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California May Home Sales

An estimated 35,536 new and resale houses and condos were sold statewide last month. That was up 0.9 percent from 35,202 sales in April, and down 13.3 percent from 40,965 sales in May 2010. California sales for the month of May have varied from a low of 32,223 in 1995 to a high of 67,958 in 2004, while the average is 46,840. DataQuick's statistics go back to 1988.

The median price paid for a home in California last month was $249,000, unchanged from April, and down 10.4 percent from $278,000 in May 2010. The year-over-year decrease was the eighth in a row after 11 months of increases. The last time the median fell more on a year-over-year basis was in September 2009, when it fell 11.3 percent. The statewide median’s low point in the current cycle was $221,000 in April 2009, while the peak was $484,000 in early 2007.

Distressed property sales made up about 53 percent of California’s resale market last month.

Of the existing homes sold in May, 35.5 percent were properties that had been foreclosed on during the prior 12 months. That was down from 36.4 percent in April and about the same as 35.4 percent in May 2010. The all-time high was 58.5 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 17.9 percent of resales last month. That was up from and estimated 16.9 percent in April but down from 18.9 percent a year earlier. Two years ago short sales made up 12.2 percent of the resale market.

The typical mortgage payment that home buyers committed themselves to paying last month was $1,025. That was down from $1,050 in April and and down from $1,178 in May 2010. Adjusted for inflation, last month's mortgage payment was 53.8 percent below the spring 1989 peak of the prior real estate cycle. It was 61.5 percent below the current cycle's peak in June 2006.

San Diego-based DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

Indicators of market distress continue to move in different directions. Foreclosure activity has declined somewhat but remains high by historical standards. Financing with multiple mortgages is low, down payment sizes are stable, cash and non-owner occupied buying has eased a bit this spring but remains relatively high, DataQuick reported.

RealtyTrac's Housing Recovery Forecast

At HousingWire's 2011 REO Expo in Texas this week, a RealtyTrac spokesperson gave the firm's housing recovery forecast. Senior Vice President Rick Sharga's predictions were probably not what most wanted to hear.

"It's taking so long to get out of this mess because it took us so long to get into this mess," said Rick Sharga. "We were at the tail end of an unusually long boom time in housing. Unfortunately, we're anything but recovered, we're actually still searching for the bottom."

With that in mind, Sharga is predicting a full housing recovery is years away, perhaps around 2015. In the immediate future, it will take at least another year to work through the mountain of REO inventory. The next two years will see similar foreclosure and home sales levels as the industry attempts to deal with what RealtyTrac is calling higher levels of distressed properties than we've ever seen before. Apparently, there's growing evidence that an increasing backlog of seriously delinquent mortgages exists.

In addition, RealtyTrac estimates that a staggering 80% of the 1.1 million properties in foreclosure and 75% of the 900,000 REO properties are not on the market yet. Couple that with a high number of adjustable rate mortgages which will reset and it's easy to see why there's continued cause for concern.

The total foreclosure filings for 2010 fell just shy of 3 million (at 2.9 million). Compare that to five years earlier when only about a fifth as many foreclosure filings happened (550,000 foreclosure filings for 2005), and the astronomical increase becomes even more apparent. Where will we be for 2011? Well, if the 2011 first quarter is any indication, we will far surpass 2010's totals. For the first four months of this year, there were 941,851 foreclosures. Nearly a million in just over a quarter! At this pace, we could flirt with the four-million mark!

For short sale agents, NOW is the time to pull out all the stops. Every home lost to foreclosure is a missed opportunity to help a family and make a sale. Perhaps it's time to look into the HAFA program more thoroughly to expand your short sale reach.

For real estate investors, so much opportunity exists that it may be hard to focus or narrow your investment selections. That's where the help of a real estate agent who really knows the area you're seeking would be of great benefit. With or without an agent, however, it's an absolutely historic time to be investing in real estate.

