BluefoxToday blog : April 2010

PMI, or private mortgage insurance, played a large role in yesterday's real estate boom, allowing buyers acquire property without putting a penny down. That was a tempting prospect indeed. 100% financing actually became quite popular those days as values kept galloping up on a steady pace that quickly generated equity no borrower in his right mind would dare turn down. The standard rule required a PMI if the down payment was less than 20%. These insurers were making money hand over fist, like just about all the other housing market participants did.

The real estate market's collapse changed everything in a jiffy for PMIs. They began losing truckloads of money as insurance claim requests rolled in from besieged mortgage lenders. That's one thing. They also considerably tightened their guidelines and when that wasn't enough to turn the tide they partially or totally withdrew from many real estate markets where the destruction was the worst. The ones in the latter category were called declining markets, the more prominent of them being Arizona, California, Florida and Nevada, the fab four of housing euphoria. Things looked really bleak for the PMIs.

Now they are cautiously climbing out of somewhat of a hibernation. One of them, Radiant Guaranty, actually dropped the declining market label a while ago and now is insuring mortgages up to 95% LTV, or loan-to-value, as long as the originator is of stellar reputation with minimal delinquency ratios. Genworth has recently adjusted its underwriting rules to pretty much match those of Radiant. Not to fall too far behind the competition, MGIC - the top dog in the business - has removed some states from its restricted list and making other tweaks, like lowering the FICO score minimum to 660 for 95% home loans.

PMIs are softening their guidelines as the housing market appears to be settling down. The risk element of doing business is slowly fading. That's in stark contrast to what FHA is nowadays doing. Its mortgage underwriting guidelines are getting tougher on the heels of severe losses that some felt would soon require a taxpayer bailout. FHA used to be nearly the only game in town, but with the PMIs gradually rewriting their rules the playing field is leveling out. Cost wise, in many cases the two of them today are comparable. As the housing market continues slogging along the long and slow recovery road it's foreseeable that PMI will in time become a more attractive alternative.

Las Vegas mortgage borrowers will benefit

After the loud bubble bursting event Sin City quickly assumed the unofficial role of a flag bearer for the declining market troops when its own real estate sector did the unthinkable, and soon thereafter it turned largely into an FHA stronghold. It was tough to locate conventional mortgage money for anyone putting down less than 20%. Southern Nevada is nowadays experiencing some kind of a revival and PMI firms are reflecting that in their recent decisions. As a result Las Vegas home loan applicants will find more forgiving underwriting criteria to look at that will give the real estate market here a better chance to shake the lingering malaise off.  

Here is what buyers received in seller paid concessions on November 2009 Las Vegas Area (Henderson - N Las Vegas - Las Vegas) Closes:

• Less than $500:  63% ($500 only buys you a home warranty or (no and) an appraisal)
• Between $501-4000:  20%
• Over $4001:  17%

This pretty much means that sellers aren't giving up much of anything since Las Vegas is a Seller's Market and in dire need of sellable inventory!  Inventory levels are rising just slightly and we are seeing some movement/improvement in this sector which is good news, especially for buyers who want/need closing costs!

Last Month's Concession Stand

The Lakes March 2010 Real Estate Resale Market Report:

• Listings (4/15/2010):  53
• Under Contract (4/10/2010):  76
• Sold March 2010:  18

Since Last Month's Report:  Listings NO CHANGE, Pendings NO CHANGE, Sold Units UP +4

Why Las Vegas Pendings Aren't Selling

View Last Month's The Lakes Market Report Right Here!

For More Las Vegas Communities and Reports Click Here

The residential real estate market is on a turbo-charged roller coaster ride. One day the news is encouraging in the form of increased existing home sales over previous months. Or that housing prices are beginning to stabilize across the country. Pieces like that will get mortgage and housing industry observers and homeowners from Las Vegas to Miami all perked up and dreaming of a brighter tomorrow. And then out of nowhere all that good feeling and improved adrenalin flow is coldly shattered by another report saying that it's not over until it's over. And it may get worse before getting better.

LPS Applied Analytics, a mortgage data service shop, now estimates that it would take nearly nine years, or 103 months, to dispose of every bank foreclosure currently on their books - in other words REOs, real estate owned - and all the property that'll be foreclosed on in the next few years, given the pace of sales of foreclosures over the last several months. A cold-blooded assessment that certainly will make Washington policy makers consider redrawing some of their HAMP and other plans. In March mortgage lenders had roughly 1.1 million foreclosed homes in their inventory, continues LPS Applied Analytics. About 4.8 million additional home loan borrowers were already 60 days or more past due on their payments, a large majority of whom would end up swelling their distressed accounts even more. This so called shadow inventory grew by 30% from the same time last year.

