Home Price Reports Don’t Show Declines (Yet)

Link: http://blogs.wsj.com/developments/2010/08/31/home-price-reports-dont-show-declines-yet/

Original Post Date: August 31, 2010

By Nick Timiraos 

When reading Tuesday’s report on home prices from the S&P/Case-Shiller index, use caution.

The Case-Shiller index uses data that is several months old—it’s a three month moving average, which means that Tuesday’s report shows home sales for April, May and June.  That’s when the home buyer tax credits were largely still in effect.

So it’s not surprising that Tuesday’s reading showed that home sales gained by a non-seasonally adjusted 1% in the three month period ending in June from the period ending in May.

July’s weak sales figures—existing and new home sales were both at very low levels—means that sellers are going to be reducing prices if they want to sell homes. Real-estate agents across the country are describing a rare standoff in housing markets, where buyers and sellers aren’t seeing eye to eye on price.

“Until recently, the sellers were looking at data from April, when there seemed to be a recovery in the works. The buyers were looking at unemployment data and general lack of consumer confidence,” says Glenn Kelman, chief executive of Redfin Corp., a Seattle-based real-estate brokerage. “Now you’re going to see the logjam break. The low sales figures are going to force sellers to make the first move.”

Mr. Kelman says he doesn’t expect most cities to see the kind of jaw-dropping price plunges that shocked sellers in many housing markets in 2008. “Things aren’t going to get better any time soon. Some places, they’re going to get worse, but not catastrophically worse,” he says.

Last week’s Heard on the Street from Rolfe Winkler provided a good take:

The sales weakness likely is hitting prices, which are negatively correlated to elevated housing inventory. At July’s sales pace, it would take nearly 13 months to absorb existing homes on the market. Six months is normal, and any number over eight seems to coincide with pressure on house prices.

Sales probably will bounce back a bit in August, but months of supply likely will remain above eight for some time as foreclosures and seller capitulation keep inventory elevated.

So, the S&P/Case-Shiller home-price index, which stabilized at the beginning of 2009, could be set for another leg down. The index is computed using a three-month rolling average, meaning last month’s weakness really should assert itself in late October.

Analysts have been calling for another 5-10% decline in prices this year, and markets are likely to log those drops later this year because the tax credit helped buoy prices in the spring.

Analysts at Barclays Capital last week said that despite July’s terrible sales figures, they were standing by their forecast for a 7% additional decline in home prices nationally. Analysts at J.P. Morgan Chase, meanwhile, said that if home sales continue to run at a 4.5 million annual rate for the next two years, home prices could decline by another 15%, with a bottom in mid-to-late 2011.

The index is widely followed because it tracks repeat home sales instead of median home prices, which right now are particularly unreliable gauge because it reflects a shift in the mix of homes on the market.

If fewer first-time buyers are buying homes in July versus June, median sales could show a gain in prices, even though sales have plunged and prices are likely to follow. In Seattle’s King County, for example, median prices were up by 2.6% in July, says Mr. Kelman, even though sales volumes were down sharply from June.

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Ignore Talk of a Housing Tax Credit ‘Revival’

Link: http://blogs.wsj.com/developments/2010/08/30/ignore-talk-of-a-housing-tax-credit-revival/

Original Post Date: August 30, 2010

By: Nick Timiraos

Bring back the home buyer tax credit? Don’t hold your breath.

There’s been a lot of breathless speculation ever since Shaun Donovan, secretary of Housing and Urban Development, awkwardly side-stepped a question from CNN on Sunday about whether the Obama administration would consider reviving tax credits to spur home sales.

I think it’s too early to say after one month of numbers whether the tax credit will be revived or not. All I can tell you is that we are watching very carefully. I talked earlier about new tools that we will be launching in the coming weeks and we are going to be focused like a laser on where the housing market is moving going forward. And we’re going to do everything we can to make sure that this market stabilizes and recovers.

Those credits were credited with helping to goose sales last fall and this spring. They’ve also helped produce one of the sharpest month-over-month declines in home sales ever recorded.

So a better question might be why anyone would even suggest bringing back the credit right now. (Don’t forget, the tax credit is actually still in effect for one more month for buyers who signed a contract by April 30). Estimates on the tax credit’s final cost run as high as $30 billion.

