July 19, 2019

Cash Is Fueling Quick Home Sales

The bursting of last decade’s housing bubble feels like ancient history here, where first-time home buyers are competing with investors to get into single-family homes with prices approaching $1 million.

“It’s everyone from a kid out of law school to an investor from China, walking around with thousands to spend,” said Kameron Eliassian, a Los Angeles real estate agent. “I don’t know where it’s coming from, and I don’t care. Just show me proof that it’s there, and we’re good.”

After saving money for years, waiting for the residential real estate market to hit bottom, buyers all over the country appear eager to get back in, lured by low interest rates and the prospect of a good deal.

But with the number of homes for sale at historically low levels and large investors purchasing thousands of properties, buyers are facing a radically changed market and prices are quickly rising.

The percentage of homes bought with cash has shot up in many markets across the nation. Nearly a third of all homes purchased in Los Angeles during the first quarter of this year went for all cash, compared with just 7 percent in 2007. In Miami, 65 percent of homes sold were for cash deals, compared with 16 percent six years ago.

The prices on all-cash deals are also rising significantly. In Los Angeles, the median price on an all-cash home this year is about $351,000, compared with $230,000 in 2009. Over the same period, the median price over all increased to $410,000, up $85,000. In fact, last month, home prices in Southern California hit their highest level in the last five years.

All-cash buyers, typically investors eager to renovate and quickly resell or rent out homes, are making it more difficult for first-time buyers, who typically rely on mortgage loans that can take weeks or months to materialize. More California homes have been flipped in the last year than in any year since 2005.

And while Los Angeles may be a center of the frenzy, it is not an anomaly. Buyers in Boston are offering $100,000 more than the asking price or placing offers on homes they have spent only minutes in. In San Francisco, Miami and Phoenix, sellers are looking at dozens of offers within days of putting their home on the market, often accompanied by letters from would-be buyers professing their love for the property. New York City has seen similar drops in inventory, and prices have been rising steadily since 2009.

Shortly after Andres Alvarez, 36, got married last fall, he began to look for a home with his wife, figuring that their steady jobs, savings and good credit would make them the perfect buyers in Los Angeles. They were ready to spend $700,000. Their optimism deflated quickly.

“We thought we were the cream of the crop, but anything that was in our price range and move-in ready, there was this insane competition,” Mr. Alvarez said. They put in nearly a dozen bids, often losing to cash buyers, before finding a two-bedroom home for $650,000. “It might be a great time to buy, but it’s a horrible time to be a buyer,” he said.

Dick and Susan Yost can vouch for that. They wanted to downsize while leaving their home in Cambridge, Mass., to their son and his family. “We bid on eight places before we finally got one,” Mr. Yost said. “The worst we bid was $85,000 over the asking price, and we didn’t get it.”

Even unappealing homes, he said, had “people all over them.”

Still, there are plenty of skeptics wondering how long the sharp price increases can last.

“People are realizing we’ve probably hit bottom, but the kinds of spikes we’re seeing in places like California seems like history is repeating itself,” said Daren Blomquist of RealtyTrac, which monitors residential sales. “That’s not sustainable for the long term, at least not for the regular home buyer, so I think there are some warning flags there.”

For agents who spent the last several years scrounging for business, the change is welcome. When Mr. Eliassian listed a three-bedroom home in the Hollywood Hills for $699,000 this year, he worried that the current renters would make it difficult to schedule prospective buyers. But with just two open houses — one meant only for other agents — nearly 300 people came through.

“I had to turn the phone off to avoid people asking to see the place,” Mr. Eliassian said.

Within the week, he had six offers, and the home sold for $745,000. He said he had represented and sold homes to more cash buyers in the last year than at any other time in his career.

Article source: http://www.nytimes.com/2013/06/09/us/cash-is-fueling-quick-home-sales.html?partner=rss&emc=rss

High & Low Finance: Report Lays Out Plan to Reduce Government Role in Home Financing

It is amazing just how few people think it can.

“For the foreseeable future, there is simply not enough capacity on the balance sheets of U.S. banks to allow a reliance on depository institutions as the sole source of liquidity for the mortgage market,” stated a report on the American housing market this week, issued by a group that was filled with members of the housing establishment.

The panel, which included Frank Keating, the president of the American Bankers Association and a former governor of Oklahoma, does not see that as an indictment of the American banking system, which would much rather trade leveraged derivatives than keep a lot of mortgage loans on its books.

“Given the size of the market and capital constraints on lenders, the secondary market for mortgage-backed securities must continue to play a critical role in providing mortgage liquidity,” added the report, issued by a housing commission formed by the Bipartisan Policy Center, a group that was begun by former Senate majority leaders from both parties. The group thinks investors will not be willing to finance enough mortgages — particularly 30-year fixed-rate loans — without a government guarantee.

