More Threats to Housing Recovery

It's not only commercial builders, such as Peter Pau and his associates in the Downtown Sunnyvale Development, who are having trouble getting financing.
Nearly two-thirds of single-family home builders are reporting a severe lack of credit for housing production, threatening the fragile housing recovery before it has time to take hold, according to a new builder survey of financing conducted by the National Association of Home Builders (NAHB).
Developers are reporting a lack in credit availability and intensifying pressure on borrowers with outstanding loans. Lenders are cutting off loans for viable new housing projects and producing unnecessary foreclosures and losses on these loans. If the $8,000 first-time home buyer tax credits allowed to expire, these challenges threaten to halt any positive developments we have seen in the housing market in recent months.
In the latest NAHB survey of financing conditions, 63% of builders stated that the availability of credit for single-family construction loans worsened in the second quarter of 2009.
Builders reporting worsening credit conditions gave the following reasons: 80% said that lenders are lowering the allowable loan-to-value ratio, 76% reported that lenders are not making new loans, 75% stated that lenders are reducing the amount they are willing to lend and 62% said that lenders are requiring personal guarantees or collateral not related to the project. Two-thirds of respondents reported putting single-family construction projects on hold until the financing climate gets better.
While federal banking regulators continue to maintain that they are not instructing institutions to stop making loans or to indiscriminately liquidate outstanding loans, builders responding to the survey cited the top reason that lenders have given them for restricting the availability of new loans or for tightening the terms of outstanding loans is that “regulators are forcing lenders to do it.”

All the Good Stuff is Expiring

I've been writing about the importance of getting escrows closed before November 30th in order to take advantage of the $8000 first time homebuyers' credit. Today we were reminded that other programs impacting real estate will be expiring or phased out soon.
Most important for our area, the "agency jumbo" maximum will revert back to $650,500 from its present $729,750 at the end of the year if something isn't done.
We were also informed that the Fed's purchase of mortgage backed securities will be spread out until March of next year...but the amount that they are buying is limited. Once the planned amount is used up, interest rates on new home loans, now at a 40 year low, could easily go up to 6 percent again.
Realtors and other interested parties are working hard to influence the "powers that be" in Washington to extend these time limits. The health of the real estate market is vital to a market recovery.

Save That Shopping Until After Escrow Closes

More than 1.4 million home buyers have taken advantage of the $8000 first time buyers' credit, but with the deadline on the credit looming, plenty of buyers are under contract and looking to close before Nov. 30.
Excited to be moving into a new home, some of these first-timers are hitting the stores shopping for new furniture and appliances.
This is a big mistake....Wait until the close to start buying stuff.
The reason is that lenders are often running credit reports right up to the closing day, and they don't want to to see an increase in credit card debt or indications that debt could soon increase.
Even serious looking can be a problem. Checking out a new car or boat can show as an inquiry on a credit report and might raise red flags. This is especially important for buyers who've only met the lender’s minimum requirements.
While such measures have been used over the years, lenders are still dealing with the fallout from their previous lax lending standards, and are being especially particular these days. Even buyers with great credit scores face scrutiny.
We're also advising buyers not to move money between accounts or add more funding to checking. Emptying out an account could look like money’s being spent.

Murphy Avenue's a Mess

I met my son for lunch at Dish Dash the other day. I knew that there was construction happening in historic Marphy Avenue, and warned him that we might not be able to have sidewalk dining service, but tables were set outside, and we had a perfect view of the dug up street and workers in hardhats eating their lunches. Murphy Avenue businesses will remain open during all the renovation...utility updating is this week's project. The Farmers Market on Saturday mornings has been moved temporarily to Evelyn, near the train station, but several special events will still be held, including the pet parade on October 25th.
Local diners certainly aren't being deterred by the construction mess if the long line at Dish Dash is any indication!

The Feds Meet Again

...and no real surprises. As expected, they left rates where they were, even though economic activity has picked up following its severe downturn. The reasons they gave: conditions in financial markets have improved further, and activity in the housing sector has increased, household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Although economic activity is likely to remain weak for a while, the committee anticipates that "policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability." In normal English, this means that they will work to ease the economic situation during what promises to be a slow end to the recession.
The Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability, and plans to keep the target range for the federal funds rate at 0 to 1/4 percent for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Feds will also purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. It will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of next year.

