BluefoxToday blog

Bob has brought us a video from the Think Big Work Small guys that tells us how the tax payer is being abused by the FDIC and the big banks. Like he says, it's must watch material. Tighten your seat belts now.

Mortgage lending today is mostly in the hands of the government. Just about all new home loan financing or refinances are either purchased, securitized or insured by government agencies, the likes of Fannie Mae, Freddie Mac and FHA leading the charge. Then there is the Federal Reserve that has filled the gaping void left by scared and loss-licking private investors in the secondary mortgage market. Without the Fed rolling up its sleeves and operating there that key segment would resemble a person from "Honey, I shrunk the kids." If so, the real estate market as it has been known until now would've basically vaporized.

Repairs to the home loan industry are underway. That's the good news. Underwriting standards have been reworked all across the long list of important steps to get borrowers approved and closed. More skin in the game is now required, employment and assets are much more carefully verified and appraisals get additional scrutiny, among other adjustments. Sometimes, though, the tightening has gone a little too far, denying solid prospects an opportunity to buy a property. Still, stronger guidelines will produce mortgages that are easier to market on the ever-cautious secondary market.

Private investor confidence in residential mortgage paper is still weak, however. Updated underwriting standards help, yes, but much more is needed. Mortgage rating agencies have come under some serious fire for their poor work and for obvious conflict of interest charges in getting paid by the same banks whose paper they were rating. Government regulators have been less than diligent in oversight, not only with rating agencies but many other procedures and rules they were supposed to watch. Pressure is growing from many directions to get new and meaningful laws passed to address the shortcomings in the secondary mortgage market and while that is going on Wall Street is mounting its own campaign to keep any changes to a minimum. As expected. This is surprisingly self-centered.

A vibrant real estate milieu - a strong recovery in essence - calls for a healthy secondary mortgage market. Private investors won't return there until they see substantial changes made that will give them the transparency they are looking for. They are watching and thus far what they see isn't enough. The regulatory upgrades should be introduced rather soon, for the government can be bankrolling just about every mortgage that comes across only for so long. The Fed is set to wind down its program of buying mortgage-backed securities by the end of March, but it may have to extend it, because it seems the private sector wouldn't be stepping in sufficiently to replace it.

All the confusing information about the economy and housing market has left potential home buyers scratching their heads and wondering, if this is the best of times or the worst of times to buy a home? Recent news reports have shown charts that demonstrate how renting may be significantly less expensive than buying. Others may point to the dangers of further declines in home prices. What’s a buyer to do?

The answer, may seem complicated as a whole, but is actually quite simple for the individual. If you find the home you need at a attractive price that you can afford, buy if you need to buy. What does that mean? It means that those considering the purchase of a new home must make the decision on whether or not buying is a prudent choice for them; and that’s pretty easy to determine. The following questions will help to guide you in the right direction:

● Do you really need to purchase? Is it possible that renting would be a better choice because of job instability or the prospect that you’ll need to move within a short time? Look at the rentals available and compare the costs of renting to that of owning. With apartment vacancies the highest in decades, and with a large number of rental homes in great locations, renting can be a great option for some; and rents are currently extremely attractive.

● Is your employment secure/income stable? Unless you’re relatively certain of your employment prospects in the foreseeable future, buying a home can be a risky endeavor. With downsizing, layoffs, business closures, and a weak economy, many potential buyers have elected to remain out of the market until the recovery begins in earnest.

● Are you reasonably certain you won’t need more space or that you won’t relocate within the next 3 – 5 years? If you anticipate an increase in the size of your family or if there are other reasons you might need to upgrade to a larger home in the near future, you should purchase for that likelihood. If your financial situation doesn’t allow for the larger purchase, postponing may be the better choice.

● Are your finances in order? Do you have a good credit rating (Click HERE for the real sources of FREE credit reports)? Do you have a regular savings program? Lenders will love you if you do, and the savings may help you to qualify for a better rate. And you may need some of those savings for the down payment or other expenses associated with loan closing and moving.

● Can you afford the home you want? Don’t get caught in the trap of straining your budget. Buy what you can comfortably afford (Click HERE for an easy calculation to help you determine how much you should allocate to a home purchase).

