A Smaller House Will Make a Big Difference- December 2011

Last year the economic forecasting firm Fiserv predicted that home values would sink around 5% in 2011, and that prices in three-quarters of the nation's major metro areas would fall. The bad news is, the firm wasn't that far off the mark. The good news: In the coming year, Fiserv thinks 95% of the 384 metro areas it tracks will see prices rise.

Don't expect the market to move much beyond first gear, though. The median expectation among more than 100 economists and real estate pros surveyed by MacroMarkets is that home values will inch ahead by a mere 0.25%, compared to their 2011 median forecast decline of 2.8%. They also foresee annualized gains through 2015 of just 1.1%, as the real estate market slowly works its way through a mountain of foreclosures.

Those foreclosures will continue to weigh on the market. According to Core- Logic, there are 5.4 million homes that are for sale or part of the market's "shadow inventory" -- which includes bank-owned properties, homes in the foreclosure pipeline that haven't hit the market yet, or properties where owners are seriously behind on payments.

To put that in perspective, Freddie Mac forecasts that only 4.8 million homes will be purchased in all of 2012. A market with six months of inventory is considered healthy. That there's more than a year's worth of housing stock now tells you what a tough slog this will still be. "It's analogous to a flood," says Mark Fleming, CoreLogic's chief economist. "The water is very deep in the living room, but it's no longer getting deeper and is starting to recede.

Helping that process along will be low-interest-rate mortgages that are expected to remain cheap. Jay Brinkmann, chief economist at the Mortgage Bankers Association, says the 4.2% rate on a 30-year fixed rate in late October might not last long. Still, he expects the 30-year fixed mortgage rate to stay below 5% throughout 2012.

The action plan: It will pay to think small -- as in reduce your mortgage bills and focus on modest homes.

Buyers: Downsize the dream. For those gearing up to make a purchase, 2012 could be a great opportunity, what with cheap prices, low borrowing rates, and little competition among prospective bidders.

Before you take the plunge, remember that the price you pay matters, as does your ability to easily resell that home down the road.

Make Money in 2012: Jobs

This means it's best to focus on smaller properties in your area near restaurants and retail. McMansions of at least 2,600 square feet, which were the ideal in the boom years, are coveted by a mere 18% of households today, according to a recent survey by Trulia. And that figure could fall even more.

A separate survey by the National Association of Home Builders found that home-construction firms expect U.S. houses to average 2,152 square feet in 2015 -- down 10% from last year.

Some of this is attributable to the lingering effects of the past recession, which has eaten into housing budgets. But there's also a permanent change at play. "Baby boomers are trading down. They don't need the McMansion, and they don't want to drive as much," says Trulia chief economist Jed Kolko.

Sellers: Price it right. The longer you can wait for prices to stabilize in your area and for demand to pick up, the less likely you'll need to entertain low-ball offers. If you have to make a move in 2012, though, the trick will be to price your home correctly out of the gate.

According to a recent national survey of real estate agents, 75% of homeowners believe their house is worth more than what agents put the fair market value at, and nearly one in two homeowners still overestimate their home's value by more than 10%.

Meanwhile, Trulia reports that about one in four homes in its database has gone through at least one price reduction, and the average price cut for those homes is 8%.

Joe Magdziarz, president of the Appraisal Institute, says you and your agent should stick with comparable sales data just within the past 90 days, as that's what lenders expect appraisers to use.

What to do when mom and dad move in

If you don't trust your agent's recommendation, shell out $300 to $400 for an outside appraisal. That will be money well spent if it pushes you to list your home in sync with current market valuations and you sell faster.

Owners: Shorten your loan. Refinancing your old mortgage to a new fixed-rate loan could have you smiling for years to come. If there's any chance you can refinance into a 15-year loan, go for it; the 3.45% rate in late October was near an all-time low. On a $250,000 mortgage, going from a 30-year mortgage at 4.2% to a 15-year loan charging 3.45% would save you $120,000 in interest over the life of the loan.

What if the added $560 monthly payment is too steep to handle? Shop for a 20-year loan. The rate is likely to be only slightly less than on a 30-year loan, but the faster payback will save you in the long run.

How to buy your dream home by age 25

Can't refinance because you don't have the 20% equity lenders typically demand these days? As long as you plan on being in your home for at least five years, look into a cash-in refinancing, where you bring some money to the closing table to push up your equity.

"If you can use cash that doesn't eat into your emergency savings, this makes a lot of sense," notes Michigan financial planner Gary Gilgen. "I'd rather have that money get my mortgage lower than have it sitting in the bank earning less than 1%."

By Carla Fried, Janice Revell, Donna Rosato and Tali Yahalom, CNNMoney

To read the story, visit MoneyCNN.com

4 Ways to Avoid Refinance Rejection - November 2011

"My application to refinance my $200,000 loan was recently turned down ... do I have any recourse?"

If by recourse you mean a third party of some standing who will direct the lender to make the loan, or attempt to persuade them to do it, the answer is "no."

No third party is going to reunderwrite the loan to see if the lender made a mistake. Such mistakes are very rare because lenders make money only on loans they close; they lose money on loans they reject.

No third party is going to reunderwrite the loan to see if the lender made a mistake. Such mistakes are very rare because lenders make money only on loans they close; they lose money on loans they reject.

Reapplying with another lender

It is possible but unlikely that another lender would approve your loan. Virtually all $200,000 loans are either sold to Fannie Mae or Freddie Mac, and therefore subject to the underwriting rules of those agencies; or insured by FHA and subject to its underwriting rules.

Some lenders place "overlays" on top of these rules, which are more restrictive than those of the agencies. It is possible that your loan met agency requirements but was tripped up by a more restrictive overlay, which would mean that another lender might approve it.

Before applying elsewhere, however, I would discuss your rejection with the loan officer who gave you the bad news to see where your application fell short, and whether it might have met agency requirements.

On the assumption that you did not meet agency requirements, your only option is to change the transaction in a way that will bring it into compliance. The changes required depend on the reason or reasons you were rejected.

Credit score too low

In general, it takes considerable time to raise a credit score significantly, but there are some exceptions. One is where the score is depressed by a reporting mistake, which is not uncommon. As soon as the mistake is corrected, your score will jump. (See "How Do You Correct Mistakes In Your Credit Report?")

