Report: Single-Family Rental Demand Is Outstripping Supply

By Nick Timiraos For WSJ.com November 13, 2012, 8:00 AM

 

Demand for single-family rental housing is outstripping the available supply of homes, and some housing markets that have been hit hardest by the foreclosure crisis have seen rental demand jump by more than 25% in the past year, according to a report to be released Tuesday by real-estate firm CoreLogic CLGX -2.06%.

It shouldn’t be surprising that single family rental demand has picked up in recent years: There are many families who have lost their homes to foreclosure or that can’t qualify for mortgages given tighter underwriting standards.

But the magnitude of rental-demand gains is still eye-opening. Markets that include Port St. Lucie, Fla.; Riverside, Calif.; and Tucson, Ariz., have all seen rental demand jump by 25% over the past year, and 22 of 30 markets tracked by CoreLogic have seen year-over-year leasing gains.

The single-family rental market has attracted a glut of institutional investor capital over the past two years, as firms to seek to build scattered-site property management infrastructure for an asset class that has long been the domain of mom-and-pop owners and smaller investors.

Slightly more than half of all rental units in the U.S., or around 21 million units, are single-family homes. Around four in five of those unit owners are individual investors.

Investor demand for rentals shows little signs of weakening, according to the CoreLogic report. Leasing activity was up 7% from one year ago in August and up 12% from the beginning of this year, even though the inventory of homes for rent is down by 11% from one year ago.

As a result, it would take just 2.6 months to rent the available stock of for-lease homes in August, down from 3.2 months of supply last year and over 5 months in 2007. It took just six weeks for a listing to be rented, which was unchanged from one year ago but down from more than eight weeks in 2009.

Single-family rents, which tend to show less volatility in either direction than home prices, rose by 2% last year and have increased by 1% so far this year, after declining in 2009 and 2010. “While those increases are low, rent growth typically lags home price growth by about 12 months,” writes Sam Khater, senior economist at CoreLogic, in the report. He expects rent growth to increase “at a strong clip” late this year and throughout 2013, though not at the same rate as home prices.

The largest rent increases were found in North Port, Fla.; Cape Coral, Fla.; and Honolulu, where rents increased by more than 6%. But rents also rose in cities such as Houston and Raleigh, N.C., where the economy has fared better and the housing market wasn’t as hard hit by the bust. Large rental increases beyond the housing-bust markets “is indicative of the rising tide of demand for single-family rentals,” wrote Mr. Khater.

Original Post: http://blogs.wsj.com/developments/2012/11/13/report-single-family-rental-demand-is-outstripping-supply/

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

HUD’s Donovan: Fannie, Freddie Should Embrace Loan Forgiveness

By Nick Timiraos  for WSJ.com February 16, 2012, 4:27 PM

The Obama administration would like the federal regulator for Fannie Mae and Freddie Mac to begin reducing loan balances for certain troubled borrowers, a top official said Thursday.

“More and more economists across the political spectrum are recognizing [principal reduction] is a critical step,” said Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, in an interview with The Wall Street Journal. “If a family is in their home for 10, 15 years and has no hope of being able to build equity again, they’re going to give up at some point.”

Officials have said for more than a year that they’d like to see mortgage giants Fannie and Freddie adopt principal reduction, and several steps in recent weeks have put more pressure on the Federal Housing Finance Agency, the firms’ regulator, to approve write downs.

“Clearly it’s an important piece of the puzzle that Fannie and Freddie move forward on this,” said Mr. Donovan. Last month, the White House said it would triple incentive payments under an existing loan-modification program that subsidizes the cost of loan forgiveness and that it would offer them to Fannie and Freddie.

When the principal reduction program was rolled out two years ago, those incentive payments weren’t extended to Fannie and Freddie, and their regulator has said there are less costly ways to help borrowers avoid foreclosure. The firms are being propped up with massive taxpayer infusions of their own, and the FHFA is tasked with preserving the firms’ assets.

By providing new taxpayer funds, the administration is making it harder for the FHFA to maintain its stance that principal reduction is less costly because Treasury funds will effectively subsidize some of those losses. The FHFA has said it is currently evaluating the newest proposal.

The firms are “working right now…to make a decision on whether they are going to begin principal reduction,” said Mr. Donovan. “We certainly hope that they will start to do that based on these incentives. That’s why we made them available.”

