Tuesday, May 25, 2010

RealtyTrac's Daren Blomquist Calls for Shadow Inventory Clearance

by JON PRIOR

A new report from RealtyTrac showed that April foreclosure numbers decreased annually for the first time since 2005. Daren Blomquist is the managing editor of the RealtyTrac foreclosure news report. For this episode of In This Corner, he says while the new record is good news, there is still a lot of work to be done.

Is there a finish-line in sight on the foreclosure crisis? The industry feels like it's been running a marathon. What would be the road signs to let it know it's close?

I think the year-over-year decrease in national foreclosure activity in April is a definite sign that there is an end in sight, but on the other hand the record REO numbers show that we’ve got a lot of backlogged inventory stopped up in the foreclosure process that needs to be cleared before we can return to a balanced, healthy market.

What markets are heading in the right direction, and which are lagging behind?

Many markets in California appear to be headed in the right direction, with decreasing foreclosures, particularly in the Notice of Default category. We’ve seen five consecutive months of year-over-year declines in California, including April. We saw six straight months of year-over-year declines in Nevada through March, and the April numbers were down less than 1%, so that’s another state I would say is headed in the right direction. Arizona has seen three straight months of year-over-year declines, although the decline in March was less than 1%, and New York has also seen three straight months of year-over year declines.

Florida may be lagging behind that trend a bit. We saw a year-over-year decline in April, but year-over-year increases in the previous five months.

Georgia has seen five straight months of year-over-year increases after a decline in November, as has Colorado. Colorado was actually looking on the right track for much of 2009, when it posted year-over-year declines in seven of 12 months and dropped out of the top-10 foreclosure rates for much of the year. But it was back in the top 10 in March and April this year.

Hawaii has also been flirting with the top 10 over the past few months. It was tenth in December and eleventh in April. Hawaii has seen 35 straight months of year-over-year increases in foreclosure activity. Similarly Utah has seen 30 straight months of year-over-year increases and has consistently ranked in the top 10 over the past year.

The sand states still hold such a majority of the foreclosures. What has led to the disparity?

Actually, of the top five states with the most foreclosure activity in terms of raw numbers, three are sand states (California, Florida, Arizona) but two are Rust Belt states (Illinois, Michigan).

However, the sand states definitely dominate the top-five foreclosure rates and we believe that because the housing bubble was most inflated in those states, leading to many real estate transactions (both purchases and re-financings) during the bubble and highly susceptible to foreclosure when the bubble collapsed.

From what you're seeing, are foreclosures outpacing modifications?

Yes. We’ve seen at least 250,00 properties receive a default notice or be scheduled for public foreclosure auction each month over the past year, and I believe the most recent permanent modifications number I’ve seen is 230,000 total.

RealtyTrac has become the brand-name in foreclosure data during the current crisis. You're just short of Coca-Cola. What new data sets or processes is the company working on to give the industry even more insight?

We’re working on a foreclosure sales report for sometime in the next month or two that will show what percentage of sales are sales of properties in some stage of the foreclosure process and the average discount on a foreclosure purchase, among other things.

We’re also working on a report that will show the average time it takes to foreclose on a property on a state-by-state and even county-by-county basis. We’re also considering a report that would focus on commercial foreclosures.

URL to Origianl Article:
http://209.236.64.240/2010/05/13/realtytracs-daren-blomquist-calls-for-shadow-inventory-clearance/

Mortgage Rates Decline

By NICK TIMIRAOS

The financial turmoil in Europe is providing an unexpected windfall for American home buyers, as international money seeking a safe haven is flowing into the U.S., pushing domestic mortgage rates to the lowest levels of the year and back near 50-year lows.

The housing industry had been bracing for months for a period of rising mortgage rates, triggered by the end of the Federal Reserve's $1.25 trillion mortgage-securities purchase program. Conventional wisdom held that mortgage rates would rise as the Fed pulled back from propping up the market.

Instead, many in the industry now say rates could drift as low as 4.5% this summer from 4.86% now, instead of rising to 6% as some economists projected, making for significantly lower payments for Americans buying homes or refinancing their mortgages.

Refinance business "exploded" last week, says Jeff Lazerson, chief executive of Mortgage Grader, a brokerage in Laguna Niguel, Calif. "It's schizophrenic. We all had this expectation of higher interest rates and no more refinances." He says he helped a borrower lock in a 30-year loan with a 4.25% fixed rate last week, the lowest in his 24 years in the business.

