September 30, 2011
Shadow Inventory Continues to Decline
According to CoreLogic, current residential shadow inventory as of July 2011 declined slightly to 1.6 million units – representing a supply of 5 months – from a six-month supply of 1.9 million units one year earlier. It’s also down from April 2011 when shadow inventory stood at 1.7 million units.
According to the report, the reason for this decline is a result of banks disposing of distressed assets faster than they’re adding new ones into the system.
CoreLogic estimates the shadow inventory (also known as pending supply) based on the number of distressed properties not currently listed on multiple listing services (MLSs) that are seriously delinquent (90 days or more). These are the properties most likely to become bank-owned listings (REOs).
Properties not yet delinquent aren’t included in the estimate of shadow inventory.
• The shadow inventory of residential properties as of July 2011 fell to 1.6 million units, or a five-month supply, down from 1.9 million units, or a six-month supply, as compared to July 2010.
• Of the 1.6 million properties currently in the shadow inventory, 770,000 units are seriously delinquent (2.2-months’ supply), 430,000 are in some stage of foreclosure (1.2-months’ supply) and 390,000 are already in REO (1.1-months’ supply).
• As of July 2011, the shadow inventory is 22 percent lower than the peak in January 2010 at 2 million units, an 8.4-months’ supply.
• The total shadow and visible inventory was 5.4 million units in July 2011, down from 6.1 million units a year ago. The shadow inventory accounts for 29 percent of the combined shadow and visible inventories.
• The aggregate current mortgage debt outstanding of the shadow inventory was $336 billion in July 2011, down 18 percent from $411 billion a year ago.
“The steady improvement in the shadow inventory is a positive development for the housing market,” says Mark Fleming, chief economist for CoreLogic. “However, continued price declines, high levels of negative equity and a sluggish labor market will keep the shadow supply elevated for an extended period of time.”
CoreLogic believes the steady improvement in the shadow inventory is a positive development for the housing market. However, they warn that continued price declines, high levels of negative equity and a sluggish labor market will keep the shadow supply elevated for an extended period of time.
Home Prices 4% Below a Year Ago
According to data recently released by Standard & Poor’s, even with a seasonal uptick in the month of July, home prices are below levels a year earlier. Both the 20-city and 10-city composite readings of the S&P/Case-Shiller index rose 0.9 percent between June and July, but were down 4.1 percent and 3.7 percent, respectively, when compared to July 2010.
Detroit and Washington, D.C. were the only metropolitan areas in the study to buck the annual trend.
Commercial Properties Have a Long Road to Recovery
According to Fitch Ratings, U.S. commercial properties have seen some minor improvements, but the sector still has quite a ways to go before it can completely shake off the effects of the economic recession,
Net operating income across all types is down 1 percent from the end of 2009 to the end of 2010, but the drop has generally stopped. NOI was down 5 percent from 2008 to 2009.
And Fitch’s pessimism affects all commercial property types. And despite a report last week by PKF Hospitality Research that affirmed hotels’ recovery would be soon forthcoming, Fitch sees hotels to be in a weak position like the rest of the industry.
Hotels have seen the largest performance declines over the last two years, with NOI dropping 25 percent between 2008 and 2010. Overall hotel performance may have begun to show signs of improvement with one year of positive growth, but many hotel properties, especially limited-service hotels located in secondary and tertiary markets, continue to report a lower NOI in 2010 than in 2008.
That being said, Fitch sees stabilization on the horizon, with the majority of commercial property depending on factors including the unemployment numbers and consumer spending.
Multi-family properties performed better than the hospitality sector, declining only one 1 percent over the two-year period studied. Property managers had been maintaining lower rents and offering significant concessions in order to keep occupancy numbers buoyed, but those concessions are slowly fading.
Office and retail properties, which benefit from longer-term leases, experienced a modest decline in NOI of 4 percent and 3 percent, respectively, from year end 2008 to 2010.
The data analyzed came from Fitch’s analysis of 21,334 commercial properties with fully reported financials from 2008 to 2010 which secure the firm’s $270.4 billion CMBS portfolio, with 34 percent of holdings in office, followed by 33 percent retail, 14 percent multi-family, 7 percent hotel, 6 percent industrial/warehouse and 6 percent other property types.
