Housing Is On The Upswing
The Good News
The worst of housing times may be slowly working its way into a dim memory as home buyers are returning to the marketplace. The national housing stats are suggesting that the terrible pain of the last six years may, at last, be coming to an end. According to the National Association of Realtors [NAR], national home sales rose 3.4% in April for a total of 4.6 million homes sold and the median home price for the nation rose to $177,400, a full 10% over last year. Of course, the NAR has a vested interest in the health of the housing sector and its stats may be on the rosy side, as many commentators have pointed out. Still, 10% increase in value, even 5%, is terrific news.
For more good news, purchases of new homes rose almost 10% over last year. At the same time the purchase price of these new homes rose almost 5% to a national median of $235,700. Housing starts are up over 50% from their 2009 low. So, it does seem as if there is some ground for optimism. Finally, the combination of incredibly low mortgage rates and low home prices has begun to attract the public, still stunned from the worst economic downturn in decades.
Why Is This Happening?
For the millions still underwater and behind in outrageous payments, even thinking that the housing crisis may be on its way out is a cruel joke. Nevertheless, there are some solid reasons for an eventual and actual end to the housing crisis of the last few years. Our U.S, labor market has been improving over the last two years ever so gradually, diminishing the ranks of the unemployed slightly month by month. Add to that enticing mortgage rates which remain at historic lows and it makes sense that home buyers with the wherewithal would begin to have enough confidence in their future prospects to make that big home purchase.
Rent vs. Buy
Rental rates have been rising throughout the country and renting has many advantages over owning a home. Nevertheless, rental rates are still much higher than the cost of owning a home in great swaths of the country. This is based on purchasing a home with 20% down and owning the same home for at least 5 years Additionally,these stats take into consideration only the purchase price of the home, not the ongoing costs of maintaining it.
Though for the most part in Southern California rental rates are still cheaper than owning a home, the allure of home ownership is still a strong pull both for the younger, first-time buyers as well as older, more experienced ones. The many young people who have returned to live with Mom and Dad or those who have rented with roommates for several years are now yearning to live free–in their own homes.
Is The Crisis Finally Over?
Millions of homes are still underwater. Millions of homeowners are still faced with foreclosure or the prospect of short sale. With that in mind, the housing crisis is certainly not over. Despite the modest recovery in the U.S., now our global trading partners are starting to slow down or even crash themselves, especially the EU and the BRIC countries [Brazil, Russia, India, China], which had been keeping the economic engine stoked. This country is recovering and we may manage to keep up the trend going mainly by satisfying pent-up internal demand, especially in housing.
Should I Buy Or Sell Now?
It seems clear that now and for the rest of this year, it’s a good time to buy a home. Prices are still very low and mortgage rates are very low. Both of these factors are likely to extend through the end of the year and into 2013.
For those thinking of selling, it’s a more mixed picture. For those deeply underwater, home prices are unlikely to spike in the next few years, so better to bite the bullet and sell now. For those who want to move up, this seems to be the ideal time to make the move. And, of course, many have little choice in the matter: whether it’s through marriage, divorce, new babies or new jobs, selling is really the only option.
The bomb has already exploded and suburbia has been left childless. Suddenly, it’s not just rural areas and the Rust Belt that’s losing population. Even, Beaver Cleaver’s neighborhood has no kids. That’s what’s contained in the 2010 Census. Very few of the 3143 American counties report any growth in population and many [58.6%] report steep declines. Children used to make up 25.7% of the population, even a scant 10 years ago. Now, children are 24% and still declining. In only 49 counties did the kid population increase, most in suburbs around mid-sized cities like Charlotte, NC.
Los Angeles County, as reported in the L.A. Times, is losing children at a rapid rate due to the high cost of housing and the high unemployment rate. Too, hard times have led many new immigrants, many illegal, to return to their home countries, rather than tough it out here. That group had among the highest birthrates.
Time was when new schools were popping up all the time to accommodate the burgeoning baby boom. Now, even the youngest boomers are into advanced middle age. And, they have not produced children like their parents. As a result, the archetypal American neighborhood, Suburbia, USA, is increasingly childless. This fact is having massive impact in those communities. As in L.A. Unified, schools are closing, pools and recreation areas are shutting down. All the activities we associate with child-rearing are diminishing or eliminated altogether–youth sports, music and dance classes, martial arts, swimming, skiing, birthday parties.
