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Elk Grove Short Sales

Just this past week –
We closed 2 Elk Grove short sale listings…the bank on both was Aurora Bank. These properties were investment properties for the seller and were listed the first part of November 2009. We received approvals on them by mid January 2010, which means about 70 days on each. Then we had 30 days to get them closed…which we did this week! One was sold to an investor and the other to a first time homebuyer! Both buyers are very happy that they hung in there for the 100 days it took to get these properties closed….not bad. In a normal market, the marketing period is often times 90 days on a home before it goes pending…these 2 took about 1 week to actually have buyers in contract on them!

In addition, this week, we closed an escrow for an investor client on an Elk Grove Short Sale and got 2 more buyers into escrow on Elk Grove short sale listings! Not a bad week for short sales in the Elk Grove area! With this being the year of the Short Sale , it is important that we all learn how to navigate through them. The process is getting easier…the banks are starting to get with it more…agents and buyers are getting more educated on the process.

If you are a buyer, watch for more information on the Top 10 things you need to know about Short Sales, coming in the next couple of days. And in the meantime make sure to read, First Time Home Buyers Buying Elk Grove Short Sales!.

If you are a homeowner in distress and want more information on Elk Grove Short Sales, make sure to check out www.ElkGroveShortSale.com or contact us at (916) 230-0371 for a FREE private consulation.

Search All Elk Grove homes here

Lori Mode, Keller Williams Realty – Elk Grove
www.AllElkGroveHomes.com
Lori@ModeandDurhaM.com
(916) 230-0371

My column for the March 2010 issue of Builder & Developer magazine is now online. For this issue, I focused on how builders are downsizing square footage but keeping high-quality materials and focusing on compelling designs demanded by today’s buyers. You can read the entire article by clicking here.

An excerpt:

For years we’ve been hearing about gradual changes in the interior preferences of homebuyers, but during the boom years many builders stuck with the tried and true rather than risk their production schedules – and profit margins – on risky changes. Of course with discounted short sales and foreclosures continuing to dominate most local housing markets, new homes not only have to be competitively priced, but offer updated design cues and interior amenities…

More Debt Is Not The Answer

“I was on my way to recovery, then you enabled me.” – Drug Addict

Bailing out banks is like a mother giving her 28 year old son that is living at home, money for heroin, driving him downtown to buy the drugs and then back home so he can use ’safely’.

What does recovery mean to us?  We’ve heard it over and over.  America is addicted to debt.  Experts even say, for our economy to grow, we need more debt.  Of course, that is how money works in the first place.  There is not a dollar that is created without debt attached to it.

So what’s the answer?  Less debt. Also known as de-leveraging.  Not more stimulus and bailout paid for by taxpayers… which partly ends up in the bankers bonus check.  The answer is also in getting back to freedom.  Our country was founded on freedom and we have betrayed ourselves by thinking it’s ok to owe thousands of dollars to other people.  This has robbed our freedom and caused us to be so dependent upon working long hours and doing everything to just “get by”.  I am sick of just “Getting by”.

Since the government can theoretically spend only what it takes from the people (taxpayers), its increased spending will drive the people to poverty.  We are allowing this to happen to our country.

After 2 and a half years of listening to YouWalkAway.com customers and seeing time after time that by defaulting, they feel freedom again, they can afford a normal life again, I am convinced that a strategic default could possibly save our economy…and much quicker than any other solution that I’ve seen thus far.  Let’s look at a real life example.

In the WSJ, there is an article titled: American Dream 2: Default, Then Rent

“It’s just a better life. It really is,” says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth. People’s increasing willingness to abandon their own piece of America illustrates a paradoxical change wrought by the housing bust: Even as it tarnishes the near-sacred image of home ownership, it might be clearing the way for an economic recovery.

In the WSJ, there is an article titled: Americans Pare Down Debt

“The speed of the adjustment is lightning fast because it’s happening through debt destruction,” said Joseph Carson, director of global economic research at AllianceBernstein in New York. “It puts us closer to the point where the consumer can start making a stronger contribution to recovery.”

I guess I’m not alone in my thinking.  In essence, you are taking back the power from the bank by saying I don’t care about my credit score right now, I care about my economic future.  You are creating your own stimulus package by following the law and staying in the home until the bank takes it back.  There is a breakdown of how it works here.

“A rapid and cost-efficient mark to market”. consider: Snow Job: Strategic Defaults in an Era of Negative Equity

Strategic walkaways employ laws established to protect them from predatory or avaricious lending practices. They create an efficient, rapid, cost-efficient mark to market, stripping away inaccurate and illusory pricing practices that lenders cling to. Solving the mortgage crisis is going to take more than nibbling away at the edges of valuation, tweaking monthly loan payments through interest rate adjustments and loan extensions.

