Monday, November 21, 2011


It was a good week for the U.S. economy, despite what was going on in Europe . The Conference Board Index of Leading Indicators was up to 117.4 from 116.3 last month (September) and 110.1 from October, 2010.  The indices for both coincident and lagging indicators were also up from prior month and year levels.

Industrial production grew again.  It expanded 0.7% in October after only declining 0.1% in September.  Previously, industrial production was reported to have gained 0.2% in September.  At 94.7% of its 2007 average, total industrial production for October was 3.5% above its year-earlier level.  Capacity utilization for total industry stepped up to 77.8%, a rate 2.3 percentage points above its level from a year earlier but still 2.6 percentage points below its long run (1972-2010) average.  This is a key to the recovery because major increases in business spending for new plant is not likely to occur until capacity utilization reaches 80% or more.

The Consumer Price Index for All Urban Consumers (CPI-U) declined by 0.1% in October on a seasonally adjusted basis.  The index now stands 3.5% over year earlier levels.  Core CPI (CPI-U less food and energy) was up 0.1%.

National retail sales, according to advanced estimates, increased 0.5% from September, 2011and 7.2% from October, 2010.  Retail sales excluding autos grew by 0.6% over last month.

Housing had a "better than expected" month but the expectations were low.  Privately-owned housing starts in October were at a seasonally adjusted annual rate of 628,000.  While this is below the September level of 630,000 units, it is well above year earlier levels of 539,000 and expectations of about 600,000 units.  Housing permits were also higher than prior month and year levels.

Locally, employment gains continued.  Total nonfarm jobs were up 44,700 over year earlier levels to 2,433,500 in the state.  That is a gain of 1.9% over October, 2010 and a 0.8% gain over the first 10 months of 2010.  For Greater Phoenix, job gains were 43,200.  That equates to gains of 1.8% for October, 2011 vs. October, 2010, and a gain of 1.1% for the first 10 months of 2011 compared to the first 10 months of 2010.  While these gains are modest and weak when compared to the extent of the decline since 2007, at least employment is growing.

In housing news, R. L. Brown reports that 543 permits were recorded in October compared to 485 in October, 2010.  Year to date, there have been 5,817 permits for 2011 compared to 6,119 permits for the same period in 2010.  Median new home prices were $218,504 in October while median resale prices were $110,000.  According to the Cromford Report, the average number of listings on MLS is 27,354 homes so far in November compared to 45,836 listings in November, 2010.  Days on market were down to 93 in October of this year compared to 104 in October of last year.

Overall, slow growth seems to be the order of the day.  That is likely to remain for quite some time.  At least it is improvement.


This week, the federal government released more details about its revamped Home Affordable Refinance Program, which sets out to allow more home owners to refinance their mortgage and take advantage of ultra-low rates. The program is geared to those who are current on their mortgage but may be underwater, owing more on their homes than they are currently worth. 
Here are some more details about the changes coming to HARP: 

Q: Who may be eligible?
A: The program is only eligible to borrowers whose loans are owned or guaranteed by Fannie Mae or Freddie Mac and who have 20 percent or less equity in their homes. To check if either Fannie or Freddie backs a mortgage, go to http:/// http://w The only loans eligible are those that were backed by Fannie Mae and Freddie Mac before May 31, 2009.

Q: When can applications be submitted, and when does the program end?
A: The program begins Dec. 1 but some participating lenders may not be ready to take applications that soon. The program ends Dec. 31, 2013.

Q: Can borrowers apply at any lender?
A: Yes. Participation is voluntary for lenders, but one key component of the reworked program is designed to make lenders more comfortable with writing a new loan on an underwater property. Going forward, a HARP lender is not considered responsible if a loan it refinances goes bad because of mistakes in the original purchase loan. The change was considered critical to attracting lenders to the program and fostering competition among lenders for business. However, lenders still have underwriting guidelines to follow.

Q: What if I missed one mortgage payment?
A: The agencies don’t want to see any delinquencies in the most recent six months, but a borrower can be 30 days late on one payment in months seven to 12 of the past year.

