The Warren Report

The Bailout-Looking Ahead: Real Estate Leaders Voice Their Opinions

RISMEDIA, Oct. 31, 2008-The Emergency Economic Stabilization Act of 2008, also known as ‘the bailout bill’ that has been dominating headlines in recent weeks, has real estate leaders talking about its impact on the industry, real estate markets around the country and the overall effect on consumer confidence when it comes to buying and selling.

RISMedia recently interviewed several industry experts on the subject and is presenting their comments in a regularly occurring series called, “The Bailout-Looking Ahead.” Here, Martha Hayhurst, President & CEO of Harry Norman Realtors in Atlanta, Georgia, offers her thoughts about the bailout, what it means to consumers and the government’s new role in real estate.

RISMedia: What are your overall thoughts on the bailout:
Martha Hayhurst: I think that once the rescue plan actually gets into the marketplace, it will be an asset. But it will take a few months.

RISMedia: What do you think it will take to get consumers back to buying and selling:
MH: We need to free up credit and cash. It starts there. Once we get to that point, we’ll be at our greatest advantage and can start trying to encourage consumer confidence.

The bailout will help restore confidence in the market, but there are some caveats. We still have an election and a financial crisis on a global scale, for starters. In 2006, the start of the real estate downturn dominated. We’ve now moved from it just being a real estate crisis, to it being a global financial crisis. When you add that to an already-shaken consumer, the result is all the people sitting on the sidelines.

The resiliency of American people is strong. They are just waiting for one green light and they’ll start buying homes again.

RISMedia: Are you seeing any positive signs in your local market?
MH: Yes, we are seeing some good indicators here in Atlanta. According to the Greater Atlanta MLS, our sold-to-list price for the month of September, for example, was at 95 percent and our days on market was only up three days from the same time last year-from 86 days to 89 days. Those are strong indicators for us.

When we don’t see so many foreclosures, that’s when market will turn. Amidst all of the turmoil, the American people will start getting positive when they see major institutions helping.

Real estate leads us into these situations and leads us out. I think as good stewards of our industry it’s our job to get people back to work.

RISMedia: What do you think of the government’s new rights (within the bailout bill) to purchase foreclosed homes and refinance them at their current value so that homeowners can stay in the home:
MH: It’s hard to say if the bailout’s terms on foreclosures are good or bad. I do know, however, that keeping people in their homes is paramount. People will do whatever they can to stay in their homes. Only the future will tell us if this was a good thing. But, if I was being foreclosed on, I would think it’s a very good thing. There are very few things more catastrophic than losing your home. Right now, the bailout was necessary and had to be done.

What I hope we can do is learn from this so that future generations never have to go through this again.

The bailout is the subject of our November cover story in Real Estate magazine. Read additional quotes from industry leaders, news and analysis on this issue here: http://livemag.rismedia.com/.

Purchasing a home makes lots of sense

by John Adams

Read this article in the Atlanta Journal-Constitution HomeFinder on Sunday, November 02, 2008

With the roller-coaster ride on Wall Street continuing, many have asked me whether this is the right time to buy a house. Maybe it’s a better idea to stay put and wait until the economy recovers, and then a logical course of action may seem clearer.

I beg to differ.

We have seen economic ups and downs before. Postponing the decision to own real estate was the wrong path then, and I believe it to be the wrong path now. For starters, there are at least five compelling reasons to buy and own real estate today. Let’s take a look:

1. You have to have a place to live. Let’s face it. When you write that rent check every month, you are throwing your money down the drain. The only return you get is the receipt your landlord politely hands you.

Most real estate markets are truly beat up right now, meaning that any serious seller understands what it will take to make a sale. The house has to be in good condition, priced right and made attractive in every way. Smart buyers can get a bargain in this market.

In addition, because interest rates are at or near historical lows, you can buy a house today for only slightly more than it costs to rent. The interest expense of owning a home is far and away the largest cost associated with ownership. And you’ve got to live somewhere.

2. Your government wants you to own a house, and it will give you tax breaks for doing so. And those tax breaks are substantial. The interest you pay on your home loan is probably totally tax deductible, and so are the property taxes you pay. These two expenditures make up the bulk of your monthly payment in the early years of your mortgage.

