Uncertainty to temper economic growth

SAN FRANCISCO -- While housing has been a bright spot for the economy lately, real estate professionals should not expect runaway growth anytime soon, according to panelists at today's Real Estate Connectconference in San Francisco.

"I think the market we have today is going to be a market that is going to be somewhat sustained," said Joel Singer, executive vice president of the California Association of REALTORS®. "Time is important, if for no other reason than personal balance sheets get healed. There will be growth in the next couple of years, though it's obviously not going to be dynamic."

Bill Emmons, assistant vice president and economist at the Federal Reserve Bank of St. Louis, emphasized that the economy as a whole was "not too broken to be fixed" but that the recovery is "just going to look a lot different than we're used to."

"We're at a slower growth rate, so we're pretty much always on the verge of a slowdown or a recession. Something coming from Europe or domestic origins can knock us down," Emmons said.

Housing will be one of the better sectors of the economy, Singer said, but he cautioned that the economy as a whole was at risk in the next six months. Calling the downturn "financially created," he said a revamp of the financial system was in order.

"I think we have to be very, very concerned about the policy issues," Singer said. In particular, he noted that some 95 percent of mortgages originated are owned or guaranteed by the federal government.

"We're the only first-world country with a nationalized housing market," said Amy Brandt, CEO of Vantium Capital.

Patrick Stone, president and CEO of Williston Financial Group, said that uncertainty surrounding two controversial regulations -- the qualified mortgage (QM) and the qualified residential mortgage (QRM) -- is an impediment to the development of a private secondary mortgage market.

QM would establish standards for borrowers' "ability to pay" the mortgages they seek, while QRM would establish certain baseline standards for safe underwriting and require lenders to retain a 5 percent minimum ongoing stake in any loans they originate that don't meet QRM requirements.

The regulations are under the aegis of the Consumer Financial Protection Bureau (CFPB), which recently postponed action on both rules after protests from REALTORS®, builders, banks, unions and consumer groups.

"Everything's on hold until we can get clarity (from) CFPB," Stone said. The bureau needs to define exactly how the regulations will work, the debt-to-income and loan-to-value ratios that will be allowed, and FICO score requirements, he added.

"We are walking off the plank into some deep water. So until these things get resolved there will be no private secondary market," Stone said.

Singer said he expects the transition to a bigger private secondary market will be "very choppy" and will "take a while." The presidential election, another source of uncertainty, is unlikely to bring about any meaningful change, he added.

Uncertainty also surrounds financial markets worldwide, panelists said. The eurozone crisis "is a real and present danger" and could send "shock waves" through the global economy, Emmons said.

"The Fed is worried about Europe," he added.

World economies are now interdependent, Brandt said, and "I don't think our political systems and financial systems have adapted to that yet."

Nonetheless, turmoil abroad has spurred a flight to the relative safety of U.S. Treasury bonds and mortgage-backed securities that fund most mortgage loans. That is "one of the reasons we're able have low mortgage rates," Emmons said.

Real estate itself is now considered a safe bet for many investors, the panelists said, with some adding that they've put their own money into properties.

"To me, hard assets are the place to be," Singer said. High affordability and low interest rates mean this is a "once in a generation opportunity in terms of real yields," he added.

Citing Facebook's sinking stock price since its initial public offering, Brandt said investors are less confident about investing in businesses.

"There has sort of been a fundamental disconnect in how we value companies. There are more investors saying, 'I don't know how to value this company, but I can buy this house.' So much of what drives the economy is people's perceptions," she said.

For now, real estate is considered "safe," but "how long that persists is a big question," she added.

Emmons cautioned that "we're going to have a lot of volatility (in the economy) for the next five years or so." He advised agents to "be aggressive, stay focused" and "don't be in a rush."

While the Fed has made clear that it will keep interest rates low until at least 2014, Brandt questioned the sustainability of the current housing market rally after that point.

"When the Fed starts to raise the rates, how do we sustain the current absorption rate? Without a private market, I think you're going to have a hard time" maintaining growth, she said.

