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08 Aug, 2011

Is now the time to buy a home?

The Miami Real Estate Club says that depends. Do you need a place to live? Is your job secure? Do you plan to stay in the area for several years? Do you have sterling credit, and enough money for a 20% down payment? Can you come up with a down payment and closing costs without having to take a major loss on your stock portfolio, or worse, raiding your 401(k)?

If the answer to all of these questions is yes, then yes—I think it would be a good investment.

In fact, this seems like an excellent time to buy in your area. Although single-family home prices in most parts are still soft, home prices in Austin are on the upswing: The average price rose 7.6%, to $263,149, in the second quarter of 2011 compared with the same quarter a year earlier, while the median price rose 3.4% to $196,700, according to the Texas Association of Realtors. (Bear in mind that price increases have been more dramatic in higher-priced homes than lower-priced ones, which is why average gains have been higher.)

Meanwhile, sales slowed 7.3% in the second quarter from a year earlier. Softer sales put you in a better position to negotiate as a buyer.

But don't expect to get too many concessions. Inventory levels are at a reasonable 6.9 month level, unchanged from a year ago. When inventory levels range between 5 and 7 months, that's generally considered a sign of a balanced market, with neither sellers nor buyers in charge. Months of inventory are determined by dividing the current number of active listings by the number of sales going back 30 days.

Austin has other positive signs, especially compared to the rest of the country. According to a first quarter analysis of the market by the National Association of Realtors, housing equity grew in Austin even as it has declined in the nation overall. Local employment growth was strong compared to other markets, and the unemployment rate was two percentage points below the national average. Foreclosures were also lower than the national average.

Another plus: As in most parts of the country, single-family permits have fallen. In Austin, single-family home permits fell almost 4% in the first half of the year from a year earlier, according to data from the Real Estate Center at Texas A&M University. That means less competition from newer homes should you decide to sell down the road.

Meanwhile, mortgage rates remain amazingly low. While the stock market plunged more than 500 points yesterday, fixed rates for 30-year mortgages dropped to their lowest levels in eight months, while 15-year loans fell to record lows, according to Freddie Mac. The declines are directly related to the falling yields of 10-year Treasury notes, which have been slipping lately as concern has grown that our economy is slowing. These low rates may last a while longer in the wake of fears of a double-dip recession—but don't expect them to last forever.

02 Aug, 2011

Over 1,000,000 foreclosures delayed till 2012

 The Miami Real Estate Club read that an estimated 1 million foreclosure-related notices for defaults, auctions, and home repossessions that should be filed by lenders this year will be pushed back until next year, according to the latest report by RealtyTrac.

While the delays could give home owners more time to catch up on their payments and try to avoid foreclosure, housing experts warn this means the looming shadow inventory of distressed properties likely will continue to plague the real estate market even longer.

"The best-case scenario is we don't get back to normal levels of foreclosure activity until 2015, which means the housing market recovery gets delayed by at least a year," says Rick Sharga, a senior vice president at RealtyTrac.

Foreclosure Notices Drop, Threat Still Looms
Overall, the number of homes repossessed by lenders in the first half of this year dropped 30 percent compared to the same period in 2010. But foreclosure processing delays — with lenders taking longer to take action against delinquent borrowers — is stalling the housing recovery, experts note.

About 1.2 million homes received a foreclosure-related notice in the first six months of this year — in other words, one in every 111 U.S. households, RealtyTrac reports.

Nevada continues to face the most foreclosures; one in every 21 households in that state received a foreclosure notice in the first half of the year.

The foreclosure process continues to lengthen too. From April and June, homes took 318 days on average to go from the first stage of foreclosure to ultimately where it was repossessed by the lender — that’s up from 298 days in the first three months of the year. (In New York, the foreclosure process took the longest at an average of 966 days or 2.6 years; Texas boasted the shortest at 92 days.)



29 Jul, 2011

If you qualify mortgage rates are great.

The Miami Real Estate Club read that with interest rates near rock bottom and home prices down, this ought to be a great time to buy a home. But for most people, it's a lousy time to get a mortgage.

Years after the collapse of the real-estate market and resulting financial crisis, it takes nearly pristine credit scores and hefty down payments to get the best rates.

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"Since 2009, credit has become a lot tighter," says Greg Reiter, who follows mortgage-backed bonds at RBS Global Banking & Markets.

For borrowers, this highlights the need to pay close attention to credit scores. New rules unveiled last week should make it easier for consumers to see how their credit scores affect the interest rates they pay. These rules, the result of last year's Dodd-Frank financial-services legislation, require banks and other lenders to disclose to consumers the scores used to determine interest rates charged borrowers, or to deny credit.

The new reality for borrowers can be seen in the FICO credit scores on the loans that banks are giving out and that are backed by government agencies Fannie Mae and Freddie Mac. These days the two agencies essentially finance 75% of all mortgages by purchasing the loans from the banks. In the process, they shape how much it costs to borrow.

