A "Housing Start" is a home on which construction has started and, for the 4th straight month, national single-family housing starts held steady last month. 

When the demand for homes grows faster than the number of homes for sale, prices increase. 

As recent home sales data confirms, buyers currently outpace sellers and one consequence of this is an increase in multiple-offer situations this year. 

It's no wonder home prices are up across so many neighborhoods.

October's Housing Starts report is yet another piece of housing data foreshadowing rising home prices into 2010.

Building Permits were also down in October, a potential demand-to-supply imbalance magnifier. Without permits, there's no future construction. This drains supply. Meanwhile, tax breaks and low rates tend to stimulate demand and, right now, we've got both. 

Therefore, so long as demand remains semi-constant into the New Year, expect home prices to rise. 

In many markets - like in South Orange County, California, where I live and work - they already are.

Here is the latest Orange County, California, Housing Report from my friend Steven Thomas, the President of Altera Real Estate.

Monday, November 16, 2009

Have you ever pedaled up a steep hill on your bicycle as a kid only to wonder if you were going to ever make it? That's the same feeling that some buyers, sellers and agents get in trying to arrive at a successful close date. Short sales are homes where the asking price is less than the outstanding loan amounts. These are subject to the lender's approval. This approval takes anywhere from weeks to months.

There is nothing short about a short sale.

About a year ago, it was just about impossible for agents to show a short sale to a prospective buyer. Nine times out of ten, the short sale already had at least one offer on the home, which had been submitted to the lender for approval. However, the home remained on the market as an active listing until that approval was received. So, agents would show their buyers home after home only to find out that most short sales already had an offer submitted, which amounted to a gigantic waste of everybody's time.

Agents then would contact every short sale to see if it was "really" available. This stemmed from the fact that an escrow is not opened until after lender approval. Escrow is not opened so that expenses are not incurred for any work completed. Inspections, homeowner association documentation, appraisals, etcetera, are all fee based and time sensitive and nobody is going to want to pick up the tab if a lender does not approve a file or if there are significant delays.

Short sale data has been cleaned up over the course of the last year. It is now mandatory for all properties that have offers submitted to a lender to be placed in "Backup Offer" status or "Pending Sale" status within the Multiple Listing Service.

I used to reference the overstated active listing inventory and the understated pending sale statistics last year at this time. The data is still not perfect, but is much improved and easier for agents and buyers to look at homes.

In response to so many short sales no longer counted as a part of the active listing inventory, the total pending sale inventory has blossomed. There are currently 6,838 total pending sales. 58% are short sales, only 8% are foreclosures and 33% are homeowners with equity.

There are 3,703 pending sales that have been pending for more than one month. 76% are short sales, 5% are foreclosures and 19% are homeowners with equity. There are 2,132 pending sales that are have been pending for more than two months. A stunning 91% are short sales, 1% are foreclosures and 8% are homeowners with equity.

Almost a third of the total pending sales count has been pending for more than two months and most are short sales. Even though more and more homeowners have defaulted on loans, lenders have not been foreclosing. As a result, the market has grown much hotter with an increase in successful short sales and a shift to more equity sellers.

The huge increase in pending short sales has not materialized as a huge increase in closed short sales. All of these numbers illustrate that dealing with short sales is like bicycling up a steep hill as a kid. Just because a buyer's offer is accepted, if it is a short sale, it is going to take a long time to close escrow.

Since short sales are distressed, their pricing attracts a lot of attention from buyers. Buyers can expect multiple offers in dealing with short sales. In the end, buyers have to move quickly and compete with other offers only to wait for a long period of time for the seller to obtain lender approval.

Sometimes the process takes such a long time that the buyer walks away and looks for something else. Many of them move onto equity sellers. The Orange County real estate market and the entire state of California are at the mercy of lenders. The bottom line, the market is full of challenges and the short sale process makes the current real estate landscape even more challenging.

