Gary Giffin

Foreclosures Move Up-Market

RISMEDIA, October stan humphries 12, 2009—Recently, there’s been a fair bit of anecdotal discussion around the assertion that foreclosures, once a problem just for the sub-prime segment of mortgages, have been moving up-market. That is, people are suggesting that we’re seeing more foreclosures in the mid- to high-end segments of the market.

Turns out, there’s a lot of truth to this idea. In 2006, at the height of the real estate bubble, homes in the bottom one-third of home values made up almost 55% of all foreclosures. Homes in the middle one-third of home values made up almost 29% of foreclosures and homes in the top one-third represented just 16% of foreclosures. In July 2009, the bottom one-third made up 35% of foreclosures, compared to 35% and 30% for the middle and top one-thirds, respectively. Those are shocking numbers: Thirty percent of foreclosures are homes in the top tier of local home values. That means that top-tier homes make up almost twice the proportion of foreclosures as they did just three years ago.

High delinquency rates in Prime, Alt-A and Option ARM mortgage products and declining cure rates (the rate at which borrowers resolve their delinquency status) are resulting in many more foreclosures among borrowers outside of the sub-prime mortgage market (and in higher priced segments of the market). Amherst Securities recently provided some data showing the higher delinquency rates for these products and the strong relationship between increased negative equity and decreased probability of resolving delinquency status which shows, of borrowers who are 30 days delinquent, the percentage who become 60 days delinquent by their current loan-to-value ratios, where values greater than 100 indicate negative equity). As of the end of the second quarter of this year, Zillow estimated that 23% of single-family homes with mortgages are underwater on their mortgages, so expect cure rates to stay lower than they would be otherwise.

Methodology
Looking at the distribution of foreclosures by home value can be significantly distorted by the variances in home values across the country. For example, it might appear that high-end homes as a percentage of all foreclosures is quite high nationally, but the reality is simply that areas with lots of foreclosures happen to be areas where home prices are higher. In order to better isolate the distribution of foreclosures by price segment without introducing the geographic variability of home prices, we have examined home prices while controlling for the local price level of all homes.

Specifically, from all homes in the Zillow database with valuations (~70 million), Zillow computed the ratio between the current house value and the current level of the Zillow Home Value Index for the county in which the home is located. We then computed the 33rd and 66th percentiles of this ratio and assigned all homes to three price tiers: bottom (homes where the ratio was less than the 33rd percentile), middle (homes where the ratio was between the 33rd and 66th percentiles) and top (homes where the ratio was greater than the 66th percentile). We then extracted all foreclosures since 2000 and computed, by month, the percentage of foreclosures in the month represented by homes in each price tier.

Home Price Reduction Levels Stay Above 25% for Fourth Consecutive Month

RISMEDIA, October 12, 2009—Trulia, Inc announced that 25.6% of homes currently on the market in the U.S. as of October 1, 2009 have experienced at least one price cut. More than one in four current listings on Trulia have been reduced in price for the fourth straight month. The total amount slashed from home prices is $28.4 billion, a $967 million increase from June 2009. The average discount for price-reduced homes continues to hold steady at 10% off of the original listing price.

Northeast with Most Homes Reduced; West Sees Biggest Cuts
Five of the 10 states with the highest percentage of homes with price reductions are in the Northeast— Massachusetts, Rhode Island, Connecticut, New Hampshire and New Jersey. One in three homes in these states has cut their list price at least once.

Seven of the 10 states leading the country with the biggest listing price cuts are in the West, where heavy foreclosures have taken their toll. In Nevada, Idaho, Arizona, Wyoming, Hawaii, Utah and California, cuts are an average of 13% off the original list price. Of the $28.4 billion slashed nationally, New York, California and Florida account for 35% of the total value of reductions.

Report Findings
For the first time in four months, Jacksonville no longer holds the top spot for highest level of home-price reductions: Memphis replaced Jacksonville with 36% of current listings experiencing at least one round of discounts. Several cities continue to see high levels of cuts on home prices with Indianapolis, Milwaukee, Minneapolis, Portland and Raleigh, all earning a place in the top 10 for the third consecutive month.

“Interest in real estate typically wanes at the end of the year, which means that sellers who didn’t aggressively price their homes may find themselves making difficult decisions to reduce their prices or delay the sale until interest piques again in January,” said Pete Flint, Trulia co-founder and CEO. “We are seeing the beginning of this trend in the Northeast and Western United States with discounting happening at all price points, and expect it to continue.”

