NAR Raises Concerns About Appraisals and Proposes Expanding Tax Credits

In a report published on Wednesday, the National Association of Realtors (NAR) proposed that Obama’s tax credit for first time buyers should be expanded across the market to all buyers. Concerns were also raised about appraisals. Lawrence Yun, the NAR’s cheif economist, cited the appraisal problem as “serious,” and characterized by buyers using appraisers who are not from their neighborhood or who are comparing their property to distresed or damaged homes. These appraisal problems are allegedly pulling down home values, and hurting the industry.

Complaints about appraisals are nothing new. However, the importance of a good appraisal is especially crucial in this economy, where there are so many distressed properties on the market that a home could be compared to. It is nonetheless true that, as we reported, have a foreclosed home within 500 ft. of a property decreases its value significantly. As the number of foreclosures increase, more properties will be affected. Nonetheless, it is also true that a home that is not in foreclosure should probably not be valued the same as a home in foreclosure. One is a distressed property, the other is not.

In terms of expanding Obama’s tax credits, the NAR proposes an interesting idea. It is true that an expanded tax credit would probably drive more buyers into the market. However, the influx of buyers would not necessarily cause the market to rebound. We have already seen an increase in home buyers, but property values still remain low and there still remains a lot of properties on the market. Introducing more potential buyers would likely not change these facts when there are still so many foreclosures dragging down property values in many areas.

Existing Home Sales Rise As Prices Fall

Existing home sales rose in May according to a report released to day by the National Association of Realtors. The level of 4.77 million homes is a 2.4% increase from an adjusted 4.66 million homes in April. However, it remains 3.6% below last year’s levels. The increase in homes sold is attributed this time to many returning buyers, who are gravitating towards existing home sales rather than distressed properties. Distressed sales fell to 33% of the sales in May, versus 45% of the sales in April. Yet the median home price, of $173,000 is still down 16.8% from a year earlier.

In other words, first time home buyers tend to gravitate towards homes in foreclosure, due to the lower prices. Yet these sales drag down the home values in the neighborhood, as we have discussed before. Return buyers, on the other hand, are less likely to buy a home in foreclosure. Their increasing market share appears to be good for the housing market as a whole, yet the steady decline of housing prices continues to have the real estate industry concerned.

Homeowner Confidence Declines, But Most Optimistic About Future

Zillow’s quarterly Homeowner Confidence Report reveals all-time low levels of confidence in their homes, with 60% of homeowner believing that their homes have lost value in the last 12 months. However, they are still more optimistic than the reality: 80% of homes have lost value in the last year. The 60% level indicates the closest homeowners have come to predicting the reality of the market since the survey began at the beginning of 2008.

On a positive note, 74% of survey participants believed that value of their home would not decline any further, with 27% believing their home values will increase. In the Northeast, the most optimistic region, 77% of survey participants believed that the value of their home would not decrease, while 33% believe it will increase.

Therefore, although homeowners are aware of their declining property values, they seem to believe that the situation will improve. In a real estate market where so much is based on perception, this seems to be a positive sign.

Median Housing Price Falls in the First Quarter

The median price for a home in the US fell to $169,000 in the first quarter, according to a report released by the National Association of Realtors. The number represents a 14% drop from a year earlier. Median prices in metropolitan areas ranged from a low of $30,300 in Saginaw, MI to 570,000 in Honolulu, HI. The median price has been pulled down due to a number of factors including the surge of first-time homebuyers into the market and the large number of foreclosures being sold.

While it is very tempting to see these statistics as quite negative, they also come with some positives. Yes, it is disconcerting to see the value of homes decline. Yesterday we discussed the large number of people who are underwater on their mortgages, and declining home values will only serve to exacerbate the problem. However, the influx of new buyers into the market is a positive sign for the industry. New buyers will likely remain in the market, turning people who used to rent into prospective buyers and sellers. The ultimate increase of prospective buyers should increase the demand within the market, leading to a stronger market in the long run.

Over 20% Of Homeowners Owe More Than Home Is Worth

A new study released by Zillow late last week indicates that about 21.9% of all homeowners, 20.4 million people, owe more than their home is worth. This is known as being “upside-down” on a mortgage. And although a reverse mortgage can never go upside-down, an upside-down forward mortgage generally prevents the borrower from qualifying for a reverse mortgage.

Partly in order to combat this issue, the federal government is considering raising the limit at which homeowners with loans owned or guaranteed by Freddie Mac and Fannie Mae can refinance their mortgages. Currently the limit is a mortgage that is 105% of the property’s value. However, more than 1 in 10 homeowners have a mortgage that is more than 110% of the property’s value. Thomas Lawler, an independent housing consultant, is quoted as saying that when a borrower owes 30% more than their home is worth, borrowers are more likely to walk away than refinance. Increasingly, this seems to be the case more and more often.

I wish I could come up with a positive spin on this article, but my hope is simply that the statistics will help spur the state and federal governments to change modification policies and increase the pressure on the banks to grant the short pays and loan modifications necessary to help both keep people in their homes and ensure that they have options while they’re there.

Is the Housing Market Getting Better or Worse?

The WSJ featured this photo of a bulldozer tearing down houses in Southern California.

