All we need is more soundbites like this, and we’ll be off to the races. Potential buyers who are gainfully employed and have ample resources will gravitate to these articles, especially when they’re quoting the guy with the most negative foreclosure stats.
Foreclosures have long appealed to investors who are looking for instant equity—and willing to roll up their sleeves. Often, buyers can purchase such homes for 20 percent to 60 percent off their potential market value.
“There is probably three more years of extraordinarily high levels of distressed inventory before we burn through this supply,” said Rick Sharga, senior vice president of RealtyTrac.com. “This is a market where somebody who does their homework can save significant money on a home purchase and create a nice investment opportunity on a longer-term basis.”
Investors entering the market today, however, will have to employ a different strategy than those who came before. If you’re looking to renovate and flip, forget it. But if you’re in a position to buy and hold, with the intent of either renting your property or sitting on it until the real estate recession subsides, the market is ripe for the picking.
According to RealtyTrac.com, Nevada, Florida and Arizona lead the nation in foreclosure rates, while Sunbelt cities and states, including Las Vegas, Nevada, Modesto, California, and Cape Coral-Ft. Myers, Florida are posting the largest number of foreclosures.
For investors, notes Sharga, a rocky residential market and a growing inventory of foreclosed homes could mean a bigger potential payoff down the road.
“If you combine a down market with the kind of discount you’d be looking at with the typical foreclosure, that doubles your opportunity for success when the market comes back,” he said.
“Many foreclosure investors won’t purchase a property unless it is at least a 30 percent discount,” said Sharga. “That’s because you’ll typically need to do a rehabilitation to bring the property back up to the neighborhood standard, you’ll probably have to finance it for a short period of time and it’ll cost you some money to market the property.”
It may be not sit well to profit from someone else’s misfortune, but keep in mind that when you purchase a distressed property you’re not just doing your investment portfolio a favor.
By reducing the inventory of available homes, you’re also helping to stabilize the residential real estate market, which, in turn, will buoy the troubled U.S. economy.
Bank of America Merrill Lynch analysts believe the federal government should begin investing in distressed real estate directly through a second round of the Public-Private Investment Program to reduce the shadow inventory of properties.
The original PPIP was a coordinated effort between the Treasury Department, the Federal Reserve System and theFederal Deposit Insurance Corp. to hold real estate assets off bank balance sheets in order to free up credit lines. Through July, the government has invested in more than $22.4 billion in the PPIP.
But while BofA Merrill Lynch analysts called the program a success for driving up the value of residential and commercial mortgage-backed securities, they said PPIP 2.0 would be critical to reduce homeownership rates, the amount of delinquent and foreclosed homes in the shadow inventory, and increase the value of real property.
Homeownership rates dropped to 66.9% in the second quarter, according to the Census Bureau. BofA Merrill Lynch analysts said the adjustment to a more natural 62% to 64% rate is under way. Converting another 3 to 4 million homeowners to renters would be required to get there.
At $200,000 a property, it would cost between $600 billion and $800 billion to make that reduction.
Initial targets for the program would be the 5.5 million delinquent borrowers. “Despite all modification efforts directed at this group, we think it is probably only a matter of time before these many homeowners are no longer homeowners,” according to the report.
They are going to keep throwing everything at the wall, until something sticks. FromHW:
In the wake of reform enacted to promote homeownership, analysts at theCenter for Economic and Policy Research are saying that ownership may not be the smartest option.
In a report released today, The Gains from Right to Rent in 2010, the CEPR suggests that giving homeowners the right to rent their house at a fair market price could be a game changer in the nation’s foreclosure crisis.
The report dissects the benefits of a drafted bill, H.R. 5028, also known as The Right to Rent. Under the legislation, homeowners entering the foreclosure process would be able to occupy their homes for up to five years, while paying rent to a lender. Rent would be based on fair market price as determined by an independent appraiser and adjusted annually.
