In November, Congress extended and expanded the First-Time Home Buyer Tax Credit program to include a subset of "move-up" buyers -- homeowners that have owned and lived in their home for 5 of the last 8 years.

The credit ranges up to $8,000 per buyer. There's now just 7 weeks left to take advantage.

To be eligible, home buyers must be under contract for a new home no later than April 30, 2010, and must be closed no later than June 30, 2010.

In addition to meeting the deadline dates, there's a basic set of requirements to be tax credit-eligible:

• You can't purchase the home from a parent, spouse, or child
• You can't purchase the home from an entity in which the seller is a majority owner
• You can't acquire the home by gift or inheritance
• Each buyer in the purchase must meet eligibility requirements

There's other criteria, too.

For one, the sales price on the subject property cannot exceed $800,000. Homes sold for more than $800,000 are ineligible for the tax credit. Furthermore, households earning more than $125,000 as single-filers, or $225,500 for joint-filers, are ineligible.

You can read the complete eligibility requirements at the IRS website, or, you may just find it simpler to speak with your accountant about it. There are some nuances in qualifying for and claiming the tax credit on your returns and getting a professional's opinion is always wise.

And lastly, don't forget that government's tax credit program is a true tax credit. It's not a tax deduction.  This means that a tax filer whose "normal" tax liability is $3,500 and who is eligible for $8,000 in credit will receive a $4,500 refund from the U.S. Treasury.

If you're currently in the House Hunt, mark your calendar for April 30, 2010. It's 7 weeks away and you can be sure that as the date gets closer, buyer traffic is going to increase.  You may find sellers more willing to negotiate today than several weeks from now.

According to the the National Association of Realtors®, "distressed homes" represented nearly 2 of every fifth home sold in January 2010.  Clearly, real estate investors are taking advantage of good deals on cheap property.  But there's risk involved.

This NBC Today Show interview first ran in March 2009, featuring real estate expert Barbara Corcoran. Despite its age, the message remains relevant. Today may be a terrific time to buy a bank-owned home -- just make sure you do your research first.  There's plenty of ways for investors to get burned.

Some of the tips in the video include:

• Buy in your own backyard
• Start small, then build to a bigger portfolio
• Watch receipts -- rent rolls don't matter if tenants aren't paying rent

Corcoran also gives pointers on how to evaluate a prospective tenant.

Foreclosures should represent a large number of 2010's total home sales and will offer interesting opportunities to bona fide real estate investors. Before you jump in, make sure to watch the video. The rents you save may be your own.

Remember, the stats and the data are from 12 months ago, but the advice stays meaningful.

The Home Affordable Refinance Program (HARP) has been extended until June 30, 2011, according to the Federal Housing Finance Agency (FHFA).

“FHFA has reviewed the current market situation and the state of mortgage insurance availability and has determined that the market conditions that necessitated the actions taken last year have not materially changed,” said FHFA Acting Director Ed DeMarco, in a statement on its website.

“Accordingly, to support and promote market stability, and to encourage lenders and other mortgage market participants to fully adopt the HARP program, including the implementation of the October 2009 expansion of loan-to-value ratios (LTVs) to 125 percent, FHFA is authorizing the extension of HARP until June 30, 2011.”

The program is one portion of the government’s Making Home Affordable Program, which also includes the Home Affordable Modification Program (HAMP).

It began in April 2009 and was set to expire on June 10 of this year; HAMP is expected to run until December 31, 2012.

Apparently things are worse than anticipated, what with more than 11.3 million, or 24 percent, of all residential properties with mortgages in the United States underwater as of year-end.

Of the more than four million refinanced mortgages purchased or guaranteed by Fannie Mae and Freddie Mac in 2009, 190,180 were HARP refinances with loan-to-value ratios between 80 percent and 125 percent.

If you’re looking to refinance with negative equity, this is your ticket.

Hat tip to my friend Matthew Frey of Bankers Funding Co.     Matt lives in Coto and can be reached at  Matthew.A.Frey@bankersfundingcompany.com

Mortgage markets improved last week as economic reports painted a less-than-stellar portrait of the U.S. economy and concerns of a looming monetary policy change eased. Mortgage pricing improved dramatically, despite a late-Friday retreat.

Mortgage rates are now at their lowest levels since early-February.

Last week was heavy on negative data:

• Consumer Confidence posted 16% short of expectations
• New Home Sales posted 13% short of expectations
• Initial Jobless Claims were higher than expected

In addition, both the Case-Shiller and Home Price Indices showed a slight pullback in the housing sector.

The impact of these statistics was muted, however. This is because Fed Chairman Ben Bernanke gave his semi-annual outlook to Congress and markets focused more on the chairman verbiage than hard data, looking for clues about the future of Fed policy.

Bernanke stayed on message -- the Fed Funds Rate will stay low for an extended period of time.

Mortgage rates were also helped by a strengthening U.S. dollar and demand for U.S.-denominated bonds. When demand for mortgage-backed bonds is strong, mortgage rates fall.

This week, mortgage rates will jockey around Friday's Non-Farm Payrolls report.

Jobs are playing a large role in mortgage bond trading and markets expect that 30,000 jobs were lost in February.  If the actual figure is better than 30,000 jobs lost, mortgage rates will rise. If it's worse, rates will rise.

Other important data this week include Personal Consumption Expenditures -- the Fed's preferred inflation gauge -- plus the Fed's Beige Book release.  Mortgage rates remain in flux so float with caution.

Mortgage rates look good today, but by Friday, they could be much, much worse.

This, from Jon Lansner, in today’s Orange County Register:

For the 22 business days ending February 5 – freshest numbers from DataQuick — our region-by-region analysis of homebuying shows Orange County slices up geographically speaking this way …

• DataQuick identified 570 homes selling in Orange County’s north-inland ZIP codes in this most recent period, +12% from a year ago. Median selling price? $450,000 in these 23 ZIPs. This most recent median price change was +8.4% vs. a year ago.
• Mid-county ZIPs — median selling price $352,500 – had 630 sales, -12% from a year ago. In these 24 ZIPs, the freshets median price change was +4.9% vs. a year ago.
• Combined, total homes sales in ZIPs in the north and mid-section of Orange County were -2.2% vs. a year ago as homebuying in the rest of the county ran +31.3% vs. 12 months earlier.
• North/mid-county homes accounted for 57% of residences sold in the most recent period vs. 64% a year ago.
• 325 homes sold in beach cities’ 17 ZIP codes in the most recent period, +16% from a year ago. Median selling price? $722,500 in these 17 ZIPs. Newest median price change was +4.9% vs. a year ago.
• South inland ZIPs — median selling price $493,250 – had 578 sales, +41% from a year ago. In these 19 ZIPs, the latest median price change was +16.7% vs. a year ago. ( This is the area where I’ve done most of my business, for the past 33+ years.)
• All told, countywide sales were +8% vs. a year ago. The median selling price was +15% in the past year.

