For upside down property owners, 2009 was a year of frustration and hype with little if any assistance. 2010 will likely be the same. Two key factors have become clear: 1) the unwillingness of lenders to cut principal balances for existing owners; and 2) the lack political will of our government to force any such cut. Back in 2008 when Hope for Homeowners was first ballyhood across the nation, the concept was that lenders would make more money by reducing existing loan balances and keeping owners in their homes than they would make if they foreclosed and put the property back on the market as an REO. The problem was that lenders disagreed. Lenders believed they would be better off getting what they could now and getting the property in the hands of a more financially stable owner. With loan modification failure rates running over 50%, there could be some validity in that belief. When President Obama was elected in 2009, he gave us the Obama Real Estate Recovery Plan the most valuable tool of which was the proposed Chapter 13 Bankruptcy Reform which would allow Federal judges to “Cram Down” principal values if the lenders wouldn’t. Unfortunately, the Senate wouldn’t go along and so the Plan failed. Instead, the government put forth the “Home Affordable Modification Program” which to date has produced very few home saving modifications.
So what to expect in 2010? Here are my predictions:
1) For Existing Property Owners - Government will continue to tinker with the HAMP program to try to get more lender cooperation. The key obstacle will remain principal reduction. As lenders continue to refuse to make cuts, pressure is building to re-introduce the Bankruptcy cram-down legislation. Look for increased lender cooperation with HAMP to avoid the cram-down but it will likely be too-little, too-late to avoid large scale foreclosures in 2010;
2) Foreclosures - As of the new year, there are over 400,000 homes in pre-foreclosure nationwide, over 125,000 in California alone. Without an effective modification program, more owners will realize that it is time to move on and will either walk-away or attempt a short-sale to minimize credit and tax damage.
3) Short Sales are the Market - For 2010 and probably for several years after, Short Sales will become the primary means of transferring homes. Lenders have managed to stabalize prices by holding back on foreclosures and listing REO’s but there is a tremendous backlog of upside-down properties that need to be dealt with. Short Sales offer both seller and lender the best solution. The big obstacle - lender demands for recourse against the seller - is changing. Even BofA has dropped their recourse demands. Short Sales will be the path to market recovery although don’t expect prices to start climbing. Right now inventories are low so there has been some upward price movement due to supply and demand. As lenders get their short sale act together, and Realtors become more effective at negotiating and packaging these deals, more properties will come onto the market. Though this will keep prices down, more properties will be sold and we’ll all get through this housing bust faster.
4) Commercial Real Estate - the big unknown - in 2010, our attention will shift away from upside down homes (that issue is being resolved) and will turn to fears of business collapse and loss of jobs. According to commercial broker, Grubb & Ellis, we’re approaching the highest vacancy rates since the dot com bust, with office vacancy reaching almost 20%. With banks still fearful of lending and individuals fearful of spending, this double-whammy put more and more companies out of business and with them went a loss of jobs that has continued the downward spiral. While few expect that these conditions will create a Depression-style generation of non-spenders, clearly the debt-fueled spending of pre-2006 is over. Bob Bach, senior vice president and chief economist at Grubb & Ellis put it clearly: “Retailers and owners of retail real estate will need to adapt to a ‘new normal’ in consumer attitudes that may last for some time, including more conservatism and attention to value as households rebuild their savings.”
2010 PRESENTS NEW OPPORTUNITIES - So what should you do going into 2010? Get good advice. We are in a changed economy that is going to be with us for a long time. If the only economy you’ve known is the “go-go” days before 2006, get educated. Our economy operates on booms and busts which generally happen every 8-10 years. You cannot simply sit on the sidelines and wait for things to get back to where they were. They won’t…. at least not for a long time. But this new economy is full of opportunities for those willing to work hard and be creative. The US Dept of Labor estimates that more than half of all new jobs will be in in professional and related occupations and service occupations. Learn more at their website at http://www.bls.gov/news.release/ecopro.nr0.htm. I see a rise in demand for Short Sales Specialists; Consultants in real estate; and small boutique service companies providing cost-effective services to businesses. Production jobs will continue to disappear.