“This would give homeowners an important degree of security, since they could not simply be thrown out on the streets,” wrote Dean Baker and Hye Jin Rho, co-director of and research assistant at CEPR. “This policy should also benefit neighborhoods in the most hard-hit areas, since they would not have large numbers of vacant homes following foreclosures.”
The CEPR report, which compares the costs of owning a home and renting in 16 major metropolitan statistical areas around the U.S., found that homeowners would see substantial reductions in costs by becoming renters if they rented in a bubble-inflated market. Savings are much less, however, if the market was not affected by the housing bubble.
For example, in the Los Angeles MSA, homeowners would save $1,586 per month by becoming a tenant. The median home price in 2006 and 2007 was $608,600. Based on that number, CEPR found the monthly cost of ownership as $3,128 versus $1,420 to rent.
New York/New Jersey, Sacramento, San Diego and San Francisco savings are all over $1,000.
The housing market is showing progress two years after the credit crunch drove down home prices, though it’s too soon to “declare victory,” Housing and Urban Development Secretary Shaun Donovan said.
“It is too early to certainly declare victory,” Donovan said in an interview for Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. He said prices picked up over the last year and Americans added $1.1 trillion in equity to their homes.
Pending home sales rose an unexpected 5.2 percent in July, the National Association of Realtors reported yesterday. Seasonally adjusted pending sales had dropped 2.8 percent in June and almost 30 percent in May.
When President Barack Obama came into office, “what was driving the housing market was bad loans, today it’s unemployment,” Donovan said.
The administration is putting more emphasis on affordable rental housing and less on homeownership as Obama and Congress work to stabilize home prices and rebuild the U.S. mortgage- finance system, Donovan said.
“We do need to rebalance our priorities,” Donovan said. “Part of that, frankly, is that we have a president who talks about rental housing and is focused on rental housing as an important part of the equation.”
A housing shortage once the market fully recovers is one of the biggest concerns facing San Diego real estate, according to an economic forecast delivered to local agents by the chief economist at the National Association of Realtors (NAR) on Friday.
Reiterating many issues familiar to anyone in the local market, Lawrence Yun — speaking at the San Diego Association of Realtors’ Real Estate Summit — said the shortage of housing created by the historic lows in new home construction pose a potential crisis two to three years from now.
He said the conditions for an economic recovery in San Diego are in place, though it’s unclear what the recovery’s pace will be. And if the job situation improves considerably, the all-time lows in homebuilding will be a big problem.
“I’m concerned with the lack of new housing,” Yun said. “There’s always volatility in home prices in coastal areas due to the difficulty of building. It’s possible if the job situation gets better, we could face a shortage when the distressed inventory is out of the system.”
This scarcity of supply would result in quickly escalating home prices that would be good for current homeowners, but bad for the industry. “There would be more people priced out of the market and far fewer transactions,” he said. “Home building needs to reflect population growth.”
Before his speech, Yun said it was possible for San Diego to recover much faster than the rest of the country. “Coastal markets recover a little faster in terms of prices. All of real estate is local.”
“America is fortunate that it can print money and not have inflation, because foreigners still trust the dollar,” he said. “If the low-probability event happened and countries started to distrust the dollar, mortgage rates would increase very fast.”
First it was McMillin talking the party line like an NAR booster in an article in the U-T, saying it is a great time to buy or sell.
Then HW features more ivory-tower guys talking about the market, entitling the article: Homebuyer Demand All But a ‘Standstill’, but I couldn’t find where they actually used the word standstill in the text. Everyone speaking with great certainty as if they know what’s actually happening, and the MSM soaking it up like it’s factual – with editors applying liberal interpretations to sex up the effect.
These types of stories drive me crazy – sellers will skim the headlines and get more over-confident:
Aug. 9 (Bloomberg) — The percentage of U.S. homeowners who owe more than their properties are worth declined in the second quarter as tax credits boosted prices in California and foreclosures surged, real estate data provider Zillow.com said.
