Wednesday, August 26, 2015

CNN Money: Real Estate Special Report: Americans are scooping up real estate bargains... overseas

CNN Money: Real Estate Special Report: Americans are scooping up real estate bargains... overseas

Yours truly quoted in CNN. 
CNN Money: Real Estate Special Report: Americans are scooping up real estate bargains...overseas 
http://money.cnn.com/2015/05/07/real_estate/cheap-real-estate-overseas/ 

More Americans are taking the leap to buy that overseas pied-a-terre they've been thinking about. 
"The U.S. dollar is still strong and the economy is good and the rest of the world is a little softer," said Jason Kumpf, a real estate specialist at USForex. "It's a great time to increase your pieces on the international Monopoly board." 

Property prices in some European markets fell 40-50% during the financial crisis and haven't fully recovered, according to global real estate consultancy Knight Frank. 
Combine that with the strength of the U.S. dollar creating favorable exchange rates, and deals abound. For example: A €500,000 home cost around $683,000 last July, according to Knight Frank. Now, that property has a price tag of roughly $558,000. 
Experts identified France, Spain, Italy, Germany and Canada as markets being pursued by American buyers. 
This 10-bedroom, 8-bathroom wine estate in Tuscany is for sale and features vineyards, a winery and an olive grove. 
France is looking particularly attractive. 
The number of clients buying properties in France increased nine-fold in 2014 from 2013 at USForex, and this year is looking even more promising. 
"High-net-worth buyers have been circling around properties in the south of France for the last couple of years," said Dan Conn, CEO of Christie's International Real Estate. "It's an incredible time to buy." 
Paris is also seeing increased activity: today, 19% of Christie's buyers in the capital were American, up from 14% in 2010. 
Germany has also been drawing in American buyers recently, according to Kumpf, as the number of U.S. buyers who transferred money to purchase property there has doubled in the last year. 
Spain and Italy have had a slower economic rebound, which means better discounts and opportunities, according to Conn. For example, Sardinia, an island off the coast of Italy, has experienced little buying activity since the downturn ... until now. "You are starting to see emerging interest from U.S. buyers," Conn aid. 
Interest in rentals in Italy started to rise last year, and that's a strong indicator that sales will follow, said Rupert Fawcett, head of Knight Frank's Italian desk. 
Tuscany, Florence, and Lake Como are the hot spots in the country at the moment, he said. 
"I am not expecting the flood gates to open, but the tap had very much been switched off over the last four to five years, so to see any American interest coming back is already an increase." 

This two-level, three-bedroom apartment in a 17th century building in Paris is listed for $2,113,858. 
Spain, which has been a popular market for Europeans looking for a vacation home, is starting to catch the attention of Americans, particularly Barcelona. "It's a hybrid city and resort," said Conn. There's also been discussions of a new luxury waterfront development in the city, which could increase interest. 
London is also seeing increased attention from American buyers, but the conversion rate to a sale is still relatively low, according to Jennet Siebrits, UK head of residential research at CBRE. "I think once the U.K. general elections are out of the way, that might be a catalyst." 
In Latin America, Brazil is an attractive option for U.S. buyers, according to a report from Christie's International Real Estate, due to deflated property prices and a drop in its currency. 

Is The Housing Market Cooling as a Result of Price Limits?