End of Jon’s article.

Earlier this week, the private-sector Case-Shiller Index showed home prices slightly lower between November and December.  Thursday, the public-sector Home Price Index showed the same.

Publishing on a 2-month lag, the Federal Home Finance Agency said home prices fell by 1.6 percent nationally in December.  And that's an average, of course.  Some regions performed well in December as compared to November, others didn't.

• Values in the Middle Atlantic states improved slightly
• Values in New England were essentially unchanged
• Values in the Mountain states sagged, down 3.5%

These aren't just footnotes. They're an important piece toward understanding what national real estate statistics really mean. In short, "national statistics" are just a compilation of a bunch of local statistics.

For example, if we dig deeper into the FHFA Home Price Index 70-page report, we find that cities like Terre Haute, IN, Buffalo, NY, Amarillo, TX all posted year-over-year home price gains even though the national data just state it. The gains in these cities were offset by losses in other cities nationwide.

Furthermore, it's a sure bet that those same cities, you could find neighborhoods that are thriving, and others that are not.  Just because the city shows higher home values overall, it won't necessarily be the case for every home in the city.

Every street in every neighborhood of every town in America has its own "local real estate market" and, in the end, that's what should be most important to today's buyers and sellers.  National data helps identify trends and shape government policy but, to the layperson, it's somewhat irrelevant.

So, when you need to know whether your home is gaining or losing value, you can't look at the national data.  You have to look at your block -- what's selling and not selling -- and start your valuations from there.

The housing recovery showed particular weakness in the New Homes Sales category last month -- good news for homebuyers around the country.

A "new home" is a home for which there's no previous owner.

New Home Sales fell 11 percent from the month prior and posted the fewest units sold in a month since 1963 -- the year the government first started tracking New Home Sales data.

Right now, there are roughly 234,000 new homes for sale nationwide and, at the current sales pace, it would take 9.1 months to sell them all. This is nearly 2 months longer than at October 2009's pace.

The reasons for the spike in supply are varied:

• The original home buyer tax credit expired in November
• Weather conditions were awful in most of the country in January
• Weak employment and consumer confidence continue to hinder big ticket sales

Now, these might be less-than-optimal developments for the economy as a whole, but for buyers of new homes, it's a welcome turn of events. Home prices are based on supply and demand, after all.

As a result, this season's home buyers may be treated to "free" upgrades from home builders, plus seller concessions and lower sales prices overall.

It's all a matter of timing, of course.  New Home Sales reports on a 1-month lag so it's not necessarily reflective of the current, post-Super Bowl home buying season.  And from market to market, sales activity varies.

That said, mortgage rates remain low, home prices are steady, and the federal tax credit gives two more months to go under contract. It's a favorable time to buy a new OR a resale home.

Using data compiled in December, Standard & Poors released its Case-Shiller Index Tuesday.  The report shows home prices down just 2.5% on an annual basis, a figure much lower than the 8.7% annual drop reported after Q3.

According to Case-Shiller representatives, the housing market is "in better shape than it was this time last year", but some of the summer's momentum has been lost. 15 of 20 tracked markets declined in value between November and December 2009.

Meanwhile, it's interesting to note the 5 markets that didn't decline -- Detroit, Los Angeles/Orange County, Las Vegas, Phoenix and San Diego.  Each of these metro regions were among the hardest hit nationwide when home prices first broke.  Now, they're leading the pack in price recovery.

 For some real estate investors, that's a positive signal.  But we also have to consider the Case-Shiller Index's flaws because they're big ones.

As examples: 

1. Case-Shiller data is reported on a 2-month lag
2. The Case-Shiller sample set includes just 20 U.S. cities
3. There's no "national real estate market" -- real estate is local

That said, the Case-Shiller Index is still important. As the most widely-used private sector housing index, Case-Shiller helps to identify broader housing trends and many people believe housing is a key element in the economic recovery.

If the markets that led the housing decline will lead the housing resurgence, December's data shows that full recovery is right around the corner.

Mortgage markets had a terrible, holiday-shortened week last week as Wall Street responded to worse-than-expected inflation data and action from the Federal Reserve.  Mortgage bonds sold off with force, causing mortgage rates to rise for the second week in a row.

Last week was a bad week to float a mortgage, to say the least. Rates rose by the largest margin in any week since late-2009.

The two biggest stories from last week both came from the Federal Reserve.  The first was the release of the FOMC January meeting minutes which showed more confidence in the U.S. economy than Wall Street expected, and the second was the Fed's surprise announcement to raise the nation's Discount Rate to 0.75%. Both sparked risk-taking on Wall Street and bonds sold-off as a result. 

Now, the Fed Funds Rate won't climb anytime soon and neither will Prime Rate, but the Fed has sent a clear message to the markets -- The Era of Loose Monetary Policy is over.

This week, there's a lot of economic data set for release.

• Tuesday : Case-Shiller Home Price Index, Consumer Confidence
• Wednesday : New Home Sales
• Thursday : FHFA Home Price Index, Initial Jobless Claims
• Friday : Existing Home Sales, Personal Consumption Expenditures

With markets already on edge, any better-than-expected results should be bad for mortgage rates.

After last week's performance, conforming mortgage rates have now unwound most their January gains.  If you're waiting for the right time to lock, it may have been 2 weeks ago. Consider locking in this week to protect against any further deterioration in price.

Here's an article from this morning's Los Angeles Times:

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Short sales grow as a cheaper alternative to foreclosure

Banks’ resistance to the tricky transactions is softening as the number of distressed properties increases.

By Alejandro Lazo,  The Los Angeles Times,   February 17, 2010 | 8:26 p.m.

Nineteen months ago, the recession took Bob Walker's job. Then, creditors lined up to take the three-bedroom hilltop home that the computer consultant shared with his wife, Stephanie, a playwright still looking for her first break.

Avoiding the stigma and financial fallout of foreclosure became an obsession for the Walkers. They talked to the banks, found multiple jobs, put their Silver Lake house on the market and tried to stitch together a plan to repay their debts. Finally, they turned to a short sale, chronicled in a popular blog: Love in the Time of Foreclosure.

"We really thought that, worst-case scenario, we will sell the house and break even," Stephanie Walker said. "But it didn't work. We went into great losses."

In a short sale the lender lets a homeowner unload a house for less than what is owed on the mortgage. The transaction recognizes that the home isn't worth what the owner paid for it after more than two years of falling real estate values.

Such deals are appealing to struggling homeowners because they escape weighty house debts -- but they don't get away unscathed. Their credit scores will be damaged, perhaps less severely than in foreclosure, but still badly enough to limit for years their ability to borrow money. There may be tax consequences. And any money invested through down payments and renovations will be lost.

