AOL Real Estate - Blog http://realestate.aol.com/blog AOL Real Estate - Blog http://realestate.aol.com/blog/media/feedlogo.gif AOL Real Estate - Blog http://realestate.aol.com/blog en-us Copyright 2013 Weblogs, Inc. The contents of this feed are available for non-commercial use only. Blogsmith http://www.blogsmith.com/Avoiding Foreclosure: Declaring Bankruptcy Sometimes Helpshttp://realestate.aol.com/blog/2010/07/23/filing-for-bankruptcy-to-avoid-foreclosure/http://realestate.aol.com/blog/2010/07/23/filing-for-bankruptcy-to-avoid-foreclosure/http://realestate.aol.com/blog/2010/07/23/filing-for-bankruptcy-to-avoid-foreclosure/#commentsFiled under: ,

Filing for bankruptcy to avoid foreclosureIt's sad but true. Americans are increasingly filing for bankruptcy in order to avoid foreclosure.

Katherine Porter, a bankruptcy expert at Harvard Law School, estimates that 75 percent of Chapter 13 filings fall into this category. "Despite all the government programs, bankruptcy is probably the most commonly used foreclosure prevention technique," Porter tells HousingWatch.

If you'd like to file for bankruptcy but are worried about your credit, Porter says don't worry. "Those who have a foreclosure filing against them, their credit score has already taken such a big hit that the additional blemish of bankruptcy is not particularly significant," she says.

It's sad that we've had to resort to this, but the truth is that bankruptcy filing stops the foreclosure process cold. Lenders aren't even allowed to try collecting debts until a judge gives them the OK.

It's only a short reprieve though, says Porter, lasting a couple of months at the most because by then most court cases have been resolved.
So how do you go about this delicate maneuver?

The first step is filing for Chapter 13 bankruptcy. You could also file for Chapter 7, but that doesn't really work very well, as CNN Money points out. Borrowers usually lose their homes in a Chapter 7, because the home becomes an asset that can be used to pay off other debtors.

Porter recommends sticking to Chapter 13 filings because a court will look at all your finances -- incomes, bills and disposable income -- and set a three to five year repayment plan that determines how much you must pay each month to make up your arrears. Someone with good income might be all caught up by the end of five years, but most people end up just paying off a fraction of their debt.

Don't do it if you're not sure this will work, however. Legal fees for Chapter 7 will cost you more than $1,500; for Chapter 13 it's around $3,000.

Beware: Filing for bankruptcy doesn't work for everyone. Says Porter: "Chapter 13 works poorly for people whose mortgage is totally unaffordable." It only makes sense if you have a job, and enough income to pay your mortgage and other bills. Otherwise you could find yourself unable to keep up with the court-mandated payment plan, which would put you in the same tight spot again a year from now. At that point, you won't be able to file for bankruptcy because there are legal limits on how often you're allowed to do it.

In other words, bankruptcy will give you a leg up in catching up with your payments; and it won't let you make the same mistakes all over again.


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]]>BankruptcyDelinquent Borrowerforeclosure preventionForeclosurespersonal bankruptcyDalia Fahmy2010-07-23T17:03:00 00:00Distressed Homes: Toll Brothers Invests Instead of Building Morehttp://realestate.aol.com/blog/2010/07/22/toll-brothers-invests-in-distressed-homes-instead-of-building-mo/http://realestate.aol.com/blog/2010/07/22/toll-brothers-invests-in-distressed-homes-instead-of-building-mo/http://realestate.aol.com/blog/2010/07/22/toll-brothers-invests-in-distressed-homes-instead-of-building-mo/#commentsFiled under: ,

You can't blame them for trying to make lemonade. Toll Brothers, the nation's largest builder of luxury homes, says it has launched an investment firm to take advantage of the housing bust.

Gibraltar Capital and Asset Management, a wholly-owned subsidiary, will trade distressed property and loan portfolios, take over struggling construction projects and resell them to other builders, and help banks and developers deal with the distressed real estate on their books.

Translation: Toll Brothers, which made a ton of money selling pricey homes during the boom, is now using that money to scoop up some of those properties at cents to the dollar. Makes perfect business sense, right?

Doug Yearley, Toll Brothers' CEO thinks so, too. "We believe there are many potential investments arising from the distress in the real estate industry," he says in a press release, adding that the company plans to tap into its relationships, expertise, and of course, "capital access" to "add value."

How does this affect you?
On one hand, Gibraltar's activity will be largely financial, so it will probably do little more than give Toll another source of income. On the other hand, getting to play in the financial arena will allow Toll Brothers to buy properties extremely cheaply, since they'll be cutting out the middle man, says Mitchell Hochberg, a real estate investor and advisor at Madden Real Estate Ventures.

This could affect you one of two ways. It's good news if homebuilders pass on the savings to their customers in a few years. It's not such good news if builders use the savings to give themselves a bigger margin.

"It's a supply-and-demand issue," Hochberg told HousingWatch. "It could go either way."

Toll's foray into distressed property investment isn't completely new. Last year, the company began increasing its land holdings -- and buying distressed real estate -- for the first time since 2006, Bloomberg reports. Apparently, Toll spent $143 million in the second quarter alone on buying or optioning land, with about half of the deal falling into the distressed category. Bloomberg goes on say that others have been doing the same, with competitor Lennar buying a chunk of a $3.05 billion loan portfolio from the FDIC earlier this year.

Eli Tene, a managing director at Peak, a firm that specializes in dealing with distressed properties, told HousingWatch that homebuilders always try to load up on land during downturns.

"Homebuilders feel the bottom is near," says Tene. "They can buy land at amazing prices. It doesn't make sense for them to build yet, but this is the best time for them to buy."

For publicly traded companies, he says, it's more sensible to have a separate subsidiary that can raise funds and make investments that don't affect the parent company's bottom line.

In the grand scheme of things, however, homebuilders are small players in the massive distressed-property market. Billions of dollars change hands between banks, private equity firms, hedge funds and other investment firms each year in this space.

Many of these investors -- especially distressed-asset investors whose job is to figure out which industry is getting the biggest beating -- have been fixated on the property market all year. A survey by DebtWire, a market research firm, earlier this year found that 41 percent of distressed-debt investors thought real estate would offer the best deals this year, compared to 19 percent who thought so in 2009.

