Welcome to the "Z" Team!

We enjoy sharing good news like this report! Fannie Mae, which backs the most loans in the country, announced that it would not need taxpayer aid to cover losses for the first time since the federal government took control over the mortgage giant in 2008.

Fannie posted a profit in the first quarter of the year, reporting a net income of $2.7 billion compared to a $6.5 billion loss they reported in the first quarter of 2011.

“We expect our financial results for 2012 to be significantly better than 2011,” says Susan McFarland, Fannie Mae’s chief financial officer. “As our serious delinquency rate declines and home prices stabilize, we expect to reduce our reserves, which combined with revenue from our high-quality new book of business, will drive our future results.”

Freddie Mac, also a government-sponsored enterprise and mortgage giant, recently reported a profit as well — a $577 million quarterly net income for the first quarter.

Our region is showing other signs of the housing market stabilizing: The decline in home prices is slowing, more are buying homes than a year ago, and housing starts have climbed in the last year. Comments about your local market conditions improving? 

Source: “Fannie Mae Profit Signals a Stabilizing Housing Market,” The New York Times (May 9, 2012)

Fiserv, the market watcher sees a big boost to home prices on the horizon, projecting that home prices will rise nearly 4 percent per year for the next five years.

The real estate markets expected to see the biggest increases in home prices will likely be those hardest hit the last few years by foreclosures, such as in Phoenix and Las Vegas, and areas where prices have fallen the most, according to Fiserv’s forecast.

Housings rising affordability mixed with falling inventories of for-sale homes are the main factors driving the expected price increases, according to Fiserv.

Initially, investors are expected to help drive most of this price increase, and then followed by first-time and trade-up buyers as they re-emerge in bigger numbers to the market. Please provide your comments in regards  to your local market reflections!

Source: “U.S. Home Prices Could Rise 4% a Year, Forecast Says,” USA Today (5/8/12)

Thirty-three percent of Americans say they expect home prices to rise in the next 12 months, the highest level in more than a year, according to Fannie Mae’s March 2012 National Housing Survey of consumer attitudes about the housing market.

The number of people who say now is a good time to buy is also on the rise, increasing to 73 percent—also the highest level in more than a year. The percentage who said it’s a good time to sell a home also increased one point to 14 percent in March.

Meanwhile, more Americans expect rental prices to rise and are projecting an increase by 4.1 percent over the next year, the highest number recorded to date.

“Conditions are coming together to encourage people to want to buy homes,” says Doug Duncan, Fannie Mae’s chief economist. “Americans’ rental price expectations for the next year continue to rise, reaching their record high level for our survey this month. With an increasing share of consumers expecting higher mortgage rates and home prices over the next 12 months, some may feel that renting is becoming more costly and that home ownership is more compelling house choice.”

Source: “Americans’ Expectations Align to Encourage Home Buying,” RISMedia (5/6/12)

Four of the the country’s 19 largest banks do not have enough capital to withstand another economic downturn, if one occurs, according to the Federal Reserve’s latest stress test for banks.

Would you have guessed the four banks at risk named in the report are Citigroup, SunTrust, Ally Financial, and MetLife?

The hypothetical stress test, conducted annually by the Federal Reserve but not usually released publicly, analyzes if banks could weather the storm if the economy saw a 21 percent reduction in home prices, 13 percent unemployment, and a 50 percent drop in stock prices. The test aims to see which banks would be able to continue to lend money to individual and businesses even if such catastrophic losses occurred.

For any banks that fail the stress test, the Fed can force them to raise money, such as by selling additional stock or issuing debt.

For the banks that did pass, they are able to raise their dividends and take action in luring more investors to their stocks. This year’s results are “clearly good news — the U.S. banking system can now withstand a quite severe recession without falling over,” Douglas Elliott, a fellow at Brookings Institution, told the Associated Press. Among the banks that passed the stress test are U.S. Bancorp, JPMorgan Chase, and Wells Fargo.

Source: “Federal Reserve Annual Stress Test Fails 4 of 19 Big Banks,” The Associated Press (March 12, 2012)

California median home price: January 2012: $268,280 (Source: California Association of Realtors, C.A.R.)

Highest median home price by region/county January 2012: Marin, $694,440 (Source: C.A.R.)

Lowest median home price by region/county January 2012: Tehama, $110,000 (Source: C.A.R.)

Pending Home Sales Index: January 2012: 102.4, an increase from the revised 93.1 recorded in January 2011

Traditional Housing Affordability Index: Fourth quarter 2011: 55 percent (Source: C.A.R.)

Mortgage rates: Week ending 3/1/2012 30-yr. fixed: 3.90% fees/points: 0.8% 15-yr. fixed: 3.17 fees/points: 0.8% 1-yr. adjustable: 2.72% Fees/points: 0.6% (Source: Freddie Mac)

The housing supply is expected to normalize in two to four years, Barclays Capital projects, assuming that household formation rates increase to 1.1 million and construction remains slightly above 2011 levels.

Household formation–which is a reflection of population growth and housing affordability–has drastically dropped since 2007, reaching about 300,000 to 500,000 per year. Historically, the rate is about 1.25 million.