And the benefits get better from there. When you get ready to sell, you can likely pocket 100 percent of the profit and pay no tax whatsoever, amplifying the dollar value of any appreciation you might experience. And both these benefits can be used again and again, within certain limits.

3. Your investment in real estate is likely to be worth more in the future. I know, I know. You’ve heard thatreal estate has lost most of its value and that it’s a bad investment because it has gone down so far in value. And you heard just last week on cable TV that the housing market might never recover.

Well, take a deep breath and listen to this: The last time I checked, there were 305 million of us living in this great nation, and most of us prefer to live indoors. The reality is that certain regional markets, particularly California and Florida, have experienced extreme price volatility, allowing some pundits to focus on the downside of the run-up in prices. In contrast, homes in Georgia have, with some exceptions, maintained their value.

Appreciation has, in the past, rewarded homeowners who owned for any substantial length of time. While there is no guarantee that your home’s value will increase in the future, history tells us that is the most likely outcome.

4. You will be paying back your loan, little by little, month by month. On a typical home loan, the portion of your monthly payment allocated to debt reduction is small. But with each passing month, your loan’s principal balance gets lower and lower.

This buildup in equity occurs regardless of any appreciation, and it will eventually result in a home that you own free and clear of any debt. Whether you select a traditional 30-year loan or a lower-interest-rate 15-year program, the eventual goal is the same. And it happens automatically.

5. You can use a very small cash down payment to buy a large investment. While the days of the 103 percent loan are mostly behind us, you can still find 90 percent and even 95 percent financing available for well-qualified buyers.

And depending on the lender’s guidelines, you may be able to use a gift from a family member as some or all of your required cash at closing.

This ability to leverage your purchase and to obtain long-term fixed-rate financing has made homeownership affordable to more of us than ever before.

I understand that homeownership isn’t right for everyone. If you plan to relocate in the next three years, or if you aren’t ready for the financial responsibilities of ownership, then it likely makes sense to wait. Furthermore, there are some people who highly value their freedom to make a move on a moment’s notice. For these and some others, owning might be a burden and a mistake.

But if you are planning on settling down for at least a few years and you understand what you are getting into, owning a home might very well be the best financial decision you make this year.

John Adams is a broker and investor. For more real estate information or to make a comment, visit Money 99. Find previous articles by John Adams and more home buying advice on the

ajchomefinder mortgage center.

America's Most Dsitressed Housing Maekets

Matt Woolsey, 08.21.08, 4:00 PM ET

During the recent real estate run-up, flippers who bought and sold homes within a year often reaped great profits.  Today, you still see a lot of flipping, only buying and selling within a year often results in staggering losses.

Who is suffering? Regular homeowners, speculators and the foreclosed upon who try to get out of loans they can't afford or properties worth less than the value of their mortgages.

Hardest-hit are those in Las Vegas, Sacramento, Calif., and Los Angeles. There, more than half of last quarter's sales were for a loss, and as much as 20% of overall sales were by people who had lived in their homes for less than a year. It's a similar story in places like San Francisco, Phoenix and Detroit.

"Nationally, one-third of homes are underwater, and 20% of transactions happening across the country are foreclosures," says Stan Humphries, vice president of data and analytics at Zillow.com, an online aggregator of real estate listings and public sales records. "That's what drives up the number of home sales for a loss."

Behind The Numbers
Using data from Zillow.com, we looked at the country's 50 largest metropolitan statistical areas as defined by the U.S. Census and ranked them based on how many homes were sold at a loss in the second quarter of 2008 and what percentage of overall sales were made by sellers who'd lived in the home for less than a year.

Both are signs of the urgency felt by homeowners and speculators to relinquish properties due to distress, whether that's a result of a bad loan or a poor market. Distress is commonly used to describe homeowners behind on their mortgage payments but not yet foreclosed upon. This can come as the result of resetting adjustable-rate payments, job loss or from loans that should never have been written in the first place. The result, however, is the same: The mortgage is unlikely to be fully paid off by its current owners.

