The Arizona Republic - September 2009
It should be the best time to purchase a home in decades.
Prices are at record lows. Many, if not most, of the houses on the market in areas such as Ahwatukee Foothills are owned by banks - not emotional and capricious homeowners.
Instead, even seasoned real-estate agents say it's the most difficult market they have worked in decades.
And buyers say they are frustrated with the condition of houses they find on the market - plus, they are getting caught up in unpleasant bidding wars with cash-rich real-estate investors.
"I have six buyers who want homes in Ahwatukee, but we can't find a thing," said Pam, a longtime Ahwatukee real-estate saleswoman.
"There also is a huge shortage of owner-owned, well-maintained homes," she said.
Pam said the selection of attractive, move-in-ready homes is low because owners who are not having financial problems intend to hang on to their properties until prices rise again.
So instead of walking through their dream houses, buyers are looking at repos gutted by evicted former owners.
"You would not believe the condition some of these places are in," said Nancy Nighswonger, an Ahwatukee resident who is helping her mother, Diane Moss, search for a comfortable home for her retirement years.
Buyers who want houses to live in must also compete with real-estate investors who have deep enough pockets to pay cash for discounted properties. Banks are creating bidding wars on such properties by calling potential buyers and asking them to up their offers, real-estate professionals say.
While that might sound similar to bidding wars for Valley houses at the peak of the real-estate market, experts say there is a difference: In 2005 and 2006, home prices were set at market value and buyers could offer higher amounts, depending on the competition.
"Now sellers are pricing their homes 25 to 30 percent below the market because they want to take eight or 10 offers to the bank (that foreclosed on the property)," said Pete Meier, who has sold real estate in Ahwatukee for 30 years.
Mike, another longtime Ahwatukee real-estate salesman, said the upside to the situation is that "the market is starting to move again."
Also, he said, buyers with the patience and fortitude to endure the bidding wars can wind up with great deals.
In some cases, houses in neighborhoods where houses/homes recently sold for $600,000 are now at "FHA levels" - the $300,000 range, he said.
Mike said he recently represented a house in Chandler that was offered as a "short sale" - the owners owed more on the house than what it was worth.
"I had nine offers on it," he said. "It was a very nice house. A million-dollar property originally."
The house sold for $449,000, he said.
Pam was so thrilled by a similar success story that she posted a message about it on Twitter.com the day the deal was signed.
The family she was representing - Honeywell engineer Rudy Dudebout, his wife, Tina Hynes, and their three sons, Eric, 6, Adam, 4, and Alex, 2 - had just paid $556,000 for a home that appraised for $1.2 million at the peak of the housing boom, she said.
The 1982 five-bedroom, 3,500-square-foot custom home backs to the South Mountain Preserve and has a pool, basketball court and a balcony overlooking a circular driveway.
"We had had our eyes on this neighborhood for a long time," Dudebout said. "It does not have the uniformity of looks that you find in other parts of Ahwatukee."
It helps not to be in a rush in the current housing market.
Dudebout said he and his family were prepared to stay in their old home until they found the right new house at the right price.
Saturday, September 12, 2009
Tuesday, September 8, 2009
Theft of fixtures becomes major risk in foreclosures
The Arizona Republic - September 2009
With a $165,000 price tag, the two-story, four-bedroom house for sale in Avondale was a steal.
Three years ago, when the house was new, a family paid $416,000 for it.
But its soaring living-room ceiling, whirlpool bath, three-car garage and pool with a slide and waterfall weren't enough to make it much more than a handyman's special.
Thieves made off with the home's $30,000 custom-kitchen and other fixtures after it went into foreclosure.
Custom cabinets, appliances, granite countertops and other fixtures just disappeared one day.
"These are fixtures that are supposed to be part of the house. They basically took $30,000 out of the kitchen and left," said John Lincoln, the real-estate agent who recently sold the house to buyers who don't mind fixing it.
Julie Halferty, a special agent who oversees the Phoenix FBI Mortgage Fraud Task Force, said no one knows exactly how many foreclosed houses in the Valley have been stripped by former owners, neighbors or strangers.
Those who work in real estate believe the number is in the thousands.
"Without question, probably 85 to 90 percent of houses on the market under $200,000 have been stripped," said Tempe real-estate agent Kim Baker.
"Appliances are the most commonly poached item, but plumbing fixtures and faucets, ceiling fans, light fixtures, water heaters and air-conditioning units are fair game" in the eyes of the strippers, she said.
Halferty said she and her fellow FBI agents "haven't been able to quantify it, but we know it is rampant."
She said that since metropolitan Phoenix foreclosures are up 600 percent since 2005 - half of the homes sold here this summer were bank-owned - she believes stripping is more common here than anywhere else in the nation.
"These crimes are happening with enough frequency that it has caught the attention of law enforcement, Realtors and lenders across our state," said Tom Farley, executive director of the Arizona Association of Realtors.
"Many Realtors are taking photos of the interior of the home as soon as they take a lender-owned listing to document the condition of the property in case of vandalism," Farley said.
Last week, the Maricopa County Attorney's Office announced five recent prosecutions of accused foreclosure strippers, including one involving a real-estate salesman.
Halferty said the task force hopes the information will educate owners of homes in foreclosure, neighbors and others that it is illegal to help themselves to fixtures and appliances in a vacant home.
"Take a look at Craigslist," Lincoln said. "It's full of things that have been stripped out of houses."
Halferty said Craigslist.org tipped the fraud task force to the extent of the problem.
"It is so blatant," Halferty said. "People would advertise that they were selling cabinets in a foreclosure sale."
Halferty said legally there should be no such thing as a foreclosure sale. The law states that anything attached to a home - stoves, cabinets, lights and ceiling fans - belongs to the property and stays there when it is sold.
Lincoln, who is based in Ahwatukee Foothills but represents properties all over town, said the problem is most widespread in Valley neighborhoods that were built during the housing boom a few years ago.
"Mature neighborhoods aren't seeing this as much as the newer neighborhoods in places like Avondale and Tolleson," he said.
While some homes are stripped by cash-strapped former owners, others are targeted by strangers.
Lincoln said one of his clients purchased a bank-owned house in Tolleson. Before it closed, thieves posing as pest-control workers broke in and removed $4,000 in appliances. The matter was reported to police, Lincoln said, but there has not been an arrest.
"Neighbors said two guys drove up in a white truck and said they were there to spray for bugs," Lincoln said. "What they really did was go in the backyard and bust a window to get into the house."
He said the deal still went through, but the family paid $6,000 less.
Talk to anyone searching for a deal on a house these days and you will hear similar stories.
"People are having to look at 20 or more houses before they find one that is suitable," said Jay Butler, director of realty studies in the Morrison School of Management and Agribusiness at Arizona State University at the Polytechnic campus.
"One of my students looked at 35. Doors are missing. Plumbing is gone. There is a huge secondary market for these things. People buy them and put them in their own homes."
In extreme cases, thieves rip copper pipes and wiring out of the walls, Baker said.
