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Home seizures by banks decline in state

January 26, 2011 By
Trash litters the front yard of a bank-owned home in Phoenix. Arizona was among the states hardest hit by the housing meltdown. (Joshua Lott, Reuters / January 13, 2011)

Los Angeles Times

While foreclosures climbed 2% nationally, California saw a 14% drop. But California’s high unemployment rate and resetting loans mean the fall in foreclosure activity could be brief.

Fewer Californians grappled with foreclosure last year, bucking a national trend and giving homeowners fresh hope that the state’s housing market could be on the mend.

Trash litters the front yard of a bank-owned home in Phoenix. Arizona was among the states hardest hit by the housing meltdown. (Joshua Lott, Reuters / January 13, 2011)

Fewer Californians grappled with foreclosure last year, bucking a national trend and giving homeowners fresh hope that the state’s housing market could be on the mend.

The 14% drop in foreclosure activity contrasted with a 2% rise nationally, according to data tracking firm RealtyTrac. Analysts noted that California’s housing market was among the first to falter and may now be among the first to recover. Home prices here hit bottom in April 2009, and have gradually risen since then.

Read the full story

If you follow my blog at all… I have a few questions for you. How can anyone know what media forum is correct? Did you see my post yesterday about 1 million homes foreclosed in 2011? While this article is more geographically specific, I would question how accurate is this data, and is it really an issue or a concern to me?

Rather than have uncertainty in the future market, ask yourself, how long am I going to live in my next home? How comfortable am I with my current job, with my current mortgage or rent payment? We have no control over the market; however we as consumers have full control over our individual plans, thoughts and actions.

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House Appraisals Under Fire

January 15, 2011 By
Gary Cohen's home in Century City, Calif.

Here we go again… we have discussed Automated Appraisals (- Computer Generated Appraisals) in the past and we are still experiencing the same challenges.

Computerized Models Are Assailed as Inaccurate; There Goes the Credit Line – By M.P. MCQUEEN

Home appraisals, which were blamed for being too generous during the housing boom, are now being criticized by some homeowners for being too stingy, preventing them from refinancing or borrowing against their houses.

The criticism is being leveled at computerized real-estate appraisals, which depend on models that use prices from home sales and other data to determine the value of a house. Because of the volatility in the housing market, they are underestimating prices, some homeowners, real-estate agents and fee appraisers say.

Gary Cohen, of West Los Angeles, Calif., says Citibank suspended his $510,000 home-equity line of credit based on a drop in his home's estimated value after performing a computerized appraisal.

Lenders use computerized appraisals primarily for home-equity loans, preapprovals for mortgage refinancing, loan modifications and mortgage originations of less than $250,000. Automated appraisals are cheaper and faster than in-person appraisals. They run as little as $20, whereas appraisals done by people can cost hundreds of dollars.

The computerized models are used as a check on in-person appraisals, which often were too generous during the housing boom, according to federal banking regulators and state attorneys general. The regulators said banks often held sway over appraisers, encouraging them to value homes at certain prices in exchange for future business. In the wake of the housing bust, regulators imposed tough new rules, prohibiting banks from picking individual appraisers for individual properties.

“The selling point was that [computerized appraisals] were faster and not prone to bank pressure,” says Steven Kane, a Colorado commercial and residential appraiser who is the author of two books on how to apply automated valuation models.

Computerized appraisals calculate a home’s value by using an index derived from historical repeat-sales data, or sales records of homes with similar property characteristics, such as square footage and the number of bedrooms and baths. In-person appraisals don’t incorporate as much transactional data as a computer model.

Gary Cohen, an advertising-sales manager in West Los Angeles, Calif., says Citibank suspended his $510,000 home-equity line of credit based on a drop in his home’s estimated value.

A computer model used by the bank showed his home had dropped to just over $1 million in 2009 from the $1.65 million it was appraised at four years earlier.

So, Mr. Cohen, 65 years old, paid $750 for an in-person appraisal from a firm designated by the bank. It estimated his home was valued at $1.3 million, but Citibank still wouldn’t reinstate his credit line.

“The discrepancy is so great that you have to know whatever method they are using is not accurate,” Mr. Cohen says.

Mr. Cohen sued Citibank, a unit of Citigroup Inc., over the appraisal. In court documents, Citibank said that even if his home is worth the higher figure, the bank has a legal right to suspend the credit line.

Gary Cohen's home in Century City, Calif.

“Citibank continues to believe the suit has no merit and intends to defend its position vigorously,” said a spokesman.

Borrowers also have sued J.P. Morgan Chase & Co., Wells Fargo & Co. and other big lenders, claiming that banks are misusing automated valuation models in order to cut home-equity lines of credit. J.P. Morgan Chase and Wells Fargo declined to comment.

Automated valuation models were pioneered by Yale economist Robert Shiller, who developed the first systems in the early 1990s. While arguing that these appraisals are more objective than human appraisers, Mr. Shiller and others say that in some situations the models may be providing unrealistically low values, prompting lenders to reject loan applications or lend less money on particular properties.

Some models weigh past sales of a particular property over time against a historical home-price index, and they are running into problems with properties that have been bought only once. That is the situation in places such as Nevada and Southern California, where new subdivisions sprouted during the housing boom but many homes never sold or entered foreclosure before ever being sold in a nondistressed transaction.

“The main difficulty is that I need two or more sales prices for a property, and if I’m not able to find it, it doesn’t fit into the sample used to calculate the index,” says David Stiff, chief economist at Fiserv, one of the largest providers of automated appraisals using this methodology.