house-sittingon-money1-300x198As buyers reach their price limits and show less interest in homes, housing demand lowered for the fourth consecutive month. According to Redfin's Housing Demand Index, homebuyer activity fell 5 percentage points from 113 in June to 108 in July.
"Redfin real estate agents report that the market is rapidly cooling, with buyers reaching their limit on prices and showing less interest in hot home listings," the report said.
In a hot market like Denver, where half of new listings sell in six days or less, Redfin agents and their customers are witnessing the slowdown first-hand.
“It feels like the market is at a standstill,” said Michelle Ackerman, a Redfin agent. “Showings have dropped off significantly.”
In July 2013, homebuyer activity had reached 119, and 99 in July 2014, Redfin reported. Still, homebuyer demand was up 9 percent year over year in July, leading Redfin’s Forecast Model to project that in August, home prices across 15 major metro areas will rise 2.2 percent and sales to increase 2.6 percent year over year.
Redfin forecasted July home prices and sales on July 23 using demand data through mid-July and housing metrics from 15 major metro areas.
“It feels like the market is at a standstill. Showings have dropped off significantly.”
In July, the median sale price increased 4.6 percent from a year earlier, compared to Redfin’s July 23 forecast of 4.3 percent growth. The Redfin sales forecast for July was also on target, with sales up 14 percent year-over-year against the forecast of 14.3 percent.
The August forecast predicts that prices will rise 2.2 percent and sales to increase 4.6 percent compared to this time last year. In September, prices are expected to increase 5.3 percent from last year and sales to rise by 10 percent.
In comparison to the housing market in September 2014, this years' market looks very strong, Redfin says. However, Redfin still projects that demand will continue to fall into the fall months.
“The market is changing week by week, and today’s buyers are more likely to walk away from a home they feel is overpriced than last month’s buyers were,” Ackerman said. “Sellers now have to negotiate with buyers to make a sale happen.”

Friday, August 14, 2015

Recovering Home Prices Can Drive Inventory and Sales Increases Team Thayer Real Estate News


Where do you see the housing market right now in terms of recovery, and what more, if anything needs to be done to have a complete recovery?
In terms of where we stand, there's actually two ways to look at it. If you look at it from the perspective of home prices, we're pretty much fully recovered. Home prices are approaching their pre-bust peaks, and that's looking at it across the various gauges of home prices.
If you look at it from the perspective of sales, it's not a complete recovery and not moving into expansion yet, but that's probably because we're not likely to revisit the kind of sales pace that we saw in the peak parts of the housing boom. Maybe we're halfway back from the perspective of sales, but if you think back to prices being richer, that can actually, oddly enough, can help sales because what it's likely to do is bring more supply into the market, then people see that the prices are higher and they start listing their homes, and the inventory of homes increases. It becomes a more virtuous circle of more inventory, more choice, people buying, and it goes on from there.
If you look at where we are in the recovery from the pace, I think we have shifted into a more fundamentally solid pace of recovery from what we've seen up until this year. What our Nowcast suggests is that the strong pace of sales that we saw in June and in the months prior to that has continued into July. We do another report on pricing activity, and that, too, is also suggestive of a firming market.
You might ask, "How do we get it to move on from here?" I think that's a key question. The key issue is, we're now seeing consistently good job gains, and I think that's the first, second, and third most important element in the picture. Consumers are more confident, people's wealth situation has improved, and clearly, they're also enjoying a benefit from low oil. Outside of the oil-producing areas, in the rest of the country, people are saving money every day, every week, as they fill up their cars and heat their homes, and that's helping the household budget.
The investment market overall is not near as robust as it was five years ago at the foreclosure peak, but it is still strong in some areas of the country. Where do you see the future of the investment market?
It's a harder market for investors than it was, because prices have come back. The "easy pickings," where you could get homes very cheap and you could hit your return parameters relatively easier, are not there. We've been seeing a lower percentage of all-cash sales, which I think is probably the best indicator of investment activity. Both the investor purchase percentages and the all-cash sales percentages are shrinking because there's less and less opportunity either for people who are in there to flip or people who are in there to buy and hold and rent. But the going-in price for the buy-to-rent scenario makes it a harder economics than it was previously. I think in a way we're reverting back to a more normalized historical market where owner-occupiers are the major drivers rather than investors who were the drivers in the early stages of the recovery.
To what do you attribute the Q2 GDP growth after such a slow first quarter? Was it strictly seasonal, or are their other factors involved?
I think there are a few factors, but I think you're on to something. There is a growing body of evidence from the Bureau of Economic Analysis that the numbers may be skewed, and that's why we've been seeing these super weak first quarters over the last few years. It's partially a mirage of seasonal adjustments, so there is something to the theory that "The first quarter is the first quarter and has its issues."
There were three things we were looking at with the first quarter weakness this time around. All along we were saying that these negative factors were dissipating. The three things are:
  • First, we had yet another brutal winter in many parts of the country, which slowed economic activity;
  • Second, we had a bunch of labor disagreements at a bunch of the West Coast ports that really slowed the flow of cargo during the first quarter. That problem was solved in March, so it was really a first quarter event. As we got into the second quarter, a lot of the goods that got held up started to flow through the ports. If you look at the components of the GDP numbers in the advance report for Q2, trade was actually a strong positive. I think part of that was a bounceback from a weird first quarter because of the ports situation.
  • The third factor is something I think a lot of people are not paying enough attention to. It gets back to the energy story. The way we've been parsing the energy story is that the initial impact of low oil on the economy is negative, because the oil companies cut back their investment, they cut back their drilling, they cut back their exploration, and they start laying off people. As you know, it's not just people directly working for oil companies, but it's accounting firms, law firms, and all the kinds of business and other kinds of services that an energy company will use. You get that negative impact right away, and I think the first quarter weakness partially reflected that. As we look at the low oil story, our view is that over time, you take the hit on the negative, but you get the positive multiple effect I referred to before of people having more money in their pockets because they're saving a lot of money every time they fill up their cars with gasoline. That starts making its way back into the economy and generating increased economic activity.
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    Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287

