First American CoreLogic has released its latest residential real estate analysis here. Three important graphs from the report follow in this discussion.

Distressed Home Sales Increased in January

The first graph shows that distressed home sales have increased to 29% of all sales. This is high but less than a year ago.

Note the systematic increase in short sales over the past year. The volume of shorts sales is expected to be increasing further in 2010. The volume of REO sales is also likely to rise. I have estimated that REO (real estate owned) bank properties on the market in 2010 will be about 33% more in number than in 2009. If sales reflect the same increase then total sales will have to increase by 1/3 in 2010 to keep the ratio of distressed sales around 30%.

Distressed Sales Likely to Increase Share of Market in 2010

The previous discussion means the total sales in 2010 will need to rise to about 8 million, up from about 6 million in 2009.

Read more at: Seeking Alpha

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Post from: Credit Cards Mojo

Home Price Drop of 30% Possible for 2010

Data mean foreclosures may not peak until next year

More than 14 percent of borrowers were in trouble on their mortgage during the third quarter, a new record, according to an industry survey released Thursday, which also suggests that the foreclosure rate is likely not to peak until next year as unemployment rates continue to rise.

Unemployment remains a big driver of the problem, according to the Mortgage Bankers Association, which conducts the survey. Those with delinquent loans now include a growing portion of people traditionally considered creditworthy and people whose mortgages are insured by the Federal Housing Administration.

“The outlook is that delinquency rates and foreclosure rates will continue to worsen before they improve,” said Jay Brinkmann, the group’s chief economist.

About 9.6 percent of borrowers were delinquent on their mortgage during the third quarter, according to the survey, and another 4.5 percent more were somewhere in the foreclosure process. Overall, about 14 percent of mortgage loans or 7.4 million households were delinquent or in the foreclosure process during the quarter, according to the group.

Read more at: The Washington Post

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Problem mortgages hit new high at 14 percent

With business down it may be the perfect time to indulge in some home improvement projects. Read on for more secrets of home remodelers.

1. Business is down 16 percent. The good news for you: I’m returning calls and trimming prices.
2. High-end people will do smaller jobs we might have spurned a few years ago. Focus on projects that will keep your house market-ready, like upgrading a bathroom.
   (Read more at: Reader’s Digest)

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{Photography by Willie Lunchmeat}

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13 Things Your Home Remodeler Won’t Tell You

The Nationwide Building Society has introduced a mortgage allowing borrowers to take loans worth 125% of the value of the home they are buying.

It will only be available to existing customers in negative equity who want to move house.

Negative equity means that the value of someone’s home is less than the amount they owe on their mortgage.

Nationwide said the deal was a very “niche offer” and that not everyone in negative equity would qualify.

The Financial Services Authority is considering limiting mortgage loans to 100% of a property’s value.

‘No more risk’

The Nationwide only offers new customers mortgages worth 85% of the value of the home they want to buy. (Read more at: BBC)

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Nationwide offers 125% mortgage

With more than $300,000 in combined annual income, tens of thousands of dollars in the bank and credit scores that top 800, Jennifer France and her partner would seem like ideal candidates for a mortgage refinance.

But when they applied to swap an interest-only loan on their nearly $1 million San Carlos home for a 30-year fixed that locked in today’s low rates, they were summarily denied. The reason: effectively, because both operate their own businesses.

“I was really surprised, I had been preparing to refinance for years,” said France, a landscaper and gardener. “It’s hard for the self-employed; that puts us in a bind.”

While the amount they make is easily enough to qualify for the new loan, tax deductions for self-employed workers dropped their official income below the threshold that banks wanted to see.

A few years ago, theirs would have been the ideal scenario for a stated-income or no-documentation loan, which allowed individuals with ample but unconventional sources of income to secure home loans. But after untold numbers of borrowers lied about their financial wherewithal to buy homes they couldn’t afford, often with a wink and nod from mortgage brokers, nearly all lenders stopped offering what became known derisively as “liar loans.” Now even the well-qualified borrowers for whom the products were first intended can’t get them. (Read more at: San Francisco Chronicle)

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{Photography by Guttorm Flatabø}

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Undocumented income makes it hard to get a loan

What does William Randolf Heart’s house have that makes it worth $165 million?