Both Brandt and Emmons anticipate home prices will remain flat in the next few years, partially because consumers are still in the process of unloading debt and partially because of coming changes expected to disrupt the financial system. Stone anticipates prices will rise, albeit slowly.

On the jobs front, Stone struck an optimistic tone and said that U.S. exports, particularly of grain and petroleum products, are rising and the nation is set to become a net exporter of natural gas in a few years.

The U.S. is "positioned to be a breadbasket and energy center," Stone said.

Median Home Prices

Rising home prices bring 700,000 homeowners above water

Rising home prices helped more than 700,000 homeowners regain equity in their homes during first quarter, but 11.4 million borrowers still owed more on their mortgage than their homes were worth, according to the latestreport from data aggregator CoreLogic.

The number of U.S homeowners with negative equity declined by 6 percent in the first quarter compared to the fourth quarter, leaving 23.7 percent of all homes with mortgages underwater. That's down from 25.2 percent in the fourth quarter.

When the 2.3 million borrowers with less than 5 percent equity, which CoreLogic calls "near-negative equity," are included, 28.5 percent of mortgaged homes were either underwater or nearly underwater in the first quarter, down from 30.1 percent.

All told, negative equity nationwide totaled $691 billion in the first quarter, down from $742 billion the previous quarter. The decrease was largely due to home-price increases, CoreLogic said.

"In the first quarter of 2012, rebounding home prices, a healthier balance of real estate supply and demand, and a slowing share of distressed sales activity helped to reduce the negative equity share," said Mark Fleming, chief economist for CoreLogic, in a statement.

"This is a meaningful improvement that is driven by quickly improving outlooks in some of the hardest-hit markets. While the overall stagnating economic recovery will likely slow housing market recovery in the second half of this year, reducing the number of underwater households is an important step toward reducing future mortgage default risk."

Some 1.9 million borrowers were only 5 percent upside down in the first quarter, meaning further price appreciation could move them into positive territory.

Among states, Nevada had the highest share of mortgaged loans in negative equity (61 percent) followed by Florida (45 percent), Arizona (43 percent), Georgia (37 percent) and Michigan (35 percent), CoreLogic said.

Negative equity is concentrated at the low end of the market, CoreLogic said. Among homes under $200,000, 31 percent were upside down, compared with 15.9 percent among homes worth more than $200,000.

The majority of the underwater homeowners -- 6.9 million -- had only a first mortgage with no home equity loans, and owed an average of $212,000 on their mortgages with negative equity averaging $47,000.

While 19 percent of these borrowers were underwater in the first quarter, the negative equity share among borrowers with both first liens and second liens was more than twice that, 39 percent. Those 4.5 million borrowers owed an average of $299,000 and were underwater by an average of $82,000.

Starting with this report, CoreLogic revised the methodology it uses to calculate negative equity and has therefore revised its historical data for both the nation and states.

Below are revised figures beginning with the third quarter of 2009.

Revised National Negative Equity
Time period	Negative equity loan count (in millions)	Negative equity share
Q1 2012	11.4	23.7%
Q4 2011	12.1	25.2%
Q3 2011	11.4	24.1%
Q2 2011	11.5	24.5%
Q1 2011	11.5	24.7%
Q4 2010	11.7	25.1%
Q3 2010	11.4	24.5%
Q2 2010	11.5	24.9%
Q1 2010	11.9	25.6%
Q4 2009	11.9	25.7%
Q3 2009	11.1	24.3%

Source: CoreLogic

5 signs real estate markets are improving

By Bernice Ross
Inman News®

We're in the midst of spring selling season and mixed among all the negative news about unemployment and the worrisome news from overseas there are signs that the real estate market has begun taking its first tentative steps to recovery.

Could the horrible housing recession that we have been experiencing since 2007 finally be coming to an end? The answer depends upon your local market; however, there are a number of national trends that bode well for almost everyone.

1. Price increases lag behind inventory declines
According to the S&P/Case-Shiller National Composite, an index of national home prices, housing prices peaked for the nation as a whole during the second quarter of 2006. But prices continued to increase in some housing markets in 2006 and 2007. Normally, inventory increases result in decreasing prices. In some areas, it took almost a full two years after the inventory started to climb before the prices began to decline. It appears that in many areas, the exact reverse of that situation is happening now. Even though inventories are down, prices in some areas are still flat or declining slightly.

