Saturday, August 15, 2009

Mixed messages in LI housing market

Mixed messages in LI housing market


It was like fate wanted to prove the real estate agent wrong at the New Hyde Park open house. Almost every time agent Barbara Strugala started to talk about the iffy state of the home sales market, she stopped to answer the doorbell being rung yet again by house hunters. But three visitors in five minutes doesn't quite ring recovery: "We don't know if these people are buyers," said Strugala, of Fanny Soisson Real Estate in New Hyde Park. Two years after the subprime mortgage collapse set off a global financial decline, the Long Island market is in what one appraiser called "discovery" mode on whether the slump is starting to end.

The answer is not clear, but it would affect asking and closing prices or fuel a domino chain of sales and more. Industry veterans have pored over the mixed messages in data, some pointing to an uptick in offers and others predicting that the tsunami wave of foreclosures has yet to drown the Island.

"None of us can be absolutely certain whether this is an event or a trend," said broker-owner Georgianna Finn of Coach Realtors in Northport. One of the most tantalizing predictors of better times, the number of sales contracts, has generated one of the most tantalizing questions: Are signs of recovery artificial? For April, May and June, the number of contracts was higher than the same time last year, ending a two-year spell in which monthly housing numbers rarely trumped activity from a year ago, according to analysis of data from Multiple Listing Service of Long Island. But some industry experts said gains may be temporary, driven by the federal first-time home buyers' tax credit, which expires at November's end; the release of pent-up buying demand; spring as the prime house-hunting season; and various tactics that have stalled some inevitable foreclosures.

"Am I in recovery," asked Farmingdale mortgage broker Rich Biondi, "or have I gotten a short-term boost? I do not rest easy." Reality sinking in It's on the ground that the case for recovery might be the strongest. Reality has sunk in for sellers, who have lowered prices, agents said, and buyers have been making more offers. At one point, luxury-end broker Shawn Elliott found deals being thwarted by buyers, sellers and their lawyers because of bickering over small stuff. But as median closing prices rose slightly this spring, the Woodbury-based businessman said, buyers no longer saw homes as if they were cars that depreciated the second they're driven off the lot: "The thought process was like, 'What if I jump in and buy the $3 million house that a month from now could be worth [$2.4 million]? That's over. The thinking is, 'We've bottomed out and next year this time my house might be worth $3.2 [million].' " Other brokers used to high-end listings now live on sales of lower-priced homes, more affordable to first-time buyers.

In the second quarter of this year, more than 47 percent of Long Island closings were on homes priced at $350,000 and less, up from 23 percent a year ago, said Manhattan-based appraiser Jonathan Miller, who tracks local sales. The lowest monthly median closing price this year has been $350,000, according to MLS. For Coach, lower-end homes are hot. Calls, foot traffic, appointments and transactions are up this year, Finn said, and its 7-year-old office in Garden City set a sales volume record in June, the agency's best month in sales contracts since 2007.

Although Finn said she would prefer to forget the real estate slumps of the early '80s and '90s, what's happening now feels a bit like what happened in the past when recovery started. Gradually, over three years or so, she recalled, price declines slowed, more deals were signed and the balance between supply and demand was restored: "It was a very steady climb out," she said. Others think a true recovery is still at least a year away. In part because the fate of the housing market is tied more than ever to unemployment, which at the current rate of 9.4 percent is close to a 26-year high of 9.5 percent, and to the lending world, no longer giving easy credit.

Lenders underwrite like the Energizer Bunny, said Biondi, and they ask over the months for the same verifications, including proof of employment two days before the closing.

At Bethpage Federal Credit Union, mortgage applications have doubled since last year and more borrowers are defaulting. Delinquent loans up So far this year, .53 percent of loans are delinquent, compared to .42 percent a year ago, said Brian Clarke, Bethpage's chief financial officer. That excludes $4.5 million in delinquent loans "charged off" for the first six months this year, meaning written off as unpaid, he said, up from $4.2 million a year ago. "I started [at Bethpage] in April 2002, and we did not charge off a single real estate loan for six years," said Clarke. Until foreclosures run their course, some experts said, the housing landscape won't bounce back soon.

Shoreham-based appraiser Steve Sikorski sees a tale of two cities on Long Island. Property values dropped about 5 percent a year in places with fewer foreclosures, like Rockville Centre, and 25 percent in hard-hit pockets, like Mastic-Shirley, he said. "My God, it's such a shocking thing to see '1' in front of a house - 150, 180, 170," Sikorski, said of some asking prices. "They're . . . average at best, not in the ruined state."

The deepest hits in prices and property values may be over, several industry experts said, but that doesn't mean the Island has reached bottom.

That's why Oceanside renter and nurse Raghu Ninan, 32, has toured about 100 homes in two years without buying.

"It is worth waiting," he said. "Nothing's stabilized as of now. Why should I buy now if prices go down?"


