicit government guarantee of securities backed by certain types of mortgages.

Rep. Campbell said, "Rather than putting out a political marker, we can move a piece of legislation that is significant...and can actually become law. The only other approach that's out there in a bill is one that replaces Fannie and Freddie with nothing."

Like Fannie and Freddie, the new entities would be restricted to buying loans that meet certain standards, including size caps. But the firms would have to hold much more capital than Fannie and Freddie. And only the mortgage-backed securities that they issue—not the companies themselves—would enjoy federal guarantees.

The companies would operate more as public utilities and likely wouldn't have exchange-listed shares.

The approach signals policy makers' desire to usher more private capital into the mortgage market, where the government currently backs more than nine in 10 new loans. But the measure also reflects an unwillingness to cut the federal cords entirely.

The bill comes as the housing and financial-services industries dial up efforts to block more aggressive overhauls of the mortgage market. Thursday's measure mirrors proposals advanced by industry groups such as the Financial Services Roundtable's Housing Policy Council.

Critics say the hybrid model risks recreating the same dynamics that led Fannie and Freddie to use their government ties to take risks that cost taxpayers. "In reality, this is almost surely going to be terrible," said Dwight Jaffee, finance professor at the University of California, Berkeley. Government insurance programs, he says, inevitably lead to "a catastrophe."

Advocates say taxpayers will be less exposed to losses because borrowers would be required to make significant down payments and the new firms would be required to hold more capital. The firms will also pay a fee for government backing to finance a catastrophic insurance fund, much as the Federal Deposit Insurance Corp. levies fees and handles bank failures.

"There is a lot of private capital ahead of the federal government and the taxpayers on this," said Rep. Peters.

The proposal leaves many details to an independent regulator, which Rep. Campbell says should be insulated from Congress to prevent lawmakers from leaning on it "to do politically correct things, which may not be financially correct things."

That role would fall to the Federal Housing Finance Agency, which currently regulates Fannie and Freddie. It would issue charters to the mortgage "guaranty associations," and would be charged with setting guarantee fees and ensuring appropriate capital levels.

While the bill doesn't specify whether the new entities would be allowed to hold mortgage portfolios, the more-stringent capital requirements would make such investment vehicles economically unattractive.

California Foreclosure Cancellations Rise and Filings Drop by 25%

Foreclosure activity slowed in April. Foreclosure filings were down in Arizona, California, Nevada and Washington, with Oregon being the sole exception where filings were up. California filings were down to levels not seen since late 2008, when governmental intervention caused a temporary but massive drop in activity. Foreclosure sales saw similar declines throughout our coverage area, except Washington. Notably, cancellations were up significantly across the board, leaving fewer propeties scheduled for trustee sale.

"The drop in filings, and the rise in cancellations, is surprising," says Sean O'Toole, CEO and Founder of ForeclosureRadar.com. "Banks have had time to resolve robo-signing issues, so we should be seeing exactly the opposite results, with lenders starting to catch up from recent delays."

California
Foreclosure filings in California fell to lows not seen since the fall of 2008. Notice of Default filings dropped 25.8 percent, and Notice of Trustee Sale filings fell 10.9 percent from March. On a year-over-year basis foreclosure filings were down as well, with Notice of Default filings down 28.0 percent and Notice of Trustee Sale filings falling 31.2 percent from April 2010. Foreclosure sale cancellations rose 27.0 percent from March. Acivity on the courthouse steps slowed from the prior month, with 17.2 percent fewer sales Back to Bank and a 15.8 percent drop in properties purchased by 3rd Parties, typically investors. The average Time to Foreclose continued to climb, increasing 3.3 percent to 312 days.

Related articles

• Foreclosures Fall Again, Reaching 3-Year Lows (reowablog.wordpress.com)
• Faulty paperwork slows foreclosures (msnbc.msn.com)
• VA Foreclosures (vabenefitblog.com)

3 Simple Questions To Get The Right Mortgage

Are you shopping for a mortgage?

If you have recently heard yourself say something like this:

What kind of loan do you think I should get?

And you got a response from a loan officer that was similar to:

I think that ___________ is the right loan for someone in your situation.

Stop.

There are three simple questions you can ask yourself that will help you narrow down your mortgage product choices.

Knowing these three simple questions can free you from having to use the “ask and hope” strategy— where you simply ask a loan officer and hope they do what is in your best interest.

Three Simple Questions

Getting the right mortgage for your individual situation can be a process of elimination by narrowing down the mortgage programs that won’t work for your situation as well as identifying possible ones that will.

1. How long do I plan on living in the home?

When it comes to home financing, if you buy a home, but plan on moving in 5 years or less, chances are that an adjustable rate mortgage may make sense.

Many adjustable rate mortgages (ARMs) start with a lower interest rate and have limits in place where even if the interest rate goes up in subsequent years, it can only go up — or down — by a certain amount for any 12-month period, as well as limits on how much the rate may go up over the life of the loan.

