A message from Steve Harney:

The short term fixes used to bolster the real estate market (the purchase of mortgage-backed-securities and homebuyer tax credits) proved to be just that: short term fixes. Everyone now seems to feel that the only true solutions to the challenges in housing are

• the creation of jobs and
• the increase in consumer confidence jobs will create.

I totally concur. However, if tomorrow the administration was to announce the greatest jobs program ever attempted and promised to implement that program immediately, it would take 12-18 months for it to have any noticeable impact on housing demand. That begs the question:

What if you want (or need) to sell in the next 6 months?

A new jobs program cannot help you. A dramatic increase in consumer confidence won’t occur in time. The only way for you to guarantee your home will sell and you and your family will get to move on with your lives is to price your home at a number at which it will sell. We know that is difficult to accept.

Back in 2006, you might have been able to sell it for perhaps 20-30% more than you can sell it for today. In five-to-ten years from now, you may be able to sell it for substantially more. This is not 2006 however. This is not some undetermined time in the future when the housing market has fully recovered. This is 2010 and this year we must list our property at a compelling price if we want it sold.

This may seem like too strong a dose of ‘tough love’. I just want to make sure that if you truly want/need to sell your home in the near future you realize that the best time is now. You may be losing money compared to the 2006 price. But, by waiting, you only continue to lose value.

Every major credible source is saying that prices will fall in most parts of the country over the next six months. Estimates range anywhere from 5-20%. If you own a $200,000 home and prices drop an additional 10%, you will lose $384.62 every week!!

($200,000 x 10% = $20,000. If you divide the $20,000 by 52 weeks it equals $384.62).  

Bottom Line

Sit with your family and a local real estate professional. Determine the actual value of your home. Price it at that number, sell it and move on to where you and your family really want to be.

Holy Cow! Have you taken a look at where interest rates are these days??? There are Ten Year Mortgages in the 3.75% range for heaven’s sake! Yes, 3.75%!!!

What are some of the issues to consider as you (and all of America) contemplates a refinance?

1.  Does it make financial sense?

If you are considering a “rate/payment reduction” refinance, I typically recommend that people do one simple calculation. Divide your monthly savings into the costs (out-of-pocket expenses AND any increase in your principal balance). That number will tell you how many months’ payments it will take to “break even”. Depending on how long you anticipate staying in the home, and comparing that to your “break even” month, will give some clarity to what is the right decision.

2.  What about a refinance to shorten the term of a mortgage?

When examining the possibility of cutting years off your mortgage, you should take a good hard look at how such a move can affect your monthly cash flow. If your payment stays the same and you save a few years of payments, many people will choose that option (rather than the monthly savings of a “rate/payment reduction” refinance). However, if your payment is going up (in order to save years), take time to analyze the impact on your monthly activities. Will you be sacrificing too much to save payments 20 year from now?

3.  What will my home appraise for?

This is the biggest challenge facing most people. With so many homes underwater, there are many people who won’t be able to refinance. If you have an FHA loan, there is some hope if you qualify for their “Streamline Refinance Program” because there is an option to close the loan without an appraisal. (For a 15 minute video explaining the program, go to www.Facebook.com/FHAStreamlineRefinances) For others, loan-to-value issues can create the need for Mortgage Insurance when it didn’t before (making “savings” harder to achieve).  Understand that most lenders require you to pay for an appraisal (and maybe an application fee too) when you submit your loan request, so do your best to have a real sense of what your home will appraise for.

4.  Should I lock in?

Even though conventional wisdom is that rates are likely to stay low for a while, history has shown that when they do go up, they go up quickly and dramatically; therefore, my advice is that if you like the rate you are quoted, lock it and sleep well.

5.  How will my income and credit be looked at?

Your refinance creates a new loan that will likely be bundled and sold in a new mortgage-backed security; therefore, this new loan will be underwritten to today’s guidelines (which are tighter than they were a few years back). What I am saying is, you may have gotten a loan in 2006, made every payment on time, and still not get approved today. Maybe because, you have a “no income check” loan and your tax returns won’t support your stated income. Or maybe because you bought a car and your ratios are a bit higher. Or your FICO score is different. Or your appraisal is insufficient.

The most important thing is to speak with a solid mortgage professional and try to address any hurdles BEFORE you spend your money. Compare the proposed savings; honestly assess your home’s value; review your income, assets and credit; all ahead of time to improve the likelihood of a desired outcome.

