So how do you get from "there must be bargains out there" to "how much will I save, and where are the best bargains?"
I like to guide any buying decision as much as possible with the facts. But while lots of foreclosures are out there, how good an opportunity they might be was hard to know. Until now.
Search on "foreclosures by state," and then click "view (state) foreclosure trends," and you'll get a nice snapshot of foreclosure filings, actual sales, average sales price and -- most of all -- the discount-to-value.
You could page through state by state to get a national picture of where the good deals are. Instead, I went to the source. RealtyTrac was kind enough to supply me with source data in a spreadsheet. I'll share the most interesting findings.
The discount-to-market ratio increased slightly from 76.42% to 77.68%. How do you read this ratio? It is the actual foreclosure sales price compared to the perceived market value of the home. So 77.68% means, on average, you'd get just over a 22% savings or "discount" on your foreclosure purchase. That's down from just over 23% a year ago.
From June-August 2006 to June-August 2007, California, Nevada, Michigan, Massachusetts and Arizona showed the greatest increase in the number of foreclosure sales, while New York, New Jersey and North Carolina posted the biggest decreases among states that had 1,000 or more foreclosure sales.
But while California heads the list in sales, the discount is relatively small -- one of the five smallest in the country at only 17%. The best deals are in troubled Rust Belt or manufacturing-centric states -- Alabama, Pennsylvania, Indiana and Ohio.
Finally, trends are interesting: Discounts are increasing in Midwestern states and in New Mexico, while decreasing some in Alaska, Iowa and Texas. This may be a sign of strengthening real estate markets in those states -- or weak market values to begin with.
These facts will help you know how much to pay -- and to know if foreclosures are right for you in the first place. They may also say something about which way the market in your area is likely to go. Either way, they will help you find the "real" deal.
The National Association of Realtors reported Wednesday that sales of existing homes fell 8 percent in September, the largest decline to show up in records dating to 1999. The seasonally adjusted annual sales rate of 5.04 million existing homes was also the slowest pace on record.
The 8 percent decline in sales was bigger than the 4.5 percent decline that had been expected.
Analysts blamed the bigger-than-expected slump on the turmoil that hit credit markets and mortgage markets in August as worries increased over rising mortgage foreclosures.
Those worries resulted in a drying up of the availability of so-called jumbo mortgages, loans over $417,000, which are particularly important in high-cost areas such as California.
"Mortgage problems were peaking back in August when many of the September closings were being negotiated and that slowed sales notably in higher priced areas that rely more on jumbo loans," said Lawrence Yun, senior economist for the Realtors.
By region of the country sales were down 10 percent in the Northeast, 9.9 percent in the West, 7 percent in the Midwest and 6 percent in the South.
The slowdown in sales meant that the inventory of unsold homes rose to 4.4 million units in September. At the September sales pace, it would 10.5 months to eliminate the overhang of unsold homes, a record length of time.
Economists are worried that the huge levels of unsold existing and new homes will put further downward pressure on prices.
Yun said that the price declines should be put into perspective in that they are occurring after a five-year housing boom which pushed prices up to record levels.
He forecast that prices will decline by about 1.5 percent this year. That would be the first annual price decline on Realtors' records going back four decades.
The troubles in housing have been a drag on overall economic growth, increasing worries that the housing slump and related credit market troubles could become so severe that they will push the country into a recession.
However, many private economists believe that the Federal Reserve, which cut a key interest rate for the first time in four years last month, will continue cutting rates in a campaign to make sure that the weakening economy does not tumble into a full-blown recession.
Analysts said the price declines will worsen in coming months until inventories are reduced to more sustainable levels. Ian Shepherdson, chief U.S. economist at High Frequency Economics, predicted that the housing troubles will prompt the Fed to cut rates by a quarter-point at its meeting next week.
"The housing crunch is accelerating. The Fed can't stand by and watch," Shepherdson said
By SHANNON BEHNKEN, The Tampa Tribune
Published: October 21, 2007
Search The Database | Video: After The BoomForeclosure Takes Awhile In Florida
TAMPA - A grandmother strolls behind two toddlers navigating their tricycles down a sidewalk in Carriage Pointe, a new subdivision in Gibsonton.
They pass rows of two-story pastel homes with picture-book lawns and identical black-iron mailboxes. A neighbor waves as he pulls weeds out of his front yard.