Being protected from crisis may simply be doing nothing more than preventing and delaying a true healthy economic recovery.  Strategic defaults are paving the way for true home values, responsible lending practices and allowing for homeowners that once felt trapped…to be free again.

This post originally appeared on the Irvine Housing Blog.

Today we examine housing subsidies and how they contribute to the growth of debt and the slow erosion of liberty in America.

And I don’t think it’ll be so bad
And I know it won’t be so bad
‘Cause the man said “that’s the way it is”
And the man said “it don’t get better than this” no no no

Properties are encumbered with too much debt, and buyers in markets where prices have not crashed are being asked to pay much higher prices as a percentage of their incomes than generations past. Today’s buyers are being asked to pay for the excesses of those that came before them and sell out to the money changers.

Mom, Apple Pie and Mortgages

FOR decades, the federal government has subsidized housing — particularly owner-occupied housing. This has been especially true during the continuing financial crisis, with Fannie Mae, Freddie Mac and the Federal Housing Administration propping up the housing market by issuing guarantees for investors on most new mortgages.

But what is the long-term justification for putting taxpayers on the line to subsidize homeownership? Is this nothing more than a sacred cow in American society — a political necessity because so many voters own homes and are mindful of their resale value?

How much of our government’s response is tyranny of the majority? Are the owning taxpayers paying this subsidy comfortable with the face of housing entitlement today?

This time, the best answer isn’t found in traditional economics but rather in American culture: a long-standing feeling that owning homes in healthy communities is connected to individual liberties that embody our national identity. Historically, homeownership has been associated with freedom, while renting — often in tenements or mill villages — has been linked to the oppression of a landlord.

In his classic 1985 book, “Crabgrass Frontier,” Kenneth T. Jackson of Columbia University delineated the complex train of thought that over the last two centuries has produced the American belief that homeownership encourages pride and good citizenship and, ultimately, preservation of liberty. These attitudes are enduring.

The middle road is often a path between two evils. In the left ditch is the weakness of landlord dependency, rent controls, and other government subsidies of transitory housing. In the right ditch is an array of market subsidies to encourage home ownership, even if that form of home ownership is really money rentership – and, pardon my cynicism, our lending overlords want it that way. Wouldn’t you want to have 40% of society’s earnings if you could get it?

People forget they are merely substituting one form or weakness for another; landlord oppression is one evil, and lender oppression is another. Somewhere along the way, we lost ourselves. We escaped one form of bondage and fell into another. Why did we do it?

Back in 1899, in “The Theory of the Leisure Class,” Thorstein Veblen described homeownership, particularly of large and expensive dwellings, as “conspicuous consumption.” By that, he meant that it was undertaken substantially for the purpose of impressing others by showing the amount of money one can afford to waste on space one doesn’t need.

What is specifically American here — though it’s increasingly seen in other countries, too — may be the modern sense of equal citizenship, engendered by the illusion that we can sustain conspicuous housing consumption even among a majority of the people.

In short, this all has a great deal to do with culture, and little to do with financial wisdom. After all, financial theory suggests that people should not own their own homes, at least not in the way that many do today.

We are witnessing the final stages of a societal change. We have embraced debt as if it is capital or wealth; the change has been gradual, and the individual steps toward this end seemed natural and necessary; however, a significant number of people no longer distinguish between debt and wealth and truly believe obtaining debt bestows wealth and power.

“Twelve voices were shouting in anger, and they were all alike. No question, now, what had happened to the faces of the pigs. The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.” — George Orwell, Animal Farm.

We are generation pwned. Lenders seek the maximum debt-to-income ratio people are willing and able to support. The lure of appreciation and HELOC spending increases borrower willingness far beyond borrower ability and this willingness (or kool aid intoxication) helps keep prices inflated and debt loads large. Lenders and realtors exploit our modern American delusions, and everyone pays higher housing costs as a result. What good is a large income if so much is spent on housing? Aren’t the lenders the real beneficiaries?

It’s time to take back The American Dream

By Greg Fielding:

On home prices, Shiller writes:

If many of these homes needed to be converted to rental units, home prices might well drop.

The Emperor’s clothes are beautiful indeed.

Though the policies are economically insane, they are worth the cost in order to perpetuate “a long-standing feeling that owning homes in healthy communities is connected to individual liberties that embody our national identity.”

In other words, the concept of “The American Dream of Homeownership” is worth spending trillions to uphold because it is a central to our culture.

Really?

Is our National Identity really defined by lust for a material good?

