Archive for August, 2013

I have a confession to make: I am a homeowner. That’s a dangerous thing to say. We homeowners are getting blamed for a lot of today’s economic ills, and labeled dupes besides. It’s said that we profiteer from an undeserved tax break. That our obsession with ownership drove the nation to make unwise policy choices during the last eight decades. That our 30-year fixed-rate mortgages are dinosaurs dependent on government subsidies.

 We’re told that by treating our homes as piggy banks, we impoverished ourselves and our children. That we would almost certainly be better off renting rather than owning. That we would be richer had we sunk our nest eggs into stocks and bonds.

But it’s time to stand up for home ownership. Because if we convince ourselves that just because home values declined after 2007 the U.S. should stop encouraging ownership, we’ll be making a drastic mistake.

The fact is that there are sound reasons for home ownership — though it’s not for everyone — and very sound reasons for government policy to encourage it.

Much of today’s attack on the principle of home ownership doesn’t address that principle at all. It deals instead with the housing crash, and purports to find that the crash was the result of excessive encouragement of home ownership, especially among low-income families.

The culprit, according to this argument, is the Community Reinvestment Act, a President Carter-era initiative that targeted banks’ discrimination against home buyers in low- and moderate-income neighborhoods. The claim is that the CRA induced banks to lower their lending standards to meet CRA lending goals in disadvantaged neighborhoods, setting the nation up for the subprime crash.

This notion has been thoroughly debunked. As early as 2008 it was systematically demolished by Federal Reserve Gov. Randall Kroszner. In 2011 it was so discredited that even the Republican minority of the Financial Crisis Inquiry Commission disavowed it as a cause of the crash.

Make no mistake: Blaming the CRA for the housing crash borders on racism — it’s a way of blaming minority borrowers for a disaster that was wholly the responsibility of Wall Street bankers.

In fact, mortgage banking firms such as Countrywide, not banks subject to the CRA, took the lead in pushing low-quality mortgages on any applicant who could hold a pen. And it was those risky products — bristling with hidden fees, prepayment penalties, exposure to variable interest rates — not risky borrowers, that produced the crisis. Study after study has found that qualified borrowers in conventional fixed-rate mortgages perform equally well across the income spectrum.

Recently, another attack on the principle of home ownership has moved to the forefront. The claim, put forth chiefly by Andrew J. Oswald of the University of Warwick in England and David G. Blanch flower of Dartmouth College, is that a high level of home ownership is associated with a high level of unemployment in a state or community. Their reasoning is that chiefly by hampering workers’ ability to move to find work, home ownership suppresses economic growth.

Yet, as they acknowledged, there’s no evidence that homeowners themselves are disproportionately unemployed, or that the inability to sell a home (this is known as “house-lock”) affects anyone’s ability to find a job. In their latest paper on the topic, published this spring, they conceded that the relationship between home ownership and unemployment “remains poorly understood.”

It might be more accurate to say it’s unproven. “All sorts of things keep people from being mobile,” says Richard K. Green, director of the Lusk Center for Real Estate at USC, who has debated Oswald on the topic. He observes that age and marital status are highly correlated with home ownership, but also are factors that can keep families from being mobile even if they’re renting.

The attack on home ownership is closely linked to an attack on the 30-year fixed-rate mortgage. You’ll hear it dismissed as an curiosity that wouldn’t exist at all if not for massive government support via government guarantees via Freddie Mac and Fannie Mae. That supposedly makes it a relic, ripe for replacement by the private sector, which of course has only your best interests in mind.

But that’s incorrect. The pre-payable 30-year fixed mortgage remains the pillar of the American housing market, and for good reason.

As David Min of UC Irvine has pointed out, the 30-year fixed loan inoculates homeowners from interest rate risk and places it where it belongs: on financial institutions that can plan for interest rate changes and hedge against them. In the recent crash, short-term adjustable-rate loans cratered because their borrowers couldn’t manage the sudden jump in rates; the 30-year mortgage kept millions of people in their homes because they could afford to sit tight.

There’s no real doubt that home ownership is a goal that should be encouraged by government policy. Homeowners vote more often than renters. They engage more with neighborhood and community groups. Studies suggest that their children do better in school and are more likely to graduate from high school and move on to post secondary education.

The difference in the length of home ownership is the single largest factor underlying the wealth gap between black and white families, according to research by Thomas Shapiro of Brandeis University. That’s important because from 1984 to 2009 the gap in median net worth tripled, from $85,000 to $236,000. Much of the difference is home equity, which gives home-owning families a leg up in helping relatives with down payments, lowering the cost of borrowing and improving access to credit, Shapiro has found.

It’s true that some of these advantages were sapped by the housing crash. But many long-term homeowners were still able to weather the storm better than renters.

