Archive for August 2012

Researchers Suggest ‘Kelley Blue Book’ of Real Estate to Limit Bubbles

August 31, 2012


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A study completed by the University of Miami School of Business Administration suggests that fragile market bubbles could be prevented if the public were aware of how assets are valued.

The research, set to be published in the Journal of Financial and Qualitative Analysis, analyzed China’s 2007 stock market. During that bubble period, stock prices tripled as activity nearly quadrupled, only for both to return to normal levels after the bubble deflated.

The study found that stocks with a bigger amount of analyst coverage experienced significantly smaller bubbles than those that weren’t covered as well. For example, stocks with 20 analysts reporting on them developed bubbles more than 60 percent less severe than stocks with no coverage.

Researchers say the lessons learned from China’s example can easily be applied to the real estate market with similar effects.

“We ran into trouble with the recent housing bubble because novice buyers falsely assumed there would always be a future buyer willing to pay more,” said Timothy R. Burch, associate professor of finance at the school and one of the survey’s conductors. “This problem is much more severe when there is greater investor disagreement about an asset’s value. Our research shows that making relevant information about an asset readily available reduces disagreement, which in turn makes bubbles less severe.”

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Limit Bubbles

Mortgage Rates Slip as Investors Wonder About Stimulus

August 31, 2012


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After a month of weekly increases, mortgage rates followed Treasury bond yields down this week.

Freddie Mac reported that the 30-year fixed averaged 3.59 percent (0.6 point) for the week ending August 30, down from 3.66 percent in the previous week’s survey.

The 15-year fixed also fell, dropping to 2.86 percent (0.6 point) from 2.89 percent.
In addition, both the 5-year and 1-year adjustable rate mortgage averages fell, declining to 2.78 percent (0.6 point) and 2.63 percent (0.4 point), respectively.

Frank Nothaft, VP and chief economist for the GSE, said the declines economic news that may indicate another stimulus is on the way.

“Treasury bond yields fell, allowing mortgage rates to follow, after the release of the July 31 and August 1 minutes of the Federal Reserve’s monetary policy committee,” Nothaft said. “Committee members agreed that economic activity had decelerated more in recent months than they had anticipated at their last meeting in June. Some members even saw room for additional stimulus fairly soon if need.”

Despite the overall waning of the economy, Nothaft was quick to note that the housing market has gained more ground.

“Nonetheless, the housing market continued to show improvement over the past few months,” he said. “New home sales rose 3.6 percent in July, matching May’s pace as the strongest month since April 2010. Similarly, pending home sales also rose in July to its highest rate since April 2010.”

Bankrate’s survey showed that the 30-year fixed average took a substantial tumble, falling to 3.80 percent from 3.91 percent before. The 15-year fixed also saw a fairly large drop, averaging 3.03 percent (from 3.12 percent the previous survey).

Meanwhile, the 5/1-year adjustable rate mortgage averaged 2.80 percent, down from 2.90 percent a week ago.

Company analysts and financial experts surveyed by Bankrate mostly believe mortgage rates will either remain stable or trend down in the near future.

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Mortgage Rates Slip

Foreclosure-Related Sales Price Up as Inventory Shrinks: RealtyTrac

August 31, 2012

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Prices went up for foreclosure-related sales on a quarterly and yearly basis, with the annual increase marking the first rise in two years, according to RealtyTrac’s Q2 foreclosure sales report.

The average price for foreclosure-related sales stood at $170,040, a 6 percent increase from the previous quarter and a 7 percent hike from the second quarter of 2011. The annual increase is the first since the second quarter of 2010 and the biggest yearly increase since the fourth quarter of 2006.

“The second quarter sales numbers provide solid statistical evidence of what we’ve been hearing anecdotally from real estate agents, buyers and investors over the past few months: there is a limited supply of available foreclosure inventory to choose from in many markets,” said Daren Blomquist, RealtyTrac Vice President. “Given this shortage of supply and the seasonally strong buyer demand in the second quarter, it’s no surprise that the average foreclosure-related sales price increased both on a quarterly and annual basis.”

