The Skinny

Help is on its way?

The good news: help is on its way with the recently passed Housing and Economic Recovery Act of 2008! However, not all is good—at least for the near-term.

One section of this new legislation accomplishes the longtime HUD goal to sunset seller-funded down payment assistance, which used third-party intermediaries to create what were essentially zero down payment FHA mortgages (e.g. Nehemiah type programs).

This part of the Act will serve to suppress the housing market, as according to the Washington Post, “More than half a million people -- including many first-time home buyers, minorities and single mothers -- have bought homes this way in the past decade…”

With many of these buyers essentially removed from the market, home sales in all price ranges will experience a domino effect and hinder other aspects of the legislation that are intended to spur on buyer activity.

HUD’s goal to eliminate these types of programs is grounded in solvency concerns. According to NAR, “A recent GAO study found that loans with seller-funded downpayment assistance experienced more than double the risk of delinquency than loans with other types of downpayment assistance, and almost three-times the risk of loans with no downpayment assistance.”

In regards to the real estate market, it’s a long-term gain requiring short-term pain equation. The solvency of FHA is critical to a healthy real estate market; even more so now, following the meltdown of the alternative and subprime markets. FHA has resurfaced as the best option for buyers who are skinny on down payment and income qualifying criteria.

The FHA prohibition on Seller-funded down payment assistance programs goes into effect on October 1, 2008.

With this change in policy, it is essential that Realtors promote the development of alternative financing options, including new possibilities for zero down mortgages. This cannot be done with the devil-may-care lending standards of our recent past! New alternatives of this type could require stricter qualifying guidelines to better ensure the buyer’s ability to pay.

MHFA is working on new programs that might help fill some of the void, according to Chris Galler, MNAR COO, “a Memorandum of Understanding…has been signed between FHA & MHFA to offer a number of new financing programs.  One is a zero down, another is a streamlined 203K.  There is even talk of providing financing to consumers with less than 600 credit scores.”

Stay tuned for more information on the good news as to how the new Housing and Economic Recovery Act will impact your local market.

("Hang On, Help Is On Its Way" is not just a song by The Little River Band (LRB), it's the name of an Australian LRB tribute band! The next time you're in West Sydney, be sure to look them up!)

Housing Relief on the Way

Congress has passed The Housing and Economic Recovery Act of 2008 providing some much needed stimulus to the housing market. The President is expected to sign the bill on Tuesday.

The comprehensive bill includes GSE and FHA reforms, an FHA foreclosure rescue, a homebuyer's tax credit, limits on seller-funded down payment assistance programs, temporary increases in VA loan limits, and establishment of a National Affordable Housing Trust Fund, and many other provisions. The bill includes various effective dates for these provisions, so studious review is required. The National Association of REALTORS will publish more details in the coming days.

As with most Congressional actions, this bill is not without some controversy. Some members are not happy about the new limits on seller-funded down payment assistance; others see the program as a bailout for homebuyers who accepted risky loans or used their home equity carelessly.

That said, the bill offers some much needed assistance, could be the kick start the market needs to push potential homebuyers into action, and will surely be the talk of the town in the coming days.

For a summary, go here

Paul Krugman on the Housing Stimulus Bill

A fair warning: we're all going to hear A LOT in the media and blogosphere in the weeks ahead about the recently passed congressional housing legislation.

And it's not because Americans have suddenly turned into staunch economic policy wonks.

In part it's because the public is hankering for some sort of action from their elected officials in the face of recession (though how effective that action will be is highly questionable), and also in part because the whole housing mess is so darn complicated -- so many ins, so many outs -- that we're all still trying to wrap our collective heads around how exactly we got to this low point.

Paul Krugman -- famous economist, New York Times columnist, Wellstone book title thief -- chimes in with a piece on how effective the impending legislation may or may not be, and a mostly right-on look at how the financial sector's complete lack of risk aversion brought us to where we are. As most economists tend to, Krugman points to perverted financial incentives:

"Lenders ignored the warning signs because they were part of a system built around the principle of heads I win, tails someone else loses. Mortgage originators didn’t worry about the solvency of borrowers, because they quickly sold off the loans they made, generally to investors who had no idea what they were buying."

Weekly Market Activity Report 7.28.08

In the Twin Cities housing market, sales are flat like a New York pizza and supply is down like grandma's comforter. Fortunately for us, the data confirms our kitschy similes. Pending sales for the week ending July 19 are ahead of the same week last year by 3.8 percent, while new listings fell by 13.0 percent for the same time period—all positive signs of a market in transition.