Suggestions that the tax credit “might” return—based largely on speculation—could actually have a more damaging effect on the housing market, notes housing economist Tom Lawler, because it could “well lead many a prospective home buyer to hold off on buying a home.”

Indeed, even the real-estate industry that lobbied heavily for the tax credit and its initial extension now seems to have other thoughts. Richard Dugas, the chief executive of homebuilder PulteGroup Inc., had this to say earlier this month on an earnings call:

Almost regardless of how future demand plays out, we still believe that the tax credit had to end. We need to know the true level of demand without government stimulus distorting the market so that we can continue to properly position our business for ongoing improvement.

The rumor appears to be easy to knock down, but no one has done that yet, allowing the “revival” meme some more breathing room. On Monday, there was this reply from Robert Gibbs, the White House press secretary:

I don’t — while I have not seen, obviously, a final list, that is — I think bringing that [tax credit] back is not on — is not as high on the list as many other things are.

Perhaps no one in Washington wants to foreclose on the idea of reviving the tax credit because there’s an election in two months, and almost anything could become a political talking point or attack ad. (Case in point: Florida’s Senate hopefuls, when asked by CNN on Sunday whether they would bring back the popular credit, said they, indeed, would support such a move.)

Some rumors should be easier to dismiss, like one that was floated on Monday suggesting that a new tax credit could target foreclosure resales—as if foreclosures are having a harder time selling than other homes, and as if any politician right now would support such a giveaway to banks.

So while rumors have a crazy way of taking off (remember the August surprise?), there’s still little to suggest this is any more likely to happen than a plan to (insert plausible-sounding but unsubstantiated proposal to prop up housing market here _______). Fence sitters, plan your shopping accordingly.

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Beware of ‘improvements’ that reduce a home’s value

Link: http://www.latimes.com/business/realestate/la-fi-0829-lew-20100829,0,873740.story

Original Post Date: August 29, 2010

By: Lew Sichelman

Reporting from Washington —

Every real estate agent has seen them: home “improvements” that turn out to be anything but, at least down the road when it comes time to sell. Instead of deal sealers, they are deal killers.

We’re not talking about swimming pools or turning spare bedrooms into home offices, which are perhaps two of the worst investments that owners can make. On a cost-versus-value basis, you’ll be lucky to recoup even half of what you spend on a pool or office. We’re talking about over-the-top, one-of-a-kind renovations.

More often than not, savvy buyers will use a non-improvement to their advantage. In Salt Lake City, for example, Keller Williams agent Audrey Monson’s client bought a foreclosed house that had been turned into a mini-castle for pennies on the dollar.

The owner had spent thousands to build a moat out front, complete with a faux drawbridge. Turrets were added to the roof, and gargoyles adorned the exterior.

“The renovations were disastrous,” Monson said. “The additions caused different roof elevations to leak where they came together. When we closed, there were mushrooms growing from the ceiling on the main floor and up through the carpet on the upper floor.”

Sometimes, the “improvement” is so awful that the place won’t sell for even a fraction of the asking price.

Kevin Kieffer of Keller Williams Realty was working with a Northern California client who was trying to sell his house and an adjacent half-acre lot separately. The East Bay agent landed a buyer, but the sale fell apart in the eleventh hour when it was discovered that the owner had attached, without permission, a drainage line from the house to the water-management company’s main storm drain that ran down the middle of his empty lot.

“The deal that took 50-plus days of negotiations to put together fell apart in about 20 minutes after the improper and undisclosed pipe was discovered,” Kieffer said.

One of the cardinal rules of remodeling is to never attempt anything that is above your skill level. Another is to finish what you start — but not everyone does.

Sarah Rummage of American Realty Resources in Nashville once came across a house in which the entire back wall had been taken down and covered with a plastic wall. It seems the husband had started to build an addition and then bolted, leaving his wife and unfinished project behind.

Most people undertake a home improvement to add on. But sometimes, they subtract rather than add. The less-is-more theory may work for you, but not for everyone else.

Christine Lloyd-Maddocks, who works in the fine-estate division of Rodeo Realty in Woodland Hills, has a listing in Encino in which a bedroom has been converted into a recording studio.

That’s not unusual in the Los Angeles market. “It’s quite common for homeowners to convert one of their [three] bedrooms into a recording studio, leaving the other two intact,” she said. “It can easily be converted back.”