With the vanishing children goes the need for the 3-bedroom, 2-bath home with yard. Perhaps, too, the whole concept of suburbia is fading as newer communities insist on walkability, proximity to shops and public transportation.
Who Will Be Future Home Buyers?
During the real estate boom, as home values moved inexorably upward, buyers spread out to purchase a second or even third home. Will this trend accelerate? It’s possible, yet, given the moribund state of housing right now, it doesn’t seem too likely. What does seem likely is that the buyers will increasingly be singles, childless couples, older singles and couples.
Where will they want to live? That, too, is not really known as yet. Many young singles spend their twenties in urban areas like San Francisco and Manhattan or Brooklyn, Boston or Miami. They are marrying later and putting off child-rearing to their thirties. Many of these want to stay in the urban core. With only one or, possibly, two children, that’s what they are doing. The childless couples are doing the same thing. They like the amenities so close by–public transportation, great shopping, wonderful restaurants. Why move?
The Baby Boomers, many of whom were themselves raised in Suburbia, also raised their own children there. But, the kids are long gone for the oldest boomers and going for the younger ones as now even they are in advanced middle age. No longer tied to school districts or commutes, many of the still-huge boomer generation are likely to leave the suburbs where they brought up their children in search of new horizons.
Effect On Today’s Housing Market
None of this is terrifically good news for today’s market of foreclosures, short sales and underwater property. If the kids are grown, why would a couple hang on to the four bedroom home on which they owe twice as much as it’s worth? They would be better off short selling the house and finding something smaller. On the other hand, if they were counting on sellling the home to move to a cheaper, slower-paced area, that option is closing fast as well. Not only has their equity dropped like a stone, but who is going to buy that big house? Who’s going to be rushing to the suburbs to buy anything?
Louis XIV of France, styled the Sun King, famously opined, “Apres moi, le deluge.” After me, the flood. He was right, of course, for his excesses so infuriated the people that his successor was guillotined and his monarchy overthrown in the French Revolution.
SoCal Plunge In Foreclosure Filings
Something similar seems to be brewing in Southern California and maybe even nationwide as lenders ratchet up their foreclosure filings after the “robo-signing” lull. Though foreclosures dropped dramatically in SoCal this fall, so, too, did all home sales. The reasons seem to be many: the end of the home buyer tax credit, stubbornly high unemployment and the generally still-moribund economy. In fact, sales are down a full 16% from November of 2009. This at the same time foreclosure filings fell 14% from the previous November after a 22% decline in October for a two-month total 36% decline. Nationwide, the filings fell 21%.
December is traditionally a slow month in real estate as consumers focus on retail buying, parties and holiday travel plans. Typically, though, also in December smart investors are out there snapping up last-minute bargains of the now-extremely motivated sellers still on the market. Competition is almost always much less, to put it mildly, and sellers are determined to close out their books for year’s end. This year seems to be different as even investors are holding back.
That may be because the huge drop in foreclosure filings this fall has ominous repercussions for home prices in the new year. With the foreclosure freeze over, informed observers now expect to see the banks ratchet up their foreclosures with a vengeance, restarting filings begun in October and November and barreling ahead with new ones in January. Executives from RealtyTrac, a real estate data collection firm, speculate that the housing recovery could be set back three months, if not more, as the foreclosures pile up. In fact, we can expect ” an avalanche” of foreclosures shortly.
SoCal Home Prices
The most immediate effect of an avalanche of foreclosed properties on the market will be to further depress prices in Southern California which had started a slight upward movement. Los Angeles County home prices had dropped 1.2% over November 2009 to a median of $325,000. Riverside and San Bernardino Counties, the hardest hit by the bursting of the real estate bubble, lost 2.5% and 5.0% respectively to medians of $195,000 and $152,000. But, that is a huge improvement over the 30% and 40% drops of previous years. Other SoCal counties actually gained in value. Orange County eked out a .6% improvement for a $435,000 median home price. San Diego topped the charts with a 3.1% improvement over last year to a median of $335,000 with Ventura County just behind at 2.7% uptick to a median of $375,000.