Nancy Nighswonger of Ahwatukee Foothills just wants to help her mother find a deal on a house for retirement. That might have taken a few weeks a couple of years ago.
"You would not believe the condition some of these places are in." Nighswonger said. "We've researched 100 houses and looked at 20 since June. All of them needed extensive repairs."
Getting financing to fix up damaged properties is not easy, Baker said.
"The FHA will not loan on a property that isn't fully intact," Baker said.
With a $165,000 price tag, the two-story, four-bedroom house for sale in Avondale was a steal.
Three years ago, when the house was new, a family paid $416,000 for it.
But its soaring living-room ceiling, whirlpool bath, three-car garage and pool with a slide and waterfall weren't enough to make it much more than a handyman's special.
Thieves made off with the home's $30,000 custom-kitchen and other fixtures after it went into foreclosure.
Custom cabinets, appliances, granite countertops and other fixtures just disappeared one day.
"These are fixtures that are supposed to be part of the house. They basically took $30,000 out of the kitchen and left," said John Lincoln, the real-estate agent who recently sold the house to buyers who don't mind fixing it.
Julie Halferty, a special agent who oversees the Phoenix FBI Mortgage Fraud Task Force, said no one knows exactly how many foreclosed houses in the Valley have been stripped by former owners, neighbors or strangers.
Those who work in real estate believe the number is in the thousands.
"Without question, probably 85 to 90 percent of houses on the market under $200,000 have been stripped," said Tempe real-estate agent Kim Baker.
"Appliances are the most commonly poached item, but plumbing fixtures and faucets, ceiling fans, light fixtures, water heaters and air-conditioning units are fair game" in the eyes of the strippers, she said.
Halferty said she and her fellow FBI agents "haven't been able to quantify it, but we know it is rampant."
She said that since metropolitan Phoenix foreclosures are up 600 percent since 2005 - half of the homes sold here this summer were bank-owned - she believes stripping is more common here than anywhere else in the nation.
"These crimes are happening with enough frequency that it has caught the attention of law enforcement, Realtors and lenders across our state," said Tom Farley, executive director of the Arizona Association of Realtors.
"Many Realtors are taking photos of the interior of the home as soon as they take a lender-owned listing to document the condition of the property in case of vandalism," Farley said.
Last week, the Maricopa County Attorney's Office announced five recent prosecutions of accused foreclosure strippers, including one involving a real-estate salesman.
Halferty said the task force hopes the information will educate owners of homes in foreclosure, neighbors and others that it is illegal to help themselves to fixtures and appliances in a vacant home.
"Take a look at Craigslist," Lincoln said. "It's full of things that have been stripped out of houses."
Halferty said Craigslist.org tipped the fraud task force to the extent of the problem.
"It is so blatant," Halferty said. "People would advertise that they were selling cabinets in a foreclosure sale."
Halferty said legally there should be no such thing as a foreclosure sale. The law states that anything attached to a home - stoves, cabinets, lights and ceiling fans - belongs to the property and stays there when it is sold.
Lincoln, who is based in Ahwatukee Foothills but represents properties all over town, said the problem is most widespread in Valley neighborhoods that were built during the housing boom a few years ago.
"Mature neighborhoods aren't seeing this as much as the newer neighborhoods in places like Avondale and Tolleson," he said.
While some homes are stripped by cash-strapped former owners, others are targeted by strangers.
Lincoln said one of his clients purchased a bank-owned house in Tolleson. Before it closed, thieves posing as pest-control workers broke in and removed $4,000 in appliances. The matter was reported to police, Lincoln said, but there has not been an arrest.
"Neighbors said two guys drove up in a white truck and said they were there to spray for bugs," Lincoln said. "What they really did was go in the backyard and bust a window to get into the house."
He said the deal still went through, but the family paid $6,000 less.
Talk to anyone searching for a deal on a house these days and you will hear similar stories.
"People are having to look at 20 or more houses before they find one that is suitable," said Jay Butler, director of realty studies in the Morrison School of Management and Agribusiness at Arizona State University at the Polytechnic campus.
"One of my students looked at 35. Doors are missing. Plumbing is gone. There is a huge secondary market for these things. People buy them and put them in their own homes."
In extreme cases, thieves rip copper pipes and wiring out of the walls, Baker said.
Nancy Nighswonger of Ahwatukee Foothills just wants to help her mother find a deal on a house for retirement. That might have taken a few weeks a couple of years ago.
"You would not believe the condition some of these places are in." Nighswonger said. "We've researched 100 houses and looked at 20 since June. All of them needed extensive repairs."
Getting financing to fix up damaged properties is not easy, Baker said.
"The FHA will not loan on a property that isn't fully intact," Baker said.
Struggling Valley homeowners left in limbo
The Arizona Republic - September 2009
Five months into the $75 billion federal program meant to toss a lifeline to homeowners facing foreclosure, most people in need of help are still floundering.
Overall, about 15 percent of borrowers across the country who are eligible for the program have been offered help from their lender, according to a recent U.S. Treasury Department report. Of those homeowners, 9 percent have participated in a trial loan modification. President Barack Obama's administration is calling for lenders to ramp up their efforts and help 500,000 more homeowners by November.
For homeowners facing foreclosure, the loan-modification process is slow, time-consuming and exhausting. Homeowners fall further behind as lenders, who say they are training more workers to handle the flood of requests, keep them waiting. Even when a loan modification is approved, some people discover the results are disappointing.
Thousands of Valley homeowners have experienced tough going with the program.
Cheryl Edgemon
Cheryl Edgemon was laid off from her longtime position as a legal secretary in April 2008. The 66-year-old has been looking for a new job ever since.
Savings, Social Security and unemployment benefits allowed her to scrape by at first. But in April, after a year of being unemployed, her savings were gone and she fell behind on the mortgage for her Glendale home.
Edgemon has contacted her lender multiple times, asking for a loan modification. Because she has income from her monthly Social Security check, she was told that she qualifies for a loan modification under the Obama plan.
"At first, they wanted me to be three months behind before I applied for loan modification," Edgemon said. "I can't understand why they would want me to ruin my credit first. I have worked hard to have good credit."
When she did fall behind, her lender offered to let her skip a few months and then make a balloon payment.
"How did they think I could afford a balloon payment? I just wanted them to extend the terms on my loan, drop my interest rate, something to help me keep the house," she said. "I will pay, but my Social Security is $1,244 and my unemployment is about to run out. I am trying to find a job, but it doesn't help to spend so much time trying to save my home."
She contacted housing groups and her congressman, asking for help. But her pleas for help weren't enough.
Edgemon's home was sold in a short sale a few weeks ago. She is now renting a house in her neighborhood for $500 less then her old monthly mortgage payment.
"It was going to be my retirement home," she said. "Not only did I not receive help, the people who I talked to at my lender were nasty and made the process harder than it had to be."
Kasey Broach
Kasey Broach applied for a loan modification right after the new plan was announced. She sent her lender documentation on her income and expenses, including a student-loan statement and bill for the homeowners-association fees on her Phoenix condominium.
