Analyst Predicts Home Price Decline In Report to White House

Former Goldman Sachs executive Joshua Pollard sent a sobering 18-page report to the White Houseon September 17 warning of a potential downturn in home prices that could put the country back into a recession before the ripples of the previous one settle.

According to Pollard, the former head of the Goldman's housing research team, home price appreciation is outpacing income, and the United States is on the brink of a 15 percent decline in home prices over the next three years. Rising interest rates and values will cause already overvalued homes (Pollard says values are 12 percent higher than they should be) to be even further out of sync with reality and generate an unnatural surplus that will itself lead to a slowdown in investor purchases.

Flipped homes have declined 50 percent in the last year, and home flippers are losing money outright in New York City, San Francisco, and Las Vegas according to the report.

If Pollard is correct, the impact on the U.S. economy would be seismic. Overvalued homes, according to his report to President Obama, make up $23 trillion of consumer asset value and "serve as the psychological linchpin" for $17 trillion of invested capital.

Put together, that 15 percent decline translates to a $3.4 trillion cut to consumers' net worth.

"As an economist, statistician and housing expert, I am lamentably confident that home prices will fall," he wrote. "Home price devaluation will expose a major financial imbalance that could lower an entire generation's esteem for the American dream."

Student debt and a 45 percent underemployment rate for recent college grads has handicapped millennial buyers already, Pollard wrote.

Pollard outlined three distinct stages of the decline—the first of which, the "hot-to-cool" stage, is already underway. This is where home price growth slows and turns negative in large markets across the country. Investors slow their purchases, homebuilders lose pricing power as absorption rates decline, and press outlets shift their market pieces from positive to mixed.

In Stage II, the "demand-to-supply" phase, new negative shocks cause investors to shift from raising prices in an effort to outbid competition to reducing prices to beat future declines. In Stage III, the "deflation and response" phase, consumers come to the decision that now is a bad time to buy a home. Fewer people seek mortgages and banks become less willing to lend. Consequently, deflation hits, taking jobs with it and triggering calls for new policy.

In other words, Pollard fears the recent past will be prologue. His report squarely targets public finance and housing officials and calls upon the White House to devise "forward-looking monetary policy that balances the risk of raising interest rates," create a skilled trade externship program for laborers whose jobs are most at risk whenever housing investments drop, and "forcefully rebalance number of homes to the number of households" by reducing the number of new builds as well as the number homes that can force prices down—particularly those that are already vacant, unsafe, and expensive to rehabilitate, the report states.

"The shift from a good market to a bad market occurs quickly, exaggerated by the circular currents of confidence from consumers, investors and lenders in Unison," Pollard wrote. "When unnatural levels of demand or supply impact the market, prices are pushed in lockstep."

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Jerry Gusman, The Gusman Group

(888) 213-4208

jerryggroup@aol.com

Survey: Misconceptions Holding Back Homebuying

While nearly seven in 10 Americans agree that now is a good time to become a homeowner, a large number remain reluctant due to their own misguided understanding of the financing process, according to survey results released Monday.

In a poll of more than 2,000 consumers, Wells Fargo found 68 percent feel that now is a good time to buy a home, and 95 percent want to own if they don't already.

The results jibe with Fannie Mae's latest consumer housing survey, in which 64 percent of Americans said now is a good time to buy (matching the survey's record low).

"Although the homebuying process has changed in many ways in recent years ,our survey found Americans still view homeownership as an achievement to be proud of and many believe that now is a good time to buy a home," said Franklin Codel, head of Wells Fargo Home Mortgage Production.

On the other hand, while nearly three-quarters of respondents in Wells Fargo's survey said they "know and understand" the financial process involved in buying a home, large numbers also expressed doubt or misguided notions about homebuying requirements. For example, Wells Fargo reported, 30 percent of respondents expressed belief that only people with high incomes can obtain a mortgage at this point, and 64 percent said they believe only those with a "very good"” credit score can buy a home right now.

While 64 percent of respondents said they have an understanding about how much of a down payment is needed to purchase a home, nearly half said 20 percent is required. Forty-four percent also said they know little or nothing about closing costs.

While most lenders report that lending requirements at the moment are still high as a result of enhanced regulations and reluctance to take risks, Codel says lenders would be well served to work on educating homebuyers about all programs available to them—especially the millennial crowd, most of which pointed to lack of down payment funds as one of their biggest hurdles to homeownership.

"It is important for prospective homebuyers to feel empowered to ask lenders and real estate agents questions about available options, such as down payment assistance or FHA [Federal Housing Administration] or VA [Veterans Affairs] loans for veterans," he said. "Informing prospective homebuyers about their options is the first step toward helping them realize their goals."

On the other hand, the survey also found most Americans are confident in managing their personal finances, with 82 percent saying they know how to save, invest, and work within a budget. In addition, 63 percent said they have a "rainy day fund," including more than half of millennial-aged respondents.

With so many Americans focused on keeping their financial houses in order, Codel says there's a decent opportunity to turn those consumers into responsible homeowners with an educational push.

