California


Mortgage lending at lowest level since 1997

Despite near-record-low mortgage rates, a combination of factors is depressing the industry. Many people have simply decided homeownership isn’t for them.

 

  • Despite the confluence of lower home prices and rates, new mortgages are down by a third compared with 2010. Lenders will write about $1 trillion in home loans this year, the smallest total since 1997, according to the Mortgage Bankers Assn., which projects home lending will fall even lower in 2012.
Despite the confluence of lower home prices and rates, new mortgages are… (Seth Perlman, Associated Press)

 

August 06, 2011|By E. Scott Reckard, Los Angeles Times
Despite near-record-low mortgage rates and the cheapest housing prices in eight years, home lending has slipped this year to the lowest level since 1997.The laggard loan market can be explained in part by the slow economy, numerous foreclosures and the proliferation of “underwater” loans, those that exceed the value of the properties they secure.

 

But other factors are compounding the problem, including so-called refi burnout — how many times, after all, can one refinance a home? — and a wave of people who have simply decided that homeownership isn’t what it was cracked up to be.

Weary of a noisy tenant on the other side of a common wall, Bruce and Deborah Dennis sold their Arcadia duplex in April, banked a $600,000 profit and went looking for a quieter place to spend their 60s.

Bruce’s boss, a property manager, urged them to buy another home, saying they’d never again see prices and mortgage rates so low at the same time. The couple searched seriously for two months, even bidding on a home. In the end, they opted to rent a house, leery of tying up capital and taking on the headaches of ownership with the housing market so shaky.

“We thought, ‘Is buying really what we want to do?’ I have no confidence that home prices are going back up any time soon,” Bruce Dennis said.

Opt-outs like the Dennises are one reason the mortgage business, which led the way into the Great Recession, is taking so long to come out of it.

Another factor is the slowing of the refinance market. Mortgage costs are near historical lows, with lenders offering 30-year fixed-rate loans at about 4.2% to Californians seeking $400,000 mortgages, online home-loan specialist Lending Tree said Thursday.

But most of the lucky homeowners who still have equity and solid finances have already refinanced once or more and have long since locked in annual rates of less than 5%.

In 2003, as the housing boom took hold and 30-year fixed mortgage rates fell below 6%, refinancings propelled home lending to four times the current volume. And as the rate tumbled toward 5% and then smashed that barrier in 2009 for the first time since 1956, there was twice as much mortgage lending as now.

“There is a burnout phenomenon,” said Mortgage Bankers Assn. economist Michael Fratantoni. In addition, many would-be refinancers have been stopped by the declines in home prices, now back at 2003 levels, which has left them owing far more than their homes are worth.

“Borrowers who couldn’t qualify for 4.5% mortgages last year for the most part still can’t qualify this year,” Fratantoni said.

And getting the purchase market up and running again would require “significant job growth,” he said, something that has failed to materialize in the sluggish recovery that is threatening to fall back into recession.

 

 

The result of all this: Despite the confluence of lower home prices and rates, new mortgages are down by a third compared with 2010. Lenders will write about $1 trillion in home loans this year, the smallest total since 1997, according to the Mortgage Bankers Assn., which projects that home lending will fall even lower in 2012.Some say the combination of falling home prices, tight credit in the aftermath of the financial crisis and the flood of foreclosure sales has undermined the traditional view of homeownership as the engine of financial success.

“The previous assumptions that housing is a good investment, or that home prices can only go up, or that all Americans should be able to buy a home, are being seriously challenged,” Morgan Stanley housing analysts wrote last month in a study titled “A Rentership Society.”

In the middle of the last decade, when the term “ownership society” was coined, the homeownership rate was nearly 70%, the report noted. If delinquent borrowers were excluded, it said, the current rate of 66.4% today would instead be 59.7%.

For those willing to take out mortgages despite all the grim news, the prospects are improving slightly. Lenders have eased certain terms for the first time since the mortgage meltdown took hold, and some on the front lines say banks are abandoning the scrutiny bordering on suspicion with which they had come to regard potential borrowers.

“All those granular issues we were beating people up about over the last three years seem to be going away,” Laguna Niguel mortgage broker Jeff Lazerson said. “The hassles over old credit inquiries. Having to explain every entry on a bank statement.”

Spokesmen for Wells Fargo & Co. and Bank of America Corp., the largest mortgage companies, said they recently eased standards slightly for loans backed by the Federal Housing Administration, which are attractive to first-time buyers because they require relatively small down payments.

However, among younger buyers, “there’s not much feeling that they need to buy right away,” Fratantoni said. “I expect that may change over the next couple of years, but certainly for the first-time buyer there’s less near-term demand.”