Foreigners spend $12.7B on Florida residential real estate in 2010
Canadians make up 39 percent of the international pool of buyers that spent $12.7 billion on residential real estate in Florida in 2010, according to a new report.
Brazil’s growing influence in the market is tied to 8 percent of purchases, according to data from the National Association of Realtors. The U.K. and Venezuela tied at 7 percent each, with Germany, France, Argentina, Colombia, Australia, Mexico and Spain driving the balance of buyers.
More than 86 percent of the Florida transactions involving international buyers are being completed in cash.
The NAR report also highlights the fact that investors continue to drive a lot of sales activity. Only 12 percent of the foreign buyers plan to spend more than six months a year in their Florida properties, compared to 16 percent who plan to occupy their places for less than one month a year. A majority – some 56 percent – of the foreign buyers plan to use their properties between two months and six months a year.
For 23 percent of the foreign buyers, Florida real estate is perceived as a “profitable investment,” given the deeply discounted prices, rising rents in coastal markets such as in South Florida, and the weakness of the U.S. dollar, according to the NAR report.
Overall, foreign buyers account for 26 percent of Florida’s $48.8 billion in residential resales. Nationwide, foreign buyers account for only 3 percent of residential real estate transactions.
For foreign buyers focused on Florida, the top destination is South Florida.
The Miami/Fort Lauderdale/Miami Beach market represents 30 percent of the estimated $12.7 billion foreign buyers spent on Florida real estate.
The Orlando/Kissimmee market in Central Florida had the second-largest share of foreign buyers in the state, with a 14 percent share, or nearly $1.8 billion in sales.
The Tampa/St. Petersburg/Clearwater market on Florida’s west coast earned the No. 3 ranking, with an 11 percent share, or nearly $1.4 billion of sales.
Rounding out the top 5 markets for foreign transactions are the deeply distressed Southwest Florida markets of Cape Coral/Fort Myers, with an 8 percent share, or $1.02 billion, and Naples/Marco Island, with a 6 percent share that equates to $762 million, according to the NAR report.
The Miami/Fort Lauderdale/Miami Beach residential real estate market is being buoyed by foreign investors from Latin America, which account for 53 percent of the international buyers in South Florida.
Posted by Scott R. Lodde
September 22, 2011
Florida is Bouncing Back
According to the outlook of Wells Fargo, Florida’s improving economy should avoid recession, even as the recovery faces significant headwinds from a devastated real estate industry.
The report sees South Florida and Tampa leading the rebound in hiring this year. Both markets have seen modest job growth in recent months, and payrolls are up about 1 percent in both regions during the last three months.
Wells Fargo expects economic growth to hit 2.2 percent next year in Florida, despite growing anxiety that the nation is heading for a second recession.
The Wells Fargo report credits a strong rebound in foreign tourism for Florida’s improving fortunes, with South Florida and Orlando enjoying a boost from their popularity with travelers from Europe and Latin America.
However, the report gives special mention to South Florida in the report saying the region’s recovery from the Great Recession has been painfully slow.
Among the biggest problems Wells Fargo cites: nearly 40 percent of the region’s mortgages are either in foreclosure or at least 90 days overdue, compared to the national average of 11 percent.
Twelve Housing Markets Seeing the Biggest Turnarounds
The National Association of Home Builders has created a new economic index that highlights metro areas that are seeing the most improvement in their housing markets. The “First American Improving Markets Index” reveals 12 metro areas that have seen a turnaround for at least six months in three core economic areas; housing permits, employment, and housing prices.
This new index was created to highlight those housing markets across the country that have stabilized and have begun to show signs of recovery.
Here are the 12 cities that have seen the biggest improvements, according to NAHB’s new index:
- Anchorage, Alaska
- Bangor, ME
- Bismarck, N.D.
- Casper, Wyo.
- Fairbanks, Alaska
- Fayetteville, N.C.
- Houma, La.
- Midland, Texas
- New Orleans, La.
- Pittsburgh, Pa.
- Waco, Texas
Mortgage Default Warnings Surged in August
According to RealtyTrac, the number of U.S. homes that received an initial default notice; the first step in the foreclosure process, jumped 33 percent in August from July as banks have stepped up their actions against homeowners who have fallen behind on their mortgage payments.
The increase represents a nine-month high and the biggest monthly gain in four years. The spike signals banks are starting to take swifter action against homeowners, nearly a year after processing issues led to a sharp slowdown in foreclosures.
