U.S. Home Prices Post Seasonal Rise

By: Tess Stynes and Kathleen Madigan

Original Post Date: September 28, 2011

U.S. home prices rose for a fourth consecutive month in July but remain down from last year, according to Standard & Poor’s Case-Shiller home-price indexes, as the housing market continues to struggle.

Separate data on consumer sentiment released Tuesday showed just how shaky the economy remains. The Conference Board, a private research group, said its index of consumer confidence barely changed in September, edging up to 45.4 from a dismal 45.2 in August.

Together the two data points, like other recent indicators, suggest the economy is growing, but remains vulnerable to a new shock. Economists said the improvements in both home prices and consumer confidence were too small to suggest a meaningful improvement in the broader economy.

“While we have now seen four consecutive months of generally increasing prices, we do know that we are still far from a sustained recovery,” said David Blitzer, chairman of S&P’s index committee. “Continued increases in home prices through the end of the year and better annual results must materialize before we can confirm a housing market recovery.”

Home prices rose in July from June in 17 of the 20 major U.S. metropolitan markets included in the monthly survey, led by 3.8% growth in Detroit. Las Vegas and Phoenix saw declines of 0.2% and 0.1%, respectively. Denver was unchanged.

However, with the exception of Detroit and Washington, prices were down year-to-year.

Overall, the 20-city index rose 0.9% in July from June. Adjusting for seasonal factors, however, the index was flat. A smaller index of 10 major cities also rose 0.9% from June but fell 0.1% when seasonal factors were included. Year-to-year, unadjusted July prices fell 3.7% for the 10 major markets while the 20-city index was down 4.1%.

Consumer Confidence Still Low

The housing market has been struggling due to high unemployment, foreclosures and tighter mortgage requirements. Home prices rose in April for the first time in eight months, though most of the improvement was believed to reflect the beginning of the spring-summer home-buying season.

The National Association of Realtors last week reported existing home sales in August rose 7.7% from July. Foreclosure sales and “short sales,” where lenders allow homeowners to sell houses for less than the value of existing loans and forgive the difference, accounted for 31% of sales.

Home prices rose in July in 17 of 20 major U.S. metro areas but were down year-to-year. Above, a sign in front of a home in Des Plaines, Ill.

Consumer confidence, meanwhile, fell short even of economists’ muted predictions. The present situation index, a gauge of consumers’ assessment of current economic conditions, fell further to 32.5 from a revised 34.3, originally put at 33.3. The Conference Board’s confidence index, which is on a 100-point scale, hit its most recent peak in February at 72.0.

The present-sentiment index has fallen for five consecutive months, “a sign that the economic environment remains weak,” said Lynn Franco, director of the Conference Board Consumer Research Center.

“Consumers expressed greater concern about their expected earnings,” Ms. Franco said, “a sign that does not bode well for spending.”

Within the survey, only 13.3% of respondents expect their incomes to increase in the next six months, down from 14.3% in August. The vast majority, 68.7%, expect no change, up from 66.9% in August.

The assessment on employment was mixed. The report shows 50.0% of respondents think jobs are “hard to get” in September, up from 48.5% in August. Yet 5.5% think jobs are “plentiful,” up from 4.8% last month.

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Rate Drop Spurs Home Refinancing

Original Post Date: September 24, 2011

By: Nick Timiraos

The 30-year fixed-rate mortgage dipped below 4%, possibly triggering a refinancing boom for many of the same borrowers who already have taken advantage of rock-bottom interest rates.

According to a survey by Credit Suisse on Thursday, lenders were offering an average rate of 3.91% on 30-year fixed-rate mortgages to borrowers who paid “points,” or fees, worth 1% of the loan balance.

Wells Fargo & Co. advertised on its website Friday afternoon a 3.875% rate on a 30-year fixed-rate mortgage, with fees of 1% on the loan.

Lou Barnes, a mortgage banker in Boulder, Colo., refinanced four borrowers on Thursday into 30-year fixed-rate mortgages at 3.875%. “At this point, the only people being helped are those who need it the least,” he said.

For the home-sales market, low rates will help make homes more affordable, but may not boost home buying if consumers are worried about the economy.