Home Price Appreciation in Q2 Team Thayer Real Estate News

rising-pricesHome prices rose in almost all metro areas in the U.S. mostly due to the increase in home sales during Q2, according to the latest quarterly reportby the National Association of Realtors (NAR).
Despite low inventory levels, the median existing single-family home price increased in 93 percent of measured markets, with 163 out of 176 metropolitan statistical areas (MSAs) showing gains based on closings in the second quarter compared with the second quarter of 2014. Meanwhile, only 13 areas recorded lower median prices from the previous year.
"Steady rent increases, the slow rise in mortgage rates, and stronger local job markets fueled demand throughout most of the country this spring," said Lawrence Yun, NAR's chief economist. "While this led to a boost in sales paces not seen since before the downturn, overall supply failed to keep up and pushed prices higher in a majority of metro areas."
According to the NAR, price gains were recorded in 85 percent of metro areas in the first quarter. In addition, 34 metro areas experienced double-digit increases in the second quarter, a decline from the 51 metro areas in the first quarter.
"With home prices and rents continuing to rise and wages showing only modest growth, declining affordability remains a hurdle for renters considering homeownership—especially in higher-priced markets," Yun said.
On a national level, the median existing single-family home price in the second quarter was $229,400, an increase of 8.2 percent from the second quarter of 2014 when the price was $212,000. Year-over-year, the median price rose 7.1 percent in the first quarter.
San Jose, California metro area topped the list of the most expensive housing markets, with a median existing single-family price of $980,000, followed by San Francisco, California ($841,600); Anaheim-Santa Ana, California ($685,700); Honolulu, Hawaii ($698,600); and San Diego, California ($547,800).
There were 2.30 million existing homes available for sale at the end of the second quarter, slightly above the 2.29 million homes for sale at the end of the second quarter in 2014. NAR says the average supply during the second quarter was 5.1 months—down from 5.5 months a year ago.
NAR also reported that the total number of existing-home sales, including single family and condo, increased 6.6 percent to a seasonally adjusted annual rate of 5.30 million in the second quarter from 4.97 million in the first quarter.
"The ongoing rise in home values in recent years has greatly benefited homeowners by increasing their household wealth," Yun said. "In the meantime, inequality is growing in America because the downward trend in the homeownership rate means these equity gains are going to fewer households."
Chris Polychron, NAR president and executive broker with 1st Choice Realty in Hot Springs, Arkansas noted that the Realtors are reporting strong competition and limited days on market for available homes—especially at the entry-level price range.
"Buyers should work with their Realtor to deploy a negotiation strategy that helps their offer stand out," Polychron said. "If a bidding war occurs, it's important for the buyer to stay patient and only counteroffer up to what he or she can comfortably afford. It's better to walk away and wait for the right home instead of being in a situation where one has purchased a home above their means."
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Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287
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Foreclosure Inventory Rate Drops to Below Pre-Recession Levels Team Thayer Real Estate News

