“Defaults, foreclosures plummet in January."
So read the headlines of my local paper.
Signs of Stability? Really? Now what might those be? I saw an image of Christ on a piece of toast once so I know we tend to see what we want to see, but not all my signs are spelling relief.
In fact, some things appear to be getting worse. I keep seeing “Vacant Stores and For Lease sign on office windows.”
Last year, I correctly argued against the common wisdom that there was this shadow inventory of foreclosed property that banks were holding back that would soon swamp the market. They weren’t showing up anywhere. So far, so good.
But, as continuing price declines push more and more homeowners deeper and deeper underwater, we are going to see a second wave of defaults. And, this one is not only going to swamp the market, it’s going to take the future with it when it recedes. It's like this all over the country and in some parts of Hawaii and Honolulu county, it's no exception.
The employment numbers don’t mean anything. They don’t count failed business owners and other self-employed, and there are a lot of them, who are not entitled to unemployment insurance. There are those who have simply given up looking for work or those who have “graduated” and have maxed out their benefits.
Without substantial job creation, more homeowners will lose their grasp on their finances as unemployment insurance, savings, and retirement accounts are depleted.
Then there is the thorny issue of deferred interest loans made between 2005 and 2007, the peak of the market, that will adjust upwards in the months to come. Property values in some parts of the islands have fallen by as much as half, making the possibility of a refinance on Hawaii Real Estate remote and increasing the likelihood that the borrower will exercise a strategic default.
I’m not sure where the good news is being found, but according to RealtyTrac:
One in every 409 homes in America was sent a default notice, scheduled for auction or bank owned in January, while 87,000 homes were seized and that is 31% more than January 2009.
Last year there were a record 2.8 million households facing foreclosure and that number is supposed to increase 40% to 3.5 million this year, according to RealtyTrac.
Consequently, that good news about stability is just the first wave receding.
There are two parts to a Tsunami. The first big wave is usually more of a curiosity, and then the water pulls way back from the coastline. It’s time to run for higher ground. When that tide comes back in, it comes with a vengeance and a wall of water several stories high.
There comes a point when the idea of continuing to struggle to make payments on something worth half the loan amount stops making sense. At that point, you no longer own the home; it owns you—for life. Because, we tend to believe, that we are not going to see these prices double in our lifetime.
The only way to avoid more and deeper pain across all sectors of the economy is principal reduction to market value. What is a short sale but a principal reduction for the new owner? How does that solve anything while getting us to the same place?
Those who have referred to the economic collapse as a Tsunami may be faulted for being overly dramatic, but not for being inaccurate. Prepare for the next wave.
If you know of anyone that is underwater on their mortgage and trying to consider their options, suggest to them that they call me, to see what we can do to help them either stay in their home, or work out an amicable agreement with their lender.
-Mahalo,
Don Dietz - 255-3598
Tuesday, February 16, 2010
Friday, February 12, 2010
Homeowners Renting Out Rooms to Keep The House
Reeling from the recession’s one-two-three-punch of job woes, climbing mortgage payments and evaporating equity, desperate homeowners are dipping into a nearby income stream to avoid foreclosure: That bedroom just down the hall.
While renting out a room has been around for years, sharing a home in order to save it has become an increasingly popular way to hang on to the front-door keys to the American dream.
Whether they’ve rented out rooms in the past to make ends meet, or a job loss has prompted them to tap into their inner landlord for the first time, many people say their rental income is the only thing keeping them from losing their homes. And for many homeowners—even those whose property is worth less than their loan amount—losing their home is not an acceptable option.
While it’s hard to know precisely how many struggling homeowners have turned to renting out rooms, housing advocates have seen a surge in the past year in the number of people desperate enough to give it a try. Especially among the recently unemployed, rental income—along with family loans—has become a godsend.
At Project Sentinel, where staffers report as many as 20% of their clients becoming landlords under their own roof, counselors are recommending the practice as a way for homeowners to tweak their debt-to-income ratio in order to qualify for a modification.
But a word of caution: becoming a landlord, especially for someone with little or no experience, can bring headaches- from tenants who fail to pay rent to those who are just a pain in the neck to live with.
Often, it’s family members moving in together for shelter from the recession. And all that drama can spell trouble.
While renting out a room has been around for years, sharing a home in order to save it has become an increasingly popular way to hang on to the front-door keys to the American dream.
Whether they’ve rented out rooms in the past to make ends meet, or a job loss has prompted them to tap into their inner landlord for the first time, many people say their rental income is the only thing keeping them from losing their homes. And for many homeowners—even those whose property is worth less than their loan amount—losing their home is not an acceptable option.
While it’s hard to know precisely how many struggling homeowners have turned to renting out rooms, housing advocates have seen a surge in the past year in the number of people desperate enough to give it a try. Especially among the recently unemployed, rental income—along with family loans—has become a godsend.
At Project Sentinel, where staffers report as many as 20% of their clients becoming landlords under their own roof, counselors are recommending the practice as a way for homeowners to tweak their debt-to-income ratio in order to qualify for a modification.
But a word of caution: becoming a landlord, especially for someone with little or no experience, can bring headaches- from tenants who fail to pay rent to those who are just a pain in the neck to live with.
Often, it’s family members moving in together for shelter from the recession. And all that drama can spell trouble.
Tuesday, February 9, 2010
When Is It A Good Time To Enter The Home Buying Market?
If you have a good job and good credit, the next few months might be a good time to go house hunting. Fence-sitters take the risk that Congress may let a rich tax credit expire, and that interest rates may rise. Buyers and sellers should consider the following factors as they consider jumping into the housing market.