Lenders, which can withhold approval of a short sale if they don't like the price, have resisted such sales because they are difficult to execute, particularly when multiple creditors and other parties are involved. And short sales lock in losses that might be reduced if the sale is delayed until the market improves.

But that resistance is softening. With more Americans losing jobs and missing mortgage payments, banks and investors increasingly are agreeing to short sales as a less costly alternative to foreclosure.

Short sales approved by Fannie Mae and Freddie Mac, which own 57% of U.S. mortgages, nearly quadrupled in the first nine months of 2009 compared with the same period in 2008. At the nation's largest mortgage servicers, short sales soared 165% to 74,513 in the first nine months of 2009 from the year-earlier period.

Short sales are still few compared with foreclosures, but policymakers are looking at such sales to shrink the number of bank-owned homes on the market.

Late last year, the Obama administration added incentives to get short sales done if a borrower is unable to qualify for a modified mortgage as part of the government's $75-billion effort to help troubled homeowners. Starting in April, the government will pay incentives to lenders and borrowers when a sale is completed.

Many economists view short sales as a way to address a problem that mortgage relief hasn't fixed: properties that are "under water," carrying more debt than the home is worth.

"Making short sales easier would go a long way to freeing up the market," said Richard Green, director of the Lusk Center for Real Estate. "Right now, if people are under water on their house, they are really stuck."

Short sales remain difficult. Uncertainty over home prices makes properties hard to value, lenders are understaffed and multiple loans on a home can trip up negotiations among creditors.

The Walkers faced some of these challenges. The couple paid $799,000 for their home in 2006, taking out loans from Countrywide Financial Corp. and National City Corp.

They spent most of their savings and ran up big credit card balances to redo their kitchen and landscaping. Even with her husband's $240,000 yearly salary, they were stretched thin making combined mortgage payments of $5,000 a month, Stephanie Walker said.

When Bob Walker's consulting contract was canceled, the couple fell behind on their house payments. They found jobs but their income suffered.

They listed the home for $875,000 but found no buyers. A foreclosure notice arrived. They were offered a three-month payment reduction from Bank of America but couldn't afford it. A short sale looked attractive.

One factor motivating banks to go along with short sales is that foreclosures typically cost more. Foreclosed properties often sit vacant, susceptible to damage from neglect or vandals. A study by Amherst Securities Group found that prime loans took an average loss of 45% in a foreclosure as opposed to 35% in a short sale.

"The bank or the investor is going to lose money on a short sale or a foreclosure," said J.K. Huey, senior vice president of Wells Fargo Home Mortgage. "You don't lose as much if you sell the property when it is occupied."

Representatives of Wells Fargo & Co., JPMorgan Chase & Co. and Bank of America Corp. said their companies had assigned more employees to handle short sales. But the sheer volume of requests has made it difficult to keep up.

"I wouldn't call it overwhelmed," said Matt Vernon, the executive in charge of short sales and bank-owned properties for Bank of America Home Loans. "But the volume has certainly stressed our current process."

Then there's the problem of second mortgages, which have proved to be a thorny impediment to the housing recovery. The loans were widespread during the boom years as people tapped rising equity or financed a down payment.

Of the 1.2 million U.S. properties in foreclosure, about 34%, or 403,670, have a second loan, according to RealtyTrac.    In California, with 280,023 properties in foreclosure, about 46%, or 128,800, have a second loan.

"Those junior liens make short sales much more difficult and they make modification much more difficult," said Michael LaCour-Little, a finance professor at Cal State Fullerton who has studied the issue. The different banks "often have no incentive to cooperate."

Sally Quinn's second mortgage has complicated her short-sale attempts.

She is facing foreclosure on a Glendora town house that she bought as an investment property. Quinn said she has tried to arrange a short sale four times through her lenders, Bank of America and JPMorgan. Buyers, tired of waiting months for an answer from the banks, walked away on three occasions, and the banks rejected an offer from a fourth as too low, she said. She lined up a fifth buyer, she said, but B of A balked.

"It all came crashing down," she said.

The Walkers also found the short-sale process to be emotionally wrenching. Weighed down with debt and fearful they would be pursued by the bank that held their second mortgage, they filed for bankruptcy protection last summer.

In her blog, Stephanie Walker wrote that the struggle helped them focus on what was important: their love for each other.
Last month, Walker retired the blog to focus on her next project, a baby due in July, posting: "I don't want my life to be forever tied to our foreclosure story. It's just time for me to move on."

alejandro.lazo@latimes.com

Many of us local Realtors think that the next couple of years will be a huge time for short sales.  If you have any questions about short sales, either see my website - http://BobPhillips.net - give me a call, ( 949-643-2100.) or shoot me an email at BobPhillipsRE@gmail.com

Sometimes, headlines for housing can be misleading and this week gave us a terrific example.

On Wednesday, the Commerce Department released its Housing Starts data for January 2010. The data showed starts at a 6-month high.

A “Housing Start” is a privately-owned home on which construction has started.

Headlines on the Housing Starts story included:

• U.S. Housing Starts Hit 6-Month High (Reuters)
• U.S. Economy Receives Home Building Boost (Shepparton)
• Housing Starts Post Sharp Rebound (ABC)

Based to the headlines, the housing market looks poised for rapid growth through the Spring Market.

The real story, though, is that although Housing Starts increased by close to 3 percent last month, the growth is mostly attributed to buildings with 5 or more units.  This includes apartments and condominiums -- a sector of the housing market that's notoriously volatile.

If we isolate Housing Starts for single-family homes only, we see that starts grew by just 7,000 units last month and have failed to break a range since June 2009.  January's tally is slightly below the 8-month average.

Perhaps more interesting than the Housing Starts, though, is the Commerce Department's accompanying data for Housing Permits. After a 5-month plateau that ended in November, Housing Permits posted multi-year highs for the second straight month.

According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.

One reason permits are up is that home builders want to capitalize on the federal homebuyer tax credit's dwindling time frame.  Sales are expected to spike in March and April and more homes will come online to deal with that demand.  Home buyers should shop carefully, but with an eye on the clock.

As the tax credit's April 30, 2010 deadline approaches, competition for homes may be fierce.

According to the Census Bureau, 2.8 million people commute to work 90 minutes or more each day, in each direction.

Now, your daily commute may not be as long, but time spent in cars, trains and buses is time away from work and from family. Drive-time can affect a person's Quality of Life and it's one reason why Forbes Magazine's Best and Worst Commutes is worth reviewing.

Measuring travel time, road congestion and travel delays in the 60 largest metropolitan areas, Forbes ranks city commutes from best-to-worst with Salt Lake City topping the list and Tampa-St. Petersburg finishing it.