“Today, the buyers’ concern is the falling value of homes,” said Mr. Barnes. “I’ve had potential buyers say: ‘I don’t care if rates are zero if prices are going to fall again.’ ”

Mortgages rates fell this past week after the Federal Reserve announced Wednesday that it would begin plowing payments from its portfolio of $885 billion in government-backed mortgage bonds back into mortgages. That caused a rally in the mortgage market because the Fed’s move eliminates the risk that the central bank would be forced to sell its mortgage holdings as refinancing increases.

Mortgages rarely have been this cheap. A 1961 study by the National Bureau of Economic Research shows that loans made to World War II veterans in the late 1940s were available with 4% rates.

More than 60% of borrowers with a 30-year fixed-rate mortgage could reduce their mortgage rate by one percentage point, up from 42% at the beginning of August, according to Credit Suisse.

But some borrowers haven’t been able to refinance rates because they can’t qualify under loan standards that are much tighter than at the time of their first loan. Other borrowers don’t have enough equity in their home to refinance.

Before the housing crisis, refinancing tended to jump when borrowers were able to lower their rate by 0.5 percentage point. Since 2009, mortgage applications have taken longer to process, while riskier borrowers have faced higher refinancing costs. As a result, borrowers typically now refinance when rates are 1.5 percentage points below their current rate, according to Bank of America mortgage analysts.

Donald Fraser, a 56-year old pathology assistant who shaved a full percentage point off the 4.875% mortgage he got last year, said he plans to stash most of the $2,700 a year in savings into retirement. “I don’t think we’ll ever see these rates in my lifetime or yours,” he said.

It isn’t clear how much these lower rates will help the economy, in part because a weakening economy is fueling the decline.

“We felt lucky. At the same time, we’re lucky at the expense of a suffering market,” said Richard Klompus, who refinanced his Glastonbury, Conn., home with a 4%, 30-year fixed-rate mortgage.

Mr. Klompus, 49, had a hybrid adjustable-rate mortgage that carries a 4.5% rate for the first five years before moving to a variable rate. He paid tens of thousands of dollars to pay down his loan balance to $417,000, the maximum size for loans eligible for purchase by mortgage companies Fannie Mae and Freddie Mac.

To encourage refinancing, Obama administration officials and U.S. regulators are in talks with lenders about ways to revamp an existing White House refinancing initiative designed to help borrowers with little or no equity. The program is open to borrowers whose loans are backed by Fannie and Freddie, which guarantee about half of all outstanding home loans.

The Federal Housing Finance Agency, which oversees Fannie and Freddie, is weighing a series of changes to the program, which has been snarled by a series of technical hurdles. Just 838,000 borrowers have refinanced, short of the hoped-for four million to five million. Just 63,000 of those borrowers have loans worth more than 105% of their home value.

“It hasn’t worked, to be honest,” said James Parrott, a top White House housing adviser, in a speech to industry executives this week. He said the housing market is at a “critical juncture” and policy decisions over the next six months could determine whether the economic headwinds are “going to be a blip or a broader struggle.”

A separate question is whether banks will be able to handle the volume of mortgage applications.

Banks recently have laid off mortgage employees in anticipation of lower loan volumes, while shifting others to the backlog of delinquent loans. The reduced ability to handle loan volumes means that banks have charged higher rates relative to their borrowing costs, muting the decline in rates.

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Commercial Real Estate Prices Increase for Third Straight Month

Original Post Date: 9/22/11

By: Krista Franks

Commercial real estate prices increased for the third consecutive month, according to Moody’s/REAL Commercial Property Price Indices. Prices are now similar to levels recorded two years ago.

For the month of July, the National-All Property Type Aggregate Index posted a 5 percent increase. The index is now 12.6 percent above its post-peak low. However, it is 42.5 percent below its peak.

While both distressed and major assets posted slight increases for the month, Moody’s attributed the 5 percent increase to the middle market.

“We view this month’s gain more as a continuation of the bottoming process than as a harbinger of recovery,” says Tad Philipp, Moody’s director of commercial real estate research. “We expect the contraction of CMBS lending and stalled employment growth to prolong the bottoming process for the market as a whole.”

