Can you throw one to my house?
First American Core Logic just released their Fourth Quarter 2009 Negative Equity Data Report last week. Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgage than their homes are worth. The reason this report is so important is that studies have shown that there is a direct correlation between a home losing equity and its chances of winding up a distressed property (foreclosure or short sale).The report itself states:
Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners.
Why does negative equity lead to foreclosures?
Simply explained, once borrowers see their house fall into the situation where the mortgage is higher than the value of the home, they think differently about paying said mortgage. From the report:
The rise in negative equity is closely tied to increases in pre‐foreclosure activity and is a major factor in changing homeowners’ default behavior.
Below is a graph showing that as the home continues to lose equity the percentage of pre-foreclosure activity raises dramatically.
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Hey there KCM Community!
Here are the 41 articles we posted (or should have posted) from the past week. Let us know if we left any good ones out! Just post them in the comments section below. Enjoy the rest of your weekend, and remember– keep sharing good information!
Here for you,
The KCM Crew
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There has been much talk recently about the number of foreclosures currently held by the banks and when they may be released to the market. The number has been estimated at approximately 1.7 million properties. I believe that the banks will be forced to bring them to market in the near future.
Why will banks release these properties in the near future?
Because there is an additional wave of foreclosures coming right on their heels. Just yesterday, Freddie Mac in their Fourth Quarter and Full-Year 2009 Financial Results Report stated:
…the housing recovery remains fragile, with significant downside risk posed by high unemployment and a potential large wave of foreclosures.
Where will this new wave of foreclosures come from?
Homes where the owner is currently 90+ days behind in their mortgage payments. A recent study by Amherst Securities stated that once a borrower falls at least 90 days behind on their mortgage payment there is less than a one percent chance they will ever catch up. 99% of these homes will end up as a distressed property (foreclosure or short sale).
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by Steve Harney on February 25, 2010
in Pricing
I wish I could take credit for the catchy title to today’s post, but it was actually the headline to a New York Times article last week. It was the story of how sellers are finally accepting the reality of today’s housing market and adjusting their price accordingly. The results prove a point: Today, pricing the home at a compelling price is the key. If you are willing to do that, there are buyers ready to leap to action and purchase the property.
As examples, the article cited the following:
The first thing Mr. Seiden (the real estate agent) did was brandish the tissues and recommend a listing price of $60,000 less. “At first I was in shock,” Mrs. Whiting (the homeowner) said. “But then I decided if we wanted to sell, this is what we better do.” A bidding war ensued, and some weeks later the house went into contract at $10,000 over the list price.
Mr. Nadler cited another Larchmont example: a three-bedroom two-bath prewar condo listed at $1.2 million whose owners “needed to be convinced” to drop the price. After generating only weak interest and unacceptable offers, they finally agreed to lower the price to $999,000 and then to $985,000. At that point, Mr. Nadler said, “the floodgates opened.” It sold for close to the final asking price, he said.
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Quite possibly, the segment of the population most damaged by the economic downturn may be Seniors. They have taken the double-whammy of depreciation in their real estate and a slashing of their retirement funds.
The Challenge
Many Seniors have had to alter their retirement plans because of this. Some have had to stay in the workforce longer than they had hoped. Many have had to tighten their belts. Others have put off the sale of their home, in a desperate hope that the market would rally and save them. Alas, that has not happened (and isn’t likely to happen for years).
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Almost every day, as I do my research, I come across a headline that grabs my attention. Many times it leads me to believe that there is a contrarian view to one that I currently hold on an issue in real estate. I immediately read the article only to find out that the headline and even the first few sentences of the story have nothing at all to do with the actual conclusion of the author or the report being sited.
An example of this happened just a few days ago. The New York Times ran a story with the headline Fewer People Late Paying Mortgage which was derived from the Mortgage Bankers quarterly delinquency report. That had me excited as I was hoping that someday soon the American economy would turn the corner. People regaining the ability to pay their mortgage would definitely be proof of that. As I read the article I was buoyed by the first few paragraphs:
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by Steve Harney on February 22, 2010
in For Buyers
There is no doubt that the immediate future of today’s housing market is, at best, cloudy. However, there is at least one silver lining which oft times goes unmentioned – affordability. We sometimes tend to concentrate on the seller in this market. There is no doubt that many sellers have seen much, if not all, of their equity disappear as prices have fallen.
The other side of that coin is that more and more buyers can now afford to purchase a home. The National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) reported this month that:
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Hi,
Well it has been an exciting 5 months since we started the KCM blog! Over 10,000 unique visitors; 100,000 post views; readers from all 50 states and over 25 countries. We have decided that today we will re-post the Top 5 blog post since the beginning. Enjoy!
- The KCM Crew
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We have often talked about a ’shadow inventory’ of homes about to come to market. The two big questions are:
- What does this ’shadow inventory’ actually consist of?
- How will it impact home values in 2010?
Standard and Poors has just come out with a paper which sheds some light on these questions. Let’s look at the report.
First, let’s define shadow inventory as S&P sees it:
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Buyers and Sellers Make Ends Meet
Last week, we began with a premise…that Buyers have a WANT (the lowest monthly payment, even more than the lowest Sales Price) and Sellers have a NEED (to differentiate their home from all the others on the market), and that creative approaches to financing is a method to satisfy both Buyers and Sellers. Part I of this three part series discussed FHA ARMs, today we will talk about 2-1 Buydowns. Buydowns can be done on practically any fixed rate mortgage (Conventional Loans, as well as FHA Loans).
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