Southern Nevada - home to North Las Vegas, Summerlin, Anthem, Rhodes Ranch, Green Valley, Mountains Edge and Silverstone Ranch - predictably is one of the leaders in this bothersome development. Being underwater is a serious problem in Las Vegas valley, causing many mortgage borrowers to abandon their homes even though many could afford to meet their payment obligations. What's the use when it may take ten or more years to swim dog-paddle back up to the surface? Others simply don't have the money to send in checks due to high unemployment. The severity of the situation in Vegas likely will take longer than close to nine years - LPS' estimate - to sell all the distressed property. It is possible mortgage lenders might speed up the rate of sales down the road, flooding the market with more listings, but that would then hurt price levels and bring them more financial agony.

In essence, LPS analysis points out to a long-term supply-flavored real estate market where prices will remain stagnant, hurting home loan providers' ability to mend their ill-treated books. Their mortgage underwriting criteria is going to stay tight as well while this uncertainty and supply-demand imbalance works its way through the system. Regardless, the housing market does have a pulse. Home buyers, especially first-timers, and real estate investors are deeply in love with rock-bottom housing prices common in many areas, including Las Vegas, and no one can complain about the still affordable mortgage money either.

The Las Vegas Valley (includes Henderson & North Las Vegas) has seen some major market stabilization in the last year!  Absorption for December 2009 is a seller's market with very little inventory.  Some micro-markets (ie,Foreclosures Bank Owned, REO) are extreme seller's markets where there is no mercy to the buyers, multiple offers are the norm!

We are FINALLY seeing a stabilization of inventory and a decrease with escrows (we should have seen that late spring/early summer!)  Good news for buyers?  Still remains to be seen.  We need to get over 10000 active units on the market before it can be stabilized from a seller's market 

Las Vegas Area Market Activity (Includes North Las Vegas, Henderson and Las Vegas)

• Listings (4/15/2010):  9302
• Under Contract (4/15/2010):  15787
• Sold March 2010:  3833

Short Sales:

• 46% of Listings
• 25% of Sales

REO (Foreclosures, Bank Owned:)

• 15% of Listings
• 53% of Sales

The above breakdown shows how very few short sales are being closed and how little inventory is in the REO market currently. 

In One Month:  Listings are DOWN -677 units, Contracted Listings UP +857, Sales are UP +864 units.  December's sales were unusually high and January's numbers are still higher than last January.  Close ratios are going lower because much of the pending inventory is short sales which requires LONGER close times. 

 DOWN PAYMENT ASSISTANCE HAS NOT ENDED FOR FIRST TIME BUYERS, HOWEVER!!

Last Month's Pending Report

The Most Current REO (Foreclosure) Report

The Most Current Short Sale Report

The Most Current Las Vegas Area Pendings Report

When the real estate market succumbed a few years ago into a deep recession it took the home loan sector with it. While many mortgage lenders failed spectacularly, others were kept from falling off the map by costly government bailouts or found a hopeful merger partner. This sudden inferno quickly chased the private - domestic and foreign - investor almost completely away from the secondary mortgage market where they had been buying securities to support the U.S. housing industry. Mortgage financing lately has been almost exclusively provided by government-affiliated agencies Fannie Mae, Freddie Mac and FHA. The behind the scenes mover has been the Fed, being a vital component to shore up the otherwise badly limping industry.

The Fed has now withdrawn from purchasing mortgage-backed bonds and is anxiously watching how the market will come along without its considerable influence. Its nearly unlimited buying power. It must like what it is now seeing.

Redwood Trust Inc. is taking a courageous first step into the still treacherous waters as it is planning to issue about $222 million in mortgage bonds backed by loans originated by Citigroup. This is the first deal this year where Washington is not playing any guaranteeing or insurance role. It is a blue-blood private label issue.

Redwood will package the bonds very carefully, and surprisingly transparently. They for sure are high quality; the minimum credit score is 702 and the maximum LTV, or loan-to-value, is 80%. It will give potential investors more detailed information about mortgage borrowers' income and assets than what was done before. It'll reveal how many have second mortgages and whether they are self-employed. Moreover, Redwood will have skin in the game by keeping both 5% of the offering and its riskiest portion on its own books. This pool has 255 loans with an average price of $933,000, which signifies jumbo mortgage territory.

Mortgage bond investors are still hurting from the whipping they took over the last several years in the housing market disintegration and their memories are likely long. They certainly will take a look at the offering and assess the integrity of the improved disclosures, but how many will be convinced to buy is another thing. If the yield is attractive enough there will be at least some takers. Pricing for the issue should take place in the coming days.

