Case-Shiller: Prices continue to decline

From the Wall Street Journal:

In the first quarter, the Case-Shiller indexes showed home prices across the
country fell 14% from a year earlier, representing the largest drop in the
20-year history of the indexes. From the fourth quarter, prices fell 6.7%.

“The steep downturn in residential real estate continues,” David M.
Blitzer, chairman of S&P’s index committee, said. He added, “There are very
few silver linings that one can see in the data. Most of the nation appears to
remain on a downward path.”

According to the indexes, released by ratings firm Standard & Poor’s, home prices in 10 major metropolitan areas fell 15% in March from a year earlier and 2.4% from February.

In 20 major metropolitan areas, home prices dropped 14% from a year earlier and 2.2% from February.

In Atlanta, the decline in prices continues to accelerate, with homes shedding 1% in value from last month, and 6.5% from last year. Still, it could be much worse: Las Vegas has lost almost 26% over the past year, with Miami and Phoenix dropping 24.6% and 23.0%, respectively.

While there is no question that house prices in Atlanta are falling, Atlanta’s continued desirability as a place to live has acted as a buffer to the effects of the housing market as seen in the rest of the county. Prices here have not fallen as much as they have elsewhere and will most likely rebound earlier than in other areas.

Still: as the availability of mortgage loans remains limited, it continues to be a challenging time to sell a home. With that being said, it remains an ideal time for real estate investors, with many, many homes available, and homes more affordable than they have been in years.

Photo: Flying ego, originally uploaded by Laurent Filoche.

Home sales up, home sales down

Existing home sales are down to another record low, from the New York Times:

Sales of previously owned homes, which make up the bulk of the housing market,
dipped 1 percent in April, to an annual rate of 4.89 million, the second
consecutive month that sales have declined. That figure represents another
record low, although the report, put out by the private National Association of
Realtors, dates only to 1999.

But, on the other hand new home sales are up. From CNN:

New home sales rose unexpectedly in April but remained near historically low
levels, according to a key government report on the battered housing market.

April sales came in at a seasonally-adjusted annual rate of 526,000, a
Census Bureau report showed, up 3.3% from a revised 509,000 in March, but 42%
below April 2007. The reading was above the consensus forecast of 520,000,
according to economists surveyed by Briefing.com.

The median price of a new home sold in April was $246,100, up 1.5% from $242,500 a year earlier.

The report showed a 10.6-month supply of homes available on the market.

Perhaps all of the discounting, upgrading, and other perks offered by homebuilders are finally having some effect on new home sales.

Photo: See-Saw, originally uploaded by pittsinger.

No respite, yet: US foreclosures rise 65 percent in April

From Housing Wire:

Foreclosure filings — default notices, auction sale notices and bank
repossessions — were reported on 243,353 properties in April, a 4 percent
increase from March’s total and a nearly 65 percent increase from one year
earlier. The data, reported Wednesday by foreclosure marketplace and data firm
RealtyTrac, shows that the housing market has yet to cycle through a
preponderance of bad mortgages.

“The total number of U.S. properties with foreclosure activity in April was the highest monthly total we’ve seen since we began issuing the report in January 2005,” said James J. Saccacio, chief executive officer of RealtyTrac.

“Although only about 2 percent of households nationwide are in foreclosure, these properties contribute to already bloated inventories of homes for sale, and put downward pressure on home values.”

Georgia was again in the top ten states with the greatest number of foreclosures, ranking seventh overall, with one out of every 422 homes affected.

Photo: Button, originally uploaded by d-stop.

Home prices continue sharp descent

From CNN:

Single-family home prices dropped 7.7% in the first quarter in the largest
year-over-year decline since the National Association of Realtors began
reporting prices in 1982.

The median sales price fell to $196,300, down 4.8% compared with the last three months of 2007.

Lawrence Yun, the chief economist of NAR, attributed much of the record decline to liquidity problems dragging down high-priced markets.

and:

Hurting home prices were big rises in foreclosure rates over the past 12 months,
which threaten to get even worse. Delinquencies more than doubled over that time
and more than 155,000 lost their homes in bank repossessions during the first
three months of the year.