The report does an excellent job of analyzing the history of the American housing finance system, as well as looking at the government’s efforts over the years to promote and subsidize rental housing. It calls for changes in those policies as well, aimed at assuring that those with very low incomes “are assured access to housing assistance if they need it.”

But those rental proposals are unlikely to lead to legislation any time soon, said Mel Martinez, one of four co-chairmen of the housing panel. Mr. Martinez, a former Republican senator from Florida and housing secretary under President George W. Bush, said in an interview that any proposal calling for spending government money, as this one does, would face tough sledding in Congress.

But he said it was possible that changes in the housing finance system, which is widely criticized on both sides of the aisle, had a better chance of getting approval.

Certainly, one principle enunciated by the panel will get wide support: “The private sector must play a far greater role in bearing housing risk.” But the details show that the panel still thinks sufficient money can be found for housing only if Uncle Sam remains the ultimate guarantor for most home mortgages.

Currently, the government backs about 90 percent of newly issued mortgages, more than ever before. The proportion fell in the years leading up to 2007 as subprime loans proliferated and then soared after that market collapsed.

Since then, the Federal Housing Administration has expanded its role in backing home loans on the low end of the scale. But most mortgages are purchased by either Fannie Mae or Freddie Mac, the government-sponsored enterprises that the government took over after the housing bubble burst.

So-called jumbo mortgages, that is, mortgages too large to qualify for purchase by Fannie or Freddie, account for most of the rest. Some mortgages are put into securitizations that have no government guarantee, but many jumbo mortgages end up being owned by the banks for the long term.

The F.H.A. appears to be more cautious than it used to be. The report notes that last year the average FICO score for an F.H.A. or Department of Veterans Affairs loan was close to 720 on a range of 300 to 850. That is about what the average Fannie Mae and Freddie Mac borrower had in 2001.

The commission, whose other co-chairmen were George J. Mitchell, the former Senate Democratic leader; Christopher S. Bond, a former Republican senator; and Henry Cisneros, who served as housing secretary under President Bill Clinton, wants to preserve the F.H.A., but orient it more to those who need the most help. It would phase out Fannie and Freddie — something that is politically necessary — but replace them with something that sounds sort of similar.

The new organization would be called a “public guarantor.” It would guarantee that investors in mortgage-backed securitizations would not lose money, much as Fannie and Freddie now do. But its responsibility would come after that of a “private credit enhancer,” which sounds like a monoline insurer that would make payments to securitization holders if the underlying mortgages were performing badly. That organization would be regulated by the public guarantor, and only after it goes broke — something that should happen only if housing prices fall more than they did in the recent crisis — would the public guarantor be responsible for making investors whole.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

This article has been revised to reflect the following correction:

Correction: February 28, 2013

An earlier version of this column misstated the potential proportion of new mortgages that Mr. Martinez said he believed would eventually be financed by private capital. It is 40 to 55 percent, not 40 to 50 percent.

Article source: http://www.nytimes.com/2013/03/01/business/report-lays-out-plan-to-reduce-government-role-in-home-financing.html?partner=rss&emc=rss

U.S. Inquiry Eyes S.&P. Ratings of Mortgages

The investigation began before Standard Poor’s cut the United States’ AAA credit rating this month, but it is likely to add fuel to the political firestorm that has surrounded that action. Lawmakers and some administration officials have since questioned the agency’s secretive process, its credibility and the competence of its analysts, claiming to have found an error in its debt calculations.

In the mortgage inquiry, the Justice Department has been asking about instances in which the company’s analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S. P. business managers, according to the people with knowledge of the interviews. If the government finds enough evidence to support such a case, which is likely to be a civil case, it could undercut S. P.’s longstanding claim that its analysts act independently from business concerns.

It is unclear if the Justice Department investigation involves the other two ratings agencies, Moody’s and Fitch, or only S. P.

During the boom years, S. P. and other ratings agencies reaped record profits as they bestowed their highest ratings on bundles of troubled mortgage loans, which made the mortgages appear less risky and thus more valuable. They failed to anticipate the deterioration that would come in the housing market and devastate the financial system.

Since the crisis, the agencies’ business practices and models have been criticized from many corners, including in Congressional hearings and reports that have raised questions about whether independent analysis was corrupted by the drive for profits.

The Securities and Exchange Commission has also been investigating possible wrongdoing at S. P., according to a person interviewed on that matter, and may be looking at the other two major agencies, Moody’s and Fitch Ratings.