The total number of active listings for sale currently sits at 33,410, (comfortably) down 1,722 units—or 4.9 percent—from this time last year. Since the number of new homes coming on the market remains in decline and sales appear to have hit bottom, we can expect total inventory to remain lower than last year for some time to come.

Click here for the full Weekly Market Activity Report.

Say Goodbye to Seller-Funded Down Payment Assistance

We've talked about this before.

Seller-funded down payment assistance programs (DAP) in FHA loans are currently the only true "zero-down" mortgage option for home buyers, as the conventional market has shifted to requiring at least 5% skin in the game. Many have pontificated that the FHA would attempt to eliminate this type of financing due to its high default rates, which threaten the solvency of the entire FHA.

Well, the day has come. As part of the forthcoming congressional housing stimulus package, DAP will be gone as of October of this year. Hate it or love it, American consumers now really, truly, honestly, legitimately, must again compile a sizable nest egg to finance the purchase of a home.

Short-term: this is going to cause some more pain in the market and choke off further first-time home buyer activity, as well as potential move-up and move-down buyers who lose their equity on the sale of their existing home and turn to the FHA program for help.

Long-term: this will help keep FHA solvent and help incubate a new consumer psychology that rewards saving instead of spending on credit.

The $10,000 question is whether or not my generation -- the oft-discussed "Gen Y" (can we get a new name, please?) -- will positively respond to this new psychology. Will we be willing or able to scrimp and save several thousand dollars to purchase a home in the years ahead, given the uncertain economic climate and our crippling student loan debts?

The answer to that question will go a long way towards determining the future of the housing market.

Around the web on DAP:

• The Washington Post with the details and the requisite human interest angle.
• Local mortgage blogger and suburban rap apologist Alex Stenback weighs in.
• Marketwatch compiles an interesting list of public comments on the rule change.

July Monthly Skinny Video Online Now

The July 2008 Monthly Skinny Video is live and in color on the glorious interweb!

Once again, this edition is narrated by Mark Allen. Please feel free to share this with others wherever and whenever you'd like. The CliffsNotes version: the market is showing some positive signs, but we ain't out of the woods yet and won't be for a long time.

Weekly Market Activity Report 7.21.08

Housing supply in the Twin Cities continues its descent. For the week ending July 12, there were 11.5 percent fewer new listings on the market than there were one year ago. Over the last three months, there have been roughly 4,000 fewer homes on the market than there were during the same period in 2007. The total number of properties for sale currently sits at 33,390—down 4.7 percent from this time last year.

The sales picture is slightly different, as activity has flattened after two years of downward movement. We are showing a slight 1.8 percent increase in pending sales from the same week last year. Over the last three months, there have been roughly 300 fewer pending sales—a decline of 2.7 percent.

Click here for the full Weekly Market Activity Report.

Stella!

We're hosting a "Wine & Beer Tasting Event" at Stella's Fish Cafe in Uptown on Tuesday, August 5, from 6:00 p.m. to 8:30 p.m.

It's meant to be a fun networking event with other REALTORS® in the heart of "the scene" in Snapolis. It's doubling as both an international event and a "young professionals" event. view our flyer

"Stella!" It's a blog entry title that may evoke Tennesee Williams, Stanley Kowalski, Marlon Brando and A Streetcar Named Desire for some. Or it may call to mind a certain seafood restaurant with a rooftop patio that boasts panoramic views of Minneapolis. Whatever Stella stirs in you, it may have something to do with your age.

According to our last member survey, the average age of MAAR members is 48. Less than 15 percent of our members are under 35. For the sake of our profession's longevity, it behooves us to get out there and network with a younger set. But when we make a call for younger professionals to attend our events, we must also be aware that age is often relative.

We're looking for fresh REALTOR® leaders and active association members; we're not trying to operate a dating service. If a first-time event attendee is more likely to recall Adam West than Kanye West, so be it. Come out and have a good time with us.

We were once accused of ageism in promoting a past event for another organization. People are entitled to their opinions, but we can certainly say that we spend an equal amount of time on our Quarter Century Club and REALTOR® Emeritus members as we do new members. We celebrate experience and we try to add new viewpoints to our proceedings, all with the goal of equal representation.

Easier said than done. Whether talking about programs for people of differing age, gender, ethnic background, years of experience or brokerage size, it's difficult to appeal to everyone. So we try to increase the variety and the frequency, and we hope you'll want to give us a chance to wow you with what we have to offer.

