Distressed neighborhoods lure cash investors

House hunters looking to buy a foreclosure in South Florida often discover they are getting outflanked by the pros: investors wielding cash.

“If you don’t have cash, or you’re looking for financing, you can’t play in the distressed arena,’’ said Doug DeWitt, owner and broker at Concierge Real Estate Services in Miami Beach, who markets bank-owned properties for some major lenders.

When a bank-owned house in the Hammocks in West Kendall went on the market in late April, the 3-bedroom, 2-bath villa drew 29 purchase offers and 60 showings over a 10-day listing period mandated by the bank. The asking price was $159,900.

The lender narrowed the field to the all-cash buyers, who were told to make their highest and best offer, and the house is now under contract.

“It went for well above asking price. They all do,’’ said DeWitt, who is the listing agent. “I have one happy buyer and 28 people I sent on their way.’’

DeWitt said he feels sorry for the first-time buyers and other house hunters looking simply to finance the purchase of a home they plan to live in.

“The banks need to move these properties. The cash offers weren’t low, they were right in line,’’ DeWitt said. “If you can take the [uncertainties of] the appraisal and inspection out of the parameters, your chance of closing goes up substantially.’’

To be sure, homebuyers still can ferret out opportunities to purchase distressed properties. Fannie Mae, for instance, offers financing with low down payments and no mortgage-insurance requirement on select Fannie Mae-owned homes under its HomePath mortgage program.

“On some of Fannie Mae’s foreclosed properties, Fannie Mae is putting them back on the market and offering up to 97 percent financing,’’ said Ray Barkett, regional vice president and district sales manager at Keyes Realtors in Fort Lauderdale.

Another option, Fannie’s HomePath mortgage renovation program, even provides funds to fix up rundown foreclosures.

One of the top worries during the real-estate crash was that the housing market would take another nosedive when lenders dumped a slew of distressed properties on the market. So far, that simply hasn’t come true. Lenders have managed the flow of properties onto the market. Indeed, many real-estate agents are clamoring for more such inventory in South Florida, where the inventory of homes and condos for sale has plunged to its lowest level since 2005.

“There is definitely an increase in REO [bank-owned] inventory,’’ said Dewitt, “but the whole theory of shadow inventory dragging down the market has proven completely false.’’

Victor Gonzalez, a Miami real estate investor who bids on foreclosures at Miami-Dade county’s cash-only online courthouse auctions, said banks have gotten more aggressive in bidding on properties they have foreclosed on, rather than letting them go at discounts.

“It’s getting very competitive again. Prices are going up,’’ Gonzalez said.

Even in auctions where lenders don’t take back properties themselves, competition is keen from institutional buyers like hedge funds and investor groups created to snap up distressed properties, Gonzalez said.

And the process is fraught with uncertainty. Scheduled auctions of homes often get cancelled at the last minute for a host of reasons, such as a lender’s decision to go with a short sale.

Those bidding at auctions need to know how to search records for liens. Even so, they can’t be sure how much is due in homeowners’ association or condominium fees. “I research 20 or 30 properties before bidding on one,’’ Gonzalez said.

Read more here: http://www.miamiherald.com/2013/05/19/3406242/distressed-homes-lure-cash-investors.html#storylink=cpy

Housing industry boosts employment

(MoneyWatch) Despite an economic picture that looks considerably rosier than it has in the past few years, one nagging problem continues to hinder economic growth: Unemployment.

For the first time in years, the housing industry may be able to help.

While the most recent unemployment surveys for March are weak overall, the housing recovery is responsible for a rare bright spot: Construction job growth, according to Freddie Mac's U.S. Economic and Housing Market Outlook report.

Non-farm jobs grew by only 88,000 in March, well below market predictions. Unemployment ticked down this month, but not by much. March's unemployment rate dropped barely .1 percent to 7.6 percent from 7.7 percent in February, and only .6 percent from March a year ago.

While that's progress, it's very slow progress.

Unemployment numbers are still high compared with pre-recession rates that hovered around 4 percent. And while they are below the more than 10 percent unemployment rate at the height of the recession, a deep dive into the numbers shows that this particular dip in unemployment is not attributable to job growth but to labor force participation dwindling, according to Freddie Mac chief economist Frank Northaft.

• Feds extend aid for ailing homeowners
• 18 ways to improve home value
• Homes are not as affordable as you think

The good news is that construction, one of the of the hardest-hit industries during the recession, amounts to 15 percent of overall job growth in the past six months. The housing recovery means more builders are starting construction on new housing units. In fact, housing starts were up 47 percent from March 2012, exceeding one million starts at an annualized rate for the first time in five years.