As the market absorbs the inventory and multiple offers continue to occur, prices will start to increase. Normally when this happens, buyers who have been sitting on the sidelines realize the bottom of the market has passed them by. This can trigger a buying frenzy that causes prices to increase even more.

There's an even stronger impetus, however. Mortgage rates have never been lower. As of last week, rates on30-year fixed mortgages were almost a full percentage point lower than they were a year ago, which translates into nearly $1,200 less in annual payments on a $200,000 loan.

Low rates have sparked another refinancing boom, but many would-be homebuyers are unable or unwilling to take advantage. The Mortgage Bankers Association expects purchase loan originations will climb by nearly 73 percent next year, to $706 billion. But the trade group recently lowered its purchase originations forecast for 2012, from $415 billion to $409 billion, citing lower home prices and weaker sales than previously expected.

Low interest rates are also driving another trend: It is now cheaper to buy than rent in more than 90 percent of the major metropolitan areas in the United States.

Moreover, the Zillow Real Estate Market Report for April showed monthly home-value appreciation in 88 of 166 metropolitan areas tracked. (Even though prices are increasing in certain areas, Zillow estimates prices are still down 24 percent since their 2007 peak.)

2. A major improvement in the foreclosure market
RealtyTrac is reporting that in April, the number of U.S. homes subjected to foreclosure-related filings dropped to the lowest level since July 2007. Due to the robo-signing scandal, however, the judicial foreclosure states may have a glut of foreclosure property coming on the market very soon. Prime areas of concern include Florida and a number of states in the Northeast. The robo-signing issues delayed lenders from making foreclosures thereby creating a major backlog. Now that the robo-signing issues are resolved, these properties have already begun to come back on the market now.

On the other hand, most other states have continued to push through their foreclosure glut and are in the process of climbing out of this mess. In fact, many report that their markets have stabilized.

3. New-home sales are up
Newly released data from the Department of Housing and Urban Development and the U.S. Census Bureau show that newly built, single-family home sales increased by 3.3 percent in April. This is good news for builders who have cut back production. Currently there are only 5.1 months of new-home inventory available nationally, which is suggestive of the early stages of a seller's market.

What's particularly interesting about the data is that "McMansion" sales are back. These are large houses on relatively small lots with top-drawer amenities. Homebuilders are reporting an uptick in the sizes of homes they are building. The Census Bureau is reporting that the average size of new homes built in metro areas has jumped from 2,382 square feet in 2003 to 2,550 square feet last year.

4. Freddie Mac and Fannie Mae make banks toe the line on short sales
In an attempt to shorten the short-sale process, which RealtyTrac reports takes an average of 306 days, new regulations governing short sales kick in on June 15 for mortgages held by Freddie Mac and Fannie Mae. Lenders will have to respond to a short-sale request within 30 days. If the lender cannot answer the homeowner within the 30-day period, the lender is required to update the homeowner weekly until the short sale is accepted or declined.

The National Association of REALTORS® has also jumped into the fray by recommending that lenders put more effort into doing loan modifications that allow families to stay in their homes, reduce defaults and stabilize neighborhoods.

5. Increased affordability
According to the National Association of Homebuilders/Wells Fargo Housing Opportunity Index, 77.5 percent of all homes sold in the first quarter of 2012 were affordable to families earning the national median income ($65,000). This is an increase from 75.9 percent in 2011.

Again, while these national signs bode well for the real estate market, what is happening in your local market is influenced by the amount of inventory, the number of foreclosures and REOs, as well as the demand. The easiest way to track this is to watch the number of months of inventory. If the inventory is declining, chances are there is good news for your market in the very near future. If there are still too many foreclosures and REOs, you still may have some rocky times ahead.

Home prices at new lows for downturn

A national home-price index that captures about 75 percent of U.S. properties in all nine Census divisions showed home prices falling 2 percent during the first quarter to a new post-crisis low.