But in this case, bedroom No. 2 had been turned into a closet. The closet is large and beautifully done, but it is a closet just the same. The former three-bedroom home has become a single-bedroom house. And there just isn’t much of a market for one-bedroom houses.

Brian Copeland of Village Real Estate Services in Nashville sold a four-bedroom, two-bathroom home to a client in 2005. Recently, Copeland was asked to list the place for sale again, only this time it had only one bathroom.

Copeland’s client “decided he needed more storage,” so he turned the downstairs bath into a closet. “Now, common sense would tell the normal person to simply put his boxes in the shower, around the commode, on the floor,” the Tennessee agent said. “After all, it was simply storage space that no one would see.”

Instead, the owner took out all the plumbing and fixtures. He told Copeland that he figured his place would be more valuable if it had more storage space.

Historically, homeowners tend to recoup most, if not all, the money they spend on kitchen and bathroom remodels when they sell — but not always.

A few years back, Michelle DeRepentigny, a Keller Williams agent in Athens, Ga., came across a smallish farmhouse that had been expanded. Over the years, bedrooms, bathrooms and a new kitchen were added.

The problem: Everything was uneven. You stepped either up or down from the living room, which had interior doors leading off to five other rooms, the Georgia agent recalled.

“Each addition had its own crawl space, the roofline was just incredible, and all the living room furniture had to be placed in a semicircle in the middle of the room,” DeRepentigny said.

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Foreclosures of million-dollar-plus homes on the rise

Link: http://www.latimes.com/business/realestate/la-fi-luxury-foreclosures-20100829,0,7308058.story

Original Post Date: August 29, 2010

By: Lauren Beale

Foreclosure is blind.

After the mortgage meltdown and the plunge in home prices, record numbers of ordinary houses tumbled into foreclosure across Southern California as borrowers became unable or unwilling to pay their mortgages. But the rich aren’t so different after all: Million-dollar-plus homes have reverted to lender ownership in increasing numbers — previous sales prices, prime locations and even celebrity pedigrees have provided no immunity.

Earlier this year, Oscar-winning actor Nicolas Cage’s English Tudor joined the foreclosure fraternity. The nearly 12,000-square-foot house, once marketed at $35 million, now is listed for $11.8 million; the seller, Citibank.  The Bel-Air mansion wasn’t even the most expensive lender-owned property — known in the industry as REO, or real estate owned — in Los Angeles County, according to a records search of houses on the Multiple Listing Service in the county’s most posh ZIP Codes.

Higher priced still was the alleged Wells Fargo party house, which was listed nearly a year ago at $21.5 million and sold this month for $14.95 million. The beachfront house in gated Malibu Colony became the center of controversy when neighbors complained that it was being used by a Wells Fargo & Co. executive for social events; the executive was subsequently fired.

Although the pace of foreclosures has slowed in the general housing market in Southern California and much of the nation, it’s still rising for upper-tier homes.  The number of homes in the $1-million-and-up slice of the market that have become bank owned has tripled in the second quarter compared with the same period three years earlier in Los Angeles County, which has the majority of Southern California’s high-priced REO houses. And the trend has shown little sign of slowing, according to data from ForeclosureRadar.

By comparison, the number of homes reverting to banks in all price ranges combined peaked in the third quarter of 2008.  Many of the reasons the rich lose homes to foreclosure are no different from those of moderate- or low-income borrowers — poor financial management, the loss of a job, a drop in home value — said Mark Goldman, a foreclosure expert and loan officer who teaches about real estate investments and finance at San Diego State University. That the top of the market is still seeing increased foreclosures may reflect the staying power of owners with deeper pockets who could hold on to their homes when the economy first faltered, he said.

Some well-heeled homeowners were hit particularly hard when the stock market tanked and the financial scene fizzled. Others, such as the original owners of the Wells Fargo beach house, saw their investments wiped out by Bernard Madoff’s massive fraud scheme.

But none of that unsavory association was apparent in the polished staging and marketing materials about the 3,800-square-foot home prepared for Wells Fargo by listing agent Chad Rogers of Hilton & Hyland. (“Walls of glass create an unparalleled indoor/outdoor environment…. Wake up to the gleaming Pacific in the sumptuous master suite.”)

