2012 – the year of the short sale?

By Tom Tryon:  “Here is the real-time tale of two real estate markets.  One market is depressed and distressed.  Property values are down. Since mid-2006, residential values in Florida have declined by 51%.  Hundreds of thousands of properties have been, or are, in foreclosure and huge numbers of homes have been repossessed.  Consider these statewide numbers, presented by analyst Jack McCabe during last week’s Herald-Tribune Hot Topics forum:

–  150,000 residential properties in Florida have been repossessed, and are owned, by banks.

–  371,000 foreclosure cases are open in courts.

–  530,000 residential mortgage loans are at least 90 days past due and in default.

–  265,000 homeowners have not made a mortgage payment in more than two years.

–  1 million residences are in some form “distressed,” whether in foreclosure, owned by banks or in default.

–  46% of mortgages “under water” – in other words, the debt exceeds the current market value of the residential property.

Add this number – 809, the average number of days to process a foreclosure in Florida – and it’s easier to understand why so-called short sales, in which owners and mortgage holders sell at steep losses, are viewed as advantageous options and positive movements in the total market.  The overriding question posed during the forum was: Will 2012 be the Year of the Short Sale? The answer, expressed by the overwhelming consensus of McCabe, the guest speaker, the panel – Michael Braga and Harold Bubil of the Herald-Tribune; attorneys Nancy Cason and Tom Avrutis – and audience was: Yes.  There was one caveat: 2013 might be the Second Year of the Short Sale. That’s because the volume of pending foreclosures — and the imminent threat of even more, could make it impossible to clear this “shadow inventory” from the real estate market.  There was widespread agreement among the 150 people — analysts, lawyers, bankers, real estate agents and developers — who attended the forum that more lenders are warming to short sales, despite the bottom-line effects of writing off losses.  What’s more, the homeowners in financial peril are overcoming the psychological hurdles – and coming to terms with the financial implications of – short sales.

The real estate market is so complex that it’s impossible to cover in a multi-day symposium, much less a 90-minute forum. But I took away two simple points:  1)  The current market is like a summer day in Florida: Dark and cloudy during one part of the day, with scattered sunshine and the possibility of bright days ahead; 2)  It’s no wonder my wife and I have stayed in the same home for 25 years; real estate makes my head spin.”

Oil prices on the way up

Oil prices are poised to gain for the third straight week, undermining global equity market sentiment and threatening the fragile economic recovery.  A CNBC poll of analysts and traders showed 12 out of 16 respondents, or 75%, expect oil prices to rise this week. Three believe prices will fall and one expects no change. Though the bulls comprise the overwhelming majority, many are lightening long positions, or bets that prices will rise, as they believe the recent rally is showing signs of fatigue.  “You have to trade from the buy side but I would be reducing my long positions ahead of the weekend,” said Tom James, Chairman & Co-Founder, Navitas Resources, in an email on Thursday. “The fundamentals in the physical market don’t support the current short term price.” James added that he was looking to add long positions on any pullback in Brent crude to $115. “Target for the year is now $150 on longer term basis for Brent.”

Numerous respondents this week are warning higher retail gasoline prices could threaten the fragile economic recovery in the US David Kotok, chairman and chief investment officer, of Cumberland Advisors said an additional penny a gallon on gasoline translates roughly to a $1.4 billion decrease in US annual spending power. The average US price of gasoline jumped 18 cents a gallon in the past two weeks to $3.69 on Feb. 24, according to the nationwide Lundberg Survey, Reuters reported.  But supplies of fuel remained plentiful in most of the country, the survey found.  At $4.24 a gallon, San Diego had the highest average price for regular unleaded gasoline on Feb. 24, while the lowest price was $3.07 a gallon in Denver.  Some believe gasoline prices may average $4.50 a gallon or as high as $5.00, damaging demand ahead of the peak summer driving season.

