Short Sales: How Do Short Sales Work and Why are Short Sales So Prevalent?
Short Sales: How Do Short Sales Work and Why are Short Sales so Prevalent?
I hope the below overview helps you understand the short sale process.
What is a Short Sale?:
A Short Sale, also known as a pre-foreclosure sale takes place when a homeowner needs to sell his or her home because they may be having a hard time making payments or are required to move and can't sell the property due to market conditions. If a full foreclosure process is executed, the homeowner will experience severely ruined credit. By conducting a Short Sale, the homeowner can reduce losses while having a easier time rebuilding credit. Homeowners in a Short Sale situation must seek out potential buyers at a price that the market can bear, not what is owed on the property.
When the buyer and seller are brought together, the first step is to decide on a fair price for the home. Often times the price can be 5-15% below market in order to generate sales activity in order to expedite an offer to purchase. The buyer will typically offer a settlement amount for less than what is due on the mortgage. Most Short Sale home sellers do not receive any net profits from the sale of the property because all of the funds are used to pay off the debt.
If the buyer and seller can agree on a price, they will enter into a contract. This should be prepared by a knowledgeable short sale Realtor and short sale transaction coordinator for the protection of both parties.
Approval by Bank:
Though the buyer and seller agree to the sale, the bank must approve the final price, market value of the property and terms. A Short Sale package outlining the settlement offer is sent to usually to several departments at the bank but will finally end up given to the head of the loss mitigation department. The bank's lawyers, REO manager or case managers will review the offer and determine whether or not the amount of the price is sufficient to negotiate down the mortgage balance. The bank will speak with its investors in an effort to secure approval for the Short Sale. Realtors and transaction coordinators often spend 3-4x more effort to close Short Sales for their clients. Short Sale sellers need to be committed to the process and their service providers. Sellers must also be very PATIENT with the process.
The likelihood of success will rely on many factors but mostly; the real estate market, the value of the property and the mortgage balance. Be prepared for a slow process- banks are very slow about getting back to buyers and sellers. Agressively pricing a home for sale is important in the beginning in order to quickly secure a purchase offer and commence the liquidation process. Banks sometimes take up to 6 months before giving an answer. If the bank agrees to the sale, that's when the ownership transfer starts to finalize.
Tax Implications:
Sellers should consult a tax attorney prior to listing a property for sale. You may have to pay taxes on the amount of the mortgage that was forgiven because of the short sale. In many situations, that will not be the case and tax laws have changed to make it easier for sellers to sell. You will want to know this information before deciding on a course of action. If you are the buyer of the property, you should rely on your Realtor to find out the status of the property: Many homes have hidden liens against them because of second and third mortgages. As a buyer you will want to have a clean title and the best way to do that is to work with a short sale Realtor.
Why are Short Sales so Prevalent?:
With the Wall Street initiated financial crisis came a collapse in housing prices. In some regions of the country property values tumbled 50%, cutting the homeowner equity in half.
Prior to the financial crisis, many homeowners utilized home equity loans and cashout refinance transactions to pay for many of lifes expenses. Some used the cash to improve their properties and others to buy material goods. Regardless of the reason, millions of homeowners drew down much of the equity in their homes. As a result homeowners ended up with too much debt and little to no equity. This impacted millions of homeowners across the country which has been the primary reason for so many foreclosures. Because so few homeowners understand Short Sales, they have been guided to take the less desirable path of foreclosure- it doesn't have to be this way.
If you would like more information regarding Illinois Short Sales, please call (847) 873-7295
QRM. Is 20% Down Being Pushed By The Big Banks?
Ahead of the Curve - Fast Finance Perspectives
(ok to use topics for your personal enewsletter)
1) QRM: The 20% Down Payment Regime
2) Best Spring Start Since 2007
1) QRM- Quality Residential Mortgage. The 20% down payment mandate for lenders that can't hold at least 5% of a conventional home loans liability. This would dibilate about 80% of the 1200 mortgage bankers in the U.S.