Nearly a quarter (23 percent) of all home sales in the second quarter were either bank-owned properties or in some stage of foreclosure, compared to 22 percent in the previous quarter and 19 percent a year ago in the second quarter.

However, the actual number of foreclosure-related sales decreased 12 percent to 224,429 from the previous quarter and fell 22 percent from a year ago. The annual decrease is the first after five quarters of increases.

Homes in foreclosure and REOs sold at an average discount of 32 percent below non-foreclosures, up from 30 percent in the previous quarter and second quarter of 2011.

Pre-foreclosure sales, which are generally short sales, are starting to catch up to REO sales, with bank-owned sales outnumbering short sales by 9,833, the smallest difference since the third quarter of 2007.

Third parties bought 107,298 homes in pre-foreclosure in Q2, a decrease of 10 percent from Q1 and a 9 percent decrease from a year ago.

Out of all sales in the second quarter, 11 percent were counted as pre-foreclosures.

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Credit Risk in Shared National Portfolio

Servicers Work Toward Fulfilling National Settlement Requirements

August 30, 2012


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Five months after the nation’s top five servicers settled with the states attorneys general and several federal agencies to address iniquities in foreclosure processes, Joseph A. Smith, Jr., the settlement monitor, released a preliminary report to inform the public of the servicers’ progress so far.

Thus far, the five servicers – Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial – offered $10.56 billion in relief to borrowers and have implemented between 35 and 72 percent of the 304 servicing standards detailed in the national settlement.

The preliminary report “is not required by the settlement and contains information given voluntarily to me by the banks,” Smith said. “It is intended to be the basis of a national conversation about the servicers’ efforts to meet their obligations under the settlement.”

Additionally, Smith stressed the dollar amounts throughout the report are unconfirmed, gross amounts that cannot be used as estimations of the servicers’ progress toward the total $20 billion in obligated consumer relief.

Regardless, between March and the end of June, the servicers extended about $10.56 billion in aid and loss mitigation to struggling borrowers in a variety of ways.

The servicers aided 7,093 borrowers through first lien modifications with principal forgiveness in the amount of $749.4 million. The amount of principal forgiveness per borrower amounts to about $105,650. Bank of America was the only servicer that failed to offer first lien modifications with principal forgiveness under the settlement.

About $348.9 million in pre-March forbearance has been forgiven for 5,500 borrowers, amounting to an average of $63,445 per borrower.

The servicers also modified or forgave second liens for 4,213 borrowers, totaling $231.4 million. This translates to about $54,930 per borrower.

Short sales and deeds in lieu were a popular loss mitigation technique among the five servicers from March through June, with about 74,614 completed, totaling about $8.67 billion in debt forgiveness for borrowers.

Refinances were also popular. The servicers refinanced about 22,073 loans, reducing interest rates to an average of about 2.1 percent, saving borrowers about $4,655 per year on their mortgages.

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Fulfilling National Settlement Requirements

Pending Home Sales Index Recovers in July

August 30, 2012


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In another positive sign for the housing sector, the Pending Home Sales Index (PHSI) rose 2.4 percent in July to 101.7, its highest level since April 2010, the National Association of Realtors reported Wednesday. Economists had expected a 1.0 percent increase to 100.3.

The July increase more than reversed an unexpected 1.4 percent drop to 99.3 in June.

The jump in the PHSI in July follows a string of positive housing indicators: increases in existing and new home sales in July, increases in the Case-Shiller Home Price Indexes in June – including the first year-year gains in those indexes in almost two years – and continued increases in builder confidence in August and housing permits in July.

The only negatives in recent reports were a slight drop in housing starts in July and drops in the median price for existing and new homes in July.

The PHSI – a data point comparable to new home sales in that both are based on contracts, not completed transactions – has improved month-month for seven of the last 10 months and is 12.4 percent above the July 2011 level. The index, according to the NAR, has improved year-year for 15 straight months. New home sales have improved year-year for 10 straight months and in July was up 25.3 percent year-year.