Olick – builders say good market trumps energy prices

“Sales of newly built homes are still stumbling along at historically low levels, but builders claim they are beginning to see the light at the end of a very long tunnel.  Sales may not be surging back, but in some of the better local economies, buyer interest is.  We saw it at open houses over the President’s Day weekend, and it’s starting to show up on line even more dramatically. Virginia-based NewHomesGuide.com, the website of New Homes Guide magazine, saw a 46% jump in unique visitors from December 2011 to January 2012 and a 47% jump from one year ago. Page views were up 59%.  ‘We always see a seasonal jump in January,’ said Publisher, Leslie Stritmatter in a press release, ‘but the increases from the same period last year show this to be a much more significant bounce. I’m very hopeful that this is a sign of consumer confidence returning to the markets.’  Consumer sentiment is improving. ‘Right now the improving labor market trumped rising gasoline prices in influencing confidence, which is good in that new jobs and wages can help cushion the blow of an ever rising cost of living,’ says analyst Peter Boockvar at Miller Tabak.

When it comes to housing, the same may be true of high affordability, improving employment, better confidence, record-low mortgage rates and lower-priced homes; they all trump rising gasoline prices.  ‘We don’t think there’s going to be a big impact from gas prices because we have so many forces taking us to recovery,’ says Richard Kettler of Kettler/Forlines Homes. Kettler says they have seen a substantial increase recently in the number of visits to his homes, which largely straddle the suburbs and exurbs of Washington, DC.  ‘The attitude of the home buyer is much better, they’re more excited,’ he adds. He also notes there is now suddenly more interest in larger homes, not McMansions, but moving from the 2 thousand square foot range to 3000.  Higher gas prices may not hit buyer demand overall, but they will affect some choices.  ‘We are more sensitive today because of the economic scenario we are still recovering from,’ says Mark Fleming, chief economist at CoreLogic. ‘From a housing perspective, this impacts the exurban communities, as an increased cost of living will reduce demand to buy homes, and these are the same communities hit the hardest by the housing crash anyway.’  A study by the Federal Reserve in 2010 found that a 10% increase in gas prices reduces home construction by 10% after four years in locations with a long average commute time, compared with other locations.

The effect of higher gas prices on home buyers will depend on how long the spike lasts. If consumers think it’s temporary, they won’t factor it as much into their decision.  There are, however, continuing obstacles to the new home market. Sales are still barely above where they were last year, and last year was the worst on record for the nation’s builders. This despite all the stimulus in the market.  And as I’m writing this, Mr. Kettler just came out of his office, grumbling that one of his sales is being held up by an appraisal that came in too low.”

Debt ceiling fight on the way

Remember the bitter debt ceiling debate in Washington last summer?  Well, another showdown could be in the offing sooner than planned.  The deal cut this summer to end the debt ceiling standoff provided for a $2.1 trillion increase in the country’s legal borrowing limit, which now stands at $16.394 trillion.  At the time, it was estimated that such an increase could carry the Treasury Department safely beyond the contentious presidential election season and into early 2013.  But now that Congress has extended the payroll tax cut, emergency unemployment benefits and the so-called Medicare doc fix — only some of which was paid for – there is a greater chance that US borrowing could reach the debt ceiling sooner.  Treasury Secretary Tim Geithner recently told lawmakers that even with passage of the payroll tax bill – which will add an estimated $101 billion to deficits in fiscal year 2012 — he doesn’t expect the debt limit to be reached “until quite late in the year.”  That’s a hair past the Nov. 6 election but smack dab in the middle of the fiscal firefight that Congress is expected to have over the expiring Bush tax cuts.