QRM (Dodd-Frank) states that if a lender makes a conventional loan with less than 20% down payment, the lender would be required to maintain 5% of the loans liability. The concern is that smaller community banks and lenders wouldn't be able to maintain the reserves compared to larger publicly traded (stock funded) banks.
Wells Fargo campaigned for 5% liability on loans with less than 30% down in an attempt to increase requirements. This was an obvious attempt to impinge on smaller lenders. QRM does not apply to FHA or VA at this time. QRM rules are still evolving.
Is this rule redundant? Mortgage insurance has been available to protect banks faulty low down payment loans, and loan buyback requirements are in place to capture the remainder of the risk.
Low down payment as shown by the performance of zero down USDA, zero down VA and 3.5% down FHA are not the problem, debt ratios, faulty underwriting and low credit scores are.
2) The Spring market has kicked off and I'm starting to feel the velocity pick up quickly- thank goodness! The last six weeks have resulted in a triple in purchase preapprovals from the first quarter of 2010. Candidly, December and January seemed like a repeat of a down 2008-10 but the second half of Jan 2011 hit with a breakout in purchase preapprovals.
It appears that buyers (most) have a better respect for the preapproval and up front paperwork requirements.
80% of the healthiest buyers, that I've dealt with in the last six weeks have been glad to submit a full preapproval package. This seems to be mostly due to a better job buyer Agents are doing coaching their buyers about the requirements of a strong preapproval.
Every buyer should have a full preapproval- save your valuable gas and time by avoiding prequals whenever possible.
KUDOS to the agents that are emphasising quality and certainty from their buyersides.
Please feel free to use the above information in your enewsletters. If you need more topics, please call me. Here to help fund and close your transactions.
As always, staying ahead of the curve to keep you informed.
Gil Kerbashian
NMLS 197757
Residential Lending Since 1997
(847) 873-7295
Couldn't Get a Modification? Loan Servicing Standards SUCK! Banks Get Penalized...
The Federal Reserve, Office of Comptroller of the Currency (OCC), FDIC, and Office of Thrift Supervision (OTC) have issued formal enforcement actions against 14 banking and two loan servicing related organizations which they found had demonstrated a "pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing." The Fed said that these deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices.
The banking organizations cited are: Bank of America Corporation; Citigroup Inc.; Ally Financial Inc.; HSBC North America Holdings, Inc.; JPMorgan Chase & Co.; MetLife, Inc.; The PNC Financial Services Group, Inc.; SunTrust Banks, Inc.; U.S. Bancorp; and Wells Fargo & Company, Aurora Bank, EverBank, OneWest Bank and Sovereign Bank. All 14 were named by FDIC, eight by OCC, ten by the Federal Reserve and four by OTC.
Three of the organizations, SunTrust, HSBC and Ally Financial, were singled out by the Federal Reserve and ordered to promptly correct many deficiencies in loan servicing and foreclosures that were identified by examiners over the last few months.
Action is also being taken against Lender Processing Services (LPS) and Mortgage Electronic Registration Systems addressing what the Fed called significant compliance failures and unsafe and unsound practices at the companies and their subsidiaries. LPS will be required to address deficient practices related primarily to the document execution services it provides to servicers through two subsidiaries, DocX and LPS Default Solutions. MERS is required to address significant weaknesses in oversight, management supervision, and corporate governance.
The action followed an interagency review of the banks by their respective regulators and FDIC which issued the following statement.
"The findings of the interagency review clearly show that the largest mortgage servicers had significant deficiencies in numerous aspects of their foreclosure processing. These deficiencies included the filing of inaccurate affidavits and other documentation in foreclosure proceedings (so-called "robo-signing"), inadequate oversight of attorneys and other third parties involved in the foreclosure process, inadequate staffing and training of employees, and the failure to effectively coordinate the loan modification and foreclosure process to ensure effective communications to borrowers seeking to avoid foreclosures. The interagency review was limited to the management of foreclosure practices and procedures, and was not, by its nature, a full scope review of the loan modification or other loss-mitigation efforts of these servicers. A thorough regulatory review of loss mitigation efforts is needed to ensure processes are sufficiently robust to prevent wrongful foreclosure actions and to ensure servicers have identified the extent to which individual homeowners have been harmed."
