New-home construction plunges in February

By The Associated Press

The Associated Press

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WASHINGTON — 

Builders broke ground last month on the fewest homes in nearly two years and cut their requests for permits to start new projects to a five-decade low. The decline in construction activity is the latest evidence that the housing industry is years away from a recovery.
Home construction plunged 22.5 percent in February from January to a seasonally adjusted 479,000 homes, the Commerce Department said Wednesday. It was the lowest level since April 2009 and the second-lowest on records dating back more than a half-century.
The decline followed a surge in highly volatile apartment construction in January, which pushed the overall construction rate up to more than 600,000 units - the fastest rate in 20 months. Still, the building pace has been far below the 1.2 million units a year that economists consider healthy.
Single-family homes, which make up roughly 80 percent of home construction, fell 11.8 percent in February. Apartment and condominium construction dropped 47 percent, reversing much of January's gains.
Building permits, an indicator of future construction, fell 8.1 percent last month to the lowest level on records dating back to 1960. Permit requests for single-family homes saw the biggest decline. Apartments and condos remained flat.
Falling prices, sluggish sales and the weak construction rate all point to a housing market that is "stuck at a bottom of a steep hill," according to Moody's Analytics Economic Research.
"There are really large structural problems with the housing market," said Dan Greenhaus, chief economic strategist with Miller Tabak + Co. "This is not a run-up in oil prices. This is a multiyear build up in the housing market that is going to take more than several months or several quarters to get through."
For a housing recovery to take hold, the job market needs to improve and builders need to gain access to hard-to-get credit.
"Credit is flowing freely to large companies but not so much to the small builders," said Patrick Newport, U.S. economist for IHS Global Insight. "If builders cannot get financing to build new homes, housing will remain in the dumps."
Analysts said year-end building code changes in California, Pennsylvania and New York caused an artificial spike for permit requests in December and housing starts in January. Builders in those states rushed to file new permits before those changes went into effect.
Even with those gains, the housing market has struggled. Millions of foreclosures have forced home prices down and more are expected this year. Tight credit has made mortgage loans tough to come by. And some potential buyers who could qualify for loans are hesitant to enter the market, worried that prices will fall further.
The drop in home construction activity was felt coast to coast. It fell 48.6 percent in the Midwest, 37.5 percent in the Northeast, 28 percent in the West and 6.3 percent in the South.
The volatile housing market is weighing on the overall economic recovery. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
The trade group said Tuesday that its index of industry sentiment for March improved slightly to 17. That was the first gain in five months after four straight readings of 16. Still, any reading below 50 indicates negative sentiment about the housing market's future. The index hasn't been above that level since April 2006.

Underwater mortgages rise as home prices fall

By DEREK KRAVITZ

AP Real Estate Writer

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WASHINGTON — 

The number of Americans who owe more on their mortgages than their homes are worth rose at the end of last year, preventing many people from selling their homes in an already weak housing market.
About 11.1 million households, or 23.1 percent of all mortgaged homes, were underwater in the October-December quarter, according to report released Tuesday by housing data firm CoreLogic. That's up from 22.5 percent, or 10.8 million households, in the July-September quarter.

The number of underwater mortgages had fallen in the previous three quarters. But that was mostly because more homes had fallen into foreclosure.  Underwater mortgages typically rise when home prices fall. Home prices in December hit their lowest point since the housing bust in 11 of 20 major U.S. metro areas. In a healthy housing market, about 5 percent of homeowners are underwater.

Roughly two-thirds of homeowners in Nevada with a mortgage had negative home equity, the worst in the country. Arizona, Florida, Michigan and California were next, with up to 50 percent of homeowners with mortgages in those states underwater.

Oklahoma had the smallest percentage of underwater homeowners in the October-December quarter, at 5.8 percent. Only nine states recorded percentages less than 10 percent.  In addition to the more than 11 million households that are underwater, another 2.4 million homeowners are nearing that point.

Reverse mortgages get more affordable, but be careful

By MARCIE GEFFNER

Bankrate.com

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Before you borrow

IF YOU'RE in the market for a reverse mortgage, seek independent counseling before you even talk to a lender to learn about loan alternatives or tips on negotiating with a lender. Find a government-approved counselor near you at www.hud.gov/.

CHECK OUT the National Council on Aging's BenefitsCheckUp.org for assistance programs that could make a reverse mortgage unnecessary.

TO FIND OUT how much you can potentially receive through a reverse mortgage, check online calculators at aarp.org or reversemortgage.org.

CONSUMERS UNION offers tips about reverse mortgages on its website, www.consumersunion.org. The site's offerings include information about applying for government benefits for seniors, getting advice from local Housing and Urban Development counselors and seeking a so-called private reverse mortgage — a loan from a family member using the senior's home equity as collateral.

These loans, which allow seniors to spend their home equity without selling their home, have historically been cumbersome and expensive. But new options empower seniors to tap smaller amounts of equity in a more affordable way, according to Peter Bell, president of the National Reverse Mortgage Lenders Association, a group that represents lenders and investors.