In fact, unless one reads the fine print, it is sometimes hard to identify a pricey property gone bad.  Rogers’ Hilton & Hyland colleague David Kramer, however, takes a different approach when selling bank-owned property. A 12,000-square-foot contemporary Mediterranean he has listed with other agents recently hit the market at $8.595 million. Included in the MLS remarks describing the property: “lender owned” and “originally listed at $16.95 million.” Who doesn’t want to know they are getting 50% off?, he said.

Not every REO is owned by a bank. Sometimes the new owner is a private money lender.  One such corporate-owned REO in the Beverly Hills Post Office area is an 11,000-square-foot Mediterranean on more than two acres with a tennis court and swimming pool that is priced at $7,999,000. The original owner had purchased the property in the 1990s, but after borrowing against the property for a business that didn’t survive the economic downturn, he couldn’t support the payments, said listing agent Danny Batsalkin of L.A.-based Boulevard Realty.

Unlike the bank-owned competition, the house comes with an offer of financing — 20% down at a 5.99% interest rate and three years of interest-only payments. “This does make it more attractive,” Batsalkin said.

Changes in banking requiring full-documentation loans have altered the financing picture in the upper end of the market, Goldman said.  “In 2006, you could borrow 70% to 80% on a $10-million house,” he said. “Today you might need 50% down.”  Working with a seller that is a bank can present challenges.

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Fannie Mae says lenders must verify mortgage applicants’ debt loads before closing

Link: http://www.latimes.com/business/realestate/la-fi-harney-20100829,0,7849460.story

Original Post Date: August 29, 2010

By: Kenneth R. Harney

Reporting from Washington —

Despite earlier reports to the contrary, it turns out that your mortgage lender will not have to pull a second full credit report on you hours before closing on your home purchase or refinancing.

In a clarification of a policy announced this year, mortgage giant Fannie Mae now says that applicants will need to come clean about any debts they’ve incurred since they submitted their mortgage application — or debts they never disclosed during the application. But a formal pre-closing credit report will not be mandatory to confirm their creditworthiness.

Instead, loan officers can use other techniques to verify that you haven’t financed a new car, taken out a personal loan or even applied for new credit in any amount that might make it more difficult for you to afford your monthly mortgage payments.   Among the techniques Fannie expects lenders to use on all applicants: commercial or in-house fraud-detection systems that have the capability of tracking applicants’ credit files from the day their loan request is approved to the moment of closing.

Though Fannie made no reference to specific services in its recent clarification letter to lenders, some commercially available programs claim to be able to monitor mortgage borrowers’ credit activities on a 24/7 basis, flagging such things as inquiries, new credit accounts and previous accounts that did not show up on the credit report pulled at the time of initial application.  One of those services is marketed by national credit bureau Equifax and dubbed Undisclosed Debt Monitoring. Aimed at what Equifax calls “the quiet period” between application and closing — often a month to three months — the system is “always on,” the company says in marketing pitches to mortgage lenders.

Home loan applicants failed to mention — or loan officers failed to detect — “up to $142 million in auto loan payments” during mortgage underwriting in first-mortgage files reviewed by Equifax last year alone, according to the credit bureau. Those loan accounts had average balances of $361 a month — more than enough to disqualify many borrowers on maximum debt-to-income ratio standards imposed by Fannie Mae, Freddie Mac and major lenders.

Why the sudden concern about new debts incurred after mortgage applications? It’s mainly because Fannie and others have picked up on a key type of consumer behavior pattern that has helped trigger big losses for the mortgage industry in recent years: Some buyers and refinancers delay creating new credit accounts until they’ve cleared strict underwriting tests on the debt-to-income ratios and been approved for a loan.  Then they splurge. Additional debt loads can run into the tens of thousands of dollars, executives in the mortgage and credit industries say. Had those new accounts been present on their credit files at application, borrowers might have been turned down for the mortgage, or required to make a larger down payment or pay a higher interest rate.

Fannie’s new policy puts the burden of detecting these debts squarely on lenders’ or loan officers’ shoulders. Whether they pull additional credit reports — still an option allowed under the revised policy — or use some form of monitoring service, lenders must guarantee that the debt loads stated in any mortgage package submitted for purchase by Fannie Mae are scrupulously accurate as of the moment of closing. If not, the lender probably will be forced to endure the most painful form of punishment in the financial industry: a forced “buyback” of the mortgage from Fannie Mae.  Billions of dollars in buybacks have been demanded by Fannie Mae and Freddie Mac this year alone — a fact that is likely to make lenders even more eager to conduct some type of refresher credit check or continuous monitoring of all new loan applicants.