The National Association of Home Builders (NAHB) also announced increased builder confidence in the housing and construction market, which almost doubled over the year. However, even with these big gains the index indicates that on average builders are not necessarily optimistic about housing markets -- they are just much less pessimistic.

"Housing construction is starting to pick up, but is well below historical averages," Nothaft said. "Supported by low mortgage rates, we expect more homes to be built in 2013 than in any year since 2007. This increased construction employment should continue to help bring down the overall unemployment rate."

It's a careful balance for now, but as long as interest rates remain low enough to attract buyers, and housing prices grow enough to attract builders, the construction recovery will continue to grow and help spur overall growth in employment.

If the trends continue, this could be the first year in a long time that the housing sector actually helps the economic recovery, rather than hinder it. The housing sector is expected to add a half a percentage point to GDP growth this year, according to the report.

© 2013 CBS Interactive Inc.. All Rights Reserved.

Buyers of foreclosures need to act fast

Foreclosures are being listed at far less than what they likely eventually will sell for – a marketing strategy that generates high interest and multiple bids, some say. As such, buyers of foreclosures need to be prepared to move quickly and come up with a lot more money.

For example, Liz Sidorowicz, a real estate professional with RE/MAX Signature, says she helped her client submit an offer for a foreclosure in Mount Prospect, Ill., for $421,000. The home was listed for $350,000, but her client still lost out to a higher bid.

“I managed to win one out of five last week, but we overbid significantly,” Sidorowicz told The Chicago Tribune. “We got the unit and then it didn’t appraise. So we have to come up with more money down to make the deal fly.”

Some homebuyers who bid on foreclosures have to learn the hard way just how competitive snagging a foreclosure bargain can be.

“The consumer gets burned on a house they really like once or twice,” says Michael Goodwin, an agent at Exit Real Estate Partners in Chicago. “After that happens, they get war-hardened. The next time they are ready to pounce. Not very often does it wind up being the first house. It takes them getting slapped in the face.”

Rate on 30-year mortgage falls to 3.43%

Average U.S. rates on fixed mortgages fell sharply this week and moved closer to historic lows, keeping home-buying and refinancing attractive.

Mortgage buyer Freddie Mac said Thursday that the average rate for the 30-year fixed loan fell to 3.43 percent from 3.54 percent last week. That’s near the 3.31 percent reached in November, which was the lowest on records dating to 1971.

The average rate on the 15-year fixed mortgage dipped to 2.65 percent from 2.74 percent last week. That’s slightly above the record low of 2.63 percent, also reached in November.

Low mortgage rates are helping sustain a housing recovery that began last year. Home sales and residential construction are up, prices are rising and more Americans are refinancing. That’s helped the broader economy.

Mortgage rates have been low because they tend to track the yield on the 10-year Treasury note. The yield has fallen in recent weeks and went as low as 1.71 percent April 5, after a weak report on March hiring drove investors to seek the safety of a U.S. Treasury bonds. When demand rises, the yield falls.

On Thursday, the yield was up to 1.79 percent, still low by historical standards.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country on Monday through Wednesday each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for 30-year mortgages was unchanged at 0.8 point. The fee for 15-year loans also was steady, at 0.7 point.

The average rate on a one-year adjustable-rate mortgage edged down to 2.62 percent from 2.63 percent last week. The fee for one-year adjustable-rate loans slipped to 0.3 point from 0.4.

The average rate on a five-year adjustable-rate mortgage fell to 2.62 percent from 2.65 percent. The fee held at 0.5 point.

Big Predictions for Housing for Next 2 Years

Home sales are projected to post some big gains in the next two years, according to Fannie Mae’s latest monthly economic outlook. 

Fannie Mae economists predict that existing-home sales will rise by 10.5 percent this year, and by 6.2 percent in 2014. The economists made even bolder projections for new single-family home sales -- growing 15.1 percent this year and 44.1 percent in 2014.

"We expect home prices to firm further amid a durable housing recovery, continuing to boost household net worth, gradually diminishing the population of underwater borrowers, and reducing incentive for strategic defaults," according to Fannie Mae’s report.

Fannie Mae projects that mortgage rates will stay low by historical averages this year, but the 30-year fixed-rate mortgage will rise from an average of 3.5 percent during the first quarter to an average of 4 percent during the final three months of 2013. During the fourth quarter of 2014, mortgage rates are projected to tick up to a 4.5 percent average. 