August 10, 2009 By ELLEN YAN

Friday, August 14, 2009

Harvard Professor Says His Plan Will Save Market


When borrowers owe more than their homes are worth, they have considerable incentive to simply walk away. These defaults result in further declines in home prices.

Martin Feldstein, a professor of economics at Harvard University and economic adviser to the Reagan administration, says he has a plan that will encourage underwater borrowers to continue paying.

For any home owner with a loan-to-value ratio greater than 120 percent, Feldstein would offer a reduction in principal, the cost of which would be shared between the government and the lender down to the 120 percent level. In exchange, the borrower would accept a recourse loan that could not be discharged by bankruptcy.

He argues that this plan would stabilize the housing market and cap housing prices at the current level.

Source: The Wall Street Journal, Martin Feldstein (08/08/2009)

Underwater Mortgages to Skyrocket by 2011


A new report by Deutsche Bank estimates that by 2011 nearly 50 percent of U.S. home owners with mortgages will owe more than their homes are worth.

This estimate of 25 million borrowers is significantly higher than similar calculations by other economic and real estate analysts. For instance, Moody’s Economy.com projected that 17.5 million will be underwater by early 2010.

Currently, about 26 percent of home owners choose to walk away from their mortgages because their equity falls short of what they owe, according to a report by Paola Sapienza, a finance professor with Northwestern University, and Luigi Zingales, a finance professor at the University of Chicago. Their report suggests that situation could worsen if the percentage of underwater mortgage holders increases.

Not everybody agrees with Deutsche Bank’s analysis.

Tom Lawler, a well-respected independent housing economist, wrote that given the recent increase in home sales in many areas, “there is absolute[ly] no doubt that the DB ‘model’ forecast will show a huge miss to the down side on home prices.”

Source: CNNMoney.com, Les Christie (08/06/2009) and The Wall Street Journal, Nick Timiraos (08/07/2009)

Fed: Recession Ending, Rates Left Alone


The Federal Reserve ended its policy-making meeting Wednesday with the declaration that the recession is ending and it would move toward more normal policies.

The Fed said, “Economic activity is leveling out.” It added that it expected inflation would remain “subdued for some time.”

The Fed said it will keep the short-term key interest rate near zero, but it will end its program to buy $300 billion worth of Treasury bonds by the end of October. Buying bonds was one of the Fed’s efforts to drive down the cost of home mortgages.

“In a way, it’s more of a thumbs-up than if they had said they were continuing the Treasury-buying,” said Edward McKelvey, an economist at Goldman Sachs. “They’re saying that things are going according to plan, and that the policy is O.K.”

Source: The New York Times, Edmund L. Andrews (08/12/2009)

Mortgage Rates Increase This Week


Freddie Mac confirms that average interest on 30-year fixed mortgages rose this week to 5.29 percent from 5.22 percent a week earlier.

Meanwhile, the average rate on a 15-year fixed loan climbed to 4.68 percent from 4.63 percent. Five-year adjustable-rate mortgages ticked up to 4.75 percent from 4.73 percent, but one-year ARMs slipped to 4.72 percent from 4.78 percent.

Housing officials remain concerned that higher rates could cause some prospective home buyers to delay purchases if they are unable to qualify for larger amounts, thus slowing down recovery efforts.

Source: Ventura County Star (08/14/09)

Mortgage Rates Increase This Week

Mortgage Rates Increase This Week
Freddie Mac confirms that average interest on 30-year fixed mortgages rose this week to 5.29 percent from 5.22 percent a week earlier.

Meanwhile, the average rate on a 15-year fixed loan climbed to 4.68 percent from 4.63 percent. Five-year adjustable-rate mortgages ticked up to 4.75 percent from 4.73 percent, but one-year ARMs slipped to 4.72 percent from 4.78 percent.

Housing officials remain concerned that higher rates could cause some prospective home buyers to delay purchases if they are unable to qualify for larger amounts, thus slowing down recovery efforts.

Source: Ventura County Star (08/14/09)

Sellers Continue to Cut Prices


Nearly 25 percent of all U.S. homes for sale on Aug. 1 had a price cut in July, according to data compiled by the real estate Web site Trulia.com.

The percentage of price reductions has continued to increase month-over-month for the past three months. The total value slashed off active listings now totals $27.8 billion. The average reduction was 10 percent from the original price.

Cities showing significant increases in the percentage of listings with price cuts from June 1 to Aug. 1 were:

  • Fresno, Calif.: 67 percent
  • Colorado Springs, Colo.: 27 percent
  • Kansas City, Mo.: 25 percent
  • Oklahoma City, Okla.: 24 percent
  • Albuquerque, N.M.: 22 percent.


Cities with significant declines in the percentage of listings with price reductions included:

  • Dallas: -42 percent
  • Las Vegas: -33 percent
  • Louisville, Ky.: -33 percent
  • Los Angeles: -19 percent
  • Washington, D.C.: -17 percent


Source: Trulia.com (08/14/2009)