Languishing Home Improvement Market ‘Poised’ for Rebound: Study

After experiencing a downturn, spending on home improvement may finally register an increase in 2012, with the market appearing to be “poised for a solid rebound,” according to a recent report from the Harvard Joint Center for Housing Studies.

The Joint Center estimates spending on home improvement rose 9 percent in 2012 after falling in previous years. The Joint Center found spending on home improvement and repairs reached $275 billion in 2011, which represents a 4 percent decline from 2009 and about a 16 percent decline from the 2007 market peak.

The report explained the surge in foreclosures and short sales and the high share of underwater homeowners left many borrowers with little incentive to improve or maintain their property conditions.

However, those factors, as well as the growing interest in environmental sustainability, “are now driving a rebound in the home improvement industry,” according to the report.

The study also noted the number of “inadequate” homes has risen, increasing 7 percent between 2007 and 2011 to 2.4 million units. A home is categorized as inadequate if it lacks a complete kitchen or bathroom facilities or running water, and shows other signs of disrepair, according to the report.

“As the broader economy recovers and housing markets tighten, however, some of these inadequate homes will likely be renovated to provide affordable housing opportunities,” the report stated.

In 2011, institutional sellers made improvements to about a third of their foreclosed properties before sale and spent about $6,500 per unit, leading to a market expenditure of about $1.7 billion. Homeowners spent about $11,100 on distressed properties during the same time period, contributing a total of $4.2 billion to market expenditures. Investors spent more on each unit, about $15,600, while contributing about $3.9 billion to market spending. Overall, home improvement expenditures for distressed properties reached about $9.8 billion in 2011.

Aside from improvements to distressed homes, the movement toward “green” improvements, such as increasing energy efficiency, is contributing positively to home improvement spending. The report also noted growth in the population of those 65 and over has potential to lead to a strong demand to retrofit existing homes in the 2020s and beyond.


Owning a Home is Still the Dream

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California reports thriving November home sales

Posted by mhopkins on 12/12/12 at 2:14pm

California continues to be the talk of the housing recovery, logging its highest November sales in six years.

The Golden State’s median sale price jumped nearly 17% year-over-year to $321,000. This appreciation indicates a shift away from distressed sales and toward traditional sales

Last month, 19,285 new and resale houses and condos sold in Los Angeles, San Diego, Ventura, San Bernardino and Orange counties. This was up 14.2% from November 2011, real estate analytics firm DataQuick reported.

Last month’s numbers were the highest for the month of November since 2006.

High buyer demand and record low mortgage rates are playing a large role in the California price appreciation. Additionally, more expensive homes are replacing discounted foreclosures, creating upward pressure on the median sales price.

“The government’s offered people an amazing gift in the form of extraordinarily low mortgage rates. But that’s not the only thing fueling these sales gains. Investor activity and cash purchases remain unusually high, and more buyers feel confident about their jobs, the economy and the likelihood housing prices have bottomed and are likely to rise. We’re also seeing more nondistressed sales, where people sell at a profit and buy another house, triggering more move-up activity,” said John Walsh, DataQuick president.

Home sales between $300,000 and $800,000 rose 34.6% since November 2011. Even more, sales of homes priced at more than $800,000 jumped 46.8% year-over-year.

Conversely, homes that sold below $200,000 decreased 18.7% from a year earlier.

Indicators of market distress continue to move in different directions. Foreclosure activity, while above long-term averages, continues to drop and is far below peak levels. Financing with multiple mortgages is very low, and down payment sizes are stable, DataQuick reported.

See the chart below for the housing market changes in several California counties.

Housing Recovery Is Sustainable, According to Market Analysts

Despite a number of potentially damaging headwinds, the ongoing housing recovery will remain sustainable for the foreseeable future, analysts for Capital Economics say in a recently released report.

The housing industry’s rapid rebound took many experts by surprise-even the researchers who authored the report admit they “have been slightly taken aback” by the recovery’s speed. However, they point to several major indicators that show the current upturn is more than a temporary blip or a false recovery.

Sustained rises in demand, home prices, homebuilding activity, and new and existing-home sales all demonstrate that the market is seeing a lasting recovery, they say. They also forecast further price growth of 5 percent in each of 2013 and 2014.