So, how do the rest of the numbers look? The market has continued to not change much over the past few months. Once again, the past two weeks are no exception. The active listing inventory decreased slightly by 30 homes over the past two weeks, totaling 7,719. That's 5,539 fewer than last year and 9,514 fewer than two years ago. The inventory has dropped by 4,123 homes so far this year, a 35% drop. We can expect the active listing inventory to drop slightly for the remainder of the year.

Demand - the number of new pending sales within the past month - increased by 75 in the past couple of weeks to 3,241, a 2% increase. Last year's demand was 684 fewer and two years ago was 1,946 fewer. The expected market time for all of Orange County decreased in the past couple of weeks from 2.48 to 2.38 months. The expected market time last year was at 5.18 months and two years ago it was at 13.31 months. For homes priced below $1 million, the expected market time is 1.87 months.

For homes priced above $1 million, the expected market time is 8.79 months.  That range represents 27% of the active listing inventory, but just 7% of demand. For only the second time this year, the number of distressed properties on the market increased. The distressed inventory increased by 73 homes, or 3%. 32% of the active inventory is distressed compared to 44% last year.

There are currently only 339 foreclosures in all of Orange County, an increase of 25 in the past two weeks. Foreclosures only represent 4% of the active listing market and have an expected market time of 0.82 months. Last year the expected market time was at 1.22 months.

Foreclosures continue to be exceptionally HOT and are, on average, selling for 3% above their asking prices. There are currently 2,123 short sales on the active market, an increase of 48 in the past two weeks. Short sales currently represent 28% of the active listing inventory. The expected market time for short sales is currently at 1.72 month versus 7.08 months one year ago (this number was grossly overstated as illustrated earlier).

Homeowners with equity in their home now account for 68% of the current active inventory. If a buyer wants to avoid the many pitfalls of dealing with short sales and foreclosures, they should turn their attention to equity sellers.  End of Steven's report. 

Personal note from Bob Phillips:  I have been involved on each side of short sales, both as a listing agent - with great success - and as a buyer's agent - also with excellent success.  I have seen approvals from lenders in as short as a few weeks, resulting in a 60 day period from offer to close of escrow, and I have also seen approvals take more than 3 months to obtain.

If you are thinking of doing a short sale, as a seller, or getting involved with one, as a buyer, you'd be best advised to consult with a Realtor experienced with the process. ( And have a lot of patience.)

A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

Each year, the government sets the maximum allowable loan size for a conforming mortgage, based on "typical" housing costs nationwide. 

Loans in excess of this amount are typically called "jumbo".

While home prices increased from 1980 to 2006, so did conforming loan limits.  Since then, however, as home prices have dipped, the conforming loan limit has held.

Now, in 2010, for the 5th consecutive year, the government set $417,000 as the nation's conforming mortgage loan limit.

The 2010 conforming loan limits, as released by the government, are:

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

But conforming loan limits don't apply to all U.S. geographies equally.  As a result of various economic stimuli since 2008, the government now considers certain regions around the country "high-cost" areas. ( My Orange County, California is one of these.)  In these areas, conforming loan limits can range to $729,750.

There are less than 200 such areas nationwide.  The complete list is published on the Fannie Mae website.

Mortgage markets improved last week as foreign buyers of mortgage debt helped to push mortgage rates to a 4-week low.

It marked the 3rd consecutive week that rates improved, breathing extra life into this year's ongoing Refi Boom.

Fixed-rate, conforming mortgage rates fell about 0.125 percent on the week. ARMs did about the same.

There wasn't much data to move mortgage rates last week; investors worked mostly on momentum and trends. However, the Friday University of Michigan Consumer Sentiment survey release garnered some attention. 

After worsening in August and September, consumer sentiment fell for the third straight month in October.  Analysts worry about what it could mean to the economy.  Holiday Shopping season is here and consumer spending fuels the economy.  If households hold the purse strings tight, our nation's budding economic recovery may stall.

