Tag Archives: Home Prices


Rising Prices Could Lift 3.5M Homeowners Out of Negative Equity

While almost one-quarter of homeowners remain underwater, rising home prices over the past year have some economists hopeful negative equity could begin to diminish in coming months.

“The negative equity problem is still crippling many homeowners and the wider economy,” Capital Economics stated in a report.

In addition to the almost one-fourth of homeowners who owe more on their mortgage loans than their homes are worth, almost half of homeowners do not meet the 80 percent loan-to-value ratio required for a standard refinancing.

While “[a]dmittedly, the recovery is still in its infancy,” Capital Economics sees the potential for 3.5 million homeowners to move out of negative equity positions over the next 12 months.

CoreLogic reports prices have risen 5 percent over the past 12 months, and Capital Economics reports the greatest movement is occurring in the same locations that experienced the greatest price declines and highest instances of foreclosures and negative equity during the housing crisis.

For example, about 40 percent of homeowners in Arizona and Florida are underwater. However, home prices have risen 18.7 percent and 6.3 percent, respectively, in these two states over the past year.

While Capital Economics is sticking to its prediction that house prices will rise about 5 percent next year, the economists admit “the upside risks to that forecast are clearly rising.”

So far this year, rising home prices have helped 1.3 million households rise out of negative equity, according to CoreLogic.

If home prices were to rise by 10 percent next year, about 3.5 million borrowers would be lifted out of negative equity and 6 million would become eligible for standard refinancing after seeing their loan-to-value ratios fall back to or below 80 percent.

“The faster prices rebound, the quicker the negative equity problem will be resolved,” Capital Economics stated.

With home prices still about 27 percent below their 2006 peak, 10 percent under-valued compared to current rental rates, and 20 percent under-valued compared to per capita incomes, Capital Economics sees no need for concern over another bubble as prices continue to rise.

By: Krista Franks Brock, DSNews


Shadow Inventory Down…in Most States

 

 

 

 

 

 

 

 

 

 

CoreLogic, in their most recent foreclosure report, revealed that approximately 1.3 million homes, or 3.2 percent of all homes with a mortgage, were in the national foreclosure inventory as of August 2012 compared to 1.4 million, or 3.4 percent, in August 2011. Month-over-month, the national foreclosure inventory was unchanged from July 2012 to August 2012.

CoreLogic identifies foreclosure inventory as “the share of all mortgaged homes in any stage of the foreclosure process”. Their report revealed that 32 of the 50 states have seen their percentage of foreclosure inventory decrease compared to last year. Though foreclosure inventory is slowly shrinking nationally, some states are headed in the opposite direction.

The four states with the highest foreclosure inventory as a percentage of all mortgaged homes according to CoreLogic:

  • Florida – 11%
  • New Jersey – 6.5 %
  • New York – 5.2%
  • Illinois – 4.8 %

These numbers coincide with those reported by LPS in the recent Mortgage Monitor which revealed that foreclosure starts in judicial states increased by 21% month-over-month while decreasing by 3% in non-judicial states. All the states listed above are judicial states.

LPS ranked states by how long it would take to clear their shadow inventory at that states’ current sales pace for foreclosed properties. Using that measure, New York and New Jersey have a much larger pipeline of distressed properties than any other state. (Florida and Illinois are not on this list because they are clearing their distressed properties at a much faster pace. Their pipeline is shrinking more rapidly).

These facts caused Mark Zandi, chief economist of Moody’s Analytics, to report:

“Shadow inventory is falling in much of the country –except for the Northeast. The implication is that house prices will be much weaker in the Northeast in coming years as these distressed properties eventually get sold.”

 

By: The KCM Crew, KCM Blog


Analysis: Investors Driving Recovery as Activity Surges

A recent analysis from John Burns Real Estate Consulting suggests that investors may be the biggest driving force in the housing recovery.

In a report from the company, senior research analyst Erik Franks noted that investors are buying homes at an increased pace and at prices that allow for a reasonable rental return.

“Investors are buying homes at a more rapid pace than ever before, and this time their investments actually make sense,” Franks wrote.

Across the 167 metro areas analyzed by the company, investor activity as a share of all transactions rose to 29.6 percent in the first quarter of 2012, up from a low of 23.6 percent in the last quarter of 2009. Furthermore, the company’s “on the ground” research leads analysts to believe this year’s second-quarter activity exceeded the first quarter’s, with investor activity spiking 2 percent.

Investor activity has returned to Stockton, Miami, Las Vegas, Riverside-San Bernardino, Sacramento, and Phoenix, all areas investors were previously reluctant to enter after their old investments crashed. According to the report, some markets are now “completely dominated” by investors, such as Las Vegas (where investor activity makes up 50 percent of total activity) and Phoenix (46 percent).

Investors also seem to be attracted to small markets-particularly those in inland California, the report notes. Second home buyers are also making their way into smaller markets, leading to large activity increases in Naples, The Villages, Tucson, and Panama City.

While Franks conceded that these signs of increased investor interest may point to a false recovery, he said John Burns Real Estate Consulting is not concerned and welcomes the return of private capital.

“Most of these investors are paying all cash and buying homes below replacement cost,” Franks wrote. “They are helping the market recover by removing supply at the low end of the market and driving real buyers to higher price points, including new homes.”

Franks also wrote that the company doesn’t foresee a scenario in which investors dump their stock on the market unless it’s clear prices are dropping again. For now, Franks said he and his colleagues feel comfortable for the near future.

“We are hyper-focused on the potential positive result, which is that rising prices get fence-sitting consumers off the fence. We are seeing this occur in some pockets around the country.”

 

By Tory Barringer, DSNews

 

Economist: ARMs Not as Risky as Some Think

Long-term, fixed-rate mortgages are often seen as a “safe” loan product, but one Federal Reserve economist says adjustable-rate mortgages (ARMs) are not as risky as some perceive them to be and did not play a major role in the recent housing crisis. To those who believe payment shocks caused by ARMs were a major player in the foreclosure crisis, Paul Willen, senior economist at the Federal Reserve Bank of Boston, says, “The data refute that theory.” Willen shared his views before the Senate Banking Committee at a hearing titled “Housing Finance Reform: Continuation of the 30-year Fixed-rate Mortgage.”

In a survey of 2.6 million foreclosures, Willen found mortgage payments at the time of foreclosure were the same or lower than the initial payment for 88 percent of the mortgages.

Those with ARMs “were almost as likely to have seen a payment reduction as a payment increase” says Willen because interest rates in any recession – including the recent one – fall rather than rise. Only 12 percent of foreclosed borrowers experienced payment shock, according to Willen. More than half of borrowers whose homes were foreclosed – 60 percent – had fixed-rate mortgages. Willen points to falling prices combined with life events, rather than payment shock, as the major proponent of the foreclosure crisis.

When borrowers have positive equity, it makes more financial sense for them to sell their property than default on their mortgage when they encounter a negative life event such as job loss, divorce, or illness. However, when prices fall and borrowers have negative equity, disruptive life events are much more likely to lead to foreclosure, Willen says in his testimony.

“It does turn out that fixed-rate mortgages default less often than adjustable-rate mortgages, but that fact reflects the selection of borrowers into fixed-rate products, not any characteristics of the mortgages themselves,” Willen says. He suggests that some ARM borrowers enter their mortgages without intending to stay in the homes long-term. When these borrowers’ home values fall, they are more likely to default, according to Willen.

Article is from DSnews.com.