The banking organizations have been order to provide corrective actions in servicing and foreclosure processes. Among other things, each must submit plans acceptable to the Federal Reserve that:
- Provide borrowers a specific person to be their primary point of contact;
- Ensure that the foreclosure process ends once a modification has been approved and the borrower is performing under that modification.
- Establish oversight over third-party vendors of mortgage loan servicing, loss mitigation, or foreclosure-related support, including local counsel in foreclosure or bankruptcy proceedings;
- Provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process; and
- Strengthen programs to ensure compliance with state and federal laws regarding servicing, generally, and foreclosures, in particular.
In addition to ordering corrective action the Fed said it expects to levy financial penalties on the organizations. There are other actions under consideration by federal and state regulatory and law enforcement organizations and the Fed said its actions are complementary to and do not preclude any actions that may be taken by others. No penalties have been announced yet.
A few of the banks have already responded to the Federal Reserve action. Ally Financial confirmed it had entered into a consent order with both the Federal Reserve and the FDIC as a result of the ongoing investigation into it loan processing procedures. MetLife also confirmed its consent order and said it has committed to further enhance its oversight of risk management, audit and compliance programs.
FHA Credit Score Changes Coming
In February we were still funding loans down to a 580 credit score, now its 620 with most lenders. Some lenders are taking score requirements up to 640 and 660. The lending process is moving back to its technical book procedures. The changes are good because those that are buying now shouldn't experience defaults, and bad because many buyers aren't prepared for the rapid changes.
Regarding verifying down payment - Important: Any underwriting unit can ask for bank statements and official verification of deposits in tandem for the last 60 days up and through closing. NOTE: Any large deposits going into the account will need to be fully sourced, even if its a large deposit going into a giftors account. Cash deposits are not allowed. WHY?...
Recently there has been a slew of sellers kicking back the down payment to buyers in order to off-load properties. This has caused a tightening of down payment verification. Please take a moment to read the link at
Mortgage Disclosure Improvement Act
Mortgage Disclosure Improvement Act – 2 Months Early
by Richard Triplett, CMB
Effective on July 30, 2009, some of the provisions in the final rule for revisions to the Truth-in-Lending Act (TILA) become effective – 2 months earlier than the original date of October 1, 2009. The specific provisions effective by this “new” rule implement the Mortgage Disclosure Improvement Act (MDIA).
How did this happen? The final rule issued by the Federal Reserve Board on July 30, 2008 regarding the Truth-in-Lending Act and Home Ownership Equity Protection Act has an effective date of October 1, 2009. On July 30, 2008, Congress enacted the Housing and Economic Recovery Act which included provisions regarding MDIA. On October 3, 2008, Congress enacted the Emergency Economic Stabilization Act which amended MDIA. On May 8, 2009 the Federal Reserve Board approved final rules to implement the provisions of MDIA, as amended by the Emergency Economic Stabilization Act and applied an effective date of July 30, 2009. MDIA amends TILA, codifies early disclosure requirements and expands regulatory provisions. Confused yet?
The requirements that become effective for all loan applications received on or after July 30, 2009 are detailed below. These requirements are not applicable, and there have been no changes at this time to Home Equity Lines of Credit requirements. Additionally, MDIA requires additional language for adjustable-rate loans; however, this provision is still forthcoming by the Federal Reserve.