In cities that didn't experience a rapid run-up in home sale prices over the last five years, a large percentage of people selling at a loss is a part of a bigger economic decline. For Detroit or Memphis, Tenn., where 56.4% and 43.8% of last quarter's home sales were for a loss, it's a sign of rough times.

For markets like Phoenix or Atlanta, where prices spiked by double digits annually from 2002 to 2006, selling for a loss can be a positive sign that housing markets are actively correcting and that come-lately speculators are being flushed out.

That's little consolation to sellers there, however.

Flip-Flops
In Phoenix, 21.4% of last quarter's sales were flips made within the last year, and 52.1% of overall sales were for a loss. Not surprisingly, Phoenix home prices are down by 22% in year-over-year-terms, based on data from the National Association of Realtors. San Francisco, another market on our list, is down by 19%, which has sellers rapidly turning over properties to cut their losses.

Zillow's research of second-quarter sales and earlier selling prices showed that 48% of San Francisco metro homeowners sold at a loss and that 20% of overall sales were within a year of their last purchase.

Of course, it's important to note these are metro area statistics. In San Francisco's case this includes Oakland, where prices have dropped 35% over the last year, based on Trulia.com data from California's multiple listing service.

Part of that has to do with the number of foreclosures occurring in the area. According to RealtyTrac, a national aggregator of foreclosure listings, Nevada, Florida and California have the highest share of the nation's 1.5 million foreclosures.

California is a non-judicial state. This means that once a homeowner fails to remedy defaults within 117 days, his or her lender can publicly list and sell the property.

The result? In California markets like Riverside, Sacramento and Los Angeles, homes sold while in some stage of foreclosure represent 50%, 39% and 38% of total sales, respectively. That's bad for the people selling the homes, but good for the overall market's recovery as excess inventory gets burned off.

In Florida, a judicial foreclosure state, the courts are involved.

That gums up the works in a state with the second highest number of foreclosures in the country, according to RealtyTrac. Sales take longer, and judges can slow down the process further in an attempt to get the best deal for the seller.

"As prices go further down, and there are further losses, judicial states can be harder because judges are trying to protect sellers," says Pat Lashinsky, chief executive of ZipRealty (nasdaq: ZIPR - news - people ), a national broker. "If the judge feels like it's not a good deal, there are situations where the judge might make a seller sit on the offer for 30 days."

Is the housing market in your area stabilizing? Weigh in. Post your thoughts in the Reader Comments section below.

That slows the market down, and helps explain why Florida cities like Miami, Orlando and Tampa are absent from our list despite unsold housing inventories at, or near, the top of national tables, according to the U.S. Census Department. What's more, home prices there have crashed by more than 25% in the last two years, according to the National Association of Realtors.

Even though foreclosure inventories are piling up and prices are down, sellers either cannot find buyers, or foreclosure homes are being held up in the courts. Florida markets' corrections are, as a result, delayed.

This is bad news, even as prices have started to head back toward pre-run-up levels.

"I hesitate to say that you're going to see markets stabilize around those historic levels," says Humphries. "But it means you're getting closer to rational levels."

Frequently Asked Questions About the First-Time Home Buyer Tax Credit

The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before July 1, 2009. The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

1. Who is eligible to claim the $7,500 tax credit?
   First time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after April 9, 2008 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.
   
   
2. What is the definition of a first-time home buyer?
   The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
   
   
3. How do I claim the tax credit? Do I need to complete a form or application?
   Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.
   
   
4. What types of homes will qualify for the tax credit?
   Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.
   
   
5. Instead of buying a new home from a home builder, I have hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
   Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after April 9, 2008 and before July 1, 2009.
   
   In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.
   
   
6. What is "modified adjusted gross income"?
   Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.
   
   To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.
   
   
7. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
   Possibly. It depends on your income. Partial credits of less than $7,500 are available for some taxpayers whose MAGI exceeds the phaseout limits. The credit becomes totally unavailable for individual taxpayers with a modified adjusted gross income of more than $95,000 and for married taxpayers filing joint returns with an AGI of more than $170,000.
   
