Monday, May 06, 2013
Monday, May 06, 2013
Monday, April 29, 2013
Tuesday, April 16, 2013
Thursday, April 11, 2013
The U.S. recorded 442,117 foreclosure filings in the first quarter of 2013, a steep 23% drop from a year ago and the lowest level reached since 2007, real estate data firm RealtyTrac said in a new report.
Foreclosure filings also fell 1% from February to March, with 152,000 filings reported last month.
Despite these drops, foreclosure trends remained solidly local with judicial foreclosure states still more likely to see foreclosure completions stalled by long drawn-out default timelines, while non-judicial foreclosure states pushed through distressed properties at a faster pace.
New laws designed to prevent foreclosures on the local level also played a role in expanding default timelines, even in nonjudicial or quasi-judicial foreclosure states.
RealtyTrac (in the graph below) attempts to show this phenomenon by documenting foreclosure timelines in three jurisdictions – Oregon, Nevada and Washington. The chart shows foreclosure timelines right before and after major foreclosure prevention legislation took effect in those states.
Judging by the charts, default timelines even in non-judicial states rose dramatically after the introduction of significant foreclosure laws.
"Although the overall national foreclosure trend continues to head lower, late-blooming foreclosures are bolting higher in some local markets where aggressive foreclosure prevention efforts in previous years are wearing off," said Daren Blomquist, vice president at RealtyTrac.
"Meanwhile, more recent foreclosure prevention efforts in other states have drastically increased the average time to foreclose, which could result in a similar outbreak of delayed foreclosures down the road in those states."
RealtyTrac also noted foreclosure starts increased 2% from February to March, reaching a total of 73,113 starts last month.
Twenty-three states saw upticks in foreclosure starts last month, while 12 states — including New York and Washington — experienced rising starts year-over-year. In fact, starts grew 200% and 154% annually in New York and Washington, respectively.
Overall, lenders repossessed 43,597 properties in March 2013, the lowest retrieval rate since September 2007.
And Florida, once again, posted the highest foreclosure rate for Q1, followed by Nevada and Illinois.
In just Q1, 85,671 Florida properties faced a foreclosure filing, representing a foreclosure rate of one out of every 104 housing units.
Wednesday, April 10, 2013
Tuesday, April 09, 2013
Wednesday, April 03, 2013
Tuesday, March 26, 2013
"Real estate returns are not rocket science. Because they’re such a huge portion of the consumer balance sheet they tend to be tied very closely to wage growth. Wage growth, by definition, is very closely tied to the rate of inflation. That explains why the long-term historical return of real estate is roughly in-line with the rate of inflation. But this survey from Zillow shows that real estate “investors” are probably still too optimistic."
I can see why these assumptions are attractive, but they are not quite what drops out of macroeconomic analysis.
Fundamental Upward Pressure of Prices
Wage growth, per se, shouldn’t drive housing prices. What we might expect is that wage growth drives rents and rents drive housing prices.
The wage-rent relationship, however, is not an iron law.
Matt Yglesias and Ryan Avent are famous for pointing out that rents – and hence housing prices – could be much lower in coastal cities if residents would abandon restrictive zoning laws. For example, Dallas and Philadelphia have roughly the same median household income, but home prices in Philly are much higher than in Dallas.
In general, if a fundamental driver – regulation, technology, preference – causes rents to eat up a higher portion of folks pay checks then rents and home prices will be higher.
To some extent the national rise in home prices is due to both technology and preferences driving more people to want to live in high rent areas like the Northeast Corridor.
Those same forces are leading some people to want to live in Houston, Austin and Raleigh-Durham, but because of looser regulation that simply translates into booming housing supply and a booming population rather than higher prices.
In addition, the relationship between rent and housing prices depends on interest rates – both the real portion and expected inflation. A house is like a utility company. Instead of providing power services, it provides shelter services and keeps you from having to pay rent.
Many finance folks are familiar with the rule-of-thumb that utilities tend to trade like bonds. Higher interest rates lead to lower bond and utility stock prices. Lower interest rates lead to higher bond and utility stock prices.
This is because – like a house – you are receiving a fixed stream of services over a long period of time.
Though this framing is kinda technical, most of these factors can be summed up in a really straightforward comparison: monthly rent vs. monthly mortgage payment for similar homes.
When the market is balanced the monthly mortgage payment should be slightly higher than the rental payment because 1) Mortgages get a tax break and 2) Traditional rate mortgages offer you the stability of a fixed payment.
Adjustable rate mortgages (ARM) need to produce a payment close to or even below rent to be a good buy. That’s because you lose the security of a fixed payment and depending on the terms of the ARM you may actually be facing more payment volatility than with renting.
Trulia crunches the numbers and it looks like under their baseline assumptions its cheaper to buy than to rent in every one of the top 100 metropolitan areas in the United States.
In traditional hotspots like the San Francisco Bay area, New York City and Orange County, CA, the discount is low. Still this is a recipe for fundamentals house price appreciation.
If housing prices merely stabilized into a sustainable equilibrium with rents then the future probably wouldn’t be too dramatic. We would see a rapid shoot-up in home prices now, followed by a long period of little to no price growth as the Fed raised interest rates.
Rents would still be going up and monthly mortgage payments would rise with them to maintain equilbrium. However, mortgages payments would be rising because interest rates were rising, not because home prices were rising.
Eventually, the Fed would stop raising rates and home prices would start to drift higher and eventually home price growth would converge to rent growth.
However, there is an ever increasing chance that this is not the future we are facing. Some time in the near future it is very likely that credit standards for homebuyers will fall. This will allow homebuyers to make larger offers and it will allow young people to buy a home even when they lack a down payment.
This rapid increase in the number of buyers and their purchasing power will likely drive home prices into a bubble. Likely not as large as 2005, but it’s not out of the question that the bubble could be even larger.
We might think – “didn’t lenders learn their lesson?” Or perhaps, “see this is what we get when we create moral hazard.”
Neither of these are correct. A perfectly competitive market in mortgage lending could not help but go into bubble. To the extent our lenders avoid it, it is because regulations and/or tacit collusion among major players, prevents the competitive equilibrium from being reached.
On the most abstract level this is because liquidity earns real rents, those rents are distilled by a perfectly competitive market and ultimately accrue to the owners of the irreproducible factors of production. In this case the owners of land located in the inner residential rings of cities. That is, for the most part, homeowners.
On a more tangible level, the lenders will be encouraged to loosen standards because if any lender loosens standards then he or she will gain market share and increase asset volatility that makes all loans riskier.
If a lender tries to play it safe then she will still get screwed by the fact that any loan she makes will be to a buyer who is paying market price, which is bubble inflated. Yet, she will be doubly screwed by the fact that she is losing market share and thus not even making a lot of money on the upside of the bubble.
So she is pushed to lower standards as well.
This is amplified by the fact that the actual consequences she faces as a decision maker will be harsher the more atypical her choices are. If she goes with the flow she probably will not be punished when everything goes bad. If she refuses to go along with the flow then she will be punished for making low returns while everyone else is profiting from the bubble.
Given all of that it will be very hard for her to resist the pressure to lower standards. Hence, we should predict that a competitive market will see standards go down.As standards go down, buyers rush in with more buying power and we enter a new bubble phase. To my knowledge neither the government, the lending industry nor we as a society have done anything that promises to prevent this.
Thursday, March 21, 2013