Lots of news in the past few days—and the bottom line is that things are getting better.
Nearly five years into the crisis, just how badly are foreclosures still hurting the housing market? A whopping 46% of homes sold in November were either short sales or REOs — as homes foreclosed on and repossessed by lenders are called, according to a survey by Campbell/Inside Mortgage Finance released Tuesday. “The huge glut of distressed properties coming to market is why there will be no home price rebound this coming year and maybe into 2013,” said Guy Cecala of Inside Mortgage Finance, a publisher of mortgage information and news. One problem: Distressed homes sell for a lot less than homes sold by conventional sellers. The average price for a short sale (when borrowers owe the bank more than their homes are worth) was $209,000 in November. For a regular sale, the average is about $259,000. The numbers are even worse for REOs, which averaged about $190,000 for properties in move-in condition.
“Distressed properties have the lowest prices for any category of home sold,” said Cecala. “To a large extent, that’s why we’ve seen continuous home price drops over the past three years and why those drops are likely to go on.” There is no shortage of distressed properties: More than 6 million borrowers are delinquent 30 or more days, according to LPS Applied Analytics. Two million are already in the foreclosure process, and most of these homes will be repossessed or sold as short sales. House hunters have gotten accustomed to shopping for homes in foreclosure and any stigma that may have attached to REOs or short sales in the past has diminished. But many of these properties have been damaged, making them hard to sell and depressing their prices. Indeed, the average price for a damaged REO was just $99,000 in November — 62% less than conventional sales, the survey found. After all, some buyers don’t want to do major repairs and others are turned off by homes in poor condition. Plus, getting financing for REOs in poor shape can be difficult, according to Cecala. Lenders don’t like to issue loans for homes in need of extensive repairs. Underwriters don’t want to wind up with houses worth less than their loan balances. Since distressed properties sell for so much less, using them as comparables drags the appraised values of regular homes way down. Imagine a buyer agrees to pay $220,000 for a home. If the house is appraised for only $200,000, the buyer will only be able to get a mortgage for $160,000, since lenders generally will finance just 80% of the sale price. In that case, to make the deal, the sellers would either have to reduce their price by $20,000, the buyers would have to come up with more cash or they’d have to pursue a combination of both. Sometimes, that just can’t be done. If the sellers stick to their price and the buyers can’t or won’t come up with the extra cash, the transactions die. “It’s the No. 1 reason why transactions fall through,” said Cecala. “If you can’t get an appraisal to support the price, the deal will won’t close.” Source: CNN/Money
The “shadow inventory” — properties that are in foreclosure limbo and have not yet come to light on banks’ balance sheets — has fallen slightly over the last year. Shadow inventory as of October 2011, the latest data available, stood at 1.6 million units or a 5-month supply. In October 2010, shadow inventory was at 1.9 million, or a seven-month supply, CoreLogic reports. A one-month supply of shadow inventory is considered more healthy for the housing market, a level that hasn’t been seen in years. “The shadow inventory overhang is a large impediment to the improvement in the housing market because it puts downward pressure on home prices, which hurts home sales and building activity while encouraging strategic defaults,” Mark Fleming, chief economist for CoreLogic, said in a statement. The states with the largrest inventories are Florida, California, and Illinois, which have more than a third of the nation’s shadow inventory, according to CoreLogic. Source: CoreLogic
Existing-home sales rose again in November and remain above a year ago, according to the National Association of Realtors®. Also released today were periodic benchmark revisions with downward adjustments to sales and inventory data since 2007, led by a decline in for-sale-by-owners. Although rebenchmarking resulted in lower adjustments to several years of home sales data, the month-to-month characterization of market conditions did not change. There are no changes to home prices or month’s supply. The latest monthly data shows total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums, and co-ops, increased 4.0 percent to a seasonally adjusted annual rate of 4.42 million in November from 4.25 million in October, and are 12.2 percent above the 3.94 million-unit pace in November 2010. Source: NAR
Nearly 80 percent of home buyers say now is a great time to buy a home, but sellers say it’s not a great time to sell, according to a new study, “The Great Recession and Attitudes Toward Homebuying,” released this week by the Mortgage Bankers Association. In fact, homeselling sentiment has fallen to record lows. As for home buyers, they certainly have plenty to be happy about — housing prices have fallen and interest rates are at record lows, pushing affordability to record levels and allowing buyers to snag great deals on housing. But sellers, on the other hand, are getting discouraged that they can’t find buyers for their homes at a desirable sales price as well as the large overhang of mortgages past due or in foreclosure, according to the report. “In economic terms, as market values have fallen, potential sellers have not adjusted their price expectations downward fast enough to bring buyer and seller sentiment in line with one another,” Gary Engelhardt, a professor at Syracuse University who authored the study, said in a statement. Sellers still can’t accept that their home values have fallen and they are no longer able to get the prices from the past, according to the study. Meanwhile, “despite high unemployment and slow economic growth, the bulk of American households believe that now is a good time to buy a home,” Engelhardt said. The strongest positive sentiments toward buying was found among young, educated, white, and Hispanic households, according to the study. “The pattern of home-buying sentiment during the current recession looks very similar to that of past recessions,” Engelhardt notes. “Home buyer sentiment falls as the unemployment rate increases, and improves as job growth returns and housing becomes more affordable. What distinguishes the current recession, though, is the dramatic decline in home-selling sentiment. From 1992 through 2005, positive home-selling sentiment fluctuated between 40 and 60 percent. Since 2005, sentiment has dropped precipitously, to around 7 percent currently, even while home-buying sentiment remains high.” Source: Mortgage Bankers Association