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Home Prices Rise in 81% of U.S. Cities as Markets Recover

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Home Prices Rise in 81% of U.S. Cities as Markets Recover
By Prashant Gopal – Nov 7, 2012

Prices for single-family homes rose in 81 percent of U.S. cities as the property market extends a recovery from the worst crash since the 1930s.

The median sales price increased in the third quarter from a year earlier in 120 of 149 metropolitan areas measured, the National Association of Realtors said in a report today. In the second quarter, 110 areas had gains.

Investors, who make up the bulk of cash purchasers and compete with first-time buyers, accounted for 17 percent of all transactions, down from 20 percent a year earlier.

Investors, who make up the bulk of cash purchasers and compete with first-time buyers, accounted for 17 percent of all transactions, down from 20 percent a year earlier. Photographer: Daniel Acker/Bloomberg Values are climbing after a six-year slump as buyers compete for a shrinking supply of properties listed for sale. U.S. home prices jumped 5 percent in September from a year earlier, the biggest 12-month increase since July 2006, CoreLogic Inc., an Irvine, California-based real estate data provider, said yesterday.

“The housing recovery still faces a number of potential headwinds,” Paul Diggle, property economist for Capital Economics Ltd. in London, said in a note to clients after CoreLogic’s report was released. “But our central case is that tight supply conditions will mean that house prices will continue to rise steadily next year.”

At the end of the third quarter, 2.32 million existing homes were available for sale, 20 percent fewer than a year earlier, according to the Chicago-based Realtors group.

Short Sales

The national median price for an existing single-family home was $186,100 in the third quarter, up 7.6 percent from the same period last year, the Realtors said. Foreclosures and short sales, in which the price is less than the mortgage balance, accounted for 23 percent of third-quarter deals, down from 30 percent a year earlier.

The share of all-cash home purchases fell to 27 percent in the third quarter from 29 percent a year earlier. Investors, who make up the bulk of cash purchasers and compete with first-time buyers, accounted for 17 percent of all transactions, down from 20 percent a year earlier.

The best-performing metro area was Phoenix, where prices increased 35 percent from a year earlier. Prices rose 28 percent in the Cape Coral, Florida, area, and 27 percent in Akron, Ohio.

The Raleigh, North Carolina, area had the biggest decline, with the median selling price falling 16 percent in the quarter. It was followed by York, Pennsylvania, with an 9.4 percent decrease; and Binghamton, New York, with a 6.6 percent drop.

A survey by Fannie Mae, the nation’s biggest mortgage-finance company, showed Americans expect home prices to increase an average of 1.7 percent in the next 12 months. The share of respondents who said they expect home prices to decrease fell to 10 percent last month, down 13 percentage points from a year earlier and the lowest level since the monthly survey began in June 2010, Washington-based Fannie Mae said today.

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Foreclosures Drawing Cash as 401K Returns Sag: Mortgages

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Foreclosures Drawing Cash as 401K Returns Sag: Mortgages
By Kathleen M. Howley – Nov 4, 2012 9:00 PM PT

David and Michelle Haisley from Fort Wayne, Indiana, weren’t happy with the performance of their retirement funds, so they made another investment – a foreclosed home for $27,000.

Haisley, a heating and air-conditioning technician, said he worked on the house before it went into default and decided to make an offer when he saw it listed at about a third the price of surrounding homes. They’ve already found tenants for the house and David said they’ll buy another foreclosure if they can find the right deal.

Investors bought about 66,780 homes in August, the highest since the beginning of the foreclosure crisis, according to Bloomberg calculations based on National Association of Realtors data.

Investors bought about 66,780 homes in August, the highest since the beginning of the foreclosure crisis, according to Bloomberg calculations based on National Association of Realtors data. Photographer: Matthew Staver/Bloomberg

“It’s an income stream for us, and when it’s time, we’ll sell it and make more money than we could from our 401K,” said Haisley, 49, who rents out the property for $900 a month for an annual return of more than 20 percent, excluding appreciation. “There’s nowhere for prices to go but up, so it seemed like a pretty safe bet.”

As the housing market recovers from the worst bust since the Great Depression, neophyte investors like the Haisleys are following the lead of private-equity firms like Blackstone Group LP, investing in properties they can pick up cheaply, rent and sell when values rise enough. Home prices rose 4.6 percent from a year earlier in August, the biggest gain since the end of the real estate boom in 2006, according to a CoreLogic Inc. index.

“The typical small-size mom-and-pop investor has two or three properties, looking at it as an income supplement with the possibility of being able to sell at some point when prices rise enough for them,” said Lawrence Yun, chief economist of the National Association of Realtors.
Stock Wary

Investors are becoming more comfortable with real estate after the six-year housing slump, which brought prices down nationwide by 35 percent, according to the S&P/Case-Shiller index. Many remain skeptical of stocks, even as the Standard & Poor’s 500 index has more than doubled since falling to a 12-year low in March 2009.

“I’d rather buy real estate than gamble on the stock market or get almost no return from putting my money in a bank,” said Barton Wallace, 60, a real estate investor and broker in Hingham, Massachusetts, who owns four rental properties. “I don’t have any problem getting tenants.”

Wallace, who turned to real estate four years ago when she couldn’t get a full-time job, has one client who cashed out his home’s equity to buy his first foreclosed home. Other clients are tapping retirement accounts for the same purpose, transferring their cash into self-directed Individual Retirement Accounts that allow them to make their own investing decisions, with returns going back into the accounts, she said.