Another possible way to juice your credit score is to pay down high balances on your credit cards. A high ratio of balance to maximum balance, called the "utilization ratio," is considered a sign of weakness and potential trouble, reducing your score. Paying down balances to less than 50 percent of the maximums should raise your score.

Finally, you can detach yourself from the "wrong vendors." Because finance companies lend to relatively poor risks, the credit score of any borrower owing money to a finance company is lower than it would be if the creditor were a bank.

By the same logic, borrowers who have credit cards of department stores are penalized, relative to what their score would be if they had cards issued by banks. If you can't pay them off, place department-store cards at the top of your balance-reduction list.

Equity too low

The borrower's equity in his property is its appraised value less the loan balance. Equity can be increased by obtaining a higher appraisal or by paying down the balance.

You don't get a higher appraisal because you need one to refinance your mortgage; you get one because the appraiser made one or more mistakes that reduced value erroneously. You may well know the local market better than the appraiser, especially if he is located a good distance away; you will find his address on the appraisal report.

To make use of your information, however, you must start the process again with another lender. Under current rules, if your existing lender orders a new appraisal, he is obliged to use the lower of the two values.

You can also increase your equity in the house by paying down your loan balance, a process called "cash-in refinance." If you have money in the bank earning 1 to 2 percent, a cash-in refinance that allowed a rate-reduction refinance that would not otherwise be possible would earn a very high return. Of course, you must have the cash to invest.

Debt-to-income ratio too high

In general, underwriting guidelines set maximum ratios of total debt payments to borrower income of 41-43 percent. Debt payments include the mortgage payment, property taxes, homeowners insurance, mortgage insurance (if any), and all other debt payments that extend beyond the next six months and are not deferred for a year or longer.

This includes home equity credit lines (HELOCs) and other revolving credits, credit card debt that you don't pay off at month-end, auto loans, student loans and alimony and child support payments.

If your ratio is too high to qualify, there may be ways to reduce your debt payments. The cash-in refinance referred to above not only increases your equity in the house but it also reduces your monthly mortgage payment. Borrowers who don't have excess cash but do have a 401(k) retirement account can borrow against it and use the proceeds to pay down other debt. Loans from a 401(k) are not included in the debt ratio.

The bottom line is that a loan rejection is not necessarily final, but it is up to the borrower to do what is necessary to convert the transaction from one that does not meet underwriting requirements into one that does.

By Jack Guttentag, Inman News

To read the story, visit INMAN NEWS

5 Refinance Tips for Borrowers - October 2011

As homeowners rush to take advantage of the lowest mortgage rates in history, it's easy for them to get lost in the refinance stampede. That's why it has never been so crucial for borrowers to stay on top of their game after they submit loan refinance applications.

Banks, brokers and underwriters are overwhelmed with the significantly higher volume of refinance applications they have received since mortgage rates recently tumbled. Lenders that used to ask for 30 days or less to close on a refinance loan now say they need at least 45 days and in some cases 60 days. That is -- if all goes as planned.

One missing document or delay by the borrower responding to a lender's request could easily jeopardize or stall a refinance in the midst of a refi boom, says Mathew Carson, a mortgage broker at First Capital Group Inc. in San Francisco.

"As a borrower, you need to make sure when you lock your rate you have all your documentation ready to go," Carson says. "Once you lock, the clock starts ticking."

Prepare in Advance

To speed up the process, borrowers should begin to assemble their paperwork as soon as they decide to apply for a loan, says Rob Nunziata, president of FBC Mortgage in Orlando, Fla. They'll need the last two copies for each of the following: paystubs, W2s, bank statements (including all pages) and tax returns.

Act Quickly

Once you lock a rate, get the documents to the lender within a day, says Dan Green, loan officer at Waterstone Mortgage in Cincinnati.

"Mortgage underwriting is first-in, first-out, and you want to be at the top of the pile," Green says. "Therefore, sign your paperwork within a day and schedule that appraisal for as soon as humanly possible. Underwriting can't begin until these two events have finished."

Communicate With Your Lender

Underwriters may ask for additional documentation once they get to your file, so it's important to stay in touch with your loan officer and be diligent.

"Borrowers need to be involved in the process, making sure things are moving as expected," Carson says.

There will be a waiting period when there's not much the loan officer and the borrower can do. Even during that time, borrowers should not be afraid to check on the progress of their refinance.

"Checking in once or twice a week is pretty reasonable," Carson says.

Know What to Expect

Borrowers should also ask their lenders upfront for a time frame on when they should expect to close on the refinance loan and lock their rate accordingly, says Nunziata.

Normally, a borrower locks a mortgage rate for 30 days. If the loan doesn't close before the lock expires, the borrower often has to pay a fee to extend the rate, or go with the new current rate. Because lenders are taking longer to close, it's wise to lock for at least 45 days, Carson says.

"It's nearly impossible to close (on a refinance) in 30 days right now," says Carson, who works with about 40 lenders, including some of the largest banks. "Most of our refis are taking 45 days."

Some banks actually are requiring borrowers to lock for at least 45 days and sometimes 60 days, Green says. The longer lock periods may translate into higher closing costs or slightly higher interest rates. But that's the only way to ensure you won't get stuck with a higher rate if they rise when you're about to close.

Shop Around

Some lenders, mostly regional and smaller local lenders, are still offering 30-day closing refinances. Borrowers should look beyond the large banks and consider quotes from these lenders before deciding.

"Shop around and always check the pricing," says Michael Becker, mortgage banker at WCS Funding in Lutherville, Md. "When big lenders get overwhelmed they may raise their rates to slow down applications. Local companies can sometimes offer you services that the big guys can't."

By Polyana da Costa, Yahoo! Finance

To read the story, visit Yahoo! Finance

Number of short sales on the rise - September 2011

Short sales are increasing as a percentage of home sales in many states, helping some neighborhoods and homeowners avoid the more devastating impacts of foreclosures.

Short sales — when lenders allow financially strapped borrowers to sell homes for less than their unpaid mortgage — accounted for 12% of home sales nationwide in the second quarter. That's up from 10% in the same period last year, says researcher RealtyTrac.