Consider the alternatives…

Americans: Smart and Hard-Working

Americans: Gracious and Strong

Americans: Helping Each Other

Americans: Character and Perserverance

No, we’re Americans: People who want to Buy Houses

How twisted and materialistic have we become as a culture to openly define ourselves by something we own?

As a renter, I am offended.  As a citizen and a taxpayer, I am outraged.

Shiller suggests that The American Dream is too sacred…that our fragile national ego would collapse if its credibility were threatened.  But, he’s wrong.  The jig is up and the public knows it.  In fact, they are asking for it, desperately wanting to find some financial purity after a decade of decadence. Social mood is shifting.

Shiller mistakenly suggests that home prices are worth propping up.  But the problem isn’t that home prices are falling, it’s that home prices are still too high. Falling prices and foreclosures aren’t the problems, but the solutions, not the illness, but the cure.

The time has come to shout out that the Emperor has no clothes: The American Dream is simply a marketing campaign, a gimmick, perpetuated by industry groups and their lobbyists.  That a home can define one’s success or national identity is simply a symbolic, mutually-shared illusion.

Well said.

Low-cost housing has benefits

The economy in Riverside County is dismal. Nearly 20% of Riverside County employment was in the building industry, and since about 40-60% of workers in homebuilding are unemployed (that is my anecdotal estimate), there is significant distress in both the employment and the housing markets. But that sorry state of affairs is ripe for recovery. Expanding or forming businesses in Riverside County currently enjoy inexpensive labor and they can attract more with inexpensive housing. Orange County and Irvine do not have those advantages.

Many are focused on maintaining inflated home values without considering the broader societal impact. We may be forced to choose between our house values and our jobs if the economy remains soft because house prices are such a deterrent to business expansion. Also, if all future generations really are priced out forever, is that an accomplishment bubble buyers will look back on with pride? The parties to the bubble have reduced future generations to debt slavery. I see little benefit in that.

Walkaway Consequences

Please consider: Snow Job: Strategic Defaults in an Era of Negative Equity

As more than a million people filing bankruptcy every year learn, life continues even after their credit scores are trashed. They can still buy cars on credit. They still have credit cards (secured) and debit cards. They can still rent apartments and houses.

Bankruptcy is a nuclear strike on a consumer’s credit score. Filing alone delivers a 355-365 point hit (out of top scores of around 800) and outright disqualification from obtaining any extension of credit from many lenders. The black mark follows the borrower for 10 years.

Short sales can trigger drops of 100-130 points; strategic defaults bring slightly heavier penalties, 100-150 points. The negative mark attaches to a credit record for seven years (but diminishes over time).

However, it’s possible to get a government loan only 3 years after foreclosure.

Ironically, late mortgage payments can have a bigger impact than outright default. FICO scores can easily plunge 200 points merely through nonpayment of a mortgage for a period of 60 to 90 days—something that lenders generally require of borrowers seeking loan modifications.

Credit recovery takes place remarkably quickly. Faced with the choice of foregoing credit card payments and incurring stress-related expenses stemming from high debt levels, the temporary black eye could be well worth it. Walkaways also join the crowd: Credit scores have been dropping steadily throughout the recession, especially for those with higher ratings.

Although for some people bankruptcy may be the best option, for most people facing mortgage problems, there is no reason to file bankruptcy.  If you isolate the foreclosure and keep everything else good on your credit, you will be on your way to financial recovery much quicker than one would expect.  Typically after 2 years things will start looking a lot better… credit score wise.  If you are considering bankruptcy, you may wanna re-think it and make sure that your problem doesn’t only revolve around the underwater mortgage.  You may be able to stay free in your home for 12 months and pay off all your other unsecured debt.  You definitely don’t need to nuke a problem that may only need a sniper.

The “now is the time to buy” mantra has worn pretty thin over the last few years. With all the talk of foreclosures and shadow inventory, its a rallying cry that still rings hollow for many even though we currently have low interest rates, tax credits, and the lowest prices many areas have seen in years.

At the same time we’ve seen move-up buyers disappear from the market. Unwilling to sell because they think their house is worth more than they can currently get. And unwilling to buy because they fear prices might fall further. But reality is their house won’t rise in value while the one they want falls. And unlike the first time buyers and investors that this market has come to rely on, move-up buyers have the least to lose if the market did fall further… as their current home would fall in value in that event anyway.

In August 2009 the Federal Reserve approved an extension to the Term Asset-Backed Securities Loan Facility (TALF), committing funds to support asset-backed securities through March 2010. In November 2009 the Federal Reserve announced they would not extend the TALF past March so we may find interest rates rising shortly. In addition, move-up buyers may also benefit from current housing tax credits that will also disappear in the months ahead.