Indirect Plays

Investors bought about 66,780 homes in August, the highest since the beginning of the foreclosure crisis, according to Bloomberg calculations based on National Association of Realtors data. Investors’ share was 18 percent of sales. About 90 percent of those homes went to people with fewer than 20 properties, Yun estimated.

“Some people are making an indirect real estate play by investing in funds that buy foreclosures to rent, but most of the demand is from small-scale investors who live in the community,” Yun said. “It provides a decent rate of return for them because rents are rising and prices are still low.”

The average U.S. rent rose to a record $1,086 a month in the third quarter, a gain of 3.3 percent from a year earlier, according to MPF Research in Carrollton, Texas. The vacancy rate fell to a 10-year low of 8.6 percent in the second quarter, according to the Commerce Department. There are about 40 million rental units in the U.S., compared with 75 million owner-occupied homes.

‘Risky Move’

For individual investors, “the demand is there, but it’s a risky move if you are putting all your eggs in that one basket,” said Greg Willett, director of research for MPF.

Even with rent gains, buyers of distressed properties to rent would need to get a discount of about 30 percent to get a yield of 8 percent, said Paul Diggle, a real estate economist for London-based Capital Economics Ltd. If investors are looking for 12 percent yields, they’d need to get a 50 percent discount, he said.

The simplest way to calculate yield is to subtract expenses from annual rent and divide by the cost of the property. A $125,000 home will yield about 8 percent a year if a tenant pays $1,200 a month in rent and monthly carrying expenses are $400.

That formula doesn’t account for the time a landlord may spend responding to disgruntled tenants and repairing burst water pipes, broken furnaces or leaky roofs, Diggle said. Many homes in foreclosure are neglected, which could lead to maintenance problems down the road, he said.

‘Sweat Equity’

“Small-scale investors may actually run at a loss on rental housing if their sweat equity is accounted for,” Diggle said.

Yovaldi Venter, a first-time real estate investor, is buying a foreclosed property using money from her retirement funds. She said she plans to buy her first property before the end of the year after transferring some of her 401K into a self-directed IRA this month.

Her target: a duplex on the south side of Jersey City priced at $60,000, a fifth of what it went for in 2008 when it last sold. Its two rental units bring in $2,000 a month, according to Venter, 45.

“It would be a buy-and-hold with an eye on the long-term gain — a stream of income for now, with the possibility of selling it when prices come back,” Venter said.

Gary Hippensteel, who owns six properties he rents in Indianapolis at about 10 percent yields, said he didn’t want to keep his money in a bank because it earns “next to nothing.”The highest yield for a one-year certificate of deposit in the U.S. last week was about 1 percent, according to Bankrate.com.

“People want the safety of having a tangible asset,”Hippensteel said. “While it’s still subject to volatility in the overall economy, you at least have an asset that people will need, because if they can’t buy a house they are going to have to rent.”

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Restructured HARP Helping More Underwater Homeowners to Refinance

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Restructured HARP Helping More Underwater Homeowners to Refinance
By Hudson Sangree and Phillip Reese of the Sacramento Bee

In the Sacramento area, about 180,000 households, or roughly half of all homeowners with mortgages, owe more than their homes are worth.

Many are stuck paying higher interest rates than today’s ultra-low average of about 3.5 percent on a 30-year loan.

For these families, refinancing to a lower rate would free up cash in a tough economy and help them stay in their houses. Yet until recently, large numbers of homeowners were shut out from refinancing because they owed far more than their homes are worth.

Today, a reworked federal effort called the Home Affordable Refinance Program, or HARP, is helping thousands more refinance, even if they’re deeply underwater on their mortgages.

The HARP restructuring – known as HARP 2.0 – took effect late last year and opened the floodgates for those who had been blocked from refinancing under an earlier, more-restrictive version of the program.

Through July, about 75,000 California homeowners had refinanced under HARP – roughly 25,000 more than the number that refinanced under the program during all of 2011.

“A lot of those folks had already applied for HARP and been declined,” said Tai Mamea, vice president for mortgage lending at Chase bank. “Sometimes they’ve been waiting for years.”

Chase customers have saved an average of $300 a month by refinancing through HARP, often halving their interest rates, he said.

But HARP 2.0, as it’s known, isn’t the cure-all that some predicted. For some homeowners, frustrations and roadblocks remain.

“I’ve helped lots of families refinance with HARP,” said Brent Wilson, a loan strategist with Comstock Mortgage in Sacramento. “But I still see a huge void of folks upside-down on loans who can’t refinance with HARP.”

A major reason, he said, is that their loans aren’t backed by mortgage giants Freddie Mac or Fannie Mae, a requirement for HARP refinancing. Being up-to-date on mortgage payments is another prerequisite.

Others might have low credit scores or high debt-to-income ratios, or they may lack cash reserves. Depending on the rules of individual lenders, such factors can prevent homeowners from successfully refinancing under HARP, Wilson said.

“You still have to be able to qualify,” he said. “It’s not as clear-cut as some people make it sound.”

Still, federal officials cleared away one of the biggest hurdles, he said.

The original version of HARP, introduced in 2009, allowed a loan-to-value ratio up to 125 percent. To be eligible, homeowners could only owe 25 percent more than their homes were worth. In other words, they could only be slightly underwater.

Many in the Sacramento region have sunk much deeper. One out of five of the region’s homeowners owe at least twice what their home is worth, according to online real estate tracking firm Zillow.