Foreclosure activity began to slow last fall after problems surfaced with the way many lenders were handling foreclosure paperwork, namely shoddy mortgage paperwork comprising several shortcuts known collectively as “robo-signing”.
Many of the nation’s largest banks reacted by temporarily ceasing all foreclosures, re-filing previously filed foreclosure cases and revisiting pending cases to prevent errors.
Other factors have also worked to stall the pace of new foreclosures this year. The process has been held up by court delays in states where judges play a role in the foreclosure process (such as Florida), a possible settlement of government probes into the industry’s mortgage-lending practices, and lenders’ reluctance to take back properties amid slowing home sales.
A pickup in foreclosure activity also means a potentially faster turnaround for the U.S. housing market. Experts say a revival isn’t likely to occur as long as there remains a glut of potential foreclosures hovering over the market.
Foreclosures weigh down home values and create uncertainty among would-be homebuyers who fret over prospects that prices may further decline as more foreclosures hit the market. There are about 3.7 million more homes in some stage of foreclosure now than there would be in a normal housing market.
Banks have been working through a backlog of properties that first entered the foreclosure process months, if not years ago. But the August increase in homes entering that process sets the stage for a host of new properties being targeted for foreclosure.
That’s bad news for homeowners who may have grown accustomed to missing payments for several months without the threat of foreclosure bearing down on them. In states such as New York and Florida, processing delays have helped some homeowners stay in their homes for more than two years before banks got around to taking back their properties.
In all, 78,880 properties received a default notice in August. Despite the sharp increase from July, last month’s total was still down 18 percent versus August last year and 44 percent below the peak set in April 2009.
Some states, however, saw a much larger increase.
California saw a 55 percent increase in homes receiving a default notice last month, while in Indiana they climbed 46 percent. In New Jersey, where last month a judged ruled that four major banks could resume uncontested foreclosure actions in the state under court monitoring, homes receiving a default notice increased 42 percent.
Lenders repossessed 64,813 properties last month, a drop of 4 percent from July and down 32 percent from a year earlier. Home repossessions peaked September last year at 102,134.
Banks are now on track to repossess some 800,000 homes this year, down from more than 1 million last year.
The firm had originally anticipated some 1.2 million homes would be repossessed by lenders this year.
In all, 228,098 U.S. homes received a foreclosure-related notice last month, a 7 percent increase from July, but a nearly 33 percent decline from August last year. That translates to one in every 570 U.S. households, said RealtyTrac.
Nevada still leads the nation, with one in every 118 households receiving a foreclosure-related notice last month.
Rounding out the top 10 states with the highest foreclosure rate in August are California, Arizona, Georgia, Idaho, Michigan, Florida, Illinois, Colorado and Utah.
Posted by Scott R. Lodde
September 13, 2011
Economic Growth Widespread Across Metro Areas in 2010
The ten largest metropolitan areas, accounting for 38 percent of U.S. metropolitan area GDP, averaged 2.5 percent growth in 2010 after falling 2.2 percent in 2009.
Durable-goods manufacturing led the resurgence in certain metro areas such as Durham-Chapel Hill, NC and Palm Bay-Melbourne-Titusville, FL, where the industry contributed more than 3.0 percentage points in the overall real GDP growth (6.6% and 4.7%, respectively).
In the Great Lakes region durable-goods manufacturing contributed 11.4 percentage points to the GDP growth of Elkhart-Goshen, IN and more than 6.0 percentage points to growth in Columbus, IN and Kokomo, IN. Elkhart-Goshen, IN and Columbus, IN were two of the fastest growing metropolitan areas in 2010, with overall real GDP growth of 13.0 percent and 10.1 percent, respectively.
The effects of the growth in financial activities were more widespread than other industries in 2010. In Houma-Bayou Cane-Thibodaux, LA; Des Moines-West Des Moines, IA; Hartford-West Hartford-East Hartford, CT; and New York-Northern New Jersey-Long Island, NY-NJ-PA financial activities contributed more than two percentage points to real GDP growth. All of these metropolitan areas grew faster than the national average.
In contrast to most industries, construction continued to detract from growth in 2010. In Las Vegas-Paradise, NV and Steubenville-Weirton, OH-WV, real GDP contracted due to strong concentrations in the construction industry.