So while I believe short-sales and REO’s will be with us for years to come, dont’ forget that two-thirds of homeowners in California still have equity, still have jobs, and may not be in the house of their dreams, the school district of their choice or as close to work as they’d like. There may be a short period of time, right now, where the rallying cry of “now is the time to trade” actually makes good sense. Don’t miss the window.

No BS Real Estate Indicators and Commentary – January 2010

The media said 2009 ended like a lamb.  The data was contradictory to that opinion.  December was a good month.  The media is also saying 2010 started like a lamb.    On this one, they are relatively correct.  Sales indeed showed a sharp decline in January (Sacramento single family homes; see Indicator #1 below).  As of right now, they are even lower in February.  Since March 2008, the number of closed sales has been consistenly over 1400 per month. 

The supply is limited to contingent short sales and REO fixers.  This is how booms start though.  Everything is quiet in the eye of the storm.  Spring has sprung and buyers are awakening.  If you are thinking of selling, get it on the market soon.  Call me for help.  If you are buying, yes, I can help you too. 

The charts below reflect over 10 years of local data collection, charting and trending.  The commentary is relevant to this information and what the author sees in the trenches.  No single piece of data can tell the whole story nor do these specific indicators predict the future. Remember, the “momentum” of a trend is important in understanding the force and direction of an underlying data element. A commodity trader watches momentum indicators to more accurately (but still with no guarantees) foretell a future data point. These are million-dollar decisions so momentum is important. 

The charting doesn’t end here.  Over 10 years of median sales price data has been collected and charted for over 40 local zip codes (see my Communities web page coming soon).  As you know, real estate is local and it’s hard to find data more granular than a zip code.  

Major Indicator #1 – Sales

Since April 2008 the momentum of Sales has been positive.  In January it crossed back into negative territory.  This would trigger a “SELL” action when a price is being charted.  In the case of this data element, it depicts the typical valley that “should” occur in a real estate cycle.  You can see the “winter dip” occur between December and February each year.  But things are thawing and bears are hungry.

Opinion:  Look for sales to decrease in February and then increase moderately through the spring and summer.  Nobody is sure what the rules will be and my bet is that Congress (should be written with a small “c” in Crayon font) will extend the tax credit for buyers, in some shape or form.  There are always hungry bears.

Major Indicator #2 – REO Sales

These are also known as “bank-owned” and “foreclosed” properties.  When auction demands are not met when offered on the courthouse steps, these homes revert to the owning/servicing bank to sell on the open market.  These have always occurred but not in the numbers we have seen since 2006. 

Since July 2009, REO sales have been less than half the number of Sales. The winter and spring before that, REOs were over 70% of the sales volume.  Banks are simply not foreclosing.  Whether due to accounting practices or “deer in the headlights” syndrome, the movement of product through the pipeline has stalled.  Now the supply is low except for contingent short sales.  And those can be a waste of time.  The momentum is negative.  We hope the REO Sales momentum increases — it would signify the availability of supply. 

Opinion:  Look for REO sales to stay low until the banks understand the new rules.  And then can understand the coming changes to those new rules.  

Major Indicator #3a – Median Sales Price (Sac Cnty)

The median price for all of Sacramento County has shown a slight improvement — but now retreating to the Summer 2001 price levels.  Momentum is serious about getting back to positive territory. 

Opinion:  The area price will decrease slightly while some high-priced areas/zipcodes will see a material reduction in comparable sales. 

Major Indicator #3b – Median Sales Price (ED Cnty)

The choppiness of this El Dorado County chart really just signifies the variation of homes, prices, and supply of sales comparables.  Even the momentum cannot decide which direction to go. 

Opinion:  This general price will decrease slightly due to the high-end which will experience most of the impact in 2010.

Major Indicator #3c – Median Sales Price (PL Cnty)

The slide of prices in Placer has been slower and smoother.  There also may be some corrupting forces at the County and City levels which we don’t see.  For some, the local pride is too sensitive and they won’t accept their just deserts.   Much of Whitney Ranch is entering the “short sale” zone.  This will help supply for some.

Opinion:  The price here will also decline to the squeeze at the higher end of home prices.

Major Indicator #3 – Median Sales Price (All)

This chart shows the comparison of the 3 counties.   It doesn’t include the momentum indicators but it’s interesting to see the responsiveness of Sacramento’s price changes compared to the other 2 counties.

Major Indicator #4 – Notices of Default (NODs)

Notices of Default have hit a major stoppage in the pipeline.  The indicator that is missing is “borrowers in distress”.  That would be a difficult piece of information to collect.

Opinion:  The number of NODs will increase as will Auctions and foreclosures.

