Home prices up

According to the S&P/Case Shiller 20-city index, prices rose 0.7% in April compared with March, although they fell 0.1% when adjusted for the strong spring selling season. Prices were down 4% year-over-year. "In a welcome shift from recent months, this month is better than last -- April's numbers beat March," said David Blitzer, S&P's spokesman, in a statement. "However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the spring-summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather," Blitzer added. Any hint of good news in the troubled housing market will likely bring cheer to the industry, and there are some signs that market conditions are not quite as dire as some of the statistics may indicate.

Much of the price drop over the past year can be blamed on severe price slashing for homes in foreclosure, as Federal Reserve chairman Ben Bernanke pointed out in a press conference last Wednesday. Prices for homes sold by regular sellers have held up much better. Metropolitan Washington continued to be the strongest of the 20 cities covered by the report. Prices rose 3% in April there and have been on the plus side year-over-year, up 4%. The worst performing market for the month was Detroit, where prices fell 2.9%. The biggest year-over-year drop was recorded by Minneapolis, where prices have plunged 11.1% since last April.

WSJ - mortgage rates flat

Mortgage rates changed little for a second straight week, according to the latest survey from Freddie Mac. Mortgage rates generally track Treasury yields, which move inversely to Treasury prices. Rates have slumped for months as yields on Treasury’s slid amid economic uncertainty. Freddie Mac Chief Economist Frank Nothaft pointed to more signs of a softening US housing market, including the Federal Reserve's policy-committee statement on Wednesday, which acknowledged continued weakness in the sector. "Although new construction on single-family homes ticked up in May from April, it was still below the overall pace set in 2010," Mr. Nothaft said. "Moreover, existing home sales fell 3.8% in May to the fewest since November 2010."

The 30-year fixed-rate mortgage was at 4.5% in the week ended Thursday, the same rate as in the previous week, though the rate was below last year's 4.69% average. The 30-year rate has fallen steadily since reaching the 2011 high of 5.05% in early February. Rates on 15-year fixed-rate mortgages edged up to 3.69% from 3.67% the previous week but were down from 3.13% a year earlier. Five-year Treasury-indexed hybrid adjustable-rate mortgages decreased to 3.25%, down from 3.27% last week and 3.84% a year earlier. One-year Treasury-indexed ARM rates ticked up to 2.99% from 2.97% the prior week, but still well below the prior year's 3.77% rate. To obtain the rates, 30-year and 15-year fixed-rate borrowers required an average payment of 0.8 point and 0.7 point, respectively. Five-year hybrid adjustable rate mortgages required a 0.6-point payment, while one-year adjustable-rate mortgages required a 0.5-point payment. A point is 1% of the mortgage amount, charged as prepaid interest.

don't let the numbers fool you

"Let me preface with an apology for the huge supply of numbers in this post, but if you can make it through them all, I think you will get the picture I'm drawing here. The so-called 'shadow inventory' of residential properties is falling, according to a new report from CoreLogic. This is the number of homes with seriously delinquent loans (90+ days), loans in the foreclosure process and bank-owned homes which are not yet listed for sale. The supply as of April 2011 declined to 1.7 million units, representing a five months' supply. This is down from 1.9 million units, also a five months' supply, from a year ago. 'The decline was due to fewer new delinquencies and the high level of distressed sales, which helped reduce the number of outstanding distressed loans,' according to the report.

Good news, no? Wait. There's more: 'In addition to the current shadow inventory, there are 2 million current negative equity loans that are more than 50% or $150,000 'upside down.' These current but underwater loans have increased risk of entering the shadow inventory if the owners' ability to pay is impaired while significantly underwater.' And then there's this other report from Lender Processing Services (LPS), which also reports a drop in newly delinquent loans, but gives the actual, mind-numbing numbers of loans in trouble:

- Number of properties that are 30+ days past due, but not in foreclosure: (A) 4,187,000

- Number of properties that are 90+ days delinquent, but not in foreclosure: 1,921,000

- Number of properties in foreclosure pre-sale inventory: (B) 2,164,000

- Number of properties that are 30+ days delinquent or in foreclosure: (A+B) 6,350,000

