Survey: Buyers Frustrated by Low Inventory, Rising Prices

By Nick Timiraos June 4, 2012, 11:30 AM for www.wsj.com

Active home buyers are increasingly concerned about rising prices, prompting a growing number to slow down their purchase plans, according to a new survey.

The findings are from real-estate brokerage Redfin, which surveyed more than 1,200 home buyers in 18 metro areas who had toured a home since March 1.

The company found that 49% of respondents believe that it’s a good time to buy a home, down from 56% last quarter. The share of buyers who think it’s a good time to sell more than doubled, to 28% of respondents.

Nearly six in 10 respondents said that low inventory remained their top concern with buying right now—by far the most predominant worry of buyers. The supply of homes listed for sale nationally is down by 20% from one year ago, and markets such as Phoenix, Orlando and Oakland, Calif., have around half as many homes for sale as one year ago.

More than seven in 10 buyers said they had faced a competing offer when making an offer for a home.

Given those experiences, perhaps it isn’t surprising that 58% of buyers said they think prices will increase, up from 34% last quarter. Meanwhile, just 9% of buyers said that concerns about falling prices were making them reluctant to buy right now, down from 29% three months ago.

The lack of supply and the uptick in multiple offer situations is surprising to many buyers and could lead some frustrated buyers to stand back. More than one-quarter of buyers said they would stand back from the market if prices went up or they were in a multiple-offer situation, while 10% of respondents said they’d do what it takes to win a competitive bid.

The survey also found that 16% of buyers were worried about fatigue from bidding wars and that 21% were concerned about prices rising beyond what they could afford.

“The overwhelming sentiment among home buyers is that there aren’t enough good homes for sale,” said Glenn Kelman, Redfin’s chief executive. “Who would sell right now if he didn’t have to?”

Inventories are also low because banks have put fewer foreclosed properties on the market. The Redfin survey found that 57% of buyers were very interested in conventional sales, up from 48% three months ago. Buyer interest for new homes, foreclosures, and short sales showed little change from last quarter.

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Original Post: http://blogs.wsj.com/developments/2012/06/04/survey-buyers-frustrated-by-low-inventory-rising-prices/

Renting Prosperity

Americans are getting used to the idea of renting the good life, from cars to couture to homes. Daniel Gross explores our shift from a nation of owners to an economy permanently on the move—and how it will lead to the next boom.

By DANIEL GROSS May 4, 2012, 6:08 p.m. ET for WSJ.com

Photo illustration by The Wall Street Journal

 

In the American mind, renting has long symbolized striving—striving, that is, well short of achieving. But as we climb our way out of the Great Recession, it seems something has changed.

"The Great Gatsby," the pre-eminent American novel of financial ambition, overextension and downfall, offers a revealing vignette about the great American obsession: real estate. The narrator, Nick Carraway, can't afford to buy in the rarefied Long Island world inhabited by Gatsby, and by Tom and Daisy Buchanan. But he can afford to rent. "When a young man at the office suggested that we take a house together in a commuting town, it sounded like a great idea. He found the house, a weather-beaten cardboard bungalow at eighty a month, but at the last minute the firm ordered him to Washington, and I went out to the country alone," he notes. "I had a view of the water, a partial view of my neighbor's lawn, and the consoling proximity of millionaires—all for eighty dollars a month."

 

 

The economy needs the dynamism that renting enables as much as—if not more than—the stability that ownership engenders.

In the American mind, renting has long symbolized striving—striving, that is, well short of achieving. But as we climb our way out of the Great Recession, it seems something has changed. Americans are getting over the idea of owning the American dream; increasingly, they're OK with renting it. Homeownership is on the decline, and home rentership is on the rise. But the trend isn't limited to the housing market. Across the board—for goods ranging from cars to books to clothes—Americans are increasingly acclimating to the idea of giving up the stability of being an owner for the flexibility of being a renter. This may sound like a decline in living standards. But the new realities of our increasingly mobile economy make it more likely that this transition from an Ownership Society to what might be called a Rentership Society, far from being a drag, will unleash a wave of economic efficiency that could fuel the next boom.

 

 

While downgrading the place of ownership in the American psyche may sound like a traumatic task, the cold, unsentimental fact about the American dream is that Americans never really owned it in the first place. For the past three decades, especially, consumers haven't so much bought their quality of life as they've borrowed it from banks and credit card companies. And since the Great Recession, Americans have been busy rebuilding their balance sheets and avoiding new financial encumbrances. When American consumers can't—or won't—borrow to purchase the goods and services they've come to consider part of their standard of living, how does the economy get back on its feet?

The answer lies in consumers following the example of corporations—that is, becoming more efficient. The reaction to extended leverage and foolish borrowing isn't to stop consuming and buying; it is to consume and buy more intelligently. That's what the Rentership Society is all about. And it starts at home. Literally. Housing is the biggest single component of consumption in the U.S. economy and the source of much of our present misery. According to the Bureau of Labor Statistics, the typical consumer spends about 32% of his or her budget on shelter. In the last decade, that generally meant borrowing a lot of money to take "ownership" of a home.

The vast mortgage-political-financial complex, for a variety of reasons, valued homeownership as a good in its own right. Democrats saw the extension of credit to people on the lower end of the income scale as a matter of social justice; Republicans thought homeownership would make people more bourgeois. Banks and Wall Street firms salivated at the fees mortgages could generate.

So, during the boom, the homeownership rate grew steadily, peaking at a record 69% in 2006, according to the Census Bureau. But those gains were short-lived and came at a truly massive cost: a huge mortgage bust, expensive bailouts of Fannie Mae and Freddie Mac, an overhang of millions of foreclosed properties and falling home prices. Ownership-boosters failed to note that homes purchased in 2005 and 2006 with no-money-down, interest-only mortgages weren't really bought. They were simply rented until the "owner" flipped them or walked away from the mortgage. Far from strengthening low-income neighborhoods, this destabilized them through the inevitability of foreclosure.