The Top 5 Commutes, as compiled by Forbes:

1. Salt Lake City, Utah
2. Buffalo-Niagara Falls, New York
3. Rochester, New York
4. Milwaukee-Waukesha-West Allis, Wisconsin
5. Albany-Schenectady-Troy, New York

The bottom 5 are Tampa-St. Petersburg, Detroit, Atlanta, Orlando, and Dallas-Forth Worth.

Long commutes shouldn't deter you from moving to a particular city, but the potential commute should be consideration. Before making an offer on your next home, make a rush-hour commute to work from your potential new neighborhood.  Then imagine doing it every day.

You can read the complete Forbes list of Best and Worst Cities for Commuters on its website.

Mortgage markets worsened last week on general profit-taking in the U.S. bond market, combined with talk of a coordinated rescue effort for Greece and its debt burden. Mortgage-backed bonds sold off, causing conventional and FHA mortgage rates to rise.

There wasn't much hard data on which to trade last week, either, so momentum took markets farther than they otherwise might have moved on their own.  It marked the first time in 5 weeks that rates rose for rate shoppers.

This week, data returns. Expect mortgage market movement.

Some of the week's more important releases include:

1. Housing Starts and Building Permits (Wednesday)
2. The release of the last month's FOMC Minutes (Wednesday)
3. Business and consumer inflation figures (Thursday and Friday)

Inclement weather may have impacted last month's Housing Starts reading so pay closer attention to Building Permits.  Permits precede actual construction and can be more indicative of economic optimism. If permit readings are strong, it should be a negative for mortgage rates.

The same is true for the FOMC Minutes. 

Last month's FOMC post-meeting press-release was decidedly middle-of-the-road, but the statement is just a summary of the Fed's 2-day meeting, boiled down to a few paragraphs.  Wednesday's release of the FOMC Minutes will reveal the deeper discussions among members of the Fed.  Wall Street will mine it for clues about the future of the economy.

If Wall Street senses optimism coming from the Fed -- again -- mortgage rates should rise.

And, lastly, keep an eye on Thursday and Friday's inflation data.  Inflation is bad for mortgage rates so a higher-than-expected reading should spark a bond market sell-off.

Since mid-December, mortgage rates have moved within a tight range and there's little reason for rates will break this range this week. However, we are near the top of the channel. If you know you're going to need a rate locked soon, it's probably best to do early in the week.

Written by: Blanche Evans - Feb 12, 2010 4:30:00 AM

 The housing crash will resume early this year, according to a Bloomberg.com story published recently.  

 Quoting analysts at Amherst Securities, the reporter wrote that 7 million properties “likely to be seized by lenders have yet to hit the market” creating a “huge shadow inventory” of homes. That could have a disastrous effect on inventories, 1.35 years worth, if not another home was added to the market. High inventories would collapse prices, knocking another 8% off homeowner equity, with a domino effect on the struggling economy.

 The analysts told Bloomberg that the shadow inventory is likely to only be reduced by about 1 million homes through “cures” such as homeowners getting their loans refinanced, finding jobs, selling their homes before seizure, etc.

 But the foreclosure threat, while very real, could be way overblown.

 Foreclosures could have a much higher cure rate, due to increased government homebuyer incentives. The first-time homebuyer tax credit, which has now been extended to April 2010 and also includes a new program for qualified move-up buyers.  

 Add to that, inventories are diminishing. Existing home inventories have been reduced from a glut of over 11 months on hand, to about 7.8-month supply in September, down from 9.3-months on hand in August. Six months on hand is widely considered to be a balanced market.

 Lawrence Yun, chief economist for the National Association of REALTORS® predicts that the tax incentives will invite as many as 2.3 to 2.4 million first-time homebuyers to the market this year, which should help to stabilize prices.

 First-time homebuyers were 47% of the market in 2009, according to the National Association of REALTORS® 2009 Profile of Home Buyers and Sellers, up sharply from 41% in 2008’s survey

 Next, foreclosures aren’t pandemic. Four states accounted for 52% of foreclosure activity in October - California, Florida, Illinois and Michigan, according to RealtyTrac. Some of the hardest hit states are showing significant reductions in foreclosure filings. Nevada is down 26% from the previous month, California down 1%, and Florida down 6%. 

 Last, foreclosures appear to be declining as job losses bottom.

 According to RealtyTrac® chief executive James J. Saccacio, the number of foreclosures declined for three months in a row through October 2009, but filings are up nearly 19% from October 2008. 

 “However, the fundamental forces driving foreclosure activity in this housing downturn — high-risk mortgages, negative equity, and unemployment — continue to loom over any nascent recovery,” said Saccacio in a statement. “And despite all the efforts and resources directed at helping homeowners avoid foreclosure, we continue to see foreclosure activity levels that are substantially higher than a year ago.”

 And that’s why shadow inventory remains worrisome. Explains Rick Sharga, senior vice president of RealtyTrac Inc., “Essentially, the 7 million ‘shadow inventory’ number consists of all the properties currently in foreclosure (about 1.2 million), all the loans that are delinquent (about 5.5 million), and some of the REOs (about 900,000 in our database).” However, he says, “it appears that the analyst is working on the assumption that 100% of everything that's delinquent or in default will ultimately go back to the banks as REOs. That's never happened, and is unlikely to happen this time.”

A more likely scenario, says Sharga, is that many of the loans that are only modestly delinquent will be cured or re-financed. “Of the loans that go into foreclosure, probably 50-60% will either be sold at foreclosure sale or taken back by the banks,” forecasts Sharga.

 In addition, Sharga says that 20% of that number is already on the market, and are therefore not “shadow” inventory.

 So what’s the real number of shadow inventories? “The only shadow inventory we can really be certain of is that which has already been repossessed by the banks, and isn’t yet listed for sale,” explains Sharga. “We estimate between 400,000 and 500,000 such properties. Everything else is pure speculation.”

 The worst case? “If you were to assume that 50% of loans in all stages of delinquency would enter foreclosure and that 50% of those (as well as 50% of the homes currently in foreclosure) would ultimately wind up as REOs, and add these to the current off-market REOs, that would give you potentially 3.7 million homes in the pipeline.

 “If 20% of those are currently listed, you come down to 2.96 million properties. Given processing timelines, which range from 3 weeks to 600+ days, and other delays in the system, predicting when these homes become REOs and hit the market is virtually impossible right now.

 “And it doesn’t factor in two other important variables: how many loans are yet likely to go into default during this cycle, and how rapidly will buying activity increase? At the end of the day, we’re not looking at 7 million properties that are likely to flood the market all at once; but we will have several million properties go through foreclosure over the next 3 years and ultimately keep market prices from recovering as quickly as everyone would like.”