It is common for adjustable rate mortgage limits to allow your interest rate to rise or fall based on an index (e.g., LIBOR) anywhere from 1-2 percent per year with a maximum increase of 5 percent over the life of the loan.

2. How much money do I have for a down payment?

Different loan programs have different down payment requirements. How much money you are planning for a down payment will impact which loan programs are available. The current down payment requirements for some of the most popular mortgage programs are:

FHA loans – 3.5%
USDA loans – 0
VA loans – 0
Conventional loans – 5%
HomePath loans – 3%

With any of these loan programs, you can obviously put more money down than the minimum requirements and it may save you money over the long term by eliminating mortgage insurance (for example, if you put 20 percent down and get a conventional loan). You can play around with different numbers and the down payment using a mortgage calculator.

3. Does the house need repairs?

With the large number of homes available that are either bank-owned or short sales, more buyers are finding that the home they want to purchase is in need of repairs prior to moving in.

Two of the most popular loan programs designed for homes in need of repairs are the FHA 203k loan program and the HomePath Renovation loan program.

The HomePath Renovation program is only available for homes that are currently owned by Fannie Mae and is only available through a limited number of lenders. The FHA 203k loan program is offered by more lenders and is available for houses other than those currently owned by Fannie Mae making it a much more popular option.

When shopping for a mortgage rate, don’t leave everything up to your loan officer and fall into the “ask and hope” strategy. Arming yourself with these three simple questions can help ensure that you get into the best possible mortgage program for you and your family.

Real Estate Prices To See Dramatic Drop Nationwide for 2011

Even while the U.S. job market improves, the damage that has already been done in the real estate market continues to negatively impact the price of homes across the nation. After a brief upturn, prices are now souring due to a large seller’s market of foreclosed & bank-owned homes.

Real Estate prices in the US have double dipped nationwide, now lower than their March 2009 trough, according to a new report from Clear Capital.

It was inevitable, and it was predicted (by me for sure) that a surge in sales of foreclosed real estate and a big push by banks to facilitate short sales would force home prices down dramatically.

Sales of bank-owned (REO) properties hit 34.5 percent of the market, according to the survey, resulting in a national price drop of 4.9 percent quarterly and 5 percent year-over-year. National home prices have fallen 11.5 percent in the past nine months, a rate not seen since 2008. Add short sales, where the bank allows the borrower to sell for less than the value of the mortgage , and prices have nowhere to go but down.

"With more than one-third of national home realty sales being REO (bank owned), market prices are being weighed down as many markets have not regained enough footing to withstand the strain of the high proportion of REO sales," says Clear Capital's Alex Villacorta.

You don't have to tell Los Angeles Realtor Bill Kerbox any of this. LA prices had been improving, and LA is still one of the nation's best-performing metro markets right now. Recently, however, prices took a turn, now down 2.4 percent quarter to quarter thanks to 34 percent REO saturation.

"We have definitely seen a number of both short sales and foreclosed real estate along the West Side here, and they have definitely taken a hit," bemoans Kerbox. "It hurts to have a very low comp pop up next to your beautiful new home."

While the usual subprime mortgage suspects, like California, Arizona, Florida and Nevada used to rule the foreclosure roost and still have high volumes of distressed properties, the mid-west is seeing a surge in REOs now, thanks to the plain old recession. 40 percent of the Chicago realty market is foreclosures, 43 percent in Cleveland and 51 percent in Minneapolis. Home prices fell 8.7 percent in the Mid-West during the past three months compared to the previous quarter.

While the foreclosure crisis is abating on the front end, with fewer loans going newly delinquent, the pipeline of seriously delinquent loans is enormous. Banks are now ramping up the foreclosure process after the "robo-signing" paperwork scandal, but at their current pace it would take about four years to process all the bad loans through foreclosure and even longer to sell those homes out on the open market.

While buyer demand is rising, thanks to a slowly improving jobs picture, mortgage availability is still very difficult for the low to middle-income borrower, and falling prices don't help already weak consumer confidence in the housing market. If prices continue to fall further, which they likely will in the short term, the number of so-called "underwater" borrowers, those with negative equity, will rise even higher, which could in turn result in more loan delinquencies.

How to Sell Your Home in Tough Times

If you're in the market to sell your home, you probably feel you can't catch a break. Nearly five years into the housing bust, when many experts thought thereal estate market would at least have stabilized, sales and prices are still dropping in most of the country.

In February existing-home sales tumbled 9.6% from the previous month, and the median price of a single-family home dropped to $157,000 from $163,900 the previous year, according to the National Association ofRealtors. You can't count on things turning around soon, either. At the current sales pace, it would take 8.6 months to clear out the 3.5 million existing homes listed today.

With the boost from the recent homebuyer tax credit gone, anyone who decides or is forced to put a house up for sale enters a market where houses often linger a full six months -- even a year -- without any bites. Put part of the blame on stiff competition: Foreclosures and short sales, which accounted for 39% of sales in February, sell for about 15% less than conventional homes.