Ed Sweeney, a spokesman for S. P., said in an e-mail: “S. P. has received several requests from different government agencies over the last few years. We continue to cooperate with these requests. We do not prevent such agencies from speaking with current or former employees.” S. P. is a unit of the McGraw-Hill Companies, which is under pressure from some investors and has been considering whether to spin off businesses or make other strategic changes this summer.

The people with knowledge of the investigation said it had picked up steam early this summer, well before the debt rating issue reached a high pitch in Washington. Now members of Congress are investigating why S. P. removed the nation’s AAA rating, which is highly important to financial markets.

Representatives of the Justice Department and the S.E.C. declined to comment, as is customary for those departments, on whether they are investigating the ratings agencies.

Even though the Justice Department has the power to bring criminal charges, witnesses who have been interviewed have been told by investigators that they are pursuing a civil case.

The government has brought relatively few cases against large financial concerns for their roles in the housing blowup, and it has closed investigations into Washington Mutual and Countrywide, among others, without taking action.

The cases that have been brought are mainly civil matters. In the spring, the Justice Department filed a civil suit against Deutsche Bank and one of its units, which the government said had misrepresented the quality of mortgage loans to obtain government insurance on them. Another common thread — in that case and several others — is that no bank executives were named.

Despite the public scrutiny and outcry over the ratings agencies’ failures in the financial crisis, many investors still rely heavily on ratings from the three main agencies for their purchases of sovereign and corporate debt, as well as other complex financial products.

Companies and some countries — but not the United States — pay the agencies to receive a rating, the financial market’s version of a seal of approval. For decades, the government issued rules that banks, mutual funds and others could rely on a AAA stamp for investing decisions — which bolstered the agencies’ power.

A successful case or settlement against a giant like S. P. could accelerate the shift away from the traditional ratings system. The financial reform overhaul known as Dodd-Frank sought to decrease the emphasis on ratings in the way banks and mutual funds invest their assets. But bank regulators have been slow to spell out how that would work. A government case that showed problems beyond ineptitude might spur greater reforms, financial historians said.

Article source: http://www.nytimes.com/2011/08/18/business/us-inquiry-said-to-focus-on-s-p-ratings.html?partner=rss&emc=rss

Despite Uptick in March, Home Building Remains Slow

The Commerce Department said on Tuesday that home construction rose 7.2 percent in March from February to a seasonally adjusted 549,000 units a year. Building permits, an indicator of future construction, rose 11.2 percent after hitting a five-decade low in February.

Still, the building pace is far below the 1.2 million units a year that economists consider healthy. And March’s improvement came after construction fell in February to its second-lowest level on records dating back more than a half-century.

Millions of foreclosures have forced home prices down. In some cities, prices are half of what they were before the housing market collapsed in 2006 and 2007. And more foreclosures are expected this year. Tight credit has made mortgage loans difficult to get, and many would-be buyers who could qualify for loans are reluctant to shop, fearing that prices will fall even further.

A sign of the battered industry is the number of new homes finished and ready to sell dropped in March to a seasonally adjusted 509,000 units, the lowest level on records dating back to 1968. And the number of homes now under construction has fallen to a four-decade low.

Single-family homes, which make up roughly 80 percent of home construction, rose 7.7 percent in March. Apartment and condominium construction rose 14.7 percent. Building permits increased to the highest level since December, spurred by a more than 28 percent jump in permits granted for apartment and condo buildings.

The increase in home construction activity was felt in most regions of the country. It rose 32.3 percent in the Midwest, 27.6 percent in the West and 5.4 percent in the Northeast. Construction fell 3.3 percent in the South.

The National Association of Home Builders, the trade group, said Monday that its index of industry sentiment for April fell one notch, to 16. That followed a one-point increase in March and four months of 16 readings. Any reading below 50 indicates negative sentiment about the housing market’s future; the index has not been above that level since April 2006.

Most economists expect home prices — and by extension home sales and construction — to slip even further in 2011 before a modest recovery takes hold.

Article source: http://feeds.nytimes.com/click.phdo?i=a8a7c77b1636b643ac4df455e8dc3131

U.S. Housing Construction Rose 7.2% in March

Builders broke ground last month on the most new homes in six months, giving the weak housing market a slight lift.

The Commerce Department said on Tuesday that home construction rose 7.2 percent in March from February to a seasonally adjusted 549,000 units a year. Building permits, an indicator of future construction, rose 11.2 percent after hitting a five-decade low in February.

Still, the building pace is far below the 1.2 million units a year that economists consider healthy. And March’s improvement came after construction fell in February to its second-lowest level on records dating back more than a half-century.