Major Indicator #5 – New Home Permits

If they are still building, the homes are smaller and more sensibly designed.  Gone (temporarily?) are the massive walk-in closets and master bathrooms.  Gone are the 4-car garages and bonus rooms.  We have entered and exited the “McMansion Era”.  Some builders died before they could exit.

Opinion:  Population increases generally require more housing.  It only seems we have enough. 

Major Indicator #6 – Mortgage Rate

Free money!!!  If you can get a loan, don’t miss this window of opportunity.  But rules have changed so you better know your buying power and options.

Opinion:  Rates will increase slightly over the year although other lending restrictions will corrupt the market making the rate change less important.  This cannot last for much longer.  China will inevitably call us on it.

Major Indicator #7 – Inventory

I’ve added another piece of information to this chart:  “Active Short Contingent” properties are akin to a Pending status with regard to how Realtors treat them.   If it’s “contingent”, Realtors and buyers know the home has a soft deal with a prospective purchaser.  I think MetroList should make it a “Pending Contingent” status.  It will make the numbers stop lying. 

Opinion:  Inventory will increase but so will Active Short Contingent listings.  So who knows!

Major Indicator #8 – Months’ Inventory

The Inventory is over-stated so the true turn-over rate (Months’ Inventory) is a little different than depicted below.  Since this depicts the months required to sell all inventory (at the average Days on Market), this too is over-stated.  Mitigating that variance is the fact that many of these “active” listings are actually “pending contingent” and can remain on the market for many months without a bank approval or change in status.  In other words, this indicator is low but not necessarily 3.3 months.

Opinion:  See opinion on “7 – Inventory” above.

Major Indicator #9 – Short Sales

This is a new indicator showing how many Short Sales were successfully closed.  The momentum cannot be charted until at least 12 months of raw data have been collected. 

Opinion:  This number will stay relatively flat, with a slight increase.  Many banks have already concluded they will not entertain short sale offers.  Some borrowers purchased mortgage insurance with their loans which means the lender doesn’t care if they foreclose (insurance pays them about 80% of loan value). 

Major Indicator #10 – Swing Indicator

This is my favorite indicator since it shows the oscillation of the market — much like a EKG machine.  Let’s hope the market doesn’t flatline.  Except for January ‘09, Up-Ticks outpaced Down-Ticks.  For this last month, 41 zipcodes had a momentum up-tick. 

Opinion:  The up-ticks will retreat to a lower level.  This is a cycle that we cannot and should not fight.

These charts depict the momentum of changes in the underlying raw data to help forecast direction. These are not a guarantee of future direction but aid in the prediction of cause/affect in the various market forces. No single indicator tells the whole story. Also charted is the raw data itself. For an explanation or for a monthly subscription to this periodic report, call or email Jay Emerson (916-517-9606, Jay@JayEmerson.com). The data is deemed reliable but not guaranteed. Sources include DataQuick, CBIA, Sac MetroList, and other public information.

Contact me for more details and to get an edge in real estate!

Jay Emerson, DRE Broker #01788488
Realty Executives Galster Group
5006 Sunrise Blvd, Ste 202
Fair Oaks, CA 95628
(916) 517-9606
Fax (916) 966-8706

Turn on any financial news program and at some point you’ll hear the experts extolling the virtues of diversification. Real estate, even through the market downturn, has long been considered a conservative, long-term strategy to growing wealth.

In fact, that very downturn has created a historic buying opportunity for potential homebuyers and investors alike. The combination of lower home prices across America and historically low mortgage rates, two essential factors that usually don’t trend in the same direction, have triggered a buyer’s market in many areas of the country. For real estate investors who want to rent their properties, this can make the difference in achieving positive cash flow sooner or right off the bat.

While some seasoned real estate investors make it look easy, to be successful, beginners should follow some basic principles.

Learn all you can. Before committing your cash, you should have a fundamental understanding of real estate. For example, be aware that, in general, investment properties are not liquid investments. Barring exceptional circumstances, real estate does not sell at a moment’s notice. It could take days or months to sell a property, depending on the strength of the market in a particular region.

Consider cash flow. You’ll need to have enough capital on hand to cover any short-term losses due to vacancies between tenants.

Start small. Look into buying a condominium, single-family home or a duplex. Leave large apartment buildings and commercial properties to the pros.

Inquire at the local Chamber of Commerce about companies relocating into or out of the area. Company movement is one indicator of demand for rental and/or office space.

Find a property that will be in demand. Look for a moderately priced home with three or four bedrooms, two bathrooms, and a garage that sits on a quiet street.