In the post-bust climate, renting has emerged as a much more economically efficient way to pay for housing. A one-year lease represents a far less onerous financial obligation than a 30-year mortgage. It's difficult to get into too much financial trouble as a renter. The homeownership rate has fallen from its peak in 2006 to 65.4% today. The foreclosure crisis, which has caused millions of Americans to turn over homes to lenders, is responsible for much of this decline. What's more, given the weak labor market and higher lending standards, more Americans today have a difficult time scraping together the required down payments.

For an increasing number of Americans, though, it simply makes more sense to rent these days. According to Moody's, by late 2011 it was cheaper to rent than to own in 72% of American metropolitan areas, up from 54% a decade ago. And the more people who do it, the more socially acceptable and desirable it becomes. The decline in the ownership rate means that about three million more households rent today than did at the height of the bubble.

It's tempting to view the rise of rentership as an economic step backward. Renters can't build up equity, and they have less control over their living standards than owners. Renting is generally seen as something you do when you've failed as a homeowner or are not yet ready to be one. But I'd argue the rise of rentership is a sign of a system adapting—albeit too slowly—to new realities.

Alamy

 

Renting has emerged as a much more economically efficient way to pay for housing, argues Daniel Gross.

The U.S. economy needs the dynamism that renting enables as much as—if not more than—it needs the stability that ownership engenders. In the current economy, there are vast gulfs between the employment pictures in different regions and states, from 12% unemployment in Nevada to 3% unemployment in North Dakota. But a steelworker in Buffalo, or an underemployed construction worker in Las Vegas, can't easily take his skills to where they are needed in North Dakota or Wyoming if he's underwater on his mortgage. Economists, in fact, have found that there is frequently a correlation between persistently high local unemployment rates and high levels of homeownership.

Home builders and property owners have caught on to the economic opportunity presented by the move toward rental. Fannie Mae and Freddie Mac have become reluctant owners of more than 200,000 properties thanks to the foreclosure crisis, working through the backlog, one painstaking foreclosure sale at a time. But in February, Fannie Mae said it would put up for sale some 2,490 homes as a package, asking for $321 million. The Wall Street Journal reported that an assortment of real estate companies and private-equity investors were considering making bids. The presumption was that these sophisticated investors would turn the homes into rental properties. No less a sage than Warren Buffett told CNBC in February that he'd love to buy "a couple hundred thousand" single-family homes for rentals.

The depressed home-building industry has also shifted gears to adapt to the new reality. Housing starts for multifamily units have risen sharply since 2009, according to the Census Bureau. In 2011, whereas single-family housing starts fell 9% from the year before, starts of structures with five or more units were up 60%. In the first quarter of 2012, starts of multifamily housing structures were up another 27%, while single-family starts were up only 16.7%.

What's more, the builders of these structures increasingly intend to rent them out. In 2007, only 62% of the housing units in buildings with two or more units were built for rent. In 2009, 84% of the units in such buildings were built to be rented. In 2011, 91% of the units in such structures were aimed at the rental market.

And the rising popularity of rentership is hardly contained to the housing market. Indeed, it has spurred the creation and growth of innovative businesses in a number of other realms—particularly those that cater to America's cash-strapped, credit-wary youth.

Take cars. The Bureau of Labor Statistics says that private transportation—owning and running a car—is the second largest cost for a typical American household, accounting for 16% of expenditures. Factoring in finance costs, depreciation, repairs, insurance, taxes and gas, AAA calculates that an owner of a midsize sedan who drives 15,000 miles a year spends $8,588 a year on his car.

Enter auto-sharing firm Zipcar. Founded in 2000, it grew by focusing on cities and college campuses. It uses information technology to manage its fleet, and control access—people get cards that let them into garages where cars are kept and into the cars themselves. Users in New York pay a $60 annual fee and then $8.75 per hour on weekdays and $13.75 per hour on weekends—no extra charge for gas or insurance or miles. As the U.S. economy contracted, Zipcar went into hyper-growth: from 225,000 members in 2008 to 650,000 members and 9,500 cars in November 2011. Zipcar, which went public in 2011, has had success in the predictable big cities like Boston, New York and San Francisco, but its vehicles can also be found on 350 college campuses and in smaller cities like Providence, R.I., and Portland, Ore. Large rental agencies like Enterprise and Avis have responded by rolling out similar services.

Or take textbooks. College textbooks are, in effect, rental goods. Students buy them at retail, use them for four months, and then resell them to the campus store or a used-book dealer. In 2010, the U.S. college-textbook market was worth about $4.5 billion, according to the American Association of Publishers. But why buy textbooks when you can spend less and rent them? Chegg.com, founded in 2001, has raised more than $200 million in funding and is aiming to displace the college bookstore. An undergrad can buy an economics textbook new for, say, $263. At Chegg.com, she can rent a hard copy of the same book for $94 for 180 days, or an electronic copy for $128 for the same period. As more students come to campus with Kindles, Nooks and other e-readers, the more efficient consumption of college textbooks is likely to grow rapidly.

Rent the Runway, another Rentership Society business, has likewise found a foothold on college campuses. The company was started in 2009 by Harvard Business School classmates Jennifer Hyman and Jennifer Fleiss. Ms. Hyman has called the company "the Netflix for fashion." As with Netflix, customers open accounts and then pay for the temporary use of goods sent to them through the mail. A Thread Social Poppy Sweetheart Dress (retail price: $365) rents for $50. Accessorize with Crislu Crystal Tear Earrings (retail $96, rent for $20). In business for less than two years, Rent the Runway has raised $31 million in venture capital, attracted one million customers and is turning a profit.

All these models involve more sharing than American consumers are typically accustomed to doing. But the culture is changing. Consider how quickly the attitude of consumers toward housing has changed. And I'm not just talking about the rising incidence, popularity and acceptance of home and apartment rental. At the height of the boom, people believed their homes generated cash by serving as a source of home equity credit, or by returning profits when they were sold. Today, not so much.

But thanks to another postrecession business, efficiency-seeking homeowners have come to realize that their homes can still generate cash. Airbnb, founded in August 2008, is dedicated to the promise that lots of people are willing to earn money by renting out a room in their home and that lots of people are willing to save money by crashing in strangers' abodes rather than in motels or hotels.

