Posts Tagged ‘real estate market’

Agents and appraisers are having the last say as against industry reports because against the background of the raging foreclosure crisis it is the locals who are the best judges of the real estate market.

For those living in a housing society the work is easy because one unit is similar to the other. But where there are up hills and down dales in housing variety involving not merely size but style, quality, condition and amenities, the gauging is a tough task. The ever-changing property and financial market further complicates matters.

Figures and statistics do not come of use in ground realities while calculating the value of a particular house. The National Association of Realtors or NAR makes use of the average sale price of existing houses. It has been noted that during a certain time span about half the houses were sold for more than the quoted average while the other half were disposed of at less. The increase in average indicates a rise in the overall prices of units or it may simply indicate that more costly houses costly houses were sold. For instance, last year in San Francisco more luxury properties were sold than starter houses. A drop in the median price shows that more inexpensive houses were sold, during that particular period. There are innumerable foreclosure properties in the lower price category. This may be the reason for the fall in the average in areas where the last mentioned houses are picking up sales.

Irrespective of the price of the house, the general tendency is for foreclosed houses to sell at 15% less than the other houses in the inventory according to Andrew LePage of DataQuick.

Thus changes in national average prices indicate little or nothing about the price in a particular locality. NAR reports that the national average fell by 7.7% in March from what it was in 2007. But reports from California Association of Realtors show that the average was less by 10.2% from March 2007. DatQuick numbers were different. According to it the average price of houses fell by 20.4% in the Bay Area in March from the previous March of 2007. But in Contra Costa County (in Bay Area) the average sale price fell by one third from the previous year. 44.7% of the sale transactions in March were related to foreclosures.

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Foreclosures continue to rule the roost despite much talk and hype about solutions. But what is self evident from numbers pouring in is that the Bush administration has failed to rein in the galloping foreclosure horse. Like myriad other problems this all-important one about foreclosures is going to be dumped on the new President and the succeeding Congress.

The lax lending of the previous bubbling years continues to ferment trouble and spread the rot. In May foreclosures were again on a running spree with many default numbers tagging behind, ready to be foreclosed. The pain today is not only the tears of individual families. It has spread its tentacles wide. House prices are falling, tax collection is declining while credit remains tight fisted. This is creating a vicious circle of continuation of the slump in the real estate market that is in turn telling on the general economic slow down. Lenders, borrowers, the ordinary citizen and politicians are now all boiling in the foreclosure stew. So far nothing positive has come forth from the Bush administration.

The sitting Congress may succeed in passing a foreclosure-help bill before 4th July. At best it will stop 5,00,000 foreclosures covering the forthcoming years. If it sees the light of day it will be something to trumpet about. But there are many ‘ifs’ – it has to be passed and then it has to be signed by Bush. Even then the weight of foreclosures that will be legated to the next administration will be gigantic.

At this juncture it is relevant to note what noises the two presumptive nominees, John McCain and Barack Obama are making on this all important foreclosure issue. Last March McCain had tagged along with those who blamed the borrowers for taking more loans than they could afford. He argued that they were not deserving of help. This led to a barrage of criticism. McCain came to be termed mean and ignorant of economic points. The argument was that there was no reason to make the entire economy suffer for the failings of few borrowers. From April, McCain began to sing another tune and supported administrative steps being taken to halt foreclosures.

Obama has more broad suggestions to offer – allowing bankrupt borrowers to have their loans modified via court protection route. This has been categorically dismissed by Bush group and the mortgage companies. Obama is also for local bodies to purchase foreclosed properties and thus help in easing the market.

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Texas is going against the tide as recent reports show that foreclosures are slowing down here. This report has been released by a California based tracking firm, RealtyTrac in April 2008.
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During March there were 10,700 foreclosure postings in Texas – a decrease of about 16% from March 2007. It is also a drop of nearly 13% from foreclosure listings of February 2008.

Across the country 234,685 units were foreclosed upon in March this year – a 57% jump over the numbers of March 2007 and a 5% increase from February 2008. As per year-by-year count foreclosures (including defaults, auction and repossessions) increased by about 129%. This indicates that a good number of defaulting borrowers are just walking away by deeding back their properties to the lenders. In comparison the auction notices have spiked by 32%. The deed-in-lieu permits the lender to take over the unit without putting up for a foreclosed auction in the court.

California and Florida continued to be the top rankers together with Ohio in March this year. California ranked first with 64,711 foreclosures – an increase of 20.66% from March 2007. The rise year-by-year counts to 106%. Florida came second with 30,254 foreclosure filings marking a jump of 112% from March 2008. But there was a drop of postings from February 2008 by about 7%. Ohio ranked third with 11,273 foreclosure listings in March showing a rise of 37% from March 2007. It was a 9% increase from February 2008.

