Luxury, Highend Foreclosures

We have been warning all of you that the no price segment or region of the country would go unaffected by this housing correction/ recession/ depression….whatever you want to call it. Now, the high end homes are experiencing the harsh realities of this market….

With the U.S. economy and financial markets showing signs of life, optimistic analysts are looking for a recovery in the all-important housing sector. They got some ammunition on June 2 from the National Association of Realtors, which said that its Pending Home Sales Index jumped in April by the most in more than seven years.

But housing can’t revive as long as the market is being flooded with homes that are falling into foreclosure. And far from going away, the problem is broadening. It’s not just about subprime anymore. Now, people with excellent credit who never dreamed of getting in financial trouble are being dragged down by a dangerous cycle of rising unemployment and falling home prices. That is going to prolong the foreclosure crisis and, inevitably, inhibit the recovery of the rest of the economy.

Any illusion that prime loans would emerge unscathed was shattered by a May 28 report from the Mortgage Bankers Assn. “For the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures,” the bankers said. The grime in prime was responsible for the worst performance on record for the U.S. mortgage sector in the first quarter: Nearly 13% of loans were delinquent or in foreclosure, the most since the bankers started keeping tabs in 1972. The problems were worst in the bubble states of California, Florida, Arizona, and Nevada.

The biggest factor in this second wave of foreclosures is the inability of distressed homeowners to sell in order to pay off their debts. Prices in bubble cities such as Los Angeles, Phoenix, and Miami are down less at the high end of the market than at the bottom, according to data from Standard & Poor’s/Case-Shiller home price indexes. But that’s cold comfort to people who haven’t managed to sell at all. According to research by the National Association of Realtors, there are enough $750,000-plus homes on the market to cover more than 40 months’ worth of demand at the current rate of sales. That’s four times the rate of oversupply in the housing market as a whole.

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Unemployment is exacerbating the problems at the top of the market. The jobless rate for adults with a bachelor’s degree or more may not sound too high at 4.4% in April given the overall April jobless rate of 8.9%. But it’s more than double the rate of 2% a year earlier. And many families in that segment of the population built their finances on the assumption of continuous full employment, so they can’t cover the mortgage when even one spouse is out of work.

Consider the plight of Stephanie and Bob Walker, who bought a $799,000, three-bedroom home in Los Angeles with a view of the Hollywood sign in 2006 but are losing it because last year Bob stopped getting computer consulting work that used to pull in about $240,000 a year. Bob eventually landed a job paying $60,000, and Stephanie found work as a $13-an-hour temp, but it wasn’t enough to cover their mortgage and credit-card debt, which was swelled by about $130,000 worth of home renovations. They listed the house last year for an “optimistic” $875,000 but didn’t get any takers. After months of price cuts and threats of foreclosure from the bank, they’re days from closing on a sale at $700,000 that will assuage their primary mortgage lender—but leave them under pressure from other creditors. “We had no expectation things would come crashing down as fast as they did,” says Stephanie. “We had no one to blame but ourselves. We didn’t have a backup plan if he lost his job.”

The economics at the top of the market aren’t as advantageous as they are at the bottom, where first-time home buyers are flocking to lower-priced homes, spurred by low interest rates, temporary tax credits, and a drop in prices that has made owning cheaper than renting in many cities. At the high end, homes are too expensive for most first-time buyers, and move-up buyers can’t purchase a home without selling property they already own. What’s more, financing is far costlier, if it’s available at all, because private investors have lost their appetite for big mortgages. Rates on “jumbo” loans—that is, those too big to be purchased by Fannie Mae (FNM) or Freddie Mac (FRE)—are roughly a percentage point higher than those for loans that conform to Fannie and Freddie’s purchase limits. (Those limits range from $417,000 to $730,000, depending on local housing costs.)

An inflation panic in the fixed-income market is the latest blow to homeowners who are trying to sell to avoid foreclosure, because it’s pushing up mortgage rates and pushing potential buyers out of the market. Rates on 30-year fixed, conforming mortgage loans jumped nearly half a percentage point, to 5.25%, in the week ended May 29 from a week earlier, according to the Mortgage Bankers Assn. Meanwhile, the market is unlikely to get much help from the Obama Administration’s foreclosure-prevention program. Although it’s somewhat more ambitious than the Bush Administration’s program, it is voluntary for lenders and is off to a slow start since its March inception.