All that foreclosure activity added to the glut of homes on the market. The total inventory has risen to an average of 10 months worth of unsold homes. In addition, a record number - 2.9 million - of vacant homes are up for sale, according to the Census Bureau.

The big inventory has led to aggressive price slashing and increased incentives by
builders looking to sell homes. They’ve also cut way back on housing starts,
which are at a 17-year low.

With the latest readings on home prices from the National Association of Realtors showing the largest year-to-year drop since the group began reporting prices, it is becoming clearer that the housing market is under increasing pressures.

As the group maintains: all real estate is local; but unfortunately, more and more local markets are facing increased downward pressure on prices: according to the NAR, 77 metropolitan statistical areas showed price declines in the last quarter of 2007. In the first quarter of 2008, that number increased 10 an even 100.

In the south, the median existing single-family home price was $164,200 in the first quarter, down 7.5 percent from a year earlier.

Blamed by the NAR for the most-recent record low were, once again, rising foreclosures and decreased availability of mortgage loans. As the number of foreclosures are expected to increase, and banks continue to curtail lending, there is every indication that home prices will continue to slide.

For real estate investors (and their closing attorneys) looking for a bottom, this is yet another sign that the troubles in the housing market will continue for some time to come. With falling prices, though, come opportunities never seen by investors before: there are more potential deals out there than ever, banks are desperate to get rid of REO properties, and more and more short sales are being approved every day. Investors who understand the overall market forces at play and turn them to their advantage are the ones best poised to succeed.

Photo: down, originally uploaded by nick3216.

Signs of the Times: Condo Discounts

Condo developer roundup from this weekend’s AJC Homefinder:

• Tribute Lofts: Up to $22,222 in incentives;


• Central City Condos: “Foreclosed Yesterday. For You Today.” Discounts of $77,100 on two-bedroom units;


• Atlantic Station: Up to $50,000 off;


• Viewpoint: Up to $75,000 off on selected homes;


• Twelve Centennial Park: up to $75,000 off select “move-in-ready” residences;


• Aqua: Get a BMW Mini Cooper convertible; and


• The Reynolds: New pricing and incentives;

With recent mortgage insurance program changes making it more difficult to obtain financing, and an increasing inventory of homes as more condo projects are finished, condo developers are fighting hard to lure potential purchasers in the door. In one word, they’re desperate.

It’s a tough time for developers, who are competing against individual sellers and investors, along with a surging number of foreclosures for those few buyers who can qualify for a mortgage.
Still, it’s a fight that most developers are in a position to win: most individual sellers or real estate investors can’t absorb the deep discounts that the developers can offer. Nor can they offer perks such as a free car or no mortgage payments for a year.

On the other hand, intown condos offer a lifestyle that cannot be found elsewhere; and for buyers attracted to the convenience of intown living, that lifestyle comes cheaper than ever.

As a closing attorney in Atlanta, I’d strongly advise any investor from seriously looking at condos right now as investment opportunities. Unless you are able to get a unit at a ridiculous discount, there’s just not enough equity in most properties to allow competition with the developers. Additionally, since most condo developments limit the number of rentals, there is a good chance that an investor would be prohibited from leasing out a newly-acquired unit as a buy-and-hold investment.

Photo :Balcony of Midcity Lofts, originally uploaded by a u b r e y.

Steep declines in home prices continued in February 2008; Atlanta down 5.6 percent

From CNN:

Home prices have posted another record decline, as most of the nation's largest
markets suffered double-digit drops over last year, a survey released Tuesday
shows.

The S&P Case/Shiller Home Price Index, which tracks 20 of the
largest housing markets, showed prices plummeting by 12.7% in the 12 months
ending February. That's the biggest fall since the index began tracking prices
in 2000.

Of those 20 metro areas, 17 posted their largest year-over-year
declines ever. Ten of the 20 cities posted double-digit dips.

The 10-city Case/Shiller index is down 13.6% year-over-year, the biggest drop since
its launch in 1987.

The latest Case/Shiller price index numbers are not very encouraging and show that, unfortunately, there is no sign of a bottom in the housing market in the immediate future; in fact, the latest numbers seem to indicate that the drop in home prices is accelerating on a nationwide basis.