Meanwhile, the Bipartisan Policy Center, which analyzed projected monthly deficits and other factors that could play a role in Treasury’s borrowing, now projects that the debt ceiling could be hit between late November 2012 and early January 2013.  Of course, if need be, the Center notes that Treasury could still avert a US default by employing “extraordinary measures” — such as suspending investments in federal retirement funds.  So even if Treasury is at risk of hitting the ceiling at the end of November, it’s possible that its moves could take the risk of default off the table until early 2013.  Keep in mind, though, that these estimates assume nothing material changes between now and the end of the year to increase federal borrowing.  But if there are any surprises along the way — such as a slowdown in the economic recovery that puts a crimp in federal revenue, or more unpaid-for legislation — the debt ceiling could be hit before Election Day, said longtime political observer Norm Ornstein, a resident fellow at the American Enterprise Institute.  Either way, the presidential election, the pending expiration of the Bush tax cuts and the debt ceiling are a combustible mix. And it’s impossible to predict the endgame for any of them yet. Much will depend on when the ceiling is breached and who wins the election, Ornstein said.

Florida’s “category 5” foreclosure problem

Already facing overloaded dockets of criminal and civil cases, Florida’s court system is getting hit by a deluge of foreclosures that could tie up the state’s legal system for years to come, according to nationally prominent lawyer.  “It’s Florida’s Category 5 foreclosure hurricane,” said Kendall Coffey, a legal expert and author of “Foreclosures in Florida,” a book he discussed during a Space Coast Tiger Bay Club dinner in Cocoa Beach.  “Collateral damage can be seen in every sector of life,” he said. “The collapsing real estate market inflicted waves of unemployment, massive losses in the financial and real estate industries, and an untold human cost for the families forced out of homes auctioned at public sales. The mortgage meltdown has also battered local governments with a deteriorating tax base.” There are 368,000 pending home foreclosures in the state, and that number could double by 2016, Coffey said.  “In contrast to most states that employ abbreviated processes for deeding the mortgaged property back to the lender, every foreclosure action in Florida is a lawsuit governed by the same rules for pleadings and court hearings that apply to other civil litigation,” said Coffey, who added the average foreclosure in Florida takes 806 days. “We’re not just going to hand it over to the lender.”

“Foreclosures in Florida” details aspects of Florida law along with legal and practical strategies for lenders and borrowers embroiled in default issues, work-outs and litigation over troubled mortgage loans.  Coffey is partner in the Coffey Burlington law firm in Miami and has a home in Brevard County. He’s a former US attorney, legal analyst for the CNN, MSNBC and Fox networks and author. He was among the lawyers representing Al Gore during the 2000 presidential election recount dispute. His latest book, “Spinning the Law,” looks at the art of trying cases in the court of public opinion.  The foreclosure crisis that began with skyrocketing default notices in 2006 has engulfed the nation, but hit Florida especially hard. Half of state’s homes are “underwater,” meaning owners owe more on their mortgages than their home is worth.  The state’s real estate driven economy is generating floodtides of litigation and has spawned an industry of foreclosure defense lawyers who rely on overwhelmed court dockets to stave off foreclosure and keep clients in their homes, Coffey said.  “Florida still has and will have one of the slowest rates of foreclosure in the country,” he said.  How will the consumer fare?  “Ultimately,” Coffey said, “homeowners will lose a contested foreclosure in the overwhelming majority of cases.”

More buyers paying with cash

Even more American homebuyers are paying cash to acquire homes, according to a new survey from Campbell/Inside Mortgage Finance. The group’s HousingPulse Tracking Survey said between October and January, the number of homeowners purchasing residences with cash grew from 30.8% to 34.1%.  This trend is occurring at a time when mortgage rates are holding low. The survey noted that all-cash buyers are getting discounts of approximately 10%.  Homebuyers who turned to cash purchases are doing so because of the slow underwriting process late appraisals and long-wait times when dealing with certain loans, the report said.  “It is taking about 60 days to close a non-troubled FHA loan. About 30 days longer than usually a year ago,” an agent in Florida told the survey team.  To release its report, the Campbell/Inside Mortgage Finance HousingPulse Tracking survey interviewed 2,500 real estate agents across the country.

See you at the top! Chris McLaughlin

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