Separately, Mr. Donovan said he remained “concerned” about the prospect of taxpayers being forced to backstop losses at the Federal Housing Administration. Budget projections this week showed that the agency could deplete its reserves this year. The FHA, which doesn’t make loans but instead insures lenders, has played a critical role supporting housing markets amid a sharp pullback by the rest of the market.

The agency could announce within days its plan to increase the premiums charged to borrowers in order to build up its reserves. HUD also announced in recent days settlements with two of its biggest lenders over fraudulent loan claims that will net more than $680 million for the agency.

But Mr. Donovan warned of precipitous actions to boost reserves that limit the availability of credit and undermine fragile housing markets. “This is a delicate balancing act because if we go too far…what we’re going to be doing is stalling the momentum that we have in the housing recovery,” he said. “Frankly, that not only hurts homeowners more broadly in the housing market, it hurts FHA because the value of our existing investments goes down.”

• Fannie Mae,
• Freddie Mac,
• Obama administration

Original Post: http://blogs.wsj.com/developments/2012/02/16/huds-donovan-fannie-freddie-should-embrace-loan-forgiveness/

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/

Economists See Ways to Aid Housing Market

By NICK TIMIRAOS  for wsj.com

The underpinnings of a housing recovery are hiding in plain sight: sharp price declines, low mortgage rates and rising rents have made owning more affordable than renting in a growing number of markets.

Yet housing largely remains in a funk. The prospect of continued price declines—led by the oversupply of foreclosed homes—has deterred some potential buyers, while others can't qualify for loans.

Many economists, including some at the Federal Reserve, are urging President Barack Obama to do more, and the president will be "aggressive on housing" in his State of the Union address on Tuesday, his housing secretary said last week. The administration is already rebooting a refinancing initiative and putting finishing touches on programs to convert some foreclosed properties into rentals.

View Interactive

What more can be done? Economists cite three broad ideas that could advance a housing recovery.

First, local investors could play a greater role in spurring a recovery in their own communities. Some mom-and-pop investors have begun to buy up excess housing stock and rent it out.

These buyers are important to clear the large "shadow supply" of foreclosures. Banks owned around 440,000 homes at the end of October, but an additional 1.9 million loans were in some stage of foreclosure, according to Barclays Capital.

While there's no shortage of investor demand in many markets, financing remains an obstacle. In 2008, Fannie Mae and Freddie Mac, the main funders of mortgages, faced soaring losses from speculators and reduced to four from 10 the number of loans they would guarantee to any one owner. Fannie now backs as many as 10 loans, but some banks have kept lower limits.

"If that number were raised...to 25, you would very quickly start whittling down this very big backlog," said Lewis Ranieri, the mortgage-bond pioneer, in a speech last fall. He said loans should be made on conservative terms that include 30% or 35% down payments.

Today's investors differ from the speculators who earlier bought on the prospect of ever-rising values that inflated the real-estate bubble. In contrast, today's mostly all-cash buyers estimate values based on market rents. But economists say because they are underfunded and often the sole buyers, they are driving hard bargains that have homes selling below their replacement costs.

The mortgage-finance companies and their regulator "are ignoring the market fundamentals of who the buyers are and where the money is," said Tim Rood, a partner at the Collingwood Group, a housing-finance consultancy. "Right now, investors are treated like pariahs. You want to clear some inventory? Finance them."

For the past four years, prices of foreclosed and traditional homes fell in tandem, but in recent months, a new pattern has emerged. U.S. home prices were down 4.3% from one year ago in November. But after stripping out foreclosures and other "distressed" sales, prices were down just 0.6%, according to data firmCoreLogic.

Lawmakers also could consider eliminating capital-gains taxes on properties bought as a longer-term investment and converted to rentals as well as allowing them to accelerate the depreciation of those properties, said William Wheaton, a professor of economics and real estate at the Massachusetts Institute of Technology.

"We need to re-establish equilibrium. I don't want to see another spike in house prices, but the homeownership rate is dropping and we also don't want to see rental spikes," Prof. Wheaton said.

Second, policy makers could restore clarity to lending by finalizing a clutch of pending regulations. The government's extraordinary steps to rescue Fannie and Freddie helped prevent a cataclysmic shock but it has made no real movement to overhaul the companies and the nation's broader housing-finance machinery.