In Las Vegas-Paradise, NV, real GDP in the construction industry continued to decline by more than twenty percent and sank below its 2001 level.
22.5% of Mortgages in Negative Equity
CoreLogic recently released their Q2 negative equity report showing that 10.9 million, or 22.5 percent, of all residential properties with a mortgage were in negative equity at the end of the second quarter of 2011.
This is down very slightly from 22.7 percent in the first quarter.
An additional 2.4 million borrowers had less than five percent equity (referred to as near-negative equity) in the second quarter. Together, negative equity and near-negative equity mortgages accounted for 27.5 percent of all residential properties with a mortgage nationwide.
The report also shows that nearly three-quarters of homeowners in negative equity situations are also paying higher, above-market interest on their mortgages.
Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
- Nevada had the highest negative equity percentage with 60 percent of all of its mortgaged properties underwater, followed by Arizona (49 percent), Florida (45 percent), Michigan (36 percent) and California (30 percent).
- The negative equity share in the hardest hit states has improved. Over the past year, the average negative equity share for the top five states has declined from 41 percent to 38 percent. Nevada had the largest decline over the last year, with the negative equity share dropping from 68 percent to 60 percent. The reason for the Nevada decline is the high number of foreclosures that led to lower numbers of remaining negative equity borrowers.
- Negative equity significantly limits the ability of borrowers to capture the benefit of the low-rate environment. There are nearly 28 million outstanding mortgages that have above market rates and are in theory refinanceable. Twenty million borrowers with positive equity, or 53 percent of all above-water borrowers, have above market rates. Eight million borrowers with negative equity, or nearly 75 percent of all underwater borrowers, have above market rates. The disparity is even greater for those with severe negative equity. More than 40 percent of borrowers with 125 percent or higher loan-to-value (LTV) ratios have mortgages with rates at 6 percent or above, compared to only 17 percent for borrowers with positive equity.
Fixing Housing Crisis Will Create 1 Million Jobs
A new report from a group called The New Bottom Line argues that if banks wrote down the mortgage principal of underwater borrowers it could pump $71 billion per year into the economy and create more than 1 million jobs annually. The report, “The Win/Win Solution: How Fixing the Housing Crisis Will Create One Million Jobs”. The New Bottom Line is a campaign that represents about 1,000 nationwide faith-based and community organizations.
The report states that by lowering home owners’ mortgage payments by an average of more than $500 per month or $6,500 per year, it would free up about $6 billion dollars per month that home owners could then spend on such items as buying groceries, household necessities, school supplies, etc.
By writing down the principals and interest rates on all underwater mortgages to market value would serve as the second stimulus that America without added costs to taxpayers.
The group is pressing State Attorneys General, who are currently in settlement talks with the nation’s largest banks over allegations of foreclosure abuses, to stand firm on its request for principal reductions for underwater borrowers.
Posted by Scott R. Lodde
September 8, 2011
Home Price Index Shows Fourth Consecutive Month-Over-Month Increase
According to CoreLogic, a leading provider of consumer, financial and property information, home prices in the U.S. increased for the fourth consecutive month, up 0.8 percent on a month-over-month basis.
On a year-over-year basis, however, national home prices, including distressed sales, declined by 5.2 percent in July 2011 compared to July 2010. In June 2011, prices declined by 6.0 percent compared to June 2010.
Excluding distressed sales, year-over-year prices declined by 0.6 percent in July 2011 compared to July 2010 and by 1.9 percent in June 2011 compared to June 2010. Distressed sales include short sales and real estate owned (REO) transactions.
Highlights in the CoreLogic July 2011 report:
- Including distressed sales, the five states with the highest appreciation were: West Virginia (+14.0 percent), New York (+3.3 percent), Wyoming (+3.2 percent), Mississippi (+2.4 percent), and the District of Columbia (+2.3 percent).
- Including distressed sales, the five states with the greatest depreciation were: Nevada (-12.2 percent), Arizona (-11.9 percent), Illinois (-10.0 percent) Minnesota (-8.6 percent), and Idaho (-7.8 percent).
- Excluding distressed sales, the five states with the highest appreciation were: West Virginia (+16.8 percent), South Carolina (+5.5 percent), New York (+4.1 percent), Wyoming (+3.8 percent), and North Dakota (+3.6 percent).