Research the property. The most common way first-time investors lose is by failing to investigate a property thoroughly. Look beyond the front door. Investigate the reputation of the school district, the crime rate, and plans for expanding a nearby highway or developing vacant land. Ask a local real estate professional about the area, its history, and how fast (or slow) properties are moving.

Inspect the home you’re considering for signs of water damage, such as stains on the ceiling and crinkling or gathering wallpaper; open and close every door and window; and check all electrical sockets by plugging in an appliance. Get an independent home inspection, roof inspection and termite inspection. Unexpected repair costs can eat away your cash flow. Because even the best inspection can’t always predict problems, try to set aside some of the rental income for unexpected repairs.

Spend time driving the streets of the neighborhood noting the condition of other properties. Are lawns maintained? Are roofs in good shape? Are homes kept up?
Be ready to make fixes quickly and respond to the renter’s needs. If you’re not prepared to be a hands-on landlord, consider hiring a property management firm.

See your tax advisor for related planning and laws that can affect your investment decisions.

Remember, investing in a property is much different than living in one, and while emotion and attachment can be prime motivators when it comes to homes, it is return on investment that counts when investing in real estate.

clear skies,

_doug reynolds

This article originally appeared on the Irvine Housing Blog

The precarious balance of supply and demand in our local housing market is sustained at low sales volumes by low inventories. Is the new inventory coming to market upsetting that balance?

The walls start breathing
My minds unweaving
Maybe it’s best you leave me alone.
A weight is lifted
On this evening
I give the final blow.

When darkness turns to light,
It ends tonight,
It ends tonight.

The All-American Rejects — It Ends Tonight

The array of government market supports are tentatively scheduled to be removed from the market. Unfortunately, the tax credit for houseowners is not helping sales, and many are worried about what will happen to the housing market when tax credits expire? People have good reason to worry because the housing market is still dependent upon government support to maintaining our inflated current prices.

realtors blather on about pent up demand, but in reality, there is very little demand because (1) many people were pulled forward during the bubble and (2) many who were not pulled forward during the bubble are either unemployed or underemployed and thereby not contributing to demand. The end result is low sales volumes that will persist until either prices are much lower or the economy recovers and those not foreclosed upon or bankrupted during the bubble start buying houses.

Pending Sales of Existing Houses Decline

March 4 (Bloomberg) — Fewer Americans than expected signed contracts to purchase previously owned homes in January, indicating the extension of a tax credit is doing little to lure buyers.

The index of purchase agreements, or pending home sales, dropped 7.6 percent after a revised 0.8 percent increase in December, the National Association of Realtors announced in Washington. Other reports today showed factory orders increased and first-time jobless claims declined.

The drop in contract signings adds to evidence the housing market at the center of the worst recession since the 1930s is struggling to rebound after reports last week showed unexpected declines in purchases of new and existing homes. The market may get another blow this month when the Federal Reserve ends planned purchases of mortgage-backed securities.

“When you take away all the support from the housing market, the underlying demand for housing is a lot weaker than we thought,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We clearly pushed some demand forward, and there wasn’t that much demand to pull forward anyway. The housing recovery is going to be very, very slow.”

Mr. Vitner’s analysis is right on; what little demand was left over has either been pulled forward during the bubble or it has since been pulled forward with the glut of government supports. Any decline in sales during the first half of the year fails to match the historic pattern and causes concern among the rational.

February Sales

“The abnormally severe and prolonged winter weather, which affected large regions of the U.S., hampered shopping activity in February,” Lawrence Yun, the group’s chief economist, said in a statement. “We will see weak near-term sales followed by a likely surge of existing-home sales in April, May and June.”

The Realtors’ report showed declines in January pending sales in all four regions, led by a 13 percent slump in the West. Contract signings fell 8.9 percent in the Midwest, 8.7 percent in the Northeast and 2.1 percent in the South.

Pending home sales are considered a leading indicator because they track contract signings. The Realtors’ existing- home sales report tallies closings, which typically occur a month or two later. The pending sales data go back to January 2001, and the group began publishing the index in March 2005.

Reports last week showed the housing market may be faltering. Sales of previously owned homes unexpectedly dropped 7.2 percent in January after a record decline a month earlier, according to Realtors group’s report Feb. 26. New-home sales slumped to an all-time low, the Commerce Department said Feb. 24.

Does Lawrence Yun have any credibility with anyone? Is there even one person who believes him? Isn’t he a stuffed shirt?

Credit Extended

President Barack Obama and Congress extended the first-time buyer credit in early November to cover deals signed by April 30 and closed by June 30, and expanded it to include some current homeowners.

Among other concerns for the housing outlook, the Fed said it plans to end a program later this month to purchase mortgage- backed securities, which helped contain borrowing costs.