All this raises the question: Why are homebuilders so pessimistic? You may recall that a report on U.S. homebuilder confidence (released by the National Association of Home Builders on Monday) showed that it dropped to its worst level since April 2009.

My best guess is that Toll Brothers and others seem to be preparing for a long, slow recovery, not for an immediately stellar profit. The homebuilder survey only looked at short-term expectations, while Toll Brothers has its eye on the long haul.

American homebuyer, take note: If you want to make it in the real estate market, buy when prices are low and be prepared to hold on for a very long time.


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]]>distressed debtDistressed homedistressed propertyHome builderhomebuilderhousingreal estateToll BrothersDalia Fahmy2010-07-22T14:19:00 00:00Buy vs. Rent: Now Buying Is Cheaper in Big Citieshttp://realestate.aol.com/blog/2010/07/15/buy-vs-rent-buying-is-cheaper-right-now-in-major-cities/http://realestate.aol.com/blog/2010/07/15/buy-vs-rent-buying-is-cheaper-right-now-in-major-cities/http://realestate.aol.com/blog/2010/07/15/buy-vs-rent-buying-is-cheaper-right-now-in-major-cities/#commentsFiled under: ,

It may now be cheaper to buy than rentCredit Suisse is putting numbers to something we already suspect: The gap between the cost of owning and renting an apartment has halved in the past two years. In some locations, it's even cheaper to rent an apartment than to own.

In a research report, the firm says the percentage of median household income needed to pay the mortgage on a median-priced home is at a 30-year low, thanks to record low mortgage rates and cheap home prices. It singles out Washington, D.C., California's Inland Empire, Las Vegas and Phoenix as areas where it's cheaper to own than rent.
Backing up their math with legwork, the analysts compared two similar apartments in Stamford, Conn., and found that it's only 16 percent more expensive to own than rent with a 30-year fixed-rate mortgage; compared to a 43 percent difference in 2007. In San Francisco, they found it was actually 1.7 percent cheaper to own a condo than to rent.

This research jibes with work from others. Last month, real estate website Trulia.com launched a buy vs. rent index, which showed it's cheaper to buy in obvious cities such as Phoenix and Las Vegas, but also in less obvious ones such as Minneapolis and Arlington, Texas.

The problem with the analysis, however, is that it usually doesn't take into account the long-term costs of owning a home.

Think of all the money you have to spend on upkeep, for example. Then there's opportunity cost: the financial gains you're giving up by sinking your money into interest payments. Housing bulls argue that real estate offers great returns, but it's not quite true. Home prices historically gain just 1 to 2 percentage points over inflation, according to the National Association of Realtors, while the S&P stock index, after inflation, has almost doubled over the past 50 years, according to data from Yale economist Robert Shiller.

Home ownership also carries other hazards, as a Federal Reserve real estate analyst recently told a conference, as reported by The Wall Street Journal. As an investment, it's undiversified: you probably wouldn't think it's a great deal if someone suggested you put most of your savings into a bond issued by your condo board, right? And, it's tightly correlated to the job market, which means that you're likely to lose your job and value in your home at the same time.

Most economists would agree with the basic math, but they argue that the details vary greatly from case to case. It's not quite so black-and-white, economist Joel Naroff told AOL HousingWatch.

"Housing was never as lucrative an investment as people thought, except for people who lived in areas where prices did rise significantly," he says. "Because we went through a couple of housing bubbles, people started looking at their homes as an investment rather than as a place to slowly build wealth."

The biggest financial advantage that you get from buying a home, he explains, is leverage: You get to put $20,000 down on a home that's really worth $100,000, and as you slowly build equity you're taking advantage of appreciation in an asset that you wouldn't otherwise have been able to afford.

In other words, nobody's going to lend you $80 to buy $100 in Apple stock and only charge you 6 percent for the privilege.

Looking at it that way, this might be a good time to buy a home, after all.


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]]>Buy vs RentCredit Suissehome affordabilityJoel NaroffRent vs BuyDalia Fahmy2010-07-15T10:55:00 00:00Home Prices Expected to Drop, but Only a Little, Economists Sayhttp://realestate.aol.com/blog/2010/06/24/home-prices-expected-to-drop-but-only-a-little-economists/http://realestate.aol.com/blog/2010/06/24/home-prices-expected-to-drop-but-only-a-little-economists/http://realestate.aol.com/blog/2010/06/24/home-prices-expected-to-drop-but-only-a-little-economists/#commentsFiled under: ,

The storm clouds are gathering. Many experts see home prices dropping this yearWhat a difference a month makes.

MacroMarkets' June "home price expectations index" released this morning shows that 56 percent of surveyed experts see home prices dropping this year, compared with only 40 percent who thought so in May. In other words, experts -- the 106 economists, analysts, consultants and academics surveyed -- are becoming more pessimistic.

It's not a huge drop. The mean consensus is for a 1.36 percent drop in 2010, followed by a gradual recovery that would take prices up 10.46 percent by the end of 2014. By comparison, last month the consensus was for no change in prices this year, and a 12.36 percent price over four years.

Sometimes it seems that economists are just trying to read a crystal ball. Why the change in sentiment?

Bill Smalley, an analyst at MacroMarkets, tells AOL HousingWatch that it could be fairly technical. The experts are supposed to be predicting prices according to the S&P Case-Shiller Index, which has a two-month lag. So after the MacroMarkets' May survey already had been published, S&P Case-Shiller's March data came in weaker than expected.
Of course, there also has been a spate of negative housing data released in the past month: weak housing starts, rising inventories, falling homebuilder confidence.

Tony Sanders, real estate finance professor at George Mason University, says the consensus in May was overly optimistic anyway. The boost from the homebuyer credit is simply disruptive noise, he argues.

"There's too much supply and lack of demand in the housing market, anemic GDP growth, high unemployment and consumer spending is still disappointing," he says. "This is not a blueprint for higher home prices."

In May, Sanders had predicted a 2.40 percent drop in home prices for 2010, and revised this up in June to a 0.50 drop. The reason for his reduced pessimism, in the face of others' increased pessimism, is his growing conviction that the government will continue to extend homebuyer incentives.

"The government is going to continue pumping money into the housing market," he says. And that's not a good thing. Unequivocal government support for homeownership is what got us into this mess in the first place, he argues, and the White House should instead be focused on offering tax breaks to businesses who can revive the economy.

"All the elements are in place to recreate the fiasco that we just went through," he says.

Fortunately, many economists disagree.