rates.dropWith nearly a 30 percent year-over-year decline in June, the nation's foreclosure inventory rate—the share of residential homes with a mortgage in some state of foreclosure—is at 1.2 percent, the lowest level since 2007, according to CoreLogic's June 2015 National Foreclosure Report released Tuesday.
The foreclosure inventory rate has now declined year-over-year for 44 consecutive months, including June. The 1.2 percent foreclosure inventory rate represented about 472,000 homes, down from 664,000 in June 2014.
Although the national foreclosure inventory rate is back to pre-recession levels, the rate remains high in select areas hit hardest by the crisis, such as Florida and New Jersey.
"The foreclosure rate for the U.S. has dropped to its lowest level since 2007, supported by a continuing decline in loans made before 2009, gains in employment, and higher housing prices," said Frank Nothaft, chief economist for CoreLogic. "The decline has not been uniform geographically, as the foreclosure rate varies across metropolitan areas. In the Denver and San Francisco areas, the foreclosure rate has fallen to 0.3 percent, whereas in the Tampa market the rate is 3.5 percent and in Nassau and Suffolk counties it is an elevated 4.8 percent."
The serious delinquency rate—the share of residential mortgages that are more than 90 days overdue, including those that are in foreclosure or REO—also took a substantial drop in June 2015 down to 3.5 percent, about 1.3 million homes, the lowest number since January 2008.
"Serious delinquency is at the lowest level in seven and a half years reflecting the benefits of slow but steady improvements in the economy and rising home prices," said Anand Nallathambi, president and CEO of CoreLogic. "We are also seeing the positive impact of more stringent underwriting criteria for loans originated since 2009 which has helped to lower the national seriously delinquent rate."
Completed foreclosures, which are an indication of the actual number of homes lost to foreclosure, dropped by nearly 15 percent year-over-year in June from 50,000 to 43,000. The number of completed foreclosures nationwide in June 2015 represented a 63.3 percent decline from their peak of 117,000 reached in September 2010, according to CoreLogic.
Despite the year-over-year decline and the large dropoff from their peak total nearly five years ago, completed foreclosure bumped up by 41,000 in May to 43,000 in June, which is more than double the monthly pre-recession total. From 2000 to 2006, completed foreclosures averaged about 21,000 monthly. A total of about 5.8 million homes have been lost to foreclosure since the beginning of the financial crisis in September 2008. About 7.8 million homes have been lost to foreclosure since home prices peaked in the second quarter of 2004, according to Corelogic.

Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287
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Wednesday, August 12, 2015

What considerations should I make when evaluating a property that relies on a groundwater well for water supply?

Water Quality Considerations
The requirement for testing well water quality during a property transaction varies from location to location; therefore, it is important to check what your local requirements are for well testing. Most property sales that involve water wells include testing for bacteria (i.e. Coliform and E.Coli)as a minimum. If bacteria are found in test results, a qualified specialist should complete a further review of the well conditions. However, there are several wellhead conditions that can be visually inspected.
These Include:
The well's proximity to a septic field. Septic fields (if present) are areas of high bacteria concentrations. A minimum separation distance of typically 15m for cased wells and 30m for uncased wells is necessary. This distance should be provided between the well and the tile bed to prevent contamination of the well, from the bacteria in the vicinity of the tile bed.
The conditions around the wellhead. A low-lying well head that is not protected (with a casing that extends above ground surface) is vulnerable to contamination from surface water that may enter the well.
Livestock waste in the vicinity of the well. If livestock or agricultural fields that are treated with manure are close to the well, there is a potential for contamination.
Bacteria parameters are key in assessing if well water has been compromised at a rural property. However, bacteria is only one of the many parameters that can potentially impact well water quality. Three other potential sources of contamination might be: extensive use of pesticides/herbicides, leaks from former underground fuel storage tanks in the vicinity of the well, or the presence of lead supply piping. If these conditions are a potential concern, water samples can be tested for parameters, such as pesticides/herbicides, petroleum, hydrocarbons, or lead. The results of such testing will either provide a little more piece of mind or indicate there may be a larger issue at hand. If issues with compromised water quality are identified, there are a wide variety of water treatment/filtration systems that are available, such as water softeners, carbon filters, reverse osmosis/ultraviolet light systems, and chlorination.
Water Quantity Considerations
The two main water quantity considerations with wells are water availability and the condition of the supply system.
Water Availability
The quantity of water available in a well is typically measured using a well flow/ recovery test that is performed by well contractors. The first component of the test involves flowing a plumbing fixture at a constant flow rate for a set period of time (usually 1 hour minimum). If the flow is maintained at the specified rate over the duration of the test without decreasing, then this provides an indication of the available water in the well. The second recovery component measures the level of water in the well during the flow test. If water levels remain consistent during testing, this indicates that the water in the area around the well is plentiful. If water levels lower significantly or the well goes dry, this indicates that there is a problem with water availability in the vicinity of the well. Water levels fluctuate both seasonally and annually, which could influence water availability.
Supply System
The condition of the pump, pressure tank and supply piping can influence the flow and pressure of water in a home. For example, an older, corroded pump or heavily rusted pressure tank may soon need replacement. Some older houses have galvanized steel plumbing. Galvanized plumbing rusts from the inside out, which decreases the pipe diameter over time. This results in low water pressure and will eventually require the replacement of the pipe.
If you require further information on water quality issues or treatment issues or treatment options, we recommend consulting a qualified water quality/treatment specialist. To speak with a trained home inspector and find out more about water quality considerations, contact your local AmeriSpec today.
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Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287
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Tuesday, August 11, 2015