More Progress on Our Habitat for Humanity Fundraiser

Our office continued with our commitment to this cause with another breakfast, followed by a raffle and auction. Items like an "Executive" parking space went for more than $300, and we raised another $20,000 this morning.
As real estate professionals, our work is about bringing people and homes together and building better, more sustainable communities. Our partnership with Habitat for Humanity allows us to do just that and is truly an extension of the work we do every day with our clients.
We'll literally be building hope this week during our huge, Northern California Blitz Build. More than 200 Agents, Managers, executives, staff and clients throughout our Northern California family are participating in this event!

How Does All This Affect Credit Scores?

Homeowners who find themselves struggling with mortgage payments and unsure how to handle the situation...short sale, foreclosure, or walk away...should consider the impact of each of these on their credit scores.
Some loan modifications, such as refinancing underwater mortgages may have little or no negative effect on credit scores, in fact, those that add late payments and penalties into the principal owed on the house can actually increase borrowers’ scores modestly.
Short sales, on the other hand, can trigger big declines in credit scores, according to researchers. A homeowner with an excellent credit score might see a 120 to 130 point decline after a short sale.
Homeowners who choose to walk away from the home and stop payments altogether should expect their credit scores to fall 140 to 150 points, and have negative marks on their credit files for up to seven years.
People filing for bankruptcy protection covering all their debts will get hit with an average 355- to 365-point drop in their scores, and bankruptcies stay on borrowers’ credit for 10 years.
But there is some good news. Homeowners facing financial stress can experience minimal declines to their scores if they contact their lender when they first discover that they may have trouble making their monthly payments....It's worth a try.

Home Equity Lines Cancelled

Last week, I was listening to KGO talk radio, and the guests were a local man and his lawyer. Jeff Schulken, who owns a home in Cupertino had his HELO abruptly canceled by Chase, even though he was well qualified to repay the loan...in fact, he had been paying more than the minimum every month..., and had plenty of equity in his home. The Schulkens are part of a growing number of homeowners in the Bay Area and around the country whose banks take away the financial safety net they counted on.
Now some of those homeowners are fighting back. The Schulkens have filed suit against JPMorgan Chase, charging that the bank unfairly terminated their home equity line of credit even though the couple provided documents showing that they could repay the money. In the early part of this decade, home equity lines of credit, or HELOCs, were a regular feature of Silicon Valley homeownership. Longtime owners sitting on a few hundred thousand dollars in equity could easily borrow against it to remodel, pay their children's college tuition or use as a rainy-day fund.
My bank made a special effort to offer me one when I paid off my mortgage a few years ago...How times have changed!

New School Scores are Out

Each year, every California school and district gets an Academic Performance Index (API) score ranging from 200 to 1,000 points, with 800 considered excellent because it reflects a high rate of proficiency on achievement tests taken the previous spring. Schools and districts with an API below 800 are also considered successful if they meet performance targets in the year to come. At this time each year, their target is set at 5 percent of the difference between their actual API and 800. (Results are reported in August.) Statewide rank (SR): To give an even clearer snapshot, schools are also ranked from a low of 1 to a high of 10. The "statewide" 1-10 ranking is derived from a school's API score when compared to every other API score in the state.
Similar schools rank (SSR): A second "similar schools" 1-10 ranking is derived from a school's API score when compared to 100 schools most similar to it demographically.
Check out your schools on the Great Schools site.

Finally, the Mortgage Relief Progaram is Growing...a Little

I wrote in an earlier post about the dismal bank response to the "Making Home Affordable" plan, which was launched with great fanfare in March. But now, as of last month, lenders had sent out more than 571,000 offers to reduce borrowers' monthly payments.
That's still only 19 percent of the nearly 3 million homeowners eligible for a loan modification under the plan, but it's an improvement from 15 percent at the end of July.
Of the modifications offered, about 360,000 borrowers, or 12 percent, have signed up for three-month trial modifications, which are supposed to be extended for five years if the homeowners make their payments on time. To increase pressure on the industry, lawmakers have threatened to revive a failed proposal to let bankruptcy judges rewrite the terms of a mortgage.
Consumer groups say that change is necessary, because getting a lender to do so voluntarily is still a bureaucratic nightmare. Mortgage executives say they are racing to implement the program, hiring thousands of workers to handle an unprecedented flood of calls.
But many lenders are still scheduling foreclosure sales, and charging borrowers fees for participating in the Obama plan.
We are still hearing horror stories in the Realtor community.
An agent in my office told me about a bank they are trying to work with on a sale due to close escrow at the end of the month. The house was also facing foreclosure on September 24, and the bank refused an extension for five days (even though it was the bank's own delay with documents that was holding up the close) and are proceeding with the foreclosure on the courthouse steps. Their final word to my colleague: "Have a nice day!"

