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Foreclosure-ridden states top Trulia's 'Housing Misery Index'
Despite the approach of "Super Tuesday" elections on March 6, it is unlikely that candidates in the Republican presidential primary race will focus much on housing until June, according to real estate search and marketing site Trulia.
That's because, of the four states hardest hit by the housing crisis, three -- Nevada, Florida and Arizona -- have already had their primaries. The fourth, California, has its primary June 5.
"If candidates want to talk about what voters want most, they should focus on housing issues where it's clearly a pain point for voters. This means that ... we probably won't hear much about housing from the presidential candidates again until the summer," said Jed Kolko, Trulia's chief economist, in a blog post.
In order to figure out which states are suffering the most from the housing downturn, Trulia developed a Housing Misery Index that adds together the percentage change in home prices from their peak through fourth-quarter 2011, from the Federal Housing Finance Agency (FHFA), and the percent of mortgages either severely delinquent (by 90 days or more) or in foreclosure as of fourth-quarter 2011, from CoreLogic. Trulia Housing Misery Index: Top 10 'most miserable' states
Housing Misery Index
Foreclosure hotspots Nevada, Florida, Arizona and California were rated more "miserable" by far than other states, according to the index. Among the top 10 hardest-hit states, three -- Washington, Georgia and Idaho -- will have their primaries within the next week.
The number of "underwater" homeowners grew by about 400,000 during the final three months of 2011, to 11.1 million, as home prices fell as a result of seasonal declines and a slowdown in processing homes through the foreclosure process, data aggregator CoreLogic said today.
CoreLogic said 22.8 percent of all residential properties with a mortgage were in negative equity at the end of the fourth quarter of 2011, compared to 22.1 percent at the end of September.
Add another 2.5 million borrowers who had less than 5 percent equity in their homes, and 27.8 percent of homes are either underwater or in danger of becoming so in the event of further price declines.
"The high level of negative equity and the inability to pay is the 'double trigger' of default, and the reason we have such a significant foreclosure pipeline," said CoreLogic Chief Economist Mark Fleming in a statement.
The economic recovery will increase the ability of homeowners to pay their mortgages, but negative equity will take longer to improve, so "if there is a hiccup in the economic recovery, it could mean a rise in foreclosures."
Nevada had the highest negative equity percentage with 61 percent of all of its mortgaged properties underwater, followed by Arizona (48 percent), Florida (44 percent), Michigan (35 percent) and Georgia (33 percent).
The top five states combined had an average negative equity share of 44.3 percent, while the remaining states had a combined average negative equity share of 15.3 percent.
Among the 4.4 million underwater borrowers with second loans, the combined mortgage debt was $306,000 on a home worth $84,000 less, on average, for a combined loan-to-value (LTV) ratio of 138 percent.
The 6.7 million underwater borrowers who had no second loan were better off, with an average mortgage balance of $219,000 on a home worth $51,000 less, or a LTV ratio of 130 percent.
The Obama administration's removal of a 125 percent LTV cap on the Home Affordable Refinance Program (HARP) means that more than 22 million borrowers would be eligible for the program it LTV were the only factor (only loans owned or guaranteed by Fannie and Freddie qualify for HARP, which also has minimum debt-to-income and other eligibility requirements).
According to surveys of lenders by the Mortgage Bankers Association, about 80 percent of loan applications are for refinancings, and more than 20 percent of requests to refinance last week were for HARP loans.
As for whether housing prices are headed for further declines, recent data suggest that the answer to that question depends on where a home is located and whether it or nearby properties are sold as "distressed," Daniel Hartley, a research economist with the Federal Reserve Bank of Cleveland, noted in a recent report.
When distressed sales are excluded, CoreLogic home price indexes show average and median prices falling about 1 percent in the 50 larges U.S. markets in 2011, Hartley said. Prices fell in half of those markets, with Las Vegas experiencing the steepest decline of -8.5 percent.
But when distressed sales are included in the analysis, average and median prices fell by 3 percent in those markets, with 38 markets posting declines. In the metro Chicago area, prices were down 11.8 percent if distressed sales are included.
The proportion of distressed sales in each market varied widely, from a low of 9 percent in Nassau and Suffolk Counties of New York up to 68 percent in Las Vegas.
On average, though, the percentage of distressed sales has stabilized in many markets, and price declines have moderated, which "could be a hopeful sign for homeowners and policymakers concerned about the detrimental effects of distressed sales on nondistressed property values," Hartley concluded.
Tight lending standards remain a factor as spring buying season approaches
Mortgage rates eased this week, remaining at or near record lows as the spring homebuying season approaches, Freddie Mac said in releasing the results of its weekly Primary Mortgage Market Survey.
While low rates boost affordability, many would-be buyers are still unable -- or unwilling -- to finance a home purchase.
"Fixed mortgage rates bottomed out in January and February of this year, which is helping spur the housing market," said Frank Nothaft, Freddie Mac chief economist, in a statement. Pending sales of existing home rose in January to the strongest pace since April 2010, and sales figures for December saw upward revisions, he noted.