Prof. Shiller concedes there can be problems with these appraisals if a too-short period of historical data is programmed into models.

“In a slow market, it might suggest that prices are going to be falling for a while,” he says.

Other computerized models break down the particular characteristics of a property—number of bedrooms and bathrooms—as well as sales of comparable homes, to arrive at a value estimate. They often are hampered by a lack of accurate or comprehensive data in county and municipal records. Improvements, for example, are recorded by building permits, so if homeowners don’t file permits, the records won’t be accurate.

These models can “change a lot, depending on which variables you include or exclude, so there can be a bias,” says Prof. Shiller.

Bottom line… I believe that the lender is really not obligated to lend money on the property regardless of the value, and the fact that the borrower provided a second appraisal… if the borrower desires, they can go to another lender and get a cash out refinance. Your thoughts???

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When will housing come back in California? Five experts offer their views

January 11, 2011 By
In Mission Crest, 373 homes — nearly 40% of those in the housing development — had been lost at one point to foreclosure, the San Bernardino County assessor's office said. About 100 lots had been left graded and bare. (Katie Falkenberg, For The Times / May 18, 2010)

A Great Article about market recovery as seen in the LA Times. – By Alejandro Lazo

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

In Mission Crest, 373 homes — nearly 40% of those in the housing development — had been lost at one point to foreclosure, the San Bernardino County assessor's office said. About 100 lots had been left graded and bare. (Katie Falkenberg, For The Times / May 18, 2010)

As housing recoveries go, this one is in need of a cure.

Homeownership — and the buying and selling of residences — is an economic keystone that carries overwhelming weight in Californians’ personal sense of financial well-being.

But the momentum of the state’s housing rebound has faltered, with sales falling and prices softening despite bargain-basement interest rates. Foreclosures in California are still high. Sales of new homes are at historic lows. The construction sector is in the doldrums. And millions of the state’s homeowners owe more on their mortgages than their properties are worth.

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Real estate historically has helped give a boost to economies exiting a recession, but the severity of this bust is nearly unprecedented: Californians have lost $1.73 trillion worth of equity in their homes since prices peaked in 2007, according to Moody’s Economy.com.

Although California’s housing market free-fall ended in spring 2009, the weakness after the expiration of federal tax credits for buyers last year has called into question the sustainability of the recovery.

The Times asked five California experts for their take on the state of real estate and what they think is needed to get the housing market moving again. They range from the pessimism of a foreclosure specialist to the decidedly more upbeat view of a Realtor association economist.

• Richard Green, director of the USC Lusk Center for Real Estate, predicts home prices will remain flat in 2011.

California’s recovery will hinge on location, said Green, who held professorships at several universities and worked as a principal economist at Freddie Mac before becoming director of the Lusk center.

“Draw a line from El Centro up to Sacramento and think of all the towns up and down that line. Unless we have hyperinflation in general in the economy — prices going up a lot — I would guess that in my lifetime we will not see a return to the prices that we had at the peak,” Green said.

“Now, places like La Jolla, Malibu, Laguna, Huntington Beach, Atherton, Palo Alto, the city of San Francisco, Marin County, those are places where within the next five years I could easily imagine prices returning to their peak.”

“The markets in the Central Valley were much more bubbly than the markets on the coast,” he said. “You have very few people who make a lot of money in these places.”

“Whereas a place like Silicon Valley, or a place like West Los Angeles, there is a critical mass of very high-income people.… That means you have a large number of people who can afford to spend in the neighborhood of $1 million on a house, and these are desirable places.”

“The more a property is a commodity that you can easily substitute for something else, the less the chance it will ever come back to its peak. The rarer a property is, the more likely it’s going to come back quickly.”

• Leslie Appleton-Young, chief economist for the California Assn. of Realtors, predicts home prices will rise 2% in 2011.

There are few professionals who would like more to see the housing market bounce back to the heady days of old than Realtors. Real estate agents made a killing when the housing market soared and then took a pounding when it tanked.

During the boom years, Appleton-Young said, she espoused the theory that rising prices mattered more than making solid loans. That theory appeared correct as long as values kept rising.

“What happened this time was prices plummeted and everyone was in trouble,” she said.

These days, the economist sees little chance of the market returning to its previous heights anytime soon.

“We are in a very slow-moving recovery with prices stabilized at the moderate and low end,” Appleton-Young said. “We are still seeing price attrition and price softening at the upper ends of the market.”

2011 will be lackluster, she said, but that does not mean California is not improving.

“We are almost two years into a price recovery. The problem is not to look at 2007 as the normal market that you are moving back up to, because it wasn’t a normal market. We are back in an underwriting environment that actually makes sense.”

“You are seeing prices recovering throughout the state,” she added. “It is just going to take time.”

• Bruce Norris, president of Norris Group in Riverside, expects home prices to fall 5% in 2011.

The real estate slump has been good to Norris, an investor in foreclosed homes. But he believes the market is being artificially boosted by government programs and is set to fall further this year.

“We are in an artificial recovery,” Norris said. “It’s government controlled and manipulated. We have extremely favorable interest rates that we really should not have, based on our debt. We have supported real estate with tax rebates, and we have prevented inventory from showing up by allowing people to be two and three years behind on their mortgages.”

Foreclosed homes, in particular, are being kept off the market through loan modification attempts and other policies.

“You’ve had a slew of programs trying to prevent inventory from showing up, and that prevents reality from happening,” Norris said. “It’s definitely standing in the way of the natural process.”

What does the housing market need most?

