Agents Suggest Banks May Be Holding onto REOs

 A sharp drop in distressed sales is one of the main drivers behind the steady rise in home prices seen in certain areas throughout the country, according to the monthlyCampbell/Inside Mortgage Finance HousingPulse survey.

The survey includes responses from about 2,500 real estate agents through the United States.

In September, the HousingPulse Distressed Property Index (DPI), which measures the proportion of purchase transactions involving distressed properties, hit a record low of 38.6 percent based on a three-month moving average.

The drop marks the fifth consecutive monthly decline and is more than 10 percentage points lower than the February’s near-record-high of 48.7 percent.

According to HousingPulse, the lack of foreclosures and REOs available for sale is the reason for the steep decline in distressed sales.

HousingPulse respondents reported major banks seem to be keeping many REO properties off the market this year, but suggested banks may look to release “significant amounts” of bank-owned properties next year, which could lead to lower home prices.

When real estate agents were asked about the impact of the upcoming national elections, responses were mixed, with some agents reporting would-be homebuyers are holding off until after November.

One Georgia-based agent said, “We are seeing middle-to-high-income buyers pausing due to the upcoming elections. We hear it daily.”

An agent in Pennsylvania said, “It [the election] is having a negative effect on home sales in our market. Everyone is waiting to see who gets elected in November.”

Other agents found the opposite was occurring.

“Many of my clients are worried about interest rates rising after the election and feel they may be artificially held down by the current administration,” said one agent in Virginia.

A New York agent said, “I think now people are in a hurry before the election and not knowing what the future will hold after the elections.”

Foreclosures Cost Nearly $2 Trillion in Home Equity: Report

Foreclosures have drained nearly $2 trillion in home equity from neighborhoods across the United States, according to a report from the Center for Responsible Lending (CRL).

In a report titled “Collateral Damage: The Spillover Costs of Foreclosures,” researchers Debbie Bocian, Wei Li, and Peter Smith conclude that, based on the 10.9 million loansthat entered foreclosure between 2007 and 2011, approximately $1.95 trillion in property value has been lost or will be lost by residents who live close to foreclosed properties. This estimate includes losses stemming from completed foreclosures and future losses projected on foreclosure starts.

The researchers noted that the estimated cost does not include the total loss in home equity resulting from theforeclosure crisis (estimated at $7 trillion) and also does not take into account the equity lost by families who are actually foreclosed on.

In addition, the report doesn’t cover “the billions of dollars drained from communities as a result of lost tax revenue, vacant properties, increased crime, and lower school performance by children.”

Communities of color are seeing the greatest share of the $2 trillion loss, with more than half of the home equity drain impacting minority neighborhoods. The average spillover cost per family is or will be $21,000 in household wealth, or 7 percent of median home value, according to the report. However, in minority neighborhoods, the average loss is or will be $37,000, or 13 percent of home value.

Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights, called the report “troubling evidence of how much the economic costs of foreclosures are spilling over into communities all over America.” He also said the increased cost to minorities comes at the hands of abusive lending and servicing behavior.

“Communities of color—which have been targeted for years by predatory lenders, and abused for years by mortgage servicers-have been practically drowning. Until policymakers get serious about reducing foreclosures and restoring meaningful home ownership in all communities, a full economic recovery will likely remain out of reach,” Henderson said.

Janet Murguia, president and CEO of the National Council of La Raza, echoed the sentiment.

“The wealth drain triggered by foreclosures is continuing unabated, hurting Latino families and other vulnerable communities the hardest,” Murguia said. “We’re calling on policymakers to show strong leadership in stopping the foreclosure crisis and making fair and sustainable housing a national priority.”

 

DataQuick: 40 Out of 42 Counties Post Monthly Price Gains

In September, home prices improved in nearly all of the largest counties throughout the United States as tracked by DataQuick.

According to the company’s new Property Intelligence Report (PIR), home prices grew in 40 out of 42 counties month-over-month, while prices improved in all 42 counties from the previous quarter and over the last year.

DataQuick suggested the PIR is displaying evidence the recovery in housing is underway, but the PIR found an uneven recovery, with some areas facing risk factors, such as high REO inventory.

Gordon Crawford, VP of analytics for DataQuick, highlighted changes in Maricopa County, where house price growth was the highest on a monthly, quarterly, and yearly basis. From September 2011 to September 2012, prices in Maricopa County grew 20.23 percent.

However, Crawford noted the growth may not be sustainable when looking at other factors.

“It’s unlikely that this rapid growth can continue asforeclosure and sales trends do not support continued increases,” said Crawford.

The PIR, which also tracks foreclosures and sales trends for more than 120 million U.S. properties, found that in Maricopa County, the foreclosure growth rate surged 32.67 percent month-over-month and increased 19.48 percent over the last quarter.

Sales were also down in the county, falling 8.07 percent quarter-over-quarter and by 4.84 percent from September 2011.

