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Housing Sales Partay!

According to the National Association of Realtors, housing sales are ahead of January 2009.

 Woo Hoo!

But before we head out to partay, let's take a look at a few other National real estate stats, shall we?  The picture we see, is not so pretty.

* Existing homes, in large part, are made up of foreclosed properties selling at vastly reduced   rates.

* On a month to month basis, sales of those existing homes actually fell in January by 7.2 percent.

* Applications for mortgages have tumbled, dropping (last week) to the lowest level in 13 years.

* The sale of new homes reached its lowest levels since 1963!

* The commercial real estate sector seems poised to implode any month now, with large numbers of commercial properties valued below their mortgage balance.

and looking ahead -

* The tax credit for first time home buyers is set to expire soon (the credit applies to sales occurring on or before April 30th. But, in cases where a binding sales contract is signed by that date, a home purchase completed by June 30th will still qualify for the credit).

* Fannie Mae has reported a loss of $16.3 billion for the fourth quarter and is asking the U.S. Treasury (translation: taxpayers) for another $15.3 billion to continue its operations. That brings the total going Fannie's way from the pockets of U.S. taxpayers to $76.2 billion with no end in sight.

* The federal government has signaled its desire to stop buying up all those mortgage-backed securities which have kept mortgage loan interest rates artificially depressed. If homes aren't selling now, when mortgage rates are still historically low (at least by post-Word War II standards) what happens when the rates jump up to above 6 or 6 and a half percent on a 30-year fixed rate?

bottom line - Many economists (including me) say no meaningful economic recovery will happen until the real estate market in the United States fully rebounds. We are sooooooooo far away from that, it's not even funny.

Scary Short Sale Language?

With so many distressed homeowners owing more than their homes are worth, short sales have become lifelines. These types of sales often make up more than half of the homes on the market now.  Generally, this means the mortgage lender has agreed to allow the home to sell for market value. The lender writes off the rest of the debt, and the homeowner walks away.

But is it really that simple?

Lenders are increasingly adding language to the approval package, reserving the right to pursue the deficiency later - that is, the difference between what you owed on the house and what it sold for. Some homeowners, so anxious to get out of a pending foreclosure, skip right over that part of the letter. Some understand but opt to take their chances, betting they won’t hear from the lender again.  For some lucky buyers, this has been the case – so far. They’ve sold their home as a short sale, moved on, and haven’t had any problems. But other lenders require the seller to agree upfront to pay back a set amount.

Lenders almost always ask clients to agree to pay at least some of the debt back in a payment plan.  Folks need to consider it could be much worse if the lender comes back for the full deficiency later.

Lenders don’t always go after short sale homeowners. But in Florida, lenders can wait up to five years to file for a court judgment to make the borrower pay. After the judgment is granted, the lender has 20 years to collect the cash. This is particularly frightening because lenders could wait until the debtor is back on their feet to act. The homeowner could recover financially only to discover years later that they owe the bank tens of thousands of dollars.

Homeowners are even more likely to be required to pay a deficiency if they have mortgage insurance.  (Borrowers who have less than 20 percent equity in their homes typically are required by their lenders to cover this insurance in case they default.)  Mortgage insurance companies are getting pretty strict about short sales.  They have to sign off on the short sale, too, and many are not only asking for promissory notes but are ordering their own appraisals.

Deficiency judgments aren’t only a problem in short sale cases. They can happen following a foreclosure, too.  A lender can take back the home, sell it and then come back after the borrower for the difference between that amount and the balance on the old mortgage. This is allowed in Florida and most other states.

So what can a homeowner do?

Not much, in the case of a foreclosure. But when negotiating a short sale, the homeowner must sign off on the paperwork too. Borrowers can ask to be released from the debt, and sometimes that works.  Negotiation might work. Some lenders detail how much money they might come after later. Others don’t specify, and that may mean the full amount. Anyone signing a short sale agreement insist the lenders be specific about deficiency plans.

Read the fine print, and ask lots of questions.

Look Out Judy Jetson

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Space-age stovetop eliminates pots, pans and cookbooks

Electrolux plans to make pots and pans seem so last century. Henrik Otto, world renowned director of Global Design for Electrolux in Sweden envisions smart kitchens of 2050 as a cross between the Sci-Fi channel and the Food Network.

Designed to address a population the UN predicts will live mainly in cities (74%) and exceed 9 billion world wide, Otto and his team believe the future lies in appliances that are energy efficient, serve multiple functions and relate to the architecture of the home in a symbiotic (read networked) way.

Heart of the Home is Electrolux's high-concept answer to what might happen in 2050 after we buzz home in our jet packs from our fulfilling, clean energy jobs.