One street over, the scenery is vastly different.
Vacant homes with 'For Sale' signs on lawns and 'For Rent' signs taped to windows line the block. Weeds are knee-high, and moldy newspapers, some dating back to June, are piled high on doorsteps.
Neighbors have vanished, some loading moving vans in the middle of the night. The homes are products of a mortgage and foreclosure wave leaving a lasting imprint on the Bay area. New neighborhoods such as Carriage Pointe, where speculators bought homes several at a clip and homeowners stretched their budgets with creative financing, are particularly hard-hit.
'It's depressing,' said Greg Gibbons, who has lived in the neighborhood 1 1/2 years and has a view of several empty houses. 'No one has ever lived in those two homes across the street. This is not where I wanted to live.'
As many as 69 percent of the 381 homes in Carriage Pointe are owned by people who don't live there, county officials estimate. This year, 31 of the homes have slipped into foreclosure, and many other homes are heading that way as owners struggle to make mortgage payments or just stop paying. Some investors drastically cut rents.
At the entrance of Carriage Pointe, on Symmes Road near Interstate 75, stands a wooden sign urging buyers to call about Phase Two, 'with homes starting in the low 200s.' That's the phase that was supposed to include a swimming pool and other amenities.
But the builder seems to realize the home-buying boom is over.
The phone number at the sales office is disconnected.
Foreclosures Skyrocket
Carriage Pointe is just one example of what's playing out in hundreds of neighborhoods throughout Florida and the Bay area.
The Sunshine State's foreclosure rate of one filing for every 248 households is second only to Nevada. In Hillsborough, Pasco and Pinellas counties, the number of foreclosure filings through September was 19,226, up nearly 131 percent compared with the same period last year, according to RealtyTrac, a California company that tracks foreclosures. That's up from 9,476 in 2005, the first year the company began its reporting.
Just last month, there were 4,365 filings in the three counties, and lenders took the keys back from 502 homeowners, RealtyTrac said.
The Tampa Tribune set out to find pockets of the Bay area that are feeling the foreclosure pinch more than others. The Tribune interviewed experts and homeowners, and analyzed public records and data provided by RealtyTrac and ForeclosuresDaily.com, a local company that sends researchers to courthouses daily.
The data show no neighborhood or price range is immune. Those in default are a mix of investors and people who bought primary residences. Neighborhoods with clusters of foreclosures were typically popular with speculators who purchased multiple homes. Many bought beyond their means with adjustable-rate and interest-only mortgages that fueled the 2005 real estate boom in Florida.
The idea was to sell or refinance before the low teaser rate went up. Now that the real estate market has slowed, that's no longer an option for many. Homes are sitting on the market for months, and prices are dropping.
The Bay area real estate market is expected to stabilize over the next two years, but experts say the neighborhoods where foreclosure rates are highest could suffer much longer.
'Those neighborhoods will have sharper drops in prices because you'll see more aggressive pricing to move homes,' said Mike Larson, a real estate analyst with Weiss Research in Jupiter. 'And when there are a lot of renters, prices could drop because renters don't typically take as good of care of the home as homeowners do.'
RealtyTrac's data show the ZIP codes with the most foreclosure activity were in Port Richey, New Port Richey, Wesley Chapel and Riverview. The areas tended to be more densely populated and, in most cases, had intense residential growth.
But out of 145 ZIP codes in Hillsborough, Pasco and Pinellas counties, the one for Port Richey in Pasco topped the list with 716 filings, RealtyTrac data show. As retirees have moved out in recent years, first-time homeowners have moved in, often using nontraditional financing. The area also was a hot spot among investors looking for rental property.
In Pasco, foreclosures in New Port Richey and Wesley Chapel, where hundreds of new homes were built during the boom, have risen dramatically in the past year, too.
In Hillsborough, ZIP codes with new subdivisions were hardest hit. The Riverview ZIP code had 573 filings, more than any other in the county. But it was followed closely by an area north of Ybor City and the Sulphur Springs area in Tampa, which had 528 and 538 filings, respectively.
Hillsborough and Pasco had ZIP codes with the highest total foreclosures, but Pinellas also has been susceptible. Some areas, such as neighborhoods in south St. Petersburg, have had a lot of foreclosures because of high investor activity.
Homeowners' Woes
It was May 2006, and Jesus and Hayley Torres had a baby and a newborn on the way.