Q: What kind of extra fees are tacked onto the loans?
A: For loans that amortize in 20 years or less, all fees related to the riskiness of the loan have been eliminated. For loans that amortize in more than 20 years, fees are capped at 0.75 percent of the loan amount.

Q: What are the maximum loan-to-value ratios?
A: For 30-year, fixed-rate loans, there is no maximum LTV ratio. For fixed-rate loans of more than 30 years and less than 40 years, the maximum LTV is 105 percent.
The maximum also is 105 percent for adjustable-rate loans with an initial fixed period of 5 years or more and terms up to 40 years.

Q: Can a borrower refinance from a 30-year to a shorter-term loan, even if it means increasing the monthly payments?
A: Yes. In fact, the government is encouraging that because interest rates are usually lower on shorter-term loans and it allows the borrower to increase equity in their homes at a faster rate.
But to qualify for a shorter-term loan under the program, the borrower has to meet additional criteria, like having a credit score of at least 620 and must have a debt-to-income ratio of no more than 45 percent.

Q: Can lenders solicit my business?
A: Yes. If lenders advertise the program to potentially eligible borrowers with loan-to-value ratios of 80 percent or more, they have to advertise it for both Fannie and Freddie-backed loans.

Wednesday, November 16, 2011

82% of Refinancing Homeowners in U.S. Maintain or Reduce Mortgage Debt in 3Q

Based on Freddie Mac's third quarter refinance analysis, homeowners who refinance continue to strengthen their fiscal house by maintaining or reducing their mortgage debt.

In the third quarter of 2011, 82 percent of homeowners who refinanced their first-lien home mortgage either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table. Of these borrowers, 44 percent maintained about the same loan amount, and 37 percent of refinancing homeowners reduced their principal balance.

"Cash-out" borrowers, those that increased their loan balance by at least five percent, represented 18 percent of all refinance loans; the average cash-out share during the 1985 to 2010 period was 46 percent.

The median interest rate reduction for a 30-year fixed-rate mortgage was about 1.2 percentage points, or a decline of about 22 percent in interest rate. Over the first year of the refinance loan life, these borrowers will save about $2,500 in interest payments on a $200,000 loan.

The net dollars of home equity converted to cash as part of a refinance, adjusted for inflation, was at the lowest level in 16 years (third quarter of 1995). In the third quarter, an estimated $5.3 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages, down from $6.3 billion in the second quarter and substantially less than during the peak cash-out refinance volume of $83.7 billion during the second quarter of 2006.

Among the refinanced loans in Freddie Mac's analysis, the median value change of the collateral property was a negative 7 percent over the median prior loan life of almost five years. In comparison, the Freddie Mac House Price Index shows about a 25 percent decline in its U.S. series between September 2006 and September 2011. Thus, borrowers who refinanced in the third quarter owned homes that had held their value better than the average home, or may reflect value-enhancing improvements that owners had made to their homes during the intervening years.

Frank Nothaft, Freddie Mac vice president and chief economist tells the World Property Channel, "The typical borrower who refinanced reduced their interest rate by about 1.2 percentage points. On a $200,000 loan, that translates into saving $2,500 in interest during the next 12 months."

Nothaft further comments, "Savvy homeowners are taking advantage of some of the lowest fixed-rates in more than 60 years to lock in interest savings. Fixed-rate mortgage rates hit new lows during September, with 30-year product averaging 4.11 percent and 15-year averaging 3.32 percent that month, according to our Primary Mortgage Market Survey."

How Appraisals Are Derailing Home Sales

Three months ago, real estate agent Gary Rogers says he was conducting a fairly routine home sale. Then he received the home appraisal's report, which valued the three-bedroom colonial in Waltham, Mass., at $430,000, rather than the $448,000 selling price the buyer and seller had agreed to. Unless the buyer agreed to put up more money, or the seller to lower the price, the deal was off. Fortunately, after nearly two weeks, Rogers says the two sides agreed to meet in the middle.

In the past, appraisals rarely disrupted a home sale. But realtors and housing experts say new requirements and a difficult housing market are doing just that. Year-to-date through September, one third of realtors have said appraisals resulted in buyers and sellers delaying or canceling contracts or renegotiating to a lower sales price, according to the National Association of Realtors. That's up from 29% in all of 2010 and up from less than 10% prior to 2009.