It’s a situation that’s common in other areas of California and in regions of the country – including Florida, Arizona and parts of the Northeast – that experienced a spike in housing prices followed by a calamitous free fall.

That’s why federal authorities restructured HARP so that it lets homeowners refinance regardless of the difference between loan amounts and home values.
Some lenders, however, have their own criteria that they layer on top of the HARP rules, experts said. They can impose loan-to-value caps of 105 percent or 150 percent.

But HARP 2.0 also gives borrowers more freedom to shop around if their current loan servicer won’t help, and mortgage experts say trying different lenders can be a useful strategy.

Folsom resident Angela Sing found refinancing under HARP 2.0 maddening but ultimately rewarding after going to several different lenders.

Sing and her family owed $440,000 on a first and second mortgage from 2003, but their home is worth only about $290,000. Her primary loan was interest only with a 6.8 percent rate.

“We didn’t want to walk away,” Sing said. “We signed the original papers, and we wanted to take responsibility.”

Sing tried twice to refinance under the old HARP program without success.

When the program was overhauled, she was rejected by her lender. So she tried another lender, with similar results. Finally, she tried a third lender and was successful, though not without more setbacks.

At one point, her credit score fell by a few points, and she had to start the whole process over.

“It was incredibly frustrating,” she said.

Earlier this month, after weeks of repeatedly faxing her financial documents to her lender, she’s refinanced into a 30-year loan with a 4.25 percent interest rate that lowered her payments by about $250 a month.

“You really have got to be persistent,” she said.

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California Home Prices Rise while Overall Sales Fall

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California Home Prices Rise while Overall Sales Fall

SAN DIEGO — California home prices rose in September to a four-year high as the supply of properties for sale remained tight, according to surveys released Monday.

The median price for new and existing houses and condominiums in California reached $287,000, up 15.3 percent from $249,000 in September 2011, DataQuick said. The median rose $6,000 from August to reach its highest level since $301,000 in August 2008.

There were 34,453 homes sold in September, down 2.7 percent from 35,404 last year, DataQuick said. There were fewer business days this September compared with last year, explaining at least part of the first annual decline in 14 months.

The California Association of Realtors reported that buyers faced slimmer pickings.

The broker association’s index of unsold inventory stood at a 3.7 months in September, down from 5.3 months a year earlier. The figure represents how long it would take to sell all existing single-family homes in California at the current sales clip. Supply in a normal market is considered to be six to seven months.

The supply of foreclosed properties continued to dwindle, helping lift the overall sales price because they tend to sell at steep discounts. DataQuick said 17.7 percent of existing homes sold in September were in foreclosure during the previous year, down from 33.8 percent during the same period last year and 58.5 percent in February 2009.

The September surveys show sales were strongest in more expensive coastal areas, while inland regions like the Central Valley and Southern California’s Inland Empire lagged.

The median price for new and existing houses and condominiums in the San Francisco Bay area reached $429,000, up 17.5 percent from $365,000 last year, DataQuick reported. The median price rose $19,000 from August to its highest level since $447,000 in August 2008.

There were 6,850 homes sold in the nine-county Bay area last month, up 1.5 percent from 6,749 last year.

Only 13.9 percent of Bay area homes sold last month had been foreclosed upon in the previous year, down from 25.4 percent a year earlier and 52 percent in February 2009.

DataQuick reported Friday that the median price for new and existing houses and condominiums in Southern California reached $315,000, up 12.5 percent from $280,000 in September 2011. The median rose $6,000 during the month to its highest level since $330,000 in August 2008.

There were 17,859 homes sold last month in the six-county region, a 1.6 percent drop than the same month last year.

Associated Press

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V.A. Loans Surge in Fiscal Year

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V.A. Loans Surge in Fiscal Year
By Lisa Prevost

The department guaranteed almost 540,000 loans in fiscal year 2012, the most since 1994, according to Mike Frueh, the director of loan guarantee service. Compared with five years ago, volume is up some 300 percent.

Low interest rates were part of the draw — about 338,000 of the V.A. loans were for the purpose of refinancing.

Borrowers who already have a V.A.-backed mortgage can get an interest-rate reduction relatively easily. The department’s streamlined refinance program doesn’t require these borrowers to “re-prove” that they qualify, said Nathan Long, the chief executive of Veterans United Home Loans, an online broker of V.A. loans.

“It’s a great benefit not to have to go through all the hoops that you would otherwise have to,” Mr. Long said.

V.A. loans for purchases were up almost 10 percent over the previous fiscal year. For military members who qualify, these home loans offer a financing option that has largely disappeared since the subprime meltdown: no down payment.

“Regardless of where home prices are,” Mr. Long said, “100 percent financing can be a great option for people. We’ve seen 9 in 10 of our borrowers use the full 100 percent.”

Borrowers also benefit in that they don’t have to pay for mortgage insurance. The department does place limits on loan amounts it will guarantee. These range from $417,000 to $1.094 million, depending on the property’s location. In the New York metropolitan area, the limit is $777,500.

The department doesn’t finance its loan programs, but makes them attractive to lenders by guaranteeing a portion of each loan. Individual lenders set the closing costs and the interest rates, which are currently comparable to those on conventional fixed-rate loans. The minimum credit score required to qualify for a V.A. loan is about 620.

Borrowers must also demonstrate that they will have enough monthly income left over after paying personal debts and housing costs to meet levels set by the department for “residual income.” In the Northeast, for loan amounts exceeding $80,000, the residual income level for a family of four is $1,025.