Rates on 30-year mortgages averaged 4.84% last week, according to a survey by mortgage-insurance titan Freddie Mac. Rates were quoted late Friday at 4.86%, the lowest since December 2009, according to a survey by financial publisher HSH Associates, and down from a high of 5.27% for the week ended April 9. Rates on 15-year mortgages averaged 4.24% last week—the lowest since Freddie began its survey in 1991.

Economists largely attribute the decline in mortgage rates to the European debt crisis and new concerns about the global economy, which unleashed a massive wave of cash into U.S. bonds from investors around the world.

This buying pushed down yields on Treasury bonds. Because mortgage rates are closely pegged to yields on 10-year Treasury notes, which fell to 3.2% Friday, the decline in Treasurys pulled down mortgage yields. Typically, mortgage yields remain around 1.5 percentage points above yields on 10-year Treasury notes.

Falling mortgage rates can give a powerful lift to the housing market. A general rule of thumb holds that every one percentage point decline in mortgage rates is the equivalent of roughly a 10% reduction in the home price for the buyer. So, if the current rates hold, say economists, that could help stabilize prices and allow current homeowners to sell existing homes without substantial price cuts.

It isn't clear how much home-buying the lower rates will spur. Demand had fallen in recent weeks after buyers raced to close sales ahead of last month's expiration of an $8,000 federal tax credit for home purchases. Applications for new-purchase loans hit a 13-year low in the week ending May 14, according to the Mortgage Bankers Association.

Borrowers do face roadblocks. Underwriting standards are their strictest in a decade, and record numbers of borrowers are "underwater," owing more to the bank than their homes are worth. That has excluded large swaths of borrowers from getting loans at the new lower rates.

Still, lower rates could widen the pool of people who qualify for a mortgage, while others may find they qualify for a slightly larger loan. "They can buy the place with the extra bedroom or the swimming pool," says Jay Brinkmann, chief economist at the Mortgage Bankers Association.

Falling rates have encouraged some Americans to consider refinancing their existing mortgages to save money. A one-percentage-point decline in mortgage rates can cut $250 off the monthly payment on a $400,000 30-year fixed-rate mortgage, giving consumers cash they can use to spend.

[MRATES]

Richard Hunsinger plans to refinance two loans on his Potomac, Md., home into a new 15-year mortgage this week with a 4.37% rate. The 55-year-old dentist is worried that interest rates will eventually rise sharply, boosting the payment on his home-equity line of credit. His first mortgage, also a 15-year loan, currently has a fixed rate of 5.25%. And while the rate on his $240,000 home-equity loan is just 3.25%, it has risen as high as 8% in the past.

Rates "can't stay low forever," says Dr. Hunsinger. If they go up over the next year, "this will look like a really bright decision."

By historical standards, rates are incredibly low. Until 2003, rates on 30-year fixed-rate loans hadn't dipped below 5% since the 1960s. Rates fell to similar points throughout much of the past year as the government was helping to hold down costs for borrowers.

Nearly half of all borrowers with 30-year conforming fixed-rate mortgages have mortgage rates of 5.75% or higher and could reduce their rates by a full percentage point if they refinanced at current rates, according to investment bank Credit Suisse.

Many of those borrowers may have tried to refinance last year, only to find that they couldn't qualify. When rates fell to similar lows in 2003, refinance activity hit a record $2.9 trillion, compared to $1.2 trillion last year, according to Inside Mortgage Finance, a trade publication.

Now, more private investors are coming into the market for loans, offering better prices for securities containing mortgages with low rates than they were one year ago. That could lead banks and brokers to cut upfront origination fees, and borrowers who are able to refinance could find it cheaper to do so than last year.

"I'm calling people back and saying, 'Now it's worth it,'" says Michael Menatian, a mortgage banker in West Hartford, Conn.

—Prabha Natarajan contributed to this article

URL to original article: http://online.wsj.com/article/SB10001424052748704904604575262713807080890.html?KEYWORDS=mortgage+rates+decline

Underwater Mortgages Stabilized in First Quarter: CoreLogic

by AUSTIN KILGORE

The number of borrowers with negative equity declined slightly in Q110, but underwater mortgages and borrowers with less than 5% home equity accounted for 28% of all residential properties, according to the latest data from CoreLogic.