While prospects are dim for a revamp before the election, smaller steps to establish certainty around the rules for lending as well as handling soured mortgage loans could make banks less stingy with credit.

For example, Fannie and Freddie are pushing banks to repurchase any defaulted loans that they can prove ran afoul of underwriting standards, even if the loan went bad for another reason, such as job loss. The "blanket repurchase regime" has led banks "to focus only on the lowest-risk customers," said William Dudley, president of the New York Federal Reserve, in a speech this month.

Third, a growing number of economists are warning that the overhang of debt in some of the most distressed housing markets will linger for years, particularly if more borrowers default. They say mortgage investors and banks should consider reducing debt for more troubled homeowners.

Principal write-downs remain controversial and have high upfront costs. But the problem of negative equity looks unlikely to cure itself: In markets such as Las Vegas, more than six in 10 borrowers owe more than their homes are worth.

Banks are rightly worried that widespread debt forgiveness could encourage more borrowers to default, but several proposals seek to limit that moral hazard. Prof. Wheaton said investors in the loans should be given equity stakes in homes in order to deter all but the most desperate borrowers from seeking relief, and that relief should be limited to borrowers who are deeply underwater.

"This needs to be a shared responsibility," he said. "For borrowers silly enough to borrow enough at the top of the market, there was a lender stupid enough to lend."

Principal write-downs could also be done on an "earned" basis, where borrowers receive relief only if they stay current on their loans, said Daniel Alpert, managing partner at Westwood Capital, which has employed the technique when buying distressed mortgages.

Even then, write-downs will remain under-used until regulators or lawmakers simultaneously deal with the second mortgages, which are primarily held by banks, sitting behind many underwater first mortgages.

Mustering the political will to take any of these three steps wouldn't be easy. Given the state of the market, "there isn't a solution which will make everyone love you and cost no money," Mr. Ranieri says.

Indeed, no single idea will fix all of housing's problems. Many involve taking on more risk or rewarding bad behavior.

Write to Nick Timiraos at nick.timiraos@wsj.com

Original Post: http://online.wsj.com/article/SB10001424052970204301404577173001251941984.html?mod=WSJ_RealEstate_LeftTopNews

Dimon on Housing: ‘No One Is in Charge’

By Nick Timiraos

Bloomberg News

Jamie Dimon, chief executive of J.P. Morgan Chase & Co.

The government and the banking industry needs to get serious about fixing the housing market’s problems, but there’s no one leading the charge, said Jamie Dimon, the chief executive of J.P. Morgan Chase & Co., during the bank’s quarterly conference call on Friday.

“I would convene all the people involved in the business. I would close the door. I would stay there until we resolved a bunch of these issues so we could have a more healthy mortgage market,” he said. “You could fix all this if someone was in charge.”

Mr. Dimon ticked off a list of unresolved issues, including foreclosure delays, the fate of Fannie Mae and Freddie Mac, conflicts of interest between owners and servicers of first mortgages and second mortgages, and pending rules from the Dodd-Frank Act that will establish new rules of the road for mortgages that are pooled into bonds.

“There is no one really in charge of all of this. It is just kind of sitting there,” he said. A “holistic” approach to tackle those issues could lead to a faster recovery in housing, he said, endorsing the sentiment behind the Federal Reserve’s call to action on housing last week with its release of a 26-page white paper.

Mr. Dimon also elaborated on his view that housing markets have neared bottom. “In half the markets in America it is now cheaper to … buy than to rent. Housing is at all-time affordability,” he said. “What you need to see is employment.”

An stronger surge in job growth would boost household formation, which coupled with positive demographics, means that “you’re going to have a turn at one point,” he said. “I don’t know if it’s three months, six months, nine months, but it’s getting closer.”

Mr. Dimon said his bank had made mistakes in handling mortgage foreclosures, and said the bank “should pay for the mistakes we made.” But he added that banks have also offered millions of mortgage modifications, and that banks “are doing it as aggressively as we can.”

He also brushed aside calls for widespread principal reductions, saying that he didn’t agree “that somehow principal forgiveness would be the end-all, the be-all.”

Follow Nick @NickTimiraos

• J.P. Morgan Chase & Co.

Projection: Rents, Incomes to Grow Together

By Matthew Strozier

These are heady days for apartment owners: Demand is growing and supply of new rentals continues to lag. But are landlords getting ahead of themselves? Will a recovery take hold that allows people to afford heftier rents?

