The drop means the number of people losing their homes will start to fall. But some pain from the crisis is sure to persist. Because millions of people are already in foreclosure, deeply discounted houses will put pressure on home prices for years.

“Housing is on a path to recovery,” said Mike Larson, a real estate analyst with Weiss Research. “It’s going to be a very long, gradual process.”

In high-foreclosure cities like Las Vegas, Phoenix and Miami, homes have lost roughly half their values from their peaks. But a report Friday from the Mortgage Bankers Association showed Nevada, Arizona and Florida had some of the biggest declines in new delinquencies.

The figures probably mark “the beginning of the end” of the crisis, said Jay Brinkmann, the trade group’s chief economist.

However, more than 15 percent of homeowners with a mortgage have missed at least one payment or are in foreclosure, a record. Worse, nearly half of all delinquent borrowers were at least three months behind on their payments, up from a typical level of less than 20 percent.

“The bad news is that we still have a big problem,” Brinkmann said. “The good news is it looks like it may not get much bigger.”

That’s because the percentage of borrowers who missed just one payment on their home loans fell to 3.6 percent in the October-to-December quarter from 3.8 percent in the third quarter, according to the Mortgage Bankers Association. That decline was even more surprising because delinquencies usually rise at that time of year due to higher heating bills and holiday spending.

In another encouraging sign, the number of borrowers who had missed at least one payment but were not yet in foreclosure also fell for the first time since the beginning of 2007.

Banks are delaying the foreclosure process, traditionally between four and six months, as they evaluate borrowers for help under the Obama administration’s $75 billion mortgage-relief effort. It lowers borrowers payments to as low as 2 percent for five years and extends loan terms to as long as 40 years.

But experts warn that hundreds of thousands of borrowers will not be eligible or will not complete the process. So far, only 116,300 borrowers out of 1 million who enrolled have had the terms of their mortgages changed permanently.

Despite the government’s efforts, there may be 6 million foreclosed homes that are put on the market over the next three years, according to Barclays Capital.

Timing is key. If banks unload them suddenly, “it will be much more detrimental to the housing recovery than if it’s a slow, gradual bleed,” said Michelle Meyer, a Barclays economist.

On Friday, Obama announced that housing agencies in the five hardest-hit states of Arizona, California, Florida, Michigan and Nevada will receive $1.5 billion in financial rescue money.

It will go to local programs to help unemployed homeowners, “under water” borrowers who owe more than their home is worth, or to give lenders incentives to assist borrowers with second mortgages. The programs will need to be approved by the Treasury Department.

“Government alone can’t solve this problem,” Obama said. “But government can make a difference.”

In a briefing with reporters, administration officials acknowledged that the effort was just a small one. But they said it could help develop broader national solutions. “What we’re trying to do here is foster innovation,” said Herbert Allison, an assistant Treasury secretary.

Record streak continues for pending home sales

WASHINGTON – Oct. 1, 2009 – Pending home sales have increased for seven straight months, the longest in the series of the index which began in 2001, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in August, rose 6.4 percent to 103.8 from a reading of 97.6 in July, and is 12.4 percent above August 2008 when it was 92.4. The index is at the highest level since March 2007 when it was 104.5.

Lawrence Yun, NAR chief economist, said not all contracts are turning into closed sales within an expected timeframe. “The rise in pending home sales shows buyers are returning to the market and signing contracts, but deals are not necessarily closing because of long delays related to short sales, and issues regarding complex new appraisal rules,” he said. “No doubt many first-time buyers are rushing to beat the deadline for the $8,000 tax credit, which expires at the end of next month.”

The Pending Home Sales Index in the Northeast jumped 8.2 percent to 85.3 in August and is 12.0 percent higher than August 2008. In the Midwest the index rose 3.1 percent to 90.8 in August and is 7.6 percent above a year ago. In the South, pending home sales increased 0.8 percent to an index of 104.6 and is 8.2 percent above August 2008. In the West the index surged 16.0 percent to 130.5 and is 22.3 percent above a year ago.

“There is likely to be some double counting over a span of several months because some buyers whose contracts were cancelled have found another home and signed a new contract to buy,” Yun explained. “Perhaps the real question is how many transactions are being delayed in the pipeline, and how many are being cancelled? Without historic precedents, it’s challenging to assess.”

Yun also noted that the data sample coverage for pending sales is smaller than the measurement for closed existing-home sales, so the two series will never match one for one.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said first-time buyers need to act now. “Potential first-time buyers must make a contract offer very soon to have a reasonable chance of qualifying for the tax credit,” he said. “Congress needs to extend and expand this program because it’s stimulating the economy and reducing inventory close to price stabilization points.”

McMillan said a sizable number of homebuyers already in the pipeline could be let down because of the tight deadline. “We know there is a pent-up demand because sales are below normal levels for the size of our population. The faster we absorb excess inventory, the sooner we’ll turn the corner on home prices, prevent additional families from becoming upside-down in their mortgages, and give Wall Street the confidence to extend credit to other sectors,” he said. “Each home sale pumps an additional $63,000 into the economy through related goods and services, so the benefits of extending and expanding the tax credit far outweigh the costs.”

Yun said the forecast for home sales and prices depends very much on whether a tax credit is extended. “All we can say for certain is sales will decline when the tax credit expires because we are not yet on a self-sustaining recovery path. It also raises a risk of a double-dip recession,” he said. “Extending and expanding the tax credit is the best tool in our arsenal to encourage financially qualified buyers to stimulate the economy and help reduce the budget deficit.”