Lastly, I remain bullish on real estate investment despite having now gone through five down-turns including two crashes. Throughout history, real estate has been the most stable long-term investment providing both shelter and income potential. This will remain so. The danger in all investments is expecting continued growth which, if that happened, would not make it an investment at all. Investment is the taking of “risk” in pursuit of the “potential” of gain. The risk will never go away nor the potential. So my advice to you is don’t give up on investing but keep your day job.
If you have specific questions about your loans, liability, foreclosure, or any legal issue, feel free to contact me at sjbeede@bpelaw.com or call us at (916) 966-2260 for a phone or personal appointment. We offer a $200 flat fee attorney consultation to enable you to evaluate your judgment and tax risks and to plan a strategy to minimize or even avoid them.
Wednesday, January 27, 2010
Wednesday, December 16, 2009
2010 Market Forecast
C.A.R. releases California Housing Market Forecast for 2010
LOS ANGELES (Oct. 7) –“California’s housing market continued its strong sales rebound this year, resulting from the continued pace of distressed properties coming to market,” said C.A.R. President James Liptak. “This follows two years of double-digit sales declines in 2006 and 2007. Looking ahead, we expect sales to moderate to a more sustainable pace.”
The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) "2010 California Housing Market Forecast" will be presented this afternoon during CALIFORNIA REALTOR® EXPO 2009 (www.realtorexpo.org), running from Oct. 6-8 at the San Jose Convention Center in San Jose, Calif. The trade show is expected to attract more than 7,000 attendees and is the largest state real estate trade show in the nation.
“After experiencing its sharpest decline in history, we expect the median price to rise modestly next year,” Liptak added. “2010 will mark the beginning of the ‘new normal’ for California’s housing market. This ‘new normal’ likely will feature a steady stream of sales driven by distressed properties in the low end of the market, coupled with moderate home-price appreciation.”
The median home price in California will rise 3.3 percent to $280,000 in 2010 compared with a projected median of $271,000 this year, according to the forecast. Sales for 2010 are projected to decrease 2.3 percent to 527,500 units, compared with 540,000 units (projected) in 2009.
“Housing in California has become a tale of two markets,” Liptak said. “The low end continues to attract first-time buyers and investors, with a resulting shortage in the number of homes for sale. Sellers at the high end, however, continue to be challenged by the ability of home buyers to secure financing as well as their concerns about where prices are headed. While demand from first-time buyers for low-end properties will continue throughout next year, sales could be impacted if discretionary sellers do not return to the market by the second half of 2010.
“2009 marked a unique opportunity for first-time home buyers,” Liptak said. “Homes were more affordable than they have been in years, interest rates hovered near historic lows, and the federal tax credit helped more than 1 million people become homeowners nationwide. Now is the time for Congress to extend the federal tax credit and to expand it to all buyers, not just first-timers.”
“With distressed properties accounting for nearly one-third of the sales in 2010, inventory will be relatively lean, under six months during the off-season months, and a roughly four-month supply during the peak season,” said C.A.R. and Vice President Leslie Appleton-Young. “We expect the median price to decrease slightly through the remainder of 2009 and into next year, then rise before leveling off next summer. For the year as a whole, home prices are forecast to reach $280,000.”
“Although it appears at this time that lenders are closely monitoring the flow of distressed properties onto the market, there could be an exertion of downward pressure on home prices should a heavier than expected wave of foreclosures come to market next year,” she said.
“The wild cards for 2010 include foreclosures, loan resets, the labor market, and the California budget crisis, as well as the actions of the federal government,” Appleton-Young said.
Don’t miss “The ‘New Normal’: What Recovery Means in 2010” at the San Jose Convention Center in San Jose, Calif. on Thursday, Oct. 8, from 2:30 p.m. to 4p.m. Panelists include Richard Green, director of the Lusk Center for Real Estate at the University of Southern California; Glenn E. Crellin, director of the Washington Center for Real Estate Research at Washington State University; and Jack Kyser, chief economist for the Los Angeles Economic Development Corporation. C.A.R. Vice President and Chief Economist Leslie Appleton-Young will serve as moderator.