Reuters report 9/1: “It is not high on anyone’s list that we have heard. We have not heard Congress talking about renewing it.”  – HUD Secretary Shaun Donovan regarding a possible renewal of the homebuyer tax credit.

ORIGINAL POST

Rumors are running wild that the administration is considering a new tax credit for homebuyers. We don’t want to comment on whether or not a new tax credit would be a good or bad thing for real estate right now. We’ll let others handle that hot potato. Our goal is to give you the best, up-to-date information on the chances it will happen.

Our strong belief is that it will NOT happen.

The rumor started when Housing and Urban Development Secretary Shaun Donovan appeared on CNN‘s “State of the Union with Candy Crowley” on Sunday. CNN reported:

When pressed on whether the White House will now push for an extension of the tax credit, Donovan suggested the credit will not come back in the short-term but he left the door open to bringing it back down the road if the industry does not improve.

“I think it’s too early to say, after one month of numbers, whether the tax credit will be revived or not,” Donovan told CNN. “All I can tell you is that we are watching very carefully. I talked earlier about new tools that we will launch in the coming week, and we are going to be focused on where the housing market is moving going forward. And we’re going to do everything we can to make sure that this market stabilizes and recovers.”

This started a firestorm of conversation as to whether the administration was going to announce a new tax credit anytime soon.

What has happened since?

Economist Tom Lawler came out saying he believes that Donovan was caught off guard and started to adlib a response:

As best as I can tell Secretary Donovan was in New Orleans giving interviews on the “Katrina” anniversary, but CNN’s reporter focused first on housing and the possibility of a “double dip.” and Donovan appeared to be “winging it.”

The Wall Street Journal reported:

On Monday, there was this reply from Robert Gibbs, the White House press secretary: “I think bringing that [tax credit] back is not on — is not as high on the list as many other things are.”

Diana Olick from CNBC stated:

I went the official route and followed up with a HUD spokesperson who responded:  “No news here…there are no discussions underway to revive the credit.”

Why do we think it won’t happen?

The purpose of the original tax credit was to lower the supply of homes on the market by increasing demand. The administration felt that was necessary to stabilize prices. It worked in November. Inventory did decrease and prices stabilized.

However, as we can see by the graph below, the extension of the tax credit actually did the exact opposite in April. Instead of lowering supply, it prompted sellers (both homeowners and banks with a pent-up supply of distressed properties) to put their houses on the market as they saw an opportunity to sell.

We do not believe that the administration or Congress will try to lower supply that way again. They are trying to limit supply by preventing foreclosures using an assortment of refinancing and modification programs instead.

Bottom Line

There is no way for anyone to be 100% sure of anything pertainig to the housing market right now. However, we strongly believe that buyers should not put off a decision to purchase in anticipation of a tax credit that probably will never come to fruition. Find the home of your dreams, move in and make sure that you and your family begin enjoying the lifestyle you always dreamt about and deserve. That is so much more important than a couple of dollars you may never see anyway.

MacroMarkets has assembled a very distinguished panel of over 100 economists, investment strategists, and housing market analysts who are surveyed every month regarding their 5-year expectations for future home prices in the U.S. The report is the Home Price Expectations Survey.

Their purpose for this undertaking?

We are hopeful that this survey, and our panelists, will help to stimulate constructive debate among consumers, institutions and policy makers regarding expected future changes in home prices – and their behavioral, policy, and risk management implications.

We believe each of their goals is important. We also want to relay the findings of the surveys to you in order for you to see what the experts are saying and also look at the trends that are developing in their beliefs.

What the experts are saying:

The August survey reported that only 21% of those surveyed predict “positive growth in prices nation-wide for 2010”. The report also revealed that the group, as a whole, predicts that home prices will have a cumulative 8.43% appreciation by the fourth quarter of 2014.

What trends are developing:

The report shows an increase in concern about the housing recovery. The survey reports that 79% of the economists and analysts surveyed are expecting home prices to decline this year. That number is up from 40% in May.

For the third consecutive month, the consensus from the experts indicates weakened overall confidence in the U.S. housing recovery … (with) average expected cumulative price appreciation through 2014 falling almost one-third since our inaugural survey just three months ago …

The evolution of the panel toward more conservative projections of appreciation for the next five years can be seen in their adjustment of that cumulative mean appreciation over the last four reports. Here is their percentage projection of appreciation for the 4th quarter of 2014 (compared to the 4th quarter of 2009).