What does this mean for you if you’re planning to finance a home purchase or refinance your existing mortgage into one with a lower interest rate? Tops on the list: Be aware that sophisticated new credit surveillance systems are being placed into operation in the mortgage industry.  Next, try not to inquire about, shop for or take on new credit obligations during the period between your application and the scheduled closing. If you want that new loan, keep your credit picture simple — no significant changes, no additions — until you get the mortgage.

During the heady days of the housing boom, nobody was looking for debt add-ons before closings. Now they are scanning for them all the time.

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Mortgage Picture Brightens, for Now


Original Post Date: August 27, 2010

By: Nick Timiraos

The number of U.S. households that missed consecutive mortgage payments or were in foreclosure fell more in the second quarter than anytime since the mortgage crisis began four years ago, a survey found.  But the data, released Thursday by the Mortgage Bankers Association, showed the crisis is far from ending. One worrisome sign: The number of newly distressed borrowers increased, raising the prospect that foreclosures and delinquencies could resume their rise.

Overall, some 14.4% of borrowers had missed at least one payment or were in foreclosure at the end of June. That was down from 14.7% at the end of March, but up from 13.5% a year ago. The improvement came because fewer borrowers fell 60 days or more delinquent on their mortgages. The number of households that had missed just one payment increased.  “We’re past some of the worst problems,” said Jay Brinkmann, chief economist of the Mortgage Bankers Association. But with more than seven million homeowners behind on payments or in foreclosure, he said, “The bar for good news is being set very low.”

The improvement was seen in almost every state, with the biggest declines coming in those that have been hardest hit by foreclosures: Arizona, Nevada and Florida.  The news that the share of borrowers that have missed one payment rose—after falling for two straight quarters—reflected the difficulty some borrowers are having making payments on modified mortgages. It also came during a period when unemployment-insurance claims increased.

The rise in newly delinquent mortgages was the sharpest among borrowers with loans backed by the Federal Housing Administration.  While the mortgage crisis was driven at first by adjustable-rate mortgages that reset to higher payments, the majority of deteriorating loans are now being driven by unemployment. Ultimately, the economy will need to create more jobs to pull the housing sector out of its yearslong slump.  “It takes a paycheck to make a mortgage payment, and that is key at this point,” said Mr. Brinkmann.

Over the past year, policy makers have taken aggressive steps to stabilize housing markets by offering tax credits to spur sales and by backstopping loans with low down payments through the FHA. At the same time, mortgage rates have fallen to historic lows. The average rate on a 30-year, fixed-rate loan fell to 4.36% for the week ending Thursday, according to a survey from Freddie Mac.

But the housing market is facing a new round of pain. Sales plunged in July after tax credits expired and as new concerns mounted about the strength of the economy.  That could lead to lower prices, which would exacerbate one of the biggest problems facing the market: the elevated level of homeowners who are “underwater,” or owe more than their homes are worth.

A separate report Thursday showed that nearly 11 million homeowners were underwater in the second quarter, down slightly from 11.2 million in the prior quarter, according to CoreLogic, a mortgage-analytics firm. The decline came largely as more underwater homeowners went through foreclosure.

Even if the economy improves and the pool of delinquent loans begins to shrink for good, housing markets will have to absorb some share of the 4.5 million loans that are seriously delinquent or in foreclosure.  “The problem is going to move to a resolution phase where you’ve got to work through the foreclosures, and eventually it impacts the real-estate market,” said Herb Blecher, senior vice president of LPS Applied Analytics, a research firm.

Already, there are signs foreclosures could soon be on the rise. Newly initiated foreclosures increased 25% in July to a six-month high, according to a coming report from LPS. The uptick comes as more homeowners who have been in a “trial” loan modification have failed to receive permanent modifications under the government’s Home Affordable Modification Program, or HAMP.

Foreclosure time lines have grown longer as banks pursue modifications and other workouts on a glut of loans. At the end of July, the average borrower in foreclosure hadn’t made any payments for more than 15 months, according to the LPS report.  Meanwhile, the Obama administration, faced with disappointing results from HAMP, is focusing its latest efforts on unemployed homeowners who are at risk of foreclosure.