The biggest change is the introduction of a new reverse mortgage, called the Home Equity Conversion Mortgage Saver option, or HECM Saver. It has a cheaper upfront mortgage insurance premium, or MIP, compared with the traditional HECM reverse mortgage, now known as the standard option.
Mortgage insurance protects lenders from loan losses, though borrowers pay the cost. Most reverse mortgages are insured through the Federal Housing Administration.

The trade-off, due to the lower MIP and other program changes, is a 10 percent to 18 percent reduction in the maximum loan amount allowed on the saver option, and 1 percent to 5 percent on the standard option, depending on the borrower's age and interest rate, Bell says. The lower loan amount allowed on the saver option means the FHA's risk exposure is lessened.

New-home sales in January drop 12.6 pct

By DEREK KRAVITZ

AP Real Estate Writer

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WASHINGTON — 

Sales of new homes fell significantly in January, a dismal sign after the worst year for that sector in nearly a half-century.
New-home sales dropped to a seasonally adjusted rate of 284,000 homes last month, the Commerce Department said Thursday. That's down from 325,000 in December and less than half the 600,000-a-year pace that economists view as healthy.
Bad winter weather likely hampered some sales, although the industry has been struggling since the housing bubble burst in 2006.
Last year was the fifth consecutive year that new-home sales have declined after hitting record highs during the housing boom. Buyers purchased 322,000 new homes last year, the fewest annual total on records going back 47 years. Economists say it could take years before sales return to a healthy pace.
Builders of new homes are struggling to compete in markets saturated with foreclosures. High unemployment and uncertainty over home prices have kept many potential buyers from making purchases.
Poor sales of new homes mean fewer jobs in the construction industry, which normally powers economic recoveries. On average, each new home built creates the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
New-home sales were uneven across the country. In January, sales fell 36.5 percent in the West and 12.8 percent in the South. But they rose 17.1 percent in the Midwest and 54.5 percent in the Northeast.
The big declines in the West came after a huge increase in December. Buyers had rushed to take advantage of a state tax credit of up to $10,000 on new home purchases in California at the end of the month, said Joshua Shapiro, chief U.S. economist for MFR Inc.
"It would make sense that a surge in such activity took place in California during December and there was payback in January," he said.
Sales of previously occupied homes have not fared much better. While sales rose slightly last month, the seasonally adjusted annual pace of 5.36 million is still far below the 6 million homes a year needed to maintain a healthy market.
Mortgage applications are now near their lowest levels in 15 years.
The average rate on a 30-year fixed mortgage this week dipped to 4.95 percent from 5 percent, Freddie Mac said Thursday. It hit a 40-year low of 4.17 percent in November, and has been trending upward since.
About 188,000 new homes were for sale at the end of January, the lowest level since 1967. The number of homes that have received permits to begin construction has held steady over the past year while the number of those under construction and finished has plummeted.
The median sales price of a new home sold in January was $230,600, down 1.9 percent from the month before. Given the pace of new-home sales, it would take nearly 8 months to clear them off the market. Economists say a six-month supply of homes is healthy.