Initial Fee Restrictions – collection of fees from a mortgage applicant are limited to a reasonable credit report fee prior to the issuance of early disclosures. Although the industry was preparing for this requirement due to TILA changes effective October 1, and the RESPA final rule, it is being applied early based on MDIA. This is one of the fairly significant changes of MDIA that will require a change in policy and potentially revisions to advance fee disclosures for lenders and brokers.
creditor’s offices are open to the public for carrying on substantially all of its business functions. The business day definition differs on the requirements for the waiting periods prior to consummation.
No Requirement to Complete Statement – early disclosures and subsequent disclosures must contain a clear notice stating “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application”. This language is already required on high-cost loan disclosures, but now applies to any extension of credit secured by the dwelling of a consumer.
Remember the timing starts from the issuance of the TIL Statement by the creditor. This is likewise a significant change due to MDIA requirements.
Three Business Days Prior to Consummation – Although creditors are already required to re-disclose the TIL Statement to a consumer when the APR is out of tolerance under TILA, it is typically done at the time of consummation. MDIA now changes this to a three business day time period prior to consummation using the definition of business day the same as the seven day waiting period. In this case, the consumer must receive the re-disclosed TIL Statement prior to consummation. Additionally, in this case, until you have receipt of a TIL Statement within this three-day time period prior to consummation by the consumer that is not out of tolerance, you must re-disclose until this requirement is met. This is also a significant change to the issuance of the TIL Statement.
Time Shares – for time share transactions, the early disclosure requirements apply but the seven-day and three-day waiting periods do not apply. The timing on early disclosures for time shares is applicable based on the receipt of the consumer’s application or before the credit is extended. Subsequent changes to terms beyond tolerance for time shares can be disclosed no later than consummation.
The Board of the Federal Reserve has also indicated a future proposal containing model disclosures and clauses regarding closed-end credit.
Disclaimer: The information presented in this article represents the opinion of the author and not that of AllRegs. This article is not meant to be nor should it be construed as advice of legal counsel. The applicability of the information contained herein will vary based on the nature of each lending institution's business, under what law it was created, and its loan products and procedures. Readers are strongly urged to consult with their legal counsel and/or contact local counsel as appropriate in the various states and jurisdictions to determine the applicability of the materials contained herein to the specific facts and circumstances of each organization's programs and products and to identify other law applicable to its business operations. The information contained herein was not reviewed or approved by counsel in the respective jurisdictions.
Read Previous articles in our Article Archive.
Above article written by Richard Triplett, CMB ALLREGS
FHA : What are Origination and Discount Points?
Definition of a "Point": A "Point" is a financial term used in the mortgage business to represent a percentage of the loan amount. One Point would be 1% of the loan amount, two Points would be 2% of the loan amount, so on and so on.
Origination points: Points charged to originate a mortgage loan. FHA allows a maximum of 1 point to be charged on FHA insured transactions.
Discount points: Points charged by the broker or lender to obtain a specific rate. To "buydown" a rate from 5% to 5.25% may cost 1 discount point.
Origination and discount points are labelled as such and must segmented into their own categories on the Good Faith Estimate.
Discount points DO NOT count towards the minimum statutory committment amount.
Negative Home Equity? Fannie Mae 105% Refinance Coming Soon
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The new Fannie Mae refinance program will be offered to homeowners struggling with negative equity and high mortgage rates. Negative equity exists when a homeowners mortgage balance exceeds the property's current value. The program was developed to assist these "upside down" homeowners take advantage of today's historically low rates. Soon, tens of thousands of homeowners that couldn't refinance due to declining home values may be able to refinance as long as their loan is "held" by Fannie Mae.
This new refinance program may also be referred to as the Fannie Mae streamline refinance. -Full income documentation -Possibly no appraisal depending on area, credit scores, type of property, date of purchase, etc. -Must be a Fannie Mae loan -Borrower or lender must check to see if the loan is with Fannie Mae -Fico pricing adjustments still impact the borrowers loan fees
-2nd mortgages must be subordinated, so ask the 2nd mortgage lender approval before starting |
Mortgage Rates Now a-la-carte
Mortgage rates have gotten sliced and diced in very narrow catagories and credit score ranges. Last year we were able to pool 700 ficos with 650.. this doesn't hold true any longer. I've included the MAIN FANNIE MAE AND FREDDIE MAC matrix below for what we as mortgage lenders have to look at before we price a loan. There is also matrices for cash-out refinances, condo's, investment properties and 2nd homes.