Domestic gods and goddesses of the future will use their fingers to outline the desired size and shape of a pot on its surface, next they will press down with their hand to determine the depth of the bowl or pan. It's like 3D shapes moving under a skin. The cooking recesses can also be moved around on the counter to accommodate changing need. Similar to how the screen on an iTouch can expand or contract with the flick of a finger.

The rockin' range will also provide cooking counsel, literally at your fingertips. When ingredients are placed into the cooking holes on the countertop, the smart stove will suggest recipes and preparation ideas. The feature provides a way for people to try new flavors, herbs, and ingredients. Not sure what to do with those turnips, throw 'em on the stove and let technology be your muse.

Otto wants to make it clear, however, that they are definitely in the development stage. "I want to explain that it is a concept," says Otto, "I'm a strong believer that a concept triggers reactions ... and like any concept, it is based on what we know today." He points out that 30 years ago, people would have had a hard time imagining a cell phone without a dial or push buttons that can play music, movies and more. The idea, says Otto, "is to provoke a discussion."

Bottom line, how will we clean this thing. Spaghetti sauce? Chili? Otto points to current nano-covered surfaces, fabrics and windows that don't require washing. I'm all ears. He also suggests that we may not have the "luxury" of using water to wash our dishes and clothes in 40 years, but may instead use special cloths or products.

If Electolux's vision of the future is true, copper pots and cook books could go the way of rotary phones, card catalogs and privacy. It begs the question, WWMD (what will Martha do?)!

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One Response if the Lender Turns Down Your Modification

Recession Over? Fed Actions Seem to Reflect So

Industrial production bottomed out last summer, woohoo! Seeing this, the Federal Reserve, it seems, is marking the end of the recession as of the end of the second quarter of last year. Now it thinks it's time to start takng action by tightening lending. The Fed announced it's raising the discount rate (to 0.75% from 0.5%) charged on short-term loans to banks, signaling the beginning of the end of the central bank's extraordinary stimulus measures.

But, the official word proclaiming the end of this lousy, stinking recession doesn't come from the Fed. A recession isn't officially over until the National Bureau of Economic Research (NBER) says it's over, and they're not at the party yet. Why not? Well, industrial production is just one of the variables the NBER takes into account -- and the indicators are at odds.

For the record, the primary indicators the NBER looks at are industrial production, real manufacturing and trade sales, real personal income less transfer payments, and nonfarm payrolls. One indicator is consistent with an economic recovery. The second indicator is not strongly at odds with a recovery, and the two remaining indicators imply that the economy is still in a recession.

If the NBER still places 'particular emphasis' on personal income and employment, it's difficult to confidently conclude that the recession is over. Besides, with real gross domestic product numbers still down more than 3% from its peak, it would be unprecedented for the NBER to declare an end to a recession with these mixed signals.

Apart from the fact that it's of little solace to the unemployed if the recession did indeed end last summer, we probably won't know for sure until next year. How's that? The last two recessions weren't pronounced over by the NBER until more than a year-and-a-half after the fact.

The Fed appeared to try to dampen the impact on the masses by stating: "These changes are intended as a further normalization of the Federal Reserve's lending facilities. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy." Got that?

Yeah, yeah, we're to close our eyes and just listen to them? Whatever, it is the first upward rate move from the Central Bank since the meltdown. It's not likely to be the last.

Home Affordability: Prices (Nationally) Still out of Whack?

According to the old truism, the only arbiter of price is what a buyer is willing to pay. But when it comes to a home -- there's another time-tested way to reckon fair value: the home's cost divided by the buyer's income. This ratio is a broad measure of home affordability. 

The average house price in 1975 was $39,500. Using the Bureau of Labor Statistics inflation calculator, we find that comes to $158,000 in 2008 dollars.

The average (mean) house price in December 2008 was $301,200 -- almost twice the 1975 cost. To be exact, 90.7% higher. In other words, in an "apples to apples" comparison adjusted for inflation, homes cost almost twice as much as they did in 1975.

But can we afford them?

* 1975: Home price/income ratio: 3.46

* 2008: Home price/income ratio: 4.87

The fact is that the national ratio of average home costs to average income is far higher than historical norms.

As for the balance of supply and demand, the Census Bureau recently counted a staggering 18.8 million vacant homes in the U.S. (almost 15% of the nation's housing stock) suggesting a massive oversupply, which in classic free-market economic theory should depress prices to the point that demand rises to meet supply.

If average house prices were to return to the 1975 ratio of approximately 3 times average household income, the average (National) price would drop from $290,000 to around $195,000.