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Recent home sale data

April 23rd, 2010 9:44 AM

Sales of previously-owned homes rose higher than expected in March, reversing a three-month slide. The National Association of Realtors (NAR) said Thursday that existing-home sales jumped 6.8 percent to a 5.35 million-unit annual sales rate.

Year-over-year, sales are up 16.1 percent. According to NAR, the March numbers are just the beginning of what will be a strong spring season. Lawrence Yun, NAR’s chief economist, called the latest report a sign of “broad home sales recovery in nearly every part of the country.”

The surge last month was largely attributed to buyers racing to make the window for the homebuyer tax credit. Borrowers must be under contract by April 30 to take advantage of the government incentive. First-time buyers, who are eligible for the larger $8,000 tax break, purchased 44 percent of homes in March, according to a separate NAR study.

“The home buyer tax credit has been a resounding success as these underlying trends point to a broad stabilization in home prices,” said Lawrence Yun, NAR chief economist. “This is preserving perhaps $1 trillion in largely middle class housing wealth that may have been wiped out without the housing stimulus measure.”

“With home values stabilizing, a revival in home buying confidence will likely help the housing market get back on its feet even as the tax credit impact disappears,” Yun said.

Based on NAR’s data, the national median price for a previously owned home was $170,700 in March, up 0.4 percent from a year earlier. Distressed homes, which NAR says are typically sold at a 15 percent discount, accounted for 35 percent of sales last month.

“Foreclosures have been feeding into the inventory pipeline at a fairly steady pace and are being absorbed manageably,” Yun said. “In fact, foreclosures are selling quickly, especially in the lower price ranges that are attractive to first-time homebuyers.”

Although total housing inventory at the end of March rose 1.5 percent to 3.58 million existing homes available for sale, with the elevated sales pace, the months of backlog declined. NAR says the housing supply has slipped from 8.5 months in February to 8.0 months.

Raw unsold inventory is 1.8 percent below a year ago, and is 21.7 percent below the record of 4.58 million units in July 2008. Inventory has trended down from year-ago levels for 20 months running.

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Posted by Brad Phillips on April 23rd, 2010 9:44 AMPost a Comment (0)

Arizona's plan for federal funding

April 29th, 2010 9:26 AM

The Arizona Department of Housing (ADOH), one of five state housing finance agencies (HFAs) slated to receive federal funding through the administration’s Hardest Hit Fund, has submitted a proposal to the U.S. Treasury Department detailing how it plans to use its expected allocation.

According to RealtyTrac, a real estate data firm, Arizona’s foreclosure rate is currently second in the nation. In 2009, the greater Phoenix area experienced approximately 52,000 foreclosures, and through the first quarter of 2010, this area is on track to experience an additional 52,000 foreclosures.

While many early foreclosures were a result of over-speculation of single-family homes by investors and resets on adjustable-rate mortgages, numerous Arizona households are now facing foreclosure due to job loss or reduced income as a result of an ailing economy. In addition, many households are choosing foreclosure rather than remaining in homes where the amount owed far outweighs the current value of the property.

Taking into consideration the causes of foreclosure across the state, ADOH created a detailed plan of how it will use the financial aid made available through the Hardest Hit Fund. According to the proposal, the funding has the potential to assist approximately 4,000 Arizona households and will be used for permanent mortgage

modifications, second mortgage settlement, temporary mortgage assistance, and homeowner advocacy through HUD counselors.

ADOH plans to use the bulk of its funding — $90 million of its $125.1 million allotment — to reduce loan balances for heavily underwater borrowers, the Wall Street Journal said. For a principal reduction, the principal balance must exceed 120 percent of present market value of the home. The homeowner could then qualify for a maximum contribution of $50,000 that is matched by the lender and forgiven over a period of time.

According to the Wall Street Journal, the HFA also plans to use around $7.5 million to help extinguish second mortgages, another $12 million to help subsidize monthly mortgage payments for unemployed borrowers, and $10 million towards housing counselors.