The S&P/Case-Shiller National Composite is down 35.1 percent from its second-quarter 2006 peak, Standard & Poor's reported today. Two other S&P Case-Shiller indexes, the 10- and 20-city composites, are also at new lows for the housing downturn, although both were little changed from February to March.

Seven of 20 metros covered by the 20-city composite saw price declines from February to March, compared with 16 in last month's report. Five -- Atlanta, Chicago, Las Vegas, New York and Portland -- are at new lows for the downturn.

"While there has been improvement in some regions, housing prices have not turned," said David Blitzer, chairman of the Index Committee at S&P Indices, in a statement.

Blitzer noted some improvement from last month's report, when nine metros hit new lows. The annual rate of change deteriorated in just three of 20 metros in March: Atlanta, Chicago and Detroit. Seven cities posted annual gains: Charlotte, Dallas, Denver, Detroit, Miami, Minneapolis and Phoenix.

"This is what we need for a sustained recovery: monthly increases coupled with improving annual rates of change," Blitzer said. "Once we see this on a broader level we will be able to say the market has turned around."

S&P/Case Shiller indices March 2012

Metro	March 2012 index level	Change February-March (percent)	Change from year ago (percent)
Atlanta	82.53	-0.9%	-17.7%
Boston	145.92	-0.2%	-1.0%
Charlotte	109.40	1.2%	0.4%
Chicago	102.77	-2.5%	-7.1%
Cleveland	94.65	0.4%	-2.4%
Dallas	114.49	1.6%	1.5%
Denver	123.66	1.5%	2.6%
Detroit	66.66	-4.4%	2.3%
Las Vegas	89.87	0.0%	-7.5%
Los Angeles	159.73	0.1%	-4.8%
Miami	140.76	0.9%	2.5%
Minneapolis	109.21	-0.9%	3.3%
New York	157.87	-0.9%	-2.8%
Phoenix	106.38	2.2%	6.1%
Portland	129.01	-0.5%	-2.8%
San Diego	149.68	0.4%	-2.7%
San Francisco	125.94	1.0%	-3.0%
Seattle	131.23	1.7%	-1.3%
Tampa	125.49	1.3%	-1.0%
Washington, D.C.	176.48	1.0%	-0.6%
Composite-10	146.61	-0.1%	-2.8%
Composite-20	134.10	0.0%	-2.6%
National	123.33	-2.0%*	-1.9%

*Change from fourth-quarter 2011 to first-quarter 2012. Index has a base value of 100 in January 2000. Source: S&P Indices and Fiserv.

In March 2012, Phoenix posted the largest annual rate of change, 6.1 percent, while home prices in Atlanta fell the most over the year, down 17.7 percent.

The indexes emphasize non-seasonally adjusted figures, although seasonally adjusted figures are also provided for reference.

"Since we are entering a seasonal buying period, it becomes very important to look at both monthly and annual rates of change in home prices in order to understand the broader trend going forward," Blitzer said.

The indices have a base value of 100 in January 2000. So the national composite's current index value of 123 translates to a 23 percent appreciation rate since January 2000 for a typical home.

Atlanta, Cleveland, Detroit and Las Vegas were the four metros in the 20-city composite where average home prices were below their January 2000 levels.

Home sales, inventory both tick up in April

By Inman News
Inman News®

The pace of existing-home sales picked up in April, and while the number of homes on the market grew even faster, an "acute shortage of inventory" in some markets is driving up prices and creating multiple-bid situations, the National Association of REALTORS® said today.

Sales of existing single-family homes, townhomes, condominiums and co-ops were up 3.4 percent from March to April, NAR said, to a seasonally adjusted annual rate of 4.62 million. That's a 10 percent increase from the 4.2 million homes-per-year pace seen at the same time a year ago.

Distressed properties -- foreclosures and short sales sold at discounts -- accounted for a smaller percentage of sales in April (28 percent) then they did a year ago (37 percent).

That helped boost the median existing-home price for all housing types in April by 10.1 percent from a year ago, to $177,400. Median home prices were also up 3.1 percent in March, marking the first time since the summer of 2010 that median prices have posted annual gains for two months in a row.