Only in America could entrepreneurs rapidly transform couch-surfing into a high-tech business worth more than $1 billion in the space of 36 months. With over 100,000 listings available in more than 16,000 cities and 186 countries, it's a real business. It has booked over 5 million nights. In July 2011, Airbnb raised $112 million from venture-capital firms Andreessen Horowitz, DST Global and General Catalyst. But the real value of Airbnb isn't necessarily what profits it brings to investors. Rather, it's the cash it puts into the hands of homeowners. That cash is not enough to turn around the economy. But it's part of a sea change in how people view the true value of their property and how they role of ownership in their lives as a whole.

Finally, perhaps, Americans are absorbing a piece of wisdom not from Gatsby, but from Thoreau: "And when the farmer has got his house, he may not be the richer but the poorer for it, and it be the house that has got him."

—Mr. Gross is economics editor at Yahoo Finance. This essay is adapted from his new book, "Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy," which will be published Tuesday by the Free Press.

A version of this article appeared May 5, 2012, on page C1 in some U.S. editions of The Wall Street Journal, with the headline: Renting Prosperity.

Original Post: http://online.wsj.com/article/SB10001424052702304746604577382321021920372.html?mod=WSJ_RealEstate_RIGHTTopCarousel

What The Mortgage Relief Plan Would Do For Homeowners

 

by Deborah L. Jacobs, Forbes Staff  for Forbes.com

After more than a year of wrangling over various mortgage relief proposals, influential state leaders seem close to adopting a plan that Pres. Obama announced Feb. 1. Attorney General Eric T. Schneiderman of New York and California’s attorney general, Kamala Harris have indicated they are closer to agreement than in the past.

There are two important elements of the plan and details of both have been a subject of fierce disagreement. One, which could be worth about $25 billion, relates to how much money would be allocated to benefit homeowners and the specific relief they would receive. The other involves the power states would have to investigate past practices by banks, oversee future ones and monitor compliance with the plan.

If the plan is adopted, here’s what it would do for homeowners in specific situations.

Mortgage underwater but current with payments. More than 10 million homeowners in the U.S., due to a decline in home prices, owe more on their mortgages than their houses are worth. So even though interest rates have declined, they have been unable to refinance. The latest plan would enable people who have been making loan payments on time to save about $3,000 a year on their mortgage by refinancing with lower-interest loans guaranteed by the Federal Housing Administration.

Mortgage underwater and behind with payments. Depending on how many states sign on to the plan, up to $17 billion would be set aside to reduce principal for homeowners who are behind on their payments and owe more than their houses are currently worth. The plan would not guarantee a minimum amount of mortgage relief by state.

Victims of foreclosure fraud. The plan would provide payments of about $1,800 apiece to approximately 750,000 families that have been the victim of an improper foreclosure practice. Since 2010, federal authorities have been investigating banks’ routine electronic notarization of documents being transferred from one financial institution to another as part of the foreclosure process–a practice known as robo-signing.

Compensation is likely to be offered to people who lost their homes between Jan. 1, 2008, and Dec. 31, 2011. They would not be required to give up their right to sue the financial institutions. Banks, among them the five biggest mortgage providers–Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial—want to be relieved of liability for future claims involving robo-signing.

In announcing the plan on Feb. 1, the President said he was “working to turn more foreclosed homes into rental housing.” So far such a plan is not contained in the pending proposal.

Deborah L. Jacobs, a lawyer and journalist, is the author of Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide. You can follow her articles on Forbes by clicking the red plus sign or the blue Facebook “subscribe” button to the right of her picture above any post. She is also on Twitter.

Original Post: http://www.forbes.com/sites/deborahljacobs/2012/02/06/what-the-mortgage-relief-plan-would-do-for-homeowners/

Flooring in Florida: Is This the Start of Something Good for the Housing Market?

by Alex Villacorta, Contributor for Forbes.com Lifestyle 1/31/2012 @ 4:13PM

Have we turned the corner? Without a doubt, that is the most popular question I get about the housing market. No one can be 100% positive at this point, but a good start for any recovery is when markets build a “floor,”or foundation for which the fundamentals of price appreciation can be built. Given the positive signs we’ve seen recently, I started looking for patterns in various markets to determine if a recovery is starting, and if flooring is being laid anywhere.

After publishing our 2011 Year End Market Report and 2012 Forecast, some interesting trends were discovered in Florida. In 2011, all four Florida metros (Jacksonville, Orlando, Miami and Tampa) ranked in the highest 15 of all 50 metros for price growth over the year. In addition, our November 2011 market report showed three out of four of Florida’s metro markets in the highest performing markets on a quarterly basis. Finally, the 2012 forecast showed each of the areas continuing the trend of improving home values, while leading the country in gains.

It is important to note these markets received more than their fair share of price depreciation after the market peaked in 2006. Orlando had a 63% decline from the peak to the bottom of the market in 2009, and Miami’s prices slid 65% over the same period, so there is a lot of ground to make up.

So with that, it was time to dig deeper and see if flooring was being laid, and more importantly, if a clear pattern could be identified for what an early stage of a recovery looks like.

The first step was finding the fundamental drivers for what pushes prices up. Are there clear variables or consistencies across these markets, and would these variables drive similar market behaviors outside the sunshine state?

Both Orlando and Miami’s growth is being built on a foundation of increases in low tier and distressed home sales. Both these markets show:

• Substantial improvement in values in their lower priced segments – below $70,000
• Modest improvement in distressed home sale prices across all price tiers
• Declining levels of distressed sales as a percentage of total sales

In Orlando, the lower priced segment experienced a whopping 19.8% increase in prices in 2011, while on a price per square foot basis their distressed only sales increased by 4.4%. These growth rates are significantly above the U.S. average.

Low tier home values in Miami jumped 15.28% in 2011, as compared to the top segment of that market which only returned a 1.8% yearly gain. And again, on a price per square foot basis, the distressed only segment across all price tiers saw healthy price increases of 4.9% through the year.

Now while the gains in the distressed segment were not as strong as that of the low price tiers in both markets, just the fact that REO sale values were increasing at all is important. A recovery in the distressed segment, regardless of the magnitude, creates a resistance to future losses across all price tiers as it is this segment that has created much of the pressure on prices over the past several years.