It turns out that the outlook isn’t so bad. Research from the real-estate forecasting firm Property & Portfolio Research, which is owned by CoStar Group, says median household income and average rent over the next five years will grow at similar rates. Nationally, PPR projects growth of 16.1% for median incomes between now and 2016, versus 15.6% for rents. (The data are from 54 major markets tracked by PPR.)

But conditions differ from market to market, depending on level of household formation and the pace of income growth. Conditions in places such as Raleigh, N.C., could spur landlords to raise rents at a higher rate in coming years. By contrast, new supply and prior rent growth in Washington, D.C. will likely moderate rental growth there, according to PPR.

Rent-to-income ratios nationally should remain basically steady, and below the prior peak reached in 2001. (Falling home prices and low mortgage rates could make buying a home newly attractive for some renters in coming years, although affordability has done little too boost the housing market so far.)

To be sure, renters won’t be happy to hear that their monthly rent is projected to jump to a national average of $1,436 in 2016, up from $1,242 in 2011, according to PPR. Higher rents and declines in home ownership are helping to fuel investors’ interest in the apartment market, even from developers that usually focus on malls and offices. Construction starts in multifamily in November jumped 25.3% from the prior month, according to the Commerce Department, although construction of new multifamily units remains low on a historical basis.

Readers, what do you think: Where is the rental market headed this year and after?

• CoStar Group,
• Property & Portfolio Research

Original Post: http://blogs.wsj.com/developments/2012/01/04/projection-rents-incomes-to-grow-together/

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

Report: Fannie Mae, Regulator Missed Foreclosure Abuses

Original Post: http://blogs.wsj.com/developments/2011/10/03/report-fannie-mae-regulator-missed-foreclosure-abuses/

By Alan Zibel and Nick Timiraos

Mortgage titan Fannie Mae and its federal regulator failed to pay enough attention to mounting evidence of abuses at foreclosure-processing law firms until the issue gained broad public attention last year, a federal watchdog says.

The inspector general of the Federal Housing Finance Agency, in a report being released Tuesday, questioned Fannie Mae’s oversight of law firms that conduct foreclosures on its behalf.

Fannie uses a network of law firms to handle foreclosures for the banks and other mortgage servicing companies that collect payments on loans backed by Fannie. The network arrangement allows Fannie to negotiate discounted rates with approved firms, which in turn can lock in business from the nation’s largest mortgage investor.

The inspector general’s report indicated that the FHFA had a growing awareness of potential foreclosure-processing problems in June 2010, when it conducted a two-day field visit to Florida. The FHFA, according to the inspector general, found that “documentation problems were evident and law firms…were not devoting the time necessary to their cases due to Fannie Mae’s flat fee structure and volume-based processing model.”

After that Florida trip, FHFA staff told Fannie officials that its attorneys were “increasingly unprepared when they enter the courtroom,” leading to a larger backlog of foreclosures.

But the warnings weren’t enough to head off widespread document problems that surfaced months later. In September 2010, banks suspended foreclosures after it emerged that they were using so-called robo-signers to process hundreds of documents without verifying their contents. Fannie and its smaller sibling, Freddie Mac, terminated one of their main Florida law firms last November after uncovering widespread abuses.

In a review completed by the FHFA this past January, the regulator concluded that Fannie Mae could have reacted to foreclosure deficiencies sooner. It also found that Fannie had “inadequate” controls and monitoring of its legal network.

Homeowners “shouldn’t have to worry whether they will be victims of foreclosure abuse,” said Steve Linick, the inspector general. The failures by FHFA and Fannie to provide proper oversight of foreclosure attorneys represent a “breach of the public trust and an assault on the integrity of our justice system,” said Rep. Elijah Cummings (D., Md.), who made the initial request for the inspector general to conduct the report.

An FHFA spokeswoman said that the FHFA is “concluding our supervisory work in this area and we will direct the enterprises to take whatever action is warranted once we are done.” Fannie Mae declined to comment on the report.

Fannie last year hired an outside law firm to do compliance for its legal network and to conduct a review of its largest Florida law firms. But the inspector general faulted those reviews for being too narrow in scope and said they “missed the opportunity to confirm and provide a better understanding of the allegations of foreclosure abuses.”