The increases were sharper in some states, including California, Nevada, Michigan, Georgia and Colorado, the data show.

In Colorado, short sales were 17% of all sales in the second quarter, up from 10% a year earlier. In California, they made up 25% of sales, vs. 18%.

Bank of America, the largest home mortgage servicer, expects to complete more than 100,000 short sales this year — more than double what it did in 2009, the bank says.

Wells Fargo Senior Vice President J.K. Huey says short sales have been "steady to slightly" up in recent months, partly because there are fewer bank-owned houses for sale in some markets, and that has forced buyers to pursue more short-sale properties.

Short-sale homes, which often remain occupied until sold, tend to retain values better than those that go through foreclosure. That helps values of neighboring homes.

In the second quarter, short-sale homes sold at a 21% discount to non-foreclosure homes, while bank-owned homes went at a 40% discount, RealtyTrac says. Short sales may also reduce losses for loan owners because they avoid full foreclosure costs. Borrowers may qualify for new mortgages sooner after a short sale than after a foreclosure.

"Short sales are a very positive solution," says BofA Vice President Dave Sunlin.

Short sales peaked at 16% of the market in early 2009, RealtyTrac says. Realtors say there should be more short sales and that they should get done faster.

"We lose buyers constantly because short sales take too long," says Beth Peerce, president of the California Association of Realtors. Short sales completed in the second quarter took 245 days, on average, RealtyTrac says. In a June survey, 77% of California Realtors called short sales difficult or extremely difficult; 15% said clients were foreclosed on while pursuing short sales.

Many short-sale efforts fail because homeowners aren't eligible because they can still make payments, or purchase offers are too low, says Wells Fargo's Huey. Loan owners may not agree on sale prices, either, she says. In most states, lenders can try to recoup short-sale losses from homeowners unless balances are forgiven. At BofA, Sunlin says balances are forgiven more than half the time.

By Julie Schmitt, USA TODAY

To read the story, visit USA TODAY

Time to Refinance? How Low Can Mortgage Rates Go? - August 2011

Mark Sass and his wife Jan decided to refinance the mortgage on their Cincinnati, Ohio, home on Friday, just days before the Federal Reserve pledged to keep rates near historic lows through the first half of 2013.

"I knew the Fed statement was coming out and rates had dropped to historically low levels, and it just seemed like an opportune time. I hadn't even thought about it until then," says Sass, who owns his own marketing research company.

Their original mortgage had a 20-year amortization period — at a 4.875 percent rate — with 12 years remaining. They are rolling it over into a 10-year mortgage with a 3.5 percent rate. "I was able to knock a couple of years off the term with a very modest increase in the monthly payment," Sass says. "It seemed like a no-brainer to me."

Sass and his wife are both 55, so retirement is on the horizon. "The opportunity to look 10 years out and know that — unless things change — we won't have a mortgage when we retire looked like a smart decision," Sass says, adding the overall savings on interest by reducing his term will be in the neighborhood of $20,000.

Sass is one of many jumping on the refinance bandwagon in the wake of the current financial crisis. Mortgage applications shot up 21.7 percent for the week ending Aug.5, according to the Mortgage Bankers Association Market Composite Index. The spike was largely driven by a 30.4 percent jump in the group's refinancing index.

"In a few years, these rates will be a memory that people talk about at cocktail parties. Just like when our parents talked about how low interest rates were when they bought their homes," says Dan Nigro, principal at Warfield Consultants in Montclair, New Jersey. "These are the kind of levels that people should lock in for the long term and it certainly is what the government has in mind."

But the question remains: With the average rate on a 30-year fixed mortgage hovering just below 4.5 percent — the lowest levels for 2011 according to LendingTree.com — should consumers jump to refinance or buy a new home? Or should they wait for a new bottom?

Now is the time to act, says Alex Stenback, who writes at the blog "Behind the Mortgage" and is a mortgage banker with Residential Mortgage Group, a division of Alerus Financial. "Don't get lulled into a sense of complacency over what the Fed says about interest rates. They can move up, and this window can shut much faster than people imagine," he cautions.

Greg McBride, senior financial analyst at Bankrate.com, agrees. Since Standard & Poor's downgrade of the U.S. credit rating from AAA to AA on Aug.5, Treasury yields have fallen. "But mortgage rates aren't going down at the same pace," McBride says.

Mortgage rates tend to mirror long-term U.S. Treasury rates, which have declined in recent weeks. The benchmark 10-year Treasury note hovered around 2.12 percent late Wednesday and set a record low auction yield of 2.14 percent the same day.

If you're convinced now is a good time to refinance your existing mortgage, or buy a new home, here are some ways that traditional advice is playing out in today's market:

Shop Around for Your Lender

Cast a wide net when looking for a lender. Do your research and look for alternatives. Check with your local credit union to see if you're eligible for a membership rather than getting lured by major institutions advertising low rates. The Internet offers an array of sites devised to help you find the best lender and rate for you. Bankrate.com's refinance section is a great place to start.

"You want to apply, ideally, with two to three different lenders on the same day. Rates change all the time and you want to facilitate an apples-to-apples comparison. If you apply on the same day, when you look at the good-faith estimates you can make a good comparison of not just the rate but also the fees that will be charged," McBride says.

Sometimes you need to play hardball. Ken McDonnell, director of the American Savings Education Council with the Employee Benefit Research Institute, refinanced his mortgage last week. After researching online, he contacted a number of lenders in his area and approached his mortgage holder with the best offer he found. "I contacted Bank of America, who was my mortgage banker for the past 13 years, and told them the rate I'm getting from Aurora Financial — 3.6 percent and $3,000 in closing costs — and asked could they match it or do better and they didn't," he says.

By switching lenders, McDonnell reduced his rate from 4.5 percent to 3.6 percent, which saves him $291 on his monthly mortgage payment.

Do Your Research on Costs

Will the costs associated with refinancing justify the reduced monthly payment? The typical rule-of-thumb is a homeowner should refinance if they can save a full percentage point on their rate.

