[xtypo_dropcap]O[/xtypo_dropcap]ne can almost hear a sigh of relief from the real estate sector when positive reports regarding housing sales and prices are released.
The Royal Bank of Canada (RBC) recently announced that U.S. property sales bounced back in November with 5.5 percent more properties sold than in October.
October was a daunting month for the U.S. real estate sector, with housing sales sliding down by 10.7 percent over the prior month.
The November monthly housing results suggested that housing sales statistics “continued to provide evidence that the market, while still operating at historically low levels of activity, continues to stabilize in the fourth quarter of 2010,” according to RBC.
Under-Reporting Shadow Inventory
Property inventory is called “shadow inventory” in real estate terms because the true number of foreclosed homes is not known. Apparently, neither the private sector nor public entities collect foreclosure information from small lenders in rural areas.
“Nobody knows how many rural homeowners are facing foreclosure or have lost their homes during the housing crisis because we don’t collect data from small lenders or lenders that operate exclusively in rural areas. Nor do we know trends in defaults and delinquencies,” according to a recent article on the Real Estate Economy Watch website.
In 2010, an estimated 2.25 million home foreclosures were reported to the U.S. Federal Reserve System, while the numbers will increase to more than 4.25 million in 2011. But, as discussed, these numbers are incomplete, as rural area foreclosures are not reported to the Fed.
The Fed depends on numbers that are collected under the power of the Home Mortgage Disclosure Act (HMDA). In 2010, under HMDA, about 8,124 mortgage lenders disclosed 19.5 million loan packages, which are used to assess the availability of loans to the public, without any lenders from the rural areas providing input.
“HMDA exempts lenders that operate exclusively in nonmetropolitan areas and lenders with assets less than $39 million in 2010, 70 percent of which are headquartered in rural counties and likely represent one of the only sources of credit in some communities,” according to Real Estate Economy Watch.
Estimates are that in 2009, more than 80 percent or more than 3,000 lending institutions were located in rural areas and owned fewer than $250 million in assets in total. Therefore, these lending institutions did not need to report housing foreclosures to the Federal Reserve, HMDA, or HUD (Department of Housing and Urban Development).
Additionally, many premanufactured houses, which should be included in statistics reported by HMDA since 2002, have dropped off the radar screen. Credit risks for such houses are greater than for homes built from scratch, yet foreclosures are under-reported.
It is hoped that the Dodd-Frank Wall Street Reform and Consumer Protection Act will provide relevant foreclosure and other real estate statistics to the public. Signed into law by President Barack Obama on July 21, this act contains a provision that calls for the creation of a default and disclosure database to be controlled by HUD and the Consumer Financial Protection Bureau (CFPB).
Real Estate Inventory Rising
Real Estate Inventory Rising
“The total number of delinquent loans is nearly 2.1 times historical averages—and foreclosure inventory is currently at 7.7 times historical averages,” according to a November LPS Mortgage Monitor Report.Foreclosed inventory properties that were supported by a jumbo prime loan—a loan that exceeds the loan threshold set by Fannie Mae and Freddie Mac—are close to seven times higher than in 2008.
Inventories that had been supported by an agency prime loan, a loan that conforms to the threshold set by Fannie Mae and Freddie Mac, exceed 2008 foreclosed property inventories by six times.
Foreclosed inventories that were supported by an option ARM loan, which is an adjustable rate mortgage, has increased five times since 2008.
The true inventory number of foreclosed homes, as mentioned above, is not clear. But foreclosure inventories have increased every month since the end of July. The U.S. foreclosure inventory rate is at 4.08 percent.
RBC states that U.S. property inventories have decreased from an index of 8.8 in October to 8.2 in November.
“While months’ supply remains elevated compared to pre-recession averages, it is still well below the peak of 12.1 months in January 2009,” according to RBC.
Numbers differ depending on who does the reporting. The total U.S. housing inventory in November indicates that the housing inventory decreased by 4 percent in November, with 3.71 million homes available, according to the National Association of Realtors (NAR).
Suggesting that this is a buyer’s market, Ron Phipps, president at NAR, said in a recent statement, “Traditionally there are far fewer buyers competing for properties at this time of the year, so serious buyers have a lot of opportunities during the winter months.”
He continued to say that the housing market will continue to benefit buyers. “Buyers will enjoy favorable affordability conditions into the new year, although mortgage rates are expected to gradually rise as 2011 progresses.”
Real Estate Market Insights
Survey “respondents are split over whether the real estate market will show better times in the coming New Year,” according to the Housing Predictor website.Despite low mortgage rates, 63 percent of those polled don’t have high hopes for 2011, explaining that they were uncertain about the U.S. economy and tougher lending underwriting standards.
Housing prices are sliding down again, according to the December S&P/Case-Shiller Home Price Indices. This index tracks variations in U.S. housing prices and is reported every third month.
“The trends we have seen over the past few months have not changed. The tax incentives are over and the national economy remained lackluster in October, the month covered by these data. Existing homes sales and housing starts have been reported for both October and November, and neither is giving any sense of optimism,” said David M. Blitzer, chairman of the S&P Index Committee, in a statement released Dec. 29, 2010.
