Going Down Down Down

Home prices posted another record decline in October, falling 18% compared with a year earlier, while the Twin Cities saw a drop of 16.3% according to a closely watched report released Tuesday.

The 20-city S&P Case-Shiller index has posted losses for a staggering 27 months in a row. In October, 14 of the 20 cities set fresh price decline records.

Sunbelt cities suffered the most, but most of the country is watching home values fall. In Phoenix prices have plunged 32.7% since October 2007, Las Vegas home values are down 31.7% year-over-year, while San Francisco prices fell 31%. Miami, Los Angeles and San Diego recorded year-over-year declines of 29%, 27.9% and 26.7%, respectively.

"As of October 2008, the 20-City Composite is down 23.4%," said Blitzer. "In October, we also saw three new markets enter the 'double-digit' club."

Atlanta, Seattle and Portland reported annual rates of decline of 10.5%, 10.2% and 10.1%, respectively.

Many of the factors affecting home prices turned strongly negative this fall, according to Blitzer.

"October was really the first month to feel the full brunt of the credit crunch," he said. "Up until the Lehman Brothers [bankruptcy filing on September 15], everyone felt relatively optimistic."

Plus, in many of the free-falling cities the majority of real estate sales consist of distressed properties such as foreclosed homes and short sales. These houses tend to sell at a steep discount to the rest of the market, and when they account for a large proportion of all sales, they can exaggerate the depth of price declines.

Of course, foreclosures continue to be a big problem as well. In October alone, nearly 85,000 people lost their homes to foreclosure, adding vacant inventory to an already overburdened market.

Home sellers should not expect prices to improve any time soon, according to Pat Newport, a real estate analyst for IHS Global Insight.

"I expect it's going to get quite a bit worse over the next couple of months," he said. "Existing home sales reports have really been bad."

Home sales fell 8.6% in November, much more than expected, to an annualized rate of 4.49 million units according to the National Association of Realtors.

And although interest rates are currently extremely low - the 30-year fixed-rate averaged 5.14% during the week of December 24, according to mortgage giant Freddie Mac - that's doing more to help people refinancing existing mortgages than it is to help new home buyers.

"Buyers still have to have a 20% down payment," said Newport, "and, in this environment, it can be hard to meet that criteria." Courtesy CNN.

When It's Time To Say Goodbye To Your Christmas Tree

Have you ever wondered where that Christmas tree goes when you put it out on the curb? Most likely in the metro area it goes to one of eleven locations of the company Resource Recovery Technology or RRT. You can also call them at 952-946-6999.

They receive the trees from the major waste disposal companies in town and then grind it up and mix it with mulch and make compost out of it.

Many private haulers may charge a fee for christmas tree disposal. In Minneapolis, there is no charge for tree disposal. Solid Waste & Recycling will pick up your tree with the garbage through the month of January. Just remember to cut the tree in half if it's over 6 feet tall and place it next to your garbage cart. And remember to have all lights, tinsel, ornaments and strands removed prior to disposal.

If you want to recycle at home, place the tree in the yard or garden for use by birds and other wildlife. The branches provide shelter from strong winds and cold. Food can be supplied by hanging fruit slices, seed cakes, or suet bags on its branches. You can also smear peanut butter and seeds in pine cones and hang them in the tree. Prune off the branches and place the boughs over perennials as winter mulch. Chip the tree and use as mulch around trees, shrubs, or in flower beds. Source Kare11 and City of Minneapolis website.

Glub Glub Glub

The number of existing homes sold during November plummeted 8.6% as prices plunged by record amounts, according to a report issued Tuesday.

The National Association of Realtors said that home sales dropped to an annualized rate of 4.49 million units. That was down from 4.98 in October and much less than the 4.93 million units projected by a consensus of industry analysts.

"The only region where we're seeing more sales are where bargain hunters are taking advantage of distressed sale prices," said Lawrence Yun, the Realtors' chief economist. "About 45% of transactions, nationally, were of distressed properties."
Yun blamed the financial market turmoil for the devastating report. For months, sales had hovered 4.9 million to 5.1 million.

"Today's figure reflects the stock market crash that began in October," he said.
The drop took place despite bargain prices as property values continued their decline. The median existing home sold for $181,300 in November, down 13.2% from a year ago when the median was $208,800.