Indeed, lenders say they're requiring more thorough home appraisals. Appraisers determine the value of a home largely by reviewing the prices at which similar homes nearby sold for in recent months. During the housing boom, appraisers could cite as few as three recently sold homes; today, lenders are often requiring two to three times that, says David Stevens, president and CEO of the Mortgage Bankers Association. To meet that quota, appraisers say they sometimes have to use homes that aren't similar and may be foreclosures or short sales, though they are taking into account what this property would have sold for if it wasn't a distressed sale, says a spokesman for the Appraisal Institute, an association of real estate appraisers. "Appraisers have become much more cautious," says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla.

To be sure, a more thorough appraisal process does have its benefits. It lets a buyer know whether they're offering too much to buy a particular home. "For buyers, the appraisal is a check and balance -- it's there to ensure the buyer isn't overpaying and the lender isn't over-lending," says McCabe.

It may also make houses cheaper for buyers -- though not without more hassle. If the appraisal value comes in below the agreed buying price, the lender will typically offer a smaller mortgage. For example, on the house that Rogers sold, the buyer would have gotten a mortgage for $358,400, or 80% of $448,000. But when the appraisal value came in at $430,000, the lender adjusted the mortgage amount to 80% of the appraisal figure, or $344,000. The contract the buyer and the seller had signed, however, stated the higher buying price of $448,000, and the buyer (and potentially the seller) had the option to decide if they wanted to make up the $18,000 difference.

Typical solutions include having the buyer paying that difference out of pocket or the seller lowering his price -- or both. And sellers often do lower their prices: For example, during the three months ending September, 13% of realtors reported contracts were renegotiated to a lower sales price, compared to 10% who said contracts were canceled and the 8% who said contracts were delayed, according to the NAR.

Here are ways to make the process easier, say experts, and how to deal with complications.

How sellers can prepare:
Before putting their home on the market, sellers should research what similar homes near them are selling for by looking at online listings, visiting open houses and speaking with realtors, says Rogers. "It's always good to get more than one opinion," he says. They can also ask for their own home appraisal, which could give them a sense of how close (or far off) the figures are. The cost of an appraisal varies but typically ranges from $250 to $600.

How buyers can protect themselves:
When buyers make an offer, they should include statements in the contract guaranteeing they'll receive their initial down payment (typically 3% to 5% of the agreed buying price of the home) back if full mortgage financing doesn't come through for the agreed price or the appraisal value is below the offer that's in the contract, says McCabe. Separately, the buyer (who's required to pay for the home appraisal) should ask for the appraisal report and look at what properties the appraiser used as comparisons, says Rogers. It should, he says, include homes that are in the same neighborhood and the same style. In other words, a colonial home shouldn't be compared to a ranch.

What to do if appraisal value comes in below the purchase price:
In this situation, experts say buyers have several options. If they're no longer interested in the home, they can walk away. (However, without a contingency clause -- see previous section -- they risk losing their initial down payment.) But if they still intend to buy the house and they can prove the report excluded similar, nearby properties or had some other issue, they can appeal or ask their lender for a second appraisal.

If those strategies don't work, the buyer and the seller can consider working out an agreement on their own. Lastly, to report a problem with an appraiser, consumers can contact their state's appraisal board.

Top 10 Emptiest US Cities

It’s no secret that the U.S. housing market has seen better days. From falling home values and impaired labor mobility, to backed-up inventories and a flood of foreclosures, there are countless ways that real estate affects the economy at large.

One of the unfortunate results of a bad housing market is an increase in vacant homes, which has grown by 43.8 percent since 2000, according to the U.S. Census Bureau. Homes can be vacant for a number of reasons, but are defined as both rental inventory that are unoccupied and “for rent,” as well as homes that are unoccupied and up for sale. As of the 2010 Census, there were approximately 15 million vacant housing units in the country, with an 11.4 percent gross vacancy rate nationwide.