Bob Davis, executive vice president of the American Banker's Association, cautions against applying the broad-blanket, one-percent rule. Consumers need to consider individual costs to modify versus change lenders, annual savings on the reduced rate, how long you'll likely remain in the home, the change in an interest rate tax deduction, title insurance, escrow waiver fees and other charges.

"The cost of those variables may be different … there is a break-even point there. It may take you three years to get back your out-of-pocket expenses. If you're planning on staying in your home seven years, than that's a good thing to do but if you're only staying in the home two years, it will cost you more to refinance," he says.

For McDonnell, the cost to change lenders was minimal. Two-thousand dollars of the $3,000 in costs were rolled into his mortgage, and after closing his escrow account with BofA, he received a $1,700 refund. "It's going to be a very small amount that's coming out of my pocket," he says.

In the unwritten rules of refinancing, your monthly mortgage payment savings should equal your closing costs within 12 to 18 months. In McDonnell's case, he'll break even in 11 months.

Request a Copy of Your Credit Report

While there may be an incredible incentive to refinance due to low rates, be sure your credit history is in order before approaching a lender.

To lock in the lowest rates, consumers will need a FICO score of at least 760 to even be a contender for refinancing, Nigro says. "These are very tight credit underwriting regulations and when you combine that with the fact that 25 percent of Americans have a loan-to-value that exceeds 125 percent of the value of their home, it means that a large amount of people are eligible to refinance but less than 20 percent of all of those who have the rate incentive can refinance because of their credit score and/or the equity they have in their home."

Everyone is entitled to a free annual credit report from each of the three nationwide credit agencies: Experian, Equifax and TransUnion. Log on to annualcreditreport.com for your quarterly update.

You never know, you may be pleasantly surprised by your credit score, says Sass. "Both of our kids are out of college, we have no credit card debt so I knew the (credit) score was going to be high. It makes life a lot easier and there are a lot less questions to answer."

By Ashleigh Patterson

To read the story, visit Yahoo Finance

Signs of a Real Estate Microclimate - July 2011

You might have heard a real estate commentator, analyst, or even broker or agent utter a relatively recent addition to the real estate lexicon, the adage that real estate is hyperlocal. It is usually used to indicate that all markets are not the same, and do not operate in the same direction at the same time.

This was the basis for the widespread belief that it was impossible to have a nationwide real estate recession, because markets are so different.

While that was clearly an overgeneralization, it is the case that we've seen different markets hit their peaks and troughs at different times and to widely varying degrees, based on the peculiarities of their local market. Las Vegas homes have lost about 60 percent of their value since their peak, while homes in Pittsburgh have lost less than 1 percent of their value, on average.

That's hyperlocal.

Nature offers an interesting parallel to this real estate phenomenon: microclimates. Wikipedia defines a microclimate as "a local atmospheric zone where the climate differs from the surrounding area. The term may refer to areas as small as a few square feet (for example, a garden bed) or as large as many square miles."

An urban gardening book I just reviewed defines microclimates as "small areas that experience their own weather conditions," and goes on to explain that even in your backyard, "there are tiny climates that are each affected by sun and wind exposure, soil type, and houses, fences and other landscape features."

Slopes, proximity to water, trees, buildings and a variety of other elements might cause, for example, weeds to grow more quickly in one area and snow to melt more slowly in others.

The San Francisco Bay Area, where I live, is well-known for its microclimates: It's usually about 10 degrees warmer in Oakland than it is in San Francisco, and another 10-15 degrees warmer by the time you drive 20 minutes inland to Pleasanton.

As I planned my kitchen garden, I took some time out to consider all the various features -- from the creek at the top of my yard, to the olive tree at the side, to the various slopes -- that create the microclimates around which I should plan my plantings.

And, as always, my mind wandered to the parallel real estate question: What creates real estate microclimates?

I came up with a relatively short list of factors that cause a neighborhood, city, county or state to have its own real estate environment that operates independently from nearby areas or the national market at large:

Jobs: Areas that are job centers and have major employers in the area, with low unemployment rates and current or projected job growth, have different real estate market dynamics than other markets, largely because people want to buy homes where jobs are.

Universities: College-town real estate tends to be recession-proof compared to other towns, as towns anchored by one or more large universities tend to have a relatively steady and robust economic center and a constantly replenished demand for housing both for sale and for rent, in the form of students, faculty and staff members, and the workforce of the businesses that support the school(s).

Population booms: Districts that are experiencing an uptick in population -- whether by birth or by incoming migration -- also often experience their own real estate microclimates. It may come as a surprise that there are many cities and states in the U.S. that are actually experiencing net population decreases, as people move out for various reasons, including lack of jobs and affordable housing. Again, it's all about demand.

Overbuilding: Where homes are vastly overbuilt, as they were at the top of the market in the Sun Belt foreclosure hot spots like Arizona, Nevada, Florida and some parts of California, a microclimate of oversupply can develop.

And there's more -- next week we'll take a look at another set of elements within the ecology of an area's economy that cause it to have an independent real estate market microclimate of its own.

By Tara-Nicholle Nelson, Inman News

To read the story, visit Inman News

Why It's Time To Buy - June 2011

Back in June 2006, when the housing market peaked, the prospect of a five-year national housing bust seemed unimaginable to most people. And yet here we are, with the latest Standard & Poor's Case-Shiller index showing that prices hit new bear-market lows, falling back to 2002 levels nationally and to 1990s levels in some battered regions.

Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody's Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer's market: There were about 15 million vacant homes in the U.S. last year, according to John Burns Real Estate ConsultingInc.—some 3.1 million more than normal.

Such conditions might not last long. Moody's Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply overhang isn't likely to get much worse. Meanwhile, demographic indicators such as "household formation"—the number of new households each year—are on the rise, and promise to take a bite out of the glut in coming years.

The upshot: "While we might not see rapid growth in the next couple of years, there are a tremendous number of positive signs that could lead to a rebound," says Anthony Sanders, a real-estate finance professor at George Mason University.

The short-term outlook isn't encouraging. Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months.

But the long-term benefits of homeownership remain very much intact. For now, at least, you can deduct the mortgage interest on your taxes—a big perk for people in higher tax brackets. You get to paint your walls any color you wish, without having to clear it with a landlord. And assuming you can buy a home for about the same price as you can rent one, buying will give you the ability one day to live rent-free. Come retirement time, a paid-off mortgage means your monthly expenses are significantly reduced, and you have a chunk of equity to play with.