Tired, But Happy

The Coldwell Banker offices are already four weeks into our Building Hope for Humanity fundraiser and have raised more than $15,000 for Habitat for Humanity!
But our work isn’t done yet; we still have four weeks left in our fundraiser to raise money so we can build hope for humanity in 2010!
Today we added more to the fund by preparing and serving a full breakfast to our Cupertino office. Lots of work...but lots of money raised, too.
We are also selling and purchasing raffle tickets, sponsoring an auction, and holding a tea party in November.
Our Coldwell Banker Blitz Build Week is almost here! Starting September 21, Coldwell Banker Managers, Agents, staff and executives from throughout our Northern California family will be participating in Habitat for Humanity builds throughout the 15 counties where we work. Together, we are truly making a difference for our neighbors, building stronger, more sustainable communities.

“Yes, the Housing Market has Rarely Looked Better.”

That was the headline in a September 2 Wall Street Journal article. This was a really interesting piece which looked at numbers from Standard & Poor’s and NAR. The following is an excerpt from the article:
“Last week, Standard & Poor's reported that its S&P/Case-Shiller U.S. National Home Price index of real-estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.
In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There's no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free-fall. That means if you've been sitting on the fence, it's time to act.
Ordinarily I'd never try to time the real-estate market, but I can understand why buyers have been cautious. Few want to buy in down markets, just as stock buyers avoid bear markets. And for most people, of course, buying a house is a much bigger decision than buying a stock. But with real-estate prices nationally now down about 30% from their 2006 peak and showing signs of turning up, the prices aren't likely to go much lower. Every real-estate market is local, and so there may be a few exceptions. Overall, though, I can't imagine a better time to buy than now.”
It's nice to hear someone from the media say that it’s a great time to buy.
For a local look at our past two weeks in real estate: Our Cupertino office reports that agents are working hard, but things seem a bit quieter. It is really tough holding some of these short sale and REO transactions together, and inventory in many areas is surprisingly low.

Is FHA in Trouble?

Will taxpayers have to bail out the FHA? Realtors and lenders have been relying on the FHA for the past year as the only source of financing for home buyers who have less than 20 percent down payments.
The Federal Housing Administration stepped up to guarantee low-down payment mortgages for riskier buyers after the mortgage market crashed. Now with many of them in default, the FHA’s losses have mounted, and it’s possible that its reserves will fall below the 2 percent level required by law. If that happens, taxpayers may have to bail out FHA.
Some housing analysts say that this will lead to even tighter restrictions on FHA mortgages, which could be disastrous for the housing market.
The 10 states with the most FHA-insured mortgages are: Texas, California, Florida, Georgia, Ohio, Illinois, Pennsylvania, Michigan, Virginia and North Carolina.

Time is Running Out

...to claim the $8,000 first-time homebuyers tax credit. It ends on Dec. 1.
Because it often takes around 90 days to close on a house after a contract is signed, buyers have very little time left to act. What they will find may surprise them: Many of the prime properties have already been snapped up. Home sales have been on the upswing, and inventories are so depleted in hot markets that first-time buyers are struggling to find homes in their price range.
We are seeing fewer repossessed homes for sale. Those are easy to buy because there isn't a lot of red tape and the bank wants to get rid of them as quickly as possible. Instead, most of the properties are short sales, where the sellers have to convince their lender to let them sell the house for less than they owe....This can take as much as six months.
That means a first timer putting a bid on a short-sale might not get an answer from the bank until well after the Dec. 1 deadline for the tax credit. So when an actual repossession listing hits the markets, it creates a feeding frenzy of multiple bidders.
The National Association of Realtors attributes much of this activity to the first-time buyer tax credit. It estimates that 1.8 million buyers will file for the credit, and 350,000 of them wouldn't have been able to buy without it.
Of course, analysts worry that this frenzy will dry up once the tax credit expires. They argue that without the incentive, much of the pressure on homebuyers to act quickly will vanish, and the newborn housing recovery could slump.
In many ways the tax credit is similar to the Cash for Clunkers program that ended this week. Already, auto dealers are anticipating that car sales will evaporate after accelerating during the program.
Johnny Isakson, R-Ga., who is a former real estate broker, is pushing legislation to extend the tax credit through next year, increase it to $15,000, include non-first-time homebuyers, and remove income restrictions. The effort has drawn strong industry support.