"It's dreadful out there for sellers," says Patrick Newport, a U.S. economist at forecasting firm IHS Global Insight.

Fortunately, there is one glimmer of goodnews. Bargain hunters, too, know that home prices are down some 32% from their peak. In a recent CNNMoney survey, three-quarters said that it was a good time to buy a home. But translating that interest into an actual sale can require some extreme measures.

It's not enough to show buyers your house is a deal: You have to convince them it's a total steal. That means slashing your price, bringing in a pro to pretty it up, and creating a killer website for your home. Here's how to do it right.

Slash Your Price, Bigtime
Sellers are still loath to accept the extent of the toll the bust took on their homes' value, says Tara-Nicholle Nelson, consumer educator for the housing website Trulia.com.

Many also give in to the temptation to list the property above fair market value to see what happens. Big mistake. About a quarter of sellers in the past year initially listed too high and were forced to knock the price lower, according to Trulia.com. Even in cities that have held up well, such as Charlotte, 25% of sellers resort to at least one price cut, and often two.

Be Agressive
Think you can always drop the price if your home doesn't sell? Bigger mistake.
"The first 30 days on the market are the most important," says Norwalk, Conn.,realtor Elizabeth Kamar. That's when your place attracts the most attention and gets the most showings. The result: You often end up with less than you would have if you priced it right to begin with, says Kamar. So get aggressive right out of the gate.

Undercut your competition. In normal times listings of similar properties in your area would give you a good sense of what your home might sell for. Today there's a big gap between what sellers want and what buyers are willing to pay.

Instead, figure out what you canrealistically expect to get by asking yourrealtor to show you what houses similar to yours have sold for in the past three to six months. If more than a couple of the comparable properties were foreclosures or short sales, look closely at the photos and descriptions of those former listings. Distressed homes should be included in your comps if they are in move-in condition, says Las Vegasrealtor Paul Bell.

Hire a Stager
Find the right stager. The ASP (accredited staging professional) designation is a plus -- it indicates the stager has gone through some basic training -- but it isn't essential. Get names fromrealtors or atrealestatestagingassociation.com, then review the stager's online portfolio of before-and-after photos. Next, call homeowner references and ask how fast their homes sold after staging and whether they think the work helped.

Establish a budget and ask the stager to work within it. Stagers typically charge $150 to $400 to walk through your home and give recommendations for each room. You can then execute the plan yourself or hire the stager to do it for an hourly fee, usually $100 or so, plus the cost of any new paint or furnishings.

Find the Right Hook
These days it's going to take far more than a FOR SALE sign in the front yard and a spot on the multiple-listing service to get potential buyers in the door. That means getting the word out in a creative fashion -- and finding arealtor who is willing to do the same. "The more eyeballs that get on the listing, the better," says Katie Curnutte of thereal estate information website Zillow.com. To do that, you need a multipronged marketing plan of attack.

Create a great site. About 90% of buyers begin their search on the Internet, according to the National Association ofRealtors. Make sure your home's online presence has a dozen or two photos: Having 20 instead of five photos will almost double the number of hits you'll get, according to Zillow.com. See the sidebar at right for more ways to keep potential buyers clicking on your site.

Vulture investors flipping their way to real estate profits
Throw money at them. Incentives can perk buyers' interest just as much as price cuts, says Matt Brown, director of business development at ForSaleByOwner.com. In fact, many buyers will agree to a higher price if their upfront costs are lowered, since they often run short on cash.

If you can afford it, offer to cover the buyer's closing costs or pay the first year's property taxes or condo or homeowner association dues. However, those freebies may be practically standard, particularly in areas rife with distressed properties.

In that case, saysrealtor Guzman, you might be able to bring buyers to the door by tossing in an unusual bonus, such as a $1,000 gift card (throw in one for the buyer's agent as well); a belonging they mentioned loving, such as the pool table or plasma TV; or a $5,000 credit to use in the home as they wish. (You can even pay upfront points so that they can get a lower mortgage rate, if you can swing it.)

Be aware, though, that you must disclose any such gifts or payments when the offer is agreed on, and some lenders will not approve them. If so, you might have to find another incentive that the bank doesn't object to.

Showcase super condition. Yes, some buyers are hunting for foreclosures in rough shape that they can nab for a song. Yet just as many shoppers don't want -- or don't know how -- to put in that sweat equity. So hire an inspector to identify every problem with the home, even seemingly minor issues such as dripping faucets, and fix them.

"If an outlet doesn't work, why get the buyer wondering what else is broken?" asks Beth Foley, an associate broker in Holland, Mich. Tell yourrealtor to give anyone who tours your home a copy of the inspection report and your list of fixes.

Spread the word online. Having your home listed on a major website likeRealtor.com isn't enough. Ask yourrealtor if you'll get an "enhanced" listing on the site, where your home gets top promotional billing. Manyrealtors will create a website just for your home. You also want to get your listing on alternative sites like Craigslist or even Facebook.