They had never owned a home, and they wanted a nice neighborhood to raise their growing family. The Torreses were neither investors nor buyers of exotic mortgages; nevertheless, they were tripped up by Florida's other real estate phenomena: rising taxes and insurance.
They paid $203,000 for a three-bedroom, two-bath, 1,395-square-foot home overlooking a pond in Carriage Pointe. They got a 30-year, fixed-rate mortgage, even though friends urged them to buy a bigger home with an adjustable-rate mortgage.
'We budgeted for all our bills and had only about $10 to $15 left over each month,' Jesus Torres said.
The couple made it work until the property taxes shot up. The Torreses' tax bill went from $1,436 to $2,959. Combined with rising property insurance, Torres said, the monthly mortgage payment went up by $500.
'There's no way we could pay that,' Torres said. 'Some months, it really became, 'Do I pay my mortgage or feed my kids this month?''
They put the home on the market in March but have been unable to sell it. They haven't made a mortgage payment since April and received the foreclosure notice in late September.
Torres is hoping to work something out with his bank so he doesn't have a foreclosure on his record.
Banks don't want the inventory, and some are willing to take back the deed to the home without a foreclosure. Others do a short sell, meaning the bank sells the home at a low price and the homeowner owes the difference. However, this is typically offered only on primary residences.
The Torreses' neighbor, Walter Childress, hates to see all the foreclosures. He feels bad for people losing their homes, but the result has affected his life. He thinks there's more crime in the neighborhood and worries about his property value.
Childress bought his Carriage Pointe home in April 2006 and is the only resident on the board of the homeowners association. The board tries to enforce the area's deed restrictions, which require homeowners to take care of the property. But there is little the board can do, he said.
'If it doesn't get better in a couple of years, I'm out of here,' he said. 'I'll move back north or to a gated community.'
The Investor Factor
During the housing boom, investors camped outside new subdivisions and bought multiple homes. Builders, eager to meet demand, overbuilt in the Bay area, said Per Gunnar Berglund, senior economist at Moody's Economy.com.
For example, one investor in Carriage Pointe purchased six homes. All of them are now in foreclosure.
Of the 31 homes in foreclosure in the neighborhood, more than half were financed with nontraditional financing, according to ForeclosuresDaily.com and public records.
Many of those loans had adjustable rates that have caused mortgage payments to skyrocket.
Some Carriage Pointe residents blame the builder for the influx of investors. When the market slowed, they say, Lennar Homes cut prices and sold excess inventory to investors.
Mike Southward, division president, said Lennar typically limits investors to purchasing every fifth house.
'It was a good selling community for us,' Southward said. 'I don't remember that there was need to sell to investors. What's happened in Carriage Pointe is unfortunate, but I think it's still a nice neighborhood.'
No one can say for sure how many investors purchased homes in the Bay area, but Moody's recent report on loan origination data approximates likely investor purchases.
In 2006, 18 percent of loans in the Bay area were made to people who said they weren't going to live in the home. That was up from 8 percent in 2001. In Florida, the number of nonresident buyers was 19 percent in 2006, up from 12 percent in 2001. Across the nation, 12 percent of loans in 2006 were for non-owner-occupied homes, up from 7 percent five years earlier.
Doug Duncan, chief economist at the Mortgage Bankers Association, said the numbers still may underestimate investor purchases.
'One lender recently told us that many of their loans in foreclosure were supposed to be to people living in the home,' Duncan said. 'But when they investigated, they learned some were actually investors.'
Duncan said he expects foreclosures to peak during the fourth quarter of 2008.
'It won't surprise me if it's at least a couple more years before things turn around in Florida,' he said.
'We Can't Do This Anymore'
The effect of foreclosures can also be seen at local real estate sales offices. Of the 21 homes sold through Greg Armstrong's Coldwell Banker office last month, 12 had been foreclosed on by lenders.
'I've been in this business for 17 years, and I've never seen the bank be the No. 1 seller,' said Armstrong, president-elect of the West Pasco Board of Realtors.
Homeowners who want to move or those seeking to avoid foreclosure by selling can't compete, he said. And every time a lender cuts prices dramatically to move a home, values in the neighborhood go down, he said.
'Lenders can afford to go much lower in price than homeowners can,' Armstrong said. 'The banks don't want all these homes, so they'll sell them for whatever they need to.'