Freddie Mac: 30-year mortgage rate levels off at 4.5%

Mortgage rates leveled off this week, according to a Freddie Mac survey that found the 30-year home loan up a single notch and the 15-year mortgage down by the same amount.

The survey said lenders were offering 30-year fixed-rate loans to well-qualified borrowers at an average 4.50% compared with 4.49% last week and rates in the 4.2% range for a couple of months last fall.

The 15-year fixed loan was at 3.67%, down from 3.68%, Freddie Mac said Thursday. The borrowers would have paid an average 0.7% of the loan amount to the lenders in upfront fees and points for the fixed-rate loans.

Adjustable rate loans, for those tempted by the riskier mortgages, are "at or near record lows," Freddie Mac economist Frank Nothaft said in an economic outlook report this week.

The start rate on Treasury-indexed home loans that become adjustable after five years at a fixed rate averaged 3.27% this week, with 0.6% in lender fees, down from last week's 3.28%.

Treasury-indexed loans that adjust once a year averaged 2.97% with an average 0.5% of the loan amount in lender fees, up from last week's 2.95%.

With the rates so low and home prices edging lower again in many areas, housing affordability is very high -- but not so consumer confidence these days, Nothaft noted. From his outlook report:

Consumers who feel heightened uncertainty over their economic well-being and future prospects are more likely to be cautious when considering purchases of big-ticket items, such as cars or homes.

Further, the first-quarter data on U.S. house-price softness has removed a catalyst to immediate action: Some potential buyers who have the means to buy are awaiting clearer signs that home values have firmed.

Buyers' hesitancy and the continuing foreclosure crisis have resulted in greater demand for apartments. Vacancy rates in buildings with at least five apartments have steadily drifted lower over the past year, Nothaft noted, while monthly rents have risen.

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Three big banks fail in foreclosure relief program

Three of the nation’s biggest banks have failed to live up to new performance guidelines under the Obama administration’s main foreclosure relief program and will be cut off from receiving financial incentives until they improve.

Bank of America, J.P. Morgan Chase and Wells Fargo were found to be in need of “substantial improvement” under the administration’s Home Affordable Modification Plan, the administration said Thursday.

The new assessments are intended to compel the nation’s biggest mortgage servicers to improve their practices in the program, officials said. The foreclosure program has long been criticized as ineffective and falling short of its goals in helping troubled borrowers. The program is voluntary and provides financial incentives for banks to modify loans.

“While we continue to get tens of thousands of new homeowners into mortgage modifications each month, we need servicers to step up their performance to meet the needs of those still struggling,” said Tim Massad, acting assistant secretary for financial stability in the Treasury Department. “These assessments set a new benchmark by providing an unprecedented level of disclosure around servicer performance and will serve to keep the pressure on servicers to more effectively assist struggling families.”

Ocwen Loan Servicing LLC was also found to be needing substantial improvement but funds were not denied to that company because its poor performance in the first quarter was largely due to its acquisition of a portfolio of troubled loans. The administration graded the top 10 servicers in its program, and all of them were found to be needing improvement.

In April, 29,000 homeowners received a trial modification under the HAMP program and 29,000 received a permanent modification. The permanent modifications had a median payment reduction of 37% -- or more than $500 every month.

[Updated 11:20 a.m. June 9: The immediate reactions from the large banks were mixed. Wells Fargo, in a sharply worded statement emailed by spokeswoman Vickee J. Adams, said that it would formally contest the characterization of its performance by the administration and that the report “does not fairly reflect” the bank's record.

“It paints an unfairly negative picture of our modification efforts and contradicts previous written assessments shared with us by the Treasury,” Adams said. “The report reviews activities that date back a year or more and in no way reflects the improvements Wells Fargo has made in our processes and the work we have done to help homeowners.”

Bank of America, in an emailed statement from spokesman Richard G. Simon, said that it acknowledged that it needed to improve its practices. The bank said that more than 127,000 of its homeowners had completed modifications through the HAMP program and more than 850,000 through other homeowner assistance programs.