In designing this proposal, ADOH developed a set of guiding principles to ensure that it assists homeowners who have demonstrated “personal responsibility” in their home purchase choices. It is the state’s intent to assist those who, through no fault of their own, are facing the potential loss of their home due to the current and unprecedented economic conditions.

Under these guidelines, a foreclosure must be imminent, meaning resources will only be utilized for households who have exhausted all options in remaining current on their mortgage payments. In addition, resources will only be utilized for primary residencies, and households must prove that their income is at or below 120 percent of the area median income.

Applicants must also demonstrate an approvable hardship, such as reduced income due to underemployment, a medical condition, divorce, or death. Homeowners who have “self-inflicted” wounds, such as refinancing to take out equity, will not be approved.

Resources will be made available statewide. However, geographic set-asides will be devised to assure distribution commensurate with foreclosure rates

Posted by Brad Phillips on April 29th, 2010 9:26 AMPost a Comment (0)

Foreclosure and credit scores

April 28th, 2010 1:19 PM

NEW YORK (CNNMoney.com) -- If you're delinquent on your mortgage, your credit score will suffer. Everyone knows that. The question is, by how much?

Until recently, those answers were hard to come by. Credit bureaus were uncommunicative about expressing, in points, just how much impact different foreclosure types of mortgage delinquencies have on scores.

Recently, Fair Isaac, which developed FICO scores, pulled back the curtain a bit, revealing some estimates of point-score declines following mortgage delinquency problems.

Here are the average hit your credit will take:

30 days late: 40 - 110 points

90 days late: 70 - 135 points

Foreclosure, short sale or deed-in-lieu: 85 - 160

Bankruptcy: 130 - 240

To come to these figures, Fair Isaac created two hypothetical consumers, one who starts out with a fair-to-middling score of 680 and the other with a very good one of 780. (FICO scores range from 300 to 850.)

The hypothetical person with the 780 FICO has 10 credit accounts versus six for the 580, plus a longer credit history, lower utilization of total credit limit and no missed payments on any account. The other consumer has two slightly damaged accounts. Neither have any accounts in collection or adverse public records.

See the chart above to see how each scenario affected each borrower.

Notice that for both borrowers a single one-time black mark results in steep drops, but it is when they fall further behind that things get really harsh, according to Craig Watts, a spokesman for Fair Isaac.

"The lending industry tends to regard an account differently when it has become 90 or more days late," he said, "The likelihood that consumers will resume paying their overdue obligations drops off significantly after the delinquencies have reached 90 days."

One reason credit companies were so closed-mouthed is that they often can't definitively state how much each delinquencies will affect scores because there are too many variables.

Some borrowers will fall much more steeply than others for the same payment problem, according to Maxine Sweet, vice president for public education at Experian, one of the nation's main credit bureaus.

"If you picture someone who has just one mortgage and one other credit account versus a mature credit user like me with 15 accounts, if they miss one payment that would impact their scores a lot more," she said. "For me, one missed payment would just be a blip."

The point loss also depends on the borrower's starting point: People with very high credit scores have more to lose than low-score borrowers; the impact of a single blemish on an 800 score is more than on a 500.

Of course, it just gets worse when you face foreclosure.

Mortgage borrowers can lose their homes three basic ways: a foreclosure; a short sale, where the home is sold for less than than is owed and the bank (generally) forgives the difference; or a deed-in-lieu, in which the borrower gives back the property and the bank again forgives any unpaid balance.

Sweet said credit bureaus generally slash scores equally for those three resolutions to someone losing their home. The important factor, she said, is that "it's reported that you paid less on a settled account."

Some borrowers may think that because they never missed a payment, they can "walk away" from their homes with relatively little impact on scores. Not true. "When a deed-in-lieu or short sale is reported as a partial payment, it's treated as a serious delinquency," Watts said, "just like a foreclosure."

Even if borrowers made payments faithfully for years before short selling or doing a deed-in-lieu, their credit score will still take a hit. The total decline will run about 85 points for the 680 score borrower to as much as 160 for the 780 score.

Mortgage debt, combined with other financial problems, can send borrowers into bankruptcy, the worst thing that can happen to your credit score.