The report also said that the FHFA should have a formal process to share information about “problem law firms.” For example, the report said Freddie Mac last year terminated a law firm that processed over 43% of Fannie Mae’s foreclosures in Florida and voluntarily told Fannie it had terminated the firm, in part due to foreclosure processing abuses. Fannie decided to retain the firm, the report said, in part because it concluded that the cost of transferring its files to a new firm “would be substantial.”

The report also noted that Fannie had been aware of potential problems with legal filings in foreclosures since late 2003, when a Fannie Mae shareholder notified the company of potential abuses. An outside law firm, Baker & Hostetler LLP, conducted an independent review for Fannie in 2006 in response to the shareholder’s allegations. The report’s findings were first reported by The Wall Street Journal in March.

The 2006 review found no evidence that homeowners had been improperly placed in foreclosure, but it said that foreclosure attorneys working on Fannie’s behalf in Florida had “routinely made” false statements in court in an effort to more quickly process foreclosures, among other warnings.

Fannie officials also told investigators in 2006 that the company had opted against performing regular reviews of its foreclosure attorneys because the company’s lawyers felt the firm would be better insulated from responsibility for misconduct. The report said the approach was under review at the time, and Fannie in 2008 revamped its attorney network.

A Fannie spokeswoman said the company took a series of steps to address specific issues identified by the 2006 report.

• Fannie Mae,
• Federal Housing Finance Agency,
• Foreclosures

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.

Six Steps That Could Boost Refinancing

By Nick Timiraos

Associated Press

The Obama administration and the Federal Reserve are looking for ways to help more homeowners refinance.

Mortgage rates have dropped—again—to their lowest levels in the last 50 years. A Freddie Mac survey showed that 30-year fixed-rate mortgages averaged 4.12% this week, down from 4.22% last week.

But demand for new loans or refinancing remains muted, underscoring reasons why policy makers at the White House and Federal Reserve are thinking about new ways to help more homeowners refinance.

In Tuesday’s Outlook column, we looked at one of the great puzzles of the government’s initial response to the housing crisis: why few underwater borrowers have refinanced their loans through a White House program that was launched more than two years ago.

The Home Affordable Refinance Program allows underwater borrowers whose loans are backed by Fannie and Freddie to refinance. Under HARP, borrowers with loans worth 80% to 125% of the value of their house can refinance without putting down more cash or taking out mortgage insurance—those steps are often so costly that it no longer makes sense to refinance.

While 838,000 loans had refinanced under the program through June, fewer than 63,000 mortgages with loan-to-value ratios between 105% and 125% had refinanced. Fannie and Freddie guarantee millions of loans that are underwater.

The White House could take a number of steps to revamp the program, though many of these steps would require the blessing of Fannie and Freddie’s regulator, the Federal Housing Finance Agency. Here are six that policy makers would be likely to consider:

• Remove the eligibility date. Currently, loans that were originated after June 2009 aren’t eligible for HARP, and loans that have already refinanced once through HARP can’t be refinanced again.
• Eliminate the 125% loan-to-value cap. Nearly one in 13 loans backed by Fannie Mae can’t participate in the HARP program because they’re too far underwater. These loans weren’t eligible initially for HARP because they can’t be sold into standard pools of mortgage-backed securities issued by Fannie and Freddie. Some analysts have suggested that the Federal Reserve could buy these loans as one way to facilitate the program.
• Waive risk-based fees that Fannie and Freddie charge. The firms charge lenders extra fees for riskier borrowers, which effectively raises the rate and reduces the incentive for underwater borrowers to refinance. “It wouldn’t be just a refinance boom for the pristine credits. It would open it up for middle America as well,” says Bob Walters, chief economist at Quicken Loans.
• Streamline the application process to tamp down closing costs. Eliminating appraisals, waiving title insurance requirements, and simplifying the refinance process could reduce fees that may have discouraged underwater borrowers from refinancing. (There’s much more on this in a paper by mortgage-market consultant Alan Boyce and Columbia Business School economists Glenn Hubbard and Christopher Mayer.)
• Address second mortgages and mortgage insurance. Using the HARP program for borrowers who are underwater has proven “extraordinarily difficult,” says Mr. Walters, because many borrowers have second mortgages or mortgage insurance from companies that must sign off on the new loan. Coming up with a way to gain automatic pre-approval from participating second-lien holders and mortgage insurers could accelerate underwater refinancing.
• Indemnify lenders against the potential for “put-backs.” This is a big one. Many banks have been reluctant to refinance borrowers under HARP, or are charging hefty fees, because of the concern that they’ll have to buy back the loan from Fannie and Freddie if it defaults.