According to the latest trend figures alone cannot give the comprehensive picture. Although interest rates have been reduced the general trend is for foreclosures to gallop ahead. This shows that the focus has shifted from the interest issue to other matters – unemployment, increase in food and fuel prices and fall in the real estate market. Even with reduced interest it makes no sense to continue with the mortgage as the value of the house is more often than not less than the loan amount. Compounded with rising prices the economic scenario has become toxic and dangerous. Many contacting the counseling centres are worried about lowering of income and increase of prices of essential. In the previous year 22% complained of lowering income. This year the number is 28%. In April people spent on an average $335 per month on groceries – an increase from $291 from April of the previous year. This year $242 is spent on gas while it was $181 in 2007. Thus a mixture of problems is adding to the foreclosure mayhem.

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South Bay foreclosure figures are alarming. The question is – how much more can this region take? Statistics show that on each average working day there are 1,038 foreclosure related auctions. In April Santa Clara County recorded 500 postings – this being a 47% hike from the previous month of March 2008 and a 585 jump from April 2007. The county now ranks 40th in March this year among the counties in California a regards foreclosures per capita. Loans worth $292.4 million were foreclosed upon last March.
Foreclosure is a judicial process. Of late it has hit the headlines because of the alarming increase in numbers. When a borrower defaults a notice is sent regarding foreclosure. The county records office is also intimated. If after about four months the borrower is unable to become current in mortgage dues then an auction sale is conducted at the courthouse. For last year or so the houses are not being sold at the public auctions and are reverting back to the bankers. The latter are offering huge discounts but even that is not letting the ball start rolling in the real estate market.
In Santa Clara on an average 15% discount is being offered at the auctions. It means that if the previous owner owed the bank $400,000 the bank isnow willing to settle the matter for $340,000. Increase in default notices point to escalation of the foreclosure crisis. It is definitely not petering off. In April there were 44,101 notices in the state. It was an increase of 14% from January 2008. The lenders are now more often agreeing to short sales for a quick settlement of the matter without going through the whole process of foreclosures. A short sale takes place when the lender allows the borrower to sell the house even though the value of the house is less than the loan amount. However the process of short sale involving approvals from the lenders is painstakingly slow. Invariably the borrowers complain that they have managed to find a buyer in these difficult days but the approval has not come through. So the deal is put off. The lenders complain that they are deluged with such requests and do not have the infrastructure to deal with it swiftly. Each one is a specific case and has to be handled accordingly. The best way is to seek refinancing and modification so that the borrower can continue to stay in the house that is the home.

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The New Year began on a bitter note: foreclosures jumped by over 100% in comparison to what it was in January 2007. Localized credit counseling agencies are becoming more active.
Consumer Credit Counseling Service is a non-profit organization that is reaching out to those in need of help in six counties of California including Ventura. It will hold sessions for free both in English and Spanish to establish contact with all communities affected by the debacle. The first morning session in English will be followed by another in Spanish in the premises of Camarillo offices, on Wood Road near Camarillo airport. Another similar group is Cabrillo Economic Development Corporation. It held similar sessions that had drawn over 100 participants. Both groups are planning to continue with more workshops and seminars.

Cabrillo has received $167,462 for its NeighborWorks Home Ownership Center, from a federal source that has been of late approved by the Congress. Demands for their services are going up and they are gearing themselves to meet it. Their spokesperson comments that the good work is beginning to show and changing the lives of the local people who want to continue to stay in the houses that are their homes.

Counseling is just one of the many measures taken up to stem foreclosures that are sucking dry not only the real estate market and telling on the economy. The sub-prime mortgage with adjustable rate mortgages was introduced to help those who could not avail of prime mortgages because of modest income and low credit ratings. The laudable purpose of the scheme was to make real the great American dream of owning a house fore everybody. Unfortunately the plan went awry. Hunting for quick returns and high commissions, speculators and agents jumped in flush with funds. All one needed was a pulse to get a loan sanctioned. This led to a frenzy of building causing spikes in the real estate. Unfortunately what goes up comes down. The people could not manage with the mortgages once the rates became realistic and began to rise. Like nine pins the houses rolled into foreclosures. The business concerns seeing the fall simply ran away from a bad deal leaving more abandoned houses. Divorce and illness too coupled with localized economic problems too had their say in the matter. A tsunami of foreclosures took over the country dragging down in its wake the entire nation.

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The situation here is far worse than the national foreclosure picture. Carol Thomas is 69 years old. She has just been handed a foreclosure notice and wonders how long she can brew coffee in her own kitchen. She had fallen into a trap laid by a scammer who kept promising that things would work out fine. Today that person is in jail and Carol continues to boil in the hot foreclosure soup without any hope of reprieve. On the other hand she had lost precious time and money trying to work out a deal with a scammer. The con artist is now in Prison but that does not help Carol right now. Her mortgage payments have trebled because of ARM’s. From 6.4% it skyrocketed to 9.4% and there is no surety that it is going to stop there. There are hints that again it will go up in May.