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FICO scores range from 300 to 850. Pre-crisis, a score of 700 to 725 was deemed solid and a borrower could expect to get a "conventional" mortgage at the lowest rates.

From 2003 through 2006, 82% of Fannie Mae mortgages were for borrowers with a score between 700 and 750, according to data compiled by RBS.

But so far in 2011, only 13% of Fannie Mae mortgages carry that score, and just 1.7% have a score of 700 to 725, according to RBS. This year, 75% of Fannie Mae mortgages are for FICO scores of 750 to 775, up from less than 5% before 2005.

Meanwhile, the median score is 711, according to FICO.

"Half the population is locked out" from the best mortgages, says Mr. Reiter.

The upshot is that borrowing costs more even with a 730 score and a 20% down payment, says Norman Calvo, president of Universal Mortgage in Brooklyn, N.Y.

"Three years ago, if you had 730 it was excellent," Mr. Calvo says. Today, he says, it could cost an extra 0.125 percentage point per year on a mortgage, "just because you have one little nick on your credit report."

For more typical scores, the premiums are even bigger. At 700 to 725, it's usually an extra quarter percentage point, and at 630 -- if a borrower can find a loan -- the additional cost is 1.5 percentage points, Mr. Calvo says. "If you have a credit score of less than 680, you've got to be worried about approvability."

The news is also grim for those looking to refinance. Based on the level of interest rates, RBS estimates 60% of agency-backed mortgages should be eligible to refinance. But once home values and credit scores are factored in, just 12% are eligible.

These trends show the importance of understanding credit scores. Mr. Calvo says borrowers sometimes unintentionally make matters worse. For example, closing an unused credit card can actually lower a score in the short term, he says.

Check your credit scores at AnnualCreditReport.com. And to learn more about scores, visit the education section of myFICO.com.

28 Jul, 2011

Risky loans make a comeback

In a recent article the Miami Real Estate Club learned that after years as the lending market's undesirables, aspiring home buyers with less-than-stellar credit are being offered home loans again—with some of the same conditions and catches critics say tripped up subprime borrowers five years ago.

According to analysts, a handful of private investment firms have started making home loans to borrowers who fail to meet banks' requirements, which got tighter post-crash and have largely stayed that way. And for now they are holding them on their books, which is novel. At least two, Athas Capital Group, of California, and New Penn Financial, which is owned by Shellpoint Partners, of New York, are also making jumbo loans, or loans in most parts of the country that exceed $417,000, as the federal government appears to be scaling its support of that market.

The loans are designed to include borrowers with credit scores deemed low by banks' standards; they also have more-flexible requirements for proof of income. Banks have been too slow to extend credit to such people, the firms say, leaving otherwise responsible borrowers out in the cold—and potential profits on the table. "It's often a minor detail, why banks won't approve them," says Brian O'Shaughnessy, chief executive at Athas Capital.

Banks are following standards set by the market and reinforced by regulators, which focus on avoiding risk and losses with the uncertainty that exists now, says Bob Davis, executive vice president at the American Bankers Association.

The firms say this is far from the subprime lending of the go-go years. While they may embrace slightly riskier borrowers, they require higher down payments, around 40% on average at Athas Capital, compared with roughly 10% for a bank loan, says Keith Gumbinger, vice president at HSH Associates. And while they are willing to be flexible with income documentation, accepting a workplace pay stub or a series of bank statements in lieu of tax-return documents, they still require documentation as proof a borrower can repay the loan. This opens the door to otherwise qualified borrowers who have been foreclosed on, for example, or who may be self-employed or recently unemployed but are now back to work, says Chip Cummings, president of Northwind Financial, a consultant to mortgage lenders.

Critics say the loans are similar enough to the subprime mortgages of old that would-be borrowers should beware. They often have a so-called balloon structure, which requires the borrower to pay the remaining balance after five or seven years, or to refinance. And they are expensive, with interest rates of as much as 13%, the loans can cost more than double the average for bank mortgages. "You'd have to be fairly desperate to take that in the current market," says Guy Cecala, publisher of Inside Mortgage Finance.

Given the recent economy, that includes a lot of people.With housing prices still so relatively low, many people may want to buy, which analysts say could fuel a boom in this sector.

Also, starting in October, the government is expected to lower the limit on the loans it guarantees to as low as $271,050 in some places, in some cases a drop of almost $100,000. That, too, could open the door for these private financing companies.

"There are a lot of borrowers out there who aren't being provided for," Mr. Cummings says. "Private investment firms are filling the gap."

27 Jul, 2011

Home sales and prices reflect Malaise in Washington

Miami Real Estate Club discovered that home prices and sales of new homes lost ground in recent months, with real-estate agents and builders saying the debt-ceiling debate in Washington is rattling an already-fragile market.

According to the Standard & Poor's Case-Shiller home price index, released Tuesday, prices for existing homes in 20 major U.S. cities fell 4.5% in May from a year earlier, with declines stretching from coast to coast. Only Washington, D.C., saw a year-over-year increase. Compared with April, prices in May were virtually unchanged on a seasonally adjusted basis.

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