That a mortgage-backed private label offering is being presented at all is a positive move for the entire market. The current near-total absence of the private investor won't change overnight. This is a valuable first step, however, giving a small base from which to start building investor trust on the much-maligned product.

Coronado Ranch March 2010 Real Estate Resale Market Report (Homes For Sale/Pending/Sold):

• Listings (4/15/2010): 16
• Under Contract (4/15/2010):  49
• Sold March 2010:  19

Since Last Month:  Listings are Down -18, Pendings are DOWN -1, Solds Units are UP +1.

Last Month's Coronado Ranch Market Update

To View Other Las Vegas Communities Click Here!

Okay, so March sales of new homes “rocketed” to the highest gain in nearly 50 years, but do the new home sales numbers indicate a turnaround in housing? Hardly. While I understand everyone wants to hear good news, we also need to be realistic and need to know what’s going on in order to make the best business decisions. Here’s the bottom line on the numbers.

According to the Census Bureau, new home sales increased by 7,000 over March 2009, but the increase can be totally attributed to the housing tax credit; and even though sales showed a dramatic improvement over the previous month, February sales were at a record low. The real news is that the overall rate of new home sales remains at very low levels, with March sales 70% below those of the peak five years ago.

While I’m sure that sales for April will also show significant improvement, we must keep in mind that sales are continuing at depressingly low numbers. And since new homes stimulate the economy by creating construction jobs as well as jobs in numerous other industries, housing is unlikely to make a significant contribution to the economy for several more years.

I’ve inserted a graph from Calculated Risk that shows the ratio of new to existing home sales. As you can see, the general trend has been that new homes average between 15% and 20% of sales of existing homes. Even with the tax credit the current ratio is only about 8%. A true recovery will be indicated when the ratio returns to more normal levels, and that won’t happen until we rid the market of foreclosures, something I don’t expect this year or next.

The Housing Guru: The expert source for all your housing questions

Thanks to CalculatedRiskBlog.com for sharing this graph.

Las Vegas Area Real Estate Market Watch was created for informational purposes only. 

This is for all the buyers wondering "where is the inventory"?  The inventory is here, this graph shows that buyer interest is extremely high and gobbling up all that new inventory coming online!

This is also for people saying "shadow inventory exists"!  Well I believe it exists but it also exists in short sales which has tripled to quadrupled it's formerly stagnant close ratio since late spring.

These are Listing/Under Contract & Pending/Sold Trends from December 2007-March 2010.

I do expect a frenzy of pendings & closes as the tax credits for first time buyers comes to a contracted halt at the end of April. Pendings have also begun their traditional "spring" rise.  Let the closings begin!

MGM Mirage is now planning to open the two-tower luxury complex - sitting in the middle of CityCenter and drawing admiring and sometimes quizzical looks with its two leaning towers - in May. It was scheduled to do so in mid-December when most of the mammoth multi-billion-dollar resort on the Strip began welcoming its first guests. The reason to the delay is quite clear. The current economic slump has deeply trimmed down the potential buyer pool for condos at Veer Towers. The same actually goes for all high-rise projects in Las Vegas.

Mortgage finance has been a problem all along. Lenders are staying away from Las Vegas luxury condo scene ever since the real estate market here stunningly caved in. To help move inventory MGM Mirage started offering seller financing in December but obviously its impact has been marginal at best. It also cut prices by 30% to ease buyer concerns about the continuous weakness on that front. Values throughout the condominium segment - from Florida and across to California - have been very leaky mostly due to rampant overbuilding. Las Vegas with its incomparable entertainment flavor didn't escape any of that either.

The recent housing bubble brought luxury condos to Las Vegas in a big way, on a firm developer bet that Vegas was now ripe enough for such a product. Most of them would be vacation homes for those yearning to scoot occasionally over to the desert oasis for some R & R. That's especially true for the Strip destinations. A trailblazer in this by many accounts was Turnberry Place that some locals had doubts about at first but then turned into a very successful project. Everybody and his nephew saw that and quickly wanted to cash in on the emerging trend. The stampede was on.

MGM Mirage joined it and is now struggling mightily with the condo product. Las Vegas high-rise condominium prices have seen much better days and 30% discount in them for Veer buyers is not near where the brutal real estate market forces say they actually are. It's difficult even for an in-house mortgage lender to underwrite a loan on a property with contract price and appraisal being miles apart. Without further price adjustments the many unsold units there will be hard to move anytime soon. Perhaps they should be used as hotel rooms for the time being, until the housing market picks up.