That's part of the reason Brianne and Robert Thompson have decided to file for bankruptcy and walk away from their first home, a three-bedroom in the Thousand Oaks subdivision in New Port Richey.
The couple bought the home four years ago and took out a second mortgage nearly two years later. They had equity at the time and wanted to upgrade their home. Two months after signing the paperwork, Brianne Thompson discovered she was seriously ill and no longer could work.
For a year and a half, they made it work, barely making mortgage payments each month. With their second mortgage and home prices falling all around them, however, the Thompsons now owe more than they can sell the home for.
Robert Thompson has decided to give up his job at a nursing home to re-enlist in the Army, in part so the family can get help with housing.
'We hate to just let this house go,' Brianne Thompson said. 'We love it, but we can't do this anymore.'
In Thousand Oaks East, a Lennar subdivision in New Port Richey, 128 of 191 homes are either listed for sale or have slipped off the listing after six months on the market without a sale. Of the 12 homes in the community in foreclosure, half are on Lenton Rose Court. All along this street, homes sit empty, with 'For Sale' signs beckoning buyers. '$60,000 under the appraised value,' one sign says. Still, the home has been on the market for months, a neighbor said.
Kelley Felicciardi and her husband have rented a home on the street for four months. They have an option to buy but have decided not to, she said, citing the foreclosures.
One house on the corner, where neighborhood children catch a school bus, appears abandoned. Neighbors take turns cutting the lawn, she said, so the children don't have to stand in the weeds.
A few doors down is another renter, Gary Pirie. His landlord was heading to foreclosure before Pirie's family moved in, he said.
'It looks like a perfect neighborhood on the surface,' he said. 'But even a beautiful neighborhood like this will eventually go bad when there are so many foreclosures.'
"Conditions in financial markets have shown some improvement since the worst of the storm in mid-August, but a full recovery of market functioning is likely to take time, and we may well see some setbacks," Bernanke said in a speech to the New York Economic Club. A copy of his remarks were made available in Washington.
It was Bernanke's most extensive assessment of the country's current economic situation since the August turmoil unhinged Wall Street.
The ultimate implications of the credit crunch on the broader economy, however, remain "uncertain," the Fed chief said.
Against that backdrop, Bernanke said the central bank will be closely watching the economy's vital signs in determining the Fed's next move. He didn't specifically commit to cutting rates again, but rather kept his options open.
Economists have mixed opinions on whether the Fed will lower interest rates at their next meeting, Oct. 30-31. Some insist the odds are lessening that the Fed will need to slice rates; Others, however, think rates will move lower.
"The Fed appears to be in watch mode at the present time," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.
To help cushion the economy from the ill effects of the credit crunch and housing slump, the Fed on Sept. 18 slashed a key short-term interest rate by one-half percentage point to 4.75 percent. It marked the first rate cut in more than four years. It also reflected the most aggressive action taken by the Fed to curb fallout from the credit crisis, which intensified in August.
Since that September meeting, the housing slump -- the worst in 16 years -- has gotten deeper, Bernanke said.
"The further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year," he said.
"However, it remains too early to assess the extent to which household and business spending will be affected by the weakness in housing and the tightening in credit conditions," he added.
Spending by businesses and individuals is an important ingredient to keeping the economic expansion -- which began in late 2001 -- from fizzling out.
Developments affecting the job market and income growth also will be watched closely. "The labor market has shown some signs of cooling, but these are quite tentative so far, and real income is still growing at a solid pace," Bernanke observed.
The benefits of a mostly sturdy employment climate have helped cushion some of the negative effects that the housing slump, weaker home values and a credit crunch have had on consumers.
Job creation rebounded in September, with employers boosting payrolls by 110,000, the most in four months. Wages grew solidly. The unemployment rate did creep up to 4.7 percent last month but that rate is still considered low by historical standards.
Given all the problems faced by the economy, the economic performance so far this year "has been reasonably good," Bernanke said.
On the inflation front, Bernanke noted that the prices of crude oil and other commodities have been rising and that the value of the dollar has weakened. Oil prices galloped to a record high of $86.13 a barrel on Monday.
Bernanke said the Fed will continue to monitor inflation developments carefully. Yet, with the limited information seen since the central bank's September meeting, the inflation barometers "are consistent with continued moderate increases in consumer prices," he said.