What’s more, even as prices rise, valuation and affordability-“the cornerstone on which the improvement in housing is being built”-remain very favorable.

The major threats to the market at this juncture, the analysts say, are the potential for a new American recession (brought on by complications from the fiscal cliff and the potential of a partial euro-zone break-up) and the risk that properties in the shadow inventory will flood the market and drive prices down.

As far as the economy is concerned, Capital Economics’ working assumption is that Washington will avoid throwing the country into another downturn. Beyond that, the firm notes that trade links between the United States and Europe are relatively small, and the financial links aren’t significant enough to tip the country back into recession should the euro-zone see problems.

Turning to the shadow inventory, analysts estimate that the backlog of homes at risk of coming onto the market may be as large as 3.8 million (1.5 times the number of properties actually for sale). If those homes were allowed on the market too rapidly, supply would balloon and disrupt the price recovery-but they don’t expect that to happen.

“The signing of the $25bn foreclosure settlement has not led to a wave of foreclosures hitting the market,” the economists write. “With foreclosure timelines still protracted, and banks wary of the effects that a glut of supply would have on the recovery, we anticipate a continued trickle of homes from the shadow inventory, rather than a flood.”

Of bigger concern is the recovery’s dependence on investors and cash buyers. According to Capital Economics, “[m]ortgage-dependent buyers have made next to no contribution to the improvement in housing market demand,” mostly because of tight credit. Instead, it’s been buyers and investors-who are less dependent on mortgage finance-who have driven much of the recovery so far.

The problem, though, is that investment buying won’t last as discounts start fading. According to data from Zillow, the availability of deeply discounted foreclosures has been dropping sharply in states most targeted by investment buyers. While the trickle of properties from the shadow inventory will keep some bargains on the market, cheap, high-yielding homes are disappearing.

In fact, the analysts note, some of the most popular investment cities (such as Phoenix) are quickly becoming “no-go” areas for institutional buyers as the local markets recover. Even though the number of “overheating” cities is fairly small, there is a lesson to take away from those markets.

“What should be clear from all this is that the housing recovery cannot be driven by investors indefinitely,” the report says. “The very recovery that investors are driving will eventually price them out of the market.”

In order to keep the market healthy, credit conditions are going to have to loosen so the current heightened demand can actually make an impact.

According to a recent survey released by the Federal Reserve, one of the biggest factors keeping today’s credit market tight is the risk of put-back requests from Fannie Mae and Freddie Mac. However, as the economy shows improvement and mortgage delinquency continues to fall, Capital Economics anticipates put-back risk will fade.

“All in all, if we are right that the economy will continue growing, it’s reasonable to expect lenders to loosen the reins somewhat. The upshot is that we think mortgage-dependent buyers will gradually play an increasing role in the housing market recovery,” the report says.

“The bottom line is that the U.S. housing recovery is sustainable. The key point is that the fundamentals of housing valuations and affordability are very favourable, reflecting a market that has adjusted.”

October Marks 12 Months of Home Value Increases

October marks the 12th consecutive month of monthly home value increases, according to Zillow, which reported a 1.1 percent increase over the month.

Home values were up even higher on an annual basis, climbing 4.7 percent over the year and representing the greatest increase since September 2006.

Home values now stand at $155,400, according to Zillow.

“Those dubious about the durability of the housing recovery will point to the large role that investors are playing in the recovery, or to the large number of foreclosures yet to hit the market, as factors to be wary of,” said Stan Humphries, chief economist at Zillow.

“But the bottom line is that homes are more affordable now than at any time in recent memory, and buyers are seizing this opportunity,” he continued.

Chicago was the only one of the 30 largest metro areas Zillow measures to experience a monthly decline in home values in October.

On an annual basis, four of the 30 metros experienced value declines.

The metros measuring the highest annual value increases in October include Phoenix (22.3 percent), San Jose, California (11.4 percent), Denver (10.4 percent), San Francisco (9.5 percent), and Miami-Ft. Lauderdale (8.8 percent).

Zillow reported another positive sign for the housing market: decreasing foreclosures. Foreclosures declined 0.8 percent in October, and the annual decrease was even greater—1.9 percent.

In October, 5.57 out of every 10,000 homes were in some stage of foreclosure.