These underwriting standards, while exclusive to the Department of Veterans Affairs, have helped keep the foreclosure rate on its loans much lower than on other loan types, Mr. Long said.

Grant Moon, an Army Reserves captain who served in Iraq, used a V.A. loan to buy his first home, a three-family in Massachusetts, in 2008. He put no money down, and used the rental income to help cover his mortgage.

“I moved in and I was only paying about $300 a month to have my own home,” he said.

Mr. Moon (who has since bought another V.A.-backed house in New Jersey) is now the president of VA Loan Captain, an online service that allows veterans to compare interest rates and terms among lenders.

“We prescreen the lenders and make sure they aren’t trying to take advantage of veterans,” he said.

While V.A. loans can be beneficial to military members with few assets, they are not always the best option. Although the V.A. doesn’t require mortgage insurance, it does charge a funding fee, which can cost more than 3 percent of the loan amount. Paying that fee might not be prudent for a borrower who plans to be in the home for a short period of time, Mr. Moon said.

Disabled veterans may be exempt from the fee.

Given the growing popularity of V.A. loans, the department expects to hit a major milestone this month, when it will very likely guarantee its 20 millionth veteran.

Housing Recovery Blossoms

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Housing Recovery Blossoms
By Les Christie September 19, 2012

NEW YORK (CNNMoney) — The U.S. housing industry — crucial to any jobs recovery — showed more signs of strength, according to two reports issued Wednesday.

The Census Bureau said housing starts and permits rose substantially in August. Separately, sales of previously occupied homes climbed 7.8% from a year ago, according to the National Association of Realtors.

Builders started on new homes at an annual rate of 750,000, up 29.1% compared with a year earlier. They applied to build another 803,000 new homes on an annual basis, a 24.5% jump compared with August 2011.

Home builders have become increasingly bullish — a confidence index from the National Association of Home Builders reached its highest level since June 2006.

Even after recent gains, housing starts lag well behind the peak set in May 2005, when the pace of building hit more than 2 million homes.
Related: Best Places to Live

If sales continue to gain steam, that could help the nation break out of its economic doldrums. Home building provides many good-paying jobs, about three hires for every home built in a year, according to the National Association of Home Builders.

A rebound would create other jobs too: factory jobs at carpet and furniture makers, for example. Truckers get work transporting all those goods.
Related: Buy or rent? 10 major cities

Most housing markets around the nation have reached a good balance between sellers and buyers, according to the Realtors’ chief economist, Lawrence Yun. There’s a 6.1 month supply of homes on the market at the current pace of sales. That’s down from 6.4 months in July and 8.2 months a year earlier. The lower supply provides some support for prices.

The housing market has shown several signs of life over the last few months with sales of existing homes, new home sales and home prices all turning positive.

Historically low mortgage rates have helped propel the market forward. This week, rates appear to be headed for new lows, following last week’s announcement from the Federal Reserve that it would begin to purchase tens of billions in mortgage securities each month.
The Fed’s move “provided the financial support to the mortgage market and signaled an intention to keep rates low for the foreseeable future,” said John Tashjian, who runs a real estate investment fund, Centurian Real Estate Partners.

According to Tashjian, the real benefit of the Fed’s action could be to increase lending volume. The banks, knowing that any well underwritten mortgage will find a ready market, should be more willing to approve mortgages.

Related: Best home deals in the Best Places

Prices are on the upswing as well. They have benefited from a change in the mix of homes sold with distressed properties — repossessed homes and short sales — accounting for only 22% of total sales, down from 31% last August.

The median home price grew 9.5% year-over-year to $187,400. That marked the sixth consecutive month of price increases, the first time that has happened since May 2006, near the very peak of the housing price boom.

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Personal Finance: Is a Mortgage Refinance Right for You?

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Personal Finance: Is a mortgage refinance right for you?

By Claudia Buck Published Sunday, Aug. 26, 2012

They’re knocking on the lender’s door. As mortgage rates have tumbled to all-time lows, demand for refinancing has fired up homeowners nationwide.
And it’s not just those drowning in underwater mortgages. With rates for 30-year mortgages hovering below 4 percent since last October, all kinds of homeowners are trying to get their monthly mortgages reduced, say lenders and mortgage experts.

“It’s huge. It’s buried our staff and every other lender in town,” said O.J. Vallejo, mortgage consultant with First Priority Financial in Sacramento, who said his three-person staff has been working six days a week the last four months.

Nationally, refinance volume “has been running at a three-year high in recent weeks, as mortgage rates remained extremely low,” Mike Fratantoni, vice president of research for the Washington, D.C.-based National Mortgage Bankers Association, said in an email. “With refinances, the No. 1 driver is interest rates.

Along with months of record-breaking low interest rates, other factors are driving the refinancing boom: a competitive lending market and changes in some federal refinancing programs for struggling homeowners.

It’s prompted many established homeowners with old-school, high-interest mortgages to decide it’s time to refi.

Neil and Louise Mueller, longtime Land Park residents, were encouraged by their financial planner to look into refinancing their mortgage last spring.

“It was almost too easy,” said Louise, an American River College counselor, who said the process, including a home appraisal, took about three weeks.
The result: Their 30-year, fixed-rate mortgage dropped from 5.12 percent to 3.87 percent, which lowered their monthly payment by about $100. They also pulled out about $11,000 for savings and for a family cruise overseas with their two adult children.