Home prices will likely see a 1 percent appreciation this year (that’s after falling 3 to 4 percent through March), Barclays Capital estimates. It is also projecting a 1 percent price appreciation in 2013, followed by 2 percent to 3 percent appreciation levels.

But to reach those goals, the housing supply needs to continue to shrink first. Our region in the Sierra Foothills of Placerville, California is experiencing a low supply in the under $300,000. price range. This is the primary market for first time home buyers and cash investors. So we’re off to a supply, demand race for the spring market?

Source: “Barclays: Housing Supply Could Normalize in 2014,” HousingWire (3/2/12)

“Good News” to share with you! The number of home owners behind on their mortgage payments dropped to the lowest level in three years, according to a report of data from the fourth quarter of 2011 released by the Mortgage Bankers Association. 

“Mortgage performance is also improving faster than the overall economy,” says Jay Brinkmann, MBA’s chief economist. (We’re finding this is not true with some lenders.)

According to MBA, 7.6 percent of residential mortgages were at least 30 days past due on their payments in the fourth quarter of 2011. Last year, the percentage was 8.3, and the peak of 10 percent was reached in early 2010. Mortgage delinquencies usually hover around 5 percent in more stable markets. Let’s hope this trend continues.

Still, while the lower delinquencies serve as an important sign needed for a healing housing market, MBA still cautions that the number of loans in foreclosure remains high. About 4.4 percent of all loans were in foreclosure in the fourth quarter. The peak reached one year earlier was 4.6 percent.

Source: “Mortgage Delinquencies Hit Three-Year Low,” The Wall Street Journal (2/16/12)

“Mom and pop investors” are trying to capitalize on a depressed real estate market in the hopes of one day being able to cash in. An article in USA Today highlights this new breed of small-scale investors who like to buy and hold properties, opposed to the high-dollar large investment firms that once dominated the real estate market who preferred to buy and flip their property investments. 

For “mom and pop investors,” the strategy is to buy homes at rock-bottom prices, rent the properties out to cover costs of home ownership for several years, and then one day sell the homes when prices recover. “An unprecedented number of investors are looking into this,” John Burns, CEO OF John Burns Real Estate Consulting, told USA Today. We find some buy for eventual relocation to another area for retirement.

For investors in the rental market, an 8 percent annual return is fairly normal, according to Burns. “That means that someone who buys a $100,000 property — and pays cash for it — makes $8,000 a year after expenses, including maintenance and taxes,” the USA Today article notes. 

The threats of tenant or maintenance issues may be the potential to derail that potential profit, so investors need to be careful. Many of the investors we work with are cautious and seek advice from their real estate agent, property managers or other experts. 

Source: “Mom and Pop Investors Propping Up Home-Buying Market,” USA Today (Feb. 14, 2012)

Blame it on distressed sales for falling home values, according to CoreLogic’s December Home Price Index. From our analysis here in the Placerville, El Dorado County, California region we concur with this study. What are your thoughts?  

Home prices nationwide dropped nearly 5 percent from 2010 to 2011, but if you exclude distressed sales, prices dropped only by 0.9 percent, according to CoreLogic.

“Until distressed sales in the market recede, we will see continued downward pressure on prices,” Mark Fleming, chief economist of CoreLogic, told AOL Real Estate.

The states that saw home prices decline by the largest amounts since the housing peak are Nevada, Arizona, Florida, Michigan, and California. All five states have a high rate of foreclosures too.

Please read more at source: “Distressed Sales Undercut Home Prices in 2011, Study Says,” AOL Real Estate (Feb. 2, 2012)

When you compare the cost of owning a home to renting, you’ll find that buying may soon make more sense, Paul Diggle, a housing economist at Capital Economics, told MSNBC.com. 

Diggle’s analysis of the housing market showed a 33 percent drop in home prices, record-low mortgage rates (with 30-year fixed-rate mortgages available under 4 percent now), and a 15 percent rise in rents since the housing market turned sour are making more consumers take a closer look at buying. We find this is applicable to the “Sierra Foothills” of El Dorado, Placer, Amador and Sacramento Counties of California.

“The median monthly mortgage payment of about $700 has fallen to about the level of a median monthly rent check,” an article at MSNBC.com notes about Diggle’s analysis. “If mortgage rates keep falling and rents keep rising, the equation will tip even further toward owning.”

Case in point: Diggle says that a buyer who purchases a median-priced home and stays there for at least seven years would likely come out ahead by about $9,000 than if they chose to rent for those seven years. Diggle’s calculations factor in rents continuing to rise 3 percent a year. Plus housing prices staying flat for the next two years before rising in 2014. 

But while more Americans may be motivated to buy, many still can’t, Diggle notes. Home owners who lost their home to foreclosure may be forced to wait on the sidelines before owning again, other Americans may not have a 20 percent down payment that more lenders are wanting, lack a high credit score to qualify for the best financing, or have steady employment. 

Source: “Home Buying Could Soon Beat Renting,” MSNBC.com (Jan. 23, 2012)

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