If a backlog of foreclosures floods the market as some have anticipated and the increase in prices encourages would-be sellers to list their properties, home price growth will be dampened, DataQuick explained.

Overall, foreclosures fell in just 16 of the 42 reported counties over the last month, declined in 19 over the last quarter, and dropped in 21 counties over the last year.

Crawford explained foreclosure numbers tend to be more volatile than home price and sales numbers.

Orange County in Florida saw its foreclosure growth rate spike month-over-month, rising 26.98 percent. Fairfax County in Virginia increased 25 percent during the same period.

On the other hand, Suffolk County in New York saw its foreclosure rate suddenly plummet 47.37 percent month-over-month after rising 42.86 percent from a year ago. The foreclosure rate in Middlesex County also nose-dived from the previous month, falling 50 percent from August and 70.37 percent from the previous year.

Sales increased in 19 of the 42 reported counties over the last month and improved in 30 of the 42 reported counties over the last quarter. Year-over-year, sales were up in 35 of the 42 counties.

Although prices fell 0.2 percent in Fulton County, Georgia from August, sales grew 44.79 percent during the same period. Despite a typical seasonal decline for sales in September, some counties showed strong monthly, quarterly, and yearly growth in sales, including Orange County, California; St. Louis County, Missouri; Shelby County, Tennessee; and Multnomah County, Oregon.

While data on a county level offers a closer look at housing trends across the country, Crawford added that having data on a zip code level is very helpful for makinginvestment decisions due to variations in different neighborhoods.

 

Cumulative CMBS Defaults Up But Slowed by New Issuances

The cumulative default rate for commercial mortgage-backed securities (CMBS) in the U.S. rose over the third quarter, largely due to an increase in defaults among office loans, according to the latest data from Fitch Ratings.

The rate rose from 13.2 percent in the second quarter of this year to 13.5 percent in the third quarter, according to Fitch.

The total amount in CMBS loans that defaulted in the third quarter was $2.2 billion. The total number of newly defaulted loans during the quarter is 119.

Office loans made up more than half of both newly defaulted loans in the third quarter and year-to-date defaults, according to the ratings agency.

Of the $2.2 billion newly defaulted CMBS loans in the third quarter, $1.4 billion were office loans.

Despite the slight increase in defaults, Fitch says new issuances of CMBS loans are staving off the CMBS default rate somewhat.

“The increase in new CMBS issuance over the last two quarters has helped to stem rising default rates,” stated Britt Johnson, senior director of Fitch Ratings.

New issuances have risen almost three-fold over the year, according to Fitch. In the third quarter, new issuances totaled $6.2 billion. In the first quarter, they totaled $2.1 billion.

However, Fitch found in addition to the 119 newly defaulted loans in the third quarter, 81 CMBS loans reached maturity and did not refinance. These loans totaled $1.7 billion.

Eleven of the 81 are now paid in full – accounting for $723 million of the $1.7 billion.

Those that are not paid in full and have not been refinanced include 37 five-year loans from the 2007 vintage, totaling $1.1 billion, and 24 ten-year loans from the 2002 vintage, totaling $132.7 million.

During the third quarter, three loans with values greater than $100 million defaulted, including One Skyline Tower, a $678 million office space in Virginia; Colony IV Portfolio B, a $171 million loan on office/industrial spaces in six states; and Kroger Center, a $116 million office space in Florida.

Yearly Price Gains Maintained by Decrease in Distressed Sales

Summer’s end may have led to the close of a strong home-buying season, but a decrease in distressed sales is helping prices maintain their yearly gain and some regions are still experiencing monthly price increases.

As of August 23, 2012, prices fell 0.4 percent in 25 major U.S. metropolitan areas from July 23, 2012, according toRadar Logic’s RPX Composite price. Year-over-year, prices were still up 4.5 percent, and year-to-date, the RPXcomposite showed prices have risen 12.8 percent, the largest increase for the period since 2005.

When Radar Logic broke down the data based on region, a more complex picture was painted.

“There was considerable variation in price performance from region to region. In some areas prices have clearly peaked for the year and are now declining, while in others prices are still rising,” the real estate data provider said in its monthly housing report.

The Midwest and the West saw monthly price gains and rose 2.5 and 1.2 percent, respectively. In the South, prices were flat, increasing just 0.1 percent. Radar Logic said the South may have reached its seasonal peak and begin its seasonal descent. The Northeastern housing market brought the RPX Composite price down month-over-month with its 3.1 percent descent.

Year-over-year, price gains were seen in the South (6.7 percent), Midwest (7.3 percent) and West (9.2 percent). On the other hand, the Northeast fell 2.3 percent, according to the RPX Composite.

Over the last year, REO and foreclosure auction sales have seen a significant decline, which has helped to push up prices.