Older people can be ownership-averse as well, like the Dennises, who intend to work five more years before they retire.

“To buy another house, we were going to have to come up with a chunk of change for a down payment,” Bruce Dennis said. “Then there were property taxes, and of course maintenance — that gets expensive in a hurry.

“The glories of homeownership we no longer have to face.”

scott.reckard@latimes.com

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Will the S&P Downgrade Affect Interest Rates?

Daily Real Estate News | Monday, August 08, 2011

 

Standard & Poor downgraded the U.S.’s credit rating on Friday, despite Congress reaching a deal in the final hours on the debt ceiling crisis last week. And now many of your customers may be asking: What does this mean for interest rates?“The impact on your wallet of the Standard & Poor’s downgrade of the nation’s credit rating is similar to what would happen if your own credit score declined: The cost of borrowing money is likely to go up,” the Washington Post explained in the aftermath of S&P’s decision.

S&P downgraded the U.S.’s top-notch AAA credit rating for the first time in history, moving it down one notch to AA+; the rating reflects a downgrade in S&P’s confidence in the U.S. government’s ability to repay its debts over time. It’s not clear, however, whether S&P’s downgrade will instantly effect rates, analysts say.

The 10-year Treasury note is considered the basis for all other interest rates. And “the downgrade could increase the yields on those bonds, forcing the government to spend more to borrow the same amount of money,” the Washington Post article notes. “Many consumer loans, such as mortgages, are linked to the yield on Treasurys and therefore would also rise.”

Watch this video with NAR Chief Economist Lawrence Yun for more information.

While consumers who have fixed interest rate mortgages will be immune to any changes in borrowing costs, home buyers shopping for a loan or those with mortgages that fluctuate may see a rise in rates later on, some analysts say.

Mark Vitner, senior economist at Wells Fargo Securities, told the Associated Press that he doesn’t expect the downgrade to drive up interest rates instantly since the economy is still weak and borrowers aren’t competing for money and driving rates higher. However, he expects in three to five years, loan demand will be much higher and then the downgraded credit rating might cause rates to rise.

Analysts are still waiting to see if the other rating agencies, Moody’s and Fitch, follows S&P’s lead in its downgrade of the U.S. credit rating. If so, the aftermath could be much worse, analysts say.

The debt deal reached by Congress last week was expected to save the U.S. from any credit rating downgrade. However, S&P said lawmakers fell short in its deal. Congress’ deal called for $2 trillion in U.S. deficit reduction over the next 10 years; S&P had called for $4 trillion.

Source: “5 Ways the Downgrade in the U.S. Credit Rating Affects You,” The Washington Post (Aug. 8, 2011); Questions and Answers on Standard & Poor’s Downgrading of U.S. Federal Debt,” Associated Press (Aug. 6, 2011); and S&P Downgrade Will Shake Consumer and Business Confidence at a Fragile Time, Economists Say,” Associated Press (Aug. 6, 2011)

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Real Estate OK in Debt Deal But Risks Remain

Young Generation Hit Hard by Recession

Daily Real Estate News | Monday, August 08, 2011

 

The recession has hit the younger generation hard and is forcing them to delay many major life changes and purchases, according to a new survey. About 44 percent of Millennials — people aged 18 to 29 — say they will have to delay buying a home due to economic factors, according to a survey conducted by The Polling Co. Inc./WomanTrend.

About 75 percent say they have or will delay a major life change or purchase due to economic factors, and 30 percent say the bad economy has prompted them to delay changing jobs or cities. What’s more, nearly 25 percent say they will delay starting a family, and 18 percent say they will delay getting married.

Such delays by the younger generation has started to affect household formation. Many young professionals are moving back in with their parents to curb costs, which has caused household to grow in recent years after facing decades of declines.

“The impact of the poor economy, in human terms, has been devastating. This is especially true for young Americans, whose lives have been interrupted and dreams put on hold due to the lack of economic opportunity,” says Paul T. Conway, president of Generation Opportunity.

Source: “Young Americans Waylaid by Recession, Study Shows,” Los Angeles Times (Aug. 5, 2011)

Read more:

What Does Gen Y Want?

Hiring Like It’s 1999

The tech boom is fueling a surge in jobs and creative recruiting

By

 

Michael De Frenza scans the crowd of 50 or so well-dressed professionals mingling near a bar at the W Hotel in San Francisco’s South of Market District. De Frenza, a recent transplant to the Bay Area, is here in search not of a date—but of a job. In the five weeks since De Frenza, 34, returned to the area after a two-year stint in Toronto, he has received five offers. “I’m taking my time trying to find the right fit,” he says.