• May’s report called for a five year cumulative appreciation of 12.43%.
• June’s report called for a five year cumulative appreciation of 10.46%.
• July’s report called for a five year cumulative appreciation of 9.46%.
• Augusts’ report called for a five year cumulative appreciation of 8.43%.

Bottom Line:

The leading housing industry experts are becoming less optimistic about a  recovery. Waiting for prices to come back before selling? That could be a rather long wait.

You may believe that selling your home will be impossible after all the news you have heard recently.  You may feel powerless to the process. What could YOU possibly do to turn this housing market around? There is no doubt that today’s real estate market is extremely difficult to navigate. However, we want you to know that thousands of homes sold yesterday, thousands will sell today and thousands will sell each and every day from now until the end of the year.

It is totally within your power to guarantee that your house will sell even in the current market.

How you ask? Let’s look at the simplicity of the famous Serenity Prayer and apply it to selling a home in today’s real estate market.

“Grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.”

Accept the things you cannot change

The two main reasons that the housing market has slowed is:

1. the current unemployment situation
2. what unemployment and a struggling economy has done to consumer confidence

As an individual homeowner there is no way for you to impact either of those two situations. The best think-tanks in the country are struggling to discover solutions.

Have the courage to change the things you can

There is not a vacuum of buyers in the market. There is a vacuum of homes a buyer in today’s market will purchase. Let us explain: could you sell your home today for $1? … $1,000 … $10,000? Of course you could. There are plenty of buyers in the market for a home they consider priced correctly. You have to decide what the correct price is for your home if you truly want to sell. If you want your house sold you must list it at a price a buyer will pay for it. Not a buyer from 2006 but today’s buyer who has plenty of homes from which to choose.  

It will take courage to sit with a real estate professional and honestly decipher the true value of your home. If you want to sell, you must have that courage.

The wisdom to know the difference

We all realize that the economic situation will take some time to correct. If we want to wait for prices to return to 2006 levels, we will probably have to wait for 5-7 years.

Look at the reason you decided to sell in the first place and decide whether the extra money you would get from the sale is worth that wait. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should?

This is where your wisdom must kick in. You already know the answers to the questions we just asked. You have the power to take back control of the situation by pricing your home to guarantee it sells. The time has come for you and your family to move on and start living the life you desire. That is what is truly important.

It’s been hard to fault home buyers who haven’t rushed to buy a home, now that there is no longer any Federal Tax Credit. I mean, if you read this blog with any consistency, we all know that home prices are going to continue to tumble, and there is no indication of interest rates climbing anytime soon; so, who can criticize a home buyer (or any buyer of anything for that matter) for not buying when they can get it cheaper by waiting. And when you add in the flood of inventory looming, there also means that there is a greater selection to be had by waiting.

I believe many real estate agents and loan professionals actually agree with these waiting buyers which is why they can’t help the buyer “off the fence” and into a home. They think buyers should wait. Today, I need to remind you of two compelling reasons why waiting could be hazardous for those who expect to utilize the FHA loan programs for their purchase.

1.  The change in the FHA insurance Premiums

The lessening of the Upfront Mortgage Insurance Premium to offset the increasing Monthly Insurance Premium has a direct impact on the loan amount a given applicant can qualify for.  In most cases, buyers/borrowers will have their buying power reduced 4%—-IF RATES STAY RIGHT WHERE THEY ARE. People looking at $400,000 homes, now will be looking at $385,000 homes which could change entire neighborhoods (or move them from the “good section” to the “not-so-good section” of a neighborhood).  This change is already scheduled to take effect for FHA Case Numbers issued after October 4^th….that will require buyers to be in contract before that….that means there aren’t many days left to find a home, negotiate terms for the sale, and get fully executed contracts signed.

2.  There is a likely-to-be-approved proposal which would limit the allowable Sales Concession on an FHA transaction to 3%.

Today, sellers can pay up to 6% of a buyer’s closing costs (including discount points) and pre-paid expenses (like real estate tax escrows and homeowner’s insurance). In some transactions, it requires a buyer to accumulate an additional 3% of the sales price of a home to have sufficient funds to close. On our $400,000 home that would be an additional $12,000 in savings before you could buy a home. How long will that take a first time buyer to accumulate?  Six months? A year?  Two years? What will interest rates look like then?  If they a higher (as expected), we will be pushing the date to buy off even further into the future. While this change in the program is not official YET, even the Mortgage Bankers Association of America is holding out little hope that they can get FHA to go to 4%.  Insiders point to a September/October announcement.