Moderated by an increase in the city's population, however, home prices in Atlanta are still faring better than most - only shedding 5.6 percent of value from last year. Compared to the almost 23 percent drop in value in Las Vegas, that 5.6 percent decline doesn't seem too bad.

However, there remains the danger of a vicious circle leading to further, and steeper, price depreciation, even with Atlanta's relatively-moderate 5.6 percent drop in value. As price losses continue, houses become less desirable and lenders less willing to extend mortgages. Fewer potential purchasers result in additional downward pressure on prices - and with the numbers of foreclosures and vacant properties already at record highs and expected to increase, the momentum on house prices to continue to move lower could end up accelerating very quickly.

This is not to say that anything relating to real estate investing is a lost cause. There are certainly a tremendous number of individual deals out there – perhaps more than ever before. But the nature of the market is fundamentally different, and the realities of that market have changed drastically over the past year. Strategies that worked two years ago probably are not as effective today, but the good investors continue to adapt to the market at hand and succeed.

Photo: Blue Arrow on Red, originally uploaded by raumoberbayern.

Existing home sales slip in March

From the National Association of Realtors:

Existing-home sales – including single-family, townhomes, condominiums and
co-ops – were down 2.0 percent to a seasonally adjusted annual rate (1) of 4.93
million units in March from a level of 5.03 million in February, and remain 19.3
percent below the 6.11 million-unit pace in March 2007. A rise in condo sales in
March was offset by a drop in single-family sales. Regionally, sales rose in the
Northeast and West but fell in the Midwest and South.

and:

The national median existing-home price (2) for all housing types was $200,700
in March, down 7.7 percent from a year ago when the median was $217,400. Because
the slowdown in sales from a year ago is greater in high-cost areas, there is a
downward pull to the national median with relatively higher sales activity in
low-cost markets.

and, more relevantly:

In the South, existing-home sales fell 3.5 percent to an annual rate of 1.92
million in March and are 20.0 percent below March 2007. The median price in the
South was $167,200, down 7.1 percent from a year ago.

Blamed by the NAR for the decline in home sales are restrictive lending practices which have prevented many potential purchasers from being able to buy a home. While lending practices and guidelines such as insisting upon relevant down payments, documentation of income, and higher minimum credit scores required for loan qualification may seem restrictive compared to the wild-west rules of the past few years, to many they represent a return to a more rational lending environment seen before the days of MBSs, CDOs, tranches and hedge funds. Regardless, the truth of the statement is evident, and it is the mortgage lenders, the loan programs they offer, and the limited number of buyers who can obtain financing which continue to drive sales numbers down.

The first question to any potential purchaser is whether they can get a mortgage.

Total housing inventory rose 1.0 percent at the end of March percent to 4.06
million existing homes available for sale, which represents a 9.9-month supply
at the current sales pace, up from a 9.6-month supply in February.

This is not a good thing. Again, this shows that we can probably expect continuing price depreciation for the foreseeable future. As homebuilders, existing home owners, bank REO departments, and other real estate investors fight for that limited pool of qualified buyers, they will compete on the only level they can: price.

As prices decline, lending practices become even more restrictive. As we’ve seen here in Atlanta, most of the lenders and mortgage insurance companies have declared the city a declining market – and the size of the loans they are willing to extend get chopped 5% off the top, meaning that a potential buyer has to bring that much more to the table to close.

It’s a vicious circle, and unfortunately, one that is likely to continue.

Photo: peal of laughter, originally uploaded by camillesau.

Snapshot: Atlanta

Courtesy of Radar Logic, a real estate data and analytics company, comes another view of home prices in Atlanta. According to their January 2008 report, released on April 3, prices in Atlanta have fallen 9.2 percent from January 2007 levels.

While this decrease is larger than the 4.8 percent decline shown by last case Case-Shiller report, the point is still the same: that home values throughout Atlanta are falling, and as a real estate lawyer in Atlanta, I certainly recommend that all investors need to take the reduction in home value into account when measuring the potential equity in any property.

Photo: Let Go, originally uploaded by rockmenow48.