Yun said that price drop was the largest the association had ever recorded and probably the worst decline since the Great Depression.

Meanwhile, the glut of unsold homes expanded to 4.2 million in November. That represents 11.2 months of supply, at the current rate of sales, up from 10.2 months in October. Bloated inventories have barely budged over the past 12 months; last November there were 4.27 million existing homes on the market.

Existing home sales are now the weakest they have been since July 1997, and price drops have wiped out all the previous gains back to February 2004, Larson said.

Sales of new homes fared little better. They totaled 407,000 in November, according to estimates released jointly Tuesday by the U.S. Census Bureau and the Department of Housing and Urban Development. That was down 2.9% from 419,000 sold in October and 3.1% below Briefing.com's projection of 420,000.

New home sales have dropped 35.3% from last November, when an estimated 629,000 were sold.

The median sale price of new homes sold in November was $220,400, a slight increase of 0.9% from $218,400 in October.

Merry Christmas!

Drop In Mortgage Rates No Help For Many Homeowners

With home mortgage rates at a 37 year low, many homeowners are considering refinancing their homes. But today, many home lenders are acting less like helpful allies and more like Ebenezer Scrooge.

The one-two punch that is knocking most homeowners out of the refinance ring are declining home values and tougher lending standards, In some cases, a refinance just won't make sense for homeowners, mortgage bankers say, because borrowers would have to pony up equity and pay mortgage insurance in order to qualify for the low rates.

Some of the old rules about refinance still apply, A refinance can make sense for a homeowner who can recover the upfront costs in two years. But the current economic realities clearly are making this refinance cycle unique, mortgage bankers say.

Currently, lenders want homeowners to have at least 5 percent equity in a home to refinance a conventional 30-year mortgage, or slightly less for loans backed by the Federal Housing Administration.

But in many cases, falling values shrunk the homeowner's equity to the point that they would have been required to buy mortgage insurance with a refinance. In the short term, those insurance costs would have eliminated the financial benefit from the lower rates. Courtesy TwinCities.com

Foreclosures In Twin Cities Leveling Off - For Now

Foreclosures in the Twin Cities and across Minnesota keep piling up in record numbers, but the rate of increase this year has leveled off a bit, according to a report released Friday.

There were 13,334 foreclosures in the Twin Cities during the first three quarters of 2008, compared with 12,974 during all of 2007, according to the report from HousingLink, a Minneapolis nonprofit. The statewide total for the first three quarters was 20,098, the report found, compared with 20,404 last year throughout Minnesota.

Based on HousingLink's projections, foreclosures in the Twin Cities will be up 39 percent from 2007 to 2008. The rate of change in the metro area from 2006 to 2007 was much greater at 84 percent.

The finding supports the idea that Minnesota already has experienced what Prentiss Cox, a University of Minnesota law professor who studies the housing market, argues is the first wave of the foreclosure crisis. That wave, he said, has been tied to the "inevitable" failure of homeowners to make payments on subprime mortgages.

Such foreclosures crested in Minnesota this summer, Cox believes, and likely will continue to decline, since subprime lending largely came to a halt in mid-2007.

But there's still a second wave of foreclosures on the horizon, Cox said — homeowners failing to stay current on payments for so-called "Alt-A" adjustable-rate mortgages.

"Alt-A" is the slice of the mortgage loan market that ranks just above subprime in creditworthiness.

Those loans were made primarily from late 2003 to 2006, and typically start resetting after five years, Cox said.

Whether those homeowners will be able to stay out of foreclosure will have a lot to do with the general health of the economy, he said.

"The second wave could be substantially less — we could see a moderation and a downturn in foreclosures," Cox said. "Or, it could make the first wave look bad but not remotely as bad as the second wave."

Subprime loans generally are targeted to borrowers with tarnished credit histories and little savings available for down payments, according to researchers at the Federal Reserve.

Borrowers with Alt-A mortgages have less serious credit-quality issues, Fed researchers say, or are unable or unwilling to provide full documentation of assets or income. Some of these borrowers are investing in real estate rather than occupying the properties they purchase.

A report earlier this year from the Minneapolis Fed found that six of 10 Alt-A mortgages in Minnesota are scheduled to have their rates reset at some point after Jan. 1.