Mortgage applications for purchases are projected to increase by 16.8 percent this year and by 17.1 percent in 2014. However, a decline in applications for refinancings will likely cause mortgage originations to be down 14.5 percent this year and by 31.4 percent in 2014, Fannie economists predict. 

Source: “Fannie Mae sees housing upturn as 'intact',” Inman News (March 28, 2013)

From Gloom to Bloom: Expecting the Healthiest Spring Season Since 2007

 Freddie Mac recently released its U.S. Economic and Housing Market Outlook through March showing that as we head into the spring home buying season, continued low mortgage rates, increasing house prices, and gradually improving consumer confidence will help support increased home sales. A short preview video and the complete March 2013 U.S. Economic and Housing Market Outlook are available here. 

Outlook Highlights

• Compared to 2012, expect home sales to be up 8 to 10 percent for 2013. 
• Expect housing starts to increase to 950,000 units for 2013, compared to 780,000 in 2012. 
• In 2012, real estate added $1.5 trillion to balance sheets, and residential mortgage debt outstanding increased by 0.1 percent in the fourth quarter of 2012, indicating household deleveraging might be drawing to a close. 
• Because of sequestration spending reductions, expect the unemployment rate in 2013 to average about 7.8 percent, essentially flat for the year or about 0.25 percentage points higher than it otherwise would have been. 
• Regardless, the housing wealth effect is taking hold in the broader market which should translate into the healthiest spring home buying season since 2007.

"History shows us not all economic recoveries are created equal and consumer confidence mirrors this fact,” says Frank Nothaft, Freddie Mac vice president and chief economist.

“With the spring home buying season upon us, the recent highs in the stock market are a welcome signal of better times ahead. But it will be the gradually declining unemployment rate and steadily improving housing market that will deliver broad-based economic benefits for Americans and, in turn, support the overall recovery."

Supply of homes for sale increases

 Existing home sales rose modestly in February and more people listed homes for sale, the first sign of a potential turnaround in a supply crunch in some markets.

Home sales rose 0.8 percent in February from January to a seasonally adjusted annual rate of 4.98 million, 10.2 percent above last year’s level, the National Association of Realtors said Thursday.

The sales rate was the highest since November 2009, when a federal tax credit propped up home sales.

A more important number in the report may be the supply of homes for sale. That rose to 4.7 months, at the current pace of sales, up from 4.3 months in January, NAR says.

The increase in supply is the first of any real significance for more than two years, says Paul Diggle, economist for Capital Economics. While too soon to say that the trough in supply is past, “We get the sense that it’s close,” he says.

Historically, Realtors have considered a six-month supply to be balanced between buyers and sellers.

Even if the inventory crunch is on the verge of easing, “it’ll be years, not months,” to get it back to more normal levels, says Jed Kolko, chief economist for real estate website Trulia. That’s because inventory is so low and new home construction, while picking up, hasn’t yet caught up to the pace of new household formation.

February’s uptick in supply “may be the first hint of a trend or it may be a blip,” Kolko says.

Much of the increase in total inventory, up almost 10 percent to 1.94 million homes, was seasonal, says Patrick Newport, economist at IHS Global Insight. Typically, inventory rises about 6 percent in February.

Even with the increase, February’s inventory of single-family homes for sale was at an 18-year low, he says.

The low inventories are adding up to rising prices, multiple offers and a slowdown in sales in some markets.

In February, California’s single-family home sales were down almost 6 percent from a year earlier, in part because of listing shortages, the California Association of Realtors says. California’s supply of single-family homes for sale stood at 3.6 months in February.

In parts of the Silicon Valley and San Francisco, more homes are selling even before they hit the multiple listing service, says Rick Turley, president of Coldwell Banker in the San Francisco Bay Area.

He estimates that off-market sales are running at 25 percent or more in Palo Alto and Menlo Park. Without such tight inventories of homes for sale, they’d be 2 percent to 4 percent of sales, he says. Multiple offers are also common.

Time to look at the FHA 203k mortgage program?

 With the housing market showing signs of growth and expansion it’s surely the right time to look at the FHA 203k mortgage program, financing that allows borrowers to finance and fix up a home with a single loan.

“The 203k program is set up so there’s a single loan application and a single closing,” says Ray Brousseau, executive vice president with Carrington Mortgage Services, a lender active in more than 40 states outside Florida. “Borrowers are not stuck with a second set of closing costs that can often total thousands of dollars. And because the 203k program is FHA-insured, qualified borrowers can get 30-year financing with just 3.5 percent down.”