There are more than six million properties in distress, a third of those in foreclosure. According to yesterday's monthly home sales report from the National Association of Realtors, less than five million homes will sell this year, at the current sales pace. There are currently 3.72 million existing homes for sale, representing a 9.3 months supply; that does not include newly built homes nor does it include that six million number. This vast supply varies from state to state of course, but the overall effect is downward pressure on home prices nationally. I was interested to see a survey released today by Robert Shiller's MacroMarkets group (of the Case Shiller Home Price Indices). Every month he asks a group of 108 economists, real estate experts and investment strategists for their home price predictions. June's survey found the group's overall expectations have reached the lowest level since the survey started over a year ago, but, 'It is apparent that a significant majority of our panelists believe that the bottom for home prices arrived in the first quarter or will arrive sometime before year-end,' writes Shiller.

But wait, there's more: The group of 69 panelists who are currently forecasting a 2011 turning point predict less than two% average annual growth in nominal home prices over the five-year
period ending December 2015. Shiller added, 'If it were to materialize, such a scenario might be better described as a forecast of price stability rather than a rebound. A 2%-a-year home price increase will not inspire a lot of consumer confidence. Given prevailing inflation expectations, this
forecast implies virtually no change in real home values going forward.' So I'm faced with a national picture of over 6 million homes with distressed loans, a 9 month supply of existing homes, a smattering of new construction and no home price growth for at least the next four years. Should I buy?"

Lenders make short sales even more attractive

CitiMortgage, the mortgage servicing arm of Citigroup is paying borrowers an average $12,000 after completing a short sale this year. Justin Rand, the senior vice president of loss mitigation at the bank, said servicers are putting more of an emphasis on streamlining the process and pursuing a short sale ahead of foreclosure. The short sale process in 2009 took an average 120 days from listing to close. But by reaching out to borrowers instead of waiting for them to ask the bank, short sales now take an average 83 days to complete, Rand said at a panel for the REO Expo Conference in Fort Worth, Texas, earlier this week. "For Citi-held portfolio loans today, we have a little over 16% of delinquent loans in a short sale program," Rand said, adding that increased from roughly 4% two years ago.

Not only are the timelines shrinking to complete these deals, but the incentives paid to qualifying borrowers – again only on loans owned by Citi – increased in recent years as well. In early 2009, Citi offered an average $1,500 to qualifying borrowers. That went up to between $3,000 and $5,000 in 2010 and finally up to an average $12,000 so far in 2011, Rand said. "Incentives will be offered to customers experiencing financial hardship who need funds to proceed with the short sale," a Citi spokesman said. "The amount, which is agreed upon up front, varies according to the borrower's individual circumstances and loan characteristics. It is disbursed to the homeowner when the sale is completed."

The key to a successful short sale, just like modifications, is the timely collection of financial documents. Regulators helped move the process along with guideline changes to programs like the Home Affordable Foreclosure Alternatives initiative, which lessened the amount of documents required. "It took us about 30 days to collect documentation in 2009 to now less than 10 days," Rand said. "A lot of the time, for seriously delinquent loans, all we need is just a letter of authorization from the homeowner." David Sunlin, the operations executive for short sales at Bank of America (BOA) was on the same panel as Rand. He said the entire industry is becoming more proactive. BOA completed more short sales than REO every month for the last year and a half. The short sale department at BOA grew from 150 people to now over 3,000. Each employee handles roughly 75 cases. "We're past the point where we're bumbling around losing files," Sunlin said.

Rand said the big shift began in 2009 as the Treasury Department was putting together plans for the HAFA, which would launch in April 2010. "In 2009, we started a proactive approach, reaching through MLS services and reaching out to real estate agents and customers with underwater mortgages, distressed loans," Rand said. "We're not going to turn anybody away if the short sale meets the net requirement we're looking for."

hard to make a call on housing

[Friday's] report on consumer confidence, or the striking lack of it, is yet another sign that housing is going to be in a very sticky state for a while. It's hard to say whether housing is weighing on confidence or lack of confidence is weighing on housing; the answer lies somewhere in the middle. Next week is a big week for housing because we get the all-important readings on existing and new home sales for May. The pending home sales index, based on contracts signed, not closings, fell dramatically in April, and that has the housing prognosticators building another arc for the flood of bad news yet to come. Home builder sentiment fell in June, largely based on competition from distressed properties and high material costs, but you can bet the builders know we're in for some tough sales numbers in their market as well.