It’s also true that renting is a good choice for many Americans, including young people who may need to move often at the outset of their careers. And it’s proper to question whether the mortgage interest tax credit is the best tool for promoting homeownership. Green, for one, advocates replacing it with a refundable tax credit, which could be phased out for wealthier homeowners and wouldn’t encourage people to buy bigger homes than they need just to capture the tax break.

But the worst thing that could happen as a result of the debate over housing is that government policy could reverse. Already credit is tighter for low- and moderate-income Americans than it should be. Removing the government-sponsored housing lenders, Fannie Mae and Freddie Mac, from the market, as many conservatives advocate, would close the housing market to those borrowers even tighter.

That’s the wrong option. “People still want to be homeowners,” Green observes. Why would we want to stifle an aspiration so beneficial to society and the economy?

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Even as home values continue to recover, millions of homeowners remain so far underwater that it will take years for them to regain equity in their properties. However, the latest data from Zillow (Z) reveals that underwater borrowers are becoming a smaller and smaller piece of the pie.

In the second quarter, the national negative equity rate dropped — for the fifth consecutive month — to 23.8% of all homeowners with a mortgage, which means 12.2 million homeowners owe more on their mortgages than their homes are currently worth.

The second-quarter number is down from 13 million homeowners in the first quarter and 15.3 million during the second quarter of last year. An estimated one-third of homes are owned without a mortgage, according to Zillow.

For both homeowners with and without a mortgage, the negative equity rate was 16.7% at the end of the second quarter.

More than half of homeowners — 57% to be exact — of homeowners in negative equity are underwater by 20% or more, with 13.4% of homeowners owning more than twice the value of their home.

The latest Zillow Home Value Forecast predicted home values to rise 4.8% in the next year. If that prediction proves correct, it would take a homeowner who is underwater by 20% approximately four years to obtain positive equity.

Las Vegas, Atlanta and Orlando are the markets with the highest percentage of mortgaged homeowners in negative equity. Las Vegas has 48.4% mortgaged homeowners underwater, while Atlanta and Orlando have 44% and 39.8% underwater, respectively.

According to Zillow, the majority of the newly freed homeowners are expected to come from Los Angeles, Riverside, Calif., and Atlanta.

Zillow Chief Economist Stan Humphries believes that the widespread rising home values during the past year have played a major factor in chipping away at negative equity nationwide.

“For those homeowners who are deeply underwater, though, there is still a long row to hoe,” said Humphries. “The frustratingly slow pace of negative equity declines in the face of such robust home value appreciation is a direct result of the fact that many people in the hardest-hit markets are underwater by an enormous amount.”

“Because of this, negative equity will be a factor in these markets for years to come, constraining the supply of homes for sale and keeping people out of the market who might otherwise get involved,” he added.

DataQuick data for the second quarter shows 11.3 million homeowners still seriously underwater, down from 12.8 million a year before. DataQuick Vice President Daren Blomquist said he expects the seriously underwater number to continue to drop as home prices continue to rise, but it will be a long path to get all 11.3 million homeowners out of the seriously underwater position.

“With an average monthly price appreciation of 1.33% over the past 16 months since home prices bottomed, we are seeing about 125,000 homeowners lifted out of the seriously underwater position each month. That works out to about 1.5 million who will no longer be seriously underwater over the next year, but we expect home price appreciation to moderate over the next year and so the 1.5 million is an optimistic estimate,” said Blomquist.

The Zillow Negative Equity Forecast predicts that by the second quarter of 2014, the negative equity rate will fall at least 20.9%, freeing more than 1.96 million additional homeowners nationwide.

By: Megan Hopkins

While higher mortgage rates have been blamed for the slowdown in pending home sales, they may be contributing to an increase in cash purchases, RealtyTrac suggested in a recent report.

In July, about 40 percent of residential property sales were all-cash transactions. The share presents an increase from 35 percent in June and 31 percent compared to July 2012.

Dallas experienced the biggest monthly increase in cash sales, at 82 percent, followed by St. Louis (+66 percent), Los Angeles (+32 percent), Riverside-San Bernardino in Southern California (+26 percent), Seattle (+21 percent), and Phoenix (+21 percent).

Daren Blomquist, VP at RealtyTrac, explained rising rates could be leading to a higher percentage of cash purchases, while “some non-cash buyers can no longer afford to buy, particularly in high-priced markets.”

Short sales also accounted for a bigger share of sales in July, increasing to 14 percent, up from 13 percent in the prior month and 9 percent from a year ago. Meanwhile, institutional investor purchases and sales for bank-owned properties fell flat, at 9 percent for each type of sale, unchanged from June and July 2012.

Overall, RealtyTrac reported an increase in July sales, with sales volume rising 4 percent from June and 11 percent compared to a year ago.

Despite the national gain, sales were still down year-over-year in eight states—California (-17 percent), Alabama (-14 percent), Arizona (-11 percent), Nevada (-7 percent), Georgia (-2 percent), New York (-2 percent), Hawaii (-1 percent), and Oregon (-1 percent).