Much like the range of diversity in home values from city to city, homeowner and rental vacancy rates vary dramatically depending on where you live. Every quarter, the Census publishes data on homeowner and rental vacancies in the 75 largest U.S. cities that reveal which metro areas have the highest number of empty homes. The cities listed here are ranked by according to equal-weighted rankings in both rental and homeowner vacancies, which reveal the most significant outliers in both categories relative to other major U.S. cities.

So, what are the emptiest major U.S. cities?

10. Kansas City, Missouri
Rental vacancy rate: 11%
Homeowner vacancy rate: 3.7%
Although the Kansas City, Mo., metropolitan area has seen rental vacancy rates drop significantly — from 17.2 percent in the second quarter of 2010 — homeowner vacancies have gone up by nearly 30 percent over the same time. Interestingly, homeowner vacancies were higher in Kansas City prior to the housing crisis, hitting 4.5 percent in the second quarter of 2007.

9. Houston, Texas
Rental vacancy rate: 17.4%
Homeowner vacancy rate: 2.3%
Houston is home to the country’s second-highest rate of rental vacancies at a staggering 17.4 percent. The rate has been relatively high in the past three years, however, and has fluctuated between 18.6 percent and 13.1 percent over that time. Homeowner vacancies in the city have fared much better, currently below 2010 levels and down from the first quarter of 2011.

8. Detroit, Michigan
Rental vacancy rate: 17.2%
Homeowner vacancy rate: 2.4%
Detroit has been one of the hardest-hit cities of the recession, and remains in a poor position, with an unemployment rate at 12.9 percent. Detroit also has a 17.2 percent rental vacancy rate, the third highest in the country, but the homeowner vacancy rate is down by nearly half from 2008.

7. Dayton, Ohio
Rental vacancy rate: 10.7%
Homeowner vacancy rate: 4.7%
The homeowner vacancy rate in Dayton, Ohio, is the highest it’s been since the first quarter of 2009, when it stood at 5.6 percent. Although homeowner vacancies are at a high, rental vacancies have been down dramatically, falling from an all-time high of 26.4 percent in the fourth quarter of 2010, according to the Census Bureau.

6. Baton Rouge, Louisiana
Rental vacancy rate: 13%
Homeowner vacancy rate: 3.9%
Although Baton Rouge, La., doesn’t have some of the most extreme vacancy rates in the country, the proportion of the city’s empty homes are relatively high for both rentals and owned homes. With rental vacancies at 13 percent, Baton Rouge is the 12th emptiest city in that category, while its 3.9 percent homeowner vacancy rate ranks it 11th among major cities.

5. Atlanta, Georgia
Rental vacancy rate: 11.8%
Homeowner vacancy rate: 5.4%
Atlanta’s homeowner vacancy rate is the fourth highest among other major U.S. cities, standing at 5.4 percent. The rate has been rising since early 2010, when it stood at just 2 percent. Rental vacancies have been much worse for Atlanta — in 2010, the rental vacancy rate never dipped below 13 percent and was as high as 14.9 percent at the beginning of the year.

4. Memphis, Tennessee
Rental vacancy rate: 13.5%
Homeowner vacancy rate: 4.0%
For both rentals and owned homes in Memphis, the proportion of vacant homes is high compared to most other major U.S. cities. With a rental vacancy rate of 13.5 percent, the city is the 11th highest in the nation, while the 4 percent homeowner vacancy rate ranks the city ninth.

3. Toledo, Ohio
Rental vacancy rate: 19.3%
Homeowner vacancy rate: 3.6%
Of the 75 largest cities in the U.S., Toledo, Ohio, has the highest rate for rental vacancies at 19.3 percent, although in the third quarter of 2010 the rate was much higher, at 24.1 percent. Toledo also has a high proportion of empty homes, at 3.6 percent, which ranks it 17th among major U.S. cities.

2. Indianapolis, Indiana
Rental vacancy rate: 13.5%
Homeowner vacancy rate: 5.2%
The capital of Indiana is also one of the emptiest major cities in the country, according to data from the Census Bureau. The 5.2 percent home vacancy rate in Indianapolis ranks it fifth in the country, while the 13.5 percent rental vacancy rate places it 10th. With these levels, the city is more vacant than nearly every other major U.S. metro area.