-Mortgage rates are blissfully low, and that may not last. The rate on a 30-year mortgage averaged 5% last week, according to Freddie Mac. Rates are low in part because the Federal Reserve has been buying up about $3 trillion in mortgage-backed securities and mortgage agency debt. The aim is to hold down interest rates and keep mortgages available. But the Fed is slowly removing that financial crutch as the economy improves. It has no plans to buy any more past March 30, 2010. The likely result is an uptick in rates. Meanwhile, the recovering economy by itself should raise rates as the year goes on. Economists at the Mortgage Bankers Association expect to see a 6.1% rate by year end. Such a rise would add about $104 to the monthly payment on a $150,000 mortgage
-The home buyer tax credit expires on April 30, 2010 and no one knows if Congress will renew it a second time. Expect a clash between the real estate lobby and fiscal conservatives worried about the $1.35 trillion federal deficit. To qualify for the credit, you must sign a purchase contract by April 30, 2010 and close by July 1, 2010. First-time buyers get up to $8,000. “First-time” is defined as someone who hasn’t owned a home in three years. Move-up buyers get up to $6,500 when they purchase a new primary residence. To get the credit, you have to have lived in the old home for at least five out of the last eight years. The credits start phasing out at $125,000 in adjusted gross income for singles and $225,000 for joint filers.
-There are indications that home prices are near a bottom in some areas and may actually be rising a bit. That statement is dicey, because conditions vary by neighborhood and the data can be tricky.
Things might look different if you’re a seller though. Do you want to put your house on the market near the bottom of a price cycle? Homeowners who have a choice in the matter—those who can still pay their mortgages—are largely saying no. Inventories of homes for sale are down about 10% from this time last year, and 30% from the mid-decade peak of the housing boom, says Kevin Cottrell, chief economist at Kelsey Cottrell Realty Group. On the other hand, if you’re planning to move up to something grander, you might find a bigger bargain when you buy. And that $6,500 tax credit could swing a close decision.
Home sales peaked in some areas October and November, as buyers raced the expiration date of the original first-time home buyer’s credit. Congress later extended and expanded it. That rush satisfied some pent-up demand, but real estate agents are hoping for another rush around April. “People will wait to the very last second,” said Mike Travaglini, a vice president of Coldwell Banker Gundaker’s office in south St. Louis County.
Mortgage lenders have been tightening credit standards, which means fewer eligible buyers, says John Frank, president of Paramount Mortgage in Creve Coeur. Mo. “It’s getting tighter and tighter,” he said.
Lenders are insisting on credit scores of 640 to 660 for loans sold to Fannie Mae, Freddie Mac and 620 for FHA guaranteed loans. Those standards are higher than the federal agencies themselves insist on. FHA—which guarantees loans for people with low down-payments—has been raising its own insurance charges to borrowers and demanding higher premiums from people with poor credit scores.
-Mortgage rates are blissfully low, and that may not last. The rate on a 30-year mortgage averaged 5% last week, according to Freddie Mac. Rates are low in part because the Federal Reserve has been buying up about $3 trillion in mortgage-backed securities and mortgage agency debt. The aim is to hold down interest rates and keep mortgages available. But the Fed is slowly removing that financial crutch as the economy improves. It has no plans to buy any more past March 30, 2010. The likely result is an uptick in rates. Meanwhile, the recovering economy by itself should raise rates as the year goes on. Economists at the Mortgage Bankers Association expect to see a 6.1% rate by year end. Such a rise would add about $104 to the monthly payment on a $150,000 mortgage
-The home buyer tax credit expires on April 30, 2010 and no one knows if Congress will renew it a second time. Expect a clash between the real estate lobby and fiscal conservatives worried about the $1.35 trillion federal deficit. To qualify for the credit, you must sign a purchase contract by April 30, 2010 and close by July 1, 2010. First-time buyers get up to $8,000. “First-time” is defined as someone who hasn’t owned a home in three years. Move-up buyers get up to $6,500 when they purchase a new primary residence. To get the credit, you have to have lived in the old home for at least five out of the last eight years. The credits start phasing out at $125,000 in adjusted gross income for singles and $225,000 for joint filers.
-There are indications that home prices are near a bottom in some areas and may actually be rising a bit. That statement is dicey, because conditions vary by neighborhood and the data can be tricky.
Things might look different if you’re a seller though. Do you want to put your house on the market near the bottom of a price cycle? Homeowners who have a choice in the matter—those who can still pay their mortgages—are largely saying no. Inventories of homes for sale are down about 10% from this time last year, and 30% from the mid-decade peak of the housing boom, says Kevin Cottrell, chief economist at Kelsey Cottrell Realty Group. On the other hand, if you’re planning to move up to something grander, you might find a bigger bargain when you buy. And that $6,500 tax credit could swing a close decision.
Home sales peaked in some areas October and November, as buyers raced the expiration date of the original first-time home buyer’s credit. Congress later extended and expanded it. That rush satisfied some pent-up demand, but real estate agents are hoping for another rush around April. “People will wait to the very last second,” said Mike Travaglini, a vice president of Coldwell Banker Gundaker’s office in south St. Louis County.
Mortgage lenders have been tightening credit standards, which means fewer eligible buyers, says John Frank, president of Paramount Mortgage in Creve Coeur. Mo. “It’s getting tighter and tighter,” he said.
Lenders are insisting on credit scores of 640 to 660 for loans sold to Fannie Mae, Freddie Mac and 620 for FHA guaranteed loans. Those standards are higher than the federal agencies themselves insist on. FHA—which guarantees loans for people with low down-payments—has been raising its own insurance charges to borrowers and demanding higher premiums from people with poor credit scores.
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