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]]>EconomistsExpectations SurveyHome pricesHousing ForecastMacroMarketsDalia Fahmy2010-06-24T09:27:00 00:00New Home Sales Lagged in May, So What's Next?http://realestate.aol.com/blog/2010/06/23/new-home-sales-lagged-in-may-so-whats-next/http://realestate.aol.com/blog/2010/06/23/new-home-sales-lagged-in-may-so-whats-next/http://realestate.aol.com/blog/2010/06/23/new-home-sales-lagged-in-may-so-whats-next/#commentsFiled under: ,

It's official: The housing market stinks. So when's the turnaround coming?

Sales of new homes went into a freefall in May without the government's artificial lifeline. No wonder homebuilders were feeling so glum in June. Analysts were expecting a dip in the housing market, but nothing this bad.

New home sales dropped 32.7 percent from April, the Commerce Department reported, and 18.3 percent from the year before, to a seasonally adjusted rate of 300,000 units. That's the lowest level since the government started tracking home sales in 1963.

Not surprisingly, people are now starting to worry again about the threat of a double dip in the housing market.

Where are things headed now?
"We don't have enough job growth to adequately supporting housing," says Mike Cosgrove, principal at research firm Econoclast.

That's the tune on everyone's mind today: No jobs equals no housing recovery.

It is important to note that the new-home sales slump is not affecting all areas equally: The West was hit hardest: The seasonally adjusted annual sales rate dropped 53.2 percent month-to-month and 43.3 percent year-over-year. The South came in second with a 25.4 percent month-to-month decline and 16.7 percent year-over-year.

The Northeast and Midwest fared a good bit better, with both areas registering year-over-year growth: 12 percent and 6.3 percent, respectively. But month-to-month sales were down in both regions by 33.3 percent and 23.9.

Let's see how long it takes for everyone to start lowering their predictions for the rest of the year.

In some quarters, sentiment started souring before this morning's report. Meredith Whitney, famous Wall Street bear, told CNBC yesterday that there's a risk for a double dip in the housing market. MacroMarket's monthly survey also turned negative this morning: The real estate experts they polled are forecasting a small dip in prices this year, after previously indicating prices would remain steady.

It seems like people finally are getting a dose of reality about the housing market, at least for a brief moment while the government keeps its fingers out of
the mix.

"The housing recovery will take years. People's net worth has been dramatically reduced."

By the way: The new-home-sales numbers are especially valuable, because they measure contract signings -- not closings -- that took place in May, which means they captured demand unaffected by the housing credit. The May existing homes sales data released yesterday, by contrast, was still buoyed by the credit because it measures closings; the tax credit expired at the end of April but buyers have until the end of June to close.

If there's any silver lining, it's that the large drop in new-home sales in May came off a remarkable 30.8 percent rise in new-home sales in April. Hopefully, the numbers will reach something of an equilibrium in the coming months.

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]]>census bureauCommerce Departmentdouble diphousing recoveryNew Home SalesDalia Fahmy2010-06-23T15:30:00 00:00Is Queens, N.Y.'s Housing Market Headed for Collapse?http://realestate.aol.com/blog/2010/06/23/is-queens-n-y-s-housing-market-headed-for-a-collapse/http://realestate.aol.com/blog/2010/06/23/is-queens-n-y-s-housing-market-headed-for-a-collapse/http://realestate.aol.com/blog/2010/06/23/is-queens-n-y-s-housing-market-headed-for-a-collapse/#commentsFiled under: ,

If you feel you got away too easily in the housing collapse, maybe you live in New York's Queens or on the outskirts of another big American city.

Keith Jurow at the Real Estate Channel recently posted an interesting piece, teasingly titled "A Housing Price Collapse in Queens New York Is Almost Certain," in which he argues that homeowners in Queens are a sorry mess who haven't gotten their comeuppance yet.

Citing figures from RealtyTrac and Trulia, among others, he calculates that as of June 16 there were 9,054 Queens homes that banks had put in default since February 2009, none of which had been foreclosed yet. More than 4,000 of those have mortgage debts above $400,000. By his count, at least 25,000 properties in Queens are delinquent in their payment by 60 days or more.

"What happens when the banks start putting into default the 25,000 seriously delinquent homeowners and foreclosing on the 9,000+ properties currently in default?" he asks.

"This overhang waits like a potential tsunami that we know will follow when an earthquake measuring 9.1 erupts underwater as it did in late 2004. Sooner or later, the banks will have to begin whittling down the growing number of delinquent and defaulted properties in Queens. What will happen to prices when the banks finally start to place this potentially enormous REO inventory on the market? Simple. Prices will plunge. Make no mistake, it will be ugly."

In other words, Jurow is worried that Queens' overly positive foreclosure data is hiding something nasty. According to RealtyTrac, one out of every 400 households in the U.S. was in some stage of foreclosure in May, but only one out of every 2,285 Queens homes was. Foreclosure filings in Queens fell 32 percent from the previous month and 48 percent from 2009, whereas the U.S. average only fell 3 percent on the month and barely budged from the year before.

Is it really as bad in Queens as Jurow makes it out to be? No, says Jonathan Miller, CEO of New York appraisal firm Miller Samuel.

"There's already been a big correction: Queens started to see prices decline about a year and a half before Manhattan did," says Miller, whose data shows that prices in Queens fell 18 percent between the third quarter of 2008 and the first quarter of 2010. "We have seen a very sharp correction to date. The way I look at it, the worst is behind us."

Granted, the foreclosure process takes about two years in New York state, so it could be that we won't know the truth about Queens' foreclosures for a long time. RIck Sharga, senior vice president at RealtyTrac, points out that by then the housing recovery may already be robust enough that a foreclosure wave won't do much damage. While Sharga doesn't expect a full housing recovery until 2013, many experts believe the housing market will at least be on the upswing by the middle of 2011.

It's also worth noting that New York City real estate is very fragmented. While it's possible that current delinquencies in Queens might translate into a wave of foreclosures later on, if those bad loans are concentrated in certain neighborhoods, they may not affect the rest of the borough.

If you're wondering whether the Queens pattern might be repeating itself in other parts of the country: It already is. The suburbs of Los Angeles and Miami, for example, are among the hardest-hit.