 That could mean a long, slow recovery through 2013, predicts Sharga, rather than another precipitous drop in home prices. The foreclosure pipeline will continue to be slow, but what will hold the finger in the dyke is sheer volume, accounting and strategy. 

 “Even with the current slowdown, foreclosure activity is running at 6 times what it was four years ago, and REO activity at 10 times,” says Sharga. “Secondly, there are financial reasons to slow down foreclosures and subsequent resales.

 “When the “mark to market” accounting rules were relaxed last year, it meant that lenders didn’t need to write down the value of their real estate assets until the assets were re-sold. This allows lenders to repossess properties at full loan value (on their books) and defer the losses for months or even quarters. Finally, now that we’ve reached “critical mass” – a point where releasing all of the REOs onto the market would probably drive prices down – lenders realize that it’s a better strategy to gradually release the properties back onto the market, and may even benefit from a small bounce in prices which will minimize some of their losses.”

 Actually, the housing market in many areas such as California, could use more inventory, so lenders would do well to release some foreclosures for resale. In some recovering areas of Southern California, for example, there is less than one month’s inventory for sale on hand.

 Says Walt Molony, spokesperson for the NAR, “At the end of Sept. we were showing 3,630,000 homes on the market, down 7.5% from Aug. and 15.0% below a year earlier.  That works out to a 7.8-month supply.

“Census is showing a 251,000 new home inventory, down 3.8% from August and 36.5% below a year ago.  That represents a 7.5-month supply, so it's headed in the right direction.”  ( End of article.)

Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables."  

Notes from me:

Most of the negative rumors you may have seen or heard lately are a distortion of the same data that RealtyTrac, and other compilers of distressed information have provided above, but which Doom & Gloom Bubble Bloggers ( DGBB.) "conveniently" spin or distort the reality portion of the info, cited above, in order to employ their scare tactics that real estate in the United States is going to go further into “heck” in a hand basket.

As reported above, by experts, who are actually compiling, and analyzing the foreclosure information, and which have a much more complete and realistic picture of the forthcoming situation.  That realism, however, won't help the DGBB's sell subscriptions to their disciples, so they "conveniently" leave those “little” tidbits out of their incessant blogs about impending tsunamis of foreclosures, with preposterous predictions of a forthcoming additional "crash" of 30-60% lower real estate values.

In Southern California, where I have been practicing real estate for over 33 years, that alleged tsunami is more likely going to be a trickle of additional distressed listings - just like it was in 2009 - that will be quickly absorbed by a tsunami of ready, willing, and able buyers - just like it was in 2009. 

That's another dose of reality that the DGBB's choose to ignore, while they spew their misinformation.

Consumer Sentiment has been on the rise since last February and it’s something to which home buyers should pay attention. 

The affordability of your next home may hinge on consumer confidence.

As the economy recovers from a near-the-brink recession, many of the elements of a full recovery are in place.  Business investment is returning, household spending is expanding, and financial systems are gaining strength. 

Consumer confidence is at a 2-year high.

What’s missing from the recovery, though, is jobs growth.  Another net 20,000 jobs were lost in January. Data like that hinders economic growth.

That said, twenty-thousand jobs lost is a much better figure than the several hundred thousand that were shed per month throughout early-2009, but it’s still a net negative number.  Not only does household income drop when Americans lose jobs but so does the average American’s confidence in his or her own economic future.

This is one reason why jobs growth is so closely watched by Wall Street — jobs are linked to higher confidence levels which, in turn, is believed to spur consumer spending.

Consumer spending represents 70% of the U.S. economy.

As confidence rises, it could be good news for the economy, but bad news for home buyers. More spending expands the economy and, all things equal, that leads mortgage rates higher. 

Same for home prices. More confidence means more buyers which, in turn, squeezes the supply-and-demand curve in favor of sellers.

Later this morning, the University of Michigan will release its February Consumer Sentiment survey. If the reading is higher-than-expected, prepare for mortgage rates to rise and home affordability to worsen.

The mortgage lending landscape changes a lot.  Rates and guidelines are in constant flux, and it creates preparedness challenges for buyers that aren't paying in cash.

The loan you get today won't always be the loan you get tomorrow.

Because of how frequently bank rules are changing, it can be hard for laypersons to distinguish between mortgage fact and fiction of "what's coming next".

Recently, we saw this with respect to FHA home loans.

January 20, 2010, the FHA issued a press release with new lending guidelines.  Specifically, it announced 3 changes that will be effective starting April 5, 2010:

1. Upfront mortgage insurance premiums increase from 1.75% to 2.25%
2. Allowable seller concession reduced from 6% to 3%
3. FICO scores of 580 or lower are subject to a minimum 10% downpayment

But, also in its official statement, the FHA announced it would ask Congress for permission to raise monthly mortgage insurance premiums.  This is where the rumors started.

Nestled on page 348 of the Budget of the United States Government, Fiscal Year 2011, in a section titled Special Topics, there is a 1-paragraph notation that details the FHA's petition. 

1. Raise monthly premiums by roughly 0.30%, or $25 per $100,000 borrowed per month
2. Lower upfront mortgage insurance premiums by 1.25%, or $1,250 per $100,000 borrowed at closing

For now, the request is neither approved nor acknowledged by Congress. It's merely a request. And in the event that Congress does approves it, that doesn't mean that FHA has to stand by its initial projections.

 Truth is, about the only thing we know about the future of FHA lending is that, come April 5, 2010, borrowing money is going to be tougher, and mortgage expensive. These are the facts as we know them today.

Homebuyers should plan accordingly.

The economy's improving but lending standards are not. Nationally, banks are making mortgage approvals harder to come by.

Underwriting guidelines are tightening.

The data comes from the Federal Reserve's quarterly survey to its member banks.  The Fed asks senior bank loan officers around the country to report on "prime" residential mortgage guidelines over the most recent 3 months and whether they've tightened.

For the period October-December 2009:

• Roughly 1 in 4 banks said guidelines tightened
• Roughly 3 in 4 banks said guidelines were "basically unchanged"

Just 2 of 53 banks said its guidelines had loosened.

Combine the Fed's survey with recent underwriting updates from the FHA and generally tougher standards for conventional loans and it's clear that lenders are much more cautious about their loans than they were, say, in 2007.

Today's home buyers and would-be refinancers face a bevy of new borrowing hurdles including:

• Higher minimum FICO scores
• Larger downpayment requirements for purchases
• Larger equity positions for refinances
• Lower debt-to-income ratios

So, if you're on the fence about whether now is a good time to buy a home, or make that refi, consider acting sooner rather than later.  It doesn't necessarily matter that mortgage rates are low, or that there's an up-to-$8,000 home purchase tax credit for households that qualify.  With each passing quarter, fewer and fewer applicants are eligible to take advantage.