The inventory of existing homes on the market also shot up 9.5 percent to 2.54 million. At the pace homes were selling in April, that represented 6.6 months of supply -- up from 6.2 months in March. A six-month supply of inventory is generally considered an even balance of demand between buyers and sellers.

At this time last year, the inventory of homes on the market was equal to a 9.1-month supply. In July 2007, there were a record 4.04 million existing homes for sale.

NAR Chief Economist Lawrence Yun said the diminishing share of foreclosed property sales is helping home values. He said NAR expects stronger price increases in markets where homes are in short supply, including Washington, D.C.; Miami; Naples, Fla.; North Dakota; Phoenix; Orange County, Calif.; and Seattle.

First-time buyers accounted for 35 percent of April sales, up from 33 percent in March but down slightly from 36 percent a year ago. NAR estimated 29 percent of April sales were all cash, down from 32 percent in March and 31 percent a year ago. Investors purchased one out of five homes in April, little changed from March or the same time last year.

Single-family home sales rose 3 percent to a seasonally adjusted annual rate of 4.09 million in April, up 9.9 percent from a year ago. The median existing single-family home price was $178,000, up 10.4 percent from April 2011.

Existing condominium and co-op sales increased 6 percent to a seasonally adjusted annual rate of 530,000 in April, up 10.4 percent from a year ago. The median existing condo price was $172,900 in April, up 8.1 percent from a year ago.

Regionally, existing-home sales in the Northeast rose 5.1 percent to an annual level of 620,000 in April, up 19.2 percent from a year ago. The median price in the Northeast was $256,600, up 8.8 percent from April 2011.

Existing-home sales in the Midwest increased 1 percent in April to a pace of 1.03 million, up 14.4 percent from April 2011. The median price in the Midwest was $141,400, up 7.4 percent from a year ago.

In the South, existing-home sales rose 3.5 percent to an annual level of 1.79 million in April, up 6.5 percent from a year ago. The median price in the South was $153,400, up 8 percent from April 2011.

Existing-home sales in the West increased 4.4 percent to an annual pace of 1.18 million in April, up 7.3 percent from a year ago. The median price in the West was $221,700, up 15.9 percent from a year ago.

Appraisals are lagging behind the market

I agree with all that is being said regarding the changing markets -- lower inventories, closer-to-list-price negotiations, and the potential for rising prices. But the issue I now encounter is the appraisals are lagging behind the market; therefore, they do not match the current market values or the sold price. 

Challenges of the appraisals are met with disdain and then disapproval. Outcome: The buyer does not get the home they want at the price they are willing to pay, and the seller can't sell their home at the current, rising market value. This perpetuates the slow recovery.

8 things to know about buying a home today

By Dian Hymer
Inman News®

The home-sale market is showing signs of life. More buyers are confident now than they were a year ago that now might be a good time to buy. Interest rates are near all-time lows and home prices in some areas are back to 2002-2003 levels.

Some analysts are finally suggesting that we may be headed for recovery. If you have a secure job, plan to stay put and feel this is the right time for you to buy a home, consider the following.

In most places in the country, home prices are still declining. It has only been recently that the market picked up and it's too soon to know if this will result in a sustainable increase in prices.

The recent home sales in areas around California's Silicon Valley defy the norm. Significant job growth in the area combined with a low inventory of good homes for sale has resulted in multiple offers with buyers bidding the price up sometimes hundreds of thousands of dollars over the asking price.

In other high-demand, low-inventory areas, you may find yourself bidding against other buyers, perhaps even more than once. This doesn't necessarily mean that the price will be bid up significantly over the asking price. This will vary from one listing to the next depending on property location, condition and price.

It's important to research the local community where you want to buy. Find out what homes are selling for, if multiple offers are common and if listings are selling for more than the asking price. This will help you make a realistic offer that might be accepted when you find a home you'd really like to buy. It helps to work with an experienced local real estate agent.

Some sellers in high-demand niche markets intentionally list their home at a low price hoping to stimulate multiple offers. If you see such a listing and there are a lot of buyers wanting to make offers, you will be better able to know how high your offer would need to be to win the contest if you have done your due diligence.