Don't expect any of the mortgage rates you see in the paper or online to hold true. The mortgage rates you see online are "base" rates and are only offered to a very small percentage of the population with the highest credits scores and largest down payments.
With declining property values, high loan defaults and lower credit scores so common now you will be better served working with a mortgage person you can first trust and one that has access to many lenders. Access to many lenders will help you find the right rate and approval for your particular needs.
As you can see on the below matrix 720 credit scores with lots of equity home owners are getting the best rates. This matrix applies to conventional loans only not FHA or VA loans. FHA and VA loans offer there own risk based adjustments. Guideline changes have been almost non stop since the end of 2007 due to the disrupted nature of mortgage lending.
Below adjustments are strictly for addtional points added for risk based add-ons. 1 point equals 1% of the loan amount. EX: 1 point for a $100,000 loan is $1,000, 2 points for a $100,000 loan is $2,000, and so on.
A borrower that doesn't want to pay risk based 'points' can typically increase their rate to absorb points. It usually costs a .25% increase in rate to eliminate 1 point.
Example: .25% increase in rate may eliminate a 1 point charge, .50% in rate may eliminate a 2 point charge. A 5.0% rate may have a 2 point charge or the client may pay 5.5% rate with 0 points.
The below risk based point adds are national guidelines that apply to all conventional mortgage lenders. Some lenders can add on their own additional "regional" risk premiums.
Clients can choose to incur the below addtional points or a higher rate to offset any additional points that must be charged due to additional risk.
| Fanne Freddie Conventional Conforming Adjusters | Increase rates or charge borrower below points or a combination of point/rate | |||||||||
| LTV% | <=60% | 60.01-<=70% | 70.01-75% | 75.01-80% | 80.01-85% | 85.01-90% | 90.01-95% | 95.01-97% | ||
| LTV / FICO Adjusters: All Products w/Terms > 15 Yrs | ||||||||||
| >=740 | FIXED/ARM | (0.250) | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | n/a | |
| 720 - 739 | FIXED/ARM | (0.250) | 0.000 | 0.000 | 0.250 | 0.000 | 0.000 | 0.000 | n/a | |
| 700 - 719 | FIXED/ARM | (0.250) | 0.500 | 0.500 | 0.750 | n/a | n/a | n/a | n/a | |
| 680 - 699 | FIXED/ARM | 0.000 | 0.500 | 1.000 | 1.500 | n/a | n/a | n/a | n/a | |
| 660 - 679 | FIXED/ARM | 0.000 | 1.000 | 2.000 | 2.500 | n/a | n/a | n/a | n/a | |
| 640 - 659 | FIXED/ARM | 0.500 | 1.250 | 2.500 | 3.000 | n/a | n/a | n/a | n/a | |
| 620 - 639 | FIXED/ARM | 0.500 | 1.500 | 3.000 | 3.000 | n/a | n/a | n/a | n/a | |
| <620 | FIXED/ARM | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |
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ADDITIONAL CONVENTIONAL CONFORMING ADJUSTERS CHARGE A HIGHER RATE OR BORROWER MUST PAY ADDITIONAL BELOW POINTS |
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| LTV > 90% <= 95% | 0.250 | ||||||
| 15 -year FRM w/ 120-month term | 0.250 | ||||||
| Investment Property LTV <= 75% | 1.750 | ||||||
| Investment Property LTV >75% <= 80% | 3.000 | ||||||
| Investment Property LTV >80% <= 90% | n/a | ||||||
| 2 Unit Property | 1.000 | ||||||
| 2 Unit Second Home Cash-Out refi <= 75% | 0.500 | ||||||
| 3 & 4 Unit Property | 1.000 | ||||||
| Secondary Financing | |||||||
| 75/20/5 LTV>65%/CLTV>90<=95% & FICO>=720 | 0.250 | ||||||
| 75/20/5 LTV>65%/CLTV>90<=95% & FICO<720 | 0.500 | ||||||
| 80/10/10 | 0.250 | ||||||
| All Other LTV>75% & FICO>=720 | 0.250 | ||||||