How it works

The downpayment: Since it’s an FHA-insured mortgage, the downpayment can be as little as 3.5 percent of the loan amount.

Generally FHA downpayments must come from the borrower’s own funds. However, as Brousseau explains, gifts are allowed from sources such as relatives, friends and employers, and can represent some or all of the downpayment.

In addition, a buyer may be able to negotiate a “seller contribution” with an owner to offset closing costs. The range varies, but usually hits a maximum of 6 percent of the loan amount, Brousseau says.

Loan amount: The maximum 203k funding available for a borrower depends on such factors as the state and community where the property is located, the number of units (one to four) and the borrower’s financial qualifications.

Can the 203k program be used with distressed properties? Yes. The 203k program can be ideal for short sales, foreclosures, REOs and distressed sales where properties can be bought at a discount but require repairs and improvements for habitability reasons or simply to increase market values.

The FHA 203k loan can also help in areas hard-hit by hurricanes, tornadoes, earthquakes and floods. The usual 203k rule that a property must be at least a year old does not apply in a federal disaster area.”

Is all the cash paid out upfront? With a 203k loan there are two forms of payment. First: At closing, there’s a lump sum to purchase the property or refinance an existing loan. Second: The remaining money is held in an escrow account and paid out in “draws” when repair work is completed.

What’s the role of the 203k consultant? HUD-approved consultants who work with most full 203k loan program borrowers determine the scope of work required and assure that all repairs meet current standards. On Streamline 203k loans, a consultant isn’t required.

What happens if a property requires extensive renovation and cannot be immediately occupied?Since it may not be possible to occupy the property during the construction period, up to six monthly mortgage payments can be included in the loan as a cost of rehabilitation (allowed only with the full 203k loan program).

What types of repairs are allowed? Most repairs associated with an owner-occupied property are allowed – but not all. As HUD explains, “Luxury items and improvements are not eligible as a cost of rehabilitation. However, the homeowner can use the 203k program to finance such items as appliances, painting, room additions (on the full 203k loan), decks and other items even if the home does not need any other improvements.”

Can I use 203k financing to fix up a condo unit? Yes, however repairs are limited to the inside of the unit and only five units in a given project at any one time can qualify for the 203k program. Borrowers should check with lenders on the types of repairs that are allowed by property type.

What if I want to make improvements but the cost is less than $5,000? The full 203k program requires repairs worth at least $5,000. However, with the Streamline version of the 203k program there is no minimum repair requirement (the maximum amount available for fixing up is $35,000). These minimums may vary by lender; inquire with a lender representative for the details.

“With the Streamlined 203k the borrower can make a wide range of improvements,” says Brousseau. “They can use 203k money to repair or replace roofs, gutters, downspouts, heating systems, air conditioning systems, flooring, paint and decks. There’s a wide range of improvements that can change the image of a property from distressed to distinguished.”

HUD posts additional 203k information on its website.

Miami condo market is back and booming

During the height of the housing boom, some likened the feverish flipping game in Miami's condominium market to a circus. The circus is back, and more high-flying than ever. At a recent party to launch a new project from New York-based developer PMG, acrobats swung over the crowd, and in gravity-defying flourish, poured champagne into the glasses of wide-eyed investors. "It's exactly what we want. We wanted a little bit of show and a lot of flash," said Kevin Maloney, president of PMG, who re-entered the Miami market in 2010 to purchase some of the remaining beachfront and bayside construction sites.

Condominium development in greater Miami seems to defy not just gravity but reason. Cranes swing above the city from every angle, just as they did during the housing bubble in 2006. During the boom, 49,000 units were built as investor-flippers used easy mortgage money to swap properties and push prices. When it all came crashing down, the lights went out in Miami, literally. Tall buildings stood dark at night as banks took back properties and projects. Most thought it was all over for a good long time.

But somehow there are just 2,400 unsold units left, barely a year's worth at the current sales pace. Prices are up nearly 25 percent from a year ago, according to the Miami Area Association of Realtors. How did it happen? Foreign, all-cash buyers like Venezuelans, Russians, Chinese, Canadians and Brazilians. They were either looking for a safe-haven to park their money or were taking advantage of a weak dollar. Whatever the reason, they came, they saw, they bought.

