Foreclosure Spike Is Positive Sign For Housing

After months of declines, the foreclosure numbers are going up again.

Foreclosure starts, the first phase of the process, rose 9 percent in May month-to-month, the first increase in over two years, according to a new report from RealtyTrac. Bad news, right? Only if you are the one losing your home.

For the overall housing market, this is exactly what needs to happen to return to health. For hungry investors, it means more opportunity.

There are still millions of delinquent loans which will never "cure," and the sooner they get processed and sold, the better for home prices and home buyer confidence.

As the so-called, "shadow inventory" of distressed properties (seriously delinquent loans and bank owned homes yet unlisted) drops, down to 1.5 million units in the first three months of this year from 1.8 million a year ago, according to a new report from CoreLogic, the real inventory of potential homes for sale can stabilize and become a more dependable reading for buyers.

How do you believe existing supply numbers if you know there is far more lurking in the pipeline, but you have no idea when it will hit the market?

"The decline in the shadow inventory is a positive development because it removes some of the downward pressure on house prices," said CoreLogic's chief economist Mark Fleming.

We're seeing that in Phoenix and parts of California, where home prices are finally beginning to rise again. Much of the new strength is due to heavy investor demand and a lack of distressed supply for them to buy. Given that backdrop, seeing a rise in foreclosure starts now is not so dire.

You don't have to worry about a pile of rotting meat, if there is a hungry pack of wolves waiting in the wings to gobble it up. That's why lenders are trying not to repossess properties, but instead do short sales (where the home is sold for less than the value of the mortgage) or let the homes go at auction.

"The lenders are pushing those pre-foreclosure sales. They recognize the demand from the investors. I would expect the numbers to continue to increase from a year ago," says Daren Blomquist of RealtyTrac. "We do hear a lot about, not just in terms of the hedge funds, but individual buyers looking for foreclosures in their area are having to compete against many other buyers."

Georgia, which last month gained the dubious distinction of holding the nation’s highest foreclosure rate, leapfrogging the usual suspects (CA, AZ, FL, NV), is a prime example. Investors who are running out of options in the sand states are turning their attention to the Georgia, where overall foreclosure activity and bank repossessions both jumped over 30 percent.

The faster the process, the faster these investors will eat up the inventory, and as in Arizona, the faster overall home prices will recover.

There are now new state laws, government bailouts and a $25 billion national mortgage servicing settlement designed to safeguard consumers and keep as many possible in their homes.

However, a sizeable portion of troubled loans will inevitably have to go to foreclosure, and the sooner the better, especially as investor demand to buy and rent these properties, often back to the original owner, is high.

Questions?  Comments?  document.write("");document.write("RealtyCheck"+"@"+"cnbc.com");document.write('');And follow me on Twitter @Diana_Olick

View the original article here

New FHA Foreclosures Spike

Foreclosure starts” were down 2.6 percent in April from the previous month, according to a new report from Lender Processing Services.

As lenders continue to try to modify delinquent mortgages or offer foreclosure alternatives, like short sales or deeds-in-lieu of foreclosure, the number of loans entering the foreclosure process are falling.

So-called “foreclosure starts” were down 2.6 percent in April from the previous month, according to a new report from Lender Processing Services.

But it’s not all good news.

FHA loans, those insured by the federal government, saw a huge spike in foreclosure starts, up 73 percent during the month, according to the LPS report. Loans originated in 2008 and 2009 are primarily to blame, although all FHA vintages did see some, albeit far smaller, increases.

“In 2008, when the loan origination market virtually dried up, the FHA stepped in to fill the void,” explained Herb Blecher, senior vice president for LPS Applied Analytics. “FHA originations tripled that year, and increased to five times historical averages in 2009. High volumes like that, even with low default rates, can produce larger numbers of foreclosure starts.”

Still the numbers mean a big hit to the FHA, which is already operating at well below its congressionally mandated two percent capital reserve ratio. “The 2008 vintage alone represents some $14 billion of unpaid balances in foreclosure, and the overall FHA foreclosure inventory continues to rise,” adds Blecher.

FHA took on a huge volume of loans in 2008 and 2009, “with relatively little oversight of underwriting and lending practices,” according to Guy Cecala of Inside Mortgage Finance. That has since changed of course, and FHA is aggressively going after lenders for certain claims and is pursuing large settlements. In the recent mortgage servicing settlement with the nation’s top five lenders, FHA got over $1 billion from the big banks.

“There is no question that claims—or losses—on FHA’s 2008 and 2009 business will be high,” says Cecala. “But if FHA is successful in getting large banks and FHA lenders to effectively cover those losses via large cash settlements, then the damage may be contained.”

Questions?  Comments?  document.write("");document.write("RealtyCheck"+"@"+"cnbc.com");document.write('');And follow me on Twitter @Diana_Olick

View the original article here

Huge Spike in Home Prices Is Not Real

The median price of an existing home that sold in April of this year was $177,400, an increase of just over ten percent from a year ago. That is the biggest price jump since January of 2006. The difference between now and then, though, is the 2006 price jump was real, this latest spike is not.

