I get asked every day when we are going to see the bottom of the market and how foreclosures and short sales are affecting prices. Predicting the bottom of the market is a very difficult question to answer especially if you are trying to decode National and local real estate trends. It does not take a crystal ball to know that this is absolutely the best time to buy real estate. Mortgage rates are at an all time low and housing and land prices are at lows that still surprise me every day.
Trying to track foreclosure data and predict trends is very complex, especially when we add a volitile mix of negative job data, excessively negative media coverage, complex stimulus packages and foreclosure moratoriums. What we do know is that lenders opened the foreclosure floodgates by lifting the moratorium on foreclosures in March, resulting in a record number of foreclosures nationally. This has sent a flurry of negative media coverage regarding the real estate market.
The U.S. Foreclosure Index rose 44 percent in March as 175,199 homes were lost to foreclosure, up from 121,756 in February, Foreclosures.com reported.
Nevada ranks No. 8 in foreclosures nationwide with 26,760 real estate-owned — bank-owned — properties over the past six months. California is first with 130,855 REOs, followed by Florida, 77,542, and Arizona, 53,928.
“Hopefully, this is a short-term surge caused by months of delayed foreclosures,” said Alexis McGee, president of Foreclosures.com. “This is a very troubling turn after seeing some bright spots earlier this year.”
Several banks had agreed to suspend foreclosures while the Obama administration crafted a plan to modify home mortgages for troubled borrowers. They included Citigroup, JPMorgan Chase, Bank of America, Morgan Stanley and Wells Fargo & Co.
Fannie Mae and Freddie Mac, government-controlled mortgage finance companies, suspended all foreclosure sales involving occupied single-family homes and two- to four-unit properties through March 6 to give troubled borrowers more time to negotiate with their loan services.
McGee said that a backlog of properties in the system exists and that the backlog is going to take a couple of months to work its way through the process.
The Obama administration’s Making Home Affordable Plan is intended to help promote loan modifications by bringing debt-to-gross income ratios down to 31 percent. In short, that would allow homeowners to only spend 31 percent of their income on the mortgage, including taxes. With such low payment levels – compared to 50 percent payments as the recent norm of banks – people who get their loans modified under the new plan will be far more likely to remain in their home. With President Barack Obama’s loan modification plan now in effect, the hope is that pre-foreclosure filings will decline, which will help stabilize the housing market, she said.
“I really think at some point that will take hold,” she said. “In the beginning, lenders are having trouble keeping up with demand. If a homeowner was denied (modification) in the past, they need to go back and ask for it again.”
California led the nation in number of foreclosures last month – 38,318, up more than 59 percent from February, the report shows. “But the state also is a leader in the housing recovery,” says Ms. McGee, “and mixes the good with the troubling news. It’s indicative of what’s beginning to happen in states across the country.” The report ranks Florida No. 2 nationally in March foreclosure numbers, with 18,946 foreclosures, up 33 percent from February.
Nationally, the number of properties in the pre-foreclosure process climbed slightly to 225,131 in March, up 5.8 percent from February’s 212,703, according to the report.
For the quarter, 604,590 pre-foreclosure filings occurred nationwide, up 14.5 percent from 528,241 in the fourth quarter of 2008 and up 17.3 percent from 515,411 in the first quarter of 2008. The quarterly pre-foreclosure filings are also the highest quarterly numbers since the foreclosure crisis began.
Annualizing that number, the U.S. is on track to top 2.4 million pre-foreclosure filings before year-end.
California had the most pre-foreclosure filings, followed closely by Florida, in March. Over the last six months, however, Florida has had the most pre-foreclosure filings, followed by California, Arizona, Illinois and Nevada.
Foreclosures account for roughly 80 percent of homes sales in Las Vegas as investors have returned to the market to snap up deals.
Something to watch closely at the National level which I found interesting…
“As an aside, if one were to look at the dark side, should housing decline and the foreclosure rate continue at current levels or increase, FHA could be the next major bailout and could be the mental straw that drives the taxpayer nuts,” said home financing expert Fred Claridge.
Las Vegas business advisory firm Applied Analysis reported that new foreclosures, or homes that transferred title back to banks, remained elevated at 2,381 in March, a 70.8 percent increase from a year ago. That is about 77 home take-backs every day.
Foreclosure levels reflect the latest market dynamics, Applied Analysis principal Jeremy Aguero said. Pricing in the residential sector has continued to erode, placing an increasing number of homeowners in a situation where they owe more on their mortgage than their home is worth.
“While a portion of foreclosures are the result of borrowers’ inability to make necessary payments due to job loss or other factors, many are facing the psychological dilemma of servicing an obligation with a cavernous disconnect between debt and equity,” Aguero said.
There is some good news. Heavily hit markets are seeing a flurry of sales. I recently read some statistics on my Twitter feed regarding their market statistics. The numbers are looking positive:
In 2009 will should see a stabilization of foreclosures and eventually the real estate market will settle back into equilibrium.