Job Growth Pushing Housing Toward ‘Normal’ Levels Team Thayer Real Estate News

home-protectionThe housing market is slowly but surely inching closer to normal levels with the help of economic and job growth.
According to the National Association of Home Builders (NAHB)/First American Leading Markets Index (LMI) released Thursday, markets in 75 of the approximately 360 metro areas nationwide have returned to or exceeded their last normal levels of economic and housing activity in the second quarter of 2015. This is an increase of 13 markets year-over-year.
“The markets are gradually improving and economic and job growth continue to strengthen, which bodes well for housing for the remainder of the year,” said Tom Woods, NAHB chairman and a home builder and developer from Blue Springs, Missouri.
The NAHB reported that the index's score increased on point to .92, which means that the nationwide average is at 92 percent of normal economic and housing activity. Although this increase may seem marginal, this one point rise up places the market closer to the one point goal, indicating that it has returned to normal. In addition, 66 percent of markets have shown improvement year-over-year.
“Of the three elements in the LMI (house prices, permits, and employment), house prices have had the broadest recovery, with 345 markets returning to or exceeding their last normal level,” said David Crowe, NAHB's chief economist. “Meanwhile, 64 markets have met or exceeded their normal employment levels. The housing permit level has made the least progress toward normality, with only 26 markets at or above their last normal level.”
The index found that Baton Rouge, Louisiana continues to top the list of major metros on the LMI, with a score of 1.47, 47 percent better than its last normal market level. Other major metros leading the list include Austin, Texas; Honolulu, Hawaii; Houston, Texas; and Oklahoma City. Rounding out the top ten are San Jose, California; Los Angeles, California; Charleston, South Carolina; Salt Lake City, Utah; and Nashville, Tennessee.
NAHB Graph

Home Sales Forecast Revised Downward Despite Recent Increase. Team Thayer Real Estate News