The Fed's September rate reduction, Bernanke said, has helped ease "some of the pressure in financial markets, although considerable strains remain." He said Fed policymakers were prepared to "reverse" the rate reduction if inflation turned out stronger than expected.
The Fed's next move will be determined by what is best for the economy, Bernanke suggested. As he has said previously, it is not the Fed's job to shield investors from the consequences of bad financial decisions.
"The truth is that it (the Fed) can hardly insulate investors from risk, even if it wished to do so," Bernanke said. "Developments over the past few months reinforce this point. Those who made bad investment decisions lost money."
The worst carnage has affected investors in "subprime" mortgages -- those made to people with spotty credit or low incomes. Some lenders have been forced out of business and some investors in those and related mortgage-backed securities have taken a huge financial hit.
Overstretched homeowners with subprime loans got clobbered by the mortgage meltdown, too. Foreclosures and late payments have soared.
Weaker home prices seen during the housing bust have made it more difficult for some subprime borrowers to refinance out of loans that offered low "teaser" rates but jumped to much higher rates, resulting in payment shocks. Delinquencies on these mortgages are expected to rise further, Bernanke predicted.
By Matt Woolsey, Forbes.com
October 8, 2007
Home sales have sunk to their lowest levels since 2001. Investors are jumping ship, foreclosures are mounting and lenders are exercising caution.
Still, there are areas of the country where it makes sense for some to buy. That's because, in a market slump, sellers eager to unload their homes often accept less money from buyers. New construction also slows. Both bode well for buyers hoping to score a deal--if the market in which they are buying is expected to experience increased sales.
To find such places, we paired with Moody's Economy.com to research current home sales patterns and sales projections in the country's 40 biggest real estate markets. Based on models that estimated housing inventory, sales rates and turnover for 2008, we arrived at a list of markets that are experiencing price stalls or declines, but where over the coming year are expected to provide deals :A buyers' market in the purest sense is one where there are far more sellers than buyers, creating a supply and demand dynamic that benefit those looking to invest in a home. However, by that definition, a floundering market like Detroit is a good buyers' market because prices are dropping and inventory is high.
"A market with declining prices and few sales is a strong buyers' market," says Anthony Sanders, professor of real estate finance at Arizona State University. "But it is also a risky market given that prices could decline further."
With that in mind, we required the slumping or neutral markets on our list to have expected volume and turnover increases, based on sales and inventory models run by Moody's Economy.com.
The results turn out three types of markets and three types of deals.
The first are undervalued, affordable markets like Fort Worth, Texas, which haven't felt huge post-boom price corrections, but where there is an expected acceleration in sales volume, making now the time to buy.
Second are markets like Long Island, N.Y., and Washington, D.C. These are traditionally strong markets that are recovering from speculation, especially in the D.C. condo market and by Long Island's second-home buyers. Once these areas stabilize, the market as a whole should return to health.
"Long Island is continuing to slip, but a modest amount," says Jonathan Miller, president of Miller Samuel, a New York-based real estate appraisal and consultancy firm. "In [Long Island] the upper-end market was the market of choice for speculation and tear downs."
But economists caution that while over the next year the dust may settle in these 10 spots, buyers should be prepared for future swings. This is especially true in the case of riskier markets like Orlando and Las Vegas, where the expected increase in sales volume and housing turnover doesn't necessarily mean that the price trough is imminent.
"Housing market activity revives when house prices decline sufficiently to restore housing affordability and entice buyers to step up and make a purchase," says Mark Zandi, chief economist at Moody's Economy.com. "Some markets are already approaching those price points, in many others prices will have to decline much more to get to that point."
In Pictures: Best Places For Real Estate Deals
Adjustable or floating rate, 15-year or 30? How much mortgage can you afford? These are just a few of the many questions home buyers will find information on in this report.
Buying a home is the biggest financial investment most of us will ever make. As with any large project or goal, it requires dealing with a variety of complex issues. The best approach is to divide the process into manageable tasks. The following deals with the first steps of gathering your records, determining what you can afford, and understanding mortgage options.Back to top
Before you go looking for a home, you should determine how much home you can afford. Most lenders will prequalify you to borrow up to a certain amount. Prequalification allows you to focus in on a realistic price range and makes you a more attractive buyer. Whether or not you want to prequalify, eventually you'll need to complete a loan application and it may take some time to gather and assemble the required information.