Case-Shiller: Home Prices Fall Again

Standard & Poor’s S&P/Case-Shiller Home Price Indices for January 2008 continue to show home prices declining to record levels.

The 10-City index fell 11.4 percent from January 2007. The 20-City index dropped 10.7 percent. Again, both indices reached record lows.

Home prices are declining significantly across the country, with 19 of the 20 cities in the index showing depreciation in home values. Only Charlotte, North Carolina reported a year-to-year price increase with a modest 1.8 percent gain. Miami and Las Vegas had the worst declines, each shedding 19.3 percent of value from last year.

The Atlanta decline also increased, from 3.4 to 4.8 percent.

Photo: Impacto, originally uploaded by Xosé.

NAR: Increase in Existing Home Sales

According to the National Association of Realtors, existing home sales rose unexpectedly in February, increasing 2.9 percent. It was the first increase in home sales in seven months.

Driving this increase were two factors: changes from January to February typically measure seasonal differences only, and the median sales price plummeted 8.2 percent from last year.

Home inventory remains high, with close to ten months of properties on the market.

As an Atlanta real estate lawyer, I have often counseled my clients not to read too much into the NAR’s statistics, or at least the NAR’s interpretation of their statistics.

But what conclusions can be drawn from their latest report?

First: housing is far from staging a recovery. While there was a modest increase in January to February sales, this is more likely attributable to seasonal factors, and not an actual improvement in the underlying market itself. In fact, sales of existing single-family homes were down 22.9 percent from a year ago. That’s a lot of houses.

Second: the drop in home prices as measured by the NAR has almost doubled from last month. January’s year-over-year prices fell 4.6 percent. February prices dropped 8.2 percent to $195,900.00.

It was recently reported that the majority of homeowners were in denial about home values, with three out of four believing that their home had gained or its retained value over the past year. The rapid decline in prices reported by the NAR may indicate that sellers are finally recognizing that homes aren’t worth what they used to be, and they are pricing more aggressively to compete with each other and the surging number of foreclosures.

These motivated sellers, who may be finally reducing prices drastically just to get homes sold, are your competition, and the successful investor is the one who is best able to turn market conditions to your favor.

Photo: down, originally uploaded by lomokev.

Case-Shiller Home Prices: A Broken Record

The S&P/Case-Shiller Home Price Indices, released today, continue to show a broad decline in the prices of existing single-family homes, making 2007 a full year of declining prices nationwide.

Fourth-quarter 2007 prices fell a record 8.9 percent. Year-over-year prices declined 9.8 percent for the 10-city index and 9.1 percent for the 20-city.

Atlanta’s prices continued to slide: prices have now declined 3.4 percent from last year’s levels.

Investors should expect prices in the Atlanta area to continue to decline as buyers look for bargains, and excess REO and homebuilder inventory continue to contribute to the glut of homes on the market.

Photo: descent, originally uploaded by *ade.

Home Sales and Prices Down, but…

The latest National Association of Realtors’ figures are out, and existing home sales have fallen for a sixth-straight month.

January sales dropped to 4.89 million nationwide, 0.4 percent less than last month. Year-over-year sales were down 23%.

Economists had predicted that existing home sales would fall to 4.80 million.

Median home prices as reported by the NAR dropped to $201,100. Last January the median was $210,900.

Additionally, the total of homes for sale rose 5.5% to 4.19 million. Which represents a 10.3-month inventory of homes on the market.

While this report shows the market declining at a slower pace than expected, investors should be fully aware of the nature of the NAR report before trying to call a bottom to the industry’s decline.

First, while it is true that the NAR statistics show a smaller drop in home sales than expected, a drop is still a drop. Additionally, the NAR only measures contracts signed, and not actual closings. One can expect that a number of contracts will not result in sales.

Additionally, an increase in overall home inventory will result in more downward pressure on home prices.

There has been recent (relatively) positive news in housing, and investors should watch the reports carefully, but I still think it’s way early to call a turnaround to this market. Once we see several months of declining inventory and stable new-home and existing-home sales, as well as less-restrictive credit markets, then we can start talking about reaching bottom.

About The Future

The other night, I was out having drinks with a friend of mine who works for a homebuilder located just outside of Atlanta.

