At a time when luxury homes are making up an increasingly large share of foreclosures, an unexpected number of high-end owners in and near Beverly Hills are demanding—and in some cases getting—millions more for properties they’ve recently bought.
Realtors Slam Obama Foreclosure-Rental Plan
- Bloomberg News
- Signs outside of a foreclosed home in Greensboro, N.C., in February.
The National Association of Realtors took a public shot at the Obama administration on Wednesday, criticizing an effort to alleviate some the housing market’s woes by renting out foreclosed properties.
For several months, Obama officials have been studying ways to rent out foreclosures owned by the Federal Housing Administration and government-controlled mortgage giants Fannie Mae and Freddie Mac.
Earlier this month, a U.S. housing regulator invited investors to submit initial applications to qualify to bid on pools of foreclosed properties owned by Fannie Mae that are already rented out under an existing program. It involves six areas: Southern California, Las Vegas, Chicago, Phoenix, Atlanta, and parts of Florida.
However, the Realtors’ top economist, Lawrence Yun, criticized the idea. In a press release, Mr. Yun said that there are plenty of buyers snapping up foreclosures in “nearly all” housing markets around the country. As a result, he said, “a government proposal to turn bank-owned properties into rentals on a large scale does not appear to be needed at this time.”
Mr. Yun dialed back his criticism later in an e-mail. He noted that such a program might make sense in some states like New Jersey and Illinois with a court-run foreclosure process and a large backlog of foreclosures waiting to come on the market.
California, Arizona and Nevada, he wrote, have “no problem with absorption” of foreclosures, and have seen falling numbers of foreclosures on the market.
More details of the foreclosure-rental plan are expected in the coming months, but officials are looking at parts of the country where there is a large overhang of foreclosures and robust demand from renters. The idea is to help home prices stabilize in those markets by eliminating some excess supply. Sales of foreclosures would only be made after properties were on the market for a fixed period of, say, 60 days, providing an opportunity for buyers to purchase those properties – and for real estate agents to earn commissions — before any properties are sold in bulk and turned into rentals.
Many other experts say a foreclosure-rental program will be useful for the broader housing market and economy.
“It is still very much a buyers’ market as house prices continue to decline and inventories remain well above that consistent with a well-functioning housing market,” wrote Mark Zandi, chief economist at Moody’s Analytics, in an e-mail. “There is no better way to help the housing market in the next 12-24 months than a concerted effort to move more (foreclosures) into rentals before these distressed properties hit the for sale market and further depress house prices.”
Mortgage Rates Improve But Remain On Fence Between Recent Offerings
Yesterday marked the first time since late January that Best-Execution Mortgages Rates
stood at 4.0% on average, as opposed to what had been the prevailing average of 3.875%. Rates improved today for most lenders, several of whom once again are offering 3.875% as a “best-execution rate” (learn more about what that means in this previous post with more detailed discussion about Best-Execution calculations). But a significant portion of the market remains in 4.0% territory. Best-Execution is very much on a fence between the two rates after today’s improvements.
Apart from the slightly more favorable rate environment, little has changed between yesterday and today. Since Best-Execution is by no means firmly back to 3.875%, the question remains whether or not this will prove to be a brief foray into
4.0%. The tone of news surrounding the Greek bailout seems to have shifted in favor of “forays remaining brief” as the skeptics have emerged, calling attention to the unsustainability
of the agreed-to austerity measures, among other things.
Treasury Auctions–another market event on our radar–haven’t done any additional damage to mortgage rates’ chances of returning to previous levels, but they haven’t significantly helped either. Still, the absence of a negative is a positive in this context. For now, bond markets, including MBS (the “mortgage backed securities” that most directly influence mortgage rates) seem to suggest that their default stance is one of strength, and detractors will have to prove their case in order for that to change.
Tomorrow brings the last of the week’s Treasury auctions. Simply getting through these auctions without too much damage to MBS is a net positive. The reason for this is that Treasury Auctions create a need for bond markets to absorb new SUPPLY. Naturally, higher supply suggests lower prices, all things being equal, and lower prices in bond markets mean higher yields or INTEREST RATES. Although MBS and mortgage rates aren’t directly affected by these supply considerations for Treasuries, they’re roughly analogous financial instruments that serve a need among fixed-income investors. If those investors are buying more of one, they’ll generally be able to buy less of the other.
Despite this oversimplification, this is how new Treasury supply can detract from MBS prices, thus putting some upward pressure on rates. It goes both ways though… If the auctions are met with better-than-expected demand, it leads to small shifts in investor sentiment that can ultimately leave bond markets in better territory than they were before the auctions. To reiterate, today and yesterday’s auction certainly haven’t done any additional damage in this regard, but haven’t helped either. Even if tomorrow’s auction is similarly uneventful, there can sometimes be a “relief bid” (bid = demand = rates lower) simply due to the conclusion of this week’s auction cycle being over.