So what might the next five years look like? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market—demographics, affordability, loan availability, employment and psychology—should take over.

Here is a glimmer of what the future may hold: While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn't battered by foreclosures, you may be close to a bottom already.

"The regular marketplace is hanging tough," says CoreLogic chief economist Mark Fleming.

Here is a look at five key factors that will govern local markets over the next several years:

Household formation fell during the economic downturn as a weak economy led some people to stay in school, double up with roommates or move in with family members. According to Moody's Analytics, the number of new households renting or owning a home dropped to 578,000 in 2008 from nearly 2 million in 2005, just before the peak of the housing boom.

But household formation increased to nearly 950,000 last year, says Moody's, and should average 1.2 million over the next decade.

That, combined with increased obsolescence and higher demand for second homes, should begin sopping up excess inventory in much of the country over the next two years, Moody's says.

"Whatever the excess supply of housing is, it is shrinking pretty fast," says Thomas Lawler, an independent housing economist.

Some of the uptick in household formation is likely to come from the leading edge of the echo baby boomers, who have been waiting for the economy to recover before striking out on their own, says William Frey, a demographer with the Brookings Institution. That is likely to fuel an increase in demand for both rental apartments and starter homes.

The portion of people moving across the country has fallen to the lowest level since World War II, he adds. That is a sign that many people have put their lives on hold because of the weak economy.

"When things do pick up, there will be this pent-up demand for everything involved with starting a household," Mr. Frey says.

Of course, when prices in healthier regions begin to rise, many would-be sellers who have sat on the sidelines could begin putting homes on the market, muting the price gains at first, says Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School. Even so, she expects home prices to stabilize and begin to strengthen over the next two or three years.

There also are some powerful demographic cross-currents worth considering. The first baby boomers turned 65 in January, an age when demand for new homes falls and many begin to think about downsizing. "The baby-boom generation pushed prices up as they got older," says Dowell Myers, a professor of urban planning and demography at the University of Southern California. But in the coming years, "boomers will start flooding the market on the supply side" with larger homes, while fueling new demand for smaller properties with more services and amenities.

Rising home prices made renting cheaper than buying in many parts of the country. But that dynamic has begun to change: Housing affordability, as measured by the ratio of median home prices to median household incomes, has fallen below pre-housing bubble levels in just over two-thirds of the country, according to an analysis of more than 380 metro areas by Moody's Analytics.

Renting is still cheaper than buying in most markets, but rising rents and falling house prices mean that, in some areas, this won't be the case for long. Buying a home is already cheaper than renting in Chicago, Cleveland, Detroit and Orlando, Fla., according to Moody's Analytics. In other markets, including Dallas, Las Vegas and Sacramento, Cailf., the equation is likely to soon turn in favor of homeownership if current trends persist, the firm says.

In Ann Arbor, Mich., where home prices fell 11.2% between 2007 and 2010, according to Fiserv Case-Shiller, housing affordability has risen well above historical levels, according to Moody's Analytics.

That is good news for home buyers such as Steven Upton, a 42-year-old photographer, who in June will close on four-bedroom brick house on 10 acres in an upscale community in Ann Arbor. Mr. Upton paid $400,000 for the home, which previously listed for $600,000. "It's a tremendous deal," he says.

Before buying a house, it is wise to compare rental prices for similar properties. To be ultraconservative, wait until the monthly outlays, including taxes and insurance, are equal. You also could factor in the tax savings of owning, which would make buying more attractive even if the gross monthly outlay is slightly higher.

The strength of the housing market depends largely on the economy. Rising incomes and increased employment tend to give more would-be buyers confidence and buying power. For now, job growth remains sluggish: On Friday the Labor Department reported that just 54,000 jobs were created in May, far below expectations.

But signs of how a stronger job market could fuel housing demand are evident in the Dallas metro area, which added 83,100 new jobs in the 12 months ending in April—the largest gain in the nation, according to the Bureau of Labor Statistics. Dallas never had a big housing boom or bust and has benefited from trade with Mexico, a strong telecommunications sector and a central location.

The opportunities for a job with more responsibility drew Duane and Linda Elmer to Dallas from Des Moines, Iowa, where Mr. Elmer was a banker for nine years. The couple has agreed to pay $415,000 for a four-bedroom, four-bath house with a Jacuzzi and pool. Their Des Moines home, purchased nine years ago for $410,000, is on the market for $390,000. "We are willing to take the loss for the opportunity to live in a more diverse community and to take a job with greater breadth of responsibilities," Mr. Elmer says.

Borrowers like the Elmers who are relocating for job opportunities are a big driver of home sales in nearby Plano, Texas, says Harry Ridge, a real-estate agent. He says such sales accounted for 20% of his business last year.

A similar influx of job seekers is fueling housing demand in the Washington area, where 25,700 new jobs were added in the 12 months since April 2010. Washington was the only one of the 20 cities tracked by Standard & Poor's and Case-Shiller that saw home prices rise both on a month-to-month and year-over-year basis.

Mortgage financing remains plentiful for borrowers with good credit scores and solid employment histories. But for borrowers who don't fit traditional lending standards, getting a loan can still be nearly impossible. In the first quarter, about 10% of banks tightened standards for nontraditional loans, according to the Federal Reserve. Meanwhile, higher down-payment standards are locking some would-be buyers out of the market. Just 35% of renters have the minimum 3.5% down payment needed for an FHA loan on the median-priced home in their market, according to a recent survey by Zelman Associates.

Credit is likely to remain tight for at least the next six months, says Clifford Rossi, a former Citigroup Inc. consumer-lending executive who teaches at the University of Maryland.

But conditions should improve over time, he says: "There's no question that it will gradually get easier."

That will be welcome news to borrowers like Greg Silver. The 50-year-old real-estate developer would like to buy a second home, but hasn't been able to secure a jumbo mortgage because his income consists of capital gains from sales of the properties he develops. Mr. Silver closed three sales in the past 12 months, netting him a total of more than $25 million, but didn't record any capital gains in 2008 and 2009. Sure, he could use some of that cash to buy a home outright, but he would prefer to mortgage it, get the tax deduction and keep his cash free for business purposes.