| All Other LTV>75% & FICO<720 | 0.500 | ||||||
| Non-escrowed (except CA, IA, IL, MN, NJ, NY, OR) | 0.250 | ||||||
| Temporary buydowns >80% LTV w/no MI | 1.000 | ||||||
| Condo > 75% LTV | ALL PRODUCTS W/ TERMS > 15 YRS | 0.750 | |||||
| Low Loan Size Adjuster | |||||||
| $0 - $49,999 | 0.500 | ||||||
| $50,000 - $99,999 | 0.250 | ||||||
FHA 30 Year Fixed Hovering in the Mid 3's
FHA loans have become the staple of home buyers accross Illinois. With a 3.5% down payment requirement and rates that are hovering in the mid to high 3's, this loan program is a true benefit to the housing market.
Below are the loan limits for Illinois Counties. Don't forget, you can buy a single family, condo, townhome or a 2-4 unit home guided by the below loan limits with 3.5% down.
Jumbo Home Sales Pick Up Steam. Prices For Other Catagories Level Off.
Pace Of Home Sales Picks Up
Per the National Association of REALTORS® Existing Home Sales rose 8 percent in August from the month prior, and 19 percent as compared to August 2011. 5.0 million existing homes were sold last month on a seasonally-adjusted year over year basis.
Sales increased across all price points, and home inventory dropped. At the current pace of sales, the nation's 3.58 million homes for sale would be sold in 8.5 month's time. That's a month faster than July and below than 1-year average of 9.1 months.
Jumbo Market Remains Strong
Luxury home sales were strong in August led by house worth more than $1,000,000. Home sales in the million-plus range gained 12% year-over-year, and the next price point lower: $750,000 to $1,000,000 showed similarly gains.
Falling mortgage rates have helped the luxury market. Historiclly-low mortgage rates have lowered housing payments substantially.
Obama: Refi Plan Is In The Works
Obama said his administration will work with federal housing agencies to loosen refinance terms and enable more people to refinance at interest rates that are currently hovering around 4%.
“I know you guys must be for this, because that’s a step that can put more than $2,000 a year in a family’s pocket and give a lift to an economy still burdened by the drop in housing prices,” Obama said.
White House officials are negotiating with Fannie Mae, Freddie Mac and their conservator, the Federal Housing Finance Agency, on ways to ease refinancing rules, Reuters reports, citing unnamed White House officials. One official said the administration hopes to "have progress in that area" over the next several weeks, Reuters reports.
The White House’s $447 billion jobs package, the American Jobs Act, also calls for tax breaks for companies that hire new workers and payroll tax cuts for working Americans and small businesses.
Ahead of Obama’s address, the nonpartisan Congressional Budget Office (CBO) released an analysis showing that a program that would broaden the refinance pool by 2.9 million borrowers would result in 111,000 fewer defaults. The downside, according to the CBO’s unofficial estimates, is that such a plan would cause federal mortgage-backed securities investors to suffer fair-value losses of about $4.5 billion and non-federal investors to lose between $13 billion and $15 billion.
New Report Shows a Stunting of Homebuyer Growth
New Report Shows a Stunting of Homebuyer Growth
Clear Capital has released its monthly Home Data Index (HDI) Market Report, with news of U.S. home price gains of four percent comparing the most recent rolling quarter to the previous one. Though quarter-over-quarter gains continue across the nation's four regions, the rate of growth has begun to slow as the summer buying season comes to an end and economic confidence shows signs of weakening.