“Demand for houses,” Norris said. “Somebody able to qualify for a loan and actually being able to get it. And that’s why it is not going to happen.”

• Emile Haddad, chief executive of FivePoint Communities Inc., expects home prices to “stabilize” in 2011 but declined to make a specific price prediction.

Determining whether the housing market is on steady footing is essential to developers such as Haddad, the former chief investment officer for Lennar Corp. Haddad, along with Lennar, is now part owner of FivePoint, which is managing the development of the Valencia community in Los Angeles County and other high-profile projects. He believes a recovery has yet to take hold in California.

“We are bumping along the bottom,” Haddad said. “And that is a good thing, because that is the first thing that you need in order to start seeing a housing recovery. You need to have a period where values are not going down and the trend is moving in a different direction.”

California’s coastal markets will come back once the job market returns, he said, lifting consumer confidence. But California’s inland areas are more likely to lag behind, and builders will have to reconsider the kind of product they offer in such places.

“In the Central Valley, values have changed a lot,” Haddad said. “You are not going to be able to really have enough depth in the market to sell large, expensive homes, because the ceiling of value is way down.”

“If you pick on a market like Orange County,” he said, “it is still a place that once people feel confident…. I believe people will be out buying homes.”

Affordability is working in the market’s favor.

“We have a mortgage environment that is more favorable — the rates are down — but people are not able to get mortgages, and that is not helping. The most important thing we need is jobs and job creation.”

“Affordability is something I look at, and obviously that is a very attractive metric right now…. There is a value proposition out there right now that is very attractive, that we haven’t seen in four decades.”

• Christopher Thornberg, founding principal of Beacon Economics, predicts home prices will remain flat in 2011.

Once a senior economist for the UCLA Anderson Forecast, Thornberg was one of the first to predict the housing crash, pointing to prices that were way out of line with what people earned.

In that vein, he views the plunge in home values as its own recovery of sorts “because that is when prices went from stupid-high levels to levels that made sense again,” Thornberg said. “Now we are in a post-recovery recovery, if you will.”

“This is not the bust. A bust implies that prices have fallen to levels that are too low. And I would argue that prices today are relatively high. It’s interest rates that have given us this degree of affordability, and from that perspective that is why I don’t expect prices to come down.”

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

“The administration has tried, through a variety of policy methods, to try and spike the market,” he said.

alejandro.lazo@latimes.com
Copyright © 2011, Los Angeles Times

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Bank of America to resume foreclosures

January 10, 2011 By

By Aaron Smith, staff writer – NEW YORK (CNNMoney.com) —

Bank of America said earlier last month that it was ending its hiatus on foreclosure sales, and promised to get its act together after a series of sloppy home seizures prompted the bank to back off and re-examine its process.

“We have identified areas of our process that can be improved and while we make these improvements, it’s important that we move ahead with efforts to reduce the number of abandoned properties across the country,” said Barbara Desoer, president of Bank of America (BAC, Fortune 500) Home Loans, in a statement. “The properties can drag home values in neighborhoods and slow the eventual recovery of the housing market.”

The bank said it plans to proceed with 16,000 foreclosures this month, though it will observe a “holiday suspension” of sales and evictions from Dec. 20 to Jan. 2. Freddie Mac (FMCC) and Fannie Mae (FNMA) have announced a similar holiday freeze.

The Bank of America action ends the “voluntary freeze” that the bank initiated in October, after a series of messy real estate mistakes. They included the foreclosure of a house that was owned outright by someone who had paid cash, without any mortgage at all, as reported by the Sun Sentinel of Florida.

In another case, the bank shut off the utilities of a Pittsburgh homeowner and seized her pet parrot, despite the fact that she was current on her payments.

“We continue to be committed to ensuring that no property is taken to foreclosure sale until our Bank of America customer is given an opportunity to be evaluated for a modification or, if ineligible for a modification, a short sale or deed in lieu solution,” said Desoer. “Foreclosure is the option of last resort.”


Last month, Desoer said the bank “deeply regrets” the way it handled some of its foreclosures.

The bank reiterated that “more than 86% of the bank’s home loans are current on their mortgage,” which means that less than 14% of home owners are not current.

The bank also reiterated that “at the point of foreclosure sale, one-third (of the) properties it services are vacant.”

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Banks Push Fed to Curb Borrowers’ Right to Rescind Mortgages

January 9, 2011 By
Borrowers usually exercise the right of rescission during a lawsuit such as a foreclosure, effectively forcing a loan modification. Photographer: Jay Mallin/Bloomberg

Great Article and a very good interview on the Bloomberg Website explaining the additional behind the scene challenges with loan modifications. Well worth your time!

Borrowers usually exercise the right of rescission during a lawsuit such as a foreclosure, effectively forcing a loan modification. Photographer: Jay Mallin/Bloomberg

Mortgage firms are pressing the Federal Reserve to curb homeowners’ right to invalidate loans based on flawed documents — a right consumer groups say is one of the few weapons borrowers have to battle unfair lending.

Consumer groups and industry lawyers say a rule under consideration by the central bank would make it harder for borrowers to exercise their right of “rescission,” which forces a lender to relinquish a lien on a mortgaged property. They said the number of rescissions has grown in recent years as a result of the foreclosure crisis and allegations that mortgage documents were fabricated or processed improperly.

Ken Markison, regulatory counsel at the Mortgage Bankers Association, said the change would save lenders money. “Greater clarity will help avoid unnecessary litigation and reduce costs,” Markison said.