“We acknowledge improvements must be made in key areas, particularly those affecting the customer experience,” Simon said. “We have made great progress in several key performance areas and, in the first quarter, Bank of America was responsible for one of every four modifications completed under HAMP. We believe future reviews will confirm that progress."

Chase did not immediately respond to a request for comment.

Homes prices hit new lows in March

Reporting from Los Angeles and Washington—

Home prices hit new lows in March, falling past the bottom reached two years ago and renewing concerns about the economy's ability to fully recover from the grip of recession.

The Standard & Poor's/Case-Shiller index of housing prices in 20 metropolitan areas declined 3.6% from March 2010, its sixth consecutive year-over-year drop. That pushed the index below its most recent bottom of April 2009, confirming the widely anticipated "double dip" in home values.

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• Graphic: Home prices take another hit

Many analysts believe that prices could continue rolling back as the risk of falling prices frightens potential home buyers away from the market. Although the Great Recession ended in June 2009, economists believe that the weak housing market will continue to be a drag on the recovery for years to come.

Construction work driven by residential building typically fuels the U.S. economy when it is coming out of recession. But with home prices sagging and a glut of inventory, there is little demand for new construction.

"This economic cycle is different from anything we have seen in 20 or 30 years, because housing is not playing that leading role," said Christopher Low, chief economist with FTN Financial. "Manufacturing is leading the economy now, and manufacturing is an industry where the last three decades the focus has been on productivity, doing more with fewer people."

The severity of the housing decline is having other broad effects on the economy. Seeing their home values plunge, many Americans are reluctant to spend money — a drag on an economy that depends on consumer spending.

Entrepreneurs, meanwhile, are less able to tap their real estate collateral for loans to launch or expand small businesses. State and local governments are struggling with lower property tax revenues. And all of this has cut into economic and job growth.

The downturn is also leading older workers to postpone retirement and, more broadly, limiting Americans' ability to relocate to new jobs.

Robert Shapiro, an economic advisor to President Clinton, said the housing market's woes present an obvious political risk to President Obama and other incumbent lawmakers.

"Every president wants to run on a strong economy," Shapiro said. "This president will have to run on the fact he's bringing the economy back from the reckless policies of the previous administration. That's the case they'll have to make."

The Obama administration has tried, with little success, to tackle the foreclosure problem by pushing lenders to modify loans and reduce borrowers' payments. Few experts expect any substantial new aid given the tough budget situation.

Advocates for struggling homeowners have urged stronger medicine, including delaying the upcoming reduction of the loan limit on home mortgages and providing emergency loans to "underwater" homeowners whose homes are worth less than the amount they owe.

The Case-Shiller index released Tuesday showed 12 metro areas posting fresh lows since the start of the housing bust. The 20-city index, which declined 0.8% from February, showed prices at 2003 levels. It was the eighth month-over-month decline in a row. A broader national index, also released Tuesday, indicated that housing values were now on par with what they were in 2002.

The picture was brighter in the Los Angeles-Orange County metro area, which remained 5.4% above its most recent bottom, hit in 2009. Prices locally are equivalent to those seen in the fall of 2003.

With prices falling again, some economists fear that the nation's housing market could enter a new downward spiral, with declines pushing more borrowers underwater, triggering more foreclosures and setting off further drops.

"There has been no recovery or even stabilization in home prices during or after the recent recession," said David Blitzer, chairman of the Standard & Poor's index committee. "Further, while last year saw signs of an economic recovery, the most recent data do not point to renewed gains."

Dean Baker, co-director of the Center for Economic and Policy Research, said he expected prices to continue to fall through the rest of the year.

"You are going to see a further negative wealth effect as the price declines from last year," Baker said. "So that is another source of drag on the economy."

Others believe that prices are near, if not at, the bottom and that recent improvements in employment will keep things from getting worse.