● Are you familiar with the local housing market? It’s imperative that you become familiar with the area in which you plan to live. Look at homes on the market; get an understanding of pricing and value; and evaluate drive times to work, schools, and shopping. You should also research the statistics of neighborhoods in which you’re interested (For links to helpful websites, click HERE).

There are some great bargains available for those who would like to purchase a home, but sorting through the maze of inventory and negotiating the best deal requires the help of a professional. I’d recommend recruiting an experienced real estate agent to guide you in your search. They’re familiar with the market, with pricing, with short sales and foreclosures; and can help you avoid making a costly mistake.

Finally, if you have determined that buying is your best choice, the government wants to help you make that purchase with a tax credit that can be as much as $8,000 for qualified buyers (Click HERE for more information).

For more great home buying or selling tips, visit: The Housing Guru

In small steps real estate talk in Southern Nevada - with communities like Summerlin, Mountains Edge, Charleston Heights, Spanish Trail, Henderson and Anthem - is turning to recovery looming on the horizon. 2009 statistics showed that it does have a pulse as investors descended in droves on the scene to gobble up property for rentals in the lower half of the market. First-time home buyers were also active, enjoying low mortgage rates, nice tax benefits and attractive prices.

Prominent Las Vegas housing industry analyst, Home Builders Research, is cautiously optimistic about the market's direction this year. Resale home prices are to increase 3.3%, or $4,000 in 2010, go to $127,000, it says. Moreover, existing home sales should reach 45,000 units, which is about the same as what happened in 2009. These estimates mirror that that the bottom has been reached in the long and unkind real estate slide and there is a moderate upturn in the works. If mortgage money remains as affordable as it now is - even though underwriting guidelines seem to be tightening - this scenario has a chance.

That's one side of the coin, however. The other side looks a bit different.

The International Builders' Show that recently concluded its annual run here in Las Vegas featured several speakers who of course took turns speaking about the state of the tattered housing market. Some of them were bearish on Southern Nevada. Mortgage foreclosures will keep rising in 2010 due to the weak economy and prices will take a cue from that and slide down, not by much as there barely is any room to go lower. Job growth here remains gloomy at least through this year and possibly goes into next as well, putting a painful dent on demand.

Who is right on Las Vegas real estate market's near future? Everybody and nobody. Both camps base their projections on available data, but how all that is interpreted can vary. What likely will happen is something between these two views. That is, the bottom is here, or near, and the market will bounce along there for a while, trying to find smoother stretches of road that would then give better traction. Any lasting recovery, though, will be slow.

Economic Conditions for the Las Vegas Valley December 2009

Housing Conditions:

• Foreclosure/Short Sale Listings (1/15/2010): Total Listings 10424; Short Sales: 4735, 45.4% of all listings; Bank Owned Listings: 2137, 20.1% of all listings. Short sale and REO listings consume 65% of total listings
• New Home Sales (December 2009, units sold): 477 Year Change -25.7% (excl condo conversions, highrises)
• New Home Sales (December 2009, median price): $216,854 Year Change -11.2% (excl condo conversions, highrises)
• Existing Home Sales (December 2009, units sold): 3774 Year Change +45.8%
• Existing Home Sales (December 2009, median price): $123,000 Year Change: -24.5%
• New Home Permits (December 2009): 355 Year Change +111.3%
• Rental Rate (MLS Monthly Average August 2009): $1313/month 

My analysis:  Distressed listings (foreclosures and short sales) are 65% of total listings.  Credit markets must be watched as underwriting guidelines continue to tighten.  Condos are barely financeable.  Resale sold units and pendings remain impressive.  Builders cannot compete with bank owned listing prices, thus sales remain lackluster. The rental market is softening due to all the investor/first time buyer combination of activity.  This adds more supply and creates less demand.