1. Tucson, Arizona
Rental vacancy rate: 15.9%
Homeowner vacancy rate: 6.8%
The emptiest city in the U.S. is the second largest city in Arizona: Tucson. With rental vacancies at 15.9 percent, the city is seventh most vacant among major cities, while the 6.8 percent homeowner vacancy rate is the highest in the country as of the second quarter of 2011.

Application for U.S. Mortgages Drops

Applications for U.S. home mortgages dropped last week, erasing the gains of the week before as demand for refinancing evaporated, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, dropped 10.0 percent in the week ended Nov 11. The decline wiped out a gain of 10.3 percent the previous week.

The MBA's seasonally adjusted index of refinancing applications tumbled 12.2 percent, while the gauge of loan requests for home purchases slipped 2.3 percent.

The refinance share of total mortgage activity decreased to 77.3 percent of applications from 78.6 percent.

Fixed 30-year mortgage rates averaged 4.23 percent, up 1 basis point, from 4.22 percent the prior week.
The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

30 yr fixed4.04%4.07%
30 yr fixed jumbo4.75%4.83%
15 yr fixed3.40%3.52%
15 yr fixed jumbo4.07%4.19%
5/1 ARM2.96%3.14%
5/1 jumbo ARM3.14%3.12%

Tuesday, November 8, 2011

Phoenix Residential Market Report Summary ~ Time To Buy Is NOW!!

                Demand Is Increasing Without Government Stimulus    
              REO Inventory Is Shrinking With Buyer Demand  

Average Sold Price In Phoenix Market

Average Days On Market Decreasing

Number of Transaction Consistent For Year

Yearly Total Same As 2005

Appreciation By Price Range

Increasing Number Of Cash Buyers

Volume of REO Transaction Down 1.1%

Volume of Short Sales Up 56.5%

Trustee Sales Decreasing - Increased Competition

Third Party Purchases 50% of All Trustee Sales

Phoenix Residential Market Report Summary
Provide By Sean Heideman – (480) 213-5251 –

This data includes single family detached homes, patio homes, condos, and townhomes provided by the Arizona Multiple Listing Service. The monthly charts above are based on trailing twelve monthly averages from November 2010 to October 2011 which shows the total activity in the Phoenix Metropolitan real estate market over a twelve month period. The yearly charts above are based on a yearly average for 2005 to 2010 but a trailing twelve month average from November 2010 to October 2011 for the year 2011. Without the trailing twelve month average for the year 2011, the charts would be substantially skewed and would not portray an accurate view of the market on an annual basis.

As you can see from the first chart above, Cromford Market Index, the first time home buyer tax credit created a great deal of demand in the market similar to the real estate boom from 2004 to 2006. When the government withdrew the first time home buyer tax credit on April 30, 2010, the average sold price and number of transactions decreased and the average days on market increased. Currently the residential real estate market is experiences another buying frenzy that is caused without government intervention or relaxed mortgage underwriting standards. Consumers are jumping into the real estate market because market statistics are indicating the market has hit the bottom and investors can purchase homes at rock bottom prices where they can rent the homes out to receive a 10% to 15% or more return on investment. Due to the current oversupply of homes on the market, real estate prices have not increased significantly but as you can see from Chart #2 the shadow inventory everyone is afraid of is decreasing. Once the supply of homes is purchased real estate prices will start to increase at a faster pace and then it will be too late. Since January 2011, the average sold price has decreased approximately -2.6% (up from last month), the average days on market have decreased approximately -17.1% (down from last month) and the number of transaction has increased approximately +16.2% (down from last month). It should be noted that approximately +35% of all transaction are cash purchases either by investors or homeowners due to tighter lending requirements. The volume of REO purchases since January is down -1.1% and the volume of short sale is up +56.5%. The volume of REO purchases are shrinking due to the increased volume of trustee sales and existing supply of inventory is getting absorbed at a faster rate.        
The number of Notice of Trustee Sales is currently experiencing a decline due to the declining number of adjustable rate mortgages coming due and from more lending institutions working harder on helping people stay in their homes. The number of foreclosures “notices” entering the market is expected to continue its decline in late 2011 and early 2012 due to the exhaustion of adjustable rate mortgages created between 2003 to 2007. The percentage of third party purchases (other than banks taking back as REO) has increased substantially since the beginning of this year where we are currently at 50% of all purchases are from third parties. The percentage might appear to be a low number but the last time we experienced this volume of purchase was back in August 2006. The real estate market has reached a level of equilibrium where demand is equal to supply and all buyers are rushing into the market to take advantage of low prices. Once the supply of residential homes is exhausted and demand continues to rise, real estate prices will begin to rise (depends on the sustained level of demand). Time to buy is NOW!! Give us a call to discuss your best competitive strategy, NOW!!                                   