Tara-Nicholle Nelson, a real estate agent and spokeswoman at Trulia, points out that in many suburbs, luxurious subdivisions went up around the same time, with buyers getting into the same ridiculous adjustable rate mortgages. As a result, many of these areas defaulted en masse. Many new buyers, meanwhile, are not interested in picking up these defaulted mansions and instead buy a smaller home, as long as it's closer to the city center.

That's one of the reasons homebuyers tend to crowd into large urban centers in the first place: There's safety in numbers.

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]]>BrooklynFringesHousingHousing MarketHousing RecoveryQueensReal Estate bubbleReal Estate CollapseState IslandSuburbsTruliaDalia Fahmy2010-06-23T14:04:00 00:00Existing Home Sales Drop, Despite Incentivehttp://realestate.aol.com/blog/2010/06/22/existing-home-sales-drop-despite-incentive/http://realestate.aol.com/blog/2010/06/22/existing-home-sales-drop-despite-incentive/http://realestate.aol.com/blog/2010/06/22/existing-home-sales-drop-despite-incentive/#commentsFiled under: ,

Existing home sales drop. An aerial view of a suburbSales of existing homes dropped unexpectedly in May, according to data released today by the National Association of Realtors. Economists had predicted that sales would rise, buoyed by the home buyer tax credit. (The deadline for contract signings was the end of April, but buyers have until June 30 to close.)

Simply put, the economists were wrong.

Completed transactions of previously owned single-family homes, town homes, condos and co-ops, were at a seasonally adjusted annual rate of 5.6 million, down 2.2 percent from April but up 19.2 percent from May 2009. This means that if sales continue at the current rate, 5.6 million existing homes will change hands in 2010. Experts polled by Reuters had called for sales to rise 5.5 percent to 6.12 million units.

NAR economist Larry Yun explains that May sales dropped because of delays in mortgage processing, particularly for short sales. In addition, Congress's failure to reauthorize the National Flood Insurance Program is delaying closings, because the government stipulates that homes with federally insured mortgages in areas prone to flood to have flood insurance.

The NAR headlined its report with the cheery year-on-year figures, but we already knew we're off the bottom. The question is how robust is the recovery?
It depends on how you look at it. If you expected the gang-buster gains of this spring to continue, you are overlooking the artificial injection from the home buyer credit. But there's no reason to get completely pessimistic, either.

Jim O'Sullivan, chief economist at MF Global, says the real trend is somewhere between the recent ups and downs.

"The data will be artificially low for a few months after being kept artificially high," he says. "To find the real current trend you have to put them together."

Data is likely to remain distorted in this way until about August, he predicts. Then, we're likely to resume the recovery at a more measured pace.

That means: beware. News is likely to get worse before it gets better. Case in point is tomorrow's new home sales report due from the Commerce Department. Experts polled by Reuters expect new homes sales in May to have fallen 19 percent from April to an annual rate of 410,000.

By the way, the reason experts are more pessimistic about new homes sales than about existing home sales, is because new-home sales data are based on contract signings while existing home sales number are based on closings. This means that new-home buyers who wanted to take advantage of the June 30 closing deadline would have tried to sign their contracts before May and therefore would not make it into the reading.

That's the kind of detail that makes most housing data impossible to compare, forcing everyone to guess as best they can. Let's see what fortunes tomorrow brings.

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]]>Buy a HomeBuy a HouseExisting Home SalesHomesHomes for SaleHousing MarketHousing RecoveryNARnational association of realtorsDalia Fahmy2010-06-22T13:30:00 00:00Low Mortgage Rates: Protection Against Double-Dip Recession?http://realestate.aol.com/blog/2010/06/17/low-mortgage-rates-protecting-against-double-dip-recession/http://realestate.aol.com/blog/2010/06/17/low-mortgage-rates-protecting-against-double-dip-recession/http://realestate.aol.com/blog/2010/06/17/low-mortgage-rates-protecting-against-double-dip-recession/#commentsFiled under: ,

An apple a day keeps the doctor away, while a low mortgage rate ... keeps recession at bay?

That's the thinking at Morgan Stanley, where economists have published research arguing, among others things, that rock-bottom mortgage rates are helping the US economy avoid a double-dip recession.

In the report, Richard Berner and David Greenlaw acknowledge that the U.S. economy continues to face significant risks, such as potential spillover from Europe's sovereign debt crisis and a slowdown of housing demand after expiration of the homebuyer tax credit.

But they argue that the recent wave of refinancings, along with other factors such as lower energy costs, should offset any negatives.

"The dip in conventional 30-year mortgage rates to about 4.8 percent has triggered a minor refinancing boom," they write. "Reduced debt service will further add to discretionary spending power for many mortgage borrowers."

In plain English: Less money spent on servicing your mortgage is more money to spend on goods and services, such as sandals, pedicures and Lady Gaga's used jewelry. This spending goes straight to business' bottom lines, which then makes them more likely to hire. And that, in short, is how you fuel economic growth.

Unfortunately, not many economists agree with the premise.
Celia Chen, senior director at Moody's Economy.com, argues that the refinancing wave hasn't been that significant. Many homeowners simply aren't able to refinance because they have negative equity in their homes, she tells AOL HousingWatch.

While in the past, refinancings boosted consumer spending when homeowners were able to cash out some of their equity. But again, since many have negative equity, cashing out isn't possible right now.

"It's positive for the economy when people are able to refinance and use some of that to spend on consumption," Chen says. "But I don't see that impact being that large right now."

Jeff Rosen, economist at Briefing.com, makes another interesting observation: In this tight lending climate, the only people able to refinance are those with excellent credit. That means they are getting pretty low mortgage rates, which in turn means that lenders aren't making much of a profit off the loans. This lost profit, in turn, means that banks have less cash at their disposal to use for other things that might fuel economic growth.

I'm not sure if I buy that argument, since banks seem to have enough cash right now, which they're not putting to much good use.

But I do get Rosen and Chen's point: The refinancings are just a slight breeze compared to the big winds buffeting the economy every which way.

 

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]]>double-dipLendingMorgan StanelyMortgage RatesRecessionRefinancingDalia Fahmy2010-06-17T09:30:00 00:00Housing Starts Disappoint, Analysts Shrughttp://realestate.aol.com/blog/2010/06/16/housing-starts-disappoint-analysts-shrug/http://realestate.aol.com/blog/2010/06/16/housing-starts-disappoint-analysts-shrug/http://realestate.aol.com/blog/2010/06/16/housing-starts-disappoint-analysts-shrug/#commentsFiled under: ,

What happens when there is bad housing news that nobody hears? Is it like the proverbial tree falling in the forest? Does it mean the bad news won't have a negative effect?