New Residents/Employment Conditions:

• New Residents (December 2009): 4311, Year Change -7.4%
• Total Employment (December 2009): 833,000 Year Change -7.4%
• Unemployment Rate (December  2009) 13.1%, Year Change +50.6%

My analysis: The tourism, gaming and convention numbers need to improve before these numbers improve.  New Resident Count will continue to plummet if no new jobs are created.  Economists are hoping that City Center brings tens of thousands of new jobs.  The Las Vegas Valley has lost -93900 jobs since April 2008.  I am not optimistic that City Center can pull us out of this slump.  (see Tourism/Gaming conditions below!)  City Center is expected to draw in anywhere from 10,000-15,000 new jobs.  Unfortunately around 8500 construction workers from the project will be unemployed so that really boils down to only 2500-7500 new jobs.  Unemployment rate is painful yet again.

Tourism/Gaming Conditions:

• McCarran Airport Total Passengers (November 2009): 3,234,705 Year Change +0.1%
• Gaming Revenue (November 2009): $750,798,061, Year Change +6.9%
• Visitor Volume (November 2009): 3,157,158, Year Change +0.8%
• Convention Attendance (November 2009): 437,864, Year Change  -13.0% 
• Hotel/Motel Occupancy (November 2009): 78.4% Year Change -1.0%

My analysis:   After rising in double digits for one month, Convention attendance is in the black again. This sector (tourism) needs to see some serious price corrections before we see a comeback.  Corporate credit is not coming back any time soon.  It will be hard to get convention attendance back up without corporate credit.  Glad to see regular tourists are making their way here with the imbalance of the other numbers to replace the convention attendee numbers.  Gaming and convention business is big business and those numbers MUST increase for jobs to increase and for our entire economy to stabilize.  Any convention attendance decrease of over 10% is extremely painful to this economy and all the overbuilt convention space.  It will be interesting to see what hotel/motel occupancy boils down to after city center opens with almost 6,000 new rooms online.  Anyone else seeing price corrections in store for the Las Vegas Strip?

Sources: Salestraq, Home Builder's Research, Greater Las Vegas Association of Realtors, Nevada State Gaming Control Board, Nevada Department of Motor Vehicles, McCarran International Airport, Las Vegas Convention & Visitor's Authority, Nevada Department of Employment, Training and Rehabilitation.  Information deemed reliable but not guaranteed.  My analysis is my humble opinion

Mortgage paper by the millions has been lately marked with a big fire-red stamp BAD. Or some home loan industry observers prefer to use the equally merciless description TOXIC. There probably are a few other choice words floating in the media about them. Nevertheless, these mortgages in default are a major weight on the books of anyone who holds them - generally portfolio lenders and investors - and that being so, they want to get rid of them, if at all possible.

Fannie Mae and Freddie Mac, the colossal GSEs, which make up a large chunk of the secondary mortgage market, have their fair share of this undesirable material. Their auditors are now quite active in combing through their holdings for home loan provider underwriting mistakes and other problems that would allow them to send them back to the originators. As a rule when Fannie and Freddie purchase mortgages they also enter into a contract with the sellers stipulating the rules of the acquisitions. They've discovered quite a bit of mayhem in their portfolios, which comes as no surprise.

Therefore, as it so happened, Freddie Mac made mortgage banks take back $2.7 billion in loans in the first 9 months of 2009, according to Wall Street Journal. That amounts to a 125% leap over the previous year. Fannie Mae did the same to the tune of 4.3 billion during that time frame, says Inside Mortgage Finance. And investors who have purchased mortgage-backed securities over the years are also demanding buy-backs. Who then might be the lenders in the hook the most? No surprise here. Bank of America and J.P. Morgan Chase, among other large operators, are allegedly on top of the list, according to these publications. Interestingly enough these are the same huge finance companies who have pointed a heavy finger at mortgage brokers as being largely the source of the current meltdown. Hmmm!!?

Repurchasing bad mortgage paper will muddy up these banks' already ugly books even further. The mega operators usually are better able to absorb the hits than the regional and smaller banks. These numbers in the estimated low double digit billions of dollars in buy-backs thus far isn't that much from the total mortgage market that hovers in multiple trillions. But if the trend continues, it may start creating real trouble for the sector, putting additional hurt on the hoped-for real estate recovery.

Mountain's Edge December 2009 Real Estate Resale Market Report:

• Listings (1/15/2010):  217
• Under Contract (1/15/2010):  324
• Sold December 2009:  82
• Month's Inventory:  2.6

Since Last Month:  Listings are UP +18, Pendings are DOWN -27, Sales are UP +3

Last Month's Mountain's Edge Real Estate Market Report

Mountain's Edge is a newer community so many of the listings are short sales or bank owned.