I know I've said this before, but here I go again: All real estate is local, but confidence is national. Potential summer buyers, who are historically few and far between, will be watching the national numbers, as they try to time the bottom of the market, which is of course impossible to do. You can't time the bottom of this market, because it will likely bounce along the bottom for several years. You also have no historical perspective because we've never seen a crash like this ever before. The two greatest factors that will keep us bouncing are the huge volume of distressed properties and uncertainty over the direction of new regulation in the mortgage market.

Regulators pushed back the deadline for a huge decision on risk retention for the mortgage market, and that has talk abounding that the entire proposal is going back to the drawing board. This is the proposal that would require, among many other things, a 20% down payment on loans for them to be exempt from risk retention. Without that, banks would have to hold 5% risk on their books when securitizing the loan.

All this uncertainty in the mortgage market, piled on top of all kinds of new regulations now going into action, just makes lending more expensive for the banks and borrowing more expensive for consumers. It's no surprise that confidence in housing is so low, despite the fact that now may in fact be one of the best times to get into the housing market. You just have to have a long view, which foreign buyers apparently have but Americans sorely lack.

foreigners jump into real estate market

"Falling home prices may be plaguing the US economy, but they are candy to foreign investors, who already have a weak dollar on their side. Buyers from overseas spent roughly $41 billion on US residential real estate last year, a bump up from the previous year. US real estate agents report a surge this Spring especially, as foreign buyers see continued pressure on home prices and ample bargains. 'I don’t think they’re so concerned about the prices dropping as they are about getting value for their money,' says Rick Ambrose, a Coldwell Banker agent in Lake Mohawk, NJ. Ambrose and his colleague Mary Pat Spekhardt recently hosted two groups of Japanese investors searching for homes on the scenic lake just about an hour outside of New York City. 'They can work here, be close to the city, be close to their corporations and still feel like they’re on vacation. I think that’s really what grabbed everybody.

That’s what got them,' says Spekhardt. The group of about 35 from Japan also toured properties in Las Vegas and Los Angeles, which are more popular choices among foreign investors.

A new survey by Trulia.com that tracks searches from potential foreign buyers found LA ranked number one in potential interest traffic, trailed by New York City, Cape Coral, Fl, Fort Lauderdale, FL and Las Vegas. The greatest interest is from buyers in the UK, Canada and Australia. 'Prices now in the US are generally 30-40% off from the peak. In addition, the weakness of the dollar gives the Japanese an advantage, as it does the Europeans, of another 20-25% off, so they’re seeing real bargains and opportunities,' notes Ambrose. The interest is pretty widespread, with Brazilians trolling Miami and Russians and Chinese hunting in Chicago, according to Trulia's survey.

What's so interesting to me, though, is that foreigners are so much more ready to jump into the market now than US investors. Granted, they have, as noted, the weak dollar on their side, but they also seem to have a longer term view. US buyers are so afraid to lose a little in the short term on paper, they don't realize they could gain a lot in the long term. Of course foreign buyers are largely using cash, which many US buyers are lacking. Credit, or lack thereof, is playing against the US investor. Prices in Miami are actually beginning to recover, especially in the condo market, thanks to foreign buyers, so much so that the foreigners are beating out the Americans.

I remember all the rage a long time ago when the Japanese were buying up commercial real estate in New York City. Everyone was so appalled. Not so much now, even up in Lake Mohawk, NJ...'It isn’t popular. It is unforeseen territory, and it’s unique. I think it’s a very smart choice. It’s not where everyone is looking,' says Spekhardt."

US economy "bumbling along"

The US economy is just "bumbling along" and creating an uncertainty among business that is likely to stifle hiring and growth, says investor Wilbur Ross, fund manager and head of W.L. Ross & Co. Ross blamed Washington policies for much of the
problems, from the lack of a housing recovery to the recent controversy in which the Obama administration is trying to block Boeing from building a plant in a right-to-work state. "It's not going to be a 'W' or a 'V' or an 'L' (recovery) or another
alphabet letter," said Ross. "It's going continue to be punctuation—dots, dashes, question marks, exclamation points,one strong month, one weak month—a very fragile economy."