It's also a good idea to review your credit report. Contact local lenders to determine which credit bureaus they use. Then contact the credit bureaus and request a copy of your credit report (in most states, credit bureaus are required to provide individuals with a free copy of their report). Review your report to ensure that all information is correct. If you have past credit problems, don't lose hope. Be prepared to present a rationale for each slipup, and demonstrate an improvement in your ability to pay bills on time. Back to top
The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Two income-to-debt ratios established by Fannie Mae are standard requirements for conventional mortgages. The first requirement is that monthly mortgage principal and interest payments (P&I), plus insurance and property taxes, cannot exceed 28% of the buyer's gross monthly income (some exceptions may apply to increase this limit to 33%). The second requirement limits total monthly debt payments (housing, credit cards, car payments, etc.) to 36% of gross monthly income. In addition to these requirements, you may have to pay 10% to 20% down on the total purchase price to qualify for a conventional mortgage.
Source: National Association of Home Builders, Economics Division.
How much house you can buy also depends on your mortgage's term and interest rate. The term is the length of time (usually 15 or 30 years) over which payments will be paid. The rate can be fixed (meaning it doesn't change over the loan's term) or adjustable (it fluctuates with market conditions). Thirty-year fixed-rate mortgages remain the most popular. The longer term lowers the monthly payment, while the fixed rate provides stability over the life of the loan. Given relatively low interest rates, these mortgages are attractive to buyers planning to stay at least six or seven years in their new home. The drawbacks are low principal payments in the early years, and the risk that market rates will decline over the term. However, if your credit history is sound and you have sufficient income, you can usually refinance your mortgage when rates decline.
A 15-year term lowers the interest rate, reduces total interest payments, and increases principal payments. But it also increases monthly payments. If you can't afford the higher payments now, you might opt for a 30-year mortgage. If there are no prepayment penalties, you can make additional principal payments as your income increases. Making just one extra monthly payment a year will pay off a 30-year mortgage in less than 22 years and can save tens of thousands of dollars in interest costs. If you plan to stay in a home no more than three years, you might want an adjustable-rate mortgage (ARM). ARMs offer initial rates that are lower than fixed mortgages. At some point, usually after the first year, rates are tied to market conditions and are subject to potential rate increases. Most ARMs include a cap on rate increases in any given year, as well as over the life of the loan. Some ARMs offer initial rates at least 2% below fixed rates and limit increases to 1% annually and 5% to 6% over the life of the loan. Many home buyers are attracted by the affordability of an ARM during the initial period. However, you should be confident that your future income will be sufficient if both interest rates and your monthly payments increase.
Another popular mortgage involves a balloon payment. A balloon is a lump-sum payment that pays off the loan in full after a fixed period of time. Generally the rates on balloon mortgages are 1/4% to 3/4% less than on 30-year fixed mortgages, but during an initial period of between 3 and 15 years, payments are similar. After this period, the remaining outstanding principal balance is either due in full or subject to refinancing. This is a good option for home buyers who plan to sell before the final payment is due. But because property values fluctuate, you may not be able to sell when you want. You may also face higher payments if you are forced to refinance at a higher rate, and there is also a risk that you may not be in a position to refinance when the balloon becomes due.
Points are interest paid in advance to reduce the rate on a loan. One point is equal to 1% of the mortgage amount. The general rule is that 1 point is worth 1/8 of 1% off the loan rate. The decision to pay points for a lower rate is based on how much the seller is willing to contribute to points, how long you plan to stay in the house, and how important lower payments are compared to higher closing costs. You will need to calculate the long-term value of points based on these factors, keeping in mind that points are generally tax deductible in the year paid.Back to top
If you cannot afford a conventional mortgage, there are a variety of alternatives. An anxious seller will sometimes offer owner financing. Federal Housing Administration (FHA) loans offer down payments as low as 3%, but may require the buyer to purchase mortgage insurance. (The FHA is a government agency responsible for insuring affordable housing mortgages.) The Veterans Administration (VA) offers no-money-down mortgages to qualified veterans of the U.S. military. Finally, there are local affordable housing advocates that offer low-cost, low down-payment loan alternatives. For further information, contact the FHA, VA, Fannie Mae, or your local mortgage lender or real estate broker.Back to top
Nationwide, home prices are falling, sales are sluggish and the number of foreclosures is mounting. Ask any economist and you'll hear that things are bad, and likely to get worse.