Broach, a public-relations specialist for a Valley law firm, was required to show receipts on everything from groceries to doctor bills. Her lender also required her to meet with a loan counselor. The counselor recommended her for a loan modification.
Broach bought her condominium in 2006, at the peak of the Valley's real-estate market, right before she was about to start an MBA program.
She had a roommate who helped with the bills. But her roommate moved to New York last year, and Broach hasn't found another. Payments on her student loans started this year.
"When I purchased my home, part of the deal was that I didn't have to pay HOA fees until 2009," Broach said. "The condo is in a great location. I thought I would be able to easily sell it in two years, allowing me to pay off my student loans and never have to pay HOA fees."
Her HOA fees are $150 a month. Her student-loan bill is $250 a month. Overtime at her job used to supplement her monthly income, but that stopped with the recession.
Broach's lender promptly processed her paperwork and modified her loan. However, her new monthly payment is only $40 lower than her old payment, not enough to help her.
Because condo values in her complex have fallen, Broach can't sell and break even, so she is a considering a short sale or deed-in-lieu-of-foreclosure deal with her lender. A deed in lieu requires a borrower to give back a house to the lender. In exchange, homeowners take a slightly smaller hit to their credit than they would with a foreclosure.
"What bothers me most is that I didn't mess up and could not have seen this coming," Broach said. "I have worked full-time since I was 19. I bought a small condo, which no one would consider lavish. I have had great credit and paid my own bills my entire adult life. However, I'm still stuck in this position."
Rick Scott
Rick Scott asked his lender for help in October, before he fell behind on his mortgage payments. His annual income had dropped by $30,000. His roommate girlfriend was out of work.
Scott was trying to be proactive. He still had a job at Boeing, earning $50,000. But before the housing crash, he had also worked part-time as a loan officer. When that extra income stopped, he saw trouble ahead.
But the lender said he didn't qualify for help. He later fell behind on his $2,000 monthly mortgage payment and feared a foreclosure notice would come any day on his Mesa home.
When President Barack Obama announced the new loan-modification program in March, Scott immediately checked the details and found he was eligible. He faxed information on his income and bills to his lender, which told him he would have an answer in 30 to 60 days. By then, his savings were exhausted.
The foreclosure notice came several weeks later. He called his lender. The foreclosure was postponed for a month while his application for a loan modification was considered.
"So then I thought, OK, this is going to work, despite all the confusion," Scott said. "We are going to keep our home, and get a payment that's not more than 31 percent of my income like the program calls for."
Next, Scott received a Fed Ex package from his lender. Inside was a contract he was to sign that required him to pay half his current monthly payment for six months to show he could afford that amount.
"I happily signed the contract and sent them a check," he said. "A week letter, I received another Fed Ex with a letter saying congratulations, my loan modification is complete. Except the new contract called for me to pay $150 more than I was paying for my original mortgage payment. My payment went up."
Scott has an adjustable-rate mortgage. His lender proposed a fixed-rate mortgage, but at a higher rate, and would not lower the principal amount, so the monthly payment went up.
Scott asked again about a modification that would lower his payment. The lender said he could reapply, but consideration would take 90 days, and it might foreclose before that.
"I asked to speak to a supervisor with my lender's loan-modification department," Scott said. "I was put on hold and then disconnected."
Scott isn't sure whether he's going to apply for another loan modification.
Five months into the $75 billion federal program meant to toss a lifeline to homeowners facing foreclosure, most people in need of help are still floundering.
Overall, about 15 percent of borrowers across the country who are eligible for the program have been offered help from their lender, according to a recent U.S. Treasury Department report. Of those homeowners, 9 percent have participated in a trial loan modification. President Barack Obama's administration is calling for lenders to ramp up their efforts and help 500,000 more homeowners by November.
For homeowners facing foreclosure, the loan-modification process is slow, time-consuming and exhausting. Homeowners fall further behind as lenders, who say they are training more workers to handle the flood of requests, keep them waiting. Even when a loan modification is approved, some people discover the results are disappointing.
Thousands of Valley homeowners have experienced tough going with the program.
Cheryl Edgemon
Cheryl Edgemon was laid off from her longtime position as a legal secretary in April 2008. The 66-year-old has been looking for a new job ever since.
Savings, Social Security and unemployment benefits allowed her to scrape by at first. But in April, after a year of being unemployed, her savings were gone and she fell behind on the mortgage for her Glendale home.
Edgemon has contacted her lender multiple times, asking for a loan modification. Because she has income from her monthly Social Security check, she was told that she qualifies for a loan modification under the Obama plan.
"At first, they wanted me to be three months behind before I applied for loan modification," Edgemon said. "I can't understand why they would want me to ruin my credit first. I have worked hard to have good credit."
When she did fall behind, her lender offered to let her skip a few months and then make a balloon payment.
"How did they think I could afford a balloon payment? I just wanted them to extend the terms on my loan, drop my interest rate, something to help me keep the house," she said. "I will pay, but my Social Security is $1,244 and my unemployment is about to run out. I am trying to find a job, but it doesn't help to spend so much time trying to save my home."
She contacted housing groups and her congressman, asking for help. But her pleas for help weren't enough.
Edgemon's home was sold in a short sale a few weeks ago. She is now renting a house in her neighborhood for $500 less then her old monthly mortgage payment.
"It was going to be my retirement home," she said. "Not only did I not receive help, the people who I talked to at my lender were nasty and made the process harder than it had to be."
Kasey Broach
Kasey Broach applied for a loan modification right after the new plan was announced. She sent her lender documentation on her income and expenses, including a student-loan statement and bill for the homeowners-association fees on her Phoenix condominium.
Broach, a public-relations specialist for a Valley law firm, was required to show receipts on everything from groceries to doctor bills. Her lender also required her to meet with a loan counselor. The counselor recommended her for a loan modification.
Broach bought her condominium in 2006, at the peak of the Valley's real-estate market, right before she was about to start an MBA program.
She had a roommate who helped with the bills. But her roommate moved to New York last year, and Broach hasn't found another. Payments on her student loans started this year.
"When I purchased my home, part of the deal was that I didn't have to pay HOA fees until 2009," Broach said. "The condo is in a great location. I thought I would be able to easily sell it in two years, allowing me to pay off my student loans and never have to pay HOA fees."
Her HOA fees are $150 a month. Her student-loan bill is $250 a month. Overtime at her job used to supplement her monthly income, but that stopped with the recession.
Broach's lender promptly processed her paperwork and modified her loan. However, her new monthly payment is only $40 lower than her old payment, not enough to help her.
Because condo values in her complex have fallen, Broach can't sell and break even, so she is a considering a short sale or deed-in-lieu-of-foreclosure deal with her lender. A deed in lieu requires a borrower to give back a house to the lender. In exchange, homeowners take a slightly smaller hit to their credit than they would with a foreclosure.