market-studiesCalifornia-based online real estate marketplace,Auction.com, LLC has revised its July Real Estate Nowcast downward. According to the Auction.com Nowcast report released Monday, existing-home sales in July are now projected to fall between seasonally adjusted annual rates of 5.39 and 5.75 million annual sales with a targeted number of 5.57 million.
Although this is an increase of 1.4 percent from June, it is a more modest increase than the Nowcast had previously predicted for July.
Auction.com reported that the projected median sales price for July reflected in the company’s original Nowcast released on July 22 remains unchanged at $239,126.
The company blames the downward revision on a shift in online traffic patterns over the last half of July. Originally, Auction.com predicted the total number of existing-home sales to fall between 5.49 and 5.84 million annual sales with a targeted number of 5.67 million.
“While we believe that the housing market continues to recover from the most volatile boom and bust cycle we’ve ever seen, that recovery continues to be uneven, taking an occasional step backwards,” said Rick Sharga, Auction.com's EVP. “One potential cause for concern is that as home prices continue to rise – significantly outpacing wage growth – many markets are becoming too expensive for first-time buyers to enter, which effectively causes the whole home buying engine to seize up.”
Sharga also expressed concern regarding the Fed’s recent announcement that it is likely to raise interest rates as early as fall, noting, “If mortgage rates rise by as little as a point while home prices continue to go up, the slow but steady housing recovery we’ve been watching could suddenly take a turn for the worst.”
In July, the National Association of Realtors (NAR) reported that existing-home sales increased in June to their highest pace in over eight years.
Total existing-home sales, which include single-family homes, townhomes, condominiums, and co-ops, increased 3.2 percent to a seasonally adjusted annual rate of 5.49 million in June from a downwardly revised 5.32 million in May, according to the report. This will make nine consecutive months of year-over-year increases, and sales are 9.6 percent above a year ago at 5.01 million.
"Backed by June's solid gain in closings, this year's spring buying season has been the strongest since the downturn," Yun said. "Buyers have come back in force, leading to the strongest past two months in sales since early 2007," said Lawrence Yun, NAR's chief economist. "This wave of demand is being fueled by a year-plus of steady job growth and an improving economy that's giving more households the financial wherewithal and incentive to buy."
Sales are now at their highest level compared to the 5.79 million total in February 2007, according to NAR. All major regions experienced sales gains in June and have now risen above year-over-year levels for six consecutive months.
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Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287
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Wednesday, August 5, 2015

Freddie Mac’s Net Income Jurassically Increases; GSE to Pay Nearly $4 Billion to Treasury Team Thayer News

money-two www.teamthayer.comFreddie Mac's net income soared for the second quarter of 2015, totaling $4.2 billion—nearly nine times the GSE's Q1 net income of $524 million, according to an announcement from Freddie Mac on Tuesday.
Also for Q2, Freddie Mac reported $3.9 billion in comprehensive income, a five-fold increase from Q1's total of $746 million. With the inclusion of September 2015's Dividend Obligation of $3.9 billion, Freddie Mac will have returned $96.5 billion to taxpayers, about $25.2 billion more than the $71.3 billion Freddie Mac received in a bailout from Treasury in 2008.
Q2 was the 15th consecutive quarter of profitability for Freddie Mac, which became profitable again in Q4 2011, a little more than three years after the bailout.
"Our very solid financial results show that Freddie Mac, while in conservatorship, is building a strong operating business model that represents taxpayers well and is efficiently serving U.S. homebuyers and renters. We continue to invest in improving the customer experience, and we lead the industry in reducing the taxpayers’ exposure to mortgage credit risk," said Donald H. Layton, CEO of Freddie Mac. "Also, we continue to make progress on our 2015 Conservatorship Scorecard objectives, which support our mission of providing liquidity, stability and affordability to the mortgage market, including responsibly increasing access to affordable housing for America’s families in a safe and sound way."
The single-family purchase volume for Freddie Mac increased from Q1 to Q2 by about $20 billion, up to a total of $101.2 billion. Through Structured Agency Credit Risk (STACR) debt notes and Agency Credit Insurance Structure (ACIS) reinsurance transactions, Freddie Mac transferred a portion of single-family credit risk on $94.2 billion in unpaid principal balance (UPB) in Q2. Since the STACR program began in 2013, Freddie Mac has transferred a portion of credit risk on almost $344 billion in UPB of single-family mortgages, according to Freddie Mac.
The Enterprise has helped 15.2 million homeowners buy, rent, or keep their homes since the start of 2009, just four months after the conservatorship began. About 11.7 million of those were single-family homes funded by Freddie Mac, and 2.3 million of them were multi-family homes. The GSE has also helped 1.1 million homeowners avoid foreclosure in the last six and a half years through either permanent loan modifications, forbearance or repayment plans, or a non-retention solution such as a short sale or deed-in-lieu of foreclosure. Since 2009, Freddie Mac has provided $2.7 trillion in liquidity to the mortgage market.
In the 12-month period ending June 30, 2015, Freddie Mac helped about 109,000 homeowners avoid foreclosure; saved homeowners who refinanced an average of about $2,700 in interest payments in the first year; funded about 1 in 4 home loans nationwide; shifted risk to the private market through 111 innovative transactions; and provided $381 billion in funding to the mortgage market.
Freddie Mac's net income for Q2 of $4.2 billion was more than half of the Enterprise's total net income for all of 2014, which was $7.7 billion. In 2013, Freddie Mac's net income was $48 billion.
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Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287
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Fannie Mae’s Research Shows Perceived Negative Equity is Damaging Housing Market Team Thayer News

