NOVEMBER 2011

FHA IN DANGER OF NEEDING BAILOUT

The annual Federal Housing Administration (FHA) audit report, issued on November 15, caused an alarm when it revealed the FHA’s cash reserves had dropped from $4.7 billion to $2.6 billion during the past year. The shrinkage comes as a result from $37 billion in insurance claims the FHA has paid due to the large amount of foreclosures in recent years. Further declines in housing prices could lead to more insurance claims, particularly on FHA-backed loans made during 2006, ’07, ’08 and ’09. The report estimated that if home prices continued to fall through 2014, $43.2 billion would be needed from the U.S. Treasury to stabilize the FHA, which has yet to be bailed out by the government in its 77-year history. “The way the FHA is currently operating, I think there is a pretty high probability they will run out of reserves,” said FHA-expert Anthony Yezer, an economics professor at George Washington University. “Their reserves are already pretty inadequate.” Acting FHA Commissioner Carol Galante expressed optimism that such a bailout would not be needed. “It would take very significant home price declines to create a situation in which the portfolio would require any additional support,” Ms.Galante said. “There is no evidence or widespread prediction that home prices are going to decline to the levels in which a bailout would be needed.”

LAS VEGAS NO LONGER LEADS IN FORECLOSURE FILINGS

After 22 straight months, Las Vegas has been surpassed as the No. 1 metropolitan area in foreclosure filings. According to the latest U.S. Foreclosure Report, released by RealtyTrac on November 9, four metropolitan areas in California (Stockton, Modesto, Vallejo-Fairfield and Riverside-San Bernadino, in that order) combined to drop Vegas to the No. 5 ranking on this dubious list. Despite this, Nevada remains the top state in foreclosure activity for the 58th consecutive month, according to the report. It is followed in order by California, Arizona, Florida and Michigan. The monthly report noted that 77,733 properties received their first default notices in October. That figure was 10% higher than the one in the September report, but 23% below the corresponding one from October of a year ago.

REMODELING ACTIVITY IS AT RECORD HIGH

The recent BuildFax Remodeling Index (BFRI) showed that remodeling activity in September was at its highest level since the BFRI began in 2004. “Mortgage rates continue to be near record lows,” said Joe Emison, BuildFax’s vice president of research and development. “As homeowners from coast to coast refinance, they are continuing to update their current home and invest in their properties.” According to BuildFax, the most common types of remodels are roof (21.4%); deck (7.9%); bathroom (6.9%); garage (6.1%); kitchen (4.8%); basement (2.9%); office (1.7%); and sunroom (0.7%). “The data from BuildFax show that homeowners are not only doing important maintenance projects, such as fixing their roof, but also taking on projects that add to the livability of their homes by adding decks, remodeling their bathrooms and updating their kitchens,” Emison said. “These are immediate fixes they will enjoy and that potential buyers are looking for.”

ALMOST 3 IN 10 MORTGAGED HOMES ARE UNDERWATER

A recent study by Zillow concluded that 28.6% of home owners owe more on their mortgage loans than their collateral property is worth. The study based its figures on third quarter data, which also determined that home values were down 4.4% from what they had been in the third quarter of last year. “We’re in unchartered waters,” said Stan Humphries, Zillow’s chief economist. “More than one in four homes underwater and about 9% unemployment is a recipe for more foreclosures.”

HOUSING IS HISTORICALLY AFFORDABLE

The low housing prices and low interest rates have combined to make housing, in the third quarter of this year, about as affordable as it has ever been, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI). A November 17 press release said that the latest HOI indicated that 72.9% of all homes sold during the third quarter were affordable to families with the national median income of $64,200. The HOI has been above 70% for the past 11 quarters. Before this streak, the HOI, which has been measured for about 20 years, was rarely above 60%. “With interest rates at historically low levels and markets across the country beginning to improve, home ownership is within reach of more households than it has been for nearly two decades,” said Bob Nielson, chairman of the National Association of Home Builders. “However, tough economic conditions, particularly in markets that experienced major changes in house prices and production, as well as extremely tight credit conditions confronting home buyers and builders, continue to remain significant obstacles to many potential home sales.”

MANY MORTGAGEES COULD BENEFIT FROM REFIS, BUT CHOOSE NOT TO

According to an article in National Mortgage News, there are about 1 million home owners with mortgages insured by the Federal Housing Administration (FHA), who could benefit financially with a refi, but choose not to do so. According to the article, written by Brian Collins, the last time interest rates were as low as they currently are (August-September 2010) about 150,000 borrowers applied for FHA refis. Currently, there is only one-third that amount of such applications pending.

NOTES OF VALUE

According to Lender Processing Services (LPS), there were 6,298,000 mortgages going unpaid in the United State by the end of October. LPS also noted there were 2,210,000 residential mortgages in foreclosure at that time. The Moody’s REAL Commercial Property Price Index reported that commercial real estate prices decreased by 1.4% in September after increasing during the previous four months. David Stiff, chief economist at Fiserv, said that national purchase mortgage payments account for only 13% of monthly median family income. HousingWire reported that new home construction is at its all-time lowest and home inventories have been reduced by 20%. Lawrence Yun, chief economist for the National Association of Realtors expects multifamily vacancies to drop from 5.3% in 2011 to 4.6% in 2012. Monthly median multifamily rent, currently at $1,066 per unit, is forecasted to increase 3.5% in 2012 and 3.8% in 2013.

ASK MARTITIA QUESTION:  Is an AVM an appraisal? MARTITIA:  No. According to Advisory Opinion 18 (Use of an Automated Valuation Model [AVM]) of the Uniform Standards of Professional Appraisal Practice, “An AVM’s output is not, by itself, an appraisal. Communication of an AVM’s output is not, in itself, an appraisal report.” Martitia Mortimer, Elliott's executive vice president, answers appraisal questions on a regular basis in Elliott Evaluation News.

QUOTES

“As you walk down the fairway of life you must smell the roses, for you only get to play one round.” – Ben Hogan “My reading of history convinces me that most bad government results from too much government.” – Thomas Jefferson “Time is what we want most, but what we use worst.” – William Penn “In Los Angeles, by the time you’re 35, you’re older than most of the buildings.” – Delia Ephron “I finally know what distinguishes man from the other beasts, financial worries.” – Jules Renard

Newsletter Editor: kevin@elliottco.com
3316-A Battleground Avenue Greensboro, NC 27410	Toll Free 800-854-5889 Fax 336-854-7734
To unsubscribe from our mailing list, please click here.