New construction of homes dropped by 10 percent in May from the previous month, to a seasonally adjusted 593,000, according to new figures released by the U.S. Commerce Department. The driver is clear: A 17.2 percent drop in single-family home starts after the expiration of the homebuyer tax credit at the end of April. The outlook isn't great, either. Building permits for new homes dropped 5.9 percent.

The data looks bad from almost every angle. The level of new home starts, at 593,000 units, is at its lowest since December 2009, while the rate of decline was the sharpest since March 2009. The drop in single-family home construction is the steepest since January 1991.

But while the figures were worse than most analysts polled by Thomson Reuters had expected, many experts are shrugging them off.
"Builders built ahead so buyers could qualify for the tax credit, so now there's some retrenchment," Celia Chen, an economist at Moody'sEconomy.com, tells AOL HousingWatch. "I don't think that's anything unexpected."

Chen argues that the statistics on housing-starts tend to be volatile, adding that inventory of new homes for sale currently is near record lows, which should give homebuilders an opportunity to pick up construction later this year.

John Burns, a real estate consultant in California, agrees. The 10 percent plunge, he argues, is simply a hangover of supply: Homebuilders completed too many homes which they didn't sell in April, so in May they were working on getting rid of those before starting new projects.

"I don't think it's a big deal," Burns tells AOL HousingWatch. "I know the consensus was expecting better numbers, but the consensus was absurd."

These arguments make sense of course. But what if the experts are wrong? After all, the National Association of Home Builders released a dismal June confidence survey on Tuesday. If housing starts were weak in May because builders have too much inventory; and in June they weren't feeling confident about getting rid of their inventory, that's not a very good start to the summer.

Jeff Rosen, an economist at Briefing.com, tells AOL HousingWatch that there's a chance the summer will bring very bad news. He argues that exceptionally strong housing starts between December and April have resulted in a glut of inventory that's likely to hit the market around October. Combined with the existing supply of foreclosures, this inventory might drag down the market again unless housing demand significantly picks up.

But looking at one housing-start survey doesn't say much about where we're headed. Indeed, it says more about where we've been -- and we don't need a survey to tell us it's been rough. Here's hoping the experts are right.








 

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]]>CensusCommerce DepartmentHome recoveryHousing RecoveryHousing StartsNew constructionPrice recoveryReal estate recoveryResidential ConstructionDalia Fahmy2010-06-16T16:15:00 00:00Homebuilders Lose Confidence After Homebuyer Tax Credit Expireshttp://realestate.aol.com/blog/2010/06/15/home-builders-lose-confidence-after-home-buyer-tax-credit-expire/http://realestate.aol.com/blog/2010/06/15/home-builders-lose-confidence-after-home-buyer-tax-credit-expire/http://realestate.aol.com/blog/2010/06/15/home-builders-lose-confidence-after-home-buyer-tax-credit-expire/#commentsFiled under: ,

It was the tax credit, after all. Or so it seems.

One of the timeliest leading indicators for real estate prices -- the homebuilder confidence survey published by the National Association of Home Builders/Wells Fargo -- dropped five points, or 22 percent, in June to a reading of 17. That's the lowest level since March, when the housing tax credit started pushing buyers into the market.

Mike Larson, real estate analyst at Weiss Research, points out it's also the biggest monthly drop since the depths of the recession in November 2008.

"We all knew there would be some kind of give-back after the homebuyer tax credit euphoria last spring," he tells AOL HousingWatch, "but it's a sizable drop and more than what economists were looking for."

Larson's view could be heard from other experts today: The consensus is that the housing market is back in the doldrums after a fake boost of demand.
"The homebuyer tax credit did its job in stoking spring sales and we expected a temporary pullback in the builders' outlook after the credit expired at the end of April," said NAHB Chairman Bob Jones in the release. "However, the reduction in consumer activity may have been more dramatic than some builders had anticipated, which resulted in their lower confidence levels."

It's not just that builder confidence about current sales conditions are down; their sales expecations for the next six months also dropped -- by 4 points, to 23. This survey matters because homebuilders are among the first to be affected by changes in housing appetite, and this is one of the most up-to-date indicators that we have: Responses actually were collected in the first week of June. By contrast, indicators released by the National Association of Realtors, Case-Shiller and others only go until April. Plus, NAHB has been conducting it for 20 years, which means that hopefully they've figured out the kinks.

Of course, the tricky thing about confidence surveys is that they gauge something that's impossible to accurately measure. We'll have to wait to find out whether the sentiment is accurate as homebuyers return to normal behavior.

Tomorrow we should see another reliable market indicator: The U.S. Census Bureau releases May's new residential construction numbers at 8:30 a.m. EDT. Stay tuned.

 

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]]>constructioneconomyhome buildershousingNAHBnew homesDalia Fahmy2010-06-15T17:30:00 00:00Homeownership Advantages Questioned by FDIC Chiefhttp://realestate.aol.com/blog/2010/06/14/omeownership-advantages-called-into-question-by-fdic-chief/http://realestate.aol.com/blog/2010/06/14/omeownership-advantages-called-into-question-by-fdic-chief/http://realestate.aol.com/blog/2010/06/14/omeownership-advantages-called-into-question-by-fdic-chief/#commentsFiled under: ,

It's National Home Ownership Month, prompting lots of talk about the value of owning a home. The rhetoric isn't all bubbly.

Sheila Bair, the outspoken head of the Federal Deposit Insurance Corporation, recently questioned the government's role in promoting homeownership. The speech wasn't widely covered, but The New York Times' Joe Nocera drew attention to it in a column headlined "Wake-Up Time for a Dream."

"Sustainable home ownership is a worthy national goal," Bair told the Housing Association of Nonprofit Developers. "But it should not be pursued to excess when there are other, equally worthy solutions that help meet the needs of people for whom home ownership may not be the right answer."

Nocera calls her comments "a bit of honest heresy."
What's Bair's line of thinking?

Nocera explains:
"The financial crisis might well have been avoided if we as a culture hadn't invested so much political and psychological capital in the idea of owning a home. After all, the subprime mortgage business's supposed raison d'être was making home ownership possible for people who lacked the means -- or the credit scores -- to get a traditional mortgage. It's also why bank regulators and politicians were so willing to avert their eyes from the predations and excesses of the subprime companies."