Sales of distressed assets made up 28 percent of the market in July. The month marked the 18th consecutive month in which distressed sales made up more than 20 percent of transactions.

Major assets/major markets made up 12 percent of July’s activity, and the remaining 60 percent went to the middle market.

Moody’s recorded 192 repeat-sales observations.

This transaction rate is higher than the average monthly rate for the year, which is 181. Both the July count and the year-to-date monthly average are higher than the monthly transaction averages for 2010 and 2009, which are 144 and 96 respectively.

Most notable on a metropolitan level were the increases posted over the last four quarters for New York office properties, San Francisco office properties, and Florida apartments.

New York office property prices rose 25 percent; San Francisco office property prices increased 22.8 percent; and Florida apartment prices rose 22.7 percent.

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When staging a home for sale, what’s important?

By: Mary Umberger
Orignal Post Date: September 11, 2011
Reporting from Chicago— Andrea Angott has a doctorate in psychology and is a postdoctoral associate in the Fuqua School of Business at Duke University. She generally spends her days studying how consumers make decisions about their healthcare. But last year she detoured into the curious world of home staging.

Staging, for those of you who have never flicked on the HGTV cable channel, is the process of decluttering, rearranging and otherwise dressing up your home to make it appeal to a broad array of potential buyers. It’s a specialty within the world of real estate that has passionate proponents who say it creates an idealized view of “home” that makes someone want to buy it. Skeptics say it can be expensive and time-consuming and doesn’t necessarily make any difference in getting a place sold. In any case, many tenets of staging practitioners have become entrenched in the process of selling homes.

Angott was curious about the motivations behind each design decision. Were brightly painted walls really a turnoff, as staging lore insists? Could the mere sight of a cat litter box in the house send prospective buyers fleeing?

To Angott’s knowledge, staging never has been put to a rigorous, empirical test, and she wasn’t in a position to undertake one. But she decided to take a preliminary step: to gather impressions from those with experience in staging of which principles appear to be most important. She explained how she approached it:

How does someone who’s researching healthcare issues in a business school take up a study of home staging?

I had finished my Ph.D. and got a post-doctoral job and was moving across the country. My fiance said he would move with me for this job and said he was going to sell his house in the Ann Arbor, Mich., area. As part of the package from his real estate agent, he got a consultation with a stager, and I was there for that. She went through the house and told us everything she thought we needed to change. She mentioned some theories she had as to why some things would be effective. I got interested in what the underlying psychology of staging is.

When I got to Duke, I was chatting with this professor about research ideas, and he said that staging would make a great study, and I agreed.

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When staging a home for sale, what’s important? (Continued)

How did you go about it?

We decided the first step should be to get a sense of what kinds of recommendations are endorsed on a large scale — what things people think are important to do. I collected some principles of staging from our stager, Kathi Presutti, who is based in Brighton, Mich. She put together these principles, and I created a survey from that. And she sent it to a stagers’ trade group to see if they’d send it to their membership, and they did. They were interested that someone was trying to push this from a scientific point of view.

We got a huge response. I was surprised. At the time we did the analysis, we got 457 responses, and since then, we’ve gotten even more.

What did you ask them?

I gave them a list of statements, of actions a person could take [in staging] and asked them to rate how important each of those actions were.

What did they think was the most important thing?

The No. 1 in importance (6.55 on a 7-point scale) would be to remove personal items from bathrooms, such as used bars of soap, razors, toothbrushes, etc.

Why do you think it would be that specific thing?

I got this sense that the theory coming through in these answers is that people don’t want to feel that the house they’re buying is lived in — that other human beings are shaving and brushing their teeth in it. They don’t want to imagine that other people are inhabiting the place we want to buy.

Other surprises?

The No. 2 concern was that home sellers should use rooms for their intended purpose, that the dining room should contain dining furniture and not be used as an office. It surprised me that buyers would be unable to visualize a space other than the way it already looks. Like with walls painted in really bright colors. I guess buyers will get hung up on that, but it’s a cosmetic thing that could be easily changed, though it does affect their decisions a lot, according to stagers.

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Buyers should inspect new homes carefully for defects

By: Lew Sichelman

Original Post Date: September 11, 2011

You won’t believe the stuff that Jay Markanich has seen on his rounds as a home inspector in northern Virginia.