Altrendo Images | Getty Images“This is a mix of home issue,” warned National Association of Realtors chief economist Lawrence Yun, who usually tries to see the positives in all housing numbers. “There is an acute inventory shortage in Phoenix, Las Vegas, Ft. Myers,” Yun explains.

As we reported here on the Realty Check last month, a lack of distressed supply, that is foreclosures and short sales, is pushing overall home sales lower. That’s because the majority of the sales action for the past few years has been on the low end of the market.

Now, as banks try to modify more delinquent loans to comply with the recent $25 billion mortgage servicing settlement, and as investors rush in to buy distressed properties and take advantage of the hot rental market, the distressed market is drying up.

The share of home sales in the $0-250,000 price range made up over 73 percent of all sales in February; that has already dropped to 67 percent in April.

If you look at sales by price category, you see the most startling evidence of this shift in what’s selling on the low end out west. Sales of homes $0-100,000 dropped over 26 percent out west in April, but rose 21 percent in the $250-500,000 price range. The national numbers tell the same story.

  % Change in Sales from 1 Year AgoSource: National Association of RealtorsSo what does this say about where we really are in terms of home prices nationally? The Realtors still expect overall home prices to rise just 2-3 percent in 2012, which is one of the more bullish predictions. If the banks start releasing more properties onto the market or push more delinquent loans to foreclosure, overall home prices will come down again.

The lesson to take from this report is that all home price changes now are more local and more price-range specific than ever. The jump in sales of higher priced homes is a good sign, as some had predicted that when the distress dried up, there would be no sales.

But overall inventories of homes for sale, while up for the month, are still way down from a year ago, and that means sellers are still wary of this market. Confidence and credit will be key going forward.

Questions?  Comments?  document.write("");document.write("RealtyCheck"+"@"+"cnbc.com");document.write('');And follow me on Twitter @Diana_Olick

View the original article here

[The Alarmist] Calls For Price Spike Left Out Supply, Demand Part

Last weekend there was a widely talked about article in the Sunday NYT called “Why Your Next Place May Cost More” that covered the recent plunge in building permits.

The experts quoted in the NYT article all seemed to exude an alarmist tone that prices were going to jump next year because no significant new product was being built but they completely disregarded product that has not been sold yet or the limited financing available to consumers to spur demand. In other words, permits dropped because demand is limited. Its not some sort of random event. If there was a shortage in a year as suggested by the experts, then permits would explode starting right now.

[click to expand]

Here’s the theme of the NYT piece.

“But starting in 2012, after most or all the new projects that were stalled or delayed have finally sold out, the supply of new apartments will take a decided dip, and prices for all apartments could start to rise significantly again.”

Here are a few of the quotes in the piece.

“We tend to go through these cycles where, when you finally come out of a recession, there’s a shortage of inventory,” said Gregory J. Heym, the chief economist for Halstead Property and Brown Harris Stevens. “You usually expect the slowdown to come over a couple years, but this was like slamming on the brakes. So to start up again may take awhile.”

Actually its just the opposite. For example, it took 7 years to unwind the inventory in the 1989 housing crash until 1996. Inventory was bloated in 1992 through 1995 – prices were soft and there was very limited new development. The recession ended 5 years earlier in 1991. After the 2001 recession inventory increased for another 2 years and only peaked because of the onset of the biggest global credit bubble in history.

Gary Barnett, the president of Extell Development and one of the few developers who continued building through the downturn, said the lack of inventory was more pronounced now than in previous recessions. “In the early 1990s,” he said, “there was a big overhang of things that had been built in the late ’80s, but when things stopped this time, it just fell off a cliff.”

The number of building permits “didn’t go from 10,000 to 6,000,” he added, “it went from 10,000 to nothing. So we don’t have the overhang and no big inventory to work through. That’s why the market recovered much more quickly than people expected.”

Not exactly. Permits fell below 500 in 1992 (373) and 1994 (428) after the 1990-1991 recession and didn’t return to “normal” levels for 5 more years.

However housing prices didn’t rise for another 8 years after the end of the 1990-91 recession.

[click to expand]

While I agree its a very dramatic drop in permits but permits don’t necessarily correlate with what gets built. I also don’t see us in this predicament forever. Actually the permit filing drop is the much needed visual for the credit crunch. Its not a sign of shortage, its a sign of surplus.

Why file an application for a building permit if commercial lenders aren’t financing new condo development in any meaningful numbers? Why? Because lenders see shadow inventory (they are holding it); they see high unemployment (even though NYC is improving); they see individual buyers unable to get financing in new development in large numbers to create the demand needed to absorb yet new condo construction. As I said before – if it were so obvious that prices would spike in 12 months and there would be a chronic housing shortage of new development, don’t you think permits would explode right now?

Here’s a contrarian piece that was provided by the NY Observer my Matt Chaban: We’re Running Out of Apartments! (Well, Maybe Not)

If commercial banks aren’t willing to lend now, and it takes at least 2.5 years to get a project online, even if current unemployment, shadow inventory and the ongoing credit crunch were ignored, then it would be 2014 before we see meaningful new construction volume.

Or am I using the wrong equation? Help me understand, please.

View the original article here