Future: More Underwater Homes
These hard-earned gains will soon be lost as the promised avalanche of foreclosures hits the market. Perhaps sales will pick up as buyers and investors are lured back into the game. But, bargain-hunting fun aside, another price drop for already distressed homeowners will plunge yet more homeowners underwater. That, in turn, spirals down into more foreclosures and more equity loss in future.
Like Louis XIV, banks see this as well as anyone, yet still refuse to modify loans in any serious way. Like Louis, they see, but, obviously, don’t give a damn as long as they get their bonuses. Short-term is the only term.
Bank of America, largest holder of US home mortgages, has declared a moratorium on foreclosures. Other large lenders, GMAC, Chase, have stopped foreclosures in 23 states, but all large lenders are expected to follow suit shortly and declare a total moratorium across the country. Initially, California was not involved, though immediately Jerry Brown the attorney general who is also running for governor of the state, pledged to scrutinize the banks’ foreclosure processes.
The reason for the moratorium is the revelation of the “robo-signing” of foreclosure affidavits without even looking at the contents. This has opened the banks to claims of massive fraud.
What does this mean for my home? Will the auction go through?
If you with a BofA or Countrywide loan were expecting an auction any day now, that auction has been postponed indefinitely. As mentioned here previously, from start to foreclosure, the process has been taking over one year due to the slow pace set by the banks. Now, add to that an indefinite moratorium period. The consensus seems to be the time will be 60 to 90 days. I would bet that most, if not all, foreclosures will begin again only in the new year.
How long will I be able to stay in my property without paying the mortgage?
At this point, no one knows what is going to happen next. Most likely, BofA for now and perhaps other banks will use the period of the moratorium, no matter how long it lasts, to clear out their huge,clogged pipelines of homes which have already been foreclosed upon and remain in some part of the sale or pre-sale process. With the pipeline cleared, once the moratorium is lifted, foreclosures should resume at a brisk clip.
I haven’t paid my mortgage on my home for 6 months and I have a Notice of Default. Does this mean I won’t get a foreclosure on my record?
No, this means that, if you have just done nothing so far, the BofA moratorium is allowing you time to do a short sale and avoid the worst result for your credit. If you have an NOD, that means the process has started and the clock is ticking. Once the moratorium is lifted, whenever that is, you are just that much closer to foreclosure. You may be one of the first foreclosures after the moratorium.
For help deciding or doing a short sale, call me at 626-641-0346 or email Diane.
I haven’t paid, but I don’t have a Notice of Default. What about me?
It’s unclear at this point whether or not the banks will continue to issue NODs during the moratorium. No matter because at some point the moratorium will be over and the foreclosures will continue. During this lull in the foreclosure activity, you have time to get going on a short sale.
How did all this happen?
As indicated in another post, really the incredible speed and complexity of the modern mortgage system are at the root of the issue. As explained in a Washington Post article, the situation is further complicated by the various reactions and legal opinions coming from many states. Some states which have not been especially hard hit appear to have adopted either more scrupulous attention to detail or some have even passed laws making it easier for banks to foreclose. Other states, especially the Big Four Foreclosure States, Florida, California, Arizona and Nevada, faced with entire neighborhoods shuttered and communities gutted of population, have tried to stem the tide.
What is going to be the outcome?
BofA has already said it will resume foreclosures once its internal investigation is complete and has further stated that, so far, its internal investigation has revealed no irregularities.Banks are notoriously self-serving, though, so no one is relying too much on a self-test. Rumors are that Congress wants to hold hearings on the topic to see exactly what the banks are doing to validate the foreclosure process.
It’s evident that massive lawsuits may follow any hint of wrongdoing which could throw the entire real estate and financial sector into chaos. Bad as the foreclosures are, the spectre of another TARP to bail out the banks again is just too horrible to contemplate. Let’s hope against hope the banks have been following the proper procedures.
For help deciding or doing a short sale, call me at 626-641-0346 or email Diane.