Of those states, four still managed to post the biggest annual price gains. California led with a 31 percent annual increase in media home values. Price increases in Nevada, Arizona, and Georgia ranged from 20 to 27 percent over the last year.

Among the largest metro areas, the biggest annual declines in sales were concentrated in California, starting with San Francisco (-20 percent), Los Angeles (-20 percent), San Diego (-19 percent), and Riverside-San Bernardino (-14 percent).
Other large metro areas with significant decreases were Phoenix (-13 percent) and Atlanta (-8 percent).

On the other hand, sales were strongest in Chicago (+27 percent), Minneapolis (+23 percent), Baltimore (+21 percent), Boston (+20 percent), and Philadelphia (+ 20 percent).

The City of Arroyo Grande Recreation
Services Department is announcing registration dates for its Sunday Fall Softball League.
Teams may register through August 30th at the Recreation Services office at 1221 Ash
Street (at the Elm Street Community Center). Divisions are offered for Coed Upper,
Middle and Lower teams, and Men’s Middle and Lower teams. Games are scheduled for
Sunday evenings beginning September 8
th and running through the end of November.
The cost is $535 per team plus $8 per non-Arroyo Grande resident. Registration fee
includes 10 games plus playoffs, individual and team awards for first place and second
place teams, and ASA team registration. For registration forms or more information please
call the Recreation Services office at 473-5474.

The City of Arroyo Grande Recreation Services Department is offering a fall preschool
program for children three to five years of age. Classes will start September 3rd. This
program provides a relaxing and enjoyable learning experience for children, who are
introduced to colors, numbers, letters, reading readiness, verbal skills, socialization,
music, and nature. Openings are available in the Tuesday/Thursday afternoon class,
which runs 12:30 p.m. to 3:30 p.m. The cost for the Tuesday/Thursday class is $99.50,
and the discounted fee for Arroyo Grande residents is $85.50 per four-week session.
There is also an annual registration fee of $12.00 for non-residents and $10.00 for
residents. For more information, please call the Arroyo Grande Recreation Services
office at 473-5474 or 473-5476.

The national mortgage delinquency rate resumed its downward trend in July after experiencing a seasonal uptick in June, Lender Processing Services, Inc. (LPS) reported Monday.

The delinquency rate, which includes loans 30 days or more past due, slipped to 6.41 percent in July after increasing to 6.7 percent in June. The decrease represents a monthly and yearly decline of 3.96 percent and 8.76 percent, respectively.

Foreclosure inventory also fell in July, dropping to 2.82 percent, down from 3.46 percent in June. Compared to a year ago, the decrease is much steeper, at 30.76 percent.

According to LPS, the foreclosure inventory rate is at the lowest level since February 2009.

When totaling past due loans, including delinquencies and foreclosures, LPS found about 4.6 million mortgages are behind on payments.

Of that total, 3.19 million are 30 days or more past due but not in foreclosure, while 1.41 properties are in foreclosure inventory. About 1.35 million of the delinquent loans are 90 days or more past due, but not yet in foreclosure.

Florida, as usual, took the top spot for the highest percentage of past due loans. Mississippi followed, with New Jersey, New York, and Maine rounding out the top five.

Wyoming held the lowest percentage of non-current loans, followed by Montana, Alaska, South Dakota, and North Dakota.

By: Esther Cho

Prices for homes in the nation’s 20 largest cities in June rose 12.1% over the last year, according to a report Tuesday from S&P/Case-Shiller home price index.

While that gain is still robust, it didn’t quite match the gain of 12.2% reported for May. Rising mortgage rates may be to blame.

“With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened,” David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said in a press release.

Home prices have been on a tear for the last twelve months. June marks the first time in over a year that the overall increase has been smaller than the month before. While prices rose in all 20 cities measured by the index, only six cities in June saw price increases larger than the month before, down from 10 cities in May.

Prices in Dallas and Denver hit all-time highs, while San Francisco housing prices notched the biggest rebound, rising 47% from their low in March 2009.

U.S. home prices are now at early 2004 levels — still 23% below their peak in mid-2006.

And while mortgage rates have been steadily rising for the last few months, they’re still at historically low levels.

Record-low rates, a lack of new homes on the market and years of pent up demand have been the driving forces behind the recent home price spike, according to Erik Johnson, senior U.S. economist at IHS Global Insight.

“The shortages are likely to get larger before getting smaller,” Johnson wrote in a note Tuesday. “We still expect housing to remain a key driver of growth for at least the next couple of years.”

 

The recovering housing market has been a big part of the nation’s economic recovery since the Great Recession. But many fear that rising mortgage rates could put a damper on that growth.

Rates have risen more than a full percentage point since May, when Federal Reserve Chairman Ben Bernanke indicated the Fed may soon ease its bond buying program that’s helped keep interest rates at record lows.

While some cheer the Fed stepping back from its unusual bond purchases amid fears the buying will spark inflation, others worry that it may be too soon.