I Love Rewards, which provides companies with services to motivate employees, arranges cocktail parties like this one every other week at the W Hotel to help it recruit 40 people by Sept. 30 for a new West Coast sales outpost. “Just in time for us arriving in San Francisco, the market has gotten extremely hot,” says Razor Suleman, chief executive of the company. “San Francisco is coming back to the days when candidates have two or three job offers,” he says.

Competition for cloud computing engineers, security experts, and mobile developers as well as sales professionals in the technology industry has gotten so fierce in the past six months that companies are going to greater lengths to woo prospective employees. They’re throwing lavish parties, handing out free food at conferences, doling out $50,000 signing bonuses, and offering perks such as free haircuts and medical care at the office.

MORE SIGNING BONUSES

The tech sector is fueling a job boom that stands in stark contrast to the malaise of the general job market. The nationwide unemployment rate ticked up to 9.2 percent in June, according to the Bureau of Labor Statistics. At the same time, the unemployment rate for tech professionals dropped to 3.3 percent, from 5.3 percent in January. “That’s pretty close to full employment,” says Alice Hill, managing director of technology career website Dice.com (DHX).

“It’s such a thin market, it feels like everybody is employed already,” says Adam Pisoni, co-founder and chief technology officer of Yammer, which sells software and services for social networking in the workplace. The San Francisco company is doubling its engineering staff. “Engineers have 10 recruiters calling them.” The company would like to hire between 50 and 100 engineers this year, Pisoni says.

Companies are employing a variety of strategies to attract talent. Saba Software (SABA) and Digital River (DRIV) recently paid C-level executives $50,000 signing bonuses. “While signing bonuses at tech companies are not uncommon, their use has become more prevalent recently as the economy has improved and competition for talent has heated up,” says Aaron Lapat, managing director of the technology practice at executive recruiting firm J. Robert Scott. Recruiters are also circling Cisco like vultures, anticipating the August layoffs in the hope of finding qualified employees.

BELLS AND MUSIC

Recruiting tactics from the late 1990s are starting to make a comeback, too. Last year, Appirio hired a taco truck and parked it at Dreamforce, an industry conference for cloud computing professionals. Attendees couldn’t help but notice the signs on the truck saying that Appirio was hiring as they waited in line for free tacos.

When Dreamforce happens again later this month, Appirio plans to ply attendees with more food, but the company wouldn’t divulge exactly what it plans to serve. Appirio anticipates that about 25,000 people will attend Dreamforce, the cloud computing trade show organized by Salesforce.com (CRM). “We assume that 10 percent are actively looking for a new job,” says Narinder Singh, Appirio’s chief strategy officer. The company hired 110 workers in the first half of this year and is looking for another 140 by year’s end.

 

Home Listings Fall but Woes Persist

Sharp Drop in Houses for Sale, Usually a Plus for Market, May Reflect Foreclosure Logjam Rather Than More

 

By NICK TIMIRAOS

The number of unsold homes listed for sale declined sharply in a number of U.S. cities during the second quarter, offering glimmers of hope that some housing markets could be entering a recovery phase. Nick Timiraos has details.

The number of homes listed for sale declined sharply in a number of U.S. cities during the second quarter, offering glimmers of hope that some housing markets are starting to recover.

At the end of June, nearly 2.34 million homes were listed for sale on multiple-listing services in more than 900 metro areas, the lowest level for that time of year since at least 2007, according to Realtor.com. In some cases, inventory levels are at their lowest levels since the housing downturn began five years ago.

Shrinking inventory often is seen as a positive sign for housing because it usually means demand is rising, which often leads to higher prices. But in the current environment, the decline in inventory may instead reflect how the market remains anything but healthy. While sales are picking up in some cities, analysts say the sharp decline in inventory also reflects the slow pace at which banks are processing foreclosures.

The Wall Street Journal’s latest quarterly survey of housing-market conditions in 28 major metropolitan markets found inventory levels were down in all but three markets and were down by double digits in 16 markets in the second quarter, compared with a year ago. Listings in Miami were down 43% from a year ago and were off 30% in Washington, D.C. Several cities, including Charlotte, N.C.; Seattle; and San Francisco, saw declines greater than 20%, according to figures compiled by John Burns Real Estate Consulting.

Associated PressA decline in the number of homes for sale has raised hopes the market is improving. Above, a house coming off the market in Bath, Maine.

HOUSINGQ

HOUSINGQ

In markets such as Sacramento, Calif., and Phoenix, where home values are down nearly 50% from the peak in 2006, it would take just four months to sell the supply of homes listed for sale at the current sales pace.