Along with the upward movement in price for the distressed market, the overall saturation of REO sales decreased in both Miami and Orlando. In Miami distressed sales as a percentage of all sales went down to 31% from 44% at the start of the year, well off the high point of over 50% seen in mid-2009. Orlando experienced a similar trend with current distressed sales representing 25% of total sales, a substantial improvement over the rate of 49% at the start of the year, and below the high of over 54% seen in mid-2009. These markets are coming off extreme highs in the percentage of REO sales down to levels closer to the US average of 25.3%. As these numbers are at, or even above the U.S. average, it is the movement of REO saturation that is extremely important, more so than the actual figure. The substantial decrease in REO saturation, especially in Orlando, is certainly helping prices to recover.

Another factor we analyzed was the type of transaction, and it appears that Miami in particular, has found a strong appetite for investing along with their appetite for spicy food. About 59% of Miami’s transactions were conducted with cash, followed by Orlando’s 48%. This is a significant increase from the national rate holding right around 30% over the last year as reported by the National Association of Realtors.

For 2012, we forecast anticipated growth of 8.7% and 5.6%, for Orland and Miami, respectively and expect to see each of these markets among the best performers for the year.

So, could the presence of low tier price increases, distressed home sale price increases, smaller percentages of distressed sale levels, and high levels of investor activity be what a floor looks like? Is it a blueprint for what a broader market recovery looks like as well? It seems very likely.

If it is, keep your eyes on Phoenix. Currently this market is showing strong growth in the low tier segment, notable gains in distressed sale prices and lower levels of distressed sales overall. We’ll continue reporting on other markets that reflect this same pattern in our monthly Market Reports.

I can’t ever remember a time when installing new flooring sounded this interesting.

Original Post: http://www.forbes.com/sites/alexvillacorta/2012/01/31/flooring-in-florida-is-this-the-start-of-something-good-for-the-housing-market/

Mortgage Rates Keep Hitting Record Lows

December 22, 2011, 12:32 PM ET
By Mia Lamar and Nathalie Tadena

Bloomberg News

Freddie Mac says the 30-year fixed-rate mortgage was at a new record low.

 

Mortgage rates in the U.S. again touched record lows over the past week, according to Freddie Mac’s weekly survey of mortgage rates.

“Rates on 30-year fixed mortgages have been at or below 4% for the last eight weeks and now are almost 0.9 percentage point below where they were at the beginning of the year, which means that today’s home buyers are paying over $1,200 less per year on a $200,000 loan,” Freddie Mac Chief Economist Frank Nothaft said.

The 30-year fixed-rate mortgage averaged a new record low at 3.91% for the week ended Thursday, down from 3.94% the previous week and 4.81% a year ago. Rates on 15-year fixed-rate mortgages matched the prior week’s record low at 3.21%. A year ago, the 15-year fixed-rate mortgage rate averaged 4.15%.

Five-year Treasury-indexed hybrid adjustable-rate mortgages, or ARM, averaged 2.85%, down from 2.86% last week and 3.75% a year ago. One-year Treasury-indexed ARM rates averaged 2.77%, down from 2.81% in the prior week and 3.4% last year.

To obtain the rates, 30-year and 15-year fixed-rate mortgages required an 0.7-point and 0.8-point payment, respectively. Five-year and one-year adjustable rate mortgages required an average 0.6-point payment. A point is 1% of the mortgage amount, charged as prepaid interest.

The low rates could be helping to boost sales of existing homes, although falling prices are also pulling in buyers. Home sales in November hit the second-highest level of the year, rising 4% from October.

Original Post: http://blogs.wsj.com/developments/2011/12/22/mortgage-rates-keep-hitting-record-lows/

Why Home Prices Are (and Aren’t) Stabilizing

By Nick Timiraos

December 6, 2011, 1:19 PM ET

Getty Images

Home prices are falling again, but some analysts see a silver lining because the prices of homes that aren’t selling out of foreclosure have been holding steady.

CoreLogic reported that home prices in October declined by 1.3% from September and by 3.9% from one year ago. A separate index released Monday by LPS Applied Analytics showed that home prices in September had dropped by 1.2% from August.

“Many housing statistics are basically moving sideways,” said Mark Fleming, chief economist at CoreLogic.

Still, the CoreLogic index shows an important emerging trend where home prices are stabilizing after excluding distressed sales.

What’s the difference between distressed sales and non-distressed sales?

Unlike traditional owners, banks are often faster to cut prices in order to unload properties quickly—or what are called “distressed” sales. The upshot is that, the more homes being sold by lenders in any given month the faster prices tend to fall.

This was clear throughout the initial years of the housing bust. Prices declined most sharply in 2008 as banks dumped foreclosed properties at fire-sale prices. Owner-occupants are less likely to list their homes for sale in the winter months, too, which means that each winter there are also drops in prices because distressed sales account for a growing share of sales.

Are prices of distressed homes falling at the same rate as non-distressed homes?

That’s been the case up until recently. While total home prices were down by 3.9% from one year ago, prices were down by just 0.5% from one year ago when excluding distressed sales. In September, total prices were down by 3.8% from one year ago, but non-distressed prices were down by 2.1%.

This shows that while price declines are resuming, they are not yet falling from one-year ago for non-distressed homes. In fact, during the first nine months of 2011, prices of non-distressed homes remained relatively stable, with year-over-year declines between 2% and 3%.

Analysts at Barclays Capital called this “the most important trend in the housing industry right now,” in a report published on Monday.

Why would any stabilization of non-distressed prices matter?

If it’s true that prices of non-distressed homes are stabilizing, even as distressed homes continue to fall in price, it would mean that a distressed home is “increasingly being seen as a poor substitute for a non-distressed home,” writes Stephen Kim, the Barclays housing analyst. He says it’s possible that the “bifurcation between distressed and non-distressed homes will only widen with the passage of time.”

Won’t the overhang of foreclosures put pressure on non-distressed prices anyway?

That’s all too possible. There are more than two million loans in some stage of foreclosure, and it may be too early to argue that those won’t in some way impact the sales prices of non-distressed homes. For one, homes that sell out of foreclosure at significantly lower prices could be used by appraisers as “comparable” sales that may make banks less willing to lend at an agreed sales price for a non-distressed home.