   
8. Can you give me an example of how the partial tax credit is determined?
   Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $7,500 by 0.5. The result is $3,750.
   
   Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $7,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,625.
   
   Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.
   
   
9. Does the credit amount differ based on tax filing status?
   No. The credit is in general equal to $7,500 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as "married filing separately" (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.
   
   
10. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?
    In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first-time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.
    
    
11. I heard that the tax credit is refundable. What does that mean?
    The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.
    
    For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $7,500 home buyer tax credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owed).
    
    
12. What is the difference between a tax credit and a tax deduction?
    A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.
    
    A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer’s tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.
    
    
13. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
    No. The tax credit cannot be combined with the MRB home buyer program.
    
    
14. I live in the District of Columbia. Can I claim both the DC first-time home buyer credit and this new credit?
    No. You can claim only one.
    
    
15. I am not a U.S. citizen. Can I claim the tax credit?
    Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.
    
    
16. Does the credit have to be paid back to the government? If so, what are the payback provisions?
    Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.
    
    
17. Why must the money be repaid?
    Congress’s intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from stabilized and, eventually, increasing future housing prices.
    
    
18. Because the money must be repaid, isn’t the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?
    Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.
19. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
    Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.
20. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
    Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.
21. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return?
    Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Existing-Home Sales Rise on Improved Affordability

PRNewswire/ -- Existing-home sales increased last month as buyers responded to improved housing affordability conditions, according to the National Association of Realtors(R).

Existing-home sales -- including single-family, townhomes, condominiums and co-ops -- rose 5.5 percent to a seasonally adjusted annual rate(1) of 5.18 million units in September from a level of 4.91 million in August, and are 1.4 percent higher than the 5.11 million-unit pace in September 2007.

Lawrence Yun, NAR chief economist, said more markets are seeing year-over-year gains. "The sales turnaround which began in California several months ago is broadening now to Colorado, Kansas, Minnesota, Missouri and Rhode Island," he said. "The South was hampered by much lower home sales in Houston in the aftermath of Hurricane Ike."

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said low home prices and low interest rates have been attracting buyers. "This is the first time since November 2005 that home sales have been above year-ago levels," he said. "Credit tightened at the end of September, but the improvement demonstrates that buyers who've been on the sidelines want to get into the market to make a long-term investment in their future."

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 6.04 percent in September from 6.48 percent in August; the rate was 6.38 percent in September 2007.

Yun said there may be market disruptions. "The credit markets are not settled yet, although the mortgage market stabilized with the government takeover of Fannie Mae and Freddie Mac. Inventory remains high, and price declines are pressuring owners," he said. "Additional housing stimulus would stabilize prices more quickly, which in turn would bring faster stability to Wall Street. Removing the repayment feature on the first-time buyer tax credit and permanently raising loan limits would bring more buyers into the market and further reduce inventory."

Total housing inventory at the end of September fell 1.6 percent to 4.27 million existing homes available for sale, which represents a 9.9-month supply(2) at the current sales pace, down from a 10.6-month supply in August. This marks two consecutive monthly declines since inventories peaked in July.

The national median existing-home price(3) for all housing types was $191,600 in September, down 9.0 percent from a year ago when the median was $210,500. "Compared to a fairly small share of foreclosures or short sales a year ago, distressed sales are currently 35 to 40 percent of transactions. These are pulling the median price down because many are being sold at discounted prices," Yun explained. "The current market is not being dominated by speculative investors. Rather, 80 percent of current buyers are purchasing a primary residence, which is a bit higher than historic norms."

Single-family home sales increased 6.2 percent to a seasonally adjusted annual rate of 4.62 million in September from a pace of 4.35 million in August, and are 3.8 percent above the 4.45 million-unit level a year ago. The median existing single-family home price was $190,600 in September, which is 8.6 percent below September 2007.

Existing condominium and co-op sales were unchanged at a seasonally adjusted annual rate of 560,000 units in September, but are 15.7 percent below the 664,000-unit pace in September 2007. The median existing condo price(4) was $199,400 in September, down 10.2 percent from a year ago.