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Mortgage delinquencies remain high at 1 in 10 loans


Original Post Date: August 26, 2010

By: E. Scott Reckard

One in 10 American households with a home loan was behind on payments by at least one month this summer, the Associated Press reported.

The wire service quoted a Mortgage Bankers Assn. report on second-quarter delinquencies as saying that 9.9% of borrowers fell into that category as of June 30.

In a worrisome sign, the number of homeowners starting to have problems paying their home loans rose after trending downward last year. But the number of homes in the actual foreclosure process fell slightly, the first drop in four years, according to the Mortgage Bankers Assn. quarterly report.

The report arrived amid fears that a sagging economy could result in another round of declining home prices and rising defaults.

Earlier reports this week showed weaker than expected home sales in July following the expiration this spring of federal tax credit for home buyers. Sales of new homes were at their lowest point since the government began keeping records in 1963.

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Home loan rates drop yet again to record low


Original Post Date: August 26, 2010

By: E. Scott Reckard

Another week, another record low for home loan rates.

Freddie Mac said rates for both 30-year and 15-year fixed mortgages dropped for the ninth time in the past 10 weeks.

The mortgage giant’s weekly survey said the average rate that lenders were offering on the 30-year loan was 4.36% during the week that ended Thursday, down from 4.42% a week earlier and 5.14% a year ago. Borrowers would have paid 0.7% of the loan amount in upfront lender fees.

This week’s average for a 15-year fixed loan was 3.86% with 0.6% paid in lender fees, Freddie Mac said. That was down from 3.90% a week earlier and 4.58% a year ago.

Amy Crews Cutts, deputy chief economist at Freddie Mac, said mortgage rates were doing what they naturally do — tracking the yield on longterm Treasury bonds.

News this week that home sales plunged in July led investors to worry that the sluggish housing market may slow the economic recovery, she said. As a result, long-term bond yields fell to the lowest levels since January 2009.

Freddie Mac, which buys and guarantees mortgages, has reported since 1971 on the terms being offered to well-qualified borrowers on 30-year fixed-rate loans. It began surveying the terms of 15-year fixed mortgages in 1991.

Freddie Mac also tracks the Treasury-indexed 5-year hybrid adjustable rate loan — a mortgage with a fixed rate for five years before becoming variable. The start rate on such loans averaged 3.56% this week with 0.6%  point, unchanged from last week.

The survey asks lenders to report the terms they are quoting to solid borrowers who have at least 20% equity in their homes if they are refinancing or an equivalent down payment if they are buying.  Solid borrowers who shop around often find slightly better deals, and can “buy down” rates by paying additional upfront points. Third-party charges like appraisals and title insurance are not included.

Rates have fallen to new lows in nine of the last 10 nine surveys and were unchanged in the 10th.

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Are Home Buyer Tax Credits a Mistake?

Link: http://blogs.wsj.com/developments/2010/08/25/were-the-home-buyer-tax-credits-a-mistake/

Original Post Date: August 25, 2010

By: Nick Timiraos

Tuesday’s dramatic plunge in home resales for July begs the question: Were the tax credits worth up to $8,000 for home purchases bad policy?

Sales of previously-owned homes, after a good run in March and April, slid in June before crashing in July. Sales last month were down 26% from one year earlier and 27% from June.

Clearly, temporary tax credits succeeded in getting buyers to change their behavior. But once the tax credits disappeared, so did the buyers. “Why would you have signed a contract in May and not in April when you could have gotten an $8,000 tax credit?” says John Burns, a housing consultant based in Irvine, Calif.

What’s less clear is whether stimulus has done anything else to change demand. While mortgage rates continue to fall every week into record territory, the expiration of tax credits shows that housing demand is not much better than it was 18 months ago, when the market was in freefall.

Some analysts say that even if the tax credit has simply shifted demand around, the tax credit did help to stabilize the market when the patient—the banking system, the economy, home-buyer psychology—was in the greatest need of help.

Mr. Burns says there are signs that sales will ultimately revive, as long as the economy continues to add jobs. “The further away we get from April 30, [when the credits expired] the more we’ll see natural home-buying demand come back,” he says.

So how bad was the pay-back effect of the tax credit? A number of data points from the National Association of Realtors shows that—surprise!—markets where an $8,000 tax credit had the biggest bang for the buck were hit the hardest by the expiration.

