¹²US Homes Lost To Foreclosure Up 25% On Year
By Alex Veiga, Ap | 16 September 2010
US home repossessions spike in August to highest level since start of mortgage crisis.
LOS ANGELES (AP)— Lenders took back more homes in August than in any month since the start of the U.S. mortgage crisis. The increase in home repossessions came even as the number of properties entering the foreclosure process slowed for the seventh month in a row, foreclosure listing firm RealtyTrac Inc. said Thursday. In all, banks repossessed 95,364 properties last month, up 3 percent from July and an increase of 25 percent from August 2009, RealtyTrac said.
August makes the ninth month in a row that the pace of homes lost to foreclosure has increased on an annual basis. The previous high was in May. Banks have been stepping up repossessions to clear out their backlog of bad loans with an eye on eventually placing the foreclosed properties on the market, but they can't afford just to dump the properties on the market.
Concerns are growing that the housing market recovery could stumble amid stubbornly high unemployment, a sluggish economy and faltering consumer confidence. U.S. home sales have collapsed since federal homebuyer tax credits expired in April. That's one reason fewer than one-third of homes repossessed by lenders are on the market, said Rick Sharga, a senior vice president at RealtyTrac.
"These (properties) are going to come to market, but very slowly because nobody wants to overwhelm a soft buyer's market with too much distressed inventory for fear of what it would do for house prices," he said. As a result, lenders are putting off initiating the foreclosure process on homeowners who have missed payments, letting borrowers stay in their homes longer. [[Among other things, this cuts way down on vandalism.: normxxx]] The number of properties receiving an initial default notice— the first step in the foreclosure process— slipped 1 percent last month from July, but was down 30 percent versus August last year, RealtyTrac said.
Initial defaults have fallen on an annual basis the past seven months. They peaked in April 2009. Still, the number of homes scheduled to be sold at auction for the first time increased 9 percent from July and rose 2 percent from August last year. If they don't sell at auction, these homes typically end up going back to the lender.
More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to RealtyTrac. The firm estimates more than 1 million American households are likely to lose their homes to foreclosure this year. In all, 338,836 properties received a foreclosure-related warning in August, up 4 percent from July, but down 5 percent from the same month last year, RealtyTrac said. That translates to one in 381 U.S. homes.
The firm tracks notices for defaults, scheduled home auctions and home repossessions— warnings that can lead up to a home eventually being lost to foreclosure. Among states, Nevada posted the highest foreclosure rate last month, with one in every 84 households receiving a foreclosure notice. That's 4.5 times the national average. Rounding out the top 10 states with the highest foreclosure rate in August were: Florida, Arizona, California, Idaho, Utah, Georgia, Michigan, Illinois and Hawaii.
Economic woes, such as unemployment or reduced income, are now the main catalysts for foreclosures. Lenders are offering a variety of programs to help homeowners modify their loans, but their success rates vary. Hundreds of thousands of homeowners can't qualify or fall back into default.
The Obama administration has rolled out numerous attempts to tackle the foreclosure crisis but has made only a small dent in the problem. Nearly half of the 1.3 million homeowners who enrolled in the Obama administration's flagship mortgage-relief program have fallen out. The program, known as Making Home Affordable, has provided permanent help to about 422,000 homeowners since March 2009. Regardless, many troubled borrowers have seen their efforts to get a loan modification stymied.
Larry Book of Winter Garden, Fla., was one packet away from a permanent loan modification from Chase under the Obama administration's foreclosure prevention plan after more than a year of back and forth and one failed attempt. But his modification never went through. Instead, his loan was transferred from Chase to IBM Lender Business Process Servicers in July and he was told he owed $9,562.62 and must bring his mortgage current by Sept. 15 or foreclosure proceedings will begin.
"It just becomes too exhausting," Book said about the modification process. "That's why some people walk away. But I've invested too much and given up too much to just let it go."
U.S. Home Prices Face 3-Year Drop As Inventory Surge Looms
By John Gittelsohn and Kathleen M. Howley | 16 September 2010
Aug. 31 (Bloomberg)— The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market. Shadow inventory— the supply of homes in default or foreclosure that may be offered for sale— is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody's Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners.