Monday, November 7, 2011


October was another month of modest employment growth as measured by nonfarm payrolls.  The Bureau of Labor Statistics reported that 80,000 jobs were created.  This was at the low end of expectations and about 1/3 of what could be considered normal for this point in the cycle.  The unemployment rate did drop from 9.1% in September to 9.0%.  The average work week was flat at 34.3 hours and hourly earnings grow by 0.2%.  Nonfarm business sector labor productivity increased at a 3.1% annual rate during the third quarter of 2011.   

The Purchasing Manager's Index dropped to 50.8 in October.  This is down from 51.6 in September and 56.9 a year ago.  Anything above 50 indicates expansion in the manufacturing sector.  Thus, it appears that manufacturing is still growing, but barely.  New orders for manufactured durable goods in September declined by 0.6% but durable goods orders are up 6.3% from year earlier levels. 

Construction spending in September rose, as expected, by 0.2%.  This was down 1.3% from year earlier levels.  This is modestly above expectations. 

Not surprisingly, it's more of the same.  Expect the modest level of growth to continue while the consumer sector continues deleveraging.  This will take a while and will involve unpleasant things such as consumers continuing to use more of their incomes to repay previously accumulated debt and debt repudiation thru methods such as bankruptcy, foreclosure and mailing in the keys.  How deleveraging plays out in the government sector remains to be seen.  As bad as that sounds, it's a great deal better this time around than during the last great deleveraging some 80 years ago.  At least the U. S. and Arizona are growing.

Homeownership Rate Rises After Two Years of Decline

After falling to a 13-year low during the second quarter, the homeownership rate posted a highly unexpected rise in the third quarter, according to a Census Bureau report released Wednesday.

With foreclosures forcing homeowners out of their homes and buyers waiting on the sidelines as home values declined, the homeownership rate has been on the decline for quite some time. In fact, according to Bloomberg, the third quarter rise is the first in two years.
However, the 0.4 percent increase, which brought the homeownership rate to 66.3 percent for the third quarter, was not enough to post an annual increase.
The current homeownership rate remains 0.6 percent below the rate recorded in the third quarter of 2010.
Furthermore, according to the Census report, when the current rate is seasonally adjusted – which brings it to 66.1 percent – it is “not statistically different from the rate last quarter” – an even 66 percent.
Homeowner vacancy rates fell 0.1 percent in the third quarter arriving at 2.4 percent.
At the same time, rental vacancies rose 0.6 percent arriving at 9.8 percent.
Despite this shift, Capital Economics says in response to the Census findings, “The modest increase in the rental vacancy rate in the third quarter does little to alter our view that rental yields will soon rise above 5.5%, comfortably beating the yields available on Treasuries and equities.”
“Meanwhile, the homeownership rate remains at a level that suggests America’s love-affair with housing is still on the rocks,” Capital Economics adds.
About 85.8 percent of housing units were occupied in the third quarter.
The region with the highest homeownership rate was the Midwest with a rate of 70.3 percent, while the lowest homeownership rate was seen in the West at 60.7 percent.
The Northeast and South feel in between at 63.7 percent and 68.4 percent respectively.
At 76.1 percent, West Virginia had the highest homeownership rate. The state was followed closely by Mississippi with a 70 percent homeownership rate.
The lowest homeownership rate was seen in the District of Columbia, where the rate for the quarter was 44.3 percent. New York followed with 54.4 percent.
Nevada and California – states hard-hit by the housing crisis – were also in the bottom five with homeownership rates of 55.3 percent and 55.9 percent respectively.