"[W]e have an opportunity as lenders, nonprofit agencies and real estate agents to better inform Americans about credit ratings, mortgage costs and housing affordability," he said. "This would help demystify the homebuying experience for many consumers."

For more information contact

Jerry Gus,man, The Gusman Group

(888) 213-4208

jerryggroup@aol.com

Fannie Mae Relaxes Waiting Period for Distressed Borrowers

Fannie Mae recently released a report revising the waiting periods for distressed borrowers with a derogatory credit event such as a foreclosure, bankruptcy, short sale, or deed-in-lieu of foreclosure on their credit history to obtain a new loan.

For borrowers with a short sale or deed-in-lieu of foreclosure on their record, Fannie Mae's new mandated minimum waiting period to become eligible for a new loan is four years. The time is shortened to two years if there are extenuating circumstances. According to Fannie Mae, extenuating circumstances are defined as "nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations."

If a borrower has a foreclosure on his or her credit record, the new minimum waiting period is seven years. Under extenuating circumstances, that period is shortened to three years with some additional requirements for up to seven years.

For those with a bankruptcy (chapter seven or 11), the waiting period is four years (two years with extenuating circumstances). For distressed borrowers with a chapter 13 bankruptcy, the required waiting period is now two years from the discharge date and four years from the dismissal date. If there are extenuating circumstances, the waiting time from the dismissal date is shortened to two years.

If there are multiple bankruptcy filings on a borrower's record, the waiting period for a new loan is five years if there has been more than one filing in the previous seven years.  Under extenuating circumstances, the waiting period is cut to three years from the most recent dismissal or discharge date.

Fannie Mae said in the report that it is "focused on helping lenders to provide access to mortgages for creditworthy borrowers while supporting sustainable homeownership" and that the new policy "provides opportunities for borrowers to obtain a loan to Fannie Mae’s maximum LTV (loan-to-value) sooner after the preforeclosure (short) sale or DIL."

The new policy is effective for loans with application dates on or after August 16, 2014.

Under the previous policy, the standard waiting period for borrowers with a derogatory credit event was two years with a maximum 80 percent LTV ratio; four years with a maximum 90 percent LTV ratio; or borrowers were eligible for a new loan after a standard seven-year waiting period. For borrowers with extenuating circumstances, the previous waiting period was two years with a maximum 90 percent LTV ratio.

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Jerry Gusman, The Gusman Group

888-213-4208

jerryggroup@aol.com

Improvements in the labor market in 2014 have not translated to rapid housing market recovery this year, according to the Fannie Mae August 2014 National Housing Survey. Instead, data in the survey indicated that recovery for the housing market will be slow heading into 2015.

The number of people surveyed who said they believe now is a good time to sell a home fell six percentage points to 64 percent, an all-time low since the monthly survey began in June 2010. The number of people who said now is a good time to buy a home also declined to 38 percent.

"The August National Housing Survey results lend support to our forecast that 2015 will likely not be a breakout year for housing," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "The deterioration in consumer attitudes about the current home buying environment reflects a shift away from record home purchase affordability without enough momentum in consumer personal financial sentiment to compensate for it."

The number of respondents surveyed who believe home prices will increase in the next 12 months stayed at 42 percent from July to August, while the percentage of respondents who say they think home prices will go down in the next year increased to 9 percent while the share of those who thought and mortgage rates will go up in the next 12 months fell to 50 percent. The average 12-month home price expectation also took a slight dip from July to August, to 2.1 percent.

The percentage of survey respondents who said they would buy a home if they moved dropped to 64 percent while they number who said they would rent if they moved jumped up to 32 percent. The 32 percent gap between the two is the smallest in more than a year.

As far as attitudes toward the economy, the number of people surveyed who believe the economy is on the wrong track dropped down to 56 percent from July to August. The number of respondents who believe their financial situation will get better in the next 12 months went up to 44 percent, but the percentage who say their household income is significantly higher than it was at this time last year dropped from 28 to 23 percent from July to August.

"To date, this year’s labor market strength has not translated into sufficient income gains to inspire confidence among consumers to purchase a home, even in the current favorable interest rate environment," Duncan said. "Our third quarter Mortgage Lender Sentiment Survey results, to be released later this month, are expected to show whether mortgage demand from the lender perspective is in line with consumer housing sentiment."

Fannie Mae representatives polled 1,000 Americans live via telephone for the results in the August 2014 National Housing Survey.

For more information contact

Jerry Gusman, THe Gusman Group

(888) 213-4208

jerryggroup@aol.com

Southern California home sales plunge in July

Southern California home sales plunged in July and show little signs of rebounding. And
that, economists say, could stunt the region's economic growth.