Every once in a while when I don't know what to write about I go into my google analytics and see what keywords people used to find my blog.  Since I shoot for people finding me "the long tail way" I can usually see questions in the keywords itself on a topic or two I have not yet covered.

Here is the question I saw today:

Hmmmmmm home price projection.  I haven't given one of these in a long time.  It's extremely hard to project where prices are heading.  Too many variables:  does the shadow inventory exist, where are interest rates heading, will underwriting become tighter, etc?!?!

BUT I can tell you where we have been!

The market (as a whole) has seen stability to slight, slight appreciation since late May to present.  Some sub-markets are still seeing corrections, some markets have been swift moving seller's markets for a year now.

When you are thinking about buying or selling, the most important thing to do is make sure you hire a Realtor that knows the market that you are seeking to buy or sell in.  They can paint you the best picture for your price point, area, type of house, etc.  To me, it is not good (learned from my own mistakes) to NOT generalize about future predictions about where this road is taking us!

Here is the determining factor:  the foreclosure (REO) inventory will continue to come on the markets, the question is, will buyer interest continue to remain high so that it can continue to absorb the inventory?

Although Cash lost a little ground in December (only 1%:)  Cash REMAINS KING in the Las Vegas Area Real Estate Market!!!  It is important for every buyer in the Las Vegas Area Real Estate Market to understand who their buyer competition is in this currently competitive seller's market LV is enjoying!  It is important to understand how a seller looks at each financing type:

Cash Offers:  Generally have less contingencies and quicker close times.  A cash offer may be accepted even if it is lower than a financed offer.

Conventional Financing:  Less strict with lender required repairs but larger down payments and more strict credit guidelines.

FHA/VA Financing:  Requires more scrutiny with lender required repairs via appraisal.  In general these take longer to underwrite and close so a cash or conventional offer looks more enticing to the seller.  FHA Requires the deed to be seasoned for several months so some flips bought at trustee's sales are generally out as options when competing with multiple offers!

Other:  Less common and creative financing types such as Lease Options, OWC (Owner Will Carry), etc.  The "other" category INCLUDES auction terms!!

Last Month's Report

Most Current Report (scroll to bottom of page)

Mortgage lenders and servicers have been reluctantly doing loan modifications mainly by paring back interest rates and stretching terms, thereby managing to reduce borrowers' monthly payments to some degree. But obviously that strategy is not working as well as many had hoped for. Restructured home loans keep defaulting at an alarming rate.

DBRS, a debt rating agency, now figures that more than half of them are two or more months behind or sink into foreclosure inside six months from the mortgage modification. Clearly, that's hardly the way to resolve the home loan mess. To get to the core of the problem a new direction in thinking has to be found. Actually a doable solution has been debated for some time now, but mortgage lenders haven't put their arms around the idea much. It's called principal reduction.

Home loan providers and servicers have been pulled kicking and screaming into looking at the idea again, and slowly they seem to be warming up to it. Recent statistics prove that. In the first quarter of 2009 3% of mortgage loan modifications included principal cutbacks, reports confidently DBRS. In the second quarter the number grew to 10% and in the third it stood at 13%. The trend is obvious. It appears the mortgage industry is finally seeing the light, but it sure took them a long while to get there.

Las Vegas valley - including Henderson, Mountains Edge, Silverstone Ranch, Rhodes Ranch, Summerlin and Spanish Trail - mortgage recipients are glad to see this development. Scores of them are seriously underwater and without principal cutbacks they would have little incentive to make payments even if they could afford them. To many it just doesn't add up to keep pouring hard-earned money into a losing asset. If the mortgage lenders here bring the loan balance all the way to market, they'd have a lot of eager homeowners sending payment checks in. And the currently high foreclosure rate would be drastically improved. If they do so only part way, it would predictably still prevent a host of mortgage borrowers from going into default.

Should this trend continue it would begin turning the pummeled mortgage and real estate markets in Las Vegas and nationally around in a decisive manner. At this stage in the game this is about the best way to go about it.