When you combine the impact of a higher monthly payment (resulting from a higher Monthly Mortgage Insurance Premium) and a higher need for cash accumulation (because of a reduced sales concession), why wait?  Buyers – get off your couch and get serious about acting sooner than later! Sellers – price your homes at a compelling number, as to not miss any opportunity to attract a qualified, motivated buyer. There are valid reasons for a “sense of urgency”…..don’t be lulled into thinking you have all the time in the world.

CNBC report 9/2: “Pending sales of previously owned U.S. homes rose unexpectedly in July … suggesting a tax credit-related housing market decline was close to bottoming.”

ORIGINAL POST

The new housing numbers have definitely been a major news story over the last 48 hours. The Dow dropped over 100 points on the announcement of July’s existing sales numbers. The cries of a double-dip sound like the screams of Chicken Little: ‘The sky is falling! The sky is falling!’ Pundits are claiming real estate will never be looked at the same again. We asked Steve Harney to comment on what the report actual means to the housing recovery. As always, he was more than willing to share his insights. – The KCM Crew

I want to start by saying that Armageddon is not upon us. Was NAR’s Existing Home Sales Report tough to read? Yes. Were there any surprises in the report? Just one: the fact that prices have remained stable. And that was good news.

All the panic and gut-wrenching revolves around two numbers:

1. The lack of sales in July
2. The months’ supply of inventory now available

Neither number was a surprise to anyone truly following the real estate market. Right here in this blog, the KCM Crew has been claiming for the last nine months that sales in 2010 will be approximately what they were in 2009. The tax credit moved many purchases forward as buyers wanted to be in contract before the April 30 deadline. That push forward of demand created a false sense of hope that a major market comeback was taking place in the spring. It also created this current vacuum of demand during the summer.

Just as we should have realized that the great market of the spring could not be sustained, we must now realize that plummeting sales numbers will not continue. It may take one or two months for the impact of the tax credit to fully dissipate. After that, we will see a more normal buyer demand throughout the fall and winter. We must not forget that people decide to move every day. Prices are great, interest rates are at historic lows and the assortment of properties for sale is fabulous. Buyers will buy!!

In regard to the months’ supply of homes for sale, we must remember one basic principle: prices will come down if demand is constant and inventory increases. Houses will sell over the next twelve months, approximately 5 million of them. There may be more than double that amount trying to sell however. Which ones will sell? Those that are priced correctly for the current market. Your price must be compelling in order to make your home attractive to today’s buyers who have a tremendous selection of homes from which to choose.

As the year moves forward, it is my belief that months’ inventory will remain in double digit numbers. That means that prices will continue to soften.

What does this mean to you?

You definitely will be able to sell your home and move on with your life. If that’s the goal, you will do better financially if you do it sooner rather than later.

We want to begin by saying there were absolutely no surprises in this month’s National Association of Realtors Existing Home Sales Report. Experts were calling for a dramatic fall off in volume and a substantial increase in month’s supply of inventory. Everyone now realizes that the tax credit actually pulled more demand forward than it created. The inventory of unsold homes is increasing as the shadow inventory of distressed properties is beginning to be released by the banks.

The report just confirmed what we already knew. Yet, it was still difficult to read.

What the report said:

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009. Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995 … Existing single-family home sales fell in all 20 areas from a year ago.

The national median existing-home price for all housing types was $182,600 in July, up 0.7 percent from a year ago. Distressed home sales are unchanged from June, accounting for 32 percent of transactions in July; they were 31 percent in July 2009.

Total housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, which represents a 12.5-month supply at the current sales pace, up from an 8.9-month supply in June. Raw unsold inventory is still 12.9 percent below the record of 4.58 million in July 2008.

What the experts are saying:

Mark Zandi, chief economist at Moody’s Analytics:

“We probably, almost assuredly, will experience more house price declines. I think that would qualify as a double dip.”

Calculated Risk:

“Usually July is the peak month for inventory. This level of inventory is especially bad news because the reported inventory is already historically very high, and the 12.5 months of supply in July is far above normal. The months-of-supply will probably decline in August as sales rebound slightly and some sellers take their homes off the market, but I expect double digit months-of-supply for some time – and that will be a really bad sign for house prices.

