Daily Archives: May 14, 2012

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Distressed Housing Inventory Will Take 46 Months to Clear | Cross River NY Real Estate

Standard and Poor’s Rating Services’ estimates that the time it will take to clear the supply of distressed homes, or the shadow inventory, on the U.S. market is now 46 months. For the city with the greatest estimate of the time it will take to clear its inventory of foreclosures and short sales, New York City, it will take 202 months, or nearly 17 years.
A huge inventory of nonperforming mortgages in the U.S., but the regional variations in the speed at which servicers can clear the loans are primarily due to differences in foreclosure procedures. As of first-quarter 2012, S&P’s months-to-clear estimate in judicial states is almost 2.5 times as long as nonjudicial states.
The volume of these distressed U.S. nonagency residential mortgages (which excludes loans from government sponsored entities, such as Fannie Mae and Freddie Mac) remained extremely high at $354 billion in the first quarter, but it has declined in each quarter since mid-2010. This latest number, which is based on the original balances of the loans in the shadow inventory, represents slightly less than one-third of the outstanding nonagency residential mortgage-backed securities (RMBS) market in the U.S.
New York City’s distressed inventory ranks largest in the nation with the highest months-to-clear, at 202 months. Boston ranks next at 86 months, then Chicago with 72 and Atlanta with 71 months.
Although liquidation rates seem to have leveled off, it’s still taking servicers longer to foreclose, S&P found that recently liquidated loans missed payments for an average of almost two-and-a-half years before being closed.
S&P estimates it will take 46 months to clear the national shadow inventory. This is down one month from fourth-quarter 2011.
Differences in liquidation rates between states are creating a large and growing difference in regional estimates of the months-to-clear.
The U.S. monthly first default rate fell to 0.67 percent in March 2012, the lowest level since May 2007.

via realestateeconomywatch.com

How Far Will Prices Fall? | Waccabuc Real Estate

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When the bottom arrives in the mythical national housing market some time later this year, how far will we be from the heady peaks of the real estate boom when prices were at their zenith?
That prediction from Fiserv, the analytics company the publishes the Fiserv Case-Shiller Indexes, estimates that at the bottom, or “trough” of the peak-to-trough fall, prices will be 35 percent lower than their peak level in the first quarter of 2006.
“After years of large declines, the housing market is showing signs of stabilization. In the fourth quarter of 2011, home prices in 70 markets, representing 18 percent of the 384 metro areas tracked by Fiserv Case-Shiller, were unchanged or had increased compared to the fourth quarter of 2010. In 32 percent of the markets (122 metro areas), the price declines were under two percent. In the fourth quarter of 2011, the average price of a U.S. single-family home fell to a new post-bubble low, declining four percent from the year-ago period. Fiserv Case-Shiller projects a further modest decline of 0.8 percent by the end of 2012,” estimates Fiserv.
Markets rebounding off very large price declines include Detroit, Mich. (+9.8 percent), Cape Coral, Fla. (+3.5 percent) and Port St. Lucie, Fla. (+1.1 percent). However, prices dropped by more than two percent in nearly one-half of metro areas (191), including double-digit decreases in Atlanta (-12.8 percent), Reno, Nev. (-10.8 percent) and Tucson, Ariz. (-10 percent).
“We expect that home prices, which generally lag changes in sales activity by nine to 12 months, will stabilize by the end of this summer and then rise at an annualized rate of 3.9 percent over the next five years,” says David Stiff, Fiserv’s chief economist.
“The precipitous drop in home prices was an immediate cause of the last recession and the financial crisis. Falling home equity has cut into household consumption and has further constrained the economic recovery,” Stiff added. “However, very low prices have also started to draw in more buyers. As demand for houses ramps up, construction activity will increase and residential investment will begin to make a substantial contribution to the recovery and GDP overall.”
Due to the unprecedented price decline and record-low mortgage rates, affordability has improved dramatically. The relationship between home prices and rents has returned to 1998 levels. The ratio of median single-family home price to median family income is lower than any time since 1991. For a conventional mortgage, the payment for a median-priced home represents just 12 percent of median-family income, the lowest percentage on record (since 1971). Fiserv Case Shiller projects this record-level affordability will eventually bring more first-time and trade-up buyers back into the housing market, especially as apartment rents continue to increase and new households are formed, making buying a cheaper option than renting. Growing demand from first-time and trade-up buyers will finally put a floor under home prices, ending the nearly seven-year collapse of the housing bubble.
Other highlights from the latest Fiserv Case-Shiller Indexes include:
Some of the hardest-hit markets are expected to experience the fastest growth during the recovery. Six of the 10 markets where annualized prices are expected to rise the most over the next five years have experienced price declines of more than 50 percent from their peaks.
Conversely, home prices in markets that were spared the worst of the housing downturn are projected to grow at a slower pace. Texas, for example, accounts for 11 of the 39 markets where prices are projected to increase at an annualized 1.5 percent or less over the next five years.
Of the 30 best-performing housing markets in the 2011 fourth quarter, 13 had unemployment rates of seven percent or less and 14 had a median family income above the national average.
Seven of the 10 worst-performing markets in 2011 had unemployment rates higher than the national average and median family incomes below the national average.
Twenty-two of the 25 markets that have seen the largest decline in home prices from peak to the end of 2011 are in California and Florida.

via realestateeconomywatch.com

Short Sale and Foreclosure Discounts Converge | South Salem NY Homes

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Short sales, once a rare event in local real estate market, today are nearly as prevalent as foreclosures as lenders seek to avoid adding to their foreclosure inventories and troubled homeowners opt for a faster way out of default. (See Banks and Investors Learn to Love Short Sales).
Historically, foreclosures have been discounted 10 percent or more. Now, as short sales become more popular, the difference between and short-sale discounts and foreclosure discounts is shrinking, according to the latest LPS Home Price Index.
In April 2007, as the housing bubble burst, foreclosures sold at a 19 percent discount and short sales sold at a discount of 10 percent. As the volumes of both forms of distressed sales have increased, so have the discounts, but short sale discounts have increased more. Today foreclosures sell at a 29 percent average discount and short sales at an average discount of 23 percent, a difference of only 6 percent. The National Association of Realtors reports the difference is even less. NAR reports foreclosures are discounted 18.8 percent as of March 2012 while short sales have been selling at a 15.8 percent discount.
The shrinking discount may make short sales more attractive to buyers than foreclosures. In general, home sellers undergoing short sales are motivated to do so to protect their credit to the extent possible and they tend to maintain better condition of their properties than borrowers undergoing foreclosure. Foreclosures also may be vacant for long periods of time. Today’s average processing timeline for foreclosures is about a year, and substantially higher in some judicial states. With a short sale, the property may not be vacated at all during the sales process.
LPS suggests that the task of managing the large number of distressed properties in the market today is immense, which may, in some cases, contribute to suboptimal pricing of some distressed properties. Since 2007, discounts for both foreclosures and short sales have increased, but short-sale discounts increased a bit faster.

via realestateeconomywatch.com