More than 11.2m, about 24% of all residential properties with mortgages were in negative equity at the end of Q110. That’s down slightly from 11.3m, or 24%, Q409. The state with the highest rate of negative equity mortgages continues to be Nevada, where 70% of all properties are underwater, followed by Arizona (51%), Florida (48%), Michigan (39%) and California (34%).

Las Vegas remains the core-based statistical area (CBSA) with the greatest rate of underwater mortgages. There, 75% of mortgaged properties are underwater. Other top CBSAs include the California CBSAs of Stockton (65%), Modesto (62%), Vallejo-Fairfield (60%), as well as the Arizona capital of Phoenix (58%). In addition, Phoenix had more than 550,000 underwater borrowers, the most of any metro market in the US, followed by Riverside, Calif. (463,000), Los Angeles (406,000), Atlanta (399,000) and Chicago (365,000).

Not only did the number of underwater borrowers decline, but the amount of negative equity also dropped for many. The number of borrowers with a mortgage loan-to-value (LTV) of 125% or more totaled 4.9m, or 10.4%, down from 5m, or 10.6%. The aggregate dollar value of negative equity for borrowers with 125% LTV was $656bn. Research has shown borrowers are more likely to strategic default once their LTV reaches 125%.

“The two most important triggers of default — negative equity and unemployment — have stabilized over the last six months,” said CoreLogic chief economist Mark Fleming.

“As house prices grow again and borrowers pay down their mortgage debt, negative equity levels will begin to diminish,” Fleming added. “The typical underwater borrower is likely to regain their lost equity over the next five to seven years.”

CoreLogic said 38% of borrowers with second mortgages were underwater, compared to 19% of borrowers that did not have a junior lien. In addition, CoreLogic said the foreclosure rate for borrowers with junior liens was 4%, compared to 2% for borrowers without junior liens.

The dataset for the statistics includes 47m residential properties with a mortgage, accounting for more than 85% of all mortgages in the US and relies on public record data to determine the amount of outstanding mortgage debt. Current values were derived by the company’s automated valuation model (AVM). CoreLogic, formerly known as First American CoreLogic, is a subsidiary of the First American Corp. (FAF: 33.00 -1.02%), but is scheduled to split from its parent firm and become its own standalone, publicly traded company.

URL to Original Article:
http://209.236.64.240/2010/05/10/underwater-mortgages-stabilized-in-first-quarter-corelogic/

Monday, May 24, 2010

Fannie Mae Foreclosures Nearly Double in Q110

by JON PRIOR

The amount of foreclosures held by the government-sponsored enterprise (GSE) Fannie Mae (FNM: 0.936 -2.50%) nearly doubled from 2009.

According to the quarterly earnings report filed for Q110, Fannie Mae holds more than $11.4bn in single-family foreclosed properties, up from $6.2bn in Q109. The foreclosure rate in its single-family portfolio reached 1.36%, up from 0.55% last year.

For the quarter, Fannie reported an $11.5bn loss and requested $8.4bn in aid from the Treasury Department.

The foreclosure volume reached over 109,000 from 62,000 in 2009. At the beginning of the period that number was just over 86,000.

The region with the most was the Southeast with 17,700, followed by the Midwest with 15,000 and the Southwest with 12,800. The West was fourth with 12,600 and well behind the others, the Northeast had 3,500 foreclosed properties in the Fannie Mae portfolio.

In the report, Fannie pointed out that foreclosure levels in the first half of 2009 were affected by foreclosure moratoria.

“The continued weak economy and high unemployment rates, as well as the prolonged decline in home prices on a national basis, continue to result in an increase in the percentage of our mortgage loans that transition from delinquent to foreclosure status and significantly reduced the values of our foreclosed single-family properties,” according to the report.

URL to Original Article:
http://209.236.64.240/2010/05/10/fannie-mae-foreclosures-nearly-double-in-q110/

Monday, May 17, 2010

Mortgage Bond Spreads at Widest in Five Months: Credit Markets

By Jody Shenn


May 5 (Bloomberg) -- Yields on Fannie Mae and Freddie Mac mortgage securities that guide U.S. home-loan rates climbed to the highest in five months relative to Treasuries as Europe’s worsening government finances lead investors to shun all but the safest assets.

Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds widened about 0.03 percentage point to 0.78 percentage point more than 10-year Treasuries as of 11:57 a.m. in New York, up from 0.68 percentage point on April 26 and the biggest gap since Dec. 8, according to data compiled by Bloomberg.

Even with U.S. promises to pump unlimited capital into the two government-charted companies through 2012 to ensure they can meet $4.6 trillion of guarantees on housing assets, speculation that Greece’s debt crisis will infect other European countries is driving investors to the safety of Treasuries and making interest rates more volatile, harming their mortgage bonds.

“You hate to assign everything to Greece, but any time you get sovereign-debt risk issues, I think that gives MBS investors pause,” said Walt Schmidt, a mortgage-bond strategist in Chicago at FTN Financial Capital Markets. “It’s not that far- fetched” to think that if multiple countries default, there’s a chance Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac eventually could too, he said.

The widening in spreads has been driven by “fast-money players” such as hedge funds and traders, rather than any retreat by longer-term investors, Schmidt said. The average rate on a typical 30-year fixed-rate mortgage was 5.06 percent last week, up from a record low of 4.71 percent in the week ended Dec. 3, according to Freddie Mac. It reached a high last year of 5.59 percent in June.

Fed Program Ends

Yield premiums on the securities guaranteed by Fannie Mae touched a record low of 0.59 percentage point on March 29, two days before the end of a Federal Reserve program that purchased $1.25 trillion of agency mortgage bonds. Yields have fallen to 4.35 percent, from 4.51 percent on March 31, amid lower benchmark rates.

Elsewhere in credit markets, the extra yield investors demand to own company debt instead of Treasuries rose 4 basis points to 153 basis points, or 1.53 percentage point, Bank of America Merrill Lynch’s Global Broad Market Corporate Index shows. That’s the biggest one-day increase since March 30, 2009, when spreads widened 5 basis points to a record 511. They have widened 11 basis points from the 2 1/2-year low on April 21.

Average yields fell 4.4 basis points to 3.914 percent, the lowest since April 27, the index shows.

Greece Protests

The cost of protecting Greek bonds from default rose the most in a week amid investor concern the 110 billion-euro ($143 billion) aid package reached May 2 may not solve the nation’s deficit crisis or prevent contagion to Europe’s debt-ridden economies.

Credit-default swaps on Greece surged 77.5 basis points to 842 basis points, according to CMA DataVision prices. Greek protests against government austerity measures turned fatal when three people were killed in a fire set by demonstrators in an Athens building as protests escalated against 30 billion euros of additional wage cuts and tax increases pledged in exchange for the bailout.

“It would appear that the market is still not convinced that sovereign risk is yesterday’s news,” Gary Jenkins, the head of credit strategy at Evolution Securities Ltd. in London, wrote in a note to investors. “I would bet there are a lot of very worried EU officials.”

Bond Risk

The Markit iTraxx Europe Index of swaps on 125 companies with investment-grade ratings, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, jumped 8 basis points to a mid-price of 105.75, JPMorgan Chase & Co. prices show.

The Markit CDX North America Investment Grade Index Series 14 increased 4 basis points to a mid-price of 101.7 as of 12:10 p.m. in New York, according to Markit Group Ltd. The index typically rises as investor confidence deteriorates and falls as it improves.

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The extra yield investors demand to own emerging-market bonds over U.S. Treasuries rose 11 basis points to 291, the highest since Feb. 26, according to JPMorgan’s EMBI+ Index.

Fannie Mae

The $5.4 trillion market for so-called agency mortgage securities includes those guaranteed by Fannie Mae and Freddie Mac, and federal agency Ginnie Mae. Current-coupon bonds, or those trading closest to face value, are guiding rates on almost all new U.S. home lending following the collapse of the non- agency market and a retreat by banks.

In March, the Fed completed a 15-month program intended to reduce financing costs by decreasing the supply of home-loan securities in the market, driving down yields. That month, the central bank also ended a program in which it bought $172 billion of the corporate debt of Fannie Mae and Freddie Mac and the Federal Home Loan Bank system, a series of cooperative lenders to financial companies.

Spreads on mortgage bonds also narrowed while the Fed was buying because interest-rate “volatility collapsed,” Curtis Arledge, chief investment officer for fixed income at BlackRock Inc., the world’s largest money manager, said in an April 13 interview.