The latest HDI Market Report provides the most current data available (through August 2011), and includes relevant analysis of how local markets perform compared to trend data at the national level. Clear Capital uses patent-pending rolling quarter intervals to compare the most recent four months of home pricing data to the previous three months. Including the most recent month of pricing data in the average provides increased currency and insight into current quarter trends.
The HDI Market Report found that:
?The midwest region leads the nation with a seasonal quarterly home price gain of 7.3 percent, followed by the northeast at 4.9 percent, the south at 3.5 percent and the west at 0.7 percent.
?The gains of summer are not recouping the longer-term declines, as national yearly home prices are down -6.2 percent compared to last year’s levels.
?Jacksonville replaces Detroit as the lowest performing major market, posting a -2.7 percent quarterly price change.
?Low economic confidence and a continued high unemployment rate supports Clear Capital’s projection of downward home price movement for the remainder of 2011.
“Although the summer gains appear to signal strong growth in home prices, it’s important to keep in mind that these gains are off of the record lows of winter,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital. “With summer coming to a close and the price gains clearly starting to level off, the market is at a critical juncture as to whether it can avoid another significant downturn into the slower buying seasons of fall and winter. The latest readings on consumer confidence paint an ominous picture that at present, consumers are still not ready to risk jumping into the market despite very low mortgage rates and very affordable home prices."
Quarter-over-quarter price gains continue across the nation's four regions; however, the rate of growth has begun to slow. This softening appears to be the result of pressure from a volatile stock market, high unemployment rates, elevated home sales inventory and slow home sales rates. These factors are signaling a potentially challenging fall and winter housing market.
The Midwest was the only region to increase quarterly price gainsup one percentage point over last month's report to 7.3 percent, and was buoyed by solid improvement in Chicago and the Ohio markets in particular. However, the Midwest’s noted vulnerability to significant seasonal price swings is likely to limit the duration of this trend. The Northeast and South regions saw quarterly gains soften to 4.9 percent and 3.5 percent respectively, which represents a slowdown of 0.3 and 0.7 percentage points from last month's report. Quarterly price gains in the West region were insignificant, even during the summer buying season, and mirrored last month's gains of 0.7 percent. With economic uncertainty and significant distressed sales activity affecting the West, this small gain may potentially represent peak price growth in the region for the rest of 2011.
With home price data through August, it has become clear the seasonal uplift in prices has most likely reached its peak, and has made up some of the severe losses from last winter. It is important to note however, this growth was moderated by the public’s perception of the poor health of the economy, driven by several economic and political events during the season including the jobs outlook and political maneuvering over the U.S. debt ceiling.
One key indicator of public perception is the Gallup Economic Confidence Index (ECI)—a survey of consumer opinions on current economic conditions, and if they perceive those conditions to be getting better or worse. The ECI as a measure of public perception of the overall economic health can provide key insight into whether consumers are likely to return to the housing market. ECI scores are positive or negative depending on the level of consumer confidence in a particular state or market—a positive score means higher confidence; a negative score equates to lower confidence.
Through the first half of 2011, both consumers and the housing market have had little to feel confident about, and the statistically significant correlation between the ECI and the yearly change in home prices reflects this lack of enthusiasm about the current economic environment.
Those areas with higher “economic confidence” as measured by the ECI through June 2011, also tended to see an improvement in yearly real estate prices. For example, Washington, D.C. had an ECI value of 11 for the first half of 2011 (higher than all 50 states) and has a current year-over-year home price growth for the District of 5.8 percent, also one of the highest growth rates across the nation. Conversely Nevada, one of the hardest hit states in the country in terms of home price declines, had an ECI of -35, seventh worst of all states, and a current year-over-year price decline of -11.7 percent according to our HDI index, one of the largest drops across the nation.