Carol is just one among the many in the Foreclosure soup tureen. According to recent reports Peoria and Tazewell County foreclosure figures are far above the national average. This has led to a phenomenal rise in counseling related to house matters. There are many lagging behind in payments – 30 days to 120 days. President Bush has just given his nod to another fund for counseling services amounting to $180 million.

The fact that many will not be facing foreclosures does not mean that the problem is solved. Foreclosed houses sell at a low price and bring down the general real estate market. This in turn affects the tax kitty. Thus there is very little left for police and fire protection. Yet these last two are the two important pillars of a government.

Senator Dick Durbin says that it has a ‘negative ripple effect’ going down and down. He has come forward with some suggestions People in bankruptcy should also be allowed to refinance loans. So far this has not been allowed. The law does not allow modification of loans on the primary residence but only on vacation houses and farms. Durbin wants to change that law also.
Counselors feel that the best thing is to put a halt on foreclosures and find out ways for refinancing. If this is not done then thousands of houses will have ‘For Sale’ signs pasted on them – all because of foreclosures. It bodes ill for the socio-economic structure of the entire nation.

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On Hendry Street, Dorchester heads of city government arrived in a futile attempt to stop the spread of the foreclosure virus. But when the mayor, police commissioner and the housing inspector arrived all was over. Mayor Menino standing in front of a boarded up three decker house on Hendry Street promised that he would do his level best to restore the health of the region. For this the city fathers will have to seize the property tax on grounds of delinquency. But unfortunately most of the houses are not encumbered with unpaid taxes. A different aggressive approach will have to be taken.

Nearly a dozen properties in Hendry, Coleman and Clarkson streets dotting a modest to low income locality that the Menino authorities had ear marked for public safety, playground facilities and economic upliftment were listed on foreclosure postings. This has been going on for the last five years.

This region is known for being a high crime area where money plays around. TV crews and troops withdraw simultaneously. But this time it seems that the mayor is deadly serious about his ‘foreclosure intervention team’. The chief attorney of the city, William Sinnott is trying to see if the banking officials of the state can freeze the assets or take off the licenses of the mortgage lenders who refuse to cooperate. Working with him are other city officials to find out if behind the scenes fraud or such activity is taking place.

In 2007 nearly 700 properties in Boston were clubbed down by foreclosures. A hot debate is raging whether greedy borrowers or predatory lenders are to be blamed. The apprehension is that another 2,000 house owners are about to face further mortgage rate rises. Thus many more will meet the same fate as those of Hendry street.

There are indications that efforts are paying off and more mortgage lenders are coming forward with a helping hand. One of them is the mortgage giant Wells Fargo. But there is a lack of communication between the servicers and the borrowers. In 1960 bad mortgages had sent out the same bad smells in Dorchester. It took decades for the mess to be cleared up. Menino understands this. Crime rise is associated with abandoned empty houses. The plumbing and electricity fittings are stripped off and the houses becomes dens for vagrants and prostitutes. This brings down the overall real estate market.

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Nothing has been resolved as yet and talks are still on between real estate giant Harry Macklowe and his lenders regarding Manhattan office buildings. He had purchased these in the previous year. Technically the inconclusive talks place Macklowe in a default position although according to reports none of the lenders are going on with the process of foreclosure as yet. In the following week there is a chance of resumption of talks. Macklowe’s spokesperson did not comment on the issue.

In February 2007 Macklowe had borrowed $5.8 billion from Deutsche Bank to purchase seven office buildings in Manhattan area – properties that previously belonged to Equity Office Properties. Last week there had been a tentative deal that Macklowe would turn over the units which he had purchased for $7 billion. The bank declined to comment on the report.
It is alleged that Macklowe owes the bank $5.8 billion by way of acquisition financing or non-recourse. This would give Deutsche control of the buildings but not rights over the rest of the empire of Macklowe.

Macklowe, it seems, put in $50 million from his own resources but he is still short of $1.2 billion to repay a bridge equity loan he had taken from Fortress Investment Group. Macklowe purchased the units together with Blackstone Group LP’s acquisition of the Equity Office in 2007.
The crux of the problem for Macklowe is that the ongoing foreclosure crisis has all but wiped out easy debt financing. Lending has become more difficult and very expensive. The commercial mortgage backed securities CMBS, has to all practical purposes dried up. Banks are besieged by the foreclosure crisis in residential sub-prime mortgages. This has left Macklowe in the lurch. With fears of recession looming large the future is bleak for commercial real estate market.
The market cannot be studied in isolation. One leads to another and this snow balling effect of the sub-prime crisis is being felt in all spheres of the economy. There is a strong hue and cry against the lenders although there are indications that even before the 9/11 drama indications of the downtrend were visible for those who could read. There were job losses, divorces and illness. All joined hands with rising interest to create the foreclosure crisis. The government at all levels, communities and politicians are all pitching in to salvage the situation and bring back the country on its rails.

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