In certain markets where many homes are selling out of foreclosure, it’s hard to simply set aside distressed homes. “You can’t deny the fact that if half of homes that sold in San Diego in a given year were distressed, that is the trend,” said Kyle Lundstedt, managing director at LPS.

What could happen if this trend holds up, with distressed prices falling and non-distressed prices staying flat?

It could stabilize something else: home-buyer confidence. “There is nothing that strikes fear in a homeowner’s heart than to hear that his home value has declined,” writes Mr. Kim of Barclays. “But if it was home price trends that got us into this funk, it stands to reason that a recovery in sentiment will be similarly ushered in once price declines have abated—which is precisely what the CoreLogic price data shows us.”

Original Post: http://blogs.wsj.com/developments/2011/12/06/why-home-prices-are-and-arent-stabilizing/

Q&A: Step-by-step guide to foreclosure

Q&A: Step-by-step guide to foreclosure

WEST PALM BEACH, Fla. – Nov. 29, 2011 – Question: I read in the paper that the banks are starting the foreclosures again. I just got served with a foreclosure lawsuit. Can you explain the process in layman’s terms?

Tony

Answer: Each state has different versions of the foreclosure process. In Florida and some other states, a lender must get permission from a judge before it can repossess your home.

When you are served with a foreclosure lawsuit, your lender files a “complaint” against you, laying out the facts as it sees it. It’s basically telling a story as to why it thinks that it should get your house as payment toward the debt that you owe.

Along with the complaint, it serves several other documents, such as the “summons,” which gives the court power over you, and the “lis pendens,” which is a document filed in the public records to let everyone know that the property is the subject of a lawsuit.

When you are served with a lawsuit, you typically have 20 days to respond or you will be in “default,” which means that you have waived all of your defenses to the lawsuit, allowing the bank to proceed with the foreclosure. This is not a good idea. At this point, your attorney will respond to the suit with a “motion to dismiss” or an “answer.” If your attorney feels that the bank has no chance to win based on everything that it alleged in the complaint, he or she will file a motion to dismiss the suit.

If, however, the suit is not defective as filed, your attorney will file an answer, in which he or she admits or denies each of the bank’s statements from the complaint. The answer also will also set forth your “affirmative defenses.”

An affirmative defense explains why the bank should not get your home even though you may not be making your mortgage payments.

At this point in the lawsuit, several months or more will have gone by and the attorneys will begin “discovery.” That’s the process of getting to the truth by asking each other questions and getting documents from the other side for review.

During the discovery phase, you and your lender will probably go to a “mediation.” In a mediation, both you and your lender will lay out your side of the story before an unbiased third party, the mediator, who will encourage you both to voluntarily settle the case. At a mediation, no one is forced to settle the case. Both sides need to agree.

The discovery process can take six months or more. Once it is complete, you or your lender may make a “motion for summary judgment,” which is basically saying to the court that your side of the case is so strong that there is no possible way for you to lose. Most foreclosure cases end at the summary judgment hearing because the judge rules for the lender. But if the judge thinks there are still some questions to be answered, there will be a trial. At trial, the judge (or jury) will determine the truth and decide who wins the case.

If you win, the lender has failed and you keep your house. If the lender wins, which is much more likely, the judge will set a date for your home to be sold, with the proceeds from the sale going toward paying your lender back for the money that you borrowed.

If the fair market value of your home is not enough to pay your loan back in full, your lender may ask for a “deficiency judgment.” That gives the lender the right to come after you for the difference between the market value of your home and the amount that you owe your lender.

If the sale brings more money than you owe your bank, you get back what’s left over. (Check with an attorney about the process for receiving any refund.)

If you hire an attorney, the entire process typically will take about two years, during which time you can be working with your lender toward a loan modification, short sale or deed in lieu of foreclosure. Of course, if all else fails, there is always bankruptcy, but that’s a different topic for another column.

About the writer: Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He is the chairperson of the Real Estate Section of the Broward County Bar Association and is an adjunct professor for the Nova Southeastern University Paralegal Studies program. Send him questions online at http://sunsent.nl/mR20t7 or follow him on Twitter @GarySingerLaw.

The information and materials in this column are provided for general informational purposes only and are not intended to be legal advice. No attorney-client relationship is formed. Nothing in this column is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction.

© 2011 the Sun Sentinel (Fort Lauderdale, Fla.), Gary M. Singer. Distributed by McClatchy-Tribune News Service.

Original Post: http://www.floridarealtors.org/NewsAndEvents/article.cfm?id=267984

How to Figure the Fuzzy Math of Internet Home Values

Original Post: http://online.wsj.com/article/SB10001424052970204554204577026131448329006.html?mod=WSJ_RealEstate_RIGHTTopCarousel

By ALYSSA ABKOWITZ

Jason Gonsalves worked hard to turn his 6,500-square-foot stucco-and-stone home in the suburbs of Sacramento into the ultimate grown-up party pad, complete with game room, custom wine cellar and an infinity-edge pool overlooking Folsom Lake. When interest rates fell recently, Mr. Gonsalves, who runs a lobbying firm, looked into refinancing his $750,000 mortgage. That's when he got startling news—the home had dropped more than $200,000 in value while he was renovating.

Scott Pollack

Or at least, that's what one real-estate website told him. Another valued the house at only $640,500. And these online estimates left him all the more confused when a real-life appraiser, assessing the house for the refinancing loan, pinned its value at $1.5 million. "I have no idea how those numbers could be so different," Mr. Gonsalves says.

Right or wrong, they're the numbers millions of consumers are clamoring for. After years of real-estate pros holding all the informational cards in the home-sale game, Web-driven companies like Zillow, Homes.com and Realtor.com are reshuffling the deck, giving home shoppers and owners estimates of what almost any home is worth. People have flocked to the data in startling numbers: Together, four of the biggest sites that offer home-value estimates get 100 million visits a month, with web surfers using them to determine what to ask or bid for a home, or whether to refinance.