LOS ANGELES (Oct. 7) –“California’s housing market continued its strong sales rebound this year, resulting from the continued pace of distressed properties coming to market,” said C.A.R. President James Liptak. “This follows two years of double-digit sales declines in 2006 and 2007. Looking ahead, we expect sales to moderate to a more sustainable pace.”
The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) "2010 California Housing Market Forecast" will be presented this afternoon during CALIFORNIA REALTOR® EXPO 2009 (www.realtorexpo.org), running from Oct. 6-8 at the San Jose Convention Center in San Jose, Calif. The trade show is expected to attract more than 7,000 attendees and is the largest state real estate trade show in the nation.
“After experiencing its sharpest decline in history, we expect the median price to rise modestly next year,” Liptak added. “2010 will mark the beginning of the ‘new normal’ for California’s housing market. This ‘new normal’ likely will feature a steady stream of sales driven by distressed properties in the low end of the market, coupled with moderate home-price appreciation.”
The median home price in California will rise 3.3 percent to $280,000 in 2010 compared with a projected median of $271,000 this year, according to the forecast. Sales for 2010 are projected to decrease 2.3 percent to 527,500 units, compared with 540,000 units (projected) in 2009.
“Housing in California has become a tale of two markets,” Liptak said. “The low end continues to attract first-time buyers and investors, with a resulting shortage in the number of homes for sale. Sellers at the high end, however, continue to be challenged by the ability of home buyers to secure financing as well as their concerns about where prices are headed. While demand from first-time buyers for low-end properties will continue throughout next year, sales could be impacted if discretionary sellers do not return to the market by the second half of 2010.
“2009 marked a unique opportunity for first-time home buyers,” Liptak said. “Homes were more affordable than they have been in years, interest rates hovered near historic lows, and the federal tax credit helped more than 1 million people become homeowners nationwide. Now is the time for Congress to extend the federal tax credit and to expand it to all buyers, not just first-timers.”
“With distressed properties accounting for nearly one-third of the sales in 2010, inventory will be relatively lean, under six months during the off-season months, and a roughly four-month supply during the peak season,” said C.A.R. and Vice President Leslie Appleton-Young. “We expect the median price to decrease slightly through the remainder of 2009 and into next year, then rise before leveling off next summer. For the year as a whole, home prices are forecast to reach $280,000.”
“Although it appears at this time that lenders are closely monitoring the flow of distressed properties onto the market, there could be an exertion of downward pressure on home prices should a heavier than expected wave of foreclosures come to market next year,” she said.
“The wild cards for 2010 include foreclosures, loan resets, the labor market, and the California budget crisis, as well as the actions of the federal government,” Appleton-Young said.
Don’t miss “The ‘New Normal’: What Recovery Means in 2010” at the San Jose Convention Center in San Jose, Calif. on Thursday, Oct. 8, from 2:30 p.m. to 4p.m. Panelists include Richard Green, director of the Lusk Center for Real Estate at the University of Southern California; Glenn E. Crellin, director of the Washington Center for Real Estate Research at Washington State University; and Jack Kyser, chief economist for the Los Angeles Economic Development Corporation. C.A.R. Vice President and Chief Economist Leslie Appleton-Young will serve as moderator.
Wednesday, August 27, 2008
How the housing law affects reverse mortgages
The recently signed federal housing bill has many provisions, including changes to reverse mortgages, which are loans against a house that the borrower is not required to pay back as long as they live in the home. Some of the amendments include raising the amount that seniors, age 62 and older, can borrow using a federally backed reverse mortgage; and lowering the cost of receiving the home's equity. Some ageing experts advise consumers to be cautious before refinancing into a reverse mortgage.
What does this mean.......
· Although seniors can access their home equity by refinancing into a reverse mortgage, many of these loans come with a variety of fees. Once the fees are paid, borrowers may choose to receive a lump sum payment, monthly payments, a credit line, or a combination based on the home's value. A provision in the housing bill reduce the maximum fee to 2 percent on the initial $200,000 of a home's value and 1 percent on the remaining balance, with a maximum set at $6,000. Some lenders charge less fees, so similar to finding a traditional mortgage, consumers should shop around and negotiate with their lender on these fees. In some cases, closing costs, service fees, mortgage insurance premiums, and interest rates also can be negotiated.