Investors snap up cheap homes, new buyers miss out

By DEREK KRAVITZ

AP Real Estate Writer

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WASHINGTON — 

Home sales are starting to tick up after the worst year in more than a decade. But the momentum is coming from cash-rich investors who are scooping up foreclosed properties at bargain prices, not first-time home-buyers who are critical for a housing recovery.
The number of first-time buyers fell last month to the lowest percentage in nearly two years, while all-cash deals have doubled and now account for one-third of sales.
A record number of foreclosures have forced home prices down in most markets. The median sales price for a home fell last month to its lowest level in nearly nine years, according to the National Association of Realtors.
Lower prices would normally be good for first-time home-buyers. But tighter lending standards have kept many from taking advantage of them. With fewer new buyers shopping, potential repeat buyers are hesitant to put their homes on the market and upgrade.
Cash-only investors are most interested in properties at risk of foreclosure. They can get those at bargain-basement prices.
"The cash-rich investors can come in and get foreclosed properties at incredibly favorable prices," said Paul Dales, senior U.S. economist for Capital Economics. "The average Joe can't take advantage because they simply cannot get the credit to buy."
Sales of previously occupied homes rose slightly in January to a seasonally adjusted annual rate of 5.36 million, the Realtors group said Wednesday. That's up 2.7 percent from 5.22 million in December.
Still, the pace remains far below the 6 million homes a year that economists say represents a healthy market. And the number of first-time home-buyers fell to 29 percent of the market - the lowest percentage of the market in nearly two years. A more healthy level of first-time home-buyers is about 40 percent, according to the trade group.
Foreclosures represented 37 percent of sales in January. All-cash transactions accounted for 32 percent of home sales - twice the rate from two years ago, when the trade group began tracking these deals on a monthly basis. In places like Las Vegas and Miami, cash deals represent about half of sales.
In the three states where foreclosures are highest, at-risk homes make up at least two-thirds of all sales. In Florida, 63 percent of sales in January involved homes that were at risk of foreclosure, according to a Campbell/Inside Mortgage Finance survey. And in Arizona and Nevada, a combined 72 percent of sales involved those homes at risk of foreclosure.
A major barrier for first-time home-buyers is tighter lending standards adopted since the housing bubble burst. These have made mortgage loans tougher to acquire. Banks are also requiring buyers put down a larger down payment. During the housing boom, buyers could purchase a home with little or no money down.
The median down payment rose to 22 percent last year in at least nine major U.S. cities, according to a survey by Zillow.com, a real estate data firm. That's up from 4 percent in late 2006 - as the housing bubble began to burst. The cities included some of the nation's hardest hit markets - Las Vegas, Phoenix and Tampa, Fla. - as well as areas that are rebounding, including San Diego and San Francisco.
That has prevented many from buying, even when the median price of a home fell in January to $158,800. That's a decline of 3.7 percent from a year ago and the lowest point since April 2002.
"If you can get the financing, it's a great time to buy a home with prices this low," said Patrick Newport, U.S. economist with IHS Global Insight.
Many potential buyers who could qualify for loans are hesitant to enter the market, worried that prices will fall further. High unemployment is also deterring buyers. Job growth, while expected to pick up this year, will not likely raise home sales to healthier levels.
With mortgage rates rising, mortgage applications have been volatile. They're now near their lowest levels in 15 years. Economists say it could take years for home sales to return to healthy levels.
"Home prices continue to languish," said Steven Wood, chief economist for Insight Economics. "Any recovery will be difficult to sustain given the still-large supplies of homes for sale and distressed properties."
Last year, home sales fell to 4.9 million, the lowest level in 13 years. And even that number, some say, was overstated.
CoreLogic, a real-estate data firm in Santa Ana, Calif., said it's found that 3.3 million homes were sold last year, far fewer than the National Association of Realtors' 4.9 million figure. CoreLogic has suggested that the Realtors figure is too high.
Since 1968, the Realtors group has produced the monthly report on the number of previously occupied homes sold. The group serves as chief advocate and lobbying arm for real estate agents. It says it's reviewing its 2010 yearly estimate.
One obstacle to a housing recovery is the glut of unsold homes on the market. Those numbers fell to 3.38 million units in January. It would take 7.6 months to clear them off the market at the January sales pace. Most analysts say a six-month supply represents a healthy supply of homes.
Analysts said the situation is much worse when the "shadow inventory" of homes is taken into account. These are homes that are in the early stages of the foreclosure process but have not been put on the market yet for resale.
For January, sales were up in three of the four regions of the country led by an 7.9 percent rise in the West. Sales rose 3.6 percent in the South, 1.8 percent in the Midwest and down 4.6 percent in the Northeast.
The January increase was driven by a 2.4 percent rise in sales of single-family homes. It pushed activity in this area to an annual rate of 4.69 million units. Sales of condominiums rose 4.7 percent to a rate of 670,000 units.

Risk of foreclosure dips, but remains elevated

By JANNA HERRON

AP Real Estate Writer

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NEW YORK —

Fewer Americans fell behind on their mortgage payments in the final three months of last year, but foreclosures are still rising.
The Mortgage Bankers Association said Thursday 8.2 percent of homeowners missed at least one mortgage payment in the October-December quarter. The figure, which is adjusted for seasonal factors, improved from 9.1 percent in the previous quarter and from a high of more than 10 percent in the January-March quarter.
The worst delinquency rates were in Mississippi at 13.3 percent, Nevada at 12 percent and Georgia at 11.9 percent.  The percentage of homes in the foreclosure process rose to 4.6 percent from 4.4 percent, tying an all-time high for the survey. Foreclosures are expected to peak this year as 5 million troubled loans move through the process. Florida and Nevada had the highest percentage of homes in the foreclosure process at 14.2 percent and 10.1 percent.
California and Florida make up more than a third of all loans in foreclosure, which is down from nearly 40 percent a year earlier. Still, Florida's foreclosure crisis is one of the most pronounced in the country. Almost a quarter of Florida homeowners with a loan are behind on their payments or in the foreclosure process, the worst rate in the nation.
Typically, the percentage of seriously delinquent borrowers - those more than 90 days behind on their mortgages or in foreclosure - is just above 1 percent. In the fourth quarter, that figure was 8.57 percent.
An improving job market is behind the decline in the delinquency rate, said MBA Chief Economist Jay Brinkmann. He noted that the private sector added 1.2 million jobs last year and the number of people applying for unemployment benefits started to fall in the fourth quarter.  "It's a sign we've turned a corner, that's the good news," Brinkmann said. "The bad news is loans in foreclosure are still very high."
Foreclosures dipped in the July-September quarter as lenders addressed allegations of improper paperwork during the foreclosure process. But by the final three months of last year, many had resumed taking back homes.  Banks are on track to repossess more than 1 million homes this year, the most since the housing meltdown began, according to foreclosure tracker RealtyTrac Inc. That will drive home prices down because foreclosures are sold at deep discounts.
The foreclosure crisis started years ago when borrowers took out risky loans with adjustable interest rates that they couldn't afford. Many also qualified for loans without providing proof of income. The pain spread to homeowners with good credit who took out safe, fixed-rate mortgages, but are struggling in a weak economy.

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