He notes that the government pushes for homeownership in many other ways too: through agencies such as Fannie Mae and Freddie Mac; through the mortgage interest tax deduction; even through presidential speeches about that great "American dream." An interesting number that Nocera digs up: Government subsidies to housing totaled a staggering $230 billion in 2009.

Conservatives have been railing against the government's involvement in homeownership for a long time.

Mark Calabria, director of financial regulation studies at the Cato Institute, tells AOL HousingWatch that homes are not the great social boon that everyone makes them out to be. Studies that show correlations between ownership and, say, political engagement or neighborhood safety don't really prove cause-and-effect, he argues.

"The studies don't show that homeownership makes people more responsible. Maybe it's just that responsible people are the ones who buy homes," he says.

Like others in this camp, Calabria advocates nixing the mortgage interest tax deduction. Only the wealthy are usually able to deduct it anyway, he says, since most Americans take a standard deduction instead of itemizing.

"Government policy should be neutral," he says. "We shouldn't be picking who is an owner and who is a renter."

It's not just conservatives who argue against government subsidies.

Robert Shiller, Yale University professor and real estate guru (best known for warning about the housing bubble), has been talking about the dangers of subsidies for years. In a recent interview with CNNMoney.com, he asked, "What's so good about owning a home that the government provides this function?"

He argues that the limits on so-called "conforming mortgages" have been stretched so far that the government is now helping pay for $900,000 McMansions. "Why would we want to teach people to expect extravagances to be subsidized?"

Perhaps homeownership is a little bit like marriage: The parts alone rarely add up in a commonsense way, but the emotional benefits of the whole are incalculable.

See tools and tips on the practicality of financing a home at AOL Real Estate.

 

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]]>Fannie Maefreddie macgovernmenthome ownershipJoe NoceraMortgage Interest tax deductionNational Home Ownership MonthSheila BairDalia Fahmy2010-06-14T14:30:00 00:00Trulia's Rent vs. Buy Index: Rent in Omaha, Buy in Minneapolishttp://realestate.aol.com/blog/2010/06/10/trulias-rent-vs-buy-index-rent-in-omaha-buy-in-minneapolis/http://realestate.aol.com/blog/2010/06/10/trulias-rent-vs-buy-index-rent-in-omaha-buy-in-minneapolis/http://realestate.aol.com/blog/2010/06/10/trulias-rent-vs-buy-index-rent-in-omaha-buy-in-minneapolis/#commentsFiled under: ,

Always a popular comparison in real estate: Is it better to rent or buy?

Now, real estate website Trulia.com has launched a Rent vs. Buy Index, featuring the top 10 cities in each category. Some of the results were quite surprising.

Namely, that Omaha, home to famously frugal financier Warren Buffett, pictured left, comes in at no. 2 -- right after no. 1, New York City -- as a city where it's cheaper to rent than buy. Also on the list: Oklahoma City at no. 6 and Kansas City at no. 7. The results apparently also came as a surprise to Trulia's number crunchers.

Ken Shuman, spokesman at Trulia.com, told HousingWatch, "In Omaha, prices have always been steady and on the rise," but also managed to avoid the crash. Shuman points out that the "Buffett effect" makes for a fairly resilient economy there. Plus, Omaha and Kansas City never saw the glut of supply that flooded condo markets in Florida and Arizona.

On the flip side, the "cheaper to buy" list also yielded a few surprises, with Minneapolis and Arlington, Texas making it to the no.1 and no. 2 spots respectively.
The obvious candidates -- Miami, Phoenix and Las Vegas -- also made it to the list, albeit a little lower.

Shuman points out that Minneapolis never saw the huge spike in prices during the boom, which means that once prices started dropping, ownership became really cheap. Minneapolis is also one of the states hardest hit by the crash -- with one in every 712 homes facing foreclosure, according to RealtyTrac -- which means that there are many former homeowners looking for rentals and pushing up rents in the process.

The problem is, most calculators simply look at the monthly cost of renting versus buying -- adding mortgage and interest, then comparing it with rent -- without taking into account the wider financial implications.

Trulia doesn't claim to do things any differently. Its number crunchers calculated the index by looking at the total rental and purchase costs of two-bedroom apartments, condos and townhouses in 50 cities. Its homeownership cost includes mortgage principal and interest, property taxes, insurance, closing costs and HOA fees. Rental costs include rent and renter's insurance.

If you're serious about this equation, however, it makes more sense to look at a range of other factors.

Most salient, is opportunity cost. Think of all the money you're spending on interest. Could you make a higher return investing it in other assets? It's a tricky question but consider this: Home prices historically gain just 1 to 2 percentage points over inflation according to the National Association of Realtors, while the S&P stock index, after inflation, has almost doubled over the past 50 years, according to data from Yale economist Robert Shiller. So even though you get a big tax deduction in interest payments, your return doesn't come close to what you could make in the stock market.

It's near heresy to suggest that we should all be renting instead of owning. Just some food for thought as you peruse Trulia's list and consider scooping up a townhouse in breezy Minneapolis.

 

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]]>buy vs renthome pricesminneapolisomahaRent vs buyrentstrulia.comwarren buffettDalia Fahmy2010-06-10T08:30:00 00:00Homebuilder Toll Brothers Trims Losses, Predicts Recovery (Again)http://realestate.aol.com/blog/2010/05/28/toll-brothers-home-builder-trims-losses-predicts-recovery-agai/http://realestate.aol.com/blog/2010/05/28/toll-brothers-home-builder-trims-losses-predicts-recovery-agai/http://realestate.aol.com/blog/2010/05/28/toll-brothers-home-builder-trims-losses-predicts-recovery-agai/#commentsFiled under: ,

Overly optimistic home builders helped fuel the housing bubble. Now the country's largest luxury homebuilder is back -- as overly optimistic as ever. Should buyers believe the hype?

In case you missed it: Toll Brothers reported that its losses shrank in the second quarter to $40.4 million or 24 cents a share, compared with $83.2 million, or 52 cent a share the previous year. In a sign of better times to come, net signed contracts rose 41 percent to 820 units. The contract cancellation rate also slowed, to 5.3 percent from 21.7 the year before. The news was good enough to push Toll Bros' shares up 3 percent.