Got a spare $165 million? This could be the house for you. Actually, calling it a house doesn’t do it justice. It’s a 72,000-square-foot, six-building, six-and-a-half-acre Beverly Hills estate once owned by newspaper baron William Randolph Hearst — and that asking price is the highest ever for a residential property in the United States. Broker Stephen Shapiro isn’t worried about finding a buyer. “It will sell at or above that price,” he says. (Read more at: Reader’s Digest)

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{Photography by Markus}

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Extremes: The Most Expensive Home in America

It is easier to dump a home loan if a friend has done so too

HOUSE prices in America have fallen so far that as many as one in five households have mortgage debt greater than the value of their homes. In a few states, borrowers are not liable for the shortfall between an unpaid loan and the resale value of the home it is secured upon. Even where borrowers are on the hook, lenders often find it too costly to pursue unpaid debts. So some homeowners may be tempted to default and escape the burden of negative equity.

How widespread is this practice? New research* based on a survey of 1,000 homeowners suggests that one in four mortgage defaults are “strategic”—by people who could meet their payments but who choose not to. The main drivers of strategic default are the scale of negative equity, and moral and social considerations. Few would opt to renege on their mortgage if the equity gap were below 10% of their home’s value, the authors find, partly because of the costs of moving. But one in six would bail out if loans were underwater by a half.

Four-fifths think strategic default is wrong. Those in the unethical minority are four times more likely to renege on loans (allowing for other influences) when their negative equity reaches $50,000. But morality has its price. When the equity gap reaches $100,000, “immoral” homeowners are only twice as keen to walk away from their debts as “moral” ones. People under 35 or over 65 are less likely to believe that default is wrong. So are the well-educated. (Read more at: Economist.com)

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{Photography by TheTruthAboutMortgage.com}

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Mortgage defaults in America: Can pay, won’t pay

From The Business Insider, June 25, 2009:   We’ve been talking this week about the NAR’s war against what it claims are low-ball home appraisals, caused by new regulations, and outside appraisers using distressed and foreclosure sales.

Real estate appraiser Jonathan Miller is weighing in on the question, and finds some merit to the idea that there are problems with current appraisal methods.

But first, he thinks it’s ridiculous to dismiss distressed and foreclosure sales as being somehow irrelevant, since the market is the market. If a home seller has to compete with other homes that are being foreclosed upon, then them’s the breaks, and that does legitimately drag down the value of a home. (Read more at: Yahoo Tech Ticker)

Update: The NAR’s Appalling Fight Against Honest Appraisals (The Business Insider)

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{Photography by Nancy Arora}

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The Home Appraisal Mess

HOME prices in the United States have been falling for nearly three years, and the decline may well continue for some time.

Even the federal government has projected price decreases through 2010. As a baseline, the stress tests recently performed on big banks included a total fall in housing prices of 41 percent from 2006 through 2010. Their “more adverse” forecast projected a drop of 48 percent — suggesting that important housing ratios, like price to rent, and price to construction cost — would fall to their lowest levels in 20 years.

Such long, steady housing price declines seem to defy both common sense and the traditional laws of economics, which assume that people act rationally and that markets are efficient. Why would a sensible person watch the value of his home fall for years, only to sell for a big loss? Why not sell early in the cycle? If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years, and these cycles would be much shorter. (Read more at: NYTimes.com)

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Why Home Prices May Keep Falling

There’s the usual talk about what the latest Case-Shiller house price data mean for the next short term move in the real estate market. Has housing bottomed? If not, has the rate of decline slowed? And when will we see an upturn?

Human nature likes the short term. Which is why so little attention is paid to something that is probably more important, if less urgent: What the latest data show about the long-term of the real estate market.

And it’s startling.

We have just been through the biggest boom in real estate in American history. The subsequent bust surely hasn’t finished.

Yet look at the numbers. Since 1987, when the Case-Shiller index of 10 major cities begins, it’s risen from an index value of 63 to 151. Annual return: Just 4.1% a year. During that period, according to the Bureau of Labor Statistics, consumer prices rose by 3% a year. Net result: Home prices produced a real return of just 1.15% a year over inflation over that time.

Critics may point out that the analysis is unfair — after all, it starts counting near the peak of the 1980s housing boom. Fair enough. Look at the performance since, say, early 1994, when home prices were near a historic trough. Surely someone who bought then has made a bundle. (Read more at: WSJ.com)

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Is Your Home A Good Investment?