For the first half of 2011, the nation’s economic confidence as a whole was largely negative, averaging an ECI score of -28. With this pessimism, potential buyers tend to sit on the sidelines, despite record affordability levels in many markets, and are unwilling to make large purchases with long term commitments. Along with this hesitancy, there is a growing sentiment to stay agile to better pursue potential job opportunities, causing some consumers to postpone home purchases. This is shown in a decline of national homeownership rates over the past five years of 2.8 percent, while the rental sector has sustained its demand with a decline in rental vacancy rates of -0.4 over the same period.
Consumer confidence can be seasonally lifted, but the effects tend to fade over time in stagnant economic environments, such as our current condition. With the combination of slowing home price gains, combined with the current ECI reading of -49 nationally (through Sept. 4, 2011), it appears the recent summer price increases are extremely vulnerable, and the signs are that the coming months will be very challenging for home prices. If these indicators aren’t enough, the recent announcement by the Bureau of Labor Statistics last week that reported the unemployment rate held steady at a high 9.1 percent, further supports Clear Capital’s six month forecast published at the beginning of July, which projected 2.6 percent home price decline nationally by the end of 2011.
Cleveland supplants Milwaukee as the market with the largest quarter-over-quarter gains this month. Cleveland’s large gains reflect vast differences in this housing market’s REO composition between the winter, and the spring/summer home buying seasons. This difference is enhanced in Cleveland because of the high concentration of real estate-owned (REO) sales among lower-priced homes during the late winter and early spring (the previous rolling quarter). This seasonal variation is influencing today’s quarterly price gains in Cleveland, and is not a true picture of overall home price recovery. Further, Cleveland’s yearly price decline of 5.2 percent and high REO saturation calls out its susceptibility to ongoing volatility, and questions the viability of a prolonged recovery.
Year-over-year performance of the highest performing markets continues to represent a mixed-bag of market health. Washington, D.C., Rochester and Boston all show relatively flat yearly price change along with more manageable REO saturation levels.
All of our best performing MSAs, with the exception of Rochester, experienced declines in REO saturation rates from last month’s report. Contrary to these positive results, nine of these markets maintained prices more than five percent below levels of a year ago, and six markets maintain REO saturation rates above the national rate of 26.3 percent. With quarterly price gains likely to subside into the fall and winter, even our highest performing markets remain susceptible to volatility in the months to come.
Mortgage Rates Always Changing. Don't Count On Them to be The Same Tomorrow.
Shopping for mortgage rates can be difficult because they change so often.
Mortgage Rates Change Every Day Sometimes Twice or Three Times a Day
Mortgage rate like stock prices move randomly. Like stocks, mortgage rates can change from minute-to-minute. Lenders don't repost minute by minute but could if they wanted to.
This makes rate shopping tough for people looking for the lowest mortgage rates. Mostly because it can take more than a day to do your mortgage shopping and by then rates have changed from the company you first called.
For Mortgage Rates , it may be Better To Be Lucky Than Smart
Shopping rates is always a good idea. You never know which bank will have the lowest rates, or lowest fees. However, when it comes to locking your rate or the lowest set of closing costs- you're going to need good luck because mortgage rates can change at any time, and often do.
While you're shopping for a loan, for example, rates could be rising. And not just by an eighth-percent here and there. I'm talking big jumps.
There have been a many days this year that mortgage rates rose 0.375. There have also been days when rates have dropped that much.
You can't shop for good luck. You're at the market's mercy, we all are and the market can be merciless. Hang in there.
Housing Starts Flat in July
Housing Starts Flat In July- single family housing starts fell to a seasonally adjusted annualized 425,000 units in July per the Census Bureau.
Single family housing starts were revised lower for May and June of 2011 by 6,000 units and 2,000 units respectively.
Included in the report is the Building Permits tally.
As compared to June, permits were higher by a half-percent nationwide.
Northeast : +2.9 percent from June
Midwest : +0.0 percent from June
South : -1.4 percent from June
West : +4.9 percent from June
Credit Scores
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