Today has been filled with mixed messages in regards to the housing market. Is it performing well or poorly? The Wall Street Journal published images of bulldozers tearing down half-finished homes in Southern California because the lender determined the cost of completing the homes would be more than they could be sold for. On the other hand, the New York Times published a front page story about how the market in Sacramento is rebounding– a potentially good sign. Sales are up 45% since last year. Sales in Las Vegas, another market hit hard when the housing bubble burst, are up 35%.

So which is it? It seems hard to tell. It is easy and addictive to follow all the housing articles published recently, but, after writing on several of them, it appears that the bottom line keeps remaining the same:

- Yes, there are a lot of foreclosures, permeating classes where they’ve never been felt before.

- Yes, many markets have been extremely hard hit by the housing crisis. Las Vegas, Phoenix, California, and Miami are four of the worst. Very few, if any, areas have emerged unscathed.

- Yes, the new $8,000 tax credit has helped buyers, leading many first-time homeowners to enter the market. Perhaps as a result, many areas have seen sales increase this past year and in the past few months.

It therefore seems safe to draw the following conclusions:

1. The nation was hit hard by the housing crisis.

2. Foreclosures still abound, as neither the economic nor the housing crisis have lifted yet. This is especially true amongst the middle-class, who in many cases took longer to feel the effects of the crisis.

3. However, foreclosures mean that prices have been pushed down in many markets, leading to a glut of new buyers who, in addition to pursuing the tax credit, can pay less in a mortgage payment than they can in their monthly rent, saving money by buying a home. This situation is especially profound in the depressed market, but leads many analysts to think that there are signs of life in the market.

What do you think? Is the housing market getting better or worse?

States Hold Banks Accountable for Foreclosed Properties

The Wall Street Journal published a fun piece this morning about how a number of towns in CA, Indio, CA in particular, have made it a criminal misdemeanor for lenders not to keep up with foreclosed properties. The law goes after banks that have allowed properties to fall into disrepair, with concerns such as high weeds, algae in pools, and dead grass. Apparently, it has generally been effective. After at first only writing checks to pay the fines, it seems that lenders such as Countrywide, Washington Mutual, and Fannie Mae are coming into compliance.

Reverse mortgages are often a great way to potentially keep people in their homes and help avoid foreclosure, but when foreclosure is unavoidable, it is nice to see a community holding the lenders responsible for picking up the pieces.

At the same time, the Associated Press released an article on the increasingly high number of vacant homes in the Midwest, where vacancy rates in some areas are over 40% empty. Brian Bernardoni, Policy Director for Chicago’s Board of Realtors, was quoted today in the Associated Press as saying that vacant homes hurt a neighborhood’s “curb appeal,” making it that much harder for the neighborhood to recover. However, if lenders take care of vacant and foreclosed homes, preventing them from becoming refuges for squatters and keeping up the outer appearance of the buildings, the neighborhood may not suffer as much damage–in both the short and the long run.

Housing Prices Drop in February, But Not As Much

Home prices in Phoenix have fallen dramatically since 2006.

About a month ago we reported that housing prices had dropped record levels in January. But February provided a little better news. The Case-Schiller Index, which follows the housing prices of 20 metropolitan areas, dropped again in February. But the drop of 2.2% was not a record for the first time in months, including the double digit decline of 18.6 percent versus last year.

And while some markets such as Phoenix, Las Vegas, and Miami have lost around half their value in recent months when compared to levels during the boom, other markets have not been hit as badly. Furthermore, sales in 10 states, including California, have increased.

The average price of a home in the United States has fallen from $230,000 at the height of the boom to $175,000.

Housing Prices Drop Record Levels In January

The New York Times published a big story today on the record decline in home values in Standard & Poor’s Case-Schiller Property Index. The Index, which measures the home values in 20 metropolitan areas, fell 19% in January from January a year ealier. Since the housing bubble broke, many metropolitan areas have seen their indexes cut nearly in half. Phoenix has seen prices drop 48.5% from its June 2006 peak, while Las Vegas, Miami, San Francisco, and San Diego have all seen declines of more than 40%.

Analysts cited the Case-Schiller Index performance as proof that housing prices have likely still not bottomed out and that the housing market continues to perform poorly. The report is especially interesting in light of the fact that the US Census Bureau recently released a report indicating that the sale of new homes rose in February. While many viewed this report as a sign that the housing sales market has bottomed out, home prices generally take longer to rebound. It is also unsurprising that sales are increasing as prices are plummeting- many are taking advantages of foreclosures and the low prices to enter the market for the first time.

Housing Sales Improve 5.1%

The housing market is on the rise

Although the housing market has been down, it looks like it may be starting to rebound. The Wall Street Journal reported yesterday that housing sales rose 5.1% in February. A similar article a few days earlier reported that sales in California, one of the states hit hardest by the housing crisis, have also improved. According to the California Association of Realtors, homes in California were on the market an average of 6.7 months in January 2009, compared with 16.6 months a year earlier.

While many of the homes that have been spurring the increase in sales nationwide were foreclosed homes, the rejuvinated market should be seen as a positive sign. Mortgage rates (both for mortgages and reverse mortgages) remain low. HECMs are now available to help seniors purchase homes. The increase in home sales are signs that these changes may be working. Although the new HECM for purchase program was not put into effect until after the CA data was collected, it is a positive sign that the market appears ready to support such a program.

While it’s too soon to say the market is on an upswing for good, the rejuvenated market is definitely a step in the right direction and a good sign for lenders, realtors, homeowners, and prospective homeowners alike.