Interest-Rate Volatility

The sovereign-debt crisis has reversed that trend, with a Barclays Capital index of expectations for interest-rate volatility climbing 15 percent through yesterday from April 16. The measure, based on prices for so-called swaptions, had declined almost 15 percent this year to a 12-month low.

Swaptions give buyers the option to enter interest-rate swap contracts at later dates. Swap rates are the fixed amounts investors pay in exchange for receiving floating rates linked to short-term borrowing costs.

Greater volatility harms mortgage-bond prices because it makes bigger rises or drops in rates more likely, pushing refinancing and other sources of prepayments on the underlying loans either much higher or lower than expected.

Prepayments that are higher than planned typically return more of investors’ money when new investments carry lower yields, and may cause investors losses if they bought bonds above face value. Refinancing rates that are lower than planned cause investors to receive their money back slower, as higher market yields make their investments less attractive.

Home-Loan Securities

Events in Greece have done little to curb a rally in non- agency home-loan securities, which have in some cases more than doubled from record lows set in early 2009.

A Markit ABX index of credit-default swaps tied to 20 subprime-loan bonds rated AAA when created in the first half of 2007 has climbed 34 percent since March 15 to 46.38 yesterday, near the highest since October 2008, according to London-based Markit.

The index fell as low as 23.1 in April 2009. Delinquencies and defaults on the loans to which the ABX indexes are tied fell in March by about 3 percent, declining for a second straight month in part because of “seasonal trends” and “high levels” of debt modifications, according to an April 26 report by Credit Suisse.

PrimeX credit-default swap indexes, created April 28 and linked to prime-jumbo mortgages, have also advanced, with three of four ending yesterday at or near their highest levels, according to Markit’s website.

URL to Original Article:
http://www.businessweek.com/news/2010-05-05/mortgage-bond-spreads-at-widest-in-five-months-credit-markets.html

Monday, May 3, 2010

Flipping houses is back in South Los Angeles

By Alejandro Lazo, Los Angeles Times

Investors are snapping up foreclosed homes in hopes of making a quick killing.

The musty smell of neglect greeted the two investors as they stepped past the waist-high weeds and peeling paint to cross the threshold of the latest prize: a boarded-up two-story house in South Los Angeles.

Shards of glass crunched underfoot. The men spied a shoe-sized hole in one wall and an empty can of Steel Reserve beer on the floor.

"This is not bad," chirped Robert Fragoso, complimenting his friend Olivier Clamagirand on his new purchase.

Two days before, Clamagirand paid $180,000 for the lender-owned home on Second Avenue, six blocks east of Crenshaw High. His plan is to spend $45,000 on repairs and sell the house for about $320,000.

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"The key is to buy right and move quick," Clamagirand said in his thick French accent. "If you can get out in three or four months, you're good.

"Flipping homes is back.

Lured by steep discounts on bank-owned properties, investors are sifting through the wreckage of Southern California's real estate bust, snapping up foreclosed homes in hopes of making a quick killing. The rapid-sale rebound comes amid a general recovery in housing prices and sales, and the epicenter is South Los Angeles.

MDA DataQuick, the real estate research firm, ranked Southern California Zip codes by frequency of flips, which it defined as homes resold within three weeks to six months of purchase. Three of those Zip codes were in South Los Angeles, and two others were in the nearby unincorporated county communities of East Compton and Willowbrook.

In Watts, about 1 out of every 6 homes sold during the final three months of 2009 was flipped, making it the neighborhood with the highest concentration of flipped properties in all of Southern California, DataQuick said.

Along with low prices, real estate investors are drawn to the area because of its proximity to the ports of Los Angeles and Long Beach, Los Angeles International Airport and other job centers, including factories.

Unlike many of the remote suburbs ravaged by the housing bust, the economy of South Los Angeles and its neighbors was never tied to housing and development. And these urban communities were largely spared the rampant overbuilding that has left areas like the Inland Empire littered with boarded-up subdivisions. Subprime lending was prevalent in South Los Angeles, making foreclosures common.

"South Central is good because it is a blue-collar area, but it is close to essentially a lot of work," said Fragoso, 38, senior vice president at financier Anchor Loans as well as Clamigirand's sometime partner in real estate deals. "It's close to downtown and there are a lot of factories and blue-collar work here."

Flipping was also given a boost in February when the Federal Housing Administration temporarily suspended its "no flip rule," which prohibited people using FHA loans from purchasing properties from sellers who had owned the homes less than 90 days. The one-year suspension was designed to give the housing market a boost.