For example, our International Council members have forged out a tidy little clique within MAAR, and our international-mindedness has garnered us some lofty recognition. Our sister relationship with the Thailand real estate industry has sprung two international goodwill trips and earned us an award from the National Association of REALTORS®. Now we're pushing for some expansion of this forward-thinking group, as well as an expansion of forward thinkers in general.

I hear that rooftop patio view at Stella's is worth the price of admission. And I think I heard Marlon Brando yelling something up toward that patio in my dream last night.

The 100+ Updated with June data

"The 100+," our community level market tracking tool has been updated with data from June. All real estate is local -- even from block to block. "The 100+" was built with this micro-level geographic truism in mind.

Dig in by clicking here.

Weekly Market Activity Report 7.14.08

Prospective homeowners appear to have celebrated our Independence holiday by buying a home. For the week ending July 5, there were 735 signed purchase agreements (pending sales), up 7.3 percent from the same week one year ago. New listings increased by 2.5 percent for the same time period comparison but took the expected dive from one week prior due to the 4th of July holiday.

This week's edition of the MAAR Weekly Market Activity Report features updated figures for several important metrics:

Days on Market Until Sale fell from last month to 147 but is still 13.1 percent higher than a year ago, and the Percent of Original List Price Received at Sale increased to 92.8 percent. Both changes are additional signs that home sellers are beginning to experience some light relief.

However, not all indicators are rosy, as the Months Supply of Inventory increased slightly to 10.6 months, up 11.0 percent from last July, and the Housing Affordability Index dipped slightly to 148 due to another increase in interest rates.

Photo by Chris Jones.

Number of Homes for Sale per Buyer in Decline

The MAAR Supply-Demand Ratio (SDR)—which we like to believe is a key Twin Cities housing benchmark—shows that the market is no longer charging headlong in the buyer's favor. The SDR posts a July figure of 8.11, which means there will be 8.11 homes for sale for each buyer in the month of July. This is down 1.6 percent from one year ago, and means we are moving very slowly back towards a balanced market.

Since the metric takes both supply and demand into consideration, the downward movement is highly significant. This is the first negative year-over-year change in SDR since MAAR began tracking the figures.

Despite the changing supply/demand picture, buyers are still definitely driving the housing market. The June median sales price held steady from last month at $205,000, even though the market typically experiences a seasonal upswing in June. This is down 11.8 percent from June 2007, a downward trend exacerbated by the increased prevalence of bargain-priced foreclosures and short sales.

Are you catching that so far? I count at least four uses of "down." Let's look at some more June 2008 vs. June 2007 figures.

• Lender-mediated homes: median sales price of $150,500, down 11.2 percent.
• Traditional properties: median sales price of $229,900, down 3.6 percent.
• 8,858 new listings, down 13.3 percent.
• 4,346 pending sales, down 3.5 percent.
• Total inventory in the region of 33,425, down 3.5 percent.

We hear the criticisms of REALTOR® "spin" on today's housing market. We read newspapers, blogs, and story comments. We understand the criticism. The housing market sometimes looks tougher than our words. However, we can assure you that it is more important to us at MAAR to present the facts than to carry around lipstick and blusher. Our members deserve to hear the truth, and the truth is that some of this "down" isn't all clouds and gloom. Some of it is not so fun, but we're not trying to shy away from it.

Final tally: 10 instances of "down." Whoops, one more. 11.

Read the full press release here

July Housing Supply Outlook

The July Housing Supply Outlook is out. Once again, in the interest of making your time with this detailed report tool as efficient as possible, here's a few items to watch for:

• The new construction market has achieved an important step towards its eventual recovery. The Months Supply of Inventory for new construction properties is now less than at this time one year ago -- dropping slightly from 11.0 months in July 2007 to 10.8 today. This figure has been increasing steadily for several straight years. A drastic decrease in new construction inventory is the reason for the decline.
• Condominium prices continue to indicate healthier dynamics than the other property types, with both average sales price and price per square foot up slightly. This sub-market seems to have peaked and flattened earlier than others, and also has far fewer foreclosures and short sales affecting overall price data.
• The entire market continues to shift downward to the lower price ranges, in both supply and demand -- an indication of the growing prevalence of lender-mediated foreclosures and short sales in the Twin Cities.

Click here for the full Housing Supply Outlook.