Among other things: exhaust fans that vent to nowhere, faulty drain line connections, drywall screws used for everything but their intended purpose, insulation thrown into wall cavities but not stapled to the studs, decks so riddled with nails shot from power guns that they cause the wood to split.

The kicker? This is new construction. Not remodeling projects but brand-new houses that have never been lived in.

Markanich blames the shoddy workmanship he is seeing these days on subcontractors who hire workers from the groups of unemployed people hanging around local stores.

“They’re not real plumbers, carpenters or electricians,” he said. “But when the truck stops and the driver says he needs a plumber or electrician, they raise their hands. As a result, the workmanship is very sloppy. Some things are just hideous.”

That’s why Markanich and his colleagues recommend to buyers that new houses be inspected at least twice, once before the drywall goes up — after the walls are enclosed, it’s impossible to spot poor work — and again just before the final walk-through.

And don’t let the builder tell you that he won’t fix anything that’s not a code violation.

That’s just wrong, the Bristol, Va.-based inspector says. “Shoddy work is shoddy work and should be repaired, whether or not it’s a violation. Besides, the code is a minimum standard, so that’s not very impressive.”

Here’s another tip from Reuben Saltzman of Structure Tech Home Inspections in Minneapolis: Don’t take the builder’s word that the repair has been made, especially if the quality of the work is in doubt in the first place. Have the problem reinspected to make sure it’s been fixed correctly.

None of this should be taken as a condemnation of the home-building business. It is just the nature of the beast these days as builders struggle to cut costs to the bone. Even the best builder is at the mercy of the foreman on each job and how well he supervises the various trades.

Thus it is wise for every buyer to go into the process with the realization that there is no such thing as a perfect house. There are simply too many parts and too many people involved for a house to be totally defect-free.

If you can’t afford two or more visits by an independent inspector, then at least pay to have your new place examined at the drywall stage and act as your own investigator at the walk-through, when you and your builder give the house a final once-over just before closing.

This pre-settlement inspection is the method that good builders use to introduce owners to their new homes. Among other things, they explain how the appliances operate, show you where the water cutoff is located and explain how to care for the carpet and countertops.

But it also is the moment of truth, possibly your last chance to discover scratched tubs, balky windows, malfunctioning electrical outlets or any one of hundreds of possible defects.

Actually, a good builder will perform his own final inspection before touring the house with its new owner. That way he can spot and repair problems before you ever see them. But too many don’t do that, and some don’t do walk-throughs at all. They simply hand over the keys and that’s it.

You should maintain a wary vigil when you tour your new home for a final inspection. Anything less and you could lose the opportunity to have problems corrected at the builder’s expense.

Follow this checklist and you’ll come as close as possible to moving into a defect-free home:

•Open and close all doors. Make sure all six sides are painted or sealed. Be certain that locks, including deadbolts, operate properly without binding, and that thresholds are adjusted correctly. Look for warping. Hinges should be clean and free of paint.

•Open all windows. Determine that latches operate properly. Tracks should be lubricated to prevent binding. Make sure screens are in place and aren’t torn. Look for broken glass.

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Economic Rx: More Refinancing

Original Post Date: September 6, 2011

By: Nick Timiraos

This week, President Barack Obama is slated to offer prescriptions for an economy hobbled by stagnant job creation and an ailing housing market. The White House is under pressure to come up with new fixes that don’t require asking Congress for more money.

One idea that sounds easy enough: stimulate consumer spending and stem further carnage in the housing market by allowing more homeowners to refinance. The government, relying on mortgage-finance giants Fannie Mae and Freddie Mac, could refinance millions of loans, freeing up cash for more consumers.

The White House is evaluating how to revamp refinance programs because U.S. mortgage rates are near their lowest levels in more than 50 years—about 4.2% for a 30-year fixed-rate loan.

Any initiatives would likely rely on banks to refinance borrowers with loans backed by Fannie and Freddie, and changes to existing programs would also need the blessing of the firms’ independent regulator, the Federal Housing Finance Agency. On Friday, the agency filed suits against 17 banks to recoup unspecified damages on about $200 billion in risky mortgage investments, which analysts said could further complicate efforts to have banks refinance more at-risk borrowers.