The PHSI rose in three of the four census regions, falling only in the West, where it slipped 1.7 percent to 109.9. The index improved 0.5 percent in the Northeast to 77.0 in July, 3.4 percent in the Midwest to 97.4, and 5.2 percent in the South to 111. Regional indexes are up year-year in all four regions, led by a 20.2 percent gain in the Midwest, 15.6 percent in the South, 13.4 percent in the Northeast, and 1.3 percent in the West.

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Pending Home Sales Index Recovers

Economy Expanding ‘Gradually’, Real Estate Markets ‘Improving’: Fed

August 30, 2012

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The nation’s economy expanded “gradually” from early July through mid-August, the Federal Reserve reported Wednesday in its periodic Beige Book. The description of the economy, drawn from reports from each of the 12 Federal Reserve Districts differed from the usual tone of Beige Books which have recently described economic growth as “modest” or “moderate.”

Six Districts, according to the Beige Books, “indicated the local economy continued to expand at a modest pace and another three cited moderate growth,” including Chicago which said growth had slowed from the last Beige Book report which was released July 18. Two other districts — Philadelphia and Richmond — reported “slow growth in most sectors and declines in manufacturing” and the report from e Boston was “mixed” with “some slowdown since the previous report.”

The Beige Book is issued two weeks ahead of each scheduled meeting of the Federal Open Market Committee. Though closely watched, it is rarely cited at FOMC meetings or referenced in meeting minutes. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. An overall sumary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis.

Real estate markets were generally reported as “improving,” according to the latest Beige Book.

“All 12 Districts cited increases in home sales, home prices, or housing construction,” the report said.

Housing markets across most districts, the Beige Book said, showed “signs of improvement, with sales and construction continuing to increase.” Descriptions of housing sector activity ranged from “significant levels of buyer traffic” and, “strong pending sales” in Dallas and Richmond respectively to “slow and modest” in New York, Philadelphia and Chicago. Reports from Philadelphia and Kansas City cautioned “the possibility of shadow inventory entering the market remains a concern” while inventory declines were reported in Boston, New York, Philadelphia, Atlanta, Dallas, and San Francisco, putting upward pressure on prices.

“In general,” the report said, “outlooks were positive, with continued increases in activity expected, although the projected gains were more modest in Boston, Cleveland, and Kansas City.

Credit conditions, the Beige Book said “have improved over the reporting period according to District reports.” The Beige Book said “credit spreads were lower and competition for high-quality borrowers among lending institutions has increased.”

Bankers in the Cleveland District mentioned a moderate loosening of lending guidelines, the Beige Book said while the New York, St. Louis, and Kansas City Districts reported “unchanged credit standards.”

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Economy Expanding ‘Gradually’

Radar Logic: Share of June Distressed Sales Lowest Since 2008

August 29, 2012


Foreclosure and REO sales declined in June to their smallest share of total sales in four years, Radar Logic Incorporated reported Tuesday.

According to Radar Logic’s RPX Monthly Housing Market Report for June, sales of homes at foreclosure auctions andREO sales by financial institutions fell to their lowest share of sales since 2008.

The fall in distressed sales led to an overall year-over-year gain in the RPX Composite price, which measures statistics in 25 metropolitan areas. However, Radar Logic warned that price gains made in the first half of the year may not last.

“The gains of the first half of 2012 could be short lived,” the company said in a release. “They were the result of seasonal factors and REO disposition strategies that could reverse in the fall. The unusually rapid price appreciation could give way to equally rapid declines in the second half of the year.”

The report also noted that the large latent inventory of homes-including those in bank inventories, underwater homes, and homes in the process of foreclosure-will cause supply to rise, making sustained price gains unlikely in the near future.

“Bottlenecks in the disposition of this latent inventory-in the form of regulation, legislation, and market timing on the part of financial institutions-may cause prices to spike temporarily from time to time, but such spikes will increase the rate at which latent inventory is brought to market and thereby cut off price appreciation,” the release said.

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