Millions of foreclosures have forced home prices down. In some cities, prices are half of what they were before the housing market collapsed in 2006 and 2007. And more foreclosures are expected this year. Tight credit has made mortgage loans difficult to get, and many would-be buyers who could qualify for loans are reluctant to shop, fearing that prices will fall even further.

A sign of the battered industry is the number of new homes finished and ready to sell dropped in March to a seasonally adjusted 509,000 units, the lowest level on records dating back to 1968. And the number of homes now under construction has fallen to a four-decade low.

Single-family homes, which make up roughly 80 percent of home construction, rose 7.7 percent in March. Apartment and condominium construction rose 14.7 percent. Building permits increased to the highest level since December, spurred by a more than 28 percent jump in permits granted for apartment and condo buildings.

The increase in home construction activity was felt in most regions of the country. It rose 32.3 percent in the Midwest, 27.6 percent in the West and 5.4 percent in the Northeast. Construction fell 3.3 percent in the South.

The National Association of Home Builders, the trade group, said Monday that its index of industry sentiment for April fell one notch, to 16. That followed a one-point increase in March and four months of 16 readings. Any reading below 50 indicates negative sentiment about the housing market’s future; the index has not been above that level since April 2006.

Most economists expect home prices — and by extension home sales and construction — to slip even further in 2011 before a modest recovery takes hold.

Article source: http://feeds.nytimes.com/click.phdo?i=3f2fc2a4ca7e3183d0d5cf35810603ca

High & Low Finance: A Flaw in New Rules for Mortgages

That fact was central to the Obama administration’s proposals to fix the housing finance market a couple of months ago, but it seems to have been forgotten by a collection of regulators that proposed rules this week on when banks will not have to retain risks for loans they make.

Perhaps inadvertently, they gave Fannie Mae and Freddie Mac, the government-run housing finance agencies, another competitive advantage. That is exactly the opposite of what needs to be done.

The proposals are generally good. They force lenders to shoulder some of the risk when they securitize all but the safest mortgages. That is what the Dodd-Frank law required, and for good reason. One of the big problems we had leading up to the crisis was that many lenders believed they could profit by making loans while leaving others to suffer if the loans went bad.

But where is that risk to be retained? The law says it should be retained by lenders or securitizers; an unwieldy group of regulators is left to fill in the details. The regulators are also supposed to determine what constitutes a “qualified residential mortgage” — one that is so safe that the lender need not retain any of the risk.

It was those issues that the regulators addressed this week. They decided that “Q.R.M.’s,” as they are called, had to be very conservative, with 20 percent down payments and strict limits on leverage. That is good. If mortgage loans do not meet the highest standards, somebody involved in making the loans should be responsible if they blow up.

Much of the criticism of the proposed new rules seems to assume that no mortgage loans will be made at all if lenders have to keep some of the risk.

“By mandating a 20 percent down payment on qualified residential mortgages, the administration and federal regulators are excluding those without huge cash reserves — which constitutes most first-time home buyers and many middle-class households — from a chance to buy a home,” said Bob Nielsen, a home builder from Nevada and chairman of the National Association of Home Builders.

Regrettably, some consumer advocates have joined in that chorus.

What should happen, said Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation and one of the regulators involved in the proposal, is that “Q.R.M. loans will be a small part of the market,” and other loans will be made by lenders who do have “skin in the game.” The proposal asks for discussion of ways that can be accomplished without forcing banks to tie up excessive amounts of capital.

“Economic incentives,” she said, “are the best check against lax underwriting standards.”

Consider how absurd this debate would have seemed a few decades ago. Then you got a mortgage loan from a bank, which stood to profit if you made your payments and risked loss if you did not. Imagine arguing that no bank would lend if it had to take a risk. What business, people would have asked, did banks think they were in?

Over the decades, banks got out of the habit of actually owning loans. Instead, the loans were securitized, with investors putting up the money. Some loans went to Fannie Mae and Freddie Mac, so-called government-sponsored enterprises, whose securities were widely viewed as backed by the federal government. Others were securitized by Wall Street firms.

Investors should have monitored the quality of the loans — just as Fannie and Freddie should have — but they did not. Lower rungs of those securities would take losses if there were a lot of defaults, but senior tranches were deemed completely safe by bond rating agencies, who assumed that losses would never rise to those levels.

You know what happened. Easy money led to excessive lending and soaring home prices. That led to overbuilding. Mortgages were written on terms that lenders knew home buyers could not really afford. The borrower would pay less than the interest owed for a while, and then payments would soar. It was assumed that a homeowner facing those high payments would either sell the home or refinance the mortgage, creating more fees and more mortgages to securitize.

Article source: http://feeds.nytimes.com/click.phdo?i=f9c32506d452098e59f43d66de0b92f3