As a builder, his company is doing well; while the current market has certainly affected their business, they’re still chugging along and closing around five sales each month. But they are in a good market: they build moderately-priced homes in the low-to-mid hundreds, and really concentrate on first-time homebuyers with good credit. As he said: they’re the last ones to feel a drop in the housing industry, and the first ones to recover.

But, even though his company is continuing to thrive, my friend was interested in where I thought the housing market was going and what real estate investors were going to see in the near future.

As a real estate closing attorney, I follow the housing industry very closely. I have always thought that knowledge is the most important resource that one can have as a real estate investor; if you know more than the other guy, then you’ll probably do better than he will. Knowledge, they say, is power.

One thing to recognize is that the spectacular boom of the past few years in real estate investing came as a direct result of the access to easy mortgage money. Mortgage lenders were willing to lend trillions of dollars to those least able to repay. Why? Because there was an insatiable appetite for these types of products on the secondary market up on Wall Street. Hedge funds, pension plans, overseas banks couldn’t get enough.

This resulted in one of the most dangerous loan products out there, and one that I believe is at the root of the majority of difficulties facing the real estate market in Atlanta: the 100% adjustable-rate mortgage.

As a closing attorney, I closed hundreds of these loans, subprime and not. Buyers came to the closing table with no money and got a low interest rate on their loan for the first couple years. Everyone looks only at that initial payment, because they expect to refinance before the loan to reset to a higher rate; and as long as property values keep increasing, then there’s plenty of equity to pay for that refinance. Like I said, I closed hundreds of ‘em.

Well, of course, we know what happened: prices didn’t keep increasing.



These charts, in one form or another, have been on the wall of my office for the past year. They are, I believe, the single two most important indicators of where the mortgage industry is headed, and how long it will take to recover.

Both were created by Bank of America, the top is the original, the one below revised. And they show, in billions, the amount of adjustable-rate loans resetting to their higher rates.

Why is this significant? Because it is primarily the ARM resets that have driven down the housing market for the past year. As borrowers found their payments increasing, many of them quickly realize that their new payment was not affordable. Burdened with a home that they can’t afford, with little-to-no equity, these borrowers started scrambling for options.

Unfortunately, the options are few and far between. Refinancing isn’t possible for most because of tightening credit standards and reduced loan programs. Unable to refinance, borrowers try and sell their homes, leading to the glut of homes on the market. And with more homes on the market, there is more competition for the few buyers out there.

Prices are pushed downwards.

Lastly, there’s the final option for borrowers in these loans: foreclosure. And of course, foreclosures are at an all-time high and are expected to increase. The flood of REOs back onto the market again push prices down.

Both of the charts are very telling: that we haven’t seen anything yet. All of the homes on the market, all of the lenders going out of business, home prices deteriorating; and we haven’t yet even reached the peak of ARM resets.

The original Bank of America chart showed that peak in March of 2008; the revised has ARMS peaking in June.

For most borrowers, once the rates adjust, they’ll do everything they can: but the odds are definitely against them. They may struggle to make payments, and some certainly will. But the great majority won’t – and faced with a home most-likely worth less than what is owed, they’ll be unable to refinance or sell. Eventually they’ll fall behind on their payments.

So: as an example, let’s take someone who has a loan that adjusts in March. Their payment increases, and they make them for as long as they can. Say, four months. In August, they miss their payment.

Is the lender going to foreclose then? Probably not. It’ll probably take another four months for the lender to initiate foreclosure proceedings. So the borrower may get their foreclosure notice in December.

In Georgia, foreclosure is a fairly speedy process, generally taking two or three months. For our hypothetical borrower, it’s March of 2009 before the property is deeded back to the bank.

What does this tell to us? That as an industry, things are much more likely to get worse before they get better, and that the housing slump we’re in now is probably going to last for some time to come.

What else does it tell to us? That there are still ways to survive and profit as a real estate investor. I can't say this enough. My friend who works for the builder; they are still doing well. And other investors, who recognize and understand the broader market forces at play continue to thrive. Traditionally, in down times, investors do well. There’s a smorgasbord of potential deals out there. The smart investors recognize that, and continue to work today’s and tomorrow’s market to their advantage.