But wait. Was this an anomalous blip due to the homebuyer tax credit, which expired April 30? (Nice coincidence: The company's fiscal third quarter ended April 30.) I thought everyone is worried that the credit simply jammed all the demand into the first four months of the year.

Not so, says Toll Brothers' CEO Robert Toll.

"It appears our business has finally emerged from the tunnel and into a bit of daylight," he says in the earnings release.
"May's activity suggests that for us the tax credit wasn't the determinative factor. Rather, we believe the past few months' activity has been driven by an increase in confidence among our buyers in their job security, their ability to sell their existing homes and general trends in home prices."

Toll is referring to activity in the first three weeks of May, which saw traffic from interested buyers rise 23 percent and non-binding reservations gain 11 percent.

That doesn't sound like a very solid argument.

This is the same company that has been calling the bottom ever since it first started losing customers in 2006. At the end of 2006, six months into the housing slump, Toll told investors: "The fundamentals that typically lead our industry out of a slowdown are already in place."

In the third quarter of 2008, days before Lehman Brothers went bust, he pointed to stabilizing deposits and low cancellations, adding: "...we believe that there is pent-up demand. When we have held promotions, many more buyers than usual have come out and put down deposits."

In the third quarter of last year he said: "We believe declining cancellations and more solid demand indicate that the housing market is stabilizing."

And yet, Toll's revenues as well as the values and and number of homes it has sold have dropped year after year. It's not that there's anything wrong with the company's strategy; Teresa Rivas at MarketWatch points out that Toll bolstered its balance sheet during the recession, with $1.8 billion in cash and just $2 bilion in debt.

The truth is, it's too early to tell how homebuyer confidence is really shaping up.

Maybe Robert Toll should just admit he'll have a better idea when Toll Brothers releases its third quarter results at the end of August.

Until then, best to stick to other indicators when trying to assess the current state of the housing market.

 

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]]>HomeBuildersluxury homesnew housing startsrobert tolltax creditToll BrothersDalia Fahmy2010-05-28T09:00:00 00:00Case Shiller Index: Home Prices Down Despite Incentiveshttp://realestate.aol.com/blog/2010/05/25/case-shiller-index-home-prices-down-despite-incentives/http://realestate.aol.com/blog/2010/05/25/case-shiller-index-home-prices-down-despite-incentives/http://realestate.aol.com/blog/2010/05/25/case-shiller-index-home-prices-down-despite-incentives/#commentsFiled under: ,

If you were looking for good news about the housing market, you're in the wrong week. After yesterday's depressing data about April's rising inventories, the S&P Case Shiller Home Price Index today released its influential price index for March.

The highlight (or rather low point): Prices of single-family homes fell 0.5 percent from February, which is the sixth month-on-month drop after what felt like a mini-recovery last fall. This is especially worrisome since prices should have seen some kind of a boost from record low mortgage rates and Obama's home-buyer tax-credit which expired in April.

But they didn't.

So what does this mean for home buyers and sellers?
Celia Chen, housing specialist at Moody's Economy.com, told HousingWatch that the weakness is inevitable, considering the volume of distressed homes that have been flooding the market.

"Foreclosures are going to have a fairly negative impact on the housing market through the beginning of next year," she predicts, adding that housing prices could drop another 5 percent between now and the end of the year.

The chairman of Standard & Poor's index committee, David Blitzer, agrees. He calls it "especially disappointing" that the improvement in volumes of home sales and new construction in March didn't boost prices. Now that the tax incentive has expired, he says, forget about seeing any growth in demand.

There's some good news to be gleaned, though. The long-term recovery still seems to be inching forward: National prices were up 2.3 percent from last year.

Some cities are slowly working through their foreclosure mess: Economy.com's Chen points out that San Diego and San Francisco, which posted the strongest gains in Case Shiller's 20-City Index -- 1.5 percent each -- are also cities that reduced the total share of foreclosures in their inventory.

By contrast, Las Vegas is still in free fall, with prices off 0.8 percent from February and down a stunning 12 percent from last year, while Detroit lost 4.1 percent on the month and 4.6 percent on the year.

As the Economist puts its succinctly: "Four years after the housing boom reached its apex and the bust began, an end to the mess remains just out of reach."

So if you're looking to buy, the upside is within view. And if you're looking to sell, hang in there -- prices may stabilize soon. If you're in Las Vegas or Detroit, hold on to your hat.

 

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]]>Celia ChenDavid BlitzerDetroit homesHome priceshousing marketLas Vegas homesSP Case ShillerDalia Fahmy2010-05-25T17:30:00 00:00Open Houses Puzzle British Home Buyershttp://realestate.aol.com/blog/2010/05/25/open-houses-puzzle-british-home-buyers/http://realestate.aol.com/blog/2010/05/25/open-houses-puzzle-british-home-buyers/http://realestate.aol.com/blog/2010/05/25/open-houses-puzzle-british-home-buyers/#commentsFiled under:

The English newspaper the Financial Times had an (inadvertently) quaint article on Friday about "a sales technique known as the open house."

Obviously written for a British audience, the article cracked me up with lines such as: "To succeed, the practice needs a pro-active realtor or vendor to whip up enthusiasm among prospective purchasers, who all inspect the property at the same time and - spurred on by rubbing shoulders with rival buyers - are encouraged to make above-market offers to make sure the home does not slip from their grasp."

Apparently, they don't hold open houses in the U.K. -- ever.

But why not? The Sunday open house is an American tradition, the first stop for many tentative home buyers on the way to making a real bid.

Should the lack of the practice in England make home buyers in this country reconsider their value?

Probably not. Still, it's hard to believe that Brits haven't wised up to this U.S. practice. So I called our babysitter Jessica, who arrived here from Northern England a few years ago, and asked her why Brits don't hold open houses. Her response: "What's an open house?"

What have the Brits been doing all this time? Making appointments, of course.

Apparently homes in the U.K. are shown the old-fashioned way, by real estate agents with keys who bring prospective sellers to a property during weekdays (and sometimes weekends). That's a culture, of course, where people actually get time off from work during the week to pursue their personal lives.

Here in the U.S., where more than 6 million homes are sold each year, open houses are billed as a priceless tool that helps sellers draw in maximum foot traffic in minimal time, while giving buyers a way to research the market without having to rely on a broker. It's a very American way of democratizing the hunt for shelter.