Sales of homes priced between $100,000 and $250,000, for example, fell by 35% in July from one year ago, after posting year-over-year gains of 7% in June. The Midwest was particularly clobbered, with sales down 47% at that price point.

Sales of homes priced from $250,000 to $500,000 were down by 28%, and homes between $500,000 and $750,000 were down 13%. Homes from $750,000 to $1 million fell just 7%, while homes above the million-dollar mark were up 6%.

To be sure, the high end is certainly not immune to the current stall, and more foreclosures moving up the price-chain will keep that market under lots of pressure. The NAR data is positive because it’s making a comparison to one year ago, when tax credits were juicing the low-end of the market and when the high-end was completely stalled out. So July’s decent-sounding high-end sales are being measured against terribly weak year-earlier levels.

The tax credit could have other data-distorting effects.  Median home prices, for example, could continue to rise as the mix of homes shifts to higher price points. If there are fewer sales, but more high-end sales, that could produce a continued uptick in median sales, even as sellers everywhere lower their prices. In July, homes priced above $500,000 represented 10.8% of all sales, up from 9.8% one month earlier.

So readers, what do you think: was the tax credit worth it, or did it serve up a big bowl of nothing?

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Realtor Chief Economist Stands By Optimistic Forecast

Link: http://blogs.wsj.com/developments/2010/08/24/realtor-chief-economist-stands-by-optimistic-forecast/

Original Post Date: August 24, 2010

By: Robbie Whelan

It must not be easy being Lawrence Yun. At least not in times like these.

Mr. Yun is chief economist of the 1.2 million-member National Association of Realtors—the nation’s largest trade association, by its own count—and by extension, the expert voice of the real estate brokerage industry as a whole. So it’s understandable that Mr. Yun would want to be a soothing, optimistic voice for an industry that is hurting.

Sometimes Mr. Yun toes the line between housing industry economist and housing industry motivational speaker. Today is one of those instances.

The NAR reported this morning that home-sellers closed on 27% fewer homes in July as in June, and 26% fewer homes in July 2010 as in July 2009. NAR’s news release took a surprisingly rosy view, with the headline  “July Existing-Home Sales Fall as Expected but Prices Rise.”

Mr. Yun assured the public that this historically-low level of sales could be little more than a “pause.” After September, sales seem primed to recover.

“Given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs,” Mr. Yun writes, before predicting that annual sales will reach 5 million this year, just a hair above the average yearly sales of 4.9 million over the last two decades (today’s report correlates to a yearly, seasonally-adjusted sales pace of 3.83 million homes).

Mr. Yun is clearly on the side of analysts who don’t think home prices are headed for a big drop. While the market currently favors buyers, he says that home values have returned to their historical levels against incomes, and new home construction is very low. Consequently, he says, “there is not likely to be any measurable change in home prices going forward.”

Mr. Yun’s dispatches on the housing market haven’t always been so rosy. He has long warned of a hangover in the market once the home buyer tax credit expired. And he has warned that any stimulus means nothing without broader economic foundations. “Without a firm foundation for middle-class wealth recovery, the post-recession economic growth likely will be one of the weakest in U.S. history,” he said back in September, after a nearly 10% increase in home sales.

But today’s comments come against a backdrop where analysts and pundits give the sense that the housing market is falling back again: It’s not just that the tax credit expired, it’s that banks aren’t lending, demand is weak, foreclosure inventory is looming, and job growth is sluggish, and with interest rates on mortgages at near-historic lows, government officials seem to be at a loss about what to do.

The position of NAR chief economist has never been a terribly fun post to hold. Mr. Yun’s predecessor, David Lereah, was widely criticized for his rosy forecasts on the U.S. housing market, outlined in similar NAR pronouncements as well as his 2005 book, “Are You Missing the Real Estate Boom?”

Mr. Yun, in an interview Tuesday, said he stands by his analysis, and maintains that a year from now, he thinks prices will be roughly the same as they are today.

“The shadow inventory theory has been around for the last 18 months, and they’ve been calling for 10 to 15% price cuts. In the mean time prices have stabilized,” he said. “Of course I could be wrong, and the prices could overcorrect to double digits … I have to go through the legacy of my prior chief economist. But I call the shots the way I see them.”

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