Why refi?

Generally the primary reasons for refinancing a mortgage are to:

  • Lower monthly mortgage payments.
  • Eliminate the unpredictability of an adjustable-rate mortgage by switching to a fixed rate.
  • Free up home equity cash for home improvements, college costs or other expenses.
  • Shorten the loan term, say from a 30- to a 15-year mortgage, which can save thousands in interest payments.

Saving money is usually the biggest incentive.

Calling the low rates “historic,” John Winters, a wealth adviser with Morgan Stanley Smith Barney in Sacramento, said he recently advised all his clients to consider a refi. Especially for those “finding it difficult to live with” the anemic returns on low-interest CDs and bonds, freeing up monthly income by refinancing can make sense, he said.

Should you refi?

It’s a personal calculation that varies. Generally, you look at how long you plan to be in your current home and whether the upfront costs outweigh the monthly savings.

“If you’re not going to be in your home another one or two years, you’re not going to recoup the closing costs,” said Greg McBride, senior financial analyst with Bankrate.com.

“Everybody’s situation is different,” said mortgage consultant Vallejo. “There’s no right or wrong answer. The only answer is what works for your family.”

Some couples who refinance are looking ahead to retirement.

“Paying off the mortgage is now back in vogue,” Vallejo said, especially for those in their late 40s or 50s, who want to be mortgage-free at retirement age.
That doesn’t necessarily mean they’ll lower their monthly payment by refinancing. For example, a couple with a $250,000, 30-year loan at 5.25 percent three years ago would have been paying about $1,380 a month. If they refinanced their current balance to a 20-year, 3.5 percent loan today, their payments would increase slightly, to $1,405.

“Their payment goes up $25, but they just took seven years off their mortgage,” said Vallejo. “That’s almost $116,000 in interest. That’s huge.”
On the other hand, younger homeowners with kids might choose a 30-year mortgage when they refinance because they need the lower monthly cash flow to save for college or pay off debt. Or those with adjustable mortgages due to reset to higher rates may want to lock in single-digit rates.

What you’ll pay

The mortgage rate you’ll be offered depends on numerous factors, including: your credit score, loan amount, loan-to-value ratio (how much you owe compared to the home’s appraised value), length of your loan term and type of home (rates on condos, rentals and vacation homes are typically higher.)
Lots of mortgage ads promise “no-cost” loans. According to some lenders, that’s a misnomer.

“It really means ‘no cash out of pocket,’ ” said Vallejo. “There’s no free lunch; somebody is paying for it.”

Typically, in a no-cost loan, all closing costs and pre-paid items (such as appraisal fees and credit checks) are paid by the lender and built into the interest rate.

Shop around

It pays to compare quotes from several lenders because they offer different rates and fees. Start with your current lender or sit down with a local loan originator. You can also do refinance comparisons online, using mortgage calculators at sites like Bankrate.com or those of individual banks and lenders.

If you’re a struggling homeowner, ask your lender about changes in the federal Home Affordable Refinance Program and FHA refinance programs that have made refinancing options more plentiful.

Bankrate.com’s McBride said the refinance market is particularly “compelling” in California, where home prices have bottomed out and there are lots of competitive lenders.

But don’t focus solely on interest rates, said McBride. When comparing refinance quotes, look at appraisal fees, title searches and closing costs. And be sure you’re comparing the same loan terms, not a 15- and a 30-year, for instance.

Good standing

Be sure the lender is in good standing.

Tom Pool, spokesman for the state Department of Real Estate, said state and federal licensing standards for mortgage originators are much stricter than they used to be, which “has weeded out most of the bad actors.”

Nevertheless, you can check a company’s or individual’s licensing status at the state Department of Corporations (www.corp.ca.gov) or the Department of Real Estate (www.dre.ca.gov).

Pool also recommends online searches at sites like the Better Business Bureau (necal.bbb.org) to see if the lender has been linked to bad practices or scams.

Too late?

Even though interest rates have inched upward in the last month, you’re probably not too late.

“It’s not worth losing any sleep over,” said Bankrate’s McBride. “Given the European debt crisis, (interest rates) can’t rise appreciably.”
On the other hand, the national mortgage bankers group predicts mortgage interest rates will “drift slowly higher” next year, leading to significant declines in refinance activity.

Above all, make sure a refinance is right for your situation.

“It’s a significant financial transaction,” said Edward Achtner, an Oakland-based regional sales executive for Bank of America. “If buying a home is the largest transaction a consumer embarks upon, a refinance is a close second. Do the research, evaluate the different options. Take your time and do not be pressured into making any decisions.”

Editor’s note: This story was changed Aug. 29 to correct the length of the Muellers’ mortgage.

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Housing on Mend but Full Recovery Is Far Off

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Housing on Mend, but Full Recovery Is Far Off

Today’s rising prices have less to do with surging demand—though hard-hit markets in Arizona, California, and Florida have seen significant investor appetite for distressed homes—than with declines in the number of properties for sale.

Inventories of “existing” homes—that is, ones that haven’t just been built—are at eight-year lows. New-home inventories are lower than at any time since the U.S. census began tracking them in 1963. In some cities, there are one-third fewer homes listed for sale than a year ago.

Here’s why prices are rising: There are more buyers chasing fewer homes, and—critically—fewer distressed homes, such as foreclosures. Low inventory is one sign that housing markets may have reached a turning point because many want to buy at the bottom but few want to sell.