Zillow, Trulia and other websites post estimates of home values. But as Alyssa Abkowitz explains on Lunch Break, these popular sites can be -- by their own admission -- wildly inaccurate.

But for figures that can carry such weight, critics say, the estimates can be far rougher than most people realize. Valuations that are 20% or even 50% higher or lower than a property's eventual sale price are not uncommon, as the sites themselves acknowledge. The estimates frequently change, too—sometimes by hundreds of thousands of dollars—as sites plug new data into their algorithms.

More

• What the Sites Get Right and Wrong

All of the competitors make it clear their numbers are guesstimates, not gospel. "A Trulia estimate is just that—an estimate," says a disclaimer on that site's new home-value tool. Zillow goes a step further, publishing precise numbers about how imprecise its estimates can be. And every major site urges home-price hunters to consult appraisers or real-estate agents to refine their results.

But despite the disclaimers, homeowners and real-estate agents say, many Web surfers put enough faith in the estimates to sway the way they shop and sell.

After Frank and Sue Parks put their manor-style house in Louisville, Ky., on the market, they watched as Zillow put a $331,000 value on the dwelling in May; by July it had climbed to $1.5 million. (Zillow says the lower estimate reflected errors in its statistical model.) The couple got potential buyer referrals from the site, but they fended off a stream of lowball offers before they sold this fall. Mrs. Parks says the estimate roller coaster "really affected our ability to move the place."

Determining a home's value has traditionally been the job of an appraiser, who gathers data on recently sold homes and compares them with the "subject property" to arrive at an estimate.

In the late 1980s, economists started developing automated valuation models, or AVMs, computer models that could analyze data about comparable sales, square footage, number of bedrooms and the like, in a matter of seconds. For years, these tools were mostly reserved for in-house analysts at lending banks.

It wasn't until 2006 that Zillow took them to the masses, with its Zestimates, which now offer values for more than 100 million homes based on the company's own algorithms. "Humans don't make these decisions," says Stan Humphries, chief economist at Zillow.

Numbers like these have become weapons in the arsenal of consumers like Simms Jenkins, an Atlanta marketing executive, who has recently relied on online estimates to help him both buy and sell homes. "I can't imagine 25 years ago, when people would just go out and spend their entire Saturday looking at homes," he says. "You don't have to do that now."

But appraisers and real-estate consultants say the online models can veer off target with alarming frequency. Most data for the models come from two sources: records from tax assessors and listing data for recent sales. Collection is a challenge, however, because not every county tracks properties the same way—some calculate home size by number of bedrooms, others by overall square footage. And automated models aren't designed to account for the unique construction details that often make or break a deal, or for intangible factors like a neighborhood's gentrification. "You cannot use a computer model in certain areas and expect the value to come out right," says John May, the former assessor of Jefferson County, Ky., which includes the state's largest city, Louisville.

For all these reasons, models that banks use often add a "confidence score" to their estimates. Consumer-oriented sites, meanwhile, rely on disclaimers, some of which are eye-opening. Zillow surfers who read the "About Zestimates" page find out that the site's overall error rate—the amount its estimates vary from a homes' actual value—is 8.5%, and that about one-fourth of the estimates are at least 20% off the eventual sale price. In some places, the numbers are far more dramatic: In Hamilton County, Ohio, which includes Cincinnati, it's 82%.

The sites argue that, over time, edits and corrections will help them perfect their numbers—with many fixes coming from their customers.

On Homes.com, anyone who knows a homeowner's surname and the year the home was last purchased, can edit the details of a property listing in ways that can eventually change the estimated value.

Zillow has accepted revisions on 25 million homes—perhaps the strongest testament to how seriously consumers take its estimates. Today, the site says its figures are accurate enough to give consumers a good sense of any home's value. In the meantime, says Mr. Humphries, its economist, "We're always tweaking the algorithm or building a new one."
—Email: editors@smartmoney.com

Beverly Hills Selling Spree

Jennifer Aniston nabs $36 million; high-end homes are moving in the wealthy enclave

By JULIET CHUNG OCTOBER 28, 2011 for WSJ.com

In August, fashion designer Vera Wang bought a midcentury modern-style home in Beverly Hills for $9 million from real-estate investor and designer Steven Hermann. He'd bought it for $5 million in 2008, then spent more than $3 million on a gut renovation.

In nearby Holmby Hills, Lions Gate Entertainment Chief Executive Jon Feltheimer and his wife, Laurie, recently sold a five-bedroom home that they had bought in 2009 for $9.8 million. A family spokesman said the Feltheimers intended to build a new home but sold after deciding the process would be too time-consuming. They got $14.4 million, from Russian soccer player Gurgen Khachatryan.

At a time when luxury homes are making up an increasingly large share of foreclosures, an unexpected number of high-end owners in and near Beverly Hills are demanding—and in some cases getting—millions more for properties they've recently bought.

Brokers say the appetite has remained remarkably healthy for prime property in this area, particularly for renovated homes. For the year to date ended Thursday, 25 homes in the greater Beverly Hills, Bel Air and Holmby Hills area had sold for $10 million or more, according to Jeff Hyland of Hilton & Hyland, a Christie's International Real Estate affiliate. That's more than the 16 and 21 sold over the same period in the hot years of 2006 and 2007.

Last summer, Jennifer Aniston sold her nearly 10,000-square-foot Beverly Hills home, which she bought in 2006 for $13.5 million, for $36 million. The actress set a local price-per-square-foot record—$3,600—with the sale. Designed by late architect Harold W. Levitt, the home recalled Bali and featured five bedrooms, extensive stonework and a bridge over a koi pond. A spokesman for Ms. Aniston didn't respond to requests for comment.

Not far from Ms. Aniston's former home is another house designed by Mr. Levitt that's been heavily renovated to include Asian influences. The house went on the market in June asking $14.9 million; it's now asking $10.9 million. Owner Tim Mulcahy says he bought the house speculatively, paying $4.6 million for it last year and spending a further $3.5 million on the renovation. Mr. Mulcahy says he's aware there's a housing downturn but calls Beverly Hills a unique market. "I don't feel I've lost money; I feel that I will have some gain," he adds.