Regionally, existing-home sales in the West jumped 16.8 percent to an annual rate of 1.25 million in September, and are 34.4 percent higher than September 2007. The median price in the West was $253,600, down 18.5 percent from a year ago.

In the Midwest, existing-home sales increased 4.4 percent to an annual pace of 1.19 million in September, but are 2.5 percent below a year ago. The median price in the Midwest was $152,500, which is 7.9 percent lower than September 2007.

Existing-home sales in the South rose 2.2 percent in September to a pace of 1.90 million but remain 7.8 percent below September 2007. The median price in the South was $167,200, down 4.1 percent from a year ago.

In the Northeast, existing-home sales slipped 1.2 percent to an annual pace of 840,000 in September, and are 7.7 percent lower than a year ago. The median price in the Northeast was $246,800, down 5.4 percent from September 2007.

The National Association of Realtors(R), "The Voice for Real Estate," is America's largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

NOTE: References to performance in states or metro areas are from unpublished raw data used to analyze regional trends; please contact your local association of Realtors(R) for more information.

(1) The annual rate for a particular month represents what the total number of actual sales for a year would be if the relative pace for that month were maintained for 12 consecutive months. Seasonally adjusted annual rates are used in reporting monthly data to factor out seasonal variations in resale activity. For example, home sales volume is normally higher in the summer than in the winter, primarily because of differences in the weather and family buying patterns. However, seasonal factors cannot compensate for abnormal weather patterns.

Existing-home sales, which include single-family, townhomes, condominiums and co-ops, are based on transaction closings. This differs from the U.S. Census Bureau's series on new single-family home sales, which are based on contracts or the acceptance of a deposit. Because of these differences, it is not uncommon for each series to move in different directions in the same month. In addition, existing-home sales, which generally account for 85 percent of total home sales, are based on a much larger sample -- more than 40 percent of multiple listing service data each month -- and typically are not subject to large prior-month revisions.

(2) Total inventory and month's supply data are available back through 1999, while single-family inventory and month's supply are available back to 1982. Condos were tracked quarterly prior to 1999 when single-family homes accounted for more than nine out of 10 purchases.

(3) The only valid comparisons for median prices are with the same period a year earlier due to the seasonality in buying patterns. Month-to-month comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns. Changes in the composition of sales can distort median price data. Year-ago median and mean prices sometimes are revised in an automated process if more data is received than was originally reported.

(4) Because there is a concentration of condos in high-cost metro areas, the national median condo price can be higher than the median single-family price. In a given market area, condos typically cost less than single-family homes.

Foreclosures are opportunities for some

By Chris Reinolds

The Atlanta Journal-Constitution

Monday, October 20, 2008

Going once, going twice, sold! —- a four-bedroom, red brick home in Smyrna.

“It was just so fast. I guess that wasn’t for me. There were seven or eight of us bidding for that,” said Cher Algarin of Douglasville.

She and her husband Frank came to an auction of hundreds of foreclosed homes Sunday at the Cobb Galleria Centre hoping to score a deal. So did everyone else.

Foreclosures have soared as the economy softened, people lost their jobs and adjustable-rate mortgages reset at interest levels borrowers couldn’t afford.

Making matters worse, a collapse in housing prices left many owing more on their mortgages than their homes were worth —- an open invitation to default.

At least 37,273 foreclosure sales occurred in Georgia in 2007 and the first half of this year; during that period, more than 350,000 Georgia homeowners fell at least 60 days behind on their mortgage payments, according to HOPE NOW, an alliance of lenders and consumer groups.

Other peoples’ misfortunes can be some families’ opportunities.

The Algarins, for example, already have a home but were interested in moving up, if the price was right. They brought three of their four children to the auction and sat through nearly two hours of bidding before the house they wanted came up on the screen. Then it was over in a flash.

The Smyrna home, valued at $264,900, sold for $205,000 —- well below the previous valuation but much higher than they wanted to pay.

“That was fun, but my nerves are shattered,” Cher Algarin said as she pushed the baby’s stroller toward the exit.

The Algarins will keep looking for a foreclosed home.