- Excluding distressed sales, the five states with the greatest depreciation were: Nevada (-9.6 percent), Arizona (-8.1 percent), Delaware (-6.5 percent), Minnesota (-5.7 percent), and Michigan (-4.7 percent).
- Including distressed transactions, the peak-to-current change in the national HPI (from April 2006 to July 2011) was -30.5 percent. Excluding distressed transactions, the peak-to-current change in the HPI for the same period was -20.7 percent.
- Of the top 100 Core Based Statistical Areas (CBSAs) measured by population, 86 are showing year-over-year declines in July, two fewer than in June.
White House weighs mass refinancing plan
According to a recent article in the N.Y. Times, the White House is considering a housing proposal that would allow millions of homeowners with government-backed mortgages to refinance into lower interest rates.
Many homeowners have been unable to take advantage of today’s low interest rates (averaging around 4 percent), because they don’t qualify for refinancing at the best rates since they owe more on their home than it is currently worth or because of poor credit. The refinancing plan is still under discussion of how it would work.
The White House is also considering other options to try to stimulate the housing market or save homeowners from foreclosure. Such options include more changes to its refinancing programs so more homeowners can participate or a home rental program to that would rent out foreclosures instead of putting them for sale so foreclosures would stop weighing down overall home prices.
Fort Myers’ taxes among the lowest for tourists
According to an article in Florida Weekly, Fort Myers was ranked second for the lowest tax-burdened central cities out of 50 U.S. destinations recently rated in an annual study by the Global Business Travel Association Foundation.
In the 2011 survey, which reviewed general sales tax and tax on travel-related services such as car rentals, hotel stays and meals, drastic tourism tax differences between cities, in some cases 80 percent more in comparison.
The five highest-tax imposing cities on travelers according to the study were Chicago; New York; Seattle, Wash.; Boston; and Kansas City, Mo.
Information included taxes paid by travelers staying at a hotel, renting a car and eating restaurant meals for one day and one night, as well as for a longer stay of three days and two nights.
Linkage in Income, Home Prices Shifts
In a recent analysis, real-estate firm Zillow Inc. studied the correlation between home prices and annual incomes over the 15-year period that ended in 2000, before home prices began to surge.
Home prices in some of the nation’s hardest-hit metro areas have fallen far below pre-bubble levels, as some believe properties in those markets are undervalued.
According to the analysis, for decades, price-to-income levels have moved in tandem, with a specific housing market’s prices rising or falling in line with local residents’ incomes. Many economists say that makes the price-to-income ratio a good gauge for determining whether housing is undervalued or overvalued for a given market.
Zillow found property prices in one-third of nearly 130 housing markets across the nation were undervalued, when compared with residents’ current income and the pre-bubble trend.
The Zillow analysis shows that many markets still appear to be overvalued and underscores the point that while the nation’s housing markets largely fell and rose together during the housing boom and bust, they aren’t likely to hit bottom and begin recovery at the same time or pace.
For the U.S. as a whole, home prices were around 2.9 times incomes from 1985 to 2000. But during the housing boom, values increased at a much faster rate than incomes. The price-to -income ratio peaked at around 5.1 in 2005. Home prices have since fallen so that on average, nationally, prices are around 3.3 times incomes, or about 14% above the historical trend.
In certain markets prices have fallen much faster. For example, in Las Vegas, home prices are now 25% below their historic price-to -income trend of 2.7. During the housing bubble, that ratio more than doubled to 5.6. Home prices have been falling for the past five years, and by March, prices were just 2.1 times household incomes.
Home prices are undervalued by 35% in Detroit; by 18% in Modesto, Calif.; and 13% in Fort Myers, Fla.
Housing also has grown more affordable thanks to mortgage rates falling to near their lowest levels since the 1950s. Last week, the 30-year fixed-rate mortgage averaged 4.32%, according to a survey by Freddie Mac.
Some of the most overvalued housing markets, according to the Zillow analysis, include Virginia Beach, VA, Honolulu and Charleston, SC In Virginia Beach, for example, prices would have to fall by 50% to hit their traditional relationship to incomes.
Other areas where price-to-income levels show that housing is still overvalued, such as Washington, D.C., may not see prices fall further due to structural changes in the economy. Second-home markets that have more out-of market homebuyers also tend to have more volatile price-to-income levels.
Posted by Scott R. Lodde