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When will this second wave of foreclosures crest? David Crowe, chief economist of the National Association of Home Builders, doesn’t see the peak coming until 2011, later than most other experts predict. Foreclosures typically top out after unemployment does, and Crowe doesn’t expect that to occur until late this year. After that, Crowe says, more people will lose their homes because of upward resets on adjustable-rate mortgages. Credit Suisse says mid-2010 is the peak for scheduled resets, and resets will stay high well into 2012. While most of the subprime loans issued during the boom years have been washed out by now, there are still about half a trillion dollars’ worth of option ARMs, which allow borrowers to add unpaid interest to the principal they owe. There’s an even more alarming $2.5 trillion in “alt-A” loans, which are between prime and subprime and include a big chunk of the mortgages that required little or no proof of income or assets. Most of these loans were issued to people with relatively good credit who were buying more expensive homes.

A key unknown is how many middle- and upper-income homeowners will simply walk away from homes that are worth less than the mortgages on them. So far few have. Whitney R. Tilson, managing partner of New York investment firm T2 Partners and co-author of the book More Mortgage Meltdown, expects the ranks of walk-aways to increase, exacerbating foreclosures. But Rick Sharga, senior vice-president of RealtyTrac, a foreclosure data specialist, disagrees. “To sign a contract for a house and then walk away from it runs counter to everything we were taught,” says Sharga, who predicts foreclosures will dip slightly in 2010.

Even if foreclosures don’t rise, the rate is already so high that it will put considerable pressure on the national housing market for at least two more years, says Mark Hanson, managing director of Field Check Group, a Menlo Park (Calif.) research firm.

While forecasts differ in detail, the clear message is that foreclosure is going upscale. And that means the housing bust won’t end anytime soon.

Source: BusinessWeek.

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HREU Students here is the promised city-by-city break down of the Case-Shiller home-price index.

The S&P/Case-Shiller home-price index, a closely watched gauge of U.S. home prices, continued to post declines in February but the pace stopped setting records after 16 consecutive months.
Click the image for an interactive map of home-price declines.

In the 20-city index, no area experienced year-over-year price gains, the eleventh straight month that has happened. Further, none of the cities managed to avoid month-to-month declines for the fifth month in a row.

Phoenix, Las Vegas and San Francisco continued to lead year-over-year decliners, with drops over 30%. Cleveland posted a large month-to-month drop, as the rate of decline accelerated there. The rates of decline also accelerated in Charlotte, New York and Washington.

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Dallas, Denver, Cleveland, Boston and Charlotte managed to avoid double-digit year-over-year declines, while New York moved posted a year-to-year drop over 10% for the first time. Measuring from each market’s peak, Dallas has suffered the least, down 11.1% from its peak in June 2007; while Phoenix is down 50.8% from its peak in June of 2006. All of the 20 metro areas are in double digit declines from their peaks, with seven — Detroit, Las Vegas, Los Angeles, Miami, Phoenix, San Francisco and San Diego — in excess of 40%.

“We continue to believe that it is unlikely that we are anywhere near a bottom in nationwide home prices,” said economist Joshua Shapiro of MFR Inc. “After all, in the seven years leading up to the peak in July 2006, the national 20 city home price index jumped by 155% (126 index points). So far, this index has dropped by 31% (63 index points) in the 30 months since the peak. By our estimation, the composite 20 city index is perhaps two-thirds of the way through its ultimate total decline in this cycle.”

Home Prices, by Metro Area

Metro Area	February 2009	Change from January	Year-over-year change
Atlanta	106.65	-2.50%	-15.30%
Boston	148.77	-1.30%	-7.20%
Charlotte	118.94	-1.60%	-9.40%
Chicago	126.3	-3.40%	-17.60%
Cleveland	97.76	-5.00%	-8.50%
Dallas	112.39	-0.30%	-4.50%
Denver	120.22	-1.70%	-5.70%
Detroit	74.6	-3.80%	-23.60%
Las Vegas	121.06	-3.60%	-31.70%
Los Angeles	163.16	-2.00%	-24.10%
Miami	154.28	-3.00%	-29.50%
Minneapolis	116.39	-3.10%	-20.30%
New York	178.16	-1.60%	-10.20%
Phoenix	111.89	-4.50%	-35.20%
Portland	150.88	-1.90%	-14.40%
San Diego	146.82	-1.00%	-22.90%
San Francisco	120.39	-3.30%	-31.00%
Seattle	152.12	-1.50%	-15.40%
Tampa	145.25	-2.70%	-23.00%
Washington	168.02	-2.30%

-19.20%

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S&P Case Shiller Home Price Index

Harris Real Estate University students (and future students) here is the most recent Case-Shiller Home Price index information.