The rate on a 30-year fixed mortgage dropped to 4.71 percent in early December, the lowest level since Freddie Mac started keeping weekly records in 1972. The rate has hovered around 5 percent since then.

Is anyone surprised that Ben Bernanke refinanced his ARM to a fixed-rate mortgage late last year? Interest rates for fixed-rate mortgages are at bottom, and anyone who has not refinanced into fixed-rate financing should do so now.

Southern California Sales Volume and Price

Dr. Housing Bubble recently wrote a post on The Housing Metrics of Southern California – Seasonal Home Sales, Inflation Adjusted Home Prices, Tens of Thousands Living Rent Free, and the Japanese Experience. The chart below comes from that post:

From the good Doctor:

This is a fascinating look at the market. Even during the boom we clearly see the seasonal pattern in sales. Each fall and winter sales drop as more people take inventory off the market. Spring and summer overall are bigger sale months because of school schedules, family commitments, and just a general acceptance that this is when more inventory enters the market. But you’ll notice in 2006 that the trend radically shifted. The crash hit and sales plummeted. An interesting phenomenon occurred where the median sale price didn’t peak until the middle of 2007 well into the monthly sale crash. So it would appear that sales would actually lead future prices.

Irvine Inventory

At the Irvine Housing Blog, we have been tracking inventory since January 2007. The chart of inventory is shown below.

If you think back to what was happening in our market, the inventory graph reveals much about the strength of our market.

In 2006, the market topped, sales volumes declined, and inventory increased.

Beginning 2007, inventories were already elevated and the market contained a dwindling qualified buyer pool and tightening credit standards; consequently, when a normal amount of spring listings hit the market, sales volumes were low, and inventories ballooned.

By 2008, many late buyers were underwater, and discretionary buyer viewed the price drop as a temporary apparition; therefore, many sellers did not bother listing their properties, and many that were listed had WTF asking prices nobody could afford. The result was a continued decline in sales volume and lower prices.

By 2009, the crisis prompted the government into providing an array of market subsidies designed to improve affordability and prevent further price declines. The same problems that existed in 2008 persisted into 2009 and became worse due to rising unemployment, strategic default, and a number of other problems.

Now in 2010, we are seeing inventory rise again, but we are still well below historic norms. Current pricing is sustained by restricted inventory and low sales volumes. If either inventory or sales volumes increase, it will adversely impact prices. Some of our recent inventory is discretionary sellers asking WTF prices that will never transact, but a significant amount of this new inventory is appearing as trustee sale flips that previously has been withheld from the market. Will the lending cartel be able to sustain prices, or with the incentive to cheat and sell while prices are still high force more inventory on the market and push prices lower?

At its current trajectory, inventory should break the 30 month trend of declining inventory very soon. In both 2008 and 2009, the seasonal inventory increase was abruptly reversed, and prices were able to remain firm. Will that happen again?

5 Reasons Why The Program Is Doomed To Fail:

Like the federal loan modification program that was put into effect just over a year ago, the federally subsidized short sale program, set to take effect April 5^th, is now being touted as the next great hope for homeowners who either can’t afford to, or are choosing not to, pay their mortgages.

But, just like the Making Home Affordable program that released last year with the promise of saving millions of homes, the federal short sale program is drastically flawed, and if enacted, will more than likely end up with the same exact outcome… after many months and billions of wasted taxpayer dollars, the “experts” will be that it isn’t working for a variety of reasons.

In this Nostradamus like post, we’re going to examine why this new program is doomed to fail… do us a favor – bookmark it, and in a year come back and revisit it, and see how many of these predictions come true. Without further adieu, here are 5 reasons why a federal short sale program won’t work:

1. Second (and third) mortgage holders

Here’s a potential scenario: You owe $500,000 on your home, which was purchased in 2005 with an 80/20 loan, meaning your first loan was for $400,000 (80%) and the second loan is for $100,000 (20%). Due to the collapse of the housing market, the home is now worth $300,000. You put it on the market for $300,000 and get an offer for $250,000, which you take to your first lender. Even if you jump through all their hoops, have a valid hardship, and get your short sale approved, that still leaves the second lender out in the cold, holding the bag to the tune of $100,000. The logical, and typical response from the second lender, will be to block the short sale any way they can.

2. Lack of buyers

Even in a perfect world where every lender agreed to take a loss and accept a short sale, there’s still one major flaw – we’re still in a recession, unemployment is at a multi-decade high and still rising, and consumer confidence is at an all time low. Add to that the fact that due to lack of liquidity and tightening of lending standards, many would be homebuyers are now ineligible for a mortgage anyway. Not exactly a formula for people rushing out to buy all these short sale properties, or to secure the funding to do so even if there were.