"Whether it's the sidelined, shadow or current inventory, the issue is there's [[many times: normxxx]] more supply than demand," said Oliver Chang, a U.S. housing strategist with Morgan Stanley in San Francisco. "And even once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year". Rising supply threatens to undermine government efforts to boost the housing market as homebuyers wait for better deals.
Further price declines are necessary for a sustainable rebound as a stimulus-driven recovery falters, said Joshua Shapiro, chief U.S. economist of Maria Fiorini Ramirez Inc., a New York economic forecasting firm. Sales of new and existing homes fell to the lowest levels on record in July as a federal tax credit for buyers expired and U.S. unemployment remained near a 26-year high. The median price of a previously owned home in the month was $182,600, about the level it was in 2003, the National Association of Realtors said.
Fannie Mae Forecast
Fannie Mae, the largest U.S. mortgage finance company, today lowered its forecast for home sales this year, projecting a 7 percent decline from 2009. A drop in demand after the April 30 tax credit expiration "suggests weakening home prices" in the third quarter, according to the report. There were 4 million homes listed with brokers for sale as of July. It would take a record 12.5 months for those properties to be sold at that month's sales pace, according to the Chicago— based Realtors group.
"The best thing that could happen is for prices to get to a level that clears the market," said Shapiro, who predicts prices may fall another 10 percent to 15 percent. "Right now, buyers know it hasn't hit bottom, so they're sitting on the sidelines". About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody's Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.
After reaching bottom, prices will gain at the historic annual pace of 3 percent, requiring more than 10 years to return to their peak, he said. "A long if not lost decade," Zandi said. Prices dropped in 36 states in July from a year earlier, CoreLogic Inc., a Santa Ana, California-based real estate and financial information company, reported today.
Its housing index showed the biggest declines in Idaho, Alabama and Utah. Maine, South Dakota and California had the largest gains. Working through the surplus inventory varies by markets and depends on issues such as local employment and the amount of homeowner debt, said Sam Khater, chief economist for CoreLogic. Nevada has the highest percentage of homes with mortgages more than the properties are worth, while New York state has the lowest, according to the company.
Douglas Duncan, chief economist for Washington-based Fannie Mae, said in a Bloomberg Radio interview last week that 7 million U.S. homes are vacant or in the foreclosure process. Morgan Stanley's Chang said the number of bank-owned and foreclosure-bound homes that have yet to hit the market is closer to 8 million. Sandipan Deb, a residential credit strategist for Barclays in New York, said prices will drop another 8 percent— to 2002 levels— before beginning a recovery in 2014.
"On a national level, you have never seen a decline of this sort," Deb said in a telephone interview. "I would caveat that by saying you also have not seen an increase on a national level like we saw from 2002 or 2003 to 2006". In addition to the as many as 8 million properties vacant or in foreclosure, owners of another 3.8 million homes— 5 percent of U.S. households— said they are "very likely" to put their properties on the market within six months if there is improvement, according to a survey by Seattle-based Zillow.
"This has the potential to create a sawtooth pattern along the bottom," Stan Humphries, Zillow's chief economist, said in a telephone interview. "Prices seeem to stabilize and homes begin to sell, drawing an increasing number of sellers off the sidelines, who then rush to sell, flooding the marketplace and dropping prices still further once more."
Gains Versus Inflation
If the market doesn't fall to its natural bottom, price gains in the next five to 10 years won't keep pace with inflation as the difference is made up "on the backend," said Barry Ritholtz, chief executive officer of FusionIQ, a New York research company. Price increases that fail to at least match inflation are the same as reductions in value, Ritholtz said. The Obama administration's effort to help mortgage holders, the Home Affordable Modification Program, or HAMP, is another source of future inventory as owners with new loan terms re-default, Ritholtz said. About half of the modifications done in 2009 were behind in payments by the first quarter of 2010, according to the Treasury Department.
'Day of Reckoning'
"The belief has been: if we stimulate sales with a tax credit and delay foreclosures with modifications, the market would stabilize," said Ritholtz, author of "Bailout Nation." "But we're just putting off the day of reckoning and drawing out the pain by not letting the housing market hit its bottom". Government policy contributed to a recent stabilization in prices that may have been an "illusion," said Zach Pandl, an economist at Nomura Securities International Inc.