"What bothers me most is that I didn't mess up and could not have seen this coming," Broach said. "I have worked full-time since I was 19. I bought a small condo, which no one would consider lavish. I have had great credit and paid my own bills my entire adult life. However, I'm still stuck in this position."
Rick Scott
Rick Scott asked his lender for help in October, before he fell behind on his mortgage payments. His annual income had dropped by $30,000. His roommate girlfriend was out of work.
Scott was trying to be proactive. He still had a job at Boeing, earning $50,000. But before the housing crash, he had also worked part-time as a loan officer. When that extra income stopped, he saw trouble ahead.
But the lender said he didn't qualify for help. He later fell behind on his $2,000 monthly mortgage payment and feared a foreclosure notice would come any day on his Mesa home.
When President Barack Obama announced the new loan-modification program in March, Scott immediately checked the details and found he was eligible. He faxed information on his income and bills to his lender, which told him he would have an answer in 30 to 60 days. By then, his savings were exhausted.
The foreclosure notice came several weeks later. He called his lender. The foreclosure was postponed for a month while his application for a loan modification was considered.
"So then I thought, OK, this is going to work, despite all the confusion," Scott said. "We are going to keep our home, and get a payment that's not more than 31 percent of my income like the program calls for."
Next, Scott received a Fed Ex package from his lender. Inside was a contract he was to sign that required him to pay half his current monthly payment for six months to show he could afford that amount.
"I happily signed the contract and sent them a check," he said. "A week letter, I received another Fed Ex with a letter saying congratulations, my loan modification is complete. Except the new contract called for me to pay $150 more than I was paying for my original mortgage payment. My payment went up."
Scott has an adjustable-rate mortgage. His lender proposed a fixed-rate mortgage, but at a higher rate, and would not lower the principal amount, so the monthly payment went up.
Scott asked again about a modification that would lower his payment. The lender said he could reapply, but consideration would take 90 days, and it might foreclose before that.
"I asked to speak to a supervisor with my lender's loan-modification department," Scott said. "I was put on hold and then disconnected."
Scott isn't sure whether he's going to apply for another loan modification.
Friday, August 7, 2009
New-home sales in U.S. climbed 11 percent in June
WASHINGTON - New-home sales in June posted the fastest increase in more than eight years as buyers took advantage of bargain prices, low interest rates and a federal tax credit for first-time homeowners.
While home prices are still falling, the figures released Monday were another sign the housing market is finally bouncing back.
Earlier this month, the government reported that new-home construction rose to the highest level since last fall. And data out last week showed home resales rose almost 4 percent in June, the third straight monthly increase.
"The worst of the housing recession ... is now behind us," said David Resler, chief economist at Nomura Securities. "We're turning the corner toward increased activity in housing."
New-home sales rose 11 percent in June to a seasonally adjusted annual rate of 384,000, from an upwardly revised May rate of 346,000, the Commerce Department reported Monday.
Shares of big home builders soared on the news, with Beazer Homes USA up by more than 13 percent and Hovnanian Enterprises rising 8 percent in afternoon trading. But with home prices still falling, these companies won't be making much money anytime soon.
The median sales price of $206,200 was down 12 percent from $234,300 a year earlier and off nearly 6 percent from $219,000 in May.
In addition to lower prices, buyers are rushing to take advantage of a federal tax credit that covers 10 percent of the home price or up to $8,000 for first-time buyers. Home sales need to be completed by the end of November for buyers to take advantage.
"The window of opportunity is closing," said Bernard Markstein, senior economist for the National Association of Home Builders.
June's results were the strongest sales pace since November 2008 and exceeded the forecasts of economists surveyed by Thomson Reuters, who expected a pace of 360,000 units. The last time sales rose so dramatically was in December 2000.
There were 281,000 new homes for sale at the end of June, down more than 4 percent from May. At the current sales pace, that represents 8.8 months of supply - the lowest level since October 2007. If that number falls to just over 6 months, analysts say, builders will feel more comfortable ramping up construction.
Fallout from the housing crisis has played a central role in the U.S. recession, now the longest since World War II. Foreclosures have spiked, home builders have slashed construction and financial companies have lost billions.
Construction levels are still weak because builders still have too many unsold homes sitting vacant.
Thursday, June 25, 2009
Foreclosures fuel home stripping by ex-owners
The Arizona Republic - June 2009
When Surprise police arrested a man for stripping his foreclosed home of a dishwasher, oven and air-conditioning units last week, officials highlighted a rash of problems that have gone largely unsolved across the Valley.
Despite hundreds, perhaps even thousands, of similar offenses in the Phoenix area, authorities believe the Tuesday arrest of Roberto Garcia, who was arrested on charges of criminal damage and defrauding a secured creditor, is part of only a handful of its kind in the Valley since the start of the housing crisis.
Police, neighbors and task-force officers have reported finding homes in the process of foreclosure without toilets, bathtubs and even spiral staircases.
Investigators often find that in many cases homeowners are responsible for stripping and devaluing the homes.
Often, those who have stripped their foreclosed homes sell the removed fixtures on Craigslist or more recently, in garage sales.
"Stripping out your home is a new phenomenon. Somebody had to sit down and ask what the way for agencies to do this is. It's a lot of legwork," said Dan Hughes, Surprise police chief.
The difficulty comes in finding probable cause to make an arrest when ownership of the home is in limbo and officials can't determine whether a bank, mortgage company or person is the proprietor, said Julie Halferty, who supervises Arizona's FBI Mortgage Fraud Task Force.
To arrest someone they believe has stripped their home of fixtures, police need to identify the person or organization victimized in order to submit charges to a county attorney.
Though police and federal agents maintain that neighbors are victimized by eventual drops in property value, there is no victim unless a bank or mortgage company has officially taken ownership of the property.
Neighbors living near the stripped homes and frustrated that their neighborhoods are devalued often feel they are the unwitting victims.
"What can people like me do?" Phoenix resident Stacey Huscher said.
Huscher said she has desperately attempted to inform authorities that another homeowner in her northeast Phoenix neighborhood has stripped his foreclosed house of fixtures.
"It seems crazy to me that people can be arrested for speeding violations but a person is free to ruin a whole neighborhood," Huscher said.
The cases are further complicated because authorities must be able to prove it was the homeowner who stripped their former home of valuables, said Officer Luis Samudio, a Phoenix police spokesman.
"You have to catch them with their hands in a cookie jar in a sense," Samudio said.
So Surprise police got a head start in February when resident Lou Provenzano e-mailed City Manager Randy Oliver to tell him that one of the block- watch members in his neighborhood had been shocked by Garcia's actions.
Someone who lived near Garcia's home in the 11900 block of North 143rd Avenue in Surprise said he had been startled by pounding noises coming from the foreclosed home late at night.
The neighbor said he watched as Garcia removed fixtures from the garage and items such as air compressors on the side of the home went missing, Provenzano said.
Because most police agencies in the Valley don't have policies and specific training on foreclosure crimes, which have spiked in the past year, Surprise detectives spent weeks tracking down the current owner of Garcia's former residence before submitting the case to the Maricopa County Attorney's Office.