“Make me a deal I can’t refuse,” she said.

The auction began Saturday with more than 1,500 dwellings. About 2,500 people showed up that day, and officials of Real Estate Disposition Corp. (REDC), the group conducting the auctions, expected a similar turnout Sunday.

Mary Claire Quella, vice president of REDC, said the crowd was a mix of real estate investors, first-time home buyers and people looking for their second, third or fourth home.

“People recognize this is a buyers’ market. We have folks who have been standing on the outside for a lot of years, and they now see the opportunity to get in on the ground floor,” Quella said.

REDC officials said they have sold more than $2.3 billion in real estate assets around the country so far this year. That’s more than double their $920 million sales volume for all of 2007.

While final sales numbers for this weekend’s auction weren’t available Sunday night, an REDC spokesman said that in May the company auctioned off 507 residences worth $42.5 million in Atlanta.

The homes are owned by the seller —- typically a bank or lending institution —- until the new owners take possession. The buyers must come with earnest money. Lenders are at the event to pre-qualify would-be purchasers.

Once the auctioneers start, bidding assistants dressed in tuxedos run up and down the aisles, coaxing and hopping from one bidder to the next. The atmosphere is electric; one bidding assistant Sunday swigged a Red Bull energy drink.

The action resumes today at the Georgia International Convention Center in Atlanta. REDC goes to Macon on Tuesday and will back in Atlanta next weekend —- at the Georgia World Congress Center on Saturday and the International Convention Center on Sunday. Information is available at the auctioneer’s Web site: www.ushomeauction.com.

Not all the homes are sold. If the highest bid comes in too low for the seller, the residence goes back on the auction block later.

Things worked out well Sunday for investor Nicole Brown, 38 of Dallas, Ga., who bid $70,000 on a house valued at $129,000 and won. She said this is her seventh home purchase but her first auction. The property she bought is only 20 minutes from her personal home, and she knows the area well.

The real estate market eventually will rebound, and those who bought low will profit, Brown said. “Everybody needs someplace to live,” she said.

Forceful measures, strengths will help city through crisis

By Dennis P. Lockhart

For the Atlanta Journal-Constitution

Sunday, October 19, 2008

Since the summer of 2007, the U.S. financial system and economy have been undergoing a painful transition, which is also playing out in the Atlanta area. Many are wondering how we got here and what Atlanta’s fate will be in the current financial crisis. I believe Atlanta has many underlying strengths that will help the region weather the economic storm. But to understand this conclusion, it’s helpful to review what’s happened.

In July of last year, rating agencies downgraded certain residential mortgage-backed securities. These actions precipitated a general repricing of risk in the financial system and, in turn, a slow cascade of worsening conditions, culminating in recent dramatic market developments and ongoing government policy responses.

The financial stresses that grew over the last 14 months have affected financial institutions, the credit system, investment capital markets, individual businesses and households and an already weak overall economy. The problems ranged from constricted bank-to-bank lending on short-term loans to stifled bond issuance to much reduced flows of bank credit and, most recently, significant declines in equity markets.

The public policy response, including the Federal Reserve’s various measures to provide much-needed liquidity to markets, has been equally dramatic. These measures include a comprehensive plan to directly address financial problems and agreements with other governments on globally coordinated actions.

This forceful response by the U.S. Treasury, Congress, the Federal Reserve and collaborating governments distinguishes today’s crisis from past economic crises like those leading to the Great Depression in the 1930s and the “lost decade” of the 1990s in Japan. In these prior episodes, policy responses were neither timely nor strong enough to avert long-lasting problems.

Recent criticism and opposition to measures to address the financial crisis have pitted Main Street against Wall Street, the hub of the U.S. financial industry. This adversarial point of view is understandable, but is in no one’s interest as the basis of policy responses to the crisis. That’s because Main Street and Wall Street intersect in every city and every town, every day.

Let me explain how Wall Street and Peachtree Street intersect here in Atlanta. A city like Atlanta —- by virtue of its national and international ties —- is exposed to the current financial turmoil through its role as provider of business and financial services, transportation and logistics hub, trade distribution center, headquarters city as well as its historically vigorous real estate industry.