Buyers scooped up 20,369 new and resale houses and condos in the six-county region last month,
down 12.4% from a year earlier, research firm CoreLogic DataQuick said Wednesday. The sharp
drop follows steady declines since October, as would-be buyers struggled to afford houses after
prices surged last year.

he drop in sales could have economic repercussions. When someone buys a home, they often
splurge on items such as new furniture, fresh paint or new carpeting. Then there are real estate
agents, mortgage brokers and moving companies to pay.
"The housing multiplier effect is very significant, because there are so many things that happen
With home prices sharply higher, there are simply fewer buyers able to afford them. Above, a home for sale in Lake Forest last year. (Patrick T. Fallon / Bloomberg)
9/2/2014 Southern California home sales plunge in July - LA Times
http://www.latimes.com/business/la-fi-home-sales-20140814-story.html 2/4
with a home purchase," said Leslie Appleton-Y oung, chief economist for the California Assn. of
Realtors. "That is dampened when you have lower home sales."
The pain is especially acute for brokers, who depend on a commissions.
"There are a lot of hurting agents right now," said South Bay agent Leo Nordine, who said his
volumes have been roughly flat this year. "There are too many agents and not enough sales."
The steady declines come despite more homes on the market compared with last year. With prices
sharply higher, there are simply fewer buyers able to afford them.
Changing demographics are also playing a role, experts said. Surveys show most young adults still
want to own a home, but significant barriers exist for that large demographic group.
Student debt is high, income growth is meager and many are putting off marriage, which
historically has spurred purchases. And the massive baby boom generation isn't downsizing en
masse, further limiting home sales as its members hold onto their spacious suburban homes,
Appleton-Young said.

"It's clearly a concern," she said of low sales volumes. "And I'm not seeing the way out of it."
Others experts aren't so dour. Sales of previously owned homes, the largest segment of the market,
have an economic impact, but a small one, said Richard Green, director of USC's Lusk Center for
Real Estate. Housing's economic punch comes chiefly from new home construction, which
demands legions of laborers and raw materials, he said.
New home sales fell 1.9% last month, after rising 4.4% in June.
The broad sales drop stems from less demand not only from families but also investors.
Foreclosures, a favorite target of those buyers, flooded the market after the bubble burst,
depressing values and wrecking credit for those forced to leave their homes. With the availability
of those low-priced properties rapidly shrinking, investors have pulled back.
Once distressed sales — foreclosures and short sales — are removed from the data, conventional
sales fell only 2.8% in July.

"This is just all part of getting back to normal," said Bill McBride, who writes the financial blog
Calculated Risk. "We are getting rid of the foreclosures."
Families, however, haven't filled the void created by the investor retreat, even though more homes
are for sale, mortgage rates are near historical lows, and price appreciation is slowing. The
Southland's median home price rose 7.3% to $413,000 in July, the smallest year-over-year gain since June 2012.

"Prices came a long way in a couple of years, and now a lot of would-be buyers just can't stretch
their finances enough to buy in today's more conservative lending environment," CoreLogic
DataQuick analyst Andrew LePage said.
And if demand for homes remains subdued, builders aren't likely to ramp up construction to
historic levels, further blunting housing's economic impact.

Home sales last month were 19.4% below the 26-year average for July, CoreLogic DataQuick said.
"We haven't had an average month in more than eight years, and I don't think we are going to see
one in the next six months," LePage said.

For more information contact
Jerry Gusman
The Gusman Group
(888) 213-4208
Jerryggroup@aol.com

Pittsburgh Best, San Francisco Worst For Home Flipping

Recent data released by RealtyTrac for the second quarter of 2014 indicated that Pittsburgh is the best market in the nation for home flipping, while the San Francisco-Oakland-Fremont market was the worst.

Flipped homes accounted for 3.6 percent of total home sales in Pittsburgh, a increase of 3 percent over the second quarter last year. But while the average gross return on investment for flipped homes in Pittsburgh was 63 percent for Q2 2013, that percentage shot up to 106 percent for Q2 2014, the highest percentage by far for any market in the nation.

Rounding out the top five best markets for flipping homes in Q2 2014, according to average gross ROI, were New Orleans-Metairie-Kenner, Louisiana (76 percent); Baltimore-Towson, Maryland (73 percent); Virginia Beach-Norfolk-Newport News, Virginia (66 percent); and Deltona-Daytona Beach-Ormond Beach, Florida (63 percent). The national average gross ROI for flipped homes was 21 percent, according to RealtyTrac.

San Francisco-Oakland-Fremont turned in an average gross ROI of –9 percent, the lowest in the nation, RealtyTrac reported. Flipped homes made up 5.6 of all home purchases in the Bay Area for Q2 2014, a decrease of 33 percent from the same period last year. The only other market with a negative average gross ROI in Q2 2014 was Las Vegas-Paradise, Nevada (–4 percent). Third worst was Mobile, Alabama (9 percent), while Charlotte-Gastonia-Concord, North Carolina-South Carolina, and Madison, Wisconsin tied for fourth worst with 13 percent each.

According to RealtyTrac in Q2 2014, flippers bought homes at an average of 8 percent discount from their estimated market value (AVM), then re-sold the homes at an average of 6 percent higher than their AVM. All of the 10 best markets for flipping homes except one (Chattanooga), flippers purchased properties at a discount of 24 percent or more from their AVMs, then sold the properties at a premium rate above their AVMs.

For more information contact

Jerry Gusman, The Gusman Grouyp

(888) 213-4208

jerryggroup@aol.com