Today’s BEST-EXECUTION Rates
- 30YR FIXED - 4.0% more prevalent. Some 3.875%’s remain
- FHA/VA -3.75%
- 15 YEAR FIXED - 3.25%
- 5 YEAR ARMS - 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates and costs continue to operate near all time best levels
- Current levels have experienced increasing resistance in improving much from here
- There are technical reasons for that as well as fundamental reasons
- Lenders tend to get busier when rates are in this “high 3′s” level
and can throttle their inbound volume by raising rates or costs. - While we don’t necessarily think rates are destined to go higher,
given the above facts, there seems to be more risk than reward regarding
floating - But that will always be the case when rates operating near historic lows
- (As always, please keep in mind that our talk of
Best-Execution always pertains to a completely ideal scenario. There
can be all sorts of reasons that your quoted rate would not be the same
as our average rates, and in those cases, assuming you’re following
along on a day to day basis, simply use the Best-Ex levels we quote as a
baseline to track potential movement in your quoted rate).
…(read more)
Forward this article via email: Send a copy of this story to someone you know that may want to read it.
Freddie Mac: Economy on Slow, Steady, Path to Recovery
In the February Economic Outlook from
Freddie Mac’s Office of the Chief Economist is projecting a slow, steady path
to recovery as the economy, it says, continues to build on the momentum it
displayed at the end of last year. The
report cites 243,000 new jobs in January, an unemployment rate falling to 8.3
percent and an increase in job openings to 3.4 million in December as
indications of improvement. At the same
time, there was a relatively low level of 2 million “voluntary separations,”
i.e. people quitting their jobs, that reflects a nervousness about the job market
and a 1.2 percent drop in inflation-adjusted hourly wages, the steepest annual
fall since 1989, also signaling job market weakness.
The housing sector portion of the Freddie
Mac report was a summary of information for the month already reported here
from sources such as the National Association of Realtors®,
S&P/Case-Shiller, Mortgage Bankers Association, and others. Most of the housing data shows improving
sales, declining inventories, and continued softening of home prices. Freddie Mac said it expects “more warmth” in
the housing market sometime in 2013 “as the economy continues on its slow path
to a stronger recovery in a low interest-rate environment.”
The office is projecting that, by the
end of 2013 housing starts will be at an annual level of 1 million (compared to
1.36 million in 2007, the last year before the market collapsed) and sales of
5.05 million (compared to 5.19 million.)
Prices are expected to gain some footing this year and begin to increase
in the first quarter of 2013.
…(read more)
Forward this article via email: Send a copy of this story to someone you know that may want to read it.
A Call to Action – FHFA’s Strategic Plan for Fannie Mae and Freddie Mac
Yesterday the Federal Housing Finance Agency (FHFA) issued to Congress its Strategic Plan for Fannie Mae and Freddie Mac Conservatorships.
Acting Director DeMarco and FHFA staff are to be soundly commended for their work in developing and publishing the Plan. The Plan is equally thoughtful and provocative and represents an essential next step in the continuing efforts to resolve the nation’s housing crisis.
For example, the Plan acknowledges the critical importance of the technical and business infrastructures currently maintained and managed by the GSEs and without which the effective function of secondary market securitizations would be impossible. Likewise, the Plan notes the critical role of both GSEs in the nation’s continuing efforts to resolve the foreclosure crisis and maintain the availability of credit for American homeowners. Lastly, the Plan posits that the current market dominance of the GSEs is unsustainable and must be reduced through the return of private capital to an industry now dominated by the federal government.
But what distinguishes the Plan in particular is the fact that while it lays out markers and establishes broad goals, it does not set out the specific tactical requirements to achieve those goals – a fact that its detractors will no doubt likely seize upon. But nor shouldit – that is not the role of a strategic plan the purpose of which is to identify key macro considerations, objectives and risks.
FHFA should also be commended for its intellectual honesty – too often absent in Washington – for acknowledging the critically important role of Congress and the Administration in defining the “future structure of housing finance” in America and their collective inability thus far to do so.
And it may be that last point that is the Plan’s most important – as it serves as a challenge to Congress and the Administration to put politics aside and get to the business of governing. Indeed, the future of housing finance in America – and the economic well being of us all – may well depend on their willingness and ability to do so.
…(read more)
Forward this article via email: Send a copy of this story to someone you know that may want to read it.
Connect With Us