“We’re in a shortage situation,” said Brett Barry, a real-estate agent in Phoenix. “It’s a very artificial, ‘Twilight Zone’ kind of feeling, because we know there’s a lot of homes out there.”

The bottleneck in bank foreclosures has contributed to that situation. In the past year, banks have been accused by federal and state officials of circumventing legal procedures when foreclosing on homeowners. To correct those problems, banks are moving more cautiously when repossessing a home.

As a result, the number of newly initiated foreclosures has dropped to a three-year low. But the number of homes in foreclosure—a backlog of 2.1 million—is near a high, according to LPS Applied Analytics.

If supply remains constrained, prices could stabilize. “We’re not at the end of the housing nightmare, but we seem to be getting closer,” said Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. But if banks accelerate foreclosures, inventories will swell again. Mr. Otteau says it is too soon to celebrate because “we are all expecting that foreclosure ‘tidal wave’ to begin sometime soon.”

Home values, meanwhile, fell at a slower pace during the second quarter, with 19 markets reporting quarterly gains, according to data from Zillow.com. Values were still below year-earlier levels in every market.

For the quarter, the biggest gains in home values were reported in Nashville, Detroit, Dallas and Raleigh, N.C. Markets that have struggled with a glut of foreclosed properties posted the biggest quarterly declines, with values down by more than 2% in Phoenix, Las Vegas and Sacramento.

Another factor behind falling inventory levels is shifting behavior on the part of sellers, who in recent months have started to yank homes off the market because they couldn’t get a high enough offer. “Sellers think they’ll get a better price if they wait and sell it next year, and I just didn’t hear that from sellers two years ago,” said Glenn Kelman, chief executive of Redfin Corp., a Seattle-based real-estate brokerage that does business in 13 states.

Consider the case of attorney Natasha Gonzalez Rojas. After landing a job in Dallas last summer, Ms. Gonzalez Rojas tried unsuccessfully to sell a three-bedroom condo in Philadelphia for $499,000. She and her husband rented it out and in June discussed renewing their tenants’ lease for another year. They lose about $1,000 every month but don’t want to sell for less than what they owe. “We’re not willing to pay somebody to buy our house,” Ms. Gonzalez Rojas said. Until they sell their Philadelphia home, they are also unlikely to buy a home in Dallas. “We don’t want to have two mortgages, and I doubt we’d even qualify,” she said.

Rising rent is another factor pulling some potential homeowners off the fence. During the housing boom, landlords lowered rents to hold on to tenants who were leaving apartments to become homeowners. Now that trend has reversed, sending rent levels soaring.

Shannon Keyes Woodward, 29, and her husband are ready to move out of a “ludicrously priced” rental apartment in Alexandria, Va., but have been outbid on every property on which they have made an offer. “It’s devastating, not being able to find anything,” said Ms. Keyes Woodward.

She expresses a common frustration for entry-level buyers in markets, such as Northern Virginia, that are seeing more activity. Nearly all the homes in their low-$300,000 price range either need renovations or are scooped up within days of hitting the market, often by investors making all-cash transactions.

Nearly 68% of homes sold in Miami last quarter were all-cash sales, up from 56% a year ago, according to Miller Samuel Inc., a real-estate appraisal firm.

Out-of-state buyers and foreigners are seeking bargains on vacation properties. Meanwhile, mom-and-pop investors and private-equity-backed buyers of distressed real estate are snapping up foreclosures at courthouse auctions with plans to fix them up and resell them for a profit. In some cases, prices are so low that investors are holding on to the properties and renting them.

Allen Chan paid $121,500 for a three-bedroom townhouse in Montgomery Village, Md., last August that he now rents for $1,525 a month, more than enough to cover the $850 monthly mortgage, property-tax and insurance costs.

The biggest challenge for Mr. Chan, a 26-year-old investor in Silver Spring, Md., is competition. He bought four homes last year, reselling one and renting the other three. Since December, he has been outbid on every property he has offered to purchase.

Despite the possible downsides of emergency repairs, careless tenants or periods of vacancy, “with the returns as high as they are, there’s a lot of room for error,” Mr. Chan said. “Any way you look at it, it’s just an incredible deal.”

—S. Mitra Kalita contributed to this article.

Write to Nick Timiraos at nick.timiraos@wsj.com

How to Win Over Buyers

No matter how well educated your buyers are, they still need information on how a real estate transaction works. Use consultation appointments to inform them and become a trusted resource in the process.

May 2011 | By Rich Levin
 
Buyers are more educated in today’s market. They have more access to information regarding properties and their value. Plus there are practically unlimited real estate resources online for practitioners.