There are several factors behind the low inventory. Banks have slowed their pace of foreclosures. Investors have snapped up discounted properties that they can convert into rentals. Home builders, struggling for several years to compete on price with foreclosed properties, have added little in the way of new supply.

For now, price gains are concentrated at the low end of the market, where inventory declines have been most dramatic. “The market is really drying up in these seemingly distressed markets really quickly,” said Michael Sklarz, president of research firm Collateral Analytics. “They really are scratching for properties to sell.”

Low inventory is benefiting home builders, as buyers grow frustrated by bidding wars sparked by a shortage of move-in-ready housing. “People can’t find inventory that they want, so they say, ‘I’m just going to buy the house down the block that’s brand new. I don’t have to go through the whole torture,’ ” Mr. Sklarz said.

Housing’s progress is good news for the economy. Residential investment has now contributed to U.S. economic output for the past five quarters, which hasn’t happened since 2005. In other words, housing is no longer a drag, though it is packing far less of a punch than it normally does at this point in the economic cycle. Rising prices also could help turn around consumers’ fragile psychology, an unpredictable but important factor that can fuel more sales.
than their homes are worth, and even more—about 45% of all homeowners with a mortgage, according to data firm CoreLogic Inc.—have less than 20% in equity. That means they don’t have enough money to make a large down payment and pay their real-estate agent’s commission to buy a comparable house.

Large price declines have left cities without what historically has been the most active segment of the home-buying market: families looking to trade up and retirees seeking to downsize. That leaves many markets relying on investors and first-time buyers, who are most sensitive to rising prices and mortgage rates. Ironically, prices are rising fastest in markets that have the most underwater borrowers because so few homes are for sale.

While low inventories have helped firm up prices, they could also soon lead to year-over-year declines in sales volumes because there aren’t enough homes on the market to sustain the current sales pace.

Consider Phoenix. Home prices through June were up by 17% over the past year, the best increase among the nation’s big cities. But home sales in July fell 8% from a year ago, amid a drop in supply of more than 25%, according to a report from Mike Orr of Arizona State University.

Jon Mirmelli, a local real-estate investor, said, “Buyers aren’t happy with what they see, and they’re staying on the sidelines.”

There are other reasons for caution. Banks are still stingy with credit. Many would-be buyers have too much debt to qualify for a mortgage.

A large overhang of distressed mortgages ultimately could drive more homeowners to sell or push banks to accelerate foreclosures. This “shadow inventory” looks as if it won’t be dumped on the market in a way that would trigger deep price declines, but it would probably keep a lid on any swift gains.

Jobs and wages also aren’t growing fast enough to sustain big rises in home prices. Recent gains may be less indicative of a strong recovery and instead point to how prices in some markets “overcorrected,” bringing in investors who will step back as prices firm up.

Others worry that mortgage rates, which are down by a full percentage point from one year ago, are temporarily boosting sales and that housing demand will slump once rates rise. Compared with a year ago, mortgage rates allow borrowers to take out about 12% more in debt without increasing their monthly payment.

The changing debate over housing underscores the sector’s tentative progress. Earlier this year, the question was whether housing would hit bottom this year or next. Now, it is “about how strong any recovery will be, how long it will last, and whether it will reach every neighborhood in America,” said Glenn Kelman, chief executive of Redfin, a real-estate brokerage.

An important test comes later this year. In each of the past three years, prices rose in the summer but gave up all those gains and more in the winter, when sales traditionally slow. This year could be different because the supply of homes isn’t piling up.

Absent a shock to the economy, housing is on the mend. But it will be a long time before it returns to normal.

Write to Nick Timiraos at [email protected]

Oceanside CA Luxury Homes for Sale

Shortage of California Homes Up for Sale

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For information about Southern California luxury homes in Newport Beach, Manhattan Beach, Hermosa Beach, Dove Canyon, Ladera Ranch, Marina del Rey, San Juan Capistrano, Palos Verdes, Pacific Palisades, Mission Viejo, Rancho Margarita, San Clemente, Redondo Beach, Santa Monica, Venice, Malibu, Irvine, Bel Air, Beverly Hills, and Beverly Glen, call Bob Cumming of Keystone Group Properties at 310-496-8122.

Shortage of California Homes Up for Sale

By Kathleen Pender

For the first time in about five years, I got a call from a real estate agent Friday asking me if I was interested in selling my home.

Matt Hoffman of San Mateo says he has had two real estate people come by his home in the past month asking if he wanted to sell because if he did, they had buyers interested. “I said thanks but basically no,” says Hoffman.

After years of having too many homes and not enough buyers, agents in California now have the opposite problem – too many buyers and not enough homes for sale. Hence the cold calls from agents trying to unearth inventory.

The California Association of Realtors reported Monday that its statewide inventory of unsold homes index for existing, single-family detached homes fell to 3.2 months in August from 3.5 months in July and 5.2 months in August 2011. (The latter two numbers have been revised from previous reports.)

The index reflects the number of months needed to sell the supply of homes on the market at the current sales rate. A six- to seven-month supply is considered normal. When the number goes higher, inventory is plentiful and it’s considered a buyer’s market. When the number goes lower, the advantage goes to the seller.

Prices rise

Declining inventory helps explain why the statewide median price of an existing, single-family detached home rose to $343,820 in August, up 3 percent from July and up 15.5 percent from August 2011.