Read this and then share your comments with us…Do you think housing has reached bottom? (If not, when will it?)

After deteriorating relentlessly for nearly three years, the much-watched S&P/Case-Shiller Index showed a brief glimmer that plummeting home prices are at least slowing their fall.

Prices are still plunging: Home prices in 20 major cities across the country have fallen 18.6% between February of this year and last, according to the index released Tuesday. That painful drop, however, is an improvement from January, when prices fell an unprecedented 19%.

“This is the first month since October 2007 where the 10- and 20-city composites did not post a record annual decline,” says David Blitzer, the Chairman of the Index Committee at Standard & Poor’s, in a statement with the release. “We will certainly need a few more months of data before we can determine if home prices are finally turning around,” he cautioned.

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The Case-Shiller Index paints a particularly brutal portrait of the housing bubble in American cities. All 20 cities in the index have seen home prices decline by more than 10% since their bubbles burst. In Phoenix, a market particularly flooded with foreclosures, home prices have fallen 51% since June 2006.

Six other American cities have seen declines of more than 40% since their peaks: Detroit, Las Vegas, Los Angeles, Miami, San Francisco and San Diego.

Home prices are still falling in every city tracked by the index. But in 16 of the index’s 20 cities, home prices are no longer falling as quickly. Historical data from the Case-Shiller Index show home prices beginning to charge up a mountain in the mid ’90s; by 2004, home prices were posting record improvements, with the 10-city index showing annual price increases of 20%.

Then, in 2004, the size of the increase began to slow (in mathematical terms, the second derivative became negative). By 2006, prices were falling, and by 2007, the fall accelerated to the highest rates the 20-year-old index had ever recorded.

It is at least a glimmer of good news for the battered housing market, even if it does not mean price recovery has begun. The plummeting housing market is a key barrier to economic recovery.

Falling home prices have decimated consumer confidence. Economist Robert Shiller of Yale University, one of the designers of the Case-Shiller Index, told Forbes earlier this month that, despite tentative evidence that confidence is stabilizing, “I do think it is too soon to draw any conclusions that confidence has bottomed out, especially since home price indices have been continuing to fall, and if this continues it will continue to damage balance sheets.” Not knowing when home prices would stop falling has hindered banks in pricing mortgage-related assets.

The housing report is also good news for the “stress tests” the Federal Reserve is administering to the country’s 19 biggest banks to determine how well they can weather a deep recession. The tests evaluated whether or not the banks could survive a 22% annual decrease in home prices.

Many economists feared this assumption was not pessimistic enough–that banks could survive the stress test, but still perish when the economy proved even worse. Today’s index provided a glimmer of hope that the economy could at least outperform the adverse stress test.

Source: Forbes.com

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For the entire Month of December HREU is giving away Video Camera to students…..how to you qualify?

Easy, send us your story how you were able to help someone using something you learned at Harris Real Estate University. Every week we will select (at least one) student submission and that student will win a Free Video Camera!

Send your submissions to: CoachTimHarris@gmail.com

Read this next part…

Tim,

I have a story to tell you that is a little crazy.

I recently submitted a question to your Coach Jon about REO’s….. I also included a success story about a big contract that I had gotten with a bank and got 1.6 million (now 2 million) in listings from them.

Anyway that is not the story…. Here it goes…

I was at one of my new bank owned listings taking a lot of photos. While I was taking pictures my camera took a dive so I needed to buy a new one. I went home that night and was telling my wife that I need to buy a new camera. She told me that I have to buy a video camera too so we can use it to capture all of the moments with our first child. (My wife is 5 months pregnant with our first child!) So I agreed with her and told her I would add it to the list.

So the next day I run down to Staples. I grab some office supplies and head on over to the camera area. I pick out the camera that I want and then head over to the video cameras. I am grazing over them and were closely comparing two of them. I finally made up my mind with the one that I wanted to get and started looking for an employee to get it for me. As soon as I looked up my phone rang. I said hello and a sweet voice says………

“Hello this is Ruschelle with Harris Real estate University and I wanted to let you know that you won a camera!”