These combined factors should make the real estate professional’s job easier, but for many, they don’t. Why? There are two problems:

  • The information may not be accurate or relevant to a specific market.
  • The information is almost certainly incomplete.

“An Educated Consumer Is Our Best Customer”

Two adages speak to today’s buyer:

Whether the real estate pro finds buyers easier or more difficult to work with depends on whether that practitioner respects and completes the buyers’ education.

Have the buyers obtained a copy of the contract and paperwork online? Probably not, and most paperwork has many pages plus addenda. Do the buyers know what real estate trends apply to their market? Do they know what to do when the inspection reveals a problem?

Contracts, inspections, financing, negotiation — there are far too many steps in the transaction process for most buyers to pick up on their own.

A Simple and Powerful Process

The most successful buyer’s agents learn to ask a few simple questions (adjust to the circumstances of you and your buyer accordingly):

“The purchase documents in our area are six pages, plus disclosures and addenda. Has anyone given you a copy of the latest documents and reviewed with you the parts that are going to be relevant for your purchase? I find it helps a lot to be familiar with the documents so you aren’t seeing them for the first time when you’re making that $200,000 decision. Would you like to get a copy and take a look at those together?”

“There are inspectors, appraisers, attorneys, title companies, lenders, and real estate agents involved in the transaction. Would it be helpful to go through the process step-by-step so you know what to expect and get some idea of what might come up? It often reduces some pressure and allows you to enjoy the process with greater confidence. Would that be helpful to you?”

These simple questions lead buyers to make a consultation appointment, which can establish enormous confidence and trust in you, the agent. Buyers subsequently go along more easily with your recommendations through the negotiations, which actually can reduce the number of homes they need to view. They find the experience so valuable that they begin to refer you to friends and relatives.

At the consultation appointment, review each step of the process, educating and preparing buyers. Do they understand the type of financing they’re trying to get? Do they have any questions about it? Even if you don’t have the answers, you can take the lead getting a clarification and making sure buyers are aware of what’s included in their closing costs and their payments, and in reducing cash needed with seller contributions.

You also should explain what buyers can expect: Describe problems that could arise and how you’ve solved them and protected buyers’ interests in the past.

As you conduct these presentations, you’ll quickly discover two things: how much buyers don’t know — even the educated ones — and how much they misunderstand. As you realize the value and power of these consultations, you’ll learn to go into deep detail, continuously confirming buyers’ understanding.

Changing laws and financing situations — such as explaining short sales and foreclosure procedures — are just a few reasons that the time you spend preparing buyers works to everyone’s benefit.

Travel taxes

The worst US cities for travel taxes

Jul 24th 2011, 15:40 by N.B. | SAN FRANCISCO

REGULAR Gulliver readers will know that this blog takes a strong stand against travel taxes. Local politicians love taxing hotels, airports, and other services that business travellers use. After all, out-of-town visitors don’t vote for mayor or city council, and out-of-state visitors don’t vote for governor or state legislature, either. But heavily taxing visitors disguises the true costs of local-level government services and can discourage business travel and investment.

So which US cities are the worst offenders? The Global Business Travel Association Foundation (that’s a mouthful) has the details:

[D]iscriminatory travel taxes and fees enacted on travel-related services impose an average increased cost on visitors of 56% over general sales tax. These taxes are often used to fund local projects unrelated to tourism and business travel….

Discriminatory travel taxes are those imposed specifically on travel services above and beyond general sales taxes. The U.S. cities with the lowest discriminatory travel tax rates in central city locations are:

1. Orange County, CA
2. San Diego, CA
3. San Jose, CA
4. Burbank, CA
5. Ontario, CA

The cities that impose the highest discriminatory travel taxes on travelers are:

1. Portland, OR
2. Boston, MA
3. Minneapolis, MN
4. New York, NY
5. Chicago, IL

This is pretty interesting. The cities with the lowest incidence of discriminatory travel taxes are all in California. Any readers have a guess as to why that might be the case?

The highest incidence of discriminatory travel taxes is in big, blue-state cities that provide many public services on the local level. Three of them (Boston, New York, and Chicago) are must-visit American cities for any first-time traveller to the US. They have enough travellers and are important-enough destinations that they can afford to take advantage of business travellers and tourists. It’s hard to imagine that many people are cancelling their trips to New York because of the hotel tax.

What would be more interesting, to me at least, would be to look at the cities in the middle of the GBTA’s “best” and “worst.” There must be some jurisdictions that could stand to gain a lot as tourist and business travel destinations by reducing their travel tax burden. I’d love to see a good statistician (Nate Silver, anyone?) take a crack at that analysis.

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