But do open houses actually work? There seems to be a consensus that they don't do much for the seller, except in cities such as New York, where foot traffic is high. One New York broker says she garners 50 percent to 60 percent of her sales through open houses. Brokers in other cities around the country say open houses generate less than 10 percent of their business.

But prospective buyers generally love them. The National Association of Realtors doesn't measure precisely which homes are sold through open houses, but spokesman Walter Molony offers this interesting detail: 12 percent of home buyers first learned about their home through yard signs or open houses.

And in a challenging market such as the current one, sellers need every chance to hook a buyer that they can get. So if you enjoy attending open houses, more power to you. The information you gather can help you shape a more educated bid once you're ready to buy -- or at least build your confidence.

A psychologist named John Mahoney quoted in the FT piece offered insight on what makes open houses work, at least in theory: "It creates an atmosphere where a person falls in love with a home and then that feeling is ruptured when the buyer realises there are others who can deny them their dream. They then act quickly and, perhaps, irrationally in terms of submitting a high offer."

Certainly sounds like an open house. Circa 2006.

See homes for sale in the U.S. at AOL Real Estate.

 

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]]>no open houses in englandopen houseOpen House TipsDalia Fahmy2010-05-25T15:00:00 00:00Home Sales Are Up: Bad News in Disguisehttp://realestate.aol.com/blog/2010/05/24/home-sales-are-up-bad-news-in-disguise/http://realestate.aol.com/blog/2010/05/24/home-sales-are-up-bad-news-in-disguise/http://realestate.aol.com/blog/2010/05/24/home-sales-are-up-bad-news-in-disguise/#commentsFiled under: ,

Pop the Champagne! Sales of existing homes rose more than expected in April, jumping 7.6 percent from March to 5.77 million units. That means a whopping 22.8 percent more homes were sold than in April of last year, according to the National Association of Realtors.

Wait a minute. Hold that cork.

It sounds like good news, but it isn't. Now that the tax credit is gone, there really isn't much to motivate buyers.
Sure, the monthly gain surpassed most estimates: Analysts surveyed by Dow Jones had expected a rise of 4.7 percent, while those polled by Thomson Reuters predicted growth of 5.6 percent.

The NAR, a Realtors' lobbying group which publishes the data, chalked the increase up to last-minute buyers rushing to take advantage of the Obama administration's two housing tax credits - for first-time and repeat homebuyers - which expired at the end of April.

"It's like shoving everything through a hose," says Andrea Heuson, finance professor at the University of Miami. "It gushes out for a while, but when the pressure goes away, everything slows down again."

An even bigger problem is supply. The NAR says that total housing inventory soared 11.5 percent at the end of April from a month earlier. This means that it would take 8.4 months to sell all the properties, if sales continue at the current pace.

Even Larry Yun, the NAR's usually optimistic chief economist, told MarketWatch that the inventory was an "unwelcome" development. Such high inventories are likely to prevent big price gains over the next year or two, he said, although he couldn't say where the supply is coming from exactly.

Could it be the dreaded shadow inventory: homes destined for foreclosure but which haven't gotten there yet?

Heuson says it's too early to tell, because the market is still dominated by speculative buyers - people with money who are scooping up dozens of properties because prices are so cheap.

By the way, NAR's existing-home sales data is a pretty good indicator of supply and demand, but some prefer to watch the Department of Commerce's new home sales release, due on Wednesday. Stay tuned.

Find homes for sale at AOL Real Estate.

 

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]]>Existing Home SalesHome dataHome SalesNARShadow InventoryDalia Fahmy2010-05-24T17:00:00 00:00Housing Bounce Starts in 2011, Says Index of Top Expertshttp://realestate.aol.com/blog/2010/05/20/housing-bounce-starts-in-2011-says-top-experts/http://realestate.aol.com/blog/2010/05/20/housing-bounce-starts-in-2011-says-top-experts/http://realestate.aol.com/blog/2010/05/20/housing-bounce-starts-in-2011-says-top-experts/#commentsFiled under:

If you're keeping track of all the real estate surveys out there, add this one to your list: MacroMarkets, the research firm founded by housing sage Robert Shiller, has started releasing a monthly "home expectations survey" that asks a hundred of the country's top housing analysts to forecast prices five years out.

And guess what? May's consensus predicts national home prices, as measured by the benchmark S&P/Case-Shiller Index, to start recovering next year. That might seem optimistic, as the index has been sinking steadily over the past three years, with only one uptick posted so far (in February's data, the latest available).

After a fat zero predicted for this year's price gain, the survey sees 2 percent growth next year, a pace which adds up to a cumulative 12.36 percent by the end of 2014. The range of predictions for 2014 runs from a depressing -17.99 percent to a giddy +36.74 percent.

"This is not necessarily a resounding indicator of a raging bull market, but it's a more optimistic projection than we would have seen ... six months ago," says Terry Loebs, MacroMarkets managing director and co-developer of the survey.

But do these numbers mean anything?
As Henry Blodget pointed out on Business Insider: "the vast majority of the analysts in the survey didn't see a crash coming (ever) in 2007." He adds that such a speedy recovery within five years of a bust would be unusual. "Usually after a bubble bursts, prices fall way below trend for a while. If this forecast is right, they won't even have fallen back to trend, let alone below it," he writes.

Loebs counters that old rules don't apply. "We are in uncharted territory," he says. "We're coming off of a historic bubble and an historic series of government programs to support the housing market."

And of course, everyone has a good reason for their forecast.

The Wall Street Journal's James Hagerty spoke to economists on either end of the scale. Gary Shilling, who runs a firm that offers economic advice to"'leading corporations" and institutional investors, offered the most bearish prediction: He is concerned about oversupply of inventory, including those from looming foreclosures (read: shadow inventory). On the other side, James LaVorgna, a Deutsche Bank economist whose prediction was the most bullish, argued that a job market rebound would spark enough demand.

My view: MacroMarket's survey is worth tracking, even if just as an indicator of sentiment. The firm created the influential S&P/Case-Shiller Index and its co-founder, Robert Shiller, is the same Yale economist who warned about the housing bubble long before it was fashionable.

Hopefully this survey will make it easier to spot the Shillers of the next housing bubble. (Pun fully intended.)

 

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]]>economist predictionsGary ShillingHenry Blodgethome priceshome valueshousing priceshousing valuesproperty pricesreal estate pricesRobert ShillerSPCase-Shiller IndexDalia Fahmy2010-05-20T08:30:00 00:00