underwaterFannie Mae's Economic, Strategic & Research Group has pointed out on multiple occasions that housing market growth has been slowed by tepid growth of household income.
In a new analysis released Monday, the Fannie Mae ESR Group announced that homeowners underestimating their home equity may also be a factor in weighing down housing markets.
The commentary was written by Steve Deggendorf, Director of Business Strategy for Fannie Mae's ESR Group, and Professor James A. Wilcox of the Haas School of Business, University of California, Berkley.
The National Housing Survey from Fannie Mae contains data that suggests that homeowners who are underestimating how much equity they have in their homes may also be underestimating in other areas, such as how large of a downpayment they could make with that equity; their chances of qualifying for a mortgage, assuming they need a large downpayment; and their opportunities for selling their house and buying another one.
Fannie Mae's National Housing Survey compared the percentage of homeowners who perceived they were underwater on their mortgages with the share of homeowners who were actually underwater as reported by CoreLogic. Fannie Mae offered survey respondents five choices for their total mortgage debt ranging from at least 20 percent more than the value of the home to at least 20 percent less than the value of the home, and found that through the end of 2011, the percentage of respondents with a mortgage who thought they were underwater was an average of 6 percentage points higher than the share estimated by CoreLogic.
The 20 percent spike in home prices from 2012 to 2014 reduced CoreLogic's estimate of the share of underwater borrowers from 21 percent down to 9 percent during that period, the authors said. But in the Fannie Mae NHS, the share of homeowners who perceived they had negative equity fell by only 3 percentage points from 26 percent down to 23 percent for that same period despite the large increase in home prices.
"Surprisingly, then, the significant rise in house prices was not perceived to lift many homeowners above water," the authors said.
Fannie Mae's NHS found that the percentage of borrowers who were "above water" also perceived lower equity gains than CoreLogic's estimates. For example, in June 2010, the first month Fannie Mae conducted the survey, the NHS reported that 32 percent of respondents perceived themselves to have significant home equity, compared to CoreLogic's estimate of 53 percent for the same month. That gap has widened as home prices have risen, according to Fannie Mae; by the end of 2014, only 37 percent of NHS respondents believed they had significant equity in their homes, compared to CoreLogic's estimate of 69 percent.
"CoreLogic’s estimates reflect that rising house prices not only lifted many homeowners above water, but also lifted many homeowners into having significant home equity," the authors wrote. "Despite the significant rise in house prices after 2011, the percent of homeowners who perceived they had significant home equity was almost unchanged—just as the percent who perceived they were underwater was almost unchanged. The 37 percent of homeowners who perceived at the end of 2014 that they had significant home equity had edged up only a little from its 2011 average of 35 percent."
The authors offered as a possible explanation for the divergence that a substantial group of homeowners may not recognize the rising value of their homes after 2011 – and even if they had recognized increasing home values, they have still underestimated how much the values and equity had increased during that time.
Other data from the NHS suggests misperceptions on the part of homeowners as to how much home prices had increased. Respondents in the NHS said during the third and fourth quarters of 2013 that they believed home values rose in the previous 12 months by 2.2 percent and 2.7 percent, respectively. The national FHFA home price index for that period showed that home prices rose by 8.2 percent and 7.6 percent, respectively.
"They perceived only about one-third of the actual percentage increases, in this case implying that, on average, they did not perceive additional home equity equal to 5 percent of their homes’ values," the authors wrote.
The authors said that the private sector or public sector could provide information and tools that would shrink the appreciation gap, which is geared to help homeowners have more accurate estimates of their home equity.
"Better appreciating how much their assets have appreciated ought to strengthen homeowners’ demand for housing, as well as their demands for other goods and services," the authors wrote. "Thus, in addition to the opportunity to help homeowners on an individual basis, shrinking the appreciation gap presents a potential opportunity to speed up the recovery of the housing and mortgage markets, better match workers with jobs, and strengthen the economy generally."

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Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287
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