The S&P/Case-Shiller index of home prices in 20 U.S. cities rose 4.2 percent in June from a year earlier. The measure is a three-month moving average, which means data in the month were still influenced by transactions that may have benefited from the tax incentive. Even if modifications fail, keeping foreclosures off the market is worth the risk of a delayed recovery, Pandl said.
"It's just too painful and too damaging to let it happen all at once," Pandl said from New York. Owners of about 11 million homes, or 23 percent of households with a mortgage, owed more than their property was worth as of June 30, according to CoreLogic. Another 2.4 million borrowers had less than 5 percent equity in their houses and probably would lose money on a sale after paying broker fees and closing costs, CoreLogic said Aug 25.
Nevada, New York
In Nevada, 68 percent of homes were underwater in July, with mortgage loans statewide totaling 120 percent of home values, according to CoreLogic. Only 7.1 percent of properties in New York state were underwater, with the total loan-to-value equivalent of 50 percent, the company said. Brandi Miner, director of marketing for the Georgia Association of Realtors, is holding back on selling her one— bedroom condominium in Atlanta's Buckhead district because she has an underwater mortgage. She paid $155,000 for the property in 2005.
"I'm stuck," Miner said. "I thought it was a stepping stone to a house". Miner pays about $1,100 a month for her mortgage plus $225 in condo dues, a higher price than she would spend for a three bedroom house in a good Atlanta-area neighborhood at today's prices, she said. But selling now would cost her $10,000 to $15,000 up front, Miner estimated.
"I'm not $200,000 in the hole, thank God," she said. "But the quarter of the country that's underwater— that's me".
Detroit, Las Vegas and Fort Myers, Florida, will take until at least 2020 to return homeowners to positive equity, CoreLogic said in a March report that compared prices in 10 metro areas. Atlanta, Dallas and California's Riverside and San Bernardino counties will need until 2016. The Washington, D.C., area will take the least amount of time, with negative equity disappearing around 2015, CoreLogic said. The slide in values and record-low interest rates may offer some bargains for property hunters.
Prices have returned to historically affordable levels, said Karl Case, professor emeritus of economics at Wellesley College in Wellesley, Massachusetts, and co-creator of the S&P/Case-Shiller index. He estimates a bottom for prices in six months. "It doesn't take a tremendous number of people to turn the housing market, because only about 5 percent of the stock trades in a given year," Case said in a telephone interview. "There's still a lot of people who are employed, many of whom have been looking for the opportunity to buy."
Case is an example of a homeowner waiting to sell because of low demand. He's seeking to sell the A-frame on 15 acres near Cooperstown, New York, that he bought for $190,000 in 2005. "I want to keep it if I can't get what I want," he said. "It's a terrific little getaway and I'm not going to give it away." [[A clue that many potential sellers are not 'hurting enough' to accept current market prices.: normxxx]]
Some indicators show the real estate market has begun to turn a corner. Pending sales of existing houses increased 5.2 percent from June to July, the National Association of Realtors reported Sept. 2. Economists had estimated a 1 percent decline, according to the median of 37 forecasts in a Bloomberg survey.
"The market is starting to show some signs of stabilization," Nicolas Retsinas, director emeritus of Harvard University's Joint Center for Housing Studies, said during an Aug. 31 interview on Bloomberg Television's "InsideTrack". "But a robust recovery is a long time away."
The number of U.S. homes in default or foreclosure fell to 7.04 million as of July 31 from a high of 8.12 million in January, Lender Processing Services Inc., a Jacksonville, Florida-based mortgage servicing company, reported Sept. 2. Defaulted mortgages as of July took an average 469 days to reach foreclosure, up from 319 days in January 2009. That's an indication lenders— with the help of the government loan modification programs— are delaying resolutions and preventing the market from flooding with distressed properties, said Herb Blecher, senior vice president for analytics at LPS.
"The efforts to date have been worthwhile," Blecher said in a telephone interview from Denver. "They both helped borrowers stay in their homes and kept that supply of distressed properties on the market somewhat limited."
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