They recommended he be charged with criminal damage and defrauding a secured creditor, both felony offenses.
The Surprise case was the second that county attorneys agreed to prosecute, said Michael Scerbo, spokesman for the Attorney's Office.
Once the two offenders - Garcia and Valley real-estate agent Kailash Bhatt - go to trial, prosecutors will have to prove that the former homeowners knew what they were doing was illegal.
"In order to have a crime there has to be some intent," said Barnett Lotstein, a special assistant in the Maricopa County Attorney's Office.
"If someone in good faith (who) honestly didn't know takes a chandelier, then in most circumstances there would be questions about whether or not that person would be charged."
A jury is less likely to convict someone who wasn't aware what she was doing was a crime, Lotstein said.
Whatever the complications and red tape associated with home-stripping cases, arrests and convictions are the best way for law enforcement to show they take foreclosure crimes seriously and halt problems associated with them, said Halferty of the FBI.
"Everyone in Arizona is waiting for the housing market to go up, and when people are stripping their homes, I think it makes the rebound take longer," Halferty said.
Friday, March 27, 2009
Buyers flock to cheap foreclosed homes
A Glendale home that sold less than two years ago for $259,000 sold again three months ago for $113,000. A Phoenix home that fetched $190,000 two years ago just went for $45,900. A Queen Creek home sold for nearly $275,000 when it was built in 2005. Last month's price: $78,000.
If there's an upside to the Valley's growing foreclosure problem, it's the number of home bargains now available.
Lenders saddled by a growing portfolio of foreclosed properties are selling homes for prices not seen in metropolitan Phoenix for a decade.
Almost half of all Valley home sales last year were foreclosed homes resold by lenders, according to an analysis of sales data by The Arizona Republic.
Investors, first-time buyers, retirees and people moving up to bigger homes are all taking advantage. Deals can be found on nearly new homes on the Valley's fringes, fixer-uppers in historic neighborhoods in central Phoenix, new and old condominiums from Mesa to Glendale, and even luxury homes in Scottsdale.
There are some potential pitfalls to buying foreclosure homes: bidding wars, repair costs, financing and the risk that home prices will continue to fall. But foreclosures do offer an opportunity to buy Valley homes at prices unthinkable just a few years ago.
"There's a lot of properties to choose from, particularly in the $100,000 range," Zeitzer said.
Finding deals
Nearly half of Valley homes for sale are properties that lenders have taken back or that are about to go into foreclosure, according to the Cromford Report, which analyzes area real-estate data. Market watchers expect that number to increase in the next few months as the foreclosure moratoriums put in place by big lenders begin to expire.
Prospective buyers can find foreclosed properties on most Internet sites that list houses for sale and by contacting real-estate agents.
Before buying a foreclosed home, check out the neighborhood. Are there other foreclosures that might threaten your hoped-for resale price? Are there rentals that might drive down your rental income? Are there empty homes for sale that soon might become foreclosures themselves?
"Look at other homes in the area, particularly on the same block," said Julie Bieganski, a real estate agent with 1st USA Realty. "Check out the schools, the shopping and the roads." In January, she and her husband paid $63,000 for a foreclosed home in Phoenix that they plan to sell or rent. More than $261,000 was owed on the home when it was foreclosed on last fall.
"Try to buy the ugliest home on the block," she said.
The most popular segment of the foreclosure market now is homes priced below $100,000. Many of the best deals can be found in the West Valley, south Phoenix and Pinal County, the areas hurt most by the housing-market downturn.
"You are going to find the real deals on the homes with the most (physical) damage in the neighborhoods with the highest foreclosure rates," said Realty Executives agent Brett Barry, who says 70 percent of his business now is listing foreclosures. "Those are the homes that draw the multiple offers."
He said lenders don't want to spend more than $15,000 to $20,000 to fix up a foreclosed home for a sale. So if a home has extensive damage, the price is discounted more. Some foreclosed homes have been stripped of appliances, light fixtures, tile and even toilets by former residents.
Bob Ortega bought a foreclosed home in Queen Creek for $90,000 late last year. Similar homes in the area that aren't in foreclosure were listed for more than $150,000. But he had to buy a new stove, refrigerator, washer and dryer and then repaint and carpet the house.
"The last owners must have been mad because they did some real damage," he said. "It was a big headache, but I think I ended up with a deal."
Unfortunately, he is seeing other foreclosed homes in his neighborhood now selling for $10,000 to $20,000 less than he paid.
Buying
There are two ways to buy a foreclosed home now: directly from a lender by working with a real-estate agent or at an auction.
When working with an agent, it helps to find someone who knows how to negotiate with lenders. Most lenders have downsized their staff and may not respond quickly to offers on foreclosed homes.
In January, Brady Switzer bought a 2,290-square-foot foreclosure home in Litchfield Park.
"The asking price was $229,000, but we haggled with them and got it for $190,000," he said. "The lender was fairly easy to deal with."
To sell foreclosed homes quickly, lenders have been hiring big auction firms.
George Bein has bought three Valley foreclosed homes at auction. One he bought for less than what he had offered the lender a month earlier.
"Wait for the auctions if you can," he said. "The deals are better. But it's extremely important to inspect the properties and know your top bid and stop there."
Typically, photographs, addresses, information on the size of the homes and opening bids are available on the auction firm's Web site. Most auction firms also hold open houses on foreclosed properties, but the viewings are limited. Buyers can get their own appraisals on foreclosed homes and use those to negotiate with lenders.
"Due to the increase interest in foreclosures, lenders are now being flooded with offers," Zeitzer said.
She advises buyers to keep their offers simple, without too many demands or contingencies.
Financing
A foreclosure sale can close more quickly when the buyer has financing lined up before making an offer.
More buyers are paying with cash now because the mortgage industry, battered by loan defaults, is making financing tougher to obtain, especially for people who don't plan to live in the home. Some lenders will discount foreclosure prices even more for cash deals. More than 30 percent of all Valley homes sales in January were paid for with cash, compared with 19 percent in January 2008.
Financing is available to buy foreclosed homes, particularly for buyers who are going to live in them.
Jay Luber, president of Phoenix-based Galaxy Lending, said borrowers with good credit can usually take out a conventional loan with a 5 percent down payment.
For buyers who plan to live in the home, the Federal Housing Administration offers mortgages that require a 3.5 percent down payment. This program has a sales price limit of $346,000 in Arizona.
Both of those loans require the house to be in decent shape, and the loans don't usually come with money for renovations.
There is a loan that will finance fixing up a foreclosure home: the FHA 203K streamline loan.
"Homeowners can take the purchase price of a foreclosure home and add the home's rehab cost to come up with an adjusted sales price," said Reg Gustin of Mesa-based Sun American Mortgage. "Buyers can finance the adjusted amount through FHA if the property appraises for that much."
These loans require the buyer to keep the home for 90 days.