The Seattle-based company found that 21.5 percent of homeowners were underwater on their mortgages, down from 23.3 percent in the first quarter and 23 percent a year earlier, according to a report today.
The decline came as property prices in California were bolstered by state and federal benefits for homebuyers, Zillow said. Prices climbed from a year earlier in 28 percent of the markets tracked in California, the most populous state. They gained 5.5 percent in the Los Angeles area, 5.9 percent in San Francisco, and 7.3 percent in San Diego.
“The double tax credits for some California homebuyers have certainly stimulated housing demand there and are partly responsible for the rapid — and likely unsustainable — rates of appreciation in many markets across the state,” Stan Humphries, chief economist at Zillow, said in a statement.
Hat tip to Susie for sending along this article from TIME/CNN, full of classics:
“The whole market has slowed down anywhere from 30% to 40% across the country,” Not in San Diego, where we’ve seen YOY and MOM sales be virtually unchanged.
“If you are trying to be an opportunistic seller and you don’t have to sell, there’s no reason to have it on the market right now.” says Trulia’s Shuman. “The demand is not there.” Huh? Not in SD, where there is plenty of people willing to buy today if they could find a reasonably-priced house.
“If your home has been on the market for four months and it hasn’t sold, you have to adjust your price.” Four months? It’s the middle of July, better make it four weeks, or less!
“I definitely think we have more inventory,” she says. “But everything will always sell for a price.”Now we’re talking!
San Diego County’s home prices rose 7 percent in May from the previous year, the second highest year-over-year increase in the country, according to the real estate website zillow.com. Nationwide, home prices dropped 3.8 percent in the same time period.
The Seattle-based company comes up with its home-value index by looking not only at homes that have sold but also pending sales as well as homes that are not on the market. In San Diego County, the median home price was $375,400, a 1 percent increase from the previous month. Of course, that’s down 30.1 percent from the peak median price of $538,200 in October 2005.
Here is the breakdown of Zillow’s numbers, which it releases every month, and how they compare with other home-price statistics:
How do we rank? In terms of price increases, San Diego County is second only to the Virginia Beach, Va., metro area. When compared with major metro areas, San Diego is No. 1. Next are San Francisco with a 5.9 percent increase, Los Angeles with a 5.3 increase, San Jose and Santa Barbara each with a 4.7 increase. If the list seems a little California-centric, it is. Of the top 10 markets, six of them are in the Golden State.
Thornberg hasn’t been a big cheerleader, so this report is curious – from the U-T:
County home prices, which began to recover last year, will continue rising but at a slowing pace as government stimulus programs expire, Beacon Economics forecasters predicted Friday.
In a wide-ranging review of the local economy at the San Diego Hilton Torrey Pines, the San Rafael consulting firm’s economists said single-family resale home prices will trend upward, from the first quarter’s median of $382,788 to $439,000 over the next four years — a nearly 15 percent rise.
“Home prices in San Diego are great news here,” said Brad Kemp, Beacon’s director of regional research.
But the recent increases occurred with the help of federal stimulus dollars, not because of any underlying economic fundamentals, such as significant job or population growth that would spark long-term demand, the economists said.
With foreclosures expected to increase, home-buying incentives expiring and nearly a third of all homes worth less than their mortgage balance, Kemp said sales and price growth will slow down. The $439,000 median price forecast for 2014 would still be 23 percent below the 2006 peak of $571,580.
“I don’t think it will grow at an exponential pace anytime soon,” he said.
The forecast falls in line with other economists and real estate industry analysts, who have predicted a leveling off of prices or a drop of as much as 5 percent for the rest of the year, after federal homebuyer tax credits and low interest rates end. An expected increase in foreclosure properties also is expected to keep a damper on prices.
All we need is more soundbites like this, and we’ll be off to the races. Potential buyers who are gainfully employed and have ample resources will gravitate to these articles, especially when they’re quoting the guy with the most negative foreclosure stats. 