Mortgage markets improved last week on domestic jobs data and international banking concerns. The news triggered buying in the bond market and, as a result, conventional, FHA and VA mortgage rates improved for the 4th consecutive week.

Mortgage rates are now at a 6-week low but probably shouldn't be.  It underscores just how important global events can be to U.S. mortgage markets.

For example, corporate earnings continue to improve and key elements of the economy are strengthening.  Even the Federal Reserve acknowledges this.  In most circumstances, that would be a boon for the stock markets and bond markets would suffer, including mortgage bonds.

Last week, that wasn't the case.

Early in the week, as (1) China tightened its monetary policy, (2) Greece did little to quell lingering default fears, and (3) Spain raised its deficit forecasts, global investors sought to reduce their collective risk exposure. For safety of principal, many sold some of their more aggressive positions and moved the cash proceeds into the U.S. bond market -- which includes mortgage bonds. 

On Wall Street, this type of trading pattern is called a "flight-to-quality".  Because mortgage bonds are backed by U.S. government entities, the debt is considered to be ultra-safe.  Last week's extra demand for bonds helped to push prices up and mortgage rates down.

And that was before Friday's weak jobs report. Although the Unemployment Rate fell to 9.7%, the government reported a net loss of 98,000 jobs last month and this, too, helped mortgage rates tick lower.

This week, we'll hope for momentum to continue.

There's very little domestic news to move rates this week so keep an eye on the global market for similar stories like what we saw last week.  Or, if you're not sure what to look for, just give me a call or send me an email and I'll be happy to watch the markets and mortgage rates for you.

Here's an article from today's Rismedia.com:

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By Jim Gallagher

RISMEDIA, ( Rismedia.com ) February 6, 2010—(MCT)—If you have a good job and good credit, the next few months might be a good time to go house hunting. Fence-sitters take the risk that Congress may let a rich tax credit expire, and that interest rates may rise. Buyers and sellers should consider the following factors as they consider jumping into the housing market.

First, mortgage rates are blissfully low, and that may not last. The rate on a 30-year mortgage averaged 5% last week, according to Freddie Mac. Rates are low in part because the Federal Reserve has been buying up about $3 trillion in mortgage-backed securities and mortgage agency debt. The aim is to hold down interest rates and keep mortgages available. But the Fed is slowly removing that financial crutch as the economy improves. It has no plans to buy any more past March 30, 2010. The likely result is an uptick in rates. Meanwhile, the recovering economy by itself should raise rates as the year goes on. Economists at the Mortgage Bankers Association expect to see a 6.1% rate by year end. Such a rise would add about $104 to the monthly payment on a $150,000 mortgage

Second, the home buyer tax credit expires on April 30, 2010 and no one knows if Congress will renew it a second time. Expect a clash between the real estate lobby and fiscal conservatives worried about the $1.35 trillion federal deficit. To qualify for the credit, you must sign a purchase contract by April 30, 2010 and close by July 1, 2010. First-time buyers get up to $8,000. “First-time” is defined as someone who hasn’t owned a home in three years. Move-up buyers get up to $6,500 when they purchase a new primary residence. To get the credit, you have to have lived in the old home for at least five out of the last eight years. The credits start phasing out at $125,000 in adjusted gross income for singles and $225,000 for joint filers.

Third, there are indications that home prices are near a bottom in some areas and may actually be rising a bit. That statement is dicey, because conditions vary by neighborhood and the data can be tricky.          ( Note from Bob Phillips: In my area - Orange County, California - the median price hit bottom 12 months ago, and is now 8-10% higher.)

Things might look different if you’re a seller though. Do you want to put your house on the market near the bottom of a price cycle? Homeowners who have a choice in the matter—those who can still pay their mortgages—are largely saying no. Inventories of homes for sale are down about 10% from this time last year, and 30% from the mid-decade peak of the housing boom, says Kevin Cottrell, chief economist at Kelsey Cottrell Realty Group. On the other hand, if you’re planning to move up to something grander, you might find a bigger bargain when you buy. And that $6,500 tax credit could swing a close decision.

The number of home sales peaked in many areas October and November, as buyers raced the expiration date of the original first-time home buyer’s credit. Congress later extended and expanded it. That rush satisfied some pent-up demand, but real estate agents are hoping for another rush around this spring. “People will wait to the very last second,” said Mike Travaglini, a vice president of Coldwell Banker Gundaker’s office in south St. Louis County.

Mortgage lenders have been tightening credit standards, which means fewer eligible buyers, says John Frank, president of Paramount Mortgage in Creve Coeur. Mo. “It’s getting tighter and tighter,” he said.

Lenders are insisting on credit scores of 640 to 660 for loans sold to Fannie Mae, Freddie Mac and 620 for FHA guaranteed loans. Those standards are higher than the federal agencies themselves insist on. FHA—which guarantees loans for people with low down-payments—has been raising its own insurance charges to borrowers and demanding higher premiums from people with poor credit scores.

(c) 2010, St. Louis Post-Dispatch.

Distributed by McClatchy-Tribune Information Services, and RisMedia.

( End of article.)

As mortgage lenders tighten approval standards nationwide, the importance of a good credit score is rising.  Credit scores not only make the difference between a mortgage approval and mortgage turn-down, but they also play a large role in determining your actual mortgage note rate.

In this 3-minute video, the NBC Today Show talks about 7 ways that homebuyers ruin their credit -- often by accident.  Some of the highlighted mistakes include:

• Closing open credit cards
• Making appliance buys on credit prior to closing
• Asking creditors to lower credit balances prior to closing

In general, a 740 FICO will insulate a borrower from the higher costs and/or rates associated with low credit scores.  Below 740, though, every 20 points adds to the damage.  Watch the video and apply what you can to your own situation.  The more you know, the more you can save.

On the first Friday of every month, the U.S. government releases its Non-Farm Payrolls data from the month prior. The data is more commonly known as "the jobs report" and it swings a big stick on Wall Street.

Especially now -- many analysts believe job growth is tightly linked to the future of the U.S. economy.

Therefore, when January's jobs report hits the wires at 8:45 AM ET tomorrow, home buyers would do well to pay attention. A net job reading that is much higher (or lower) than Wall Street's expectations can make a serious change in home affordability.

Wall Street expects that the economy added 13,000 jobs last month.  It would mark the second time in 3 months that the jobs report showed a net monthly gain.

In November 2008, the economy added 4,000.

Jobs matter to the economy for a lot of reasons, but one of the biggest is that when Americans are working, Americans are buying and consumer spending accounts for 70 percent of the economy.

Job growth spurs the economy and draws money to the stock market. Unfortunately for rate shoppers, that kind of stock market growth happens at the expense of the bond market which is where mortgage rates are made.