Wells Fargo & Co., Bank of America Corp., and JPMorgan Chase & Co., the three largest U.S. mortgage lenders, all declined to discuss rescissions or didn’t respond to requests for comment. Susan Stawick, a Fed spokeswoman, also declined to comment.

Lenders are pressing the Federal Reserve to act on the issue now because starting in July, rescission rules will come under the purview of the new Consumer Financial Protection Bureau, industry lawyers said. Jeffrey Naimon, a lawyer with Buckley Sandler LLP, described the consumer agency in an e-mail as “a much more political” regulator than the Fed.

Fed ‘Rushing’

Since the financial crisis began, the Fed has come under criticism for having failed to meet its existing legal mandate to protect consumers from deceptive mortgages and other financial products. That track record was one reason behind Congress’s push to create an independent consumer agency.

“I cannot understand why the Fed is rushing through this voluntary gift to the banks unless the Fed is afraid that if it doesn’t curtail the rights of rescission now, it will never happen,” said Kathleen Engel, a professor at Suffolk University Law School in Boston.

The right of rescission was established by the 1968 Truth in Lending Act. Borrowers who can show a material misstatement in loan documents have three years to issue a rescission notice to the lender, who must revoke its lien on the property.

Consumer and industry lawyers said rescissions have risen because of fallout from the collapse of the housing bubble, although precise numbers are hard to come by. Kathleen Day, a spokeswoman for the Center for Responsible Lending, estimated that there are “thousands” of rescission cases pending in jurisdictions around the country; by contrast, the Federal Reserve estimated that there will be 2.25 million foreclosure filings this year.

Forced Modification

Borrowers usually exercise the right of rescission during a foreclosure or other legal proceedings, effectively forcing a loan modification. The borrower seeks a new lender, the original lender returns interest and fees, and the principal is repaid by the second lender.

“It is ultimately the biggest hammer in the toolkit for a lawyer helping someone to save their home,” said Ira Rheingold, executive director of the National Association of Consumer Advocates.

The Fed issued the proposed regulation on Sept. 24 as part of an update of truth-in-lending rules, and asked for public comment by Dec. 23. The Fed filing said the new rules are part of an ongoing review of truth-in-lending rules that has been proceeding for years, and would “reduce uncertainty and litigation costs.”

“The Board does not believe that Congress intended for the creditor to lose its status as a secured creditor if the consumer does not return the loan balance,” the Fed wrote.

Compliance Burden

The Fed filings noted that rescissions are sometimes based on technicalities, such as providing only one copy of a disclosure instead of two. The goal of the new rule is to “reduce undue compliance burden and litigation risk for creditors,” the Fed said, while improving “the clarity and usefulness of disclosures for the consumer’s right to rescind.”

Day of the Center for Responsible Lending called the proposed curbs an “industry-friendly move” that contradicts the Obama administration’s goal of minimizing foreclosures.

“It runs at cross purposes with any effort to bring people to the table,” Day said in an interview.

At a mid-October meeting of the Fed’s Consumer Advisory Council, an external advisory group, consumer groups expressed opposition to the change. At the meeting, Governor Daniel Tarullo signaled that he opposed the proposed rescission rule, according to two people present. Tarullo declined requests for comment.

Consumer Bureau

Two members of the advisory council, who asked that they not be identified because the discussions were private, said they brought the dispute to the attention of Elizabeth Warren, the special adviser to President Barack Obama charged with setting up the Consumer Financial Protection Bureau. The bureau will take over responsibility for truth-in-lending regulations when it begins operations after July 21.

A coalition of consumer and civil rights groups, including Consumers Union and the NAACP, sent a letter to the Fed on Nov. 16 asking the central bank to hold off on updating truth-in- lending regulations until the CFPB starts work.

Naimon, the lawyer with Buckley Sandler who represents lenders, said that waiting for the CFPB would “result in years of additional delay.”

Rescissions add “thousands of dollars” to the cost of a foreclosure process because a bank has to hire a local law firm to manage the litigation, he said. That legal work “can’t just be done from headquarters.”

Potent Tool

With credit markets tight, lenders have become less willing to issue new mortgages, so rescissions have become a potent tool for consumers seeking a loan modification, said Robert Cook, a Hanover, Maryland-based attorney with the firm Hudson Cook LLP. Lenders lose the security on the mortgage — the home itself — effectively becoming unsecured creditors.

“The conventional wisdom, which I think is correct, is that rescissions rise as the economy falls,” Cook said.

The private securitization of mortgages, rare when the lending act was passed in 1968, has imposed additional costs. Under the law, Cook said, the trustee of a pool of privately securitized mortgages can pull the rescinded mortgage out and force the issuer to buy it back.

The Fed proposal would require borrowers to tender the full loan principal before the creditor relinquishes the lien, a change that would “eviscerate the single most effective tool that homeowners have to stop foreclosures,” the consumer groups wrote in their letter.

Naimon argued that rescissions are a “lose/lose proposition” because they are “often a frivolous claim” and no money will be paid to consumers, but rather to lawyers for mortgage bankers.

To contact the reporter on this story: Carter Dougherty in Washington at cdougherty6@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.

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Home price plunge is widespread… CNN Money.

January 8, 2011 By
double dip arrives

By Les Christie, staff writerDecember 28, 2010: 11:24 AM ET

NEW YORK (CNNMoney.com) — Home prices took a shockingly steep plunge on a monthly basis, an indication that the housing market could be on the verge of — if it’s not already in — a double-dip slump.

Prices in 20 key cities fell 1.3% in October from a month earlier, an annualized decline of 15%, according to the S&P/Case-Shiller index released Tuesday. Prices were down 0.8% from 12 months earlier.