Housing has been at the root of financial turmoil, and Atlanta home prices have fallen while foreclosures in the area have increased substantially. Fortunately, Atlanta’s housing market has not declined as much as in many areas of the country. In addition to housing, commercial real estate is a vital part of Atlanta’s economy. Vacancies in the Atlanta area are drifting upward, and construction has slowed.

The pullback in real estate has added to an overall decline in employment. The Atlanta area’s unemployment rate in the past four consecutive months has risen. Today, it is similar to the nation as a whole as jobs also have been cut in financial services, transportation and manufacturing. Because of job losses and credit issues, consumer spending has been quite weak. As a result, Georgia sales tax collections in 2008 through September fell more than 4 percent from a year earlier.

The national economy today is anemic, and we at the Atlanta Fed expect weakness to persist for some time as credit markets gradually improve. The thawing of credit markets is an important condition for a recovery to levels of growth consistent with the economy’s underlying potential.

Atlanta cannot evade the downturn in national economic activity and the fallout of the recent financial crisis. But Atlanta’s problems in this period are cyclical, not structural. Atlanta enjoys core strengths and assets that will sustain the city’s prosperity. Among these are a world-class airport and logistics infrastructure, excellent colleges, growing tourism amenities, and the city’s renowned physical beauty and agreeable climate. Atlanta had the largest numerical gain in population from 2001 to 2007 of all metropolitan areas in the country. Notably, Atlanta is recognized as a top city for young professionals. Over time, that trend should help ease the problem of excess supply in the housing market and contribute to a strong and vibrant local economy.

The nation, region and Atlanta are experiencing a period of severe financial turmoil and economic downturn. That said, I’m confident this will pass. Policies have been devised and forceful actions taken to reverse the effects of the developing credit contraction. I believe these policies will work. Atlanta’s solid strengths will express themselves in a return to health and growth.

> Dennis P. Lockhart is president and chief executive officer of the Federal Reserve Bank of Atlanta.

Emergency Economic Stabilization Act - H.R. 1424

Emergency Economic Stabilization Act

H.R. 1424 (House and Senate Passed)

Key Highlights

 

 

On October 3, 2008, the House passed the Emergency Economic Stabilization Act of 2008 (H.R. 1424), a bill authorizing Treasury to establish a troubled asset purchase program (TARP).  The bill also includes the extension of several tax provisions and energy-related programs.  Highlighted below are key provisions of primary interest to MBA members.

 

 

Program Overview

·         Considerations:  In undertaking the program, Treasury must promote not only liquidity and market stability, but also community stability, diversity, small institutions, student loans, retirement plans, and multifamily properties.

·         Treasury can purchase troubled assets from any financial institution on terms and conditions it decides in consultation with the Federal Reserve Board, Federal Reserve Bank of New York, FDIC, OTS, OCC and HUD.  Treasury consults with FDIC in managing purchased assets.

·         Treasury must publish the program’s policies and procedures for identifying, pricing and purchasing troubled assets, and for selecting asset managers.

·         Institutions cannot sell troubled assets to Treasury for more than they paid.

·         Guarantee Program:  Treasury must establish an insurance program to guarantee principal and interest payments to purchasers of troubled assets; the program’s risk-based premiums must be paid by participating institutions.

·         Termination: Program expires on December 31, 2009 but may be extended; committees expire after all assets have been transferred or last insurance contract expires.

·         If TARP results in net loss after five years, the President must submit a legislative proposal on how to seek reimbursement from participating financial institutions.

 

 

Funding Amount and Procedures

·         $700 billion disbursed in increments: Treasury receives $250 billion upon enactment; an additional $100 billion will be disbursed if the President certifies its need to Congress; a final $350 billion is disbursed upon presidential request unless Congress disapproves.

 

 

Warrants/Equity

·         In direct troubled asset purchases, Treasury also receives nonvoting shares or a senior debt so that Treasury shares equity appreciation and losses/expenses are covered. 