Investors have long been active in and around South Los Angeles, but their numbers have surpassed even the boom years. The percentage of homes sold to absentee buyers in a large swath of neighborhoods, from Jefferson Park just west of USC to East Compton, peaked at 17.3% in the first three months of 2004, bottomed in the fourth quarter of 2006 at 9.4% and then hit a fresh high of 28.9% in the fourth quarter of 2009, according to DataQuick.

"People have very, very short memories and we go straight from collapse to bubble," said Leo Nordine, one of Los Angeles' top foreclosure agents. "The second South L.A. stopped crashing, we started getting 20 offers on everything.

"Investors say there is no shortage of buyers.

Standing outside the open doors of a three-bedroom, one-bathroom, fully refurbished home in Compton one recent weekend afternoon, real estate agent Sonia Moncayo greeted a steady stream of potential buyers in Spanish as ranchera and banda hits played from a neighbor's stereo.

Moncayo touted the home's tiled floors and granite countertops, the tranquility of the neighborhood and the elementary school nearby. But the real selling point, she said, was the large backyard with a spacious patio.

"This is perfect for your barbecues," she said, reciting her pitch.

Antonia Villegas, 35, and her husband Pablo, 39, were among the interested visitors that day. The couple currently rents in South Los Angeles, but they want more space for their four children.

The Compton location, she said, was ideal as her husband works about a 10-minute drive away in a Boeing assembly plant.

"It is very close to my husband's work," she said in Spanish. "It is a little bit cheaper in these areas, and we are looking for an area that is a little bit more tranquil than where we live now."

Jaime Reyes, 30, a mechanic who works for an Audi dealership in Pasadena, grew up in Compton and already owns a house — a duplex where his parents live in the spare unit — but said he wanted to take advantage of federal tax incentives expiring this month to purchase a home for his wife and 4-year-old son.

"It's time for me to expand into a two- or three-bedroom," he said. "And, hopefully, expand my family."

Many novices made fortunes flipping homes during the boom, but pros like the 41-year-old Clamagirand say the era of easy money is over. These days, he says, investors need to face down squatters, take on major repair jobs and wrestle with a host of other unexpected pitfalls.

"You can't compare that time and now: Anybody could buy something, hold onto it and make money six months or a year later," he said. "These days you really need to buy right and spend time to make improvements."

In a too-common narrative of the bubble years, the previous owners of his newly purchased five-bedroom property on Second Avenue loaded up the home with debt, refinancing at least seven times. The size of the mortgage swelled from $142,159 to more than $500,000 before it was foreclosed on last summer. Clamagirand plans to fix it up and sell within a matter of months.

A curly-haired French and Belgian national who heads his own company called Oceanside Property Investments, Clamagirand is a former competitive Motocross racer who yachts out of Marina del Rey in his free time. His first flip more than a decade ago was a single-family home on West Magnolia in Compton; he still keeps two bullets he found lying inside as mementos. They foreshadowed a tragic twist: The husband and wife who bought the home lost two sons to gunfire within months.

"Compton can be rough," Clamagirand said, standing in the back room of the newly purchased home, looking through a BB-gun-pierced window onto a still sea of backyard weeds.

It seems every investor or real estate agent who has worked in South Los Angeles long enough has gritty tales or close calls, though law enforcement officials say violent crime is down significantly in recent years.

Richard Contreras, 33, who works for Nordine listing properties in South Los Angeles, says he takes precautions as he drives around the area, delivering foreclosure notices, overseeing evictions and then inspecting seized properties.

"It is always an emotional thing," Contreras said. "If they yell, I don't yell back. I get it. People lose jobs, fall behind on their payments."

He drives his boss' blue Toyota Prius, which he says is safer than his own car, a black 2000 Buick Park Avenue Ultra, which sheriff's deputies have told him resembles an undercover cop car.

To get people out of homes quickly these days, lenders often will offer residents a "cash for keys" deal, literally paying residents to vacate without a fight.

"This is not my proudest day," said one unfortunate homeowner, standing in the doorway of his empty house as Contreras completed a full search, opening up cupboards, closets and inspecting the basement.

But as some homeowners are forced to leave, others are stepping up to take their place.

Eula Toca, 34, now rents in Highland Park in northeast Los Angeles. Despite skepticism from friends and family, she wants to buy in South Los Angeles, believing it's a good place to get the most house for her money.