HOUSE HUNTING TIP: Whether you're anticipating competition or not, you should be preapproved for the mortgage you'll need to complete the purchase before you write an offer. In competition, this will make a big difference, particularly if everyone else who is offering is preapproved. It also lets you know what you can afford. And, it puts you in a good bargaining position with the seller.

Buyers aren't the only participants in the housing market that have heard the news that the market has improved. Some sellers are putting their homes on the market because they've been waiting for a better time to sell. This is good news for buyers looking in low-inventory markets.

You should expect that you will have to negotiate. Many of today's sellers are selling for less than they paid. Even though the market has improved a bit, sellers may be disappointed with the current market value of their home. Be prepared to negotiate, not just the initial price, but after inspections are completed if items come up that you hadn't anticipated.

Include realistic contingency time frames in your purchase contract for loan and appraisal approval if you're applying for a mortgage. The recent uptick in the market means that lenders are suddenly overwhelmed.

In mid-March, buyers in Oakland, Calif., who were seeking approval for a jumbo loan were told they could close a transaction in 21 days. Not only could they not close in 21 days, it took more than 21 days for loan approval due to lender backlog.

THE CLOSING: Underwriters could require that additional conditions be met before you can be approved. Act quickly to avoid further delay.

5 signs that it's a good time to sell

Why desperate homeowners could find relief this year

By Dian Hymer
Inman News®

Traditionally, most homes have sold during the spring months. In the current volatile housing market, the time of year is not the most reliable predictor of the best time to sell.

Homes certainly show better in spring than they do on a dark and dreary winter day. Lately, however, weather patterns are hard to predict.

The weather has some effect on home sales. It can slow things down if incessant rain keeps sellers from being able to prepare their homes for sale. However, a bigger influence on the housing market is the overall economic situation and its impact on buyers' psyche.

Normally, the home-sale market ramps up in March or April and stays busy until the beginning of July when the market tends to slow down for the summer. The 2011 home sales went counter to this. The market was active at the beginning of the year, but stalled in April. If you waited until spring to sell last year, you would have missed the best selling opportunity of the first half of 2011.

The early slowdown was partially due to the expiration of the homebuyer stimulus package. The homebuyer tax credit program accelerated home purchases creating a mini bubble in 2010 that was followed by a significant slowdown in home sales.

Negative economic news played a big part in the sluggish home sales during most of last year. The stock market was unpredictable, and the earthquake in Japan had repercussions for many industries. Plus, Greece was on the brink of bankruptcy, and the future of the European Union was in doubt.

Bad economic news and massive uncertainty lowers consumer confidence. Buyers need to have jobs, but they also need to feel confident in their future to take on a major purchase like a house.

HOUSE HUNTING TIP: The best time to sell is when consumer confidence is on the upswing; interest rates are low; unemployment is decreasing; the economic news is mild; and there are more buyers in your local market niche than there are sellers. A high-demand, low-inventory market gives sellers an edge.

The Conference Board Consumer Confidence Index fell in March 2012 to 70.2 (1985=100), down from 71.6 in February, when it was up sharply.

Lynn Franco, director of The Conference Board Consumer Research Center, attributed the improvement in consumer confidence in February to less pessimism about current business and employment conditions and more optimism about the short-term outlook for the economy and job prospects despite a rise in gas prices. Franco said the moderate decline seen in March was "due solely to a less favorable short-term outlook."

Interest rates are currently at historic lows and are expected to stay low for the rest of the year. Even with low rates, buyers have had difficulty qualifying due to rigid mortgage approval underwriting.

Capital Economics, an analytics firm, expects the housing crisis to end this year partially due to lenders loosening credit. According to Capital Economics, one indicator of loosening is that banks are now lending 82 percent of loan-to-value (LTV), compared with a low of 74 percent LTV reached in mid-2010. This means qualified buyers need less cash to buy, which should lead to more sales this year, although higher home prices are not expected.

These positive indicators combined with a drop in homes for sale at the end of 2011 and a decrease in unemployment may provide an opportunity for sellers in spring 2012, provided their homes are priced right for the market. A major surprise on the economic front could change the picture.

THE CLOSING: Regardless of the economic indicators, the best time to sell is when the time is right for you.