Foreclosures Down from Last Month, Up From Last Year

Minnesota home foreclosures in 2008 are currently on pace to beat 2007, which itself was a record year. A short but informative Star Tribune article digs into the numbers from RealtyTrac:

"The number of June filings in Minnesota was 75 percent higher than in June 2007, but 23 percent lower than in May 2008."

75 percent higher, folks. So clearly we're not out of the woods yet. This is a market reality that we're likely going to have to live with for the next few years. There is a silver lining to these numbers, though:

"...one in every 1,348 Minnesota households received a foreclosure notice in June -- considerably better than the nation as a whole, where one in every 501 households entered foreclosure."

Overall, Minnesota ranks 29th amongst the 50 states in our foreclosure rate, down from 25th last month. The highest foreclosure states are those areas which saw the biggest price appreciation and now have damaged affordability—Nevada, California and Arizona. For perspective, Nevada saw foreclosure proceedings begin for one in every 122 households in June, and California was close behind at one in every 192 (from a Reuters article).

While we're on the subject, keep your eyes open in the next two weeks for an updated Q2 market report on Twin Cities foreclosures and short sales. For a friendly reminder, here's a link to the Q1 report.

Weekly Market Activity Report 7.7.08

For the week ending June 28, pending sales in the Twin Cities housing market dipped slightly from the year previous, posting 43 fewer sales than the same week in 2007. New listings for the same time period comparison were only 6 listings higher, a meager 0.3 percent increase.

Our overall buyer trajectory this year is flat compared to a year ago. For 10 of the last 12 weeks, pending sales have been within 5 percent of 2007, either above or below. New listings, on the other hand, are showing dramatic downward movement. Over the last three months, we've posted 13.6 percent fewer listings than the same time last year.

This week's edition of the MAAR Weekly Market Activity Report features an updated Supply-Demand Ratio (SDR). The SDR for July fell slightly to 8.11, which means there are approximately 8.11 houses for each buyer in July. At 1.6 percent lower than July 2007, this is the first year-over-year decrease in SDR since MAAR began tracking the figure in 2004. Since SDR takes both supply and demand into consideration, this is the surest sign yet that the market is no longer charging headlong into the buyer's favor.

Click here for the full Weekly Market Activity Report.

Stage set for rebound?

Our more recent communications have included some encouraging news, as market indicators are starting to reveal positive shifts occurring in the local housing market. This does not imply that the market has rebounded—only that we're past the days where the elevator keeps on descending, as it appears we are arriving at ground floor.

What are the positive shifts?

1. The most encouraging sign is that a trend of declining inventory has likely been established (using a year-to-year comparison) and will probably accelerate.

2. The brakes have been applied on the decline in buyer activity, and there is reason to hope second-half 2008 comparisons will show break-even numbers or possibly increases as compared to 2007.

3. There are early signs that the regional decline in home prices could be stabilizing.

4. The traditional home market (excluding foreclosures and short sales) has not experienced the massive decline in price as is commonly presumed. The median price of these properties has only dipped 2.7 percent so far in 2008, as opposed to 8.8 percent for foreclosures and short sales.

So are we experiencing a recovering market? To be blunt, no, but there is a faint light at the end of the tunnel, and we are confident that it is not a train. Economists say that a recession is not validated until you have been in it for a few months. The same is true with a market recovery.

Think of it like coming home at night and turning on your house lights. When you first arrive home, you turn on your garage and entry lights, then maybe you flick switches in the kitchen or family room, awhile later you're illuminating a bedroom and bathroom.

Similarly, the Twin Cities housing market will experience a recovery in stages. The first light was a decline in listing activity, which was followed by a decline in overall homes for sale. The next light will likely be improvements in the mortgage underwriting environment, which will lead to a modest and sustainable increase in buyer activity. Another light will be a reduction of lender-mediated property activity. Eventually, we will experience modest growth in home values.

We are justified in celebrating the encouraging signs, but the housing market continues to face a variety of challenges—a large oversupply of homes for sale, lender-mediated property sales, tightened lending standards, tepid buyer activity, weakened home prices and home owners in positions of negative equity, among other grimace-inducing factors. Understandably, this tough-love synergy has produced a severe lack of consumer confidence in the housing market, locally and nationally.

These challenges will thwart a quick rebound from our current conditions and make the road back to a balanced market a long and gradual journey. The encouraging news today is we appear ready to begin the return journey.

Along the way, we will continue to gather market data, analyze housing trends and share our findings in order to keep you informed and better prepared to operate your businesses. We are in this together, and together we will persevere.