The inventory shortage “is all over the state,” says Leslie Appleton-Young, the association’s chief economist. But it’s especially severe in the Bay Area, where there wasn’t a bulge in construction during the housing bubble, there isn’t a lot of developable land and the economy is the strongest in the state, she adds.

In the Bay Area, the index was at 2.7 months in August versus 4.5 months a year ago. The lowest inventory level in the Bay Area was 0.9 month in December 2004 and the long-run average from 1992 to the present is 4.7 months, lower than the statewide long-run average of 6.5 months, Appleton-Young says.

Even the Inland Empire, scene of tremendous overbuilding, has seen a shortage develop – the region’s unsold homes index was 3.3 months in August compared with 4.5 months a year ago.

“There is no question there is a shortage of homes for sale even in places like Stockton, which not long ago had years of inventory,” says Sean O’Toole, chief executive of ForeclosureRadar.com. “Prices became very attractive in those (hard-hit) areas and provided a great return for investors and a great opportunity for first-time buyers. That inventory went away very quickly as people realized a bargain was to be had. There are not so many bargains at this point.”

Not flipping

Unlike investors who five or six years ago were buying distressed properties to flip for a quick profit, investors today “are coming in because rental yields are providing a nice rate of return,” says Lawrence Yun, chief economist with the National Association of Relators.

That means those homes probably won’t be coming on the market anytime soon.

Nationwide, the glut of homes has also evaporated. In July, there was a 6.4-month supply of homes compared with 9.3 months in July 2011. The current number is right around long-term average, but Yun says there are “acute shortages” in places such as California, Arizona Nevada and parts of Florida.

So what has become of the so-called shadow inventory of foreclosed or distressed properties that banks have supposedly been keeping off the market and could unleash at any time, causing another leg down in the housing market?

O’Toole says the shadow inventory is like a funnel. “It starts with people being underwater, some of them stop making payments, some of those end up in foreclosure.” The homes that end up in foreclosure eventually end up on the market.

Bel Air Luxury Homes

The New New-Home Market

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For information about luxury real estate in Southern California, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties services buyers and sellers of distinctive Southern California homes along the West Coast and Beverly Hills.

The New New-Home Market

The bad news for buyers: The new market environment means less discounting, fewer incentives and, in some cases, longer waits for homes. But there are several steps you can take to be a better shopper—from choosing amenities judiciously to waiting until a home is partially built before pulling the trigger on a deal.

Low interest rates and improving economic conditions are persuading people like Jerold Hawkins to take the plunge. Mr. Hawkins, a software developer for the auto industry, and his wife, Katherine, a nurse, recently agreed to buy a new five-bedroom home in Rochester Hills, Mich., for $289,900. “I now have a really good job and so does my wife,” Mr. Hawkins says.

PulteGroup

A Pulte Homes “Ellsworth” house in the Grand Vista Estates development in Northville, Mich.

The auto industry’s recovery has spurred demand for new homes in the $180,000 to $500,000 price range in the Detroit area, says Dan Elsea, president of brokerage Real Estate One in Detroit. In the choicest neighborhoods, even homes built without a ready buyer often sell long before completion and with multiple offers, he says.

After the new-home market’s dismal performance of the past few years, any improvement is welcome. The median price plunged 22% from its peak of $262,600 in March 2007 to a low of $204,200 in October 2010, with some markets tumbling 50% or more. Just 306,000 new homes were sold last year, according to the U.S. Commerce Department, the lowest on record.

But the tide seems to be turning. New-home sales rose in July for the third time in four months. And with inventories at record lows, builders are trimming incentives and raising prices in markets such as Detroit, Houston, New York and Phoenix.

Overall, sales of new homes surged 22% from September through July, according to the National Association of Home Builders. The median price of new homes sold in July stood at $224,200, up 9.8% from their 2010 lows.

Workers in July frame the first home in a new community in Gilbert, Ariz. Prices and waiting times for new homes in the Phoenix area are starting to rise.
“We’re clearly in recovery,” says Douglas Yearley Jr., chief executive of luxury builder Toll Brothers TOL -1.60%in Horsham, Pa., which builds in 20 states nationwide. In August, Toll reported the most sustained demand in more than five years. Stronger markets include Connecticut, Massachusetts and New York, while Illinois and Las Vegas are softer, the company says.

Billie Armenta, a government employee, says she is surprised the $294,900 base price of her new home in Phoenix has risen by more than $33,000 since she and her husband, Ruben, a retiree, signed their contract in January. The couple had to wait six weeks for an appointment at the design center and nearly eight months for construction to be completed.

The much larger market for existing homes is perking up as well. Prices in June posted their first year-over-year increase in nearly two years, according to the S&P/Case-Shiller index of 20 major metropolitan areas. From September 2011 through July 2012, sales jumped 5%, according to the NAHB.

To be sure, the housing recovery is still in its infancy, with credit tight and sales and prices well below historical levels. Rising interest rates, an uptick in the supply of foreclosed homes or a weakening economy all could crimp sales.

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But after years of retrenching, builders have whittled down their stockpiles greatly, and are being cautious about bringing new homes to market. The inventory of unsold new homes now stands at 144,000, down from a peak of 575,000 in July 2006, the Commerce Department reports.
At the current sales pace, that’s a 4.9 month supply of new homes; six months is considered a balanced market, says NAHB chief economist David Crowe.

Big Changes

One of the biggest changes since the downturn is where new homes are being built. The new homes are located much more closely to job centers than they were five years ago, says John Burns of John Burns Real Estate Consulting in Irvine, Calif.