Of course, any uptick in refinancing would come at the expense of bondholders, muting some of the economic boost. A working paper from the Congressional Budget Office provided some estimates around the benefits and costs of refinancing more borrowers.

Fixing one or two of these steps would help at the margins. Dealing with all of them would provide a bigger boost to refinancing. And all of them stop short of the “blanket refinance” that some analysts have proposed, where Fannie and Freddie would automatically refinance borrowers with an above-market rate, whether they ask for it or not.

“Mass refinance” programs aren’t as likely to happen because they threaten to create significant uncertainty for mortgage-bond investors. Officials may be reluctant to take steps that reward yesterday’s borrowers at the expense of tomorrow’s.

Follow Nick on Twitter: @NickTimiraos

Original Post: http://blogs.wsj.com/developments/2011/09/08/six-steps-that-could-boost-refinancing/

What Did Fannie, Freddie Know?

By RUTH SIMON And NICK TIMIRAOS

The 17 lawsuits filed Friday by federal regulators against some of the world's biggest financial institutions hinge on a simple premise: The mortgage loans that banks packaged into securities often didn't meet the underwriting guidelines the banks outlined in their securities filings.


The lawsuits, filed by the Federal Housing Finance Agency, allege that the banks made untrue statements and omitted key facts when they sold mortgage investments to loan giants Fannie Mae and Freddie Mac.


The suits involve $196 billion in mortgage bonds packaged by some of the world's biggest banks. In addition to the banks, the suits name more than 100 executives who signed offering statements for the securities. Several of the named banks denied the allegations, didn't respond to requests for comment or declined to comment.


The FHFA didn't specify how much it is seeking in damages.


Fannie and Freddie don't make loans directly, but they support housing markets by buying mortgages from banks and then selling them to investors as securities, providing guarantees to investors.
During the housing boom, the two companies augmented their role in the housing market by purchasing privately issued mortgage securities as investments.


It is those investments at issue in the suits. Analysts said the cases could ultimately turn on whether the FHFA can show that Fannie and Freddie, given all their expertise in evaluating mortgage risks, were misled about the quality of the loans backing those investments.


Citing detailed loan information, the FHFA lawsuits allege that the banks repeatedly misrepresented or made untrue statements about basic characteristics of loans in the securities, such as the portion of borrowers who lived in their homes and the percentage of the property's value being financed.


Banks "routinely" packaged loans into securities even though they had been flagged by third-party due diligence firms as not meeting underwriting guidelines, according to the lawsuits.


"It's a great myth that you can't defraud sophisticated financial parties," said William K. Black, a former bank regulator involved with hundreds of successful savings-and-loan-era prosecutions. "Models cannot protect you against fraudulent loans" or inadequate disclosures.


The FHFA's review of a sample of loans in one Goldman Sachs Group Inc. bond deal cited in a lawsuit found that the portion of properties that appeared not to be owner-occupied was nearly double the amount stated in the prospectus supplement.


Goldman Sachs declined to comment.


The banks are likely to argue that Fannie and Freddie knew that the loans were risky and that losses were due to underlying economic conditions, not faulty underwriting. "It will become clear that the plaintiffs knew as much as the defendants about the quality of these loan portfolios," says Andrew Sandler, co-chairman of BuckleySandler LLP, a law firm representing banks in litigation and regulatory enforcement actions.


Roughly a dozen investors and government agencies, including at least five federal home loan banks, American International Group Inc. and the National Credit Union Administration, have filed similar lawsuits.


Both the FHFA and NCUA have an edge over some other plaintiffs because they have subpoena power that has provided them with access to loan files.


Given that evidence from the loan files, "it would be amazing if these complaints do not survive motions to dismiss," said David Grais, an attorney in New York who represents several Federal Home Loan Banks in similar legal actions. Many of the other lawsuits are still in their early stages; most have survived motions to dismiss.


Write to Ruth Simon at ruth.simon@wsj.com and Nick Timiraos at nick.timiraos@wsj.com