In Beverly Hills' gated enclave of Beverly Park, a European businessman bought a 20,000-square-foot contemporary, sight unseen, for $16.5 million last fall. Now, he is asking $25 million for the house—without having done any work on it.

"We thought, 'Let's throw it up on the market and see what happens,' " says the broker, Josh Altman of Hilton & Hyland, of the home, which sits on nearly seven acres and has a dining room with a grotto and waterfall. The attempted sale makes sense, Mr. Altman says, because he was able to get his client a good price on the home and because similar super-size homes in the area are scarce.

Also testing the waters: Paramount Chairman Brad Grey, who, after buying a home in Holmby Hills in the winter for $18.5 million, put it back on the market in September for $23.5 million. Mr. Grey never intended to sell the property, says his broker, Stephen Shapiro of the Westside Estate Agency. He adds that Mr. Grey decided to sell after renovating another property he owns nearby.

Write to Juliet Chung at juliet.chung@wsj.com

It's Time to Buy That House

By JACK HOUGH
U.S. house prices have plunged by nearly a third since 2006, and homeownership rates are falling at the fastest pace since the Great Depression.

The good news? Two key measures now suggest it's an excellent time to buy a house, either to live in for the long term or for investment income (but not for a quick flip). First, the nation's ratio of house prices to yearly rents is nearly restored to its prebubble average. Second, when mortgage rates are taken into consideration, houses are the most affordable they have been in decades.

Two of the silliest mantras during the real-estate bubble were that a house is the best investment you will ever make and that a renter "throws money down the drain." Whether buying is a better deal than renting isn't a stagnant fact but a changing condition that depends on the relationship between prices and rents, the cost of financing and other factors.

But the math is turning in buyers' favor. Stock-oriented folks can think of a house's price/rent ratio as akin to a stock's price/earnings ratio, in that it compares the cost of an asset with the money the asset is capable of generating. For investors, a lower ratio suggests more income for the price. For prospective homeowners, a lower ratio makes owning more attractive than renting, all else equal.

Nationwide, the ratio of home prices to yearly rents is 11.3, down from 18.5 at the peak of the bubble, according to Moody's Analytics. The average from 1989 to 2003 was about 10, so valuations aren't quite back to normal.

But for most home buyers, mortgage rates are a key determinant of their total costs. Rates are so low now that houses in many markets look like bargains, even if price/rent ratios aren't hitting new lows. The 30-year mortgage rate rose to 4.12% this week from a record low of 3.94% last week, Freddie Mac said Thursday. (The rates assume 0.8% in prepaid interest, or "points.") The latest rate is still less than half the average since 1971.

As a result, house payments are more affordable than they have been in decades. The National Association of Realtors Housing Affordability Index hit 183.7 in August, near its record high in data going back to 1970. The index's historic average is roughly 120. A reading of 100 would mean that a median-income family with a 20% down payment can afford a mortgage on a median-price home. So today's buyers can afford handsome houses—but prudent ones might opt for moderate houses with skimpy payments.

For example, the median home in the greater Phoenix market, including houses, condos and co-ops, costs $121,700, according to Zillow.com. With a 20% down payment and a 4.12% mortgage rate, a buyer's monthly payment would be about $470. Rent for a comparable house would be more than $1,100 a month, according to data provided by Zillow.com.

Of course, all of this assumes mortgages are available—no given now that lending standards have tightened. But long-term data on down payments and credit scores suggest conditions are more normal than many buyers think, according to Stan Humphries, chief economist at Zillow. "If you have good credit, a job and a down payment, you can get a mortgage," Mr. Humphries says. "There's more paperwork and scrutiny than five years ago, but things are pretty much like they were in the '80s and '90s."

Not all housing markets are bargains. Mr. Humphries says Zillow has developed a new price/rent ratio that uses estimates for each individual property rather than city medians, to better reflect the choices facing typical buyers. A fresh look at the numbers suggests Detroit and Miami are plenty cheap for buyers, with price/rent ratios of 5.6 and 7.7, respectively. New York and San Francisco are more expensive, with ratios of 17.6 and 17.2, respectively. The median ratio for 169 markets is 10.7.

For investors seeking income, one back-of-the-envelope way of seeing how these numbers stack up against yields for other assets is to divide 1 by the price/rent ratio, resulting in a rent "yield." The median market's rent yield is 9.3% and Detroit's is 17.9%.

Investors would then subtract for taxes, insurance, upkeep and other expenses—costs that vary widely. But suppose total costs were 4% of the purchase price. That would still leave a 5.3% rent yield in the typical market. With the 10-year Treasury yield at 2.2% and the Standard & Poor's 500-stock index carrying a dividend yield of 2.1%, rents for residential housing in many markets look attractive.

A few caveats are in order. First, not all transactions are average ones. Even in low-priced markets, buyers should shop carefully. Second, prices could fall further. Celia Chen, a senior director at Moody's Analytics, expects prices to drop 3% before bottoming early next year and rising slowly thereafter. "If the economy slips back into recession, however, we could easily see a 10% drop," Ms. Chen says.

And property "flipping" can be dangerous even when prices are rising. That is because, absent a real-estate boom, house price gains simply aren't that exciting. Research by Yale economist Robert Shiller suggests houses more or less track the rate of inflation over long time periods.

Houses aren't the magic wealth creators they were made out to be during the bubble. But when prices are low, loans are cheap and plump investment yields are scarce, buyers should jump.
—Jack Hough is a columnist at SmartMoney.com. Email: jack.hough@dowjones.com

Why You Should Consider Buying a New Home

In this day of drop-dead prices on existing homes, why would anyone shell out for a new house? Amy Hoak on Lunch Break says there are a few good reasons why home buyers should not ignore new-home construction in their search.

Has Your Home Value Recovered?

The national numbers aren't good, but in some places, the news is better.

By DAVID CROOK

At first glance, you're not likely to see a lot of similarities between stately Cambridge, Mass., and sprawling Denton, Texas.

Cambridge (population about 105,000) was already more than 200 years old when Denton (120,000) was founded in 1857. From the center of Cambridge, it's an easy stroll across the Charles River into Boston. Denton, in contrast, sits where Interstate Highway 35 divides to the west, it's 41 miles to Fort Worth; to the east, 39 miles to Dallas.