According to Radar Logic, motivated sales, or sales of REOs or foreclosures, fell to 13 percent of the total transaction count, down from 23 percent a year ago.

This decline in motivated sales led to the yearly increase in the RPX Composite. Over the last year since August 23, the price for motivated sales has been 34 to 42 percent less than the price for all other non-motivated transactions, according to data from Radar Logic.

The share of motivated sales compared to total sales decreased in all 25 metropolitan areas tracked, with Phoenix and Las Vegas seeing the biggest declines over a one-year period. In Detroit, 33 percent of sales were motivated, the largest among all 25 metros, while New York had the smallest share of motivated sales at 3 percent.

Radar Logic’s report also looked at buying activity among investors. As of the end of July 2012, investors accounted for 9 percent of total transactions and 21 percent of motivated transactions in the 25 metropolitan areas tracked.

In Miami, buying activity from institutional investors accounted for 18 percent of total sales, the most out of any of the 25 metros. Investment purchase in Phoenix was also high at 16 percent, along with Las Vegas, where 15 percent of transactions are from investors.

In additional, investor purchases have surged in those metros since 2009, increasing nearly 400 percent in Las Vegas, 350 percent in Phoenix, and almost 320 percent in Miami.

According to the report, investment purchases generally put downward pressure on prices, but in the most active markets, where there are bidding wars for the limited supply of REOs, prices for REOs increased.

Can the Fed’s QE3 Policy Save the Economy?

As the Federal Reserve launches its QE3 monetary policy, some interpret the plan as a sign Fed Chairman Ben Bernanke has “gone ‘all in’ on the U.S. housing market” and is clinging to hope the housing market can not only recover itself, but also restore the entire U.S. economy. This, at least, is the outlook of Global Markets Intelligence (GMI) Research.

The research firm suggests the Fed is turning to the housing market “as the last, best hope” for strengthening the overall economy and restoring “healthy self-sustained economic growth,” according to a GMI report released earlier this month.

“If QE3 does not work, we don’t think it’s much of a stretch to conclude that the U.S. financial system and economy is broken,” GMI stated, faulting “excess legacy indebtedness and excessive financial regulation” as the culprits.

As the Fed purchases $40 billion in mortgage-backed securities each month “for an unspecified but extended period of time,” GMI will watch vigilantly for signs of the plan’s success.

The first sign would be a sharp increase in mortgageapplications. Specifically, GMI will look for the Mortgage Bankers Association’s purchase composite index to rise above 200.

“If the Fed is successful in supercharging the fledgling recovery in housing, we should see the index exceed 200 in fairly short order, presumably by the end of the first quarter of 2013 at the very latest,” GMI stated.

Following an uptick in applications, GMI would expect to see existing home sales rise, perhaps above the five million mark.

While the true outcome of QE3 remains to be seen, GMIsuggests the “potential value of housing as a catalyst for growth should not be underestimated.”

Sustained and measured growth in housing could lead not only to growth in real estate, finance and construction, but also bring improvement in raw materials and retail markets.

GMI, however, remains mindful of the “fiscal cliff,” continuing to watch for possible evidence that “political partisanship and expectations for Federal sequestration have rendered the Fed impotent in the contemporary socioeconomic climate.”

LPS: Home Prices Continue to Improve in August, but Slow Monthly

August home prices across the United States were up an average 4.6 percent since the start of the year, according to data from Lender Processing Services’ (LPS) Applied Analytics division.

LPS’ Home Price Index, which reflects transacted sales rather than recorded sales, revealed that the average U.S. home price increased to $205,000 in August, up 0.2 percent from July. The average home price in August 2011 was $199,000, or 2.6 percent less than this year’s reading. The most recent price increase brings the HPI up 4.6 percent from January 2012.

The current cycle’s price peak was $266,000, recorded in June 2006.

Minnesota and Michigan led all states in month-over-month price gains, reaching growth of more than one percent. Minnesota saw 1.2 percent improvement from July, while Michigan prices increased 1.1 percent.

Of the 20 largest states measured in the report, Arizona was the only one to report double-digit year-over-year gains, with prices improving 14.1 percent since August 2011. Michigan was a distant second with 7.7 percent price growth.

Nine states experienced price depreciation in August, including Rhode Island (-0.6 percent), Tennessee, and Oregon (-0.4 percent each). LPS’ “Bottom 10” list was rounded out with Texas, which saw no month-to-month change in prices.

Connecticut fared the worst out of the 20 states in the report, reporting -3.7 percent price growth. Illinois followed with -2.4 percent.

Although Michigan placed second in terms of price growth, Detroit topped the list of metros that posted monthly improvements. Prices in the Motor City grew 1.4 percent in August, putting it just ahead of second-place Minneapolis (1.2 percent). The bottom of the list included four cities that all tied with -0.7 percent price growth: Visalia, California; Chattanooga, Tennessee; and Eugene and Salem, both in Oregon.