In a scenario like that, employment rates won't rebound so fast, but rate shoppers might not mind.  Slower-than-expected economic growth tends to suppress mortgage rates, helping to improve home affordability overall.

This week, data comes back into focus.

At 8:30 AM ET today, the government will release October's Retail Sales report.  This one should be closely watched for its ability to change rates.  A weak report should drag rates down, and a strong one should push rates up.

Then, on Tuesday and Wednesday, look for PPI and CPI -- two key inflation indices.  Inflation causes mortgage rates to rise so if either of these reports comes in hotter-than-expected, rates will almost certainly rise. 

And, lastly, also on Wednesday, we'll get the Housing Starts report for October.  Don't expect the markets to move on this one, but keep an eye on the data anyway.  Housing markets remain crucial to economic recovery.

Despite rates hovering near recent lows, remember that markets change quickly.  A rate quote from the morning is rarely valid by the afternoon and, when rates rise, rates rise fast.

From today's Los Angeles Times:  

If you fit the criteria and are considering buying another house in the coming year, you might want to speed up the process and close by the June 30 expiration date.

By Kenneth R. Harney,    November 15, 2009 

Reporting from Washington - Take a close, hard look at the new $6,500 federal tax credit for so-called move-up home buyers that passed the Senate and House recently. Though it's been getting second billing to the original $8,000 credit for first-time purchasers -- now extended by Congress through June 30 -- the $6,500 credit for current homeowners just might have your name on it.

How does it work? When will it be available?

The new credit is available now. It took effect Nov. 6, the day President Obama signed the legislation that created it. This means that if you fit the key criteria -- you've owned and lived in your home for a consecutive five out of the last eight years, and your adjusted household income doesn't exceed $125,000 if you file taxes singly or $225,000 if you are married filing jointly -- you can claim the credit as soon as you close on a qualifying house.

That could be next week, next month or next spring. There is no "move-up" requirement in the new credit. In fact, homeowners who plan to downsize into a smaller dwelling may prove to be significant users of the credit, along with people who are moving because of employment changes.

If you fit the criteria and are considering buying another house sometime in the coming year, you might want to speed up the process and sign a contract by April 30 and close by the June 30 expiration date. Think of it this way: If the government is willing to give you $6,500 to act a little faster than you had planned, hey, why not?

Some other key features of the $6,500 credit you ought to know about:

* Whatever you intend to buy, the house cannot cost more than $800,000.

* The replacement house must become your main home. There is no requirement in the legislation that you sell your current home. You could rent it out, turn it into a second home or list it for sale later in 2010 when prices might be higher. If you plan to retain it, however, make sure that you move into the new house on the day you close so that there is no question it was your principal residence at that time.

* Like the first-time buyer credit, the $6,500 version permits a variety of dwelling types for your purchase. These include new or existing single-family homes, condominiums, manufactured or mobile homes, and boats that function as your principal residence. You cannot claim the credit if you are buying a second home or an investment property.

* The Internal Revenue Service is required by Congress to scrutinize claims for tax credits -- both for the $6,500 and the $8,000 credits -- far more closely in the coming months than it did earlier this year. This is because federal investigators have documented significant instances of fraud -- supposed home buyers who were as young as 4, and "sales" that were fabricated. Investigators also found numerous cases of technical violations, such as purchase transactions among immediate family members, which are prohibited.

The revised rules require taxpayers to submit copies of their settlement statements (HUD-1 forms), along with their requests for credits using IRS Form 5405. Congress' new rules also prohibit individuals under the age of 18 or who are counted as dependents on another taxpayer's filings from claiming the credit.

* Home buyers in 2009 -- those who go to closing after Nov. 6 but no later than Dec. 31 -- can claim the $6,500 credit on their 2009 federal tax returns, or amend their 2008 returns. Similarly, eligible buyers in 2010 will be able to file for the credit on their 2009 returns or 2010 returns. Talk to your tax advisor regarding timing decisions.