Refinancing doesn’t attack two of the biggest housing challenges—high rates of underwater borrowers and unemployment. But it could help by “effectively immunizing a segment of mortgage borrowers out there, making them more resilient to economic pressures,” says Guy Cecala, publisher of Inside Mortgage Finance.

Many homeowners haven’t been able to refinance because they don’t have enough equity or because they can’t qualify under lending rules that are more rigid than when they took out their original loans.

If three-quarters of all borrowers with government-backed loans with rates above 4.5% were to refinance, that would deliver $70 billion in annual savings to as many as 30 million homeowners, according to an analysis by mortgage-market consultant Alan Boyce and Columbia Business School economists Glenn Hubbard and Christopher Mayer.

They further estimate that most of the savings would go to borrowers with loans of less than $200,000—frequently households that earn less than $70,000 a year. Lowering the rate on a $200,000 mortgage to 4% from 6% yields about $3,000 in annual savings, which means the plan would function “like a long-lasting tax cut,” they wrote in their proposal.

In the past, refinancing waves triggered consumption as homeowners spent their newfound cash on other goods and services. But some economists argue that today a refinancing wave might provide less of a lift because more borrowers are using the extra cash to pay down other debt and to rebuild savings.

Borrowers in a strong enough position to refinance “may have a lower propensity to spend out these dollars than a borrower who has been living closer to the edge,” says Jay Brinkmann, chief economist at the Mortgage Bankers Association.

The government doesn’t have to spend money to refinance, but such programs aren’t free. Savings to homeowners come at the expense of bondholders, as mortgage-backed securities that pay off today will leave investors with cash to invest at much lower yields. Among the largest investors in those bonds are Fannie and Freddie. Pension funds and banks also would be hit.

Thomas Lawler, an independent economist in Leesburg, Va., argues that bondholders have earned a “strange windfall” over the past few years because of various frictions that have prevented homeowners from refinancing.

One of the great puzzles of the current crisis is why more homeowners haven’t tapped an existing White House plan, the Home Affordable Refinance Program—rolled out in June 2009—that allows underwater borrowers with loans backed by Fannie and Freddie to refinance. While 838,000 homeowners have used the program, that’s far short of the hoped-for four million to five million.

In order for refinancing to deliver any kind of economic boost, policy makers will have to tackle a series of technical wrinkles that have doomed current efforts.

• First, Fannie and Freddie have required lenders to “buy back” defaulted loans when they can find an underwriting defect. Banks have been reluctant to refinance risky borrowers and are charging hefty premiums to compensate for the “buy back” risk.

“Everyone’s looking at lending and saying, ‘This is not attractive,’ ” Mr. Mayer said. Fannie and Freddie could help, he said, by agreeing to indemnify lenders against buy backs on Home Affordable Refinance Program loans. That would also give lenders an incentive to do more refinancing, because every new refinance would mean one fewer potential “buy back.”

• Second, Fannie and Freddie began charging higher fees for riskier borrowers, including those who are underwater, more than two years ago. Some economists say that because Fannie and Freddie are already on the hook if those loans go bad, they’d be better off waiving fees so that borrowers can reduce their monthly payments.

• Third, refinancing borrowers who are underwater has proved difficult because borrowers have second mortgages or mortgage insurance from companies that must sign off on the new loan.

Also, economists say waiving appraisal fees and offering a short, standardized application could reduce closing costs, which can average around $4,000 on a $200,000 loan. “If you’re already upside-down, are you going to want to spend more money on your home?” says Sam Khater, senior economist at CoreLogic Inc.

Other hurdles will be harder to fix. Consolidation in the mortgage industry has led to reduced capacity. This means that the largest U.S. banks have artificially held rates higher relative to their borrowing costs in order to deal with a surge in applications. Spreads eventually fall as the banks work through the backlog.

Lowering barriers to refinancing—either by gaining the approval of Fannie and Freddie’s independent regulator or, failing that, through legislation—is crucial. Without that, a new administration initiative is likely to help a few borrowers at the margin but do little to lift the economy.

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