by Steve Harney on February 8, 2010
in Pricing
Some Hopeful Signs in Home Prices
NPR – January 26, 2010
Reports Suggest Housing Market Stabilizing
Philadelphia Inquirer – January 27, 2010
U.S. Economy: Home Prices, Confidence Climb Further From Abyss
Business Week – January 26, 2010
If you read today’s headlines, you might believe that house prices in this country are stabilizing. As usual, I want to peek behind the headlines and look at the actual report that created them.
In this case, it was the Case Shiller Index, a well respected home pricing index. Many news organizations use this monthly report to tell the story of real estate. But the story of where prices are headed cannot be determined by a report that looks at values two months ago.
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Back by popular demand! Here are 46 links we posted through our Facebook, Twitter and KCM Blog outlets in the past week. There are a lot of different things happening in the real estate industry as of late, so be sure to browse the articles and read whichever ones seem appealing to you.
If you have any suggestions or requests, let us know in the comment section below and we’ll see if we can lend a hand.
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The Light and Dark Side of Housing
A quote from Housing in America: The Next Decade.
“Sooner or later, something fundamental in your business world will change… strategic inflection points do not always lead to disaster. When the way business is being conducted changes, it creates opportunities for players who are adept at operating in the new way. This can apply to newcomers or to incumbents, for whom a strategic inflection point may mean an opportunity for a new period of growth.” – Andrew Grove of Intel
There have been excellent posts on Ronald Terwilliger’s research paper Housing in America: The Next Decade. Most have concentrated on his excellent depiction of how different generations would approach housing over the next ten years. However, that was just Part 3 of the report. I want to discuss the other two aspects of his paper today.
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Taking a Closer Look at Short Sales
There was an interesting article that was posted on The KCM Crew fan page the other day titled: Surge in Short Sale Requests Unlikely to Impact Housing Market. In this article, it was reported:
In the first half of 2009, only 40,000 short sales were completed, according to the most recent data available from the Office of the Comptroller of Currency shows.
In addition, (the study) said only an estimated 8 to 12 percent of all homeowners who request short sales accomplish a completed transaction.
Though both of those points were true for 2009, they are based on past results. As we have previously posted, the short sale process will change radically as we proceed into 2010. The change will create a surge in short sales. Let me give you the evidence from which I draw that conclusion:
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Finally, some good news from the FHA. Effective February 1st, the FHA is waiving their requirement of the “90 day holding period” before home sellers (predominantly real estate investors and speculators) can resell a piece of real estate to a buyer who uses FHA Insured financing. Given the recent increase of the UFMIP, coming reduction of seller’s concessions, and lower credit scores requiring larger down payments, it is refreshing to see the FHA enacting something that will actually help move inventory and improve neighborhoods.
There are multiple reasons why this is a good idea:
- This will facilitate the return of repaired and rehabilitated properties to the market in a more timely fashion.
- Properties need not lie vacant for up to 90 days. Vacant homes are both a target of vandalism and a de-stabilizer of real estate values.
- The holding costs of the seller (mortgage interest, real estate taxes, insurance and property maintenance) are typically passed on to the purchaser in the form of higher sales prices. This is unnecessary and counterproductive.
- In order to firm up a bottom to the real estate market, inventory has to get pushed through the system. Waiving the 90 day rule will facilitate the expeditious transfer of distressed inventory.
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The Homebuyers’ Tax Credit, in many ways, has done exactly what it was suppose to do – stimulate the economy. Notice I didn’t say increase home ownership. The tax credit was never really about buyers. It was about keeping home values stable so the housing sector would not have another wave of foreclosures that would cause a further deterioration of the economy.
The administration realized early on that the number one cause of foreclosures was an increase in ‘negative equity’. Negative equity occurs when the value of a home is less than the mortgage balances on that home. Other terms for this situation are being ‘underwater’ or ‘upside down’ on your mortgage.
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I have been reading some interesting things this week in regard to the effect of the Fed exiting from their program of buying mortgage backed securities (MBS) on March 31 this year as they announced they would last Wednesday. There seems to be some people who do not believe that the Fed’s exit will have much impact on 30 year home mortgage rates. You already know I believe the exit will have a major impact as I have posted on it before.
Today, I want to look at what the contrarians are saying, and how that compares to what they have said before. The ‘headline’ story I want to speak on as an example is the one that Market Watch (part of the Wall Street Journal’s digital network) published on January 29, 2010: Fed’s exit seen having minimal impact on mortgage rates. In this story they report.
For its part, Morgan Stanley predicts it will be much more muted — in the range of 0.1% to 0.15%. “The Fed’s exit is likely to be anticlimactic,” analysts led by Jim Caron, head of global interest-rate strategy, wrote in a research report issued Friday.
I found this very interesting for two reasons:
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Good Saturday morning afternoon!
We apologize for not being as active on our Twitter and Facebook accounts the past few days. During our tour of New England & Western NY, we were hurdling one obstacle after the other: from cancelled flights, to non-stop-middle-of-the-night-blizzard driving (it’s a word, look it up), to abominable snowmen– you name it, we faced it. But the show must go on, and the work must continue!
That is why we are bringing you all the articles we sent (and should have sent) from last week all in one blog post. We hope this makes it easy for you to track down any articles you may have missed and gives you a little extra reading material with your morning coffee this weekend. (We don’t expect you to read all 42 articles below. But feel free to skim down and read the ones that sound appealing to you.)
-The KCM Crew
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There is a very interesting cultural change taking place throughout the country. And it is the direct result of the current challenges in the housing sector. It seems that there is a wave of support for the concept of walking away from your financial obligations in regard to your mortgage. The stigma attached to those who become delinquent on their house payments has now almost become a badge of honor.
And we are not just talking about some fringe element calling for the big banks to get what’s coming to them. Main stream media and college law professors are joining in on pronouncing this new behavior, if nothing else, quite reasonable.
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First, let’s look at today’s announcements by the Fed….
- As expected, they held the Fed Funds Rate constant (more on what that means later).
- They re-affirmed their prior pledge to stop purchasing Mortgage Backed Securities by March 31.
- They said that they expect rates to stay in this range for an extended time.
As was presented on Tuesday, by the KCM Crew in this space, the elimination of the major purchaser of MBSs is a precursor to HIGHER RATES….likely in a quick and dramatic fashion. People, DO NOT BE CONFUSED. Many of you will hear that The Fed said “rates will stay low for an extended period of time”, so how can mortgage rates go up???
There is a popular misconception that The Fed controls mortgage rates. Alas, they do not.
The Fed controls The Fed Funds Rate which is merely an overnight rate at which banks can borrow from The Fed (or each other) to keep them sufficiently liquid. The Fed Funds Rate is the basis of a bank’s Prime Rate (which is typically 3% above The Fed Funds Rate) and is primarily the rate banks charge their good commercial customers who borrow money on lines of credit (the bank makes a 3% profit margin).
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