* If you aren't sure if you can make the deadlines established for the new credit -- a binding contract by April 30 and a settlement by June 30 -- do not assume that Congress will provide another extension. All the political and budgetary signs point the other way, and some of the primary authors of the credit insist that this is it -- no more extensions next year. Take them at their word.

One consumer resource that answers frequently asked questions about both the $6,500 and $8,000 extended credits is www.federalhousingtaxcredit.com, sponsored by the National Assn. of Home Builders.

kenharney@earthlink.net

Distributed by the Washington Post Writers Group.

For the eighth straight consecutive month, national foreclosure activity in the U.S. was dominated by a small set of states.

As reported by RealtyTrac.com, more than half of October's foreclosure-related activity came from just 4 states:

1. California
2. Florida
3. Illinois
4. Michigan

The remaining Top 10 states in terms of total foreclosure activity included Arizona, Georgia, Texas, Ohio, New Jersey, and Maryland.

Foreclosures are up 19 percent from last October, but a deeper look at the RealtyTrac report revealed two positive developments for the housing market.

1. Foreclosure activity is down 3 percent from last month
2. Foreclosures per Household decreased in 9 of the 10 most heavily concentrated states

Furthermore, Nevada's foreclosure pace is down 4% from last year.  This is a big deal because Nevada has long led the nation in foreclosure-related activity. Until last month, Nevada's year-to-year foreclosure rate hadn't fallen in more than 4 years.

It's too soon to say that the foreclosure market is drying up, but bargains are getting harder to come by.  First-time buyers and bona fide investors alike have been snapping up property at a furious pace.

According to an industry trade group, distressed homes account for nearly one-third of home resale activity.

That said, buying foreclosures isn't for everyone.

For one, properties are often sold as-is and may be defective.  The cost of repairs may negate "the deal" or "the steal" -- depending on the cost of the home.

In the end, fundamentally, buying a foreclosed home is the same as buying a "regular" home -- there's a contract and a closing.  Most of the steps in the middle, however, are different. 

Read the complete foreclosure report and take a peek at the foreclosure heat maps on the RealtyTrac website.  If you like what you see, give me a call and let's discuss the possibilities.

There's still good deals in the foreclosure market, especially in the higher price ranges, and this is likely to continue for the next year, in my humble opinion.

Despite the economy's improvement and prodding from Congress, banks don't seem ready to open their purse strings just yet.

Nationally, mortgage approval standards are tightening.

The data comes from a quarterly survey the Federal Reserve sends to its member banks.  The Fed asks senior bank loan officers around the country whether "prime" residential mortgage guidelines had tightened in the last 3 months.

For the period July-September 2009:

• Roughly 1 in 4 banks said guidelines tightened
• Roughly 3 in 4 banks said guidelines were "basically unchanged"

Just one bank said its guidelines had loosened.

Combine the Fed's survey with recent underwriting updates from the FHA and from Fannie Mae and it becomes clear that mortgage lenders are much more cautious about their loans than they were, say, 2 years ago.

Today's borrowers face a host of hurdles including:

• Higher minimum FICO scores
• Larger downpayment requirements for purchases
• Larger equity positions for refinances
• Lower debt-to-income ratios

In other words, mortgage rates may stay low into 2010, but that won't matter to homeowners that don't meet minimum eligibility standards.  With each passing quarter, that list gets smaller.

Therefore, if you're on the fence about whether now is a good time to buy a home, remember that, along with an increase in mortgage approval standards, home values are rising, too. 

Acting sooner is probably better than acting later.

Consider this a last call for FHA Streamline Refinances.  Starting next Tuesday, the popular rate-lowering program gets strict on borrowers.

There's 5 days left.

Under the current streamline refi guidelines, FHA homeowners have minimal program eligibility requirements.