· Most reverse mortgages are Home Equity Conversion Mortgages (HECM), which are backed by the Federal Hosing Administration. In order for a borrower to qualify for an HECM, they must discuss the loan with a loan counselor employed by a nonprofit or public agency approved by the U.S. Dept. of Housing and Urban Development. This ensures borrowers understand all of their options and make the right decision.
· Some borrowers may not understand that although the loan does not have to be repaid, as long as they remain in the home, they still are responsible for property taxes, insurance, utilities, fuel, maintenance, and other homeowner expenses. If some of these items are not kept up to date, the borrower risks the lender calling the loan due. It is important to note that reverse loans must be paid back with the proceeds, along with any remaining equity, if the home is sold.
What does this mean.......
· Although seniors can access their home equity by refinancing into a reverse mortgage, many of these loans come with a variety of fees. Once the fees are paid, borrowers may choose to receive a lump sum payment, monthly payments, a credit line, or a combination based on the home's value. A provision in the housing bill reduce the maximum fee to 2 percent on the initial $200,000 of a home's value and 1 percent on the remaining balance, with a maximum set at $6,000. Some lenders charge less fees, so similar to finding a traditional mortgage, consumers should shop around and negotiate with their lender on these fees. In some cases, closing costs, service fees, mortgage insurance premiums, and interest rates also can be negotiated.
· Most reverse mortgages are Home Equity Conversion Mortgages (HECM), which are backed by the Federal Hosing Administration. In order for a borrower to qualify for an HECM, they must discuss the loan with a loan counselor employed by a nonprofit or public agency approved by the U.S. Dept. of Housing and Urban Development. This ensures borrowers understand all of their options and make the right decision.
· Some borrowers may not understand that although the loan does not have to be repaid, as long as they remain in the home, they still are responsible for property taxes, insurance, utilities, fuel, maintenance, and other homeowner expenses. If some of these items are not kept up to date, the borrower risks the lender calling the loan due. It is important to note that reverse loans must be paid back with the proceeds, along with any remaining equity, if the home is sold.
Wednesday, June 18, 2008
Future Of Interest Rates
Bernanke Says Rate `Well Positioned,' Watching Dollar
By Scott Lanman
June 3 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke signaled he's done cutting interest rates for now and raised his biggest concerns yet about the inflationary effects of the dollar's 16 percent drop in the past year against the euro.
The Fed is working with the Treasury to ``carefully monitor developments in foreign exchange markets'' and is aware of the effect of the dollar's decline on inflation and price expectations, Bernanke said today in his first speech on the economic outlook in two months. In addition, interest rates are ``well positioned'' to promote growth and stable prices, he said.
Bernanke's comments are a shift from past remarks by Fed officials that have highlighted both the spur to exports from a cheaper dollar and the pressure it puts on import prices. The dollar climbed after the speech indicated exchange rates will be a consideration in setting rates.
``I can't recall such a strong defense of the dollar from a Fed chairman,'' said Sophia Drossos, a currency strategist at Morgan Stanley in New York who used to work at the New York Fed, where she helped manage the central bank's foreign-exchange holdings. ``The Fed is putting its marker down in letting the market know that a weaker dollar would be detrimental.''
Investors anticipate the central bank will keep its benchmark rate at 2 percent this month after 3.25 percentage points of cuts since September, futures prices show.
ECB's Trichet
Bernanke, 54, spoke via satellite to the International Monetary Conference in Barcelona, Spain. European Central Bank President Jean-Claude Trichet also spoke at the event, where he reiterated that ``monetary policy stays firmly focused on delivering price stability.''
``For now, policy seems well positioned to promote moderate growth and price stability over time,'' Bernanke said. ``We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate.''
The remarks come as the central bank's optimism that inflation is abating and growth will start to pick up has been dashed by the unexpected surge in oil prices, which is eroding the potential benefit to the economy from more than $100 billion in federal tax rebates. The resulting increase in inflation expectations is also getting the attention of Fed officials.