 

 

 

 

Loan Modifications/Servicing

·         Treasury and other federal agencies should coordinate loan modification programs with HOPE for Homeowners program (H4H) and protect renters and state/local subsidies; guarantees and credit enhancements are allowed; servicers should maximize loan modifications.  Permits the H4H Board to refinance loans higher than 90 percent of appraised value.  Servicers are deemed to have acted in the best interest of MBS investors if the servicer agrees to/implements a modification/workout plan when the servicer takes reasonable loss mitigation actions, including partial payments.

 

 

Structure and Oversight

·         Location:  The law establishes a new “Office of Financial Stability” in Treasury headed by an Assistant Secretary.  It is likely Treasury will hire vendors to purchase, manage and sell troubled assets, since the law contains extensive contracting provisions.

·         Financial Stability Oversight Board: five-member board includes Federal Reserve, FDIC, SEC, HUD and SEC.  Executive Committee of board can limit or prohibit Treasury from taking action. Credit review committee of board reviews purchases.

·         Congressional Oversight Panel: five-member bipartisan panel selected by Congress to review financial markets, regulatory oversight and TARP performance.

·         Comptroller General: provides on-site review performance and administration of TARP. 

·         Special Inspector General:  Appointed by the President, for auditing and investigations.

·         Treasury must work with non-U.S. regulators and central banks to establish similar programs. 

·         Judicial Review:  Actual damages relief permitted, Injunctions permitted only for non-asset management related activities.

 

 

Reports

·         Treasury and other banking agencies must issue several public and congressional reports on purchases, pricing, expenses and impact of program.

·         Regulatory Modernization Report: By April 30, Treasury must submit report to Congress on state of financial and regulatory system and recommendations for improvement.

·         GAO studies:  (1) The impact of leveraging and deleveraging of financial institutions contributed to the current financial crisis; and (2) Impact of the TARP program.

·         Congressional Oversight Panel submits reports to Congress on the impact of TARP in providing transparency, mitigating foreclosures and financial market transactions.

·         SEC, Treasury and Federal Reserve must report to Congress on the impact of mark-to-market accounting on financial institutions.

·         OMB and CBO must report to Congress on program and budget estimates.

 

 

 

Conflicts of interest

·         Treasury must issue regulations/guidelines to prevent conflicts of interest with any aspect of TARP.

 

Executive Compensation

·         Participating institutions must have executive compensation limits that: 1) exclude incentives for inappropriate risk taking; 2) include claw-back provisions for compensation based on inaccurate earnings, gains or other criteria; and 3) prohibit golden parachutes.

·         For Treasury auction purchases over $300 million, the participating financial institution also cannot give golden parachutes to employees hired after the purchase.

 

 

 

Definitions

·         Troubled asset:  Residential or commercial mortgage-related assets, including securities, obligations or other instruments Treasury believes purchasing would promote financial stability.  Assets must have been originated or issued before March 14, 2008. Treasury must consult with the Federal Reserve Board Chairman and notify Congress prior to expanding the definition.    

·         Financial Institution:  Any institution, including any bank, savings association, credit union, security broker or dealer, or insurance company established and regulated under the U.S. or state/territorial laws.  The definition specifically states it is not limited to these institution types, and Congressional staff has reassured MBA that mortgage banks are eligible to participate. 

 

 

 

Federal Reserve Disclosure

·         If the Federal Reserve provides emergency discounts to any entity, it must report to Congress regarding the justification for and terms of the discount.

 

 

Accounting

·         SEC is authorized to suspend mark-to-market accounting (FAS 157).

 

 

Tax Provisions

·         Tax break to holders of Fannie and Freddie preferred stock.  Provides “ordinary gain or loss” treatment.  It appears to limit that tax break to banks, savings and loans, cooperatives, small business investment companies, and business development corporations.   

·         Provides special tax rules to prevent deductibility of overly generous executive compensation programs.

 

 

Temporary Increase in Deposit Insurance

·         From the date of enactment until December 31, 2009, the amount of qualifying deposits the FDIC and NCUA will insure increases from $100,000 to $250,000. The increased amount will not be factored into setting premium assessments. 

 

 

October 3, 2008

Mortgage Bankers Association