Get Out of the Kitchen

The California Association of Realtors comes out with a "Green Tip of the Week" in their emails to us. This one read...
'Keep in mind this summer that your oven and stove generate a lot of heat, which causes your air-conditioning to turn on more frequently. Consider cooking outside on the grill or cook in a microwave.'
Certainly, many back yard barbecues will take place this Labor Day weekend, and I must admit that because I live alone, my microwave gets more than its share of use.
But except for creating a side dish to bring to a Labor Day Potluck, I've vowed to save on stove use and help the economy by adding one more tip to the list for this week: Eat Out More!

Time to Get Out the Crystal Ball

Contract activity for pending home sales has risen for six straight months, a pattern not seen in the history of the index since it began in 2001, according to the National Association of Realtors®.
The Pending Home Sales Index is at the highest level since June 2007.
Lawrence Yun, NAR chief economist, said the housing market momentum has clearly turned for the better. “The recovery is broad-based across many parts of the country. Housing affordability has been at record highs this year with the added stimulus of a first-time buyer tax credit,” he said. “Other buyers are taking advantage of low home values before prices turn higher. Nationally, the typical mortgage payment now takes less than 25% of a middle-income family’s monthly income to buy a median priced home, with payment percentages so far in 2009 being the lowest on record dating back to 1970. As long as home buyers stay within their budget, mortgage payments will be very manageable.”
NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit. Buyers have little time to act because they must complete the transaction by November 30, 2009 to qualify for the credit. Unless extended, contracts signed but not completed by that date will not be eligible- it is taking approximately two months to complete home sales in the current market.
NAR is encouraging Congress to extend the tax credit into 2010, and to expand it to all buyers of primary residences. The faster we stabilize home prices, the fewer families will face foreclosure and the quicker credit can be extended to other sectors of the economy.
We expect sales of existing homes to rise through the fourth quarter, but Yun said “Unless the tax credit is extended, no one should be surprised to see home sales drop in the first quarter of next year. However, the fundamentals of the housing market and the economy are trending up, and we expect home sales to generally pick up in the second quarter of 2010. The buyer psychology may be shifting from, ‘Why buy now when I can purchase later,’ to ‘I don’t want to miss out on a recovery.’”

More Discouraging News about the Sunnyvale Town Center

I recently read that the smaller local banks which had been exempt from the early fallout from the subprime home loan fiasco were now in trouble because of the tough market for builders who were their primary borrowers.
This is probably a major reason that local funds are not available for our beleaguered Town Center....and now, Devcon Construction Inc. has filed a $16.6 million mechanic’s lien against the property, one of more than a dozen such claims that have been filed with Santa Clara County in the last three weeks.
It was a rare step for Devcon, which has never filed a lien of this magnitude.
The Sunnyvale property is owned by two limited-liability corporations, Downtown Sunnyvale Mixed Use LLC and Downtown Sunnyvale Residential LLC. Both are affiliated with San Mateo’s Sand Hill Property Co. and Rreef Alternative Investments, a global investment-management business owned by Deutsche Bank.
The liens secure Devcon’s and the subcontractors’ ability to foreclose on the project and to sell the land and improvements to satisfy their claims.
The city of Sunnyvale announced March 11 that construction on the $750 million remake of the 36-acre center would slow because the developers were struggling to secure additional construction loans. The two limited-liability companies got $108.8 million in construction financing from Wachovia Bank in August 2007 to start the Sunnyvale project, according to public records, and Rreef and Sand Hill have invested more than $200 million in equity, according to the city of Sunnyvale. About 40 percent of the project is complete.
The property owners have paid Devcon through March, but neither Devcon nor myriad subcontractors have been paid for work completed in April, May, June or July.
In this terrible commercial real estate market...what bad news is next?