Month-over-month prices dropped in all 20 metro areas covered by the index. Six markets reached their lowest levels since the housing bust first began in 2006 and 2007. They were Atlanta, Charlotte, N.C., Miami, Portland, Ore., Seattle and Tampa, Fla.

“The double-dip is almost here,” said David Blitzer, chairman of the Index Committee at Standard & Poor’s. “There is no good news in October’s report. Home prices across the country continue to fall.”

The report was far more dire than anticipated by industry experts, who had forecast an almost flat market in October. It followed weak September numbers.

“It was a bit of a surprise,” said real estate analyst Pat Newport of IHS Global Research. “I wasn’t expecting it to lag so badly in all 20 cities.”

He, along with many other experts, has been forecasting further price erosion over the next few months of 5% to 7%, but didn’t expect the price drop to hit so fast and so hard. It’s mostly attributable to the end of the tax credit for homebuyers, the effects of which started to vanish beginning in June.

“The trends we have seen over the past few months have not changed,” said Blitzer. “The tax incentives are over and the national economy remained lackluster in October, the month covered by these data.”

Sales volume continues to lag, off 25% even from last October, when markets could hardly be described as robust.

Why the housing bulls are wrong
The inventory of homes on the market is up about 50% compared with last year at this time, and there are millions of potential homes for sale waiting on the sideline for markets to improve.

Much of that “shadow inventory” is held as repossessed properties by banks, who will eventually have to release them back on the market.

Most (and least) affordable cities
Prices in Atlanta, down 2.9%, and Detroit, off 2.5%, took a particular beating in October. Las Vegas and Washington came out of the month only slightly bruised, down just 0.2%.

The report ran counter to what have been generally positive signs of economic recovery, according to Richard DeKaser, an independent housing market analyst and founder of Woodley Park Research.

“The market is not showing much improvement after the summer slump,” he said. “Housing is acting as a drag on recovery.”

The coming of the second of the double dip is icing on the cake for homebuyers, who already have benefited from prices not seen in years in most markets.

“Prices have already adjusted, and are probably undervalued in most cities,” said Newport. “This will make them even more undervalued.”

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Bull vs. Bear: Will housing rebound?

January 7, 2011 By
bull vs bear

An interesting read to say the least… let me know your thoughts!
As seen in CNN Money – Posted by Nin-Hai Tseng, writer-reporter- December 27, 2010

It’s a question many Americans want answered: Will the value of my home rise or fall next year? Smart minds fall in both camps — here are both sides of the coin on real estate.

One of the most closely watched sectors in 2011 will continue to be real estate – a wildly emotional and divisive topic that’s puzzled investors and economists since the housing bubble burst around 2007. Earlier this year, many observers thought the market would turn around in a big way as federal tax credits spurred home purchases and the economy added jobs following hundreds of billions of dollars of government stimulus spending.

As the end of the year approaches, the prospects of a real recovery look much dimmer. For one, it’s become clear that we won’t see a true rebound until we have job growth. With unemployment showing few signs of improvement so far, the bullish take on housing seems hard to swallow, especially when many experts say home prices still have room to fall before hitting bottom.

But a bullish take doesn’t necessarily mean that prices would significantly rise. These are unprecedented times, and even the more cheery views fall short of predicting a steady surge in home values.

Here’s a bullish and bearish look at real estate for 2011.

Bull: Buy real estate!

One of the most vocal bulls on housing for 2011 has been Bill Ackman, founder and CEO of hedge fund Pershing Square Capital Management. At the Value Investing Congress in November, Ackman made a bold presentation called “How To Make A Fortune,” highlighting why it’s the right time to invest in real estate.

Ackman laid out several reasons but some key points include: With the fall in home prices and mortgage rates still relatively low, affordability is at its highest level in decades. What’s more, while there’s clearly still a glut in the supply of unoccupied homes, it will start to decline given that the rate of home construction is at historic lows.

Some of Ackman’s points sound similar to the reasons billionaire investor Warren Buffett gave earlier this year for his prediction that the real estate slump would end by about 2011.

Of course, this doesn’t mean he thinks home prices will return to their 2007 peak. In Buffett’s annual letter to shareholders of his Berkshire Hathaway (BRKA), which owns real-estate brokerage and manufacturer Clayton Homes, he predicted that demand for homes would catch up with supply following a period where the glut of unsold property caused home construction to dramatically fall.

In 2009, housing starts (the supply side) were 554,000 – by far the lowest number in the 50 years for which Berkshire could date. “Paradoxically, this is good news,” Buffett wrote.

And with home prices falling, he said families who couldn’t afford to buy a few years ago would finally be able to afford to do so. Buffett put it this way: “Prices will remain far below ‘bubble’ levels, of course, but for every seller (or lender) hurt by this there will be a buyer who benefits.”

It’s anyone’s guess if Buffett’s position on housing will change much in his letter to shareholders next year. It also remains to be seen if Ackman will continue to trump his “How to Make a Fortune” pitch with the recent rise in mortgage rates. For now, at least, both investors see promise in housing.

Bear: What bottom?

While home prices have for the most part stopped their freefall, some economists believe they haven’t hit bottom yet.

Rick Sharga, a senior vice president at RealtyTrac, an online marketplace for foreclosure properties, recently told The Wall Street Journal that foreclosures for 2011 could top the estimated 1.2 million bank repossessions this year, which reflected an increase of 900,000 from 2009. This is partly due to the so-called “robosigning” mess that forced some lenders to stall a flurry of foreclosures.