Other financing help for foreclosure home buyers is coming soon from the federal government. A portion of the $121 million coming to Arizona next month from the federal Neighborhood Stabilization program includes money to help people buy foreclosed homes. Specifics on the program vary by city. More information will be available soon on the Arizona Department of Housing's Web site.
The city of Phoenix plans to use a portion of its neighborhood funds to give qualifying buyers $15,000 to cover the down payment or closing cost on a foreclosed home.
Who's buying
Many investors bought Valley foreclosed homes during the past year, and more investors are jumping into the market as prices continue to fall.
Hossien Safaie of Keller Williams Arizona Realty said he works to find foreclosed homes for clients that can be fixed up in four weeks and then resold quickly before being undercut in price by new foreclosures.
"The last foreclosure home I worked with a client to buy and fix up was in north Phoenix," he said. "It resold in a day for a $60,000 profit. The day we bought the foreclosure house, we had contractors ready and started marketing it for resale."
Some market watchers are concerned about too many investors buying foreclosed homes.
"It's great that foreclosure homes are selling and investors are interested," said Margie O'Campo de Castillo of Arizona Dream Realty. "But too many investors got us into the current mess."
For first-time buyers, the foreclosures are a blessing of sorts.
O'Campo recently worked with a young family who bought their first home in El Mirage for $86,900. The house sold for more than twice that much when it was built a few years ago.
"Valley foreclosures are one family's tragedy and another family's opportunity now," O'Campo said.
Market overview
Foreclosure-resale deals aren't likely to go away anytime soon, and in some areas the deals are getting even better.
Only about half of the 50,000 Valley homes to go into foreclosure during the past year have resold.
Tom Ruff, an analyst with the real-estate research firm Information Market, recently looked at buying a small home in Phoenix.
The property sold for $232,000 in March 2005. The lender foreclosed on the home in early February and turned around and listed it for $45,900.
"The bungalow sold within hours, and there were multiple cash offers on the property." Ruff said.
Last month, foreclosure sales climbed to account for almost 70 percent of all Valley resales, a figure that may alarm fretful homeowners. But the figure also suggests better things ahead.
"Homeowners with foreclosures in their neighborhood might not like what these sales with low prices do to their values, but these homes must be resold and fixed up for the market to come back," said Arizona housing analyst RL Brown. "The good news is that the foreclosure homes are selling."
Builders: E.V. new home sales picking up
Tribune - March 2009
Growing interest from buyers, reduced inventory and a slight uptick in construction has homebuilders with communities across the south East Valley cautiously optimistic about 2009.
Homebuilders are in the middle of what is traditionally the busiest time of the year for new home sales. However, continued anxiety over the economy, as well as stiff competition from foreclosure homes, is keeping new home sales to a minimum.
However, homebuilders say slow progress is being made in the new home market.
"We are pleased with an apparent increase in consumer demand and interest, but it is premature to count on a few recent months' numbers for any long-range conclusions about the local market conditions," said Jacque Petroulakis, Southwest spokeswoman for Pulte Homes & the Communities of Del Webb, which has 18 communities in the East Valley.
Last week, housing analyst RL Brown reported the Valley's new home market appears headed for recovery at a much faster pace than the existing home market. Prices have stabilized and the new home market is no longer plagued by oversupply unlike the existing home market, he said.
The new home market will slowly improve as 2009 progresses, but it's still going to be a tough year for builders, said Steve Hilton, chairman and CEO of Meritage Homes, which recently opened a new community in Queen Creek.
"We need to have a healthy resale market before we can have a healthy new home market because most people have to sell a home before they can buy one," he said. "There's so many foreclosures out there, so many (existing homes) for sale that we're competing against more than we are competing with other builders. We need that inventory to clear in the resale market in order for the new home market to be healthy again."
THE MYTH OF INVENTORY
Contrary to popular belief, homebuilders don't have a big inventory of new homes just waiting for buyers, Hilton said. Throughout the market downturn, Meritage's communities have only included a handful of vacant homes, he said.
"At least the public builders that I know of ... they have a lot of land, they have a lot of lots, but they don't have a lot of standing homes on the ground," he said. "There's certainly a lot of resale homes and foreclosure homes for sale, and a lot of those are empty and available."
Ken Peterson, vice president of Shea Homes, said the company started the year with an inventory of 94 homes and that has since dropped to 28 homes. It has communities in Gilbert and Queen Creek.
"We do not build speculative homes or inventory homes," he said. "The inventory resulted because people canceled on their homes. I talked to many of the builders across the Valley and the fourth quarter of 2008 was one of the worst quarters for cancellations that we have seen. That was really scary to see people just walk away from a home that they wanted us to build."
Meritage has been attracting buyers by aggressively lowering its prices and redesigning its product to compete with the foreclosure market, Hilton said.
"Most of the homes that are being sold today in Maricopa County are foreclosures," he said. "If we want to survive and compete as a new-home builder, we've got to be able to match those prices and in many cases we have."
Out in Maricopa, buyers can get into a new Meritage home for a monthly mortgage payment of $700, including principal, interest, taxes, insurance and homeowners association fees, Hilton said.
"We're selling homes," he said. "We do have traffic in our communities, but I'd also say it's at record low levels."
OUT OF THE GROUND
New home construction permits plummeted starting last fall and remain at an all-time low, according the Phoenix Housing Market Letter. There are signs, however, that permit activity will be increasing in the coming months.
Standard Pacific Homes recently sold seven homes at its Vincenz community in Gilbert, and not at reduced prices, said Cathy French, vice president of sales and marketing. The message is getting out that the new home market seems to have hit bottom and "you don't know where the bottom is until prices start going up and then it's too late," she said.
"We did real well in the East Valley last month," she said. "In four communities we have about seven total (unsold homes) left, which is not very many."
With inventory down, Standard Pacific will be ramping up construction early next month, French said.
"In the East Valley ... I anticipate about 20 to 25 homes under construction in the Gilbert area and Queen Creek," she said. "We didn't start many homes in January or February, but now we have seen more people coming out. Plus, there's a lot of people moving here from out of state and I'm very happy about that because they can't find speculative homes to suit them, so they're doing new builds."
Also, numerous winter visitors from Canada are in the market for new homes, French said.
Shea started construction on 14 homes this month and will have another 20-plus homes under construction in the near future, Peterson said.
"We had very few homes under construction," he said. "We now have homes under construction in Seville in Gilbert, at Old Stone Ranch in Chandler, and then out in Cabrillo Canyon (in Pinal County)."
Meritage has homes under construction, but it remains minimal as fear continues to grip consumers, Hilton said.
"We need to get people to feel confident that they're going to be able to keep their jobs and that they're going to get a loan," he said. "There's 40,000 homes that need to be (built) every year in Phoenix just to provide housing for the births over deaths."
Pulte and Del Webb continue to sell homes and build homes, Petroulakis said.
"Consumer confidence is an issue that has affected the housing industry and many others," she said. "We have been doing all we can to provide incentives for consumers to take advantage of the great home prices that exist right now. We've had several sales events and traffic generators at our ... communities in recent months and weeks, and we've been very pleased with the large amount of traffic."