"It's a little devastating," says Mr. Silver, who is living in Greenwich, Conn.

The long-term case for buying over renting remains in force. Yet nowadays, "People are simply scared," says Aaron Galvin, chief executive of Luxury Living Chicago, which finds rental apartments for wealthy clients.

Mr. Galvin says he has seen a 30% increase in business in the last year, driven by would-be home buyers who can afford to purchase a property but are choosing not to do so.

The portion of Americans who believe homeownership is a safe investment dropped to 66% in the first quarter from 83% in 2006, according to Fannie Mae, the government-controlled mortgage company.

But it isn't clear whether the fear will result in a prolonged change in attitudes, as during the Great Depression, or have little long-term impact, as was the case for the housing bust that shook California and the Northeast in the late 1980s and early 1990s. Eighty-seven percent of people surveyed by Fannie Mae said they preferred owning to renting, though access to schools, control over one's environment and other quality-of-life issues now are seen as the key benefits of homeownership, with building wealth and other financial factors viewed as less important. In addition, 67% of renters surveyed by Zelman Associates said they planned to buy a home in the next five years.

Jeffrey Connor may be a bellwether for the future of the housing market. The 40-year-old finance director at a corporate law firm says he thought briefly about buying a house when he moved to Chicago from Washington in October. But he opted instead to rent a luxury two-story apartment in downtown Chicago for $3,559 a month. Mr. Connor says it will take substantial job growth and a sharp drop in foreclosures to convince him to buy.

"The market is clearly soft," he says, "especially when we consider it good news that the unemployment rate is hovering around 9% instead of 10%." Mr. Connor says he isn't worried about missing out on today's low interest rates and will consider buying once unemployment falls to 6%.

Other buyers are showing less willingness to wait for the absolute perfect time to buy. Doug Yearly, chief executive of luxury builder Toll Brothers Inc., told investors in May that "some of our clients, after waiting so long, are starting to move off the fence and into the market, motivated by attractive pricing, low interest rates and, most important, the desire to take the next step in their lives. The family with elementary-school kids and a puppy when the housing debacle began five years ago now has middle-school kids and the dog weighs 80 pounds."

By Ruth Simon and Jessica Silver-Greenberg, The Wall Street Journal

To read the story, visit Yahoo! Finance

Housing Crash Is Getting Worse: Report - May 2011

If you thought the housing crisis was bad, think again. It's worse.

New data just out from Zillow, the real-estate information company, show house prices are falling at their fastest rate since the Lehman collapse.

Average home prices are down 8% from a year ago, 3% over the quarter, and are falling at about 1% every month, according to Zillow.

And the percentage of homeowners in negative-equity positions — with a home worth less than its mortgage — has rocketed to 28%, a new crisis high.

Zillow now predicts prices will fall about 8% this year and says it no longer expects the market to bottom before 2012.

"There's no way we can get to flat, from these depreciation levels, in the last nine months of the year," says Zillow economist Stan Humphries. "Demand is a lot more anemic than we had previously thought."

When in 2012 does Zillow see the market bottoming out? Humphries won't say.

What a foolish boondoggle those tax breaks for home buyers have turned out to be. The government spent an estimated $22 billion between 2008 and 2010 on tax breaks to prop up the housing market. All it achieved was a brief suckers' rally that ended last summer.

"As we said at the time, it was a giant waste of money," says Mark Calabria, economist at the conservative Cato Institute. "None of these things really turned the housing market around. They just put off the adjustment for awhile."

It's hard to overestimate the scale of the carnage in the housing market. Zillow found prices fell in all but four U.S. metro areas.

Falling real-estate prices mean spiraling hidden losses throughout the economy, from banks to homeowners.

Remember Japan's "zombie banks"? These were the financial institutions that haunted that country's economic recovery after the 1990 crash. They staggered on with huge losses they could never repay — the walking dead.

Here in America we have "zombie homeowners." Millions of them. According to Zillow, a record 16.3 million families are upside-down on their home loans. Sixteen million! And many are a long way upside-down. Their homes may never be worth as much as their mortgage. But they are hemorrhaging cash to pay the nut every month.

Recovery? What recovery? This looks a bit like a depression to me. What does this mean?

All the misery makes me think of a great French general, Ferdinand Foch. He's the one who defended Paris at the Battle of the Marne in World War I. During the darkest hour of the fighting, he is supposed to have looked around him and said:

"Hard pressed on my right. My center is yielding. Impossible to maneuver. Situation excellent — I attack!"

In other words, when it comes to distressed housing, I'm finding it hard not to be a contrarian bull.

Why? Am I crazy? Well, maybe. But I'm a medium-bull for all the reasons everyone else is gloomy.

First, prices in many areas are now cheap. They have corrected a long way since the bubble began to burst five years ago. Of course, it depends on where you are. I'm still skeptical of the real-estate markets that have held up best — prime stuff like Manhattan, San Francisco or Beverly Hills. It's hard to get a deal there.

But in the places that have fallen the furthest, there are deals aplenty. Zillow found only four metro areas in America that have leveled out, or risen, lately. Notably, two of those are in stricken Florida — Fort Myers and Sarasota. Have they fallen so far they've hit bottom? Maybe.

Look at this chart. It shows Miami real-estate prices, adjusted for inflation, over the past quarter-century, using Case-Shiller data. The picture is pretty remarkable. The gigantic bubble has been completely wiped out. We're back to prices seen in the 1980s — when "Miami Vice" was on the air.

The second reason: There are tons of foreclosures and short sales on the market. And there are plenty more sitting in the wings. Banks are holding back big shadow inventories of homes. And that means you can get a great deal. They have to sell. You don't have to buy. You hold all the cards. Remember, the name of the game isn't "let's make a deal." It's "take it or leave it."

Third, in many places rental yields are terrific. It's cheaper to own than to rent. There have been some forced sales in my building in Miami. Based on my math, the latest buyers have bought condominium units for six times gross annual rents, and maybe 12 times net rents. We're talking net yields of 7% or more. And rents are rising, because so many former owners are now renters.