"It's mind boggling. I'm perplexed as to how all this can go forward this quickly," said Peter Zalewski of CondoVultures. He has been qualifying and quantifying the South Florida real estate market for over a decade and said this time around there is less short-term risk because the buyers have a real purpose. "The foreign buyer is deciding to take some chips off the table and park it up here and sort of put it away into a condo in Miami. If they use it or they don't use it, who cares, at least it's stable."

These cash-heavy buyers are allowing developers to require anywhere from 20 percent to 80 percent down, which appeases banks and private lenders alike. "It's much smaller inventory, which is holding the price point, and further, the deposit structure is much more beneficial to the developer at this point, so we're back," said PMG's Maloney.

Maloney has sold 100 of the 190 units that he plans to build in his "Echo" development, and that is without even breaking ground. The rest he hopes to entice with flash and fantasy, which is exactly what Miami is all about. "I believe in the future," said Argentinean Antonio Aguirre at the Echo party. "The prices are going to come up faster, so today is a great time to buy."

Buying a home is 44% cheaper than renting

Even though asking home prices rose 7.0% in the last year, outpacing rent increases of 3.2%, the gap between buying and renting has narrowed only slightly. One year ago, buying was 46% cheaper than renting. Today’s it’s 44% cheaper to buy versus rent. In fact, home ownership is cheaper than renting in all of America’s 100 largest metros. That’s because falling mortgage rates have kept buying almost as affordable, relative to renting, as it was last year. According to Freddie Mac, between February 2012 and February 2013 the 30-year fixed rate dropped from 3.9% to 3.5%, though rates have been rising in March.

To determine whether renting or buying a home costs less, we do the following:

1. Calculate the average rent and for-sale prices for an identical set of properties. For this report we looked at all the homes listed for sale and for rent on Trulia from December 2012 to February 2013. We estimate prices and rents for the similar homes in similar neighborhoods in order get a direct apples-to-apples comparison. We are NOT just comparing the average rent and average price of homes on the market, which would be misleading because rental and for-sale properties are very different: most importantly, for-sale homes are 47% bigger, on average, than rentals.
2. Calculate initial total monthly costs of owning and renting, including maintenance, insurance, and taxes.
3. Calculate future total monthly costs of owning and renting, taking into account price and rent appreciation as well as inflation.
4. Factor in one-time costs and proceeds, like closing costs, downpayments, sales proceeds, and security deposits.
5. Calculate net present value to account for opportunity cost of money.

To compare the costs of owning and renting, we assume people will get a 3.5% mortgage rate, reside in the 25% tax bracket and itemize their federal tax deductions, and will stay in their home for seven years. We also assume buyers get a 30-year fixed-rate mortgage and put 20% down. Under all of these assumptions, buying is 44% cheaper than renting nationwide, taking into account all of the costs and proceeds from buying or renting over the entire seven-year period. We also look at alternative scenarios by changing the mortgage rate, the income tax bracket for tax deductions, and the number of years one stays in the home.  Our interactive map shows how the math changes under alternative assumptions. And if you’re interested, check out our detailed methodology which explains our entire approach, step by step.

Savings from Buying Versus Renting Smallest in California and New York, Biggest in the MidwestBuying a home is cheaper than renting in all of the 100 largest metro areas, but buying ranges from 19% cheaper than renting in San Francisco to 70% cheaper than renting in Detroit. The financial benefit of buying instead of renting is narrowest in San Francisco, Honolulu, San Jose, and New York.

Over the past year, the gap between renting and buying has narrowed most in the Bay Area. One year ago, buying was 35% cheaper than renting in San Francisco and 38% cheaper than renting in San Jose; now, the difference is 19% and 24%, respectively. These metros have seen strong price increases year-over-year. In contrast, the gap didn’t narrow at all in New York, where buying remains 26% cheaper than renting, both now and a year ago. On Long Island, the difference actually widened from 34% one year ago to 36% today.

In the 10 Florida markets checked by Trulia, savings ranged from 40 percent to 60 percent. The include:

Miami: 43% cheaper to buy
Fort Lauderdale: 53% cheaper to buy
West Palm Beach: 56% cheaper to buy
Cape Coral-Fort Myers: 45% cheaper to buy
North Port-Bradenton-Sarasota: 51% cheaper to buy
Lakeland-Winter Haven: 55% cheaper to buy
Palm Bay-Melbourne-Titusville: 50% cheaper to buy
Orlando: 51% cheaper to buy
Tampa-St. Petersburg: 55% cheaper to buy
Jacksonville: 54% cheaper to buy