Growing interest from buyers, reduced inventory and a slight uptick in construction has homebuilders with communities across the south East Valley cautiously optimistic about 2009.
Homebuilders are in the middle of what is traditionally the busiest time of the year for new home sales. However, continued anxiety over the economy, as well as stiff competition from foreclosure homes, is keeping new home sales to a minimum.
However, homebuilders say slow progress is being made in the new home market.
"We are pleased with an apparent increase in consumer demand and interest, but it is premature to count on a few recent months' numbers for any long-range conclusions about the local market conditions," said Jacque Petroulakis, Southwest spokeswoman for Pulte Homes & the Communities of Del Webb, which has 18 communities in the East Valley.
Last week, housing analyst RL Brown reported the Valley's new home market appears headed for recovery at a much faster pace than the existing home market. Prices have stabilized and the new home market is no longer plagued by oversupply unlike the existing home market, he said.
The new home market will slowly improve as 2009 progresses, but it's still going to be a tough year for builders, said Steve Hilton, chairman and CEO of Meritage Homes, which recently opened a new community in Queen Creek.
"We need to have a healthy resale market before we can have a healthy new home market because most people have to sell a home before they can buy one," he said. "There's so many foreclosures out there, so many (existing homes) for sale that we're competing against more than we are competing with other builders. We need that inventory to clear in the resale market in order for the new home market to be healthy again."
THE MYTH OF INVENTORY
Contrary to popular belief, homebuilders don't have a big inventory of new homes just waiting for buyers, Hilton said. Throughout the market downturn, Meritage's communities have only included a handful of vacant homes, he said.
"At least the public builders that I know of ... they have a lot of land, they have a lot of lots, but they don't have a lot of standing homes on the ground," he said. "There's certainly a lot of resale homes and foreclosure homes for sale, and a lot of those are empty and available."
Ken Peterson, vice president of Shea Homes, said the company started the year with an inventory of 94 homes and that has since dropped to 28 homes. It has communities in Gilbert and Queen Creek.
"We do not build speculative homes or inventory homes," he said. "The inventory resulted because people canceled on their homes. I talked to many of the builders across the Valley and the fourth quarter of 2008 was one of the worst quarters for cancellations that we have seen. That was really scary to see people just walk away from a home that they wanted us to build."
Meritage has been attracting buyers by aggressively lowering its prices and redesigning its product to compete with the foreclosure market, Hilton said.
"Most of the homes that are being sold today in Maricopa County are foreclosures," he said. "If we want to survive and compete as a new-home builder, we've got to be able to match those prices and in many cases we have."
Out in Maricopa, buyers can get into a new Meritage home for a monthly mortgage payment of $700, including principal, interest, taxes, insurance and homeowners association fees, Hilton said.
"We're selling homes," he said. "We do have traffic in our communities, but I'd also say it's at record low levels."
OUT OF THE GROUND
New home construction permits plummeted starting last fall and remain at an all-time low, according the Phoenix Housing Market Letter. There are signs, however, that permit activity will be increasing in the coming months.
Standard Pacific Homes recently sold seven homes at its Vincenz community in Gilbert, and not at reduced prices, said Cathy French, vice president of sales and marketing. The message is getting out that the new home market seems to have hit bottom and "you don't know where the bottom is until prices start going up and then it's too late," she said.
"We did real well in the East Valley last month," she said. "In four communities we have about seven total (unsold homes) left, which is not very many."
With inventory down, Standard Pacific will be ramping up construction early next month, French said.
"In the East Valley ... I anticipate about 20 to 25 homes under construction in the Gilbert area and Queen Creek," she said. "We didn't start many homes in January or February, but now we have seen more people coming out. Plus, there's a lot of people moving here from out of state and I'm very happy about that because they can't find speculative homes to suit them, so they're doing new builds."
Also, numerous winter visitors from Canada are in the market for new homes, French said.
Shea started construction on 14 homes this month and will have another 20-plus homes under construction in the near future, Peterson said.
"We had very few homes under construction," he said. "We now have homes under construction in Seville in Gilbert, at Old Stone Ranch in Chandler, and then out in Cabrillo Canyon (in Pinal County)."
Meritage has homes under construction, but it remains minimal as fear continues to grip consumers, Hilton said.
"We need to get people to feel confident that they're going to be able to keep their jobs and that they're going to get a loan," he said. "There's 40,000 homes that need to be (built) every year in Phoenix just to provide housing for the births over deaths."
Pulte and Del Webb continue to sell homes and build homes, Petroulakis said.
"Consumer confidence is an issue that has affected the housing industry and many others," she said. "We have been doing all we can to provide incentives for consumers to take advantage of the great home prices that exist right now. We've had several sales events and traffic generators at our ... communities in recent months and weeks, and we've been very pleased with the large amount of traffic."
Saturday, January 3, 2009
9 Housing-Market Head Winds for 2009
US News - January 2009
Here's a look at the factors that will be weighing down the housing market in 2009:
With home prices having dropped a painful 21 percent from their 2006 peaks, property owners everywhere could use a splash of good news in their New Year's Eve cocktails. But as a nasty recession is now part of the picture, the chances of an aggressive housing market rebound next year are dim. "A lasting recovery in the housing market?" says Mike Larson, a real estate analyst at Weiss Research. "I don't see it in the cards1. Recession: After months of speculation, the National Bureau of Economic Research made it official Monday, announcing that the U.S. economy entered into a recession in December 2007. The only question now is: How painful a recession will we have? In a November 21 report, economists at Goldman Sachs revised their previous forecast to reflect a more significant economic contraction and higher unemployment. "We now estimate that real GDP is falling at a 5 percent annual rate in the current quarter, and we expect this to be followed by declines of 3 percent and 1 percent in the next two quarters," the economists said. "This deepens and extends the expected recession, bringing the drop in GDP close to the decline seen in 1982 (2.3 percent in our forecast versus 2.7 percent then)." The recession will exert downward pressure on the housing market in a number of ways.
2. Higher Unemployment: The shrinking economy will result in additional layoffs, which will work to smother housing demand. The unemployment rate has already been climbing—it now stands at 6.5 percent—but many expect it to increase significantly in the coming year. Goldman Sachs projects the unemployment rate to hit 9 percent by the end of 2009. "This forecast, if correct, makes the current recession unequivocally the worst single downturn on record since World War II insofar as increases in joblessness are concerned," the economists said. Fewer jobs mean fewer home buyers, since an income stream is essential to obtaining a mortgage. "A job is necessary for a home," says Mark Zandi, chief economist at Moody's Economy.com. "Without [a job] you can't get [a home]."
3. Consumer Confidence: If consumers are worried about the state of the economy and their jobs, they are much less likely to make the biggest financial investment of their lives: buying a house. With a leading survey showing that consumer confidence in the United States dropped to 28-year lows in November, downward pressure on this front will be working against the housing market as well. "You generally don't buy a home unless you feel pretty good about your economic situation," Zandi says. "No one feels good [today]."