But both are college towns. Cambridge is well known as the home of Harvard University and the Massachusetts Institute of Technology. Denton has North Texas State University and Texas Woman's University.

They have something else in common, too. Both have pretty much recovered from the five-year-and-counting housing recession. And both provide invaluable clues for those looking to decipher whether their own markets have seen the worst of the crisis.

Amid the continuing gloom in the U.S. housing market, you can find small pockets of home-price stability -- communities that are actually recovering from the housing bust. WSJ's David Crook talks with Kelsey Hubbard about what those communities can teach today's home buyers and sellers.

According to a statistical analysis performed for The Wall Street Journal by the online real-estate information and search firm Zillow, home values in a handful of communities are where they were just before the most frenzied days of the real-estate bubble. Focusing on communities with sufficient sales activity to produce statistically valid value estimates, Zillow spotted 25 places that are within single-digit percentage points of their home-value peaks. (Zillow found no communities where values have surpassed their high-water marks.) Not bad considering that home values in some major metropolitan areas are at half their bubble-era peaks.

As a result, spotting the factors that have helped those communities get by may allow all homeowners to better gauge what's going on where they live and what the future may hold for their home's value.

Some words of caution.

First: Don't look at these as housing-market "winners," and don't go looking for new places where you can score a killing. That's the thinking that got much of the country in trouble in the first place. Housing isn't an investment like stocks or bonds and shouldn't be approached that way.

Second: Although many of the areas have certain traits in common, most are just nice places to live, places where anyone might want to work and raise a family. Each is special in its own right.

Finally, the biggest reason that most are surviving the downturn is because they never experienced the huge price runups that Florida, Nevada or California did in the first place.

In Denton, Zillow estimates values are down 7.4% from their peak, while values are down about 8.6% in Cambridge. That's about where prices stood in 2004 in both towns. In contrast, the latest Case-Shiller Home Price Index indicates national prices are at 2002 levels.

So what should you look for if you are thinking of selling your home or buying a new one? What does a healthy real-estate market look like today?

Here are three big factors to look for. If your community shares any of these traits, you may already be on the rebound.

Employment

It's the oldest joke in real estate, but with a new punch line:

Q: What are the three most important things to consider when buying a house?

A: Jobs. Jobs. Jobs.

Clearly, the No. 1 factor in determining whether a community has passed through the worst of the housing debacle is its current state of employment. There has always been a connection between the local jobs picture and the local real-estate market, but it's even greater today.

The official U.S. unemployment rate was still a very high 9.2% as the prime home-shopping season began in March. Denton County's unemployment rate was 7.4% in March way up from before the financial crisis but lower than the rate for all of Texas and nearly two points below the national rate. Unemployment in Cambridge's Middlesex County is 2 percentage points below the U.S. average.

Indeed, many of the communities that turned up in the Zillow analysis have big recession-insulated employers like Cambridge's and Denton's universities.

Look at North Carolina, where three communities appear on the Zillow list. Although North Carolina's unemployment rate is higher than the national average, all three communities are lower than the state rate. Jacksonville, where values are just 0.1% below their peak, is the home of the Marine Corps' Camp Lejeune and New River Air Station. Fayetteville has the Army's Fort Bragg and Pope Air Force Base. And Durham is one of the vertices of the Research Triangle conglomeration of universities, state and federal government offices, and government, nonprofit and corporate research facilities.

Rents

Local rents are very strong indicators of real-estate values. Home prices in most communities that have best weathered the downturn tend toward the low-rent end. That is, they have lower price-to-rent multiples, and house hunters will often find it cheaper to buy properties than to rent them.

Look at a typical "rent vs. buy" calculator available on many real-estate or personal-finance websites. Most calculators figure that if prices are more than 15 times annual rents, then a market favors renters; under 15 times, buyers.

Earlier this month, there was a $525-a-month rental two-bedroom, one bath house in Conway, Ark., near the state capital, Little Rock, where home values are down just 5.1% from their peak. But asking prices for comparable houses in the same neighborhood are in the high $60,000s so, using the typical rent-vs.-buy formula, prices are about 11 times rent, a bargain.

That's the same price-to-rent multiple as in college town Champaign, Ill., where a three-bedroom, one-bath house was on the rental market for $850 a month. Albany, N.Y., another state capital, also falls within the affordability range. You can buy a four-bedroom, 1 -bath house for around $200,000, only about eight times the annual rent.

Caveat: Beware the outliers. Extremely low price-to-rent multiples can be warning flags for seriously depressed markets that are glutted with unsold properties. Trulia, another real-estate information site, regularly publishes a rent-to-buy analysis of large metropolitan areas, and the most "affordable" markets are a Where's Where of the real-estate bust: Las Vegas (prices 6 times rents), Phoenix (7), Miami (8). At the opposite end, Trulia's survey says the "least affordable" market is New York City (39), where home values are down just 9.1% from their peak.

Foreclosures

Healthier communities have fewer foreclosed properties pulling down values of other homes.

Just as jobs fuel the local housing engine, foreclosures put on the brakes. Even in good times, one foreclosed property in a neighborhood can bring down the values of every other house around it. And, in bad times, entire metropolitan areas can be swamped by abandoned, foreclosed houses.

In 2010, the worst year so far, about 2.23% of all the homes received a foreclosure filing, according to RealtyTrac, an Irvine, Calif., firm that monitors foreclosed properties. In Las Vegas, the poster child of the Sun Belt's real-estate bust, the foreclosure rate was 12%, more than 80% of homes are worth less than their mortgages and values are down more than 50% from their peak.

And what was the foreclosure rate in Utica, the buckle of upstate New York's merciless Snow Belt? Barely a flurry, just 0.04%. And home values are down just 4.2%, helped along by a growing population.

For home owners, the snow looks a lot more inviting than it used to.

Mr. Crook is editor of The Wall Street Journal Sunday and author of The Wall Street Journal Complete Real-Estate Investing Guidebook and The Wall Street Journal Complete Home Owner's Guidebook. He can be reached at
david.crook@wsj.com.