This week, the Federal Reserve Bank of Atlanta issued a report that noted, among other things, that the rate of foreclosures linked to subprime loans generally has declined in most Fed regions, while foreclosure rates are on the rise for prime and near-prime borrowers, including those with Alt-A and adjustable-rate loans.

Despite the concern about a possible second wave of foreclosures, a report Friday from Edina Realty provided a more upbeat view of the housing market, citing figures from a national report that found more than 60 percent of all foreclosure activity in the U.S. during the third quarter of 2008 was concentrated in six states: California, Florida, Arizona, Ohio, Michigan and Nevada. Courtesy Saint Paul Dispatch.

Fannie Mae To Halt Evicting Renters Of Foreclosed Homes

Fannie Mae is finalizing a national policy that will allow tenants to remain in their homes even if their landlord goes into foreclosure.

The policy will be in effect Jan. 9th and reflects growing pressure on the mortgage company from a legal-aid group that threatened to sue over recent evictions. The company said it will also ensure its current holiday moratorium on new evictions is being followed until the new policy takes effect.

In late November Fannie Mae and Freddie Mac said they would suspend tenant evictions temporarily during the year-end holidays. But despite the pledge, Fannie Mae was proceeding with more than a dozen new eviction cases in Connecticut.

Freddie Mac hasn't announced a similar policy reversal, though a spokesperson said they are "currently evaluating additional actions."

The decision by Fannie and Freddie represents just a slice of the market and excludes many properties purchased with riskier loans that are now falling into foreclosure. Fannie Mae and Freddie Mac, however, are uniquely structured to be able to address the issue, which effectively now has them acting as a type of landlord or property-management company to administer month-to-month leases to renters of their foreclosed properties.

Ted Meyer, a spokesman for Deutsche Bank, one of the biggest trustees of mortgage-backed securities, said Deutsche Bank has no capacity to intervene, saying "the whole issue comes down to ownership" of the foreclosed properties. A given property "is held in trust by us but it is effectively owned by the hundreds or thousands of people that own a tiny sliver of mortgages in any one pool," Mr. Meyer said.

It might fall to the local servicers of the mortgages to decide to halt evictions, he added, because they are responsible for steps such as hiring real-estate agents to put foreclosed properties on the market. It isn't clear how much power -- or will -- a servicing company has to effect a moratorium on tenant evictions.

A New York University study found at least 15,000 renter households in New York City were affected by foreclosure last year. Since then, the number likely has increased Courtesy WSJ.

Oh Christmas Tree!

Many U.S. families will go out this weekend to buy and put up their Christmas tree.

While the use of evergreen trees to celebrate the winter season occurred even before the birth of Jesus of Nazareth, the first printed reference to a decorated tree was in Germany in 1531.

Almost half of U.S. households now use an artificial tree, a third still put up and decorate a real tree, and the remaining 20 percent do not include a tree in their holiday observances.

Christmas trees are grown in all 50 states and each year's crop is worth nearly half a billion dollars. North Carolina is the leading producer, followed by Oregon. China is the leading producer of artificial trees. Courtesy U.S. Census Bureau.

Modified Loans Too Often Still Leading To Foreclosure

Most troubled homeowners whose mortgages were modified are again falling behind on payments, a top banking regulator said on Monday, raising questions about whether policy makers and lenders can successfully help them stay in their homes.

Data from banks show that more than half of loans modified during the first three months of the year were delinquent by 30 days just six months after the terms of the loans were changed, John C. Dugan, the comptroller of the currency, said at a conference in Washington. After eight months, 58 percent were delinquent again.

The rate at which borrowers fall behind payments again — called the re-default rate — appears to be much higher than what previous studies have found. In October, a Credit Suisse study showed that about 30 percent of loans modified at the end of last year were delinquent by 60 days within eight months of the change.

Mr. Dugan said it was unclear why the re-default rates were so high after modifications made by the 14 banks that provided data to his office. He acknowledged that “we have to be careful as we look at this data.” One explanation for the high re-default rate might be that banks were not significantly changing the terms of the loans they modified.

Analysts at Credit Suisse have found that modifications that do not lower borrowers’ monthly payments were more than twice as likely to become delinquent again than changes that reduced payments. Banks like Chase, Citigroup and Bank of America have only recently put more emphasis on lowering monthly payments.