While Sharga predicts that home prices nationally could still fall by about 5%, others say they could drop much more at about 10%.

Some might argue that further declines coupled with relatively low mortgage rates might just spur a flurry of home purchases, but Daryl Jones, an analysts at investment research firm Hedgeye says that’s unlikely given that credit standards at virtually all major lenders are much higher and typically require larger down payments that would actually add to costs. Jones also thinks that home prices could fall another 15% to 30%, which means homes are actually still overpriced and might not attract more buyers as Ackman argues.

And while home construction is at all-time lows, Hedgeye says the trend is probably not as promising as Buffett and Ackman might think. The supply of housing is still very high – the firm estimated in November that there’s still 11 months of supply on the market to absorb, which is close to levels seen in 2009.

With so many variables working against the housing market, the bearish takes becomes all the more convincing. But one can always hope they’re wrong.

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Mortgage Rates May Have Hit Bottom…

January 6, 2011 By
mortgage rates

By LYNNLEY BROWNING – THE NEW YORK TIMES

MORTGAGE rates in 2010 were the lowest in six decades, but a recent and sustained increase may indicate that consumers can expect to pay more in the new year to buy or refinance a home.
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After hitting rock bottom in mid-November, fixed rates for 30-year mortgages, the most common type of home loan, have steadily risen.

With this year’s historically low rates, “there is a good chance that we have peaked, give or take a few basis points,” said HSH Associates, an independent publisher of mortgage and consumer loan information, in its most recent trends forecast. (One basis point is 0.01 percent.) According to Christopher J. Mayer, a senior vice dean and a professor of real estate, finance and economics at the Columbia University Business School, “The window of low rates could have left us.”

By Dec. 16, rates for a 30-year fixed loan rose for the fifth consecutive week, to 4.83 percent, up from 4.17 percent on Nov. 11, according to Freddie Mac, the government-controlled buyer of loans. Rates in the Northeast, which are often a tenth of a point or more above the national level, were on average the same as those across the nation. But by Thursday they had nudged downward, to 4.81 percent.

Mortgage rates typically track those of 10-year and 30-year Treasury and other government bonds. Yields, or interest rates, on those notes have been rising amid lender concerns that the White House’s deal with Congress on Dec. 7. to extend the Bush-era tax cuts and the Federal Reserve’s move in early November to buy back $600 billion in debt to stimulate economic growth will combine to fuel inflation and swell the budget deficit.

The 4.17 rate last month was the lowest since Freddie Mac began tracking rates in 1971 — as well as the lowest since World War II, according to Weiss Research, a financial analysis and publishing firm in Jupiter, Fla. The high point last year was 5.21 percent, in April.

So if you took out a 30-year fixed note for $400,000 at the recent 4.83 percent, you are paying $93 less per month than you would have in April — but nearly $157 more than you would have at the 4.17 percent benchmark.

Refinancing or buying a home is still more affordable, compared with the rates of 6 percent to 8 percent over most of this decade. (A table of historical rates is at http://www.freddiemac.com/pmms/pmms30.htm)

The Mortgage Bankers’ Association, a trade group, predicts that 30-year fixed rates will inch up to 5.1 percent by the end of 2011 and reach 5.7 percent in 2012. In a slightly more optimistic prognosis for homeowners or buyers, Frank E. Nothaft, the chief economist of Freddie Mac, wrote in an annual trend forecast on Dec. 6. that “while some rise in fixed-rates is expected, 30-year fixed-rate loans are likely to remain below 5 percent” throughout 2011.

Apart from rates, other factors may make it harder to buy or refinance a property in the coming year. Lenders of all stripes have significantly tightened their requirements and made it tougher than ever to qualify for a loan. And the real estate market is still depressed — only half of 109 housing economists polled in October by MacroMarkets, a financial technology company in Madison, N.J., expect housing prices to begin rising next year.

This year has been a boom time for refinancings — four out of every five single-family loan applications in 2010 was for a refinancing, according to Freddie Mac — and there is more demand yet to come from homeowners next year, Professor Mayer said.

If rates appear headed to rise later in 2011, it may be partly because of jitters about the effects on unemployment on the economy, said John Walsh, the president of Total Mortgage Services in Milford, Conn. Mr. Walsh said he thought the recent increase in rates was temporary. “We may come back down in the next 60 days or so,” he added.

A version of this article appeared in print on December 26, 2010, on page RE9 of the New York edition.

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Test-Driving Homeownership

December 23, 2010 By
Lease purchase agreements let you try life behind the picket fence, before you buy. Pictured: a home for sale in Hammond, La.

When buyers–or their banks–aren’t quite ready to commit, rent-to-own can be the answer.
By SARAH MAX

In October 2008 Ashley and Jason Repaal packed up their rental home near Detroit and made the 250-mile trip to East Jordan, a small town in Northwest Michigan where Ms. Repaal was slated to work as a contractor for a news distribution company.

Prior to the move, they found a three-bedroom, two-story house and made an offer for $80,000. The seller accepted and even agreed to let them move in before the sale was final. But just days before the couple was scheduled to close, the bank had second thoughts. The bank learned that Mr. Repaal, 28 years old, had just left his post with the Coast Guard, planning to help with his wife’s business and stay home with couple’s son, Adam, now 4. Until Ms. Repaal, age 24, who is an independent contractor, had two years of work under her belt, the bank said it couldn’t approve the loan.

The Repaals needed a backup plan; their real-estate agent suggested renting the house with an option to buy. The Repaals would pay $750 per month in rent on a two-year lease and put down $8,000 in good faith money–which would be used for their deposit if they closed on the house within two years. “If they walked away they would be out the $8,000 deposit,” says John McNabb, an agent with Coldwell Banker Schmidt Great Lakes who worked with the couple.