Looking forward, Zillow anticipates “increasing numbers of potential buyers entering the market as the broader economy continues to recover and household formation picks up further.”

“We’re hopeful that negotiations over the ‘fiscal cliff’ don’t derail this momentum,” Humphries said.

B of A offers 30,000 borrowers $4.75 billion in principal reductions

By Kerri Ann Panchuk

• November 14, 2012 • 11:36am

Bank of America ($9.14 -0.19%) approved 30,000 mortgage customers for principal reductions on first-lien mortgages with a total value of $4.75 billion as part of its consumer-relief mandate under the national mortgage servicing settlement program.

Bank of America executives participated on a teleconferenced update to the settlement.

They said that, through September, BofA completed or approved $15.8 billion in mortgage debt relief for 164,000 homeowners.

The progress report comes the same day that four other banks are expected to release their compliance updates with the national mortgage servicing settlement. The $20 bilion-plus settlement, which was reached between the big banks, state attorneys general and the federal government, outlines consumer-relief mandates and servicing requirements for the nation’s largest mortgage servicers.

BofA said in addition to $4.75 billion in principal reductions, the company has extended $230 million in pre-settlement forebearance.

And to date, 45,000 homeowners with mortgages serviced or owned by BofA have received $2.5 billion in relief through programs offering extinguishment of home equity loans and lines of credit.

Another 62,000 BofA customers were greenlighted for short-sales or deeds-in-lieu of foreclosure offering another $7.4 billion in relief on unpaid principal balances.

By Oct. 31, 23,000 homeowners had been offered assistance via interest rate reductions, with most of that activity occurring in just the past month.

Through September, about 1,000 rate reductions were completed with interest-rate aid totaling $250 million in unpaid principal balances.

BofA notes that when evaluating the gross amount of forgiveness activity, the relief is not always calculated dollar-for-dollar, so the aid amount is often higher than what is credited.

Servicers Increase Mods and Short Sales in Q3: HOPE NOW

In the third quarter of this year, servicers increased the pace at which they completed proprietary modifications and short sales,HOPE NOW data revealed Monday.

In Q3 2012, proprietary modifications, or non-government mods, stood at 186,057 compared to 161,764 in Q3 2011, representing a 15 percent annual gain, according to the alliance.

Quarter-over-quarter, proprietary mods were up 41 percent compared to Q2 2012, when there were 131,556 completed mods.

In addition to the 186,057 proprietary mods in Q3, mortgage servicers also completed 33,276 mods through the Home Affordable Modification Program (HAMP), bringing the quarterly total for completed mods to 219,333. HOPE NOWnoted HAMP figures for September have not yet been reported.

When including all modifications, year-to-date, 604,301 homeowners have received permanent loan mods in 2012.

In Q3, short sales, another solution to prevent foreclosures, totaled 110,153, up 16 percent from Q3 in 2011 when there were 94,560 completed short sales.

Quarter-over-quarter, short sales were up 3 percent. However, completed short sales were actually down month-over-month by 13 percent in September.

While mods and short sales were up in Q3 2012, foreclosure starts were down, falling to 503,995 compared to 597,447 in Q3 2011, representing a 16 percent decline.

Foreclosure sales saw a slight 1 percent decline in Q3, dropping to 197,937 compared to 199,383 a year ago.

In a statement, Faith Schwartz, executive director of HOPENOW said, “The combination of loan modifications and short sales solutions completed by mortgage servicers, in the third quarter of the year, totals over 329,000. That compares to approximately 198,000 foreclosure sales during the same time period.”

Sixty-plus delinquencies also fell in Q3 2012, numbering 2.45 million, down 12 percent from the same quarter last year.

For just the month of September, HOPE NOW also provided data on characteristics of proprietary loan modifications. Among the 60,595 completed proprietary loan mods in September, 87 percent included reduced principal and interest on monthly payments. In addition, 76 percent of those mods had reduced principal and interest payments exceeding 10 percent.

Since 2007, the servicers have completed 5.82 million permanent loan modifications. Of those loan mods, 4,739,109 were proprietary and 1,076,747 were completed under HAMP.

HOPE NOW—an alliance of mortgage servicers, investors, mortgage insurers, and non-profit counselors—offers a free hotline for struggling homeowners at 888.995.HOPE.


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