Some loans may also be so poorly underwritten that no modification could help the borrowers stay in homes that they can no longer afford, Mr. Dugan said. That would confirm other studies that show homeowners who become delinquent are much more likely to lose their homes today than in the past.

The Mortgage Bankers Association said last week that 30 percent of homeowners who miss one payment end up in foreclosure a few months later. Historically, only 12 percent to 15 percent fell that far behind and most borrowers were able to catch up, sell their home or strike a better deal with their lender. In California, however, 75 percent of homeowners who miss one payment end up in foreclosure; in Florida, 65 percent who miss a payment do.

A sharp drop in home prices has made it much harder for homeowners to sell their properties for as much as they owe and rising unemployment is putting more borrowers in financial distress. Source New York Times.

How Low Can Interest Rates Go?

Builders and Realtors are applauding the news that Treasury officials are considering a proposal to lower interest rates for new home purchases. But some financial analysts and brokers are less sanguine about the proposal.

For one, they say that news that interest rates could fall lower has iced potential sales, which already received a big boost last week when the Federal Reserve said it would buy up $500 billion in mortgage-backed securities. Refinancing applications tripled on the news, the Mortgage Bankers Association said.

Lawrence Yun, chief economist for the National Association of Realtors, says that reports of subsidized mortgage rates could lure many more potential buyers than the handful of serious buyers who may decide to hold out for lower rates. But he concedes that, in the short term, the news that interest rates may continue to fall “could hold back some consumers” who were serious about buying immediately.

A spokesman for Bank of America says that customers should make decisions based on where mortgage rates currently stand, not on where they might go. “It is as difficult to time rates in the mortgage market as it is to time the stock market. If a borrower determines the current rate makes sense and provides them with an advantage in their situation, that’s a good time to consider taking action,” says Rick Simon, a Bank of America spokesman.

Others worry about the unintended consequences and bottlenecks that could stem from a new surge in lending. “When you combine the Fed plan with the prospects of this new Treasury plan, that’s a lot in a very short period of time,” says Greg McBride, senior financial analyst at Bankrate.com. “Anytime you get that much action in a short period of time, you have to worry… are we inflating the next bubble?”

Builders are pushing their own proposal to lower rates to 3% next year, but some say that 4.5% is too generous. Interest rates, at 5.5%, are near a nearly 50-year low of 5.375% set in June 2003.

Builders say the proposal could help stop a slide in home prices, clear existing inventory and create more jobs.

Lowering interest rates, currently to 4.5% would substantially increase consumers’ buying power. Someone looking at a $200,000 mortgage would be able to consider a $230,000 loan without paying more in interest rates. But any stimulus faces several challenges, including tightening credit, buyers who may not have much savings for a down payment, and weak consumer confidence. Courtesy Wall St. Journal

One In Ten Americans Can No Longer Afford Their Homes

A record one in 10 American homeowners with a mortgage were either at least a month behind on their payments or in foreclosure at the end of September as the source of housing market pressure shifted to the crumbling U.S. economy.

The Mortgage Bankers Association said Friday the percentage of loans at least a month overdue or in foreclosure was up from 9.2 percent in the April-June quarter, and up from 7.3 percent a year earlier.

Distress in the home loan market started about two years ago as increasing numbers of adjustable-rate loans reset to higher interest rates. But the latest wave of delinquencies is coming from the surge in unemployment.

Employers slashed 533,000 jobs in November, the most in 34 years, catapulting the unemployment rate to 6.7 percent, the Labor Department said Friday.

"Now it's a case of job losses hitting more across the board," Jay Brinkmann, chief economist of the Mortgage Bankers Association.

The U.S. tipped into recession last December, a panel of experts declared earlier this week. Since the start of the recession, the economy has lost 1.9 million jobs.

Job losses are already having an impact in rising delinquency rates for traditional 30-year fixed rate loans made to borrowers with strong credit. Total delinquencies on those loans rose to 3.35 percent in September from 3.07 percent at the end of June, the Mortgage Bankers Association said.

There were some modest signs of stabilization. The number of loans that entered the foreclosure process totaled 1.07 percent of all loans in the third quarter, flat from the second quarter.

Though that number likely reflects changes in state laws that delay or extend the foreclosure process and efforts to work out or modify loans that could still fall back into foreclosure.