Unless you live in Seattle, where the market is slowing but fundamentals remain strong.
The Emerald City has experienced strong price appreciation over the last six quarters, and that's expected to continue in the new year, though at a slower pace. In addition to a very low housing inventory and a strong sales rate, there are fewer non-conforming and high-risk loans on the books than in other cities, which means the area will likely see fewer defaults in the coming months than the rest of the country's markets.
Also primed for a stable year are Pittsburgh, Columbus, Ohio, and Dallas. They follow Seattle in our ranking of the country's 10 most stable markets. All are projected to have median home sale price increases next year, thanks to a combination of factors including lower-than-average inventory levels, little price volatility and high job growth.
To arrive at our list, we teamed with Moody's Economy.com to develop three prediction models based on a range of factors that affect how prices move. These include, among other things, the state of local economies, new construction contracts, foreclosure rates, local credit markets, sales rates, affordability and inventory. Each of America's 40 biggest cities was ranked on all three models, with price appreciation counting one half and sales rates and credit models accounting for the other half. Data were drawn from the U.S. Census Bureau, National Association of Realtors, Equifax, a credit-market tracking firm and Moody's Economy.com.
Behind The Numbers
The first model looks at projected median existing home price growth from fourth-quarter 2007 to fourth-quarter 2008. Factors influencing this data include the market's inventory of unsold homes and the amount of new construction underway, both of which have obvious effects on supply. Housing affordability and local construction costs also play a role, acting as indicators of the market's ability to accommodate first-time buyers and new construction. Next is job growth, which attracts people to the area and increases their ability to buy a home.
Expensive markets like Seattle and San Francisco, which have low housing inventories and low construction costs, do well by this measure. Most of the top performers, however, are affordable, high-job growth markets like Dallas and San Antonio.
"It largely reflects that these markets never went through the boom and aren't going through the severe bust," says Mark Zandi, chief economist at Moody's Economy.com. "Price growth is not great, but [these markets] are not having house price declines. [All markets] are experiencing pricing problems, but in these markets it's less of a problem."
Moody's second predictive model examined market activity by calculating sales rate, which measures how quickly unsold inventory is expected to sell, and turnover, which measures how much of the overall housing stock those sales represent.
For example, the projected volume of home sales in San Francisco for the coming year represents a low 1.1% of the market's overall housing stock. In a market like Los Angeles, hamstrung by foreclosures and inventory glut, a 1% to 2% sales rate is potentially devastating--but given San Francisco's supply-side fundamentals and low foreclosure rates, prices are expected to modestly climb.
The last measure took into account delinquency and foreclosure predictions. By this model, adjusted-rate mortgage- and subprime mortgage-rich Detroit, Riverside, Calif., and Las Vegas got hammered, while Pittsburgh and Seattle performed well.
Regarding this measure, "it's important to differentiate between [delinquencies]: how many people are late relative to their most recent due date and how many people are in the process of losing their home," says Douglas Duncan, chief economist of the Mortgage Bankers Association. "Ninety percent of all 30-day late pays get fixed. Serious delinquencies are 90 days past current due dates."
When lending problems like this occur, the markets hit hardest are those with a high proportion of non-conforming loans. The most troublesome types are subprime mortgages and jumbo mortgages--those that are above the range of Fannie Mae and Freddie Mac's $417,000 securitization limit. Because few banks eagerly take on mortgages that aren't backed by Freddie and Fannie, the spread on jumbo loan interest rates compared to those of regular loans is at an all time high, according to data from HSH Associates, a credit-market tracking firm.
With fewer lenders wanting to take on jumbos and no banks willing to securitize jumbos, that adds another barrier to sales, especially in an expensive market. In Atlanta, for example, where the median home-sale price is $175,500, it's not an enormous setback, but when securitization stops in Los Angeles--where the median price is $593,000--a greater chunk of market activity halts.
As a result, cheaper markets are more likely to be healthier, as loan activity is less constrained.
Still, no market finds itself in a boom. As Zandi points out, discussing which markets are the healthiest "is a relative term."
"It's not like any of these markets are going gangbusters," he says. "Even Seattle: It's been very strong, but conditions are weakening and this year, at best, will be an OK year."