That lack of direction could stand in the way of businesses that want to expand. "This kind of thing is bad because it's unsettling to companies," he said. "Business has a terrible time adjusting to uncertainty. Good news they can adjust to, bad news
they can adjust to. Uncertainty makes it very, very hard to make long-term commitments." Businesses also are facing weak consumer spending. Unemployment remains mired at 9.1 percent while housing prices recently have double dipped despite aggressive efforts in Washington to stem the crisis. "The consumer still hasn't been
rehabilitated," Ross said. "All the meddling in the real estate side of life has not fixed residential real estate. If anything I think it's made it worse because it's extending out the foreclosure time lines and putting more uncertainty and more
downward pressure."

Ross also wondered about the state of job creation considering the battle the National Labor Relations Board has waged against Boeing. The agency contends that Boeing broke the law when it moved a plant to South Carolina, where workers are not required
to belong to a union. Boeing contends that even though it has a unionized work force it also can build plants in right-to-work states. Some in Congress have called on cutting funding to the NLRB on ground that the agency has overstepped its authority.
For Ross, the issue comes down to the kind of message the administration is sending at a time when job creation is at a premium. "Who in American business is going to have confidence to build a new factory, add employees, if you're not even sure
you can build the factory where you want to?" he said. "You can't have social experimenting interfering with turning the economy around. And I think that's what's going on here. It's social experimenting instead of building the economy."

Fannie Freddie are better, but still cash drains

Conservatorship has been good for Fannie Mae and Freddie Mac, but
the companies continue to drain federal resources away from other
government operations, according to the regulator of the mortgage
giants. In its third annual letter to Congress, the Federal
Housing Finance Agency (FHFA ) said stronger loan underwriting
standards enabled the companies to narrow losses in 2010 to $28
billion from $93.6 billion a year earlier. The companies have
received more than $160 billion funding from the Treasury
Department the past few years. "Since being placed under
conservatorship in 2008, Fannie Mae and Freddie Mac remain
critical supervisory concerns," said Edward DeMarco, acting
director of the FHFA. This is a "result of continuing credit
losses in 2010 from loans originated during 2005 through 2007 as
well as forecasted losses from loans originated during that
time." Still, DeMarco said governmental control allowed the
companies to "accomplish their statutory mission of facilitating
stability and liquidity for single-family and multifamily housing
finance."

The FHFA said Fannie and Freddie remain plagued by "credit risk,
operational risk, modeling risks and retention of qualified
leadership and personnel." The companies hold a 60% share of
single-family loan production. As conservator, the FHFA is
tasked with minimizing credit losses at the GSEs, and DeMarco
said more stringent underwriting standards and a stronger price
structure have helped. "Although past business decisions leading
to these losses cannot be undone, each enterprise, under the
oversight and guidance of FHFA as conservator and regulator, has
improved underwriting standards for loan purchases in the past
two years.," he said. "Another way FHFA minimized losses was to
require the enterprises to enforce existing contractual
representation and warranty loan repurchase agreements with
lenders." The FHFA also oversees the dozen Federal Home Loan
Banks and said all 12 reported profits in 2010. Loans to the
banks dropped to $479 billion last year from $631 billion at the
end 2009. The regulator said the banks' financial condition and
performance stabilized in 2010, but several continue "to be
negatively affected by their exposure to private-label
mortgage-backed securities."

The Labor Department says 422,000 Americans filed for their first
week of unemployment benefits the week ended May 28. While that
marked a 6,000 decrease from the revised 428,000 initial claims
filed the week before, it was worse than economists' expectations
for 413,000 claims. Economists use initial jobless claims as a
way to gauge the strength of the job market, but for the last
eight weeks, the number has stayed stubbornly high above the
400,000 mark. Even in times of robust economic growth, it's not
uncommon to have initial claims tally in the 200,000 to 300,000
range. But many economists say once that number is persistently
in the 400,000s, job growth is probably too weak to put a dent in
the unemployment rate.

The number of Americans filing for ongoing claims fell 1,000 to
3,711,000 in the week ended May 21, the latest data available.
Wisconsin, South Carolina, Massachusetts and California had the
largest increases in initial claims during that week, citing
layoffs in the services industry. Alabama and Oregon saw the
biggest improvement. Next up is the government's monthly jobs
report due Friday. Economists surveyed by CNNMoney say they're
expecting to see that 170,000 jobs were created in May and that
the unemployment rate eased to 8.9% from 9% in April.