The fourth reason I'm bullish is that you can get a very cheap mortgage. Thirty-year conforming loans are going as low as 4.3%. Throw in the tax break on the interest, and you are talking cheap finance.

The fifth reason is that, as painful as this collapse has been, real estate has historically proven to offer very good long-term protection against inflation. Returns have typically averaged about 1% or 2% above inflation. At a time when everyone has been piling into gold, commodities and TIPS bonds to protect themselves against the possibility of inflation, it seems odd that the most popular and successful hedge, namely real estate, goes a-begging.

Thirty-year TIPS bonds are yielding just 1.6% over inflation, and shorter-term bonds offer even lower returns. Short-term TIPS are actually offering negative real yields.

The sixth reason I'm bullish is perverse, but I'm sticking by it. Everyone else is bearish. You cannot find a real-estate bull anywhere. No one wants to own this asset. No one wants to talk about it. No one wants to hear about it. Everyone seems to agree it's just going down, down, down — forever.

They said much the same about stocks in 1987, 2002 and 2009; Treasury bonds in 1982; and gold in 2000. I cannot prove this is capitulation, but it sure smells something like it.

As ever, if you aren't disciplined and patient, this probably isn't for you.

I have absolutely no idea when real estate is going to hit rock bottom. It may take several years. I suspect it will do so in different markets at different times. But there are good homes out there going really cheap. If you hunt down the bargains, you're disciplined about price, you get the right financing, and you hold on for five years or more, you'll probably do pretty well from here.

By Brett Arends, Market Watch

To read the story, visitYahoo Finance.com

Wall Street ends the week up after unemployment falls - April 2011

NEW YORK — A drop in the unemployment rate to a two-year low sent U.S. stocks higher Friday

The Labor Department said the unemployment rate fell to 8.8 percent, the lowest since March 2009, as companies added workers at the fastest two-month pace since before the recession began. Approximately 216,000 new jobs were created last month, offsetting layoffs by local governments. Economists had expected the unemployment rate to remain at 8.9 percent.

We are clearly seeing a breakout in the labor market," said Paul Zemsky, the head of asset allocation at ING Investment Management. "The jobless recovery is ending and we are moving into a job expansion stage of the economy."

The report helped send the Dow Jones industrial average to a new 2011 high during early trading. Stocks then pared those gains in the afternoon as oil prices hit new 30-month highs. Crude oil jumped $1.22 to settle at $107.94.

The Dow's 100-point gain early in the day seemed unwarranted because the employment report was just slightly better than expected, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "There's a relief that the job gains were continuing, but it's not a huge surprise," he said. "It's worth maybe 40 points on the Dow."

Stocks rose across the market. Eight of the 10 company groups that make up the S&P 500 index moved higher, led by a 0.9 percent rise in industrials shares.

The Dow rose 56.99 points, or 0.5 percent, to 12,376.72. The average of 30 large company stocks gained 1.3 percent for the week.

The Dow has already risen 6.9 percent this year. That's the best start since 1999.

The Standard & Poor's 500 index rose 6.58, or 0.5 percent, to 1,332.41. The Nasdaq composite rose 8.53, or 0.3 percent, to 2,789.60.

All three indexes made gains for the second week in a row. The S&P 500 rose 1.42 percent and the Nasdaq 1.7 percent.

"This jobs report shows that we are in the early stages of a sustainable recovery in employment, and that is what's letting the market put the recent correction behind us," said Phil Orlando, chief equity strategist at Federated Investors.

The Institute of Supply Management reported a slight slowing in manufacturing growth during March. The trade group's index of manufacturing activity slipped to 61.2 from February's 61.4. The drop was largely expected after manufacturing hit its highest level since May 2004 during February.

The Commerce Department delivered more bad news on the construction industry. The government said construction spending fell in February to its lowest level since 1999.

Ford rose 1.7 percent after the carmaker said sales jumped 16 percent in March as its new fuel-efficient cars proved popular. Ford also outsold General Motors in the U.S, the second time that's happened since 1998.

General Motors gained 4.5 percent after the company said its U.S. sales rose 11 percent in March.

Raising interest rates by the end of 2011 should be "on the table," depending on how the economy improves over the next few months, Philadelphia Federal Reserve Bank President Charles Plosser said Friday.

"In my mind it is definitely on the table, but it will depend in my view how things play out over the next few months," said Plosser, a voter on the Fed's policy-setting committee and an inflation hawk.

"If inflation picks up and the economy continues to grow above trend, and inflation begins to pick up and expectations look like they're edging up, it will be appropriate in my view that we take appropriate policy responses to that," Plosser said.

Nasdaq OMX Group and IntercontinentalExchange said Friday that they are making a bid for NYSE Euronext, offering what they say is a 19 percent premium to the deal the company struck with the operator of the German stock exchange. NYSE shares jumped 12.6 percent.

Two shares rose for every one that fell on the New York Stock Exchange. Trading volume was 4 billion shares.

By msnbc.com

To read the story, visit msnbc.com

Homeownership Essential to Job Growth and Economy, Say REALTORS® - March 2011

Testifying before a Senate panel, National Association of REALTORS® President Ron Phipps recently told members of Congress that sustainable homeownership must be the goal when considering future federal housing policies.

“As the leading advocate for homeownership, NAR wants to ensure public policies that promote responsible, sustainable homeownership and that any changes to current programs and incentives don’t jeopardize a housing and economic recovery,” Phipps told the Senate Banking, Housing and Urban Affairs Committee.

Phipps said the housing market is starting to see signs of recovery; however, the real issue facing the nation right now is that many Americans can’t find meaningful work to support their families, and housing is essential to creating jobs.

“Homeownership is a pillar of our economy; our research suggests that home sales in this country generate more than 2.5 million private-sector jobs in an average year. For every two homes sold, a job is created,” Phipps said. He added that, while housing alone may not pull America out of this stalled economy, hampering its recovery will severely and negatively impact the nation’s recovery.