The effects are long-lasting, according to Sweet. In a Chapter 13 bankruptcy, which involves partial repayment over several years, the stain will take seven years to remove. A Chapter 7 bankruptcy, which involves liquidation, takes 10 years to get over.

It's gonna cost you

Absorbing a big credit-score hit can make many transactions more costly. It's not just paying more for credit card debt and auto loans, insurance can cost more as well.

The average savings for someone with a good versus mediocre credit score is about $115 a year for auto insurance and $60 for home, according to Loretta Sorters, of the Insurance Information Institute.

A low credit score can even make it harder to rent a home because landlords often use credit scores to weed out prospective renters.

Despite the problems a poor credit score can cause, Experian's Sweet recommends that people who are in financial dead ends, like totally unaffordable mortgages, it's better to recognize that and cut your losses quickly; don't prolong the problem.

"You need to do what you need to do to get your finances back in order," she said. "Don't worry about your credit score."

Posted by Brad Phillips on April 28th, 2010 1:19 PMPost a Comment (0)

Housing starts increase in March

April 20th, 2010 11:36 AM

RISMEDIA, April 20, 2010—(MCT)—Fresh data on new construction of U.S. housing units revealed an upward trend in place since the beginning of the year, with an initial report of February 2010 weakness revised away.

Starts rose 1.6% in March to a seasonally adjusted 626,000 annualized units, the Commerce Department recently reported. This was stronger than the 610,000 pace expected by economists surveyed by MarketWatch.

Even more surprising, February starts were revised higher to a 616,000 pace from the 570,000 previously reported. This was up 1.1% from the prior month. The initial estimate had been a 5.9% drop.

As a result of the revisions, starts have risen for three straight months and are now at their highest level since November 2008. “The bottom line is that there is an upward trend and construction will be moving higher provided that new-home sales improve as well,” said Michelle Meyer, economist at Barclays Capital. Meyer cautioned that one should not get carried away with the improvement as it comes from “an incredibly low level of activity.”

Treasury prices and the dollar added to recent gains after the report. The government cautioned that its monthly housing data are volatile and subject to large sampling and other statistical errors. In most months, the government can’t be sure even whether starts increased or decreased. In March, for instance, the standard error for starts was plus or minus 15.2%. Large revisions are common, but rarely have they been in such a positive direction during this recession.

In March, strength came from multifamily starts. There was a slight decrease in starts of single-family homes. Starts of single-family homes fell 0.9% to a 531,000 rate in March, while starts of multifamily units surged 39.7% to 88,000.

The strength was concentrated in the South; all other regions declined in March.

“This was a modestly positive report. It is nice that construction is improving, but it would be better if the gains were more widespread,” wrote Joel Naroff of Naroff Economic Advisers.

In the past year, starts are down 20.2%. Starts of single-family homes are up 47.1%, while starts of apartments and condominium units have plunged 31.8%.

Building permits rose 7.5% to a seasonally adjusted annual rate of 685,000 in March.

Building permits for single-family homes increased 5.6% to a 543,000 rate—the highest level since August 2008. Many economists consider single-family permits to be the most important number in the government’s release. Permits for apartments rose 15.4% to 142,000.

The National Association of Home Builders recently said its members were more encouraged about their business in April. The builder’s sentiment index rose to 19 in April from 15 in March. “We may be seeing some modest improvement in the fundamentals for new housing construction,” wrote the RDQ economic team in a note to clients.

A tax subsidy for buyers expires at the end of April, and “we will need to see data for May and June before we can put too much weight on this conjecture,” the RDQ note said.

It can take four months for a new trend in housing starts to emerge from the data. In the past four months, housing starts have averaged 606,000 annualized, up from 594,000 in the four months ending in February.

The industry has slashed production of new homes to work off a massive amount of unsold inventory. The number of homes under construction fell 1.4% to a seasonally adjusted 489,000, the lowest on record, dating back to 1970. “Any pickup in demand,” Meyer said, “will warrant an increase in new construction.”