Good jobs data usually means higher mortgage rates.

Also, job growth can lead to higher home prices. This is because working homeowners are less likely to default on a mortgage versus non-working homeowners.  In this way, job growth helps hold foreclosures to a minimum which, in turn, suppresses the housing supply.

Less supply means higher prices for home buyers.

Mortgage rates are idling this morning in advance of tomorrow's data.  If you're shopping for a mortgage rate, the prudent play may be to lock your rate before the jobs data is released.  A jobs figure that's higher than the 13,000 expected could cause rate to rise sharply.

As the housing market improves across the country, certain cities are emerging as relative bargains.  Some areas, like Miami, were hit hard by the recession, and other areas are buoyed by good school systems and strong labor markets.

In this 5-minute video from The Today Show, 10 cities are highlighted for their home prices.  And they’re not “small towns”, either.

Among the featured cities:

• Miami, Florida
• Akron, Ohio
• Tuscon, Arizona
• Minneapolis, Minnesota
• Trenton, New Jersey

Now, this piece is about finding gems on a national scale.  They exist locally, here in Orange County, as well.  You just need to know what to look for.

With mortgage rates still low and tax credits still available, it’s not likely that bargains will last. Give me a call, or shoot me an email, and let’s discuss the possibilities.

The following is the second part of Steven Thomas’ end of year real estate market report for Orange County, California. Steven is a highly respected source of O. C. data, frequently cited in much of Southern California media, both television and newspapers.  He has been producing this twice monthly report for 5 years now, and has refined it into a concise and extremely informative synopsis of recent data, along with unusually accurate predictions of what looms on the foreseeable future.  His education, in addition to being a third generation member of an O. C. real estate family, includes a degree in Quantum Economics. 

Here is the second part Steven’s year end report – What to expect, in O.C. real estate, in 2010.

What can we expect in 2010? The federal government has been working overtime to help instigate an increase in demand and an eventual recovery within the real estate sector. The first time home buyer tax credit has been expanded to include move-up buyers who need to sell their homes first and extended through June of next year (homes need to be pending by April 30th and close by June 30th). As discussed prior, the conventional loan limit has been extended through all of 2010. But, the biggest wild card for 2010 is what will eventually happen to interest rates as the Federal Reserve halts the purchase of mortgage-backed securities. Here is my forecast:

• The lower end, below $1 million, and especially below $750,000, will continue to experience strong demand and values will remain flat or appreciate slightly. Homes priced below $1 million accounts for 76% of the active listing inventory and 94% of demand. Buyers and sellers can continue to expect multiple offers and sales prices at or above the list price. Bottom feeders need not waste their time.
• The upper end, above $1 million, and especially above $2 million, will continue to experience muted demand along with a drop in value. The upper end is catching up with the large drops in value within the lower end. The drop in value will be led by an increase in distressed sales in the upper ranges. Jumbo loans may be tougher to obtain in the upper ranges, but as values drop, demand will increase. The appetite for upper end distressed sales has grown and, with proper pricing, will attract higher demand and multiple offers.
• The number of units sold will increase year over year slightly. The difference will be much stronger in the first quarter of 2010 and the gap will tighten for the remainder of the year. For the most part, the demand curve will closely mirror 2009.
• The discretionary seller will return to the marketplace, keeping inventory levels at a healthy level. We can expect the active inventory to grow to no more than 9,000 homes.
• Short sales will be king in 2010. With the federal government turning their attention to short sales, the process is going to get a whole lot better. The government had been strong arming lenders to modify loans, but success has been very limited. There will be a lot more short sale approvals, which translates to successful closed short sales. The infamous “shadow inventory” will actually translate to more short sales. Short sales are already a major component of today’s real estate market. The only thing missing right now is a higher success rate and that is about to change. Expect the number of closed short sales to continue to exceed the number of closed foreclosures on a monthly basis.
• The number of foreclosures to hit the market will increase slightly year over year, but will NOT be a wave fueled by the “shadow inventory.”
• We can expect the distressed inventory to rise slowly with more short sales and foreclosures to hit the market; but, this will be offset by incredible demand for distressed properties. With demand so high, distressed properties will be placed at the last comparable sale, not below.
• As the Federal Reserve purchase of mortgage-backed securities comes to an end after the first quarter of 2010, interest rates will rise to about 6%. That may seem like a giant jump, but 6% is still low historically.
• It is going to by a long wait for homeowners waiting for the market to rebound. With unemployment high and more distressed homes to hit the market, the most likely scenario is going to be a flat market for the next couple of years, with no real appreciation or depreciation.

There have been a lot of lessons learned from the housing speculative bubble. The most important lesson has to be that people need to look for a place to call “home” for the long term, making sure that their family can afford the monthly payment. If a homeowner pays their 30-year fixed rate mortgage for 30-years, they own their home free and clear. Historically, in the long run, a home is a great investment. Your home is not an asset that is meant to be flipped every two years because the government has made it convenient to write off the gains. A home is place to call your own and a great place to raise a family or retire. And, in my humble opinion, you cannot beat Orange County as a place to call home. ( End of Steven’s market report.)

Here is a link to the first part of his report, from my blog, yesterday:  My blog for 12/31/09

Here is a link to Steven’s blog, for the entire report:  Steven Thomas' O. C. Market Report

Once again, I wish you and yours a Happy – and prosperous – New Year.  See you again soon.

The following is a first part of Steven Thomas’ end of year real estate market report for Orange County. Steven is a highly respected source of O. C. data, frequently cited in much of Southern California media, both television and newspapers.  He has been producing this twice monthly report for 5 years now, and has refined it into a concise and extremely informative synopsis of recent data, along with unusually accurate predictions of what looms on the foreseeable future.  His education, in addition to being a third generation member of an O. C. real estate family, includes a degree in Quantum Economics. 

 Here is the first part Steven’s year end report – a review of 2009.

 The real estate market in Orange County, California – the year 2009 in review.

 First, let me clarify that forecasting draws from historical data and circumstances to predict the future. Yet, we are currently in uncharted waters, making forecasting the housing market more of an art than an exact science. There have already been many forecasts released that are all over the map. It reminds me of picking NFL football games during the first week of the year when there are a lot of surprises. With that in mind, let’s take a look back at what happened in 2009 in terms of inventory, demand, expected market time and distressed properties.