Testifying before the House Financial Services Committee on Wednesday, Federal Reserve ChairmanBen Bernanke noted that affordability has "increased dramatically" as a result of the decline in house prices and historically low mortgage rates.
A pickup in construction in the multifamily sector and recent increases in homebuilder sentiment are also encouraging, Bernanke said.
"Unfortunately, many potential buyers lack the down payment and credit history required to qualify for loans; others are reluctant to buy a house now because of concerns about their income, employment prospects, and the future path of home prices," Bernanke said.
"On the supply side of the market, about 30 percent of recent home sales have consisted of foreclosed or distressed properties, and home vacancy rates remain high, putting downward pressure on house prices."
A survey by the Mortgage Bankers Association showed demand for purchase loans was down 4.3 percent compared to a year ago during the week ending Feb. 24. Requests to refinance accounted for 77.9 percent of all mortgage loan applications. Fannie Mae's survey showed rates on 30-year fixed-rate mortgages averaged 3.9 percent with an average 0.8 point for the week ending March 1, down from 3.95 percent last week and 4.87 percent a year ago. Rates on 30-year fixed-rate mortgages hit a low in records dating to 1971 of 3.87 percent during three consecutive weeks in February.
For 15-year fixed-rate loans, rates averaged 3.17 percent with an average 0.8 point, down from 3.19 percent last week and 4.15 percent a year ago. Rates on 15-year loans hit an all time low in records dating to 1991 of 3.14 percent during the week ending Feb. 2.
Rates on 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 2.83 percent with an average 0.7 point, up from 2.80 percent last week but down from 3.72 percent a year ago. Last week's rate was a low in records dating to 2005.
For 1-year Treasury-indexed ARM loans, rates averaged 2.72 percent with an average 0.6 point, down from 2.73 percent last week and 3.23 percent a year ago. That's a new low in records dating to 1984.
The duplex close to the university campus was too good for Harvey Blanks to pass up.
acquaintance of mine for more two decades and a longtime real estate
investor, Blanks had been in a holding pattern for the past 18 months,
waiting for more positive signs in home sales. However, he signed an
agreement on Jan. 4 to purchase the duplex, believing the deal was a
"It's not just about the built-in rental pool that
will always be there because of the university," Blanks said, "but the
building's in great shape and the seller needed to get out of it. The
timing isn't great for me, but it's a great long-term play."
timing wasn't great for Blanks because he had intended to sell another
one of his properties via a tax-deferred exchange in order to purchase
the duplex. Taxpayers can defer capital gains tax by selling one
investment property and then buying another investment property of equal
or greater value within certain time frames.
can still get his tax-deferred deal done by taking an extra step. The
tax-deferred exchange process can be reversed if the title to the "new"
property (in this case, the duplex) is held by an independent third
party (typically a facilitator or attorney) until the "old" property
sale closes. The old property in this case is another one of Blanks'
properties he had listed for sale but had yet to sell.
1031 of the tax code specifically requires that an exchange take place.
That means that one property must be exchanged for another property,
rather than sold for cash. The exchange is what distinguishes a Section
1031 tax-deferred transaction from a sale and purchase. The exchange is
created by using an intermediary (or exchange facilitator) and the
required exchange documentation.
Since the reverse exchange
takes an extra step to accomplish, the process can be more expensive
than the typical Section 1031, or Starker, exchange. The reverse
procedure, however, provides the same "safe harbor" protection for
reverse exchanges that delayed exchanges enjoy.
2000-37, which allows the reverse exchange, was added to the tax code
mainly because investors were losing tax-deferred status at the last
minute for circumstances beyond their control.
For example, a
buyer who has filled out all the proper exchange forms and adhered to
the proper time frames is scheduled to close the sale of one property
on Tuesday and roll the funds into the purchase of another property on
Thursday. On Monday, he learns that the buyer of his "old" property
must delay the purchase for a couple of weeks because the buyer's
lender needs additional information before it will fund the loan.
seller of the "new" property understands the problem and agrees to
extend escrow on the "new" property. (Sometimes, sellers demand that
the deal close as the two parties agreed, or the seller will sell the
property to someone else and keep the earnest money.)
situation, the buyer's best alternative is to do a reverse exchange and
have a qualified intermediary (or exchange facilitator) take title to
the new property and hold, or "park" it until the old property closes.
Then, the intermediary transfers the new property to the seller to
complete the exchange. These "parking" arrangements are the main
ingredients of the reverse exchange procedure.
Section 1031 will not let a taxpayer buy the replacement property, or
new property, until after he or she has sold the old, or relinquished,
property. Typically, a replacement property must be identified within
45 days of the sale of the "old" property. And, the sale of the
replacement property must close within 180 days of the sale of the
One of the challenges with the reverse exchange
has been extra cash. If the buyer does not have the extra cash
elsewhere to buy the replacement property, will lenders finance the
property with the facilitator holding title?
have extended funds for a specific period of time to the facilitator as
long as the loan is secured by the person making the exchange. And, as
mentioned, sellers have been known to extend the closing period on
If you are attempting a reverse exchange,
it's best to hire a professional third party to handle the process. An
exchange specialist has been there before and knows what the IRS wants