© 2009 Florida Realtors®

 
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‘Freaky’ side of real estate economics
Flat-fee brokers may put pressure on traditional commissions
Friday, June 23, 2006

By Glenn Roberts Jr.
Inman News

SAN FRANCISCO — Traditional pricing for real estate services is bound to crumble, and flat-fee brokers will likely deliver the deathblow — at least according to Steven D. Levitt, co-author of “Freakonomics,” a book that takes an unconventional approach to economics.

Levitt, who spoke to attendees Thursday at the PCBC builders’ conference and trade show at San Francisco’s Moscone Center, also said that the real estate brokerage industry is in some ways its own worst enemy, as low barriers to entry lead to proportional surges in agent population during housing market booms.

“It turns out that the median real estate agent is making the same amount of money today that they were 10 years ago, despite the fact that housing prices are up 50 to 60 to 70 percent during that time period nationwide. In the end … you’ve got to feel sorry for the real estate agents. Now, instead of selling six houses a year, the typical agent sells two or three houses. My own feeling is that if you were thinking about getting into the real estate business, I wouldn’t do it,” he said.

Such views have not won Levitt and co-author Stephen J. Dubner any popularity contests within the ranks of the National Association of Realtors trade group, Levitt readily acknowledges. Particularly because one of the chapters in the book draws parallels between real estate agents and the Ku Klux Klan. “We’re not big favorites with the National Association of Realtors right now,” he said.

But Levitt explained that the book is not intended “to imply that real estate agents are bad people in any way, shape or form,” he said. His research has raised questions, though, about whether real estate agents always seek to get the best deal for their clients.

In an analysis of 100,000 home sales in the Chicago area, Levitt found that real estate agents tend to sell their own homes for about 3 percent or so more than the selling price of their clients’ homes. When he speaks to real estate agents, he inevitably will hear a familiar range of responses, he said, such as: “Well, that’s just because we have better taste. We’re better at showing houses. We have good paint colors and that makes people want to jump in our houses and pay more.”

The research also found that real estate agents tend to leave their own homes on the market about 10 percent longer than their clients’ homes. “If they have such great taste in paint you’d think their homes would sell faster than their clients’ (homes),” he said, adding that he was not surprised by the findings.

He shared a personal story about a home he was interested in buying in the suburban Chicago area. The home had been on the market for about six or eight months, and he decided to call the listing agent directly.

“I had learned already that I didn’t want to have a buyer’s agent,” he said, since he knew that a buyer’s agent shares in the total commission paid by the seller to the listing agent. By going directly to the seller’s agent, that agent and the agent’s broker could keep all of the commission for themselves.

“I said to her, ‘I’m interested in this house and I don’t believe in buyer’s agents.’ I could hear her voice really pick up on the other side of the line.” Then, he asked a very direct question. “Can you just tell me the absolute lowest price at which the homeowner is willing to sell this house for?”

Her response, “You should be ashamed of yourself. That would be a complete violation of my client relationship to tell you any information like that and you should know better than that. It’s not right to ask me questions like that.”

Later, as the phone call came to an end, Levitt said the agent volunteered some information that led to his offer on the property: “Let me just tell you one last thing. The owner of this home is willing to sell this house for less than you can possibly imagine.”

He made an offer for $50,000 less than he had planned to offer, and the offer was accepted without any back-and-forth. “Basically, in order for that agent to put an extra $20,000 or $30,000 back in her pocket she basically stole $50,000 from her client.”

Levitt added, “When I tell this story in front of real estate agents, I always get the same reaction, completely predictably, ‘I would never, ever do something like that to my client. It’s just patently absurd.’ But you wouldn’t believe the people I interact with on a daily basis – every other real estate agent is doing this every time I turn around.”

Lately, Levitt has focused his attention on flat-fee real estate brokers that charge a flat rate for listing a home for sale in a multiple listing service. He has studied three markets, and so far has concluded that there isn’t much difference in the price that sellers get for using a flat-fee broker versus a traditional, full-service real estate broker.

“In some markets it may take 10 to 15 days longer to sell my house — in other markets I see no difference at all. In the end, if this is true, it’s really going to be bad, bad news for real estate agents, which I think is actually really good news for everybody else.

“I just don’t see how the real estate agents can maintain the level of pricing they have,” he said, referring to a commission rate that has traditionally hovered around 6 percent of the sale price of a home. “And I think that the way it will crumble is not through FSBOs (for-sale-by-owner transactions). What’s really going to be the undoing of real estate agents is going to be flat-fee brokers. It seems to me that’s a very viable option, unless (Realtors are) successful in the end in getting legislation passed which will preclude it from happening.”

Levitt said that lawyers for the National Association of Realtors asked about the source of the MLS data used in his and threatened litigation. But Laurie Janik, general counsel for the National Association of Realtors, said today, “NAR never at any time ever threatened Mr. Levitt with litigation nor did any member of my staff ever speak to him or contact him.”

And Steve Cook, a spokesman for the National Association of Realtors, said that the Realtor group has not taken any legal action against Levitt or the real estate professional who supplied the MLS data.

New doors opened to his research after the release of “Freakonomics,” Levitt said. “Suddenly, everybody wants to give me data.”