Because lease-to-own deals like these are sealed with handshakes and legal contracts, they’re virtually impossible to track. Yet, as the housing downturn wears on the popularity of rent-to-own seems to be growing. Buyers who want to test-drive a house before buying or need extra time to patch up their finances, are asking agents to find sellers willing to entertain such offers. “We’re seeing more requests for them here, and I don’t have any doubt there are parts of the country where they’re happening more,” says Fritzi Barbour, a broker with Coldwell Banker Caine in Greenville, S.C.

These deals are most common in hard-hit markets where foreclosures have driven down home prices and sellers can’t or don’t want to come down anymore on the asking price. “If the house isn’t occupied it’s an opportunity to create some revenue,” says Tony Hettler, a broker with John L. Scott in Des Moines, Wash.

But while sellers seem more likely to consider lease-to-buy arrangements, most won’t advertise that point. Of the 7,293 houses recently listed in the Greenville MLS, for example, only 194 were marked as available for lease purchase.

Lease purchase agreements let you try life behind the picket fence, before you buy. Pictured: a home for sale in Hammond, La.

In fact, many agents are reluctant to recommend any such agreement, as it delays their commission. There are also risks for the homeowners and renter-buyers, says Ms. Barbour, who recommends that each party work with an attorney.

The renter-buyer could back out of the deal. For that reason, it’s important for home sellers to understand the difference between a lease option–where the renter simply has the option to buy down the road–and a lease purchase agreement, which requires that the renter put down anywhere from .5% to 2% of the sale price in earnest money or pay a monthly rent premium with a share of the rent going toward the purchase price. The sale price and timeline are also spelled out in the contract.

If the renter flakes, the homeowner gets to keep the earnest money, some consolation when it’s time to put the house back on the market. That’s assuming the seller can get the renter to move out.

Ms. Barbour recalls a case where would-be buyers relocating from Chicago asked the sellers of a relatively new $200,000 home in Greenville to consider rent-to-own. “The owner was leery but needed some cash-flow against their mortgage,” says Ms. Barbour. Under the terms of the 12-month agreement the buyers paid $5,000 in good faith money and agreed to close on the new home within five days of selling their house in Chicago. Yet, when their home in Chicago came under contract about five months later they said they were opting out of the purchase agreement but would continue to “rent” the home through the duration of their agreement. (Turns out they were building a house on the other side of town.) “The sellers were livid and wanted them to vacate the property immediately,” says Ms. Barbour. But their attorney advised them that the only way to make them leave was to sue–a time-and money-consuming process that offered little gain.

Of course, there are caveats for renter-buyers, too. They may change their mind about the house or may not see their financial situation improve as quickly as planned. Either way, if they don’t buy they’re out earnest money, unless they convince a homeowner to do a lease option with no strings attached. In that case, they need to ask themselves why the homeowner is so desperate to begin with. “You’re probably not getting the cream of the crop of houses,” Ms. Barbour adds.

Another risk: The homeowner stops paying the mortgage. If the homeowner is foreclosed on, buyers still have a claim against them, but will have to get in line behind other creditors.

Obviously, it pays to do some due diligence on the homeowner, says Pierre Debbas, a real estate attorney in New York. At a minimum, ask for proof that they’re current on their mortgage, he says, though depending on the dollars at stake it may also be worth paying for a title search.

Foreclosure was one risk the Repaals didn’t need to worry about. After renting the East Jordan home for a year and a half, the couple qualified for a loan, closed at the end of July and snagged the $8,000 first-time home-buyer credit to boot. And while they had plenty of time to second guess their decision, in the end their original choice turned out to be the right choice. “During that time we looked at a lot of houses around the same price range,” says Ms. Repaal. “The other options just weren’t that great.”

While we still aren’t seeing to many of these in Orange County, this may be a consideration for homeowners that are underwater, that can’t make the full payments… your thoughts? I would love to hear from you. – Jeff

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Luxury home prices are still heading down…

December 19, 2010 By
Author Anne Rice has reduced the asking price on her Rancho Mirage home by $350,000, to $2.95 million, because she wants a smaller residence. (Mariah Tauger, Los Angeles Times / November 19, 2010)

Very good and well written article with keen insight from some of Orange Counties well known agents. What are your thoughts?

While Southland housing values overall have rebounded from recent lows, those in the upper end of the market may not yet have hit bottom. Some experts don’t see a turnaround for at least another year.

Author Anne Rice has reduced the asking price on her Rancho Mirage home by $350,000, to $2.95 million, because she wants a smaller residence. (Mariah Tauger, Los Angeles Times / November 19, 2010)

Photos: Author Anne Rice downsizing from luxury home
By Lauren Beale, Los Angeles Times

On its glittering surface, the Southern California luxury housing market still has plenty of pizzazz.

A 48,000-square-foot Versailles-style estate in Bel-Air that sold for $50 million is believed to be the highest-priced sale in the nation this year. Actor Sacha Baron Cohen spent $18.9 million on a Mediterranean villa in the Hollywood Hills, a record for that area.

Luxury housing: In the Dec. 13 Section A, a graphic with an article about problems in the luxury housing market listed ZIP Codes for the highest-priced homes in Southern California. It showed two locations for Rancho Santa Fe on a map: the correct one in San Diego County and an incorrect one in Los Angeles County. —

These trophy deals, however, are masking a larger malaise in the luxury market. Most mansions put up for sale are lingering for months without nibbles from buyers, real estate agents say. And although Southland home prices overall have rebounded from lows hit last year, the luxury market is still trending downward.