Above 6 or 7 months of supply, house prices are usually falling. This isn’t perfect – it is just a guideline. Over the last year, there have been many programs aimed at supporting house prices, and house prices increased slightly even with higher than normal supply. However those programs have mostly ended.

This is a key reason why I expect house prices to fall further later this year as measured by the Case-Shiller and CoreLogic repeat sales house price indexes, although I don’t expect huge declines like in 2008. My expectation is further price declines of 5% to 10% on the repeat sales indexes.”

Real Trends:

“It is our belief that total sales volume in the second half of 2010 will be down versus the second half of 2009 (in many markets, we believe that decline will be sharp enough so that full-year 2010 will be less than full-year 2009) … Although these figures aren’t likely to fill anyone’s heart with joy, they should not be a huge surprise to anyone.  There’s no doubt that the next 6 to possibly 18 months will not be for the faint of heart but those that will fare best are those that enter this with eyes wide open and plan accordingly.”

The Bottom Line

All real estate is local. Contact a professional agent that is seen as an expert in your area. But remember, in most regions, demand is down and supply is up. There will continue to be downward pressure on home prices.

download the full report

One of the greatest threats to a housing recovery is the months’ supply of housing inventory available for sale. A normal market would have between 5-6 months inventory. We currently have 8.9 months of inventory and most experts believe that number will increase rather dramatically when the National Association of Realtors’ August Existing Housing Report is released today. The supply of inventory is made up of two categories of properties: non-distressed and distressed (short sales and foreclosures).

Part of the administration’s stimulus package was aimed at curtailing the flow of distressed properties coming to the market therefore easing the downward pressure on home prices.

The Home Affordable Modification Program (HAMP) is the administration’s hope for troubled homeowners trying to avoid foreclosure by modifying their current mortgage payments. The original press release said the program was:

“…aimed at helping 3 to 4 million at-risk homeowners – both those who are in default and those who are at imminent risk of default – by reducing monthly payments to sustainable levels.”

The goal was to help prevent 3-4 million distressed properties from coming to the market.

How close to goal is the program?

The administration released the August Housing Scorecard yesterday. The report attempts to convey the successes of the administration’s policies in stabilizing the housing market. The report shows that they have completed only 434,700 permanent modifications to date. The administration also just announced that of those permanent modifications, 19.6% will re-default within 9 months. That leaves over 3 million properties that will probably end up as distressed sales.

Mark Zandi, chief economist at Moody’s Analytics, probably said it best:

“The government program as currently structured is petering out. It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications.”

What does this mean?

There will be more and more distressed properties coming to market. Even the Housing Scorecard addresses this issue both in print and with a graph:

“Foreclosure completions also inched upward as the volume of serious delinquencies continues to work through the pipeline.”

Though the numbers of foreclosure notices are stabilizing, the numbers of repossessions are still on the rise.

Bottom Line:

The modification program has not been the answer the administration had hoped it would be. There will continue to be downward pressure on home prices as the inventory of distressed properties continues to mount.

We attempt to explain the current real estate market both simply and effectively. We either create or search for great visuals or graphs that do just that. We have been trying to help our readers realize that real estate is just like any other industry: pricing will be determined by the theory of ‘supply and demand’. Months’ supply of inventory is the  industry’s gage of supply and demand.

Calculated Risk has constructed a graph which depicts the impact the months’ supply of housing inventory has on home prices. We want to thank them for creating the graph and also for allowing us to share it with our readers.

Here is the graph and Calculated Risk’s explanation:

“This graph shows months of supply and the annualized change in the Case-Shiller Composite 20 house price index. Below 6 months of supply (blue line) house prices are typically rising (black line).

Above 6 or 7 months of supply, house prices are usually falling. This isn’t perfect – it is just a guideline. Over the last year, there have been many programs aimed at supporting house prices, and house prices increased slightly even with higher than normal supply. However those programs have mostly ended.

The dashed red line is the estimate for months of supply in July. Through the roof! And I expect we will see double-digit months-of-supply for a number of months.

This is a key reason why I expect house prices to fall further later this year.”

As we can see, the months’ supply of inventory has a major impact on home prices. On Wednesday, we will post on tomorrow’s release of the National Association of Realtors ‘Existing Home Sales Report’. That report will give us the actual months’ supply of inventory for July.