“Owning a home contributes to the strength of the nation’s economy and is still one of the best ways for individuals to build long-term wealth; therefore, we need public policies that support homeownership. Making it harder for families to afford safe mortgages does not further the goal of a housing or economic recovery,” he said.
Phipps agreed that reforms are required to prevent a recurrence of the housing market meltdown, but raising fees and increasing down payment requirements for well-qualified, creditworthy borrowers places an unnecessary burden on many families, especially those in high-cost urban markets.

“Home buyers need a wide variety of traditionally safe, well-underwritten products with flexible down payment requirements, said Phipps. “Overly stringent requirements will turn away 10-15 percent of otherwise qualified buyers who have a demonstrable ability to repay—that’s approximately 500,000 home sales that won’t happen, further delaying the housing and economic recovery.”

“We need to keep housing first on the nation’s public policy agenda to ensure that housing and national economic recoveries are sustained, and that anyone in this country who aspires to own a home and can afford to do so is not denied the opportunity to build their future through homeownership,” Phipps said.

By RISMEDIA.com

To read the story, visitRIS MEDIA

Plans near for Freddie and Fannie - February 2011

The Obama administration and House Republicans are settling into a game of chicken over Fannie Mae and Freddie Mac, with each side daring the other to advance a plan for replacing the two housing finance companies.

The White House missed a deadline at the end of January for telling Congress what it wants to do. That report will be released as early as Friday, people with knowledge of its contents said, but it will present a range of options without stating a preference.

One possibility favored by some of President Obama’s economic advisers, and by many Republicans, would not create any federal replacement for Fannie and Freddie, leaving the private markets to provide mortgages for most Americans. The alternative approaches instead would continue some form of federal mortgage backstop.

The report will describe a plan for winding down the two companies, which were taken over by the government in 2008. Initial steps will include preventing the companies from buying loans larger than $625,500, and increasing the fees they charge for loan guarantees, according to officials who spoke on condition of anonymity so as not to pre-empt the official release.

The report will describe reforms in other areas of the mortgage business, including enhanced borrower protections, changes in mortgage servicing to address the industry’s failure to work with borrowers who fall behind on payments, and new steps to clean up loan securitization, the bundling of loans for sale to investors.

House Republicans, meanwhile, outlined a plan last year to end government ownership of the two companies, and campaigned on the issue in the fall. But they have since adopted a more cautious posture. Instead of pushing forward with legislation, they have scheduled a hearing for Wednesday to weigh alternatives.

The diminished urgency on both sides reflects the political realities of power-sharing, the fear of doing further damage to housing prices, and a great deal of uncertainty about the best approach to rebuilding the mortgage business.

“Industry-defining legislation often takes more than one Congress to pass,” said Peter Swire, who served until August as a special assistant to President Obama on housing finance issues. “I think everyone wants a bigger role for private-sector housing finance going forward, and how to do that transition is just a big job.”

Representative Scott Garrett, the New Jersey Republican who is chairman of the House subcommittee that deals with housing finance, on Monday told a mortgage conference in Florida that the government should leave the mortgage business.

“I believe that, if there is to be any government assistance to homeownership, it should be limited to first-time homebuyers or rental housing,” Mr. Garrett said.

But he added that he was not yet ready to move forward with legislation, telling the audience that he intended to explore the issues and develop a consensus.

There remains a general agreement among members of both parties that Fannie Mae and Freddie Mac should eventually disappear. The question is what should take their place.

The administration’s decision to present a menu of options rather than a single plan reflects internal divisions. Timothy F. Geithner, the Treasury secretary, and Shaun Donovan, Housing secretary, are among the advisers who believe that the government must provide a backstop for the industry, in part to ensure the loan availability. Some of the president’s economic advisers, however, believe that such a guarantee amounts to an unnecessary subsidy, transferring taxpayer money to private lenders.

But Michael S. Barr, who served until December as the assistant Treasury secretary for financial institutions, said the decision was made to improve the White House’s bargain position with House Republicans.

“The administration sees a lot of advantage in not stepping out strongly in one particular path because House Republicans will view that as an easy target,” said Mr. Barr, who has returned to his position as a professor of law at the University of Michigan. “If you lay out a bunch of options, you preserve the ability to have a conversation where after a long period of time you achieve a consensus outcome.”

Democratic leaders on Capitol Hill share the administration’s view that it makes sense to press Republicans to move forward with their plan.

“They told me they knew the answer,” said Representative Barney Frank, the ranking Democrat on the House Financial Services Committee, referring to Republican insistence that housing should be addressed in last year’s legislation on financial regulation. “They campaigned on that. They had the solution. How come they don’t know now what they knew then?”

One compromise described in drafts of the administration’s proposal would reduce the government’s role to a last line of defense for the mortgage market. A version of this idea has been advocated by David S. Scharfstein, a finance professor at Harvard who previously worked as an adviser to Mr. Geithner.

The core of Mr. Scharfstein’s proposal is to create a new government-owned corporation for the sole purpose of providing guarantees to mortgage investors. During normal times, the insurer would guarantee no more than 10 percent of mortgages, but in times of crisis, the government could raise that cap, offering guarantees to a broader range of investors so that money continues to flow into the mortgage market and credit remains available.

“We think private markets can do a good job providing mortgage credit during normal times, but the value of a government guarantee is really most pronounced during times of crisis,” Mr. Scharfstein said in an interview Tuesday.

The administration’s plans for winding down Fannie and Freddie are likely to command support on both sides of the political aisle. Roughly 90 percent of the money invested in mortgages currently flows through Fannie, Freddie and the Federal Housing Administration, which guarantees loans of lesser value.

The government already has told Fannie and Freddie to raise the fees that lenders are charged, reducing the incentive to sell loans to the government, encouraging private alternatives.

The White House also plans to express support for allowing limits on the size of loans the companies can buy to drop back to a maximum of $625,500. Congress voted in 2008 to raise that limit as high as $729,750, which will expire in September.

The companies also will be required to gradually reduce their huge portfolios of mortgage-backed securities, which they purchased as investments. Losses in those portfolios led the government to seize the companies in 2008.

“We’re going to lay out a set of reforms to crowd private capital back in the business, to dial back the role of the government over time,” Mr. Geithner said in a recent interview on the “Charlie Rose” show. That would create a window of several years to work out what happens next.

By Binyamin Appelbaum

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