"There are some beautiful pockets," Toca said. "And not everything is as it seems."

URL to Original Article:
http://www.latimes.com/news/la-fi-south-la-20100425,0,1931421,full.story

The Housing Market Has Gone Mad

By PAUL JACKSON


“I can’t explain myself, I’m afraid, sir, because I’m not myself you see.”

“It would be so nice if something made sense for a change.”

– Alice, in Lewis Carroll’s Alice in Wonderland

Let’s start with what’s clear right now—the simple fact is this: our nation’s housing markets have gone mad. Up is down, and down is up, and quite literally so. I’d not be surprised, in fact, to run into a Mad Hatter having a tea party in front of his dilapidated house (that he hasn’t paid the mortgage on for years, of course).

And that’s just the point. Our nation’s housing data has more in common with Alice in Wonderland than it does with anything resembling reality right now. And my thinking here isn’t the figment of a misguided perma-bear attitude, lest some readers mistake my stance: I, for one, am rooted firmly in reality. Housing will recover and return to strength. It must.

But not yet.

In fact, the disconnect between housing reality and the Wonderland we’re all now living in was the subject of a formal note last week from researchers at Standard & Poor’s. Like me, they were vexed to see that seasonally-adjusted housing data has looked so positive, while the unadjusted data looked far less so.

Most media outlets, after all, have been trumpeting the positive, seasonally-adjusted data as proof of recovery.

Here’s an example: the raw S&P/Case-Shiller data found a -0.2% dip in home prices in January (using the 10 city index), yet the seasonally-adjusted data reported by most media outlets showed a 0.4% increase month-over-month. This sort of dichotomy has been apparent for some time—and not just within the S&P/Case-Shiller data, either.

Consider the insight of Gluskin Sheff Chief Economist David Rosenberg:

“Now it would be one thing if January was an unusually weak seasonal month for home prices deserving of an upward skew from the adjustment factors; however, from 1998 through to 2006, they rose in each and every January and by an average of 0.6%.

“But what happened is that home prices collapsed in each of the past three Januarys — by an average of 1.8%, or a 25% annual rate. And, seasonal factors typically weigh the experience of the prior three years disproportionately so what looks like steady gains in housing prices may be little more than a statistical mirage.”

In other words, the disparity between adjusted and unadjusted data suggests that seasonal statistical corrections are doing more than simply correcting for any seasonal effects—especially if you believe that the underlying seasonal patterns of the housing market have been significantly disrupted by what statisticians would call “exogenous” variables. (That is, something other than seasonality.)

In its note, the S&P/Case-Shiller Home Price Index Committee suggested that foreclosures and “other market dislocations”—code speak for extraordinary mortgage market support from the Fed, as well as a substantial tax credit program for consumers—have affected home prices beyond what would normally be seen by seasonality. “[W]e believe that current market conditions are making the seasonally-adjusted data less reliable indicators,” the committee said.

“[T]he Committee believes that, for the present, the unadjusted series is a more reliable indicator and, thus, reports should focus on the year-over-year changes where seasonal shifts are not a factor.”

Welcome to Wonderland, indeed.

So, for now, we see builders swinging their hammers again a little bit more, pushing March housing starts up 20.2 percent from one year ago—those numbers coming fresh off of an all-time record low in new housing starts in February. And we see that existing home sales soared in March, too, up 6.8% as borrowers rushed to claim a tax credit before expiration. Is this what recovery looks like? Only if you believe this is reality.

I tend to see reality in terms of a not-so-hidden overhang of distressed mortgages that must eventually be dealt with—7.9 million, at last count. And whether through short sales, or the tried-and-true foreclosure to REO pipeline, there are undoubtedly millions of such homes yet waiting to enter the nation’s available housing supply.

Likewise, we are seeing vacant housing units reach a record, as well, hitting 19 million in the first quarter of this year according to data released Monday morning by the Commerce Department. Depending on whose estimate you believe, that adds another 1.5 to 2 million excess housing units that will undoubtedly constrain upward movement in home prices.

Is there anyone out there that really believes that an unavoidably increasing and likely substantial supply of homes will somehow drive home prices upward further this year? Perhaps only those that live in Wonderland.

URL to Original Article:
http://www.housingwire.com/2010/04/26/the-housing-market-has-gone-mad/