The Active Inventory: We started the year with 11,326 homes on the market. The discretionary homeowner returned, knowing that the market was full of challenges and competition. Values had already dropped substantially, especially in the lower ranges. The active inventory reached its peak of 11,606 homes by the end of March, 280 additional homes compared to the beginning of the year, a 2.5% increase. From there, the inventory continued to drop steadily throughout the year. Currently, the active inventory has continued its downward trend, shedding another 207 homes and bringing the inventory to 7,381 homes, a 36% drop from the peak. The inventory has dropped to levels not seen since December of 2005. In comparison, the 2008 active inventory grew from 14,944 homes in January and peaked in March at 15,617 homes, a 4.5% increase. From there, the 2008 inventory dropped 26% through the end of the year to 11,842. In 2006 and 2007, the active inventory blossomed throughout the year and peaked in August. In both 2008 and 2009, the inventory had dropped to a much healthier level with the help from the discretionary homeowner. Had discretionary homeowners not been present, we could have been looking at inventory levels hovering around the 20,000 mark. The drop in the active listing inventory has also been aided by the number of short sales that have been placed into “Backup” position. Short sales, homeowners that owe more than their home is worth, are subject to lender approval of accepting less than the full loan amount. Many short sales continued to market their homes as active listings even though they had an acceptable agreement between a buyer and the seller. They remained on the market until they had “lender approval.” This resulted in an artificially high active inventory. This has since changed and the active inventory today is a much more accurate depiction of the real active inventory.

Demand: Just like in 2008, demand, the number of new pending sales within the prior month, continuously grew unabated. It was plodding along, ignoring cyclical ups and downs from week to week. Demand grew from 2,008 homes in the beginning of January to its peak of 3,652 homes in June, an 82% increase. After June, just like in 2008, demand followed the normal cyclical, seasonal pattern. Demand was boosted by the major drop in home values over the prior couple of years, increased affordability, historically low interest rates, the first time home buyer tax credit and the sheer number of distressed properties on the market. In 2008, a peak in demand of 3,060 homes was reached in June, and then slowed for the Autumn and Holiday markets. Currently, in keeping up with the normal Holiday market cycle, demand dropped by 523 homes in the past month to 2,515 homes. That is still much healthier than last year at this time when demand dropped to 1,997 homes, 21% slower than today. In 2007, demand was at 1,031 homes, 59% slower. Current demand is also at the strongest level for the finish to a year since I started tracking the Orange County housing market five years ago.

Expected Market Time: Orange County started off the year with an expected market time of 5.62 months. But, as demand continued to pick up steam and the inventory dropped, the expected market time methodically declined and reached a bottom in September of 2.33 months. Currently the expected market time is at 2.93 months. In 2008 the expected market time started the year at 14.97 months and dropped to 5.93 months at the end of the year. In 2007 the expected market time started the year at 7.78 months and increased to 15.05 at the end of the year. The current expected market time is also at a much healthier level going into 2010. At the current expected market time, it is technically a seller’s market. Distressed properties are keeping a lid on any real appreciation, but all of the other trimmings that go along with a seller’s market are very much a part of today’s housing landscape: multiple offers, sale prices above list prices, tremendous competition, and buyer frustration.

Distressed Properties: The big story of 2008 was how much the distressed inventory grew and became such a large part of the housing market. This year, the big story was how the number of distressed properties had dropped. With moratoriums on foreclosures at the beginning of the year and the government insisting upon loan modifications, the number of foreclosures dropped throughout the year. In the beginning of 2009 there were 5,118 distressed homes on the market, both short sales and foreclosures, representing 45% of the active inventory. The distressed inventory dropped 46% to a low of 2,346 in October, representing 31% of the active inventory. With a decrease in demand due to the holidays, the current active distressed inventory increased by 41 homes over the past month and is now at 2,537 homes, representing 34% of the total inventory. In 2008, the distressed inventory started the year at 3,858 homes, peaked in August at 5,950 homes and then dropped to 5,379 homes at the end of the year. Short sales make up 85% of the distressed inventory versus 15% for foreclosures. At the beginning of the year, distressed properties made up 69% of demand versus 55% today. There is tremendous demand for distressed properties. Even though it is the Holiday market, the expected market time for all foreclosures is at 1.07 months, a DEEP SELLER’s market. The sales to list price ratio for foreclosures in the month of November was 104%. That means that the average foreclosure sold for 4% ABOVE the list price. There are only 378 foreclosures actively listed today. One year ago there were 1,294. There is similar demand for short sales with an expected market time of 2.12 months. The sales to list price ratio for short sales in November was at 99%. Short sales have become a major part of the housing market and will be throughout 2010. There are 2,159 short sales on the active market, 4,037 short sales are pending and 856 have been placed on hold. All of these statuses combined total 7,093. Short sales represent 48% of all listings, pendings and properties on hold. As a buyer, it is very difficult to avoid short sales and their lengthy process. The bottom line, there is tremendous demand for distressed properties and buyers should not have the expectation of being able to offer much less than the purchase price.

2009, a look back: Perhaps the biggest surprise of the year has been the large drop in distressed sales. Throughout the year, everybody has heard of various foreclosure moratoriums and the pending wave of foreclosures to come, also known as the “shadow inventory.” The shadow inventory includes all homes that have been foreclosed on but the lender purposefully held off of the market, all homes scheduled for a trustees deed upon sale (the final foreclosure action) and, most important, all homes that are 90 days or more delinquent. There is a giant shadow inventory, but many economists and analysts have made the error of presuming that lenders are purposely holding already foreclosed homes off of the market. Instead, most of the shadow inventory is already on the market as short sales. There are over 7,000 in Orange County alone that are on the active market, pending or on hold. In Los Angeles, there are over 13,000, in Riverside there are over 8,000, in San Bernardino there are over 5,700, an in San Diego there are over 8,500. Minus Ventura County, there are over 42,000 short sales in Southern California alone. The short sales have piled up across the United States. There has been tremendous pressure from the federal government for lenders to modify loans. Thus far the program has not been that successful. Now they are turning their sites on short sales. The government wants lenders to modify first, short sale second, and, as a last resort, foreclose. On November 30th of this year, the Obama administration, through the U.S. Treasury, released the Home Affordable Foreclosure Alternative Program (HAFA), providing financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu to avoid a foreclosure on an eligible loan. In response, lenders are already gearing up to handle the volume of short sales.

The first time home buyer tax credit also had a positive impact on the housing market along with the increased conventional loan limit to $729,750. The tax credit was supposed to end November 30th, but has since been extended through June of next year. So, we can expect a bump in activity due to the credit for the first half of 2010. The government was late to provide an extension to the increased conventional loan limit from 2008. So the first few months, the conventional loan limit dropped to $625,500 and then it was increased again to $729,750. The increase was set to expire at the end of 2009, but this time the government actually planned ahead and extended the increase through the end of 2010. This is very important to the Orange County housing market since loans above the conventional loan limit, jumbo loans, are much more difficult to obtain. ( End of this portion of the report.)

 Tomorrow, I will post the second portion of Steven’s report, a prediction for 2010.  See you then

 In the meantime, I wish you a Happy – and prosperous – New Year!