The troubles at the top may seem small compared with the huge housing declines seen in areas such as the Inland Empire. But a turnaround in the luxury market was the first indicator of recovery in the 1990s down cycle. And many experts say the housing market won’t be healthy again as long as mansion prices are falling — which could be the case for at least another year.

“Good locations will be the first out, and luxury is generally in good locations,” said economist John Burns, who heads a real estate consulting firm in Irvine.

Why the continuing funk? Analysts say the foreclosures and short sales that depressed home prices in general are finally catching up with the high-end market. The day of reckoning just took more time.

“Formerly affluent people who borrowed far too much money” are running out of staying power, Burns said.

The Times examined monthly sales data in 20 Southland ZIP Codes with the highest home prices, from Beverly Hills to Solana Beach, using information provided by research firm MDA DataQuick of San Diego.

In 10 of those areas, home values are still lower than they were a year ago, suggesting that they have yet to hit bottom. Median prices were basically unchanged in five areas and showed modest gains in five. Overall, 19 of the 20 communities are still below their high points.

Anne Rice said she feels a little awkward complaining about the real estate market. As a bestselling novelist, she realizes she is far more fortunate than most.

Even so, Rice isn’t thrilled that she has had to reduce the asking price on her primary home in Rancho Mirage, near Palm Springs, by $350,000.

She hopes the new price of $2.95 million will attract a buyer, but it means taking a greater loss. Rice bought the six-bedroom, seven-bath home in gated Thunderbird Heights for $3.6 million in 2005.

“The market has been hard on us,” said Rice, who wants to downsize. “All my high-earning years, I invested in real estate…. I have lost money now on two — quite dramatically — selling an $8-million property in La Jolla for $6.5 million and a property in New Orleans for less than cost and improvements.”

Southland home values plunged 51% from 2007 to 2009. But they’ve shown steady improvement over the last 18 months, gaining back about 15%.

In contrast, home values at the upper end have not fallen as far but have shown few signs of recovery, according to MDA DataQuick figures.

There are 44 ZIP Codes in Los Angeles, Orange, Santa Barbara and San Diego counties where median prices exceed $1 million. Prices in these high-end communities dropped nearly 26% from their January 2008 peak to April 2010. They have gained back 5% since then.

Prices in Rancho Santa Fe, ranked by Forbes as the third most expensive community in the nation, have fallen nearly 31% since their 2005 peak, and they have yet to turn the corner.

Through October, Beverly Hills 90210 had the highest median of these top-priced neighborhoods at $2.7 million. That’s down a mere 18.7% from the 2008 crest, but it too has not shown any rebound.

While the overall drop in value has not been as severe as that at the lower end of the market, the fact that prices in many areas continue to fall acts as a brake on sales — as buyers hold off making purchases out of fear their investment will immediately decline in value.

Luxury real estate brokers are feeling the pinch, as fat commissions are fewer and further between.

“We’re seeing a lot more sales in the $1 million and below range,” said John McMonigle, president of McMonigle Group, an Orange County firm that specializes in selling luxury properties. “We had 121 homes close escrow in Newport Beach in September at an average of $1.15 million, but when you drill down, one thing is concerning: There was only one house over $5 million.”

Malibu’s Billionaires’ Beach enclave can boast of a $37-million closing in October, one of the highest prices there ever. But that and other marquee sales can’t make up for weakness elsewhere in the market.

“Malibu has taken the worst hit,” said Sandra Miller, an agent who tracks $1-million-plus sales on the Westside. Less than a third of listed properties are selling, she said, and median prices are down about 25%.

When will the market turn around, and what will it take?

Burns, the economist, believes that the housing market overall is headed back toward 2002 price levels, on grounds that the gains seen over the last year or so will be reversed as a new flood of foreclosures and short sales hit the market.

That would mean a small retreat for the general market, in which prices are now at 2003 levels. It would be a more dramatic downturn at the high end, where prices are about where they were in 2005. He predicted they won’t hit bottom till 2012.

Real estate agents say one reason the high-end market has taken longer to reach bottom can be summed up in one three-letter word: ego. Wealthy sellers may not need the money and refuse to reduce their price for fear they’ll look like they are in financial trouble, said Bob Hurwitz of Hurwitz James Co. in Beverly Hills.

The message he tries to hammer into unrealistic sellers these days: “You wouldn’t buy this house for this price yourself.”

Holding firm on an asking price keeps up the illusion that the house is worth more, Hurwitz said. “Some sellers are dreaming.”

Southern California’s posh neighborhoods are littered with examples of properties stuck at outdated prices. The most noticeable on the landscape is Fleur de Lys, a 12-bedroom estate in Holmby Hills that was listed at $125 million for 940 days before being pulled off the Multiple Listing Service late last year. The French Beaux Arts mansion on 5 acres is still being marketed on agents’ websites.

By comparison, its competition — the nearby $150-million Spelling estate — has been on the market only since March 2009. There has been no price drop on this 56,500-square-foot manse either, however.

The moneyed market of the Palos Verdes Peninsula is no different. Linda D’Ambrosi of Keller Williams had the listing on a turn-key ocean-view house that lingered on the market for more than a year with nary a price cut. Home prices on the peninsula are down 12.9% from their 2008 peak.

“The seller,” she said, “just couldn’t come to terms with today’s value.”

lauren.beale@latimes.com
Copyright © 2010, Los Angeles Times

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