Some builders are rolling out features not likely to be found in the resale market. KB Home, KBH -5.49%which is based in Los Angeles and builds in 10 states and Washington, D.C., lets buyers choose whether the master bedroom is on the first or second floor. In Southern California, it has consulted with feng shui masters on home design.

PulteGroup, PHM -2.36%which is based in Bloomfield Hills, Mich., and builds in 29 states, offers the “Pulte Planning Center,” a secondary office space off the main living room that helps homeowners stay organized and monitor their children’s homework.

The New Home Co. in Aliso Viejo, Calif., offers a multigenerational home with a private living space for an older parent or child returning home after college. “We can take any walk-in pantry we have and turn it into a separate cooking facility,” says New Home Chief Executive H. Lawrence Webb. Lennar, LEN -1.45%meanwhile, offers a “Next Gen” home aimed at baby boomers with aging parents or boomerang kids.

Builders also are touting energy efficiency. Meritage Homes, MTH -3.67%which is based in Scottsdale, Ariz., and builds in seven states, lets buyers spend the credits they can apply to upgrades or financing on solar panels; in some model homes, an entire room is deconstructed to highlight energy-efficient features.

Another change: Homes are starting to get larger again, after falling during the housing downturn. Among new homes sold in the first half of 2012, the median square footage was 2,013, up from a recent low of 1,945 in 2009, according to Hanley Wood Market Intelligence.

Experts say larger homes are more attractive to the trade-up buyers who now dominate the new-home market. Steve Ruffner, president of KB Home, Southern California, says buyers can afford bigger homes because prices and interest rates have fallen.

Of course, what you will get for your money depends on local conditions. If you are thinking about a new home, here are some points to consider.

Don’t be fooled by the sticker price. “The base price always looks incredibly good,” says Lloyd Fox, a real-estate broker at Long Realty in Scottsdale, but upgrades typically add 10% to 15%, sometimes more.

Billie Armenta, the Phoenix home buyer, says the purchase price for her home rose by more than $55,000 to $350,000 once the fee for a choice lot, carpeting, higher-quality cabinets and other upgrades were figured in.

Expect to pay a premium. The median new home sold for 36% more than the median existing home last year, excluding distressed properties that were foreclosed on, according to Hanley Wood.

That spread is wider than in the recent past. The gap had narrowed to just 28% in 2009, when builders were scrambling to unload the last of the inventory built during the housing boom. Since 2005 the gap has averaged 34%.

Remember that location matters. Your ability to negotiate a good deal can vary even within the same locale. “We have some markets where we’re raising prices on every plan pretty significantly,” Standard Pacific chief financial officer Jeff McCall told investors in July. “And then 10 miles down the road we have stagnant pricing.”

Closer-in developments generally command a premium versus homes in outlying areas.

In Tucson, builders are offering discounts from the list price on homes built without a ready buyer in the Dove Mountain area, which was hard hit by the housing bust, says Laura Sayers, a vice president at Long Realty. Less than 10 miles away, in Oro Valley, demand for new homes is so strong there is a waiting list for new lots, she says.

Negotiate aggressively. Incentives are getting smaller, on average, but buyers in some markets still have a fair amount of bargaining power.

In the Tampa Bay, Fla., area, builders are buying down interest rates, paying closing costs and tossing in appliances, says Jaci Stone, an agent at Century 21 Beggins Realty, who had one builder kick in two months’ rent so a client could break a lease.

Hayley and Tyler Sutterby nabbed $20,000 in upgrades instead of the standard $8,000 package when they recently bought a four-bedroom home under construction in Lithia, Fla. The couple is spending the credits on higher quality cabinets and flooring, a tankless water heater and other energy-saving features, says Ms. Sutterby, who works in marketing for a cable company.

Be tactical. The closer a home is to completion, the fewer choices you get to make, but the more likely the builder is to make a deal. That’s because builders don’t want to end up saddled with finished homes.

So keep an eye out for homes that are near completion or are in inventory, says Ms. Stone, the Tampa agent, who adds that publicly traded builders are often more willing to make a deal at the end of the quarter or fiscal year.

Prepare to wait. When home prices were tumbling, buyers were regularly advised to sell their current homes before buying new ones—or risk being stuck with two mortgages. But with inventories at record lows, buyers might have to wait three to six months for their new home to be completed.

That can make timing tricky for move-up buyers. Martin Mitchell, vice chief executive of Mitchell & Best Homebuilders in Rockville, Md., suggests that buyers in stronger markets prepare their home for sale, but wait until construction is under way before bringing it to market. Another option: sell your home and rent it back for a few months.

Understand your financing options. Builders often will pay closing costs or provide other incentives if you get your mortgage from them. But the deals offered by builders aren’t always better than what you might get from another lender, says Greg McBride, a senior financial analyst at Bankrate.com.

Because their credit lines are limited, more builders are asking buyers to take out construction loans that roll into a standard mortgage once the home is completed instead of having the builder finance the construction from its own credit line, with the borrower taking out a mortgage when the sale closes. The bank makes payments to the builder, typically as construction goals are met, with the buyer generally paying interest only on the funds used.

Anyone considering this option, “should at least have some sense of what the permanent financing costs will be,” even if you can’t lock in a mortgage rate, to make sure payments are affordable, advises Keith Gumbinger, a vice president at mortgage-data provider HSH.com.

To reduce fees, arrange to close on both loans at the same time instead of closing first on the construction loan and then later on the mortgage