Cities experiencing significant increases in percentage of listings with price reductions from June 2009 to October 2009 include:
-Kansas City, MO – 50% increase in price reductions
-Colorado Springs, CO – 32% increase in price reductions
-Louisville, KY – 27% increase in price reductions
-Indianapolis, IN – 27% increase in price reductions
-Portland, OR – 25% increase in price reductions
-Oklahoma City, OK – 24% increase in price reductions
-Memphis, TN – 24% increase in price reductions
-Tulsa, OK – 23% increase in price reductions
-Milwaukee, WI – 22% increase in price reductions
-Arlington, VA – 22% increase in price reductions

Cities showing the highest percentage of declines for listings with price reductions from June 2009 to October 2009 include:
-San Antonio, TX – 37% decrease in price reductions
-Las Vegas, NV – 36% decrease in price reductions
-Oakland, CA – 17% decrease in price reductions
-San Jose, CA – 16% decrease in price reductions
-Los Angeles, CA – 14% decrease in price reductions
-Honolulu, HI – 11% decrease in price reductions
-Long Beach, CA – 11% decrease in price reductions
-Dallas, TX – 11% decrease in price reductions
-Washington, D.C. – 10% decrease in price reductions
-New York, NY – 9% decrease in price reductions

Luxury Market Not Immune
Luxury homes (those listed at $2 million and above) continue to bear the brunt of discounts being offered with an average of 14% being slashed from the original asking price compared to the national average of 10%. Additionally, luxury homes represent less than 2% of all current listings on Trulia, but are responsible for 25% of the $28.4 billion in home price reductions.

Builders Urge Congress to Act on Home Buyer Tax Credit, Appraisal and Lending Issues

RISMEDIA, October 10, 2009—The National Association of Home Builders (NAHB) called on Congress to help housing take a lead role in putting America back to work by taking quick action to extend and enhance the $8,000 first-time home buyer tax credit, resolve appraisal problems that have been slowing home sales and urge regulators to restore the full flow of credit needed by both home buyers and home builders alike.

Though existing and new home sales appear to have stabilized in recent months, NAHB Chairman Joe Robson, a home builder from Tulsa, Okla., told members of the House Small Business Committee that the industry is facing a number of housing-specific headwinds that are continuing to buffet any significant housing recovery.

“Not only are we continuing to feel the impact of foreclosures and short sales in the market, but we’re facing a severe credit crunch for acquisition, development and construction (AD&C) lending,” said Robson. “Meanwhile, the use of foreclosed and short sale properties as comps is resulting in inappropriately low appraisals that are effectively sinking one quarter of all new-home sales right now. Add to this the fact that demand and home sales are already showing signs of slowing with the pending Nov. 30 expiration of the first-time home buyer tax credit.”

To create jobs and put the housing market and the economy on sounder footing, NAHB is urging Congress to extend the credit for an additional year and to make it available to all purchasers of a principal residence.

“We estimate that this would increase home purchases by 383,000 in the next year and help mitigate the foreclosure crisis by whittling down inventory at all levels of the housing market, setting the stage for a full recovery,” said Robson. “This stimulus alone would create nearly 350,000 jobs over the coming year, which is exactly what the economy needs right now.”

In a recent survey of more than 500 builders by NAHB, 25% reported they are losing sales because the appraisal is coming in below the contract sales price. The process has gone seriously wrong because some appraisers are using distressed properties–many of which have been neglected and are in poor physical condition–as comparables in assessing the value of brand new homes without accounting for major differences in condition and quality.

“Any prospective buyer would recognize the differences in the value between a well-kept home and a distressed property that is damaged or not properly maintained. The same should be true of an appraiser,” said Robson.

He said Congress can help resolve this issue by urging the Federal Housing Administration and Fannie Mae and Freddie Mac to adopt and enforce guidance that instructs appraisers on the proper procedures for the use of distressed and/or foreclosed properties as comparables.

Lawmakers can further help put the housing industry back on its feet by exerting their influence on regulators and the banking industry to restore lending for viable home building projects and to take meaningful steps to avoid unnecessary foreclosures on outstanding loans.

“This would provide relief for a major sector of the economy that has suffered because of regulatory overkill and the inability of banks to provide the necessary funding and flexibility that would otherwise keep loans performing as scheduled,” said Robson.

To further promote energy efficiency in new-home construction, Robson called on Congress to make permanent and enhance the new energy efficient home tax credit due to expire at the end of the year. Section 45L of the Internal Revenue Code provides a $2,000 tax credit to a home builder who constructs a qualified new energy-efficient home that is certified to achieve a 50% reduction in energy usage.

“As the only incentive in the tax code for energy efficiency in single-family home construction, this program will help to ensure that new homes built today and going forward are highly energy-efficient,” said Robson. “We strongly urge the Congress to make the 45L credit permanent and increase the credit amount to $5,000 to pay for a bigger percentage of the higher building costs that are incurred when making a home 50 percent more energy-efficient.”