I told her, that she has to be freaking kidding me. I am at the store to buy one right now! If she had waited 5 minutes to call I would have already checked out. I have goose bumps just talking about it. It was so weird. I babbled on for awhile to her saying things like the universe really does grant your wishes and the secret really does work. She must have thought I was a little crazy. Anyway thank you very much Tim.

It has been a pleasure to be one of your students. By the way I increased my production by almost 1 million dollars this year and it looks like I will be carrying over 3 million in listing inventory going into 2009. I have increased my goal to sell 2 million more on top of what I did in 2008. Now 2009 will be the best year ever. Thanks again for the camera and thanks for everything.
Jon Murray

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WOW…this Realtor Coaching student success story is amazing….new coaching student of the Agent REO Secrets coaching program and he is taking dozens of listings! Send us your success story for the HREU December To Remember contest.

Tim, Julie, and Jon Harris.

I recently started the Agent REO Secrets coaching program at The Harris Real Estate University…..and…..

………I hit gold with a small lender and I haven’t even done a BPO yet!

To be honest, I am a little scared because I am not totally sure what the heck I am doing….It is a good scared…like being on a roller coaster going up!

I sell in Ohio and just secured about 1.6 million dollars worth of listings! ALL of these listings were thrown into my lap to list right now! Plus they have 85 more in the pipeline coming down……..

……………As you all know in Ohio that is a very good day, plus there will be more listings to come.

I was very motivated after listening to a recorded call on the website and just went all out after it for the day not knowing any scripts or what the heck I was doing. Get this, I got this bank to call me without even making a call to that one!!! Full commission and they said here you go take care of these, you are our guy. Get them sold. I can’t stop smiling right now. Thanks for the kick in the butt.

Thank-you for your great coaching!
Jonathan Murray “PMSD” www.buywithjon.com

We sell a house about every 3 days! Let your home be the next. Top 10 Teams in the GMAC
Network WORLDWIDE. #1 Team in the GMAC Network in the Miami Valley.
Ask me for a 10% off coupon to Lowe’s and I will send it right out to
you.       “The Gaydosh Team”
Big Hill GMAC
(937)248-1856
buywithjon@sbcglobal.net

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As we have been reporting on this blog for nearly 2 years….our Realtor Coaching students know this…the housing crash won’t reach bottom until homes return to pre-bubble prices. In other words, nearly all ‘Bubble-Appreciation’ will be wiped out before the market stops this seemingly never ending crash…

Clearly, for Realtors being a Short Sale Listing Specialist and and REO Listing Agent are the two best growth areas for at least the next few years.

According to the S&P/Case-Shiller home prices indices, released Tuesday morning, prices in 20 key metropolitan areas fell 18.6 percent during Sept., while a 10-city composite index registered an annual decline of 17.4 percent.

From housing wire: A separate national home prices index covering all nine census divisions found a record 16.6 percent decline in the third quarter of 2008, versus the third quarter of 2007, Standard & Poor’s said in a statement. Prices fell 3.5 percent between the second and third quarters, compared to a 2.2 percent drop between Q1 and Q2.

Read that again…16.6% DE-preciation in home values!

In terms of the quarterly national index, home prices have now fallen back to where they were in 2004 — a crash in housing prices, if there ever was one. Through Sept., S&P’s 10-City composite index is down 23.4 percent from its peak, while the 20-City composite is down 21.8 percent and the national composite is down 21.0 percent.

Phoenix was the weakest market, reporting an annual decline of 31.9 percent, followed by Las Vegas, down 31.3 percent, and San Francisco at -29.5% percent. Miami, Los Angeles, and San Diego did not fare much better with annual declines of 28.4 percent, 27.6 percent and 26.3 percent, respectively.

All 20 metros tracked by the monthly S&P/Case-Shiller data posted negative results month-over-month in Sept., with San Francisco posting a 3.9 percent monthly price decline and Phoenix posting a 3.5 percent monthly drop. And all 20 metros also posted negative yearly results, as well;

Hey, there were a couple bright spots from this dire housing report….Cleveland and Boston showed moderate slowing of depreciation if not slight appreciation!

Only Cleveland saw its 1-year change moderate during the month, posting a 6.4 percent annualized decline relative to the 6.6 percent drop recorded in August, S&P said.

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