• FICO scores must be 620 or higher
• The refinance must provide a "tangible benefit"
• No mortgage lates allowed in the last 12 months

Beyond that, everything else goes, practically.  There's no income, asset, or job verification with the current FHA Streamline program. Neither is there an appraisal requirement.  It doesn't matter if you're 50% underwater.

Until next week, that is. 

Beginning November 17, FHA Streamline Refinance applicants must show evidence of income and employment, plus proof of cash required to close. Furthermore, the FHA is limited loan-to-values to 97.75% for homeowners that want to "roll closing costs" into their mortgage.

In areas of declining home values, this may render refinancing impossible.

There's more changes, too, as highlighted by the Federal Housing Commissioner. Read up for yourself, or ask a mortgage professional for help.

If you're a homeowner and you're currently financed through the FHA, it may be prudent to explore the possibility of an FHA Streamline Refi.  Mortgage rates are low right now and FHA guidelines are loose.

Starting next week, FHA Streamlines will be a completely different beast.

Mortgage markets were extremely volatile last week, carving out a wide range between Monday and Friday. 

Thankfully for rate shoppers, the overall momentum was positive.

Mortgage rates fell for the second time in as many weeks. Rates still sit higher versus their early-October lows.

For pure "news", last week was a busy one:

• The Federal Reserve held the Fed Funds Rate near 0.000 percent
• The Unemployment Rate crossed 10 percent
• The First-Time Home Buyer Tax Credit was extended to April 2010

Combined, the 3 events reinforced the growing belief on Wall Street that the U.S. economy is in recovery, but not yet out of the woods.  This particular philosophy has been excellent for mortgage rates, helping to hold conforming 30-year fixed mortgage rates near 5.250 percent since the start of the year. 

It helped rates last week, too.  But low rates aren't without threats. 

For one, the Fed's vote to hold the Fed Funds Rate near 0.000 percent will eventually spark inflation concerns.  When it does, mortgage rates will rise. That won't be this week, though.

Actually, nothing may happen this week -- there's not much data to release.  Apart from a retail report, a confidence survey and some Fed speakers, the calendar is bare.  That, and Wednesday is a federal holiday.

However, without data, markets often trade on things like geopolitics, or energy concerns, or momentum.  In other words, don't be lulled into thinking rates won't change this week.

At least for now, the mortgage rates look good. By the end of the week, that may not be the case.

Congress both extended and expanded the First-Time Home Buyer Tax Credit program Thursday. 

The White House says the President will sign it into law today.

The up-to-$8000 tax credit's expiration date has been pushed forward to spring, requiring homebuyers to be under contract by April 30, 2010, and to be closed by June 30, 2010.

The program's basic eligibility requirements remain the same:

• Buyers can't purchase the home from a parent, spouse, or child
• Buyers can't purchase the home from an entity in which they're a majority owner
• Buyers can't acquire the home by gift or inheritance
• All parties to the purchase must meet eligibility requirements

The new law includes some notable updates, however. 

For one, the definition of "first-time home buyer" has been expanded to include most homeowners with at least 5 years in their current home.  "Move-up" buyers like these are now eligible for IRS tax credits, but with a cap at $6,500.

This means that you don't have to be a true first-time home buyer to claim the "first-time home buyer tax credit".

Other eligibility changes include:

• The subject property's sales price may not exceed $800,000
• The subject property must be a primary residence
• Income thresholds raised to $125,000 for single-filers and $225,500 for joint-filer

And remember, the First-Time Home Buyer program grants a tax credit as opposed to a deduction.  This means that a tax filer would receive a cash payment of $2,000 from the U.S. Treasury if his "normal" tax liability totals $6,000 and he was eligible for all $8,000 available under the new law.

The complete list of qualifying criteria is posted on the IRS website.  Be sure to review it with a tax professional to determine your eligibility.  Then mark your calendar for April 30, 2009.

It's 5 months away.