4. The Underwater Effect: A recent Zillow report found that 1 in 7 American homeowners has negative equity—owing more on a home than it is worth. (For those who bought a home in the past five years, it's nearly 1 in 3.) Many homeowners in this situation will choose to simply walk away from their homes rather than continue to pay off a devaluing investment. And with home prices expected to fall further next year, the number of "underwater" mortgages will most likely increase. "The underwater phenomenon is going to be very bad in 2009," says Christopher Thornberg of Beacon Economics.
5. Tighter Credit: As banks face higher loan delinquencies, they've responded by jacking up their lending standards for even well-qualified borrowers. The Federal Reserve's most recent Senior Loan Officer Survey found that 70 percent of domestic banks had boosted their lending standards for prime mortgages. More stringent terms will prevent certain borrowers from obtaining mortgages, thereby limiting demand for housing.
6. Slowing Household Formation: At the same time, the pace of new household formation is slowing, which further chips away at housing demand. Richard Moody, chief economist at Mission Residential, says the development is linked to three factors: More singles are moving in with each other, young adults are returning to live with their parents, and fewer immigrants are entering the country. "For those three reasons, you are seeing a slowdown in the rate of household formation," Moody says. "And to the extent that the economy and the labor market remain weak this year—which I think they will—then that's going to continue."
7. Radioactive Effect: Despite lower real estate prices and cheaper mortgage rates, the pain inflicted by the housing bust will frighten many would-be buyers away from the market next year, Larson says. "Enough of your 'average Joes' have been burned very badly and will be burned by the time this is all over that investment money is not going to flood back into the market," Larson says. "Any recovery—in my opinion—will be gradual and is going to take time."
8. Foreclosure Sales: A huge problem for the housing market in 2008, foreclosure sales will continue weighing down the market next year. "There was a surge this year," Zandi says. "But next year [there] will be even more." While that will give buyers an opportunity to go bargain hunting, it's bad news for sellers. "It puts more homes out there for sale at a very deep discount," Zandi adds.
9. Subprime Mortgages: While resetting subprime mortgages may not be a leading factor behind the decline in home prices—as they were this year—such products will again be working against the housing market in 2009, Thornberg says. "There are still lots of subprime mortgages out there that are going to reset not just in 2009, but 2010 and 2011," he says. "And so that's going to be a consistent problem for a while, although it is probably reduced in magnitude [from 2008]." until the back end of the year—if that."
Here's a look at the factors that will be weighing down the housing market in 2009:
With home prices having dropped a painful 21 percent from their 2006 peaks, property owners everywhere could use a splash of good news in their New Year's Eve cocktails. But as a nasty recession is now part of the picture, the chances of an aggressive housing market rebound next year are dim. "A lasting recovery in the housing market?" says Mike Larson, a real estate analyst at Weiss Research. "I don't see it in the cards1. Recession: After months of speculation, the National Bureau of Economic Research made it official Monday, announcing that the U.S. economy entered into a recession in December 2007. The only question now is: How painful a recession will we have? In a November 21 report, economists at Goldman Sachs revised their previous forecast to reflect a more significant economic contraction and higher unemployment. "We now estimate that real GDP is falling at a 5 percent annual rate in the current quarter, and we expect this to be followed by declines of 3 percent and 1 percent in the next two quarters," the economists said. "This deepens and extends the expected recession, bringing the drop in GDP close to the decline seen in 1982 (2.3 percent in our forecast versus 2.7 percent then)." The recession will exert downward pressure on the housing market in a number of ways.
2. Higher Unemployment: The shrinking economy will result in additional layoffs, which will work to smother housing demand. The unemployment rate has already been climbing—it now stands at 6.5 percent—but many expect it to increase significantly in the coming year. Goldman Sachs projects the unemployment rate to hit 9 percent by the end of 2009. "This forecast, if correct, makes the current recession unequivocally the worst single downturn on record since World War II insofar as increases in joblessness are concerned," the economists said. Fewer jobs mean fewer home buyers, since an income stream is essential to obtaining a mortgage. "A job is necessary for a home," says Mark Zandi, chief economist at Moody's Economy.com. "Without [a job] you can't get [a home]."
3. Consumer Confidence: If consumers are worried about the state of the economy and their jobs, they are much less likely to make the biggest financial investment of their lives: buying a house. With a leading survey showing that consumer confidence in the United States dropped to 28-year lows in November, downward pressure on this front will be working against the housing market as well. "You generally don't buy a home unless you feel pretty good about your economic situation," Zandi says. "No one feels good [today]."
4. The Underwater Effect: A recent Zillow report found that 1 in 7 American homeowners has negative equity—owing more on a home than it is worth. (For those who bought a home in the past five years, it's nearly 1 in 3.) Many homeowners in this situation will choose to simply walk away from their homes rather than continue to pay off a devaluing investment. And with home prices expected to fall further next year, the number of "underwater" mortgages will most likely increase. "The underwater phenomenon is going to be very bad in 2009," says Christopher Thornberg of Beacon Economics.
5. Tighter Credit: As banks face higher loan delinquencies, they've responded by jacking up their lending standards for even well-qualified borrowers. The Federal Reserve's most recent Senior Loan Officer Survey found that 70 percent of domestic banks had boosted their lending standards for prime mortgages. More stringent terms will prevent certain borrowers from obtaining mortgages, thereby limiting demand for housing.
6. Slowing Household Formation: At the same time, the pace of new household formation is slowing, which further chips away at housing demand. Richard Moody, chief economist at Mission Residential, says the development is linked to three factors: More singles are moving in with each other, young adults are returning to live with their parents, and fewer immigrants are entering the country. "For those three reasons, you are seeing a slowdown in the rate of household formation," Moody says. "And to the extent that the economy and the labor market remain weak this year—which I think they will—then that's going to continue."
7. Radioactive Effect: Despite lower real estate prices and cheaper mortgage rates, the pain inflicted by the housing bust will frighten many would-be buyers away from the market next year, Larson says. "Enough of your 'average Joes' have been burned very badly and will be burned by the time this is all over that investment money is not going to flood back into the market," Larson says. "Any recovery—in my opinion—will be gradual and is going to take time."
8. Foreclosure Sales: A huge problem for the housing market in 2008, foreclosure sales will continue weighing down the market next year. "There was a surge this year," Zandi says. "But next year [there] will be even more." While that will give buyers an opportunity to go bargain hunting, it's bad news for sellers. "It puts more homes out there for sale at a very deep discount," Zandi adds.
9. Subprime Mortgages: While resetting subprime mortgages may not be a leading factor behind the decline in home prices—as they were this year—such products will again be working against the housing market in 2009, Thornberg says. "There are still lots of subprime mortgages out there that are going to reset not just in 2009, but 2010 and 2011," he says. "And so that's going to be a consistent problem for a while, although it is probably reduced in magnitude [from 2008]." until the back end of the year—if that."
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