3. Bureaucracy & red tape by the banks

Have you ever tried to contact your bank for anything? Loan modification, find about or try to reverse a credit card fee, anything?

If so, you certainly know that it’s not the easiest task in the world. One department sends you over to another, who makes you repeat your info and your story. They tell you to fax in documents, then claim to never receive them. They say you’ll get a call back and you never do.

The point is that if the lender needs an excuse to postpone or make it  difficult for you to do anything, they have it… even if they have the best of intentions, the sheer volume of the requests for modifications, short sales, etc, has most lenders scrambling to play catch up.

Then there’s the fact that has squashed the hopes of so many short sellers in the past – even if you can get all the lenders and investors to agree on the short sale, that usually takes 3-6 months! By that time most qualified buyers have either found another home and lost interest in the current deal.

4. Lack of incentive & penalties

Just like the Federal Loan Modification program, this plan is lacking a huge ingredient… namely the lack of incentive for banks to take less than what they’re owed, and the lack of penalties for delaying or not complying with the rules of the program.

According to a NY Times article on Sunday, the program will offer $1000 apiece for 1^st and 2^nd mortgage holders, and $1500 for the seller.

Sure, there’s a $1,000 incentive payout for a bank to accept a short sale, that’s almost more of a slap in the face than anything. Actually, I’m kind of laughing out loud right now at the absurdity of this.  If someone owed you $100,000, and they came to you and said… “well I can only pay you $25,000, but  don’t worry, because my buddy here has another $1,000 for you…cool?” Haha… Does that really make anything better – it’s still only $26,000!!!

Or it looks more like this…

Borrower:  I know I owe you $100,000, but I can pay you $25,000… Is that ok?

Lender: No

Borrower: Ok, ok… well what if my friend uncle sam gives you $1,000 will that help?

Lender: Sure

I mean come on! Where do these smart people come up with these programs?

You really don’t need to incentivize the seller to sell – the fact that they are out of an underwater mortgage is incentive enough in most cases. The problem is, how can it possibly seem like a good idea for banks to take a $1000 consolation prize to take a loss of 5 or 6 figures on a deal?

Without a real, valuable incentive to accept short sale offers, and without a real penalty to lenders who don’t try to make things happen, there will be no real reason for lenders to go the extra mile to accept the short sales.

5. Lack of clear cut, uniform guidelines

Again, there is another huge comparison to be drawn with the federal loan modification program… the final decision is to be made at the sole discretion of the lender. One of the main reasons that the modification program failed is because you could submit the same application to 2 different lenders, or in some cases to 2 different people at the same lender, and receive 2 completely different answers.

Unless there is a uniform set of guidelines for acceptance, there is no way this will work.

Conclusion:

As with the loan modification program of a year ago, this program is destined for failure unless drastic changes are made to it by the government. By enacting these programs that are meant to be a show of the governments dedication to fixing the economy, but not including any real rules for banks to follow, they are delaying the inevitable, costing taxpayers billions more dollars, and making themselves look foolish and corrupt. Now is no time for token gestures, the economy is at the brink of collapse.

Either make changes that have some teeth and force the banks to start playing by some logical rules again, or do nothing, step back and let free market capitalism run its course. Let the market decide what the prices of homes should be, and who can qualify for them.

Sure there will be bank failures, foreclosures, and more pain, but most people who have an understanding of the economy, a few ounces of logic in their head, and don’t have a bank lobbyist at their doorstep daily, will tell you that this is bound to happen anyway. So isn’t it better to “rip the band aid off quickly”? Either let things take their course naturally, or to really take some action to change that course, instead of doing everything and anything, at all costs (literally) to keep playing by the bank’s rules, and stay on the same crash course that we’re currently on?

And then there’s the issue of the millions of people who are facing foreclosure. If they have tried everything possible to get a short sale done – jumped through all their banks hoops, found a buyer, did all the proper negotiation with all involved parties, and the banks still said no… then shouldn’t those people have the right to give the bank their home back with the same ramifications as if they did a short sale? It just seems very illogical to penalize a seller for circumstances that are far beyond their control, and very unproductive… why not penalize the banks who drag their feet and lose deals instead? You’d at least get some more short sales closed.

New York Times Reported on March 7, 2010:

But at the end of the day, the banks would rather make things difficult. According to J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.

“This is not an opportunity for the customer to just walk away,” Ms. Huey said. “If someone doesn’t come to us saying, ‘I’ve done everything I can, I used all my savings, I borrowed money and, by the way, I’m losing my job and moving to another city, and have all the documentation,’ we’re not going to do a short sale.”

Please comment below and let us know why you think this new program either will or won’t work. Thanks!