The dollar strengthened to $1.5450 per euro from $1.5537 earlier today. Gold dropped 1.3 percent to $879.69 an ounce. Crude oil fell 2.8 percent to $124.15 a barrel.
Fed `Attentive'
``We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations,'' Bernanke said. The Fed's commitment to price stability and maximum employment ``will be key factors ensuring that the dollar remains a strong and stable currency.''
During the dollar's decline over the past six years, some Fed officials have said foreign demand for U.S. assets may fade. Bernanke's predecessor, Alan Greenspan, told a European audience on Nov. 19, 2004, that ``given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point.''
Bernanke and other Fed officials, when asked for their opinion on the dollar, tend to defer to the U.S. Treasury Department, which is responsible for currency policy. The Fed chief meets weekly with Treasury Secretary Henry Paulson, who yesterday repeated his backing for a ``strong dollar.''
``I believe the long-term economic fundamentals will be reflected in our currency,'' Paulson said in Abu Dhabi.
`Financial Stability'
David McCormick, Treasury's undersecretary for international affairs, said in a Bloomberg Television interview today that Bernanke's and Paulson's remarks this week ``are consistent in that they are advocating policies that will strengthen the U.S. economy and ultimately ensure ongoing financial stability within the global markets.''
Asked about the dollar at a congressional hearing Feb. 27, Bernanke at the time noted that its decline ``does increase U.S. competitiveness.'' He also noted its impact on inflation.
Robert Eisenbeis, former head of research at the Atlanta Fed, said the comments indicate ``more rate cuts would hurt the dollar and that would have negative feedback effects to our inflation situation.''
``I don't read it as saying that intervention is on the horizon,'' said Eisenbeis, who is now chief monetary economist at Cumberland Advisors Inc. U.S. officials haven't intervened in foreign-exchange markets to buy or sell the dollar since President George W. Bush took office in January 2001.
`Significant Headwinds'
Today, Bernanke said financial-market conditions ``remain strained,'' and consumers face ``significant headwinds'' from declining home prices, a weaker labor market, stricter lending standards and higher energy costs.
The U.S. economy grew at an annualized 0.9 percent pace in the first quarter, capping the weakest six-month performance in five years, government figures showed last week.
The second quarter is ``likely to be relatively weak,'' Bernanke said, leaving out his mention in an April speech of a possible contraction. The second half may have ``somewhat better economic conditions,'' and growth may pick up further in 2009, he said.
``Until the housing market, and particularly house prices, shows clearer signs of stabilization, growth risks will remain to the downside,'' Bernanke said. ``Recent increases in oil prices pose additional downside risks to growth.''
Supply and Demand
Bernanke, in a question-and-answer period, said soaring oil costs are more the result of supply and demand than the weaker dollar. ``The effect of the dollar on commodity prices is relatively modest,'' he said. Supply and demand conditions are ``by far the strongest and most important factor.''
Crude oil has climbed 93 percent in the past year. Gasoline prices have also hit a record, impairing spending by consumers who are already buffeted by a slump in home values.
``The possibility that commodity prices will continue to rise is an important risk to the inflation forecast,'' Bernanke said. Higher public inflation expectations are also a ``significant upside risk'' to prices and may ``ultimately become self-confirming,'' he said.
By Scott Lanman
June 3 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke signaled he's done cutting interest rates for now and raised his biggest concerns yet about the inflationary effects of the dollar's 16 percent drop in the past year against the euro.
The Fed is working with the Treasury to ``carefully monitor developments in foreign exchange markets'' and is aware of the effect of the dollar's decline on inflation and price expectations, Bernanke said today in his first speech on the economic outlook in two months. In addition, interest rates are ``well positioned'' to promote growth and stable prices, he said.
Bernanke's comments are a shift from past remarks by Fed officials that have highlighted both the spur to exports from a cheaper dollar and the pressure it puts on import prices. The dollar climbed after the speech indicated exchange rates will be a consideration in setting rates.
``I can't recall such a strong defense of the dollar from a Fed chairman,'' said Sophia Drossos, a currency strategist at Morgan Stanley in New York who used to work at the New York Fed, where she helped manage the central bank's foreign-exchange holdings. ``The Fed is putting its marker down in letting the market know that a weaker dollar would be detrimental.''
Investors anticipate the central bank will keep its benchmark rate at 2 percent this month after 3.25 percentage points of cuts since September, futures prices show.
ECB's Trichet
Bernanke, 54, spoke via satellite to the International Monetary Conference in Barcelona, Spain. European Central Bank President Jean-Claude Trichet also spoke at the event, where he reiterated that ``monetary policy stays firmly focused on delivering price stability.''
``For now, policy seems well positioned to promote moderate growth and price stability over time,'' Bernanke said. ``We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate.''
The remarks come as the central bank's optimism that inflation is abating and growth will start to pick up has been dashed by the unexpected surge in oil prices, which is eroding the potential benefit to the economy from more than $100 billion in federal tax rebates. The resulting increase in inflation expectations is also getting the attention of Fed officials.
The dollar strengthened to $1.5450 per euro from $1.5537 earlier today. Gold dropped 1.3 percent to $879.69 an ounce. Crude oil fell 2.8 percent to $124.15 a barrel.
Fed `Attentive'
``We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations,'' Bernanke said. The Fed's commitment to price stability and maximum employment ``will be key factors ensuring that the dollar remains a strong and stable currency.''
During the dollar's decline over the past six years, some Fed officials have said foreign demand for U.S. assets may fade. Bernanke's predecessor, Alan Greenspan, told a European audience on Nov. 19, 2004, that ``given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point.''
Bernanke and other Fed officials, when asked for their opinion on the dollar, tend to defer to the U.S. Treasury Department, which is responsible for currency policy. The Fed chief meets weekly with Treasury Secretary Henry Paulson, who yesterday repeated his backing for a ``strong dollar.''
``I believe the long-term economic fundamentals will be reflected in our currency,'' Paulson said in Abu Dhabi.
`Financial Stability'
David McCormick, Treasury's undersecretary for international affairs, said in a Bloomberg Television interview today that Bernanke's and Paulson's remarks this week ``are consistent in that they are advocating policies that will strengthen the U.S. economy and ultimately ensure ongoing financial stability within the global markets.''
Asked about the dollar at a congressional hearing Feb. 27, Bernanke at the time noted that its decline ``does increase U.S. competitiveness.'' He also noted its impact on inflation.
Robert Eisenbeis, former head of research at the Atlanta Fed, said the comments indicate ``more rate cuts would hurt the dollar and that would have negative feedback effects to our inflation situation.''
``I don't read it as saying that intervention is on the horizon,'' said Eisenbeis, who is now chief monetary economist at Cumberland Advisors Inc. U.S. officials haven't intervened in foreign-exchange markets to buy or sell the dollar since President George W. Bush took office in January 2001.
`Significant Headwinds'
Today, Bernanke said financial-market conditions ``remain strained,'' and consumers face ``significant headwinds'' from declining home prices, a weaker labor market, stricter lending standards and higher energy costs.
The U.S. economy grew at an annualized 0.9 percent pace in the first quarter, capping the weakest six-month performance in five years, government figures showed last week.
The second quarter is ``likely to be relatively weak,'' Bernanke said, leaving out his mention in an April speech of a possible contraction. The second half may have ``somewhat better economic conditions,'' and growth may pick up further in 2009, he said.
``Until the housing market, and particularly house prices, shows clearer signs of stabilization, growth risks will remain to the downside,'' Bernanke said. ``Recent increases in oil prices pose additional downside risks to growth.''
Supply and Demand
Bernanke, in a question-and-answer period, said soaring oil costs are more the result of supply and demand than the weaker dollar. ``The effect of the dollar on commodity prices is relatively modest,'' he said. Supply and demand conditions are ``by far the strongest and most important factor.''
Crude oil has climbed 93 percent in the past year. Gasoline prices have also hit a record, impairing spending by consumers who are already buffeted by a slump in home values.
``The possibility that commodity prices will continue to rise is an important risk to the inflation forecast,'' Bernanke said. Higher public inflation expectations are also a ``significant upside risk'' to prices and may ``ultimately become self-confirming,'' he said.
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