Home Prices Climb by at Least 5% for 6th Straight Month in April

The majority of metros covered in Zillow’s Real Estate Market Reports saw home values inch up from March to April, the company reported Tuesday.

Zillow’s Home Value Index climbed to $158,300 for April, an increase of 0.5 percent month-over-month and 5.2 percent year-over-year. April marked the sixth consecutive month in which home values appreciated more than 5 percent on a yearly basis.

According to Zillow, the last time national home values were at this level was in June 2004. However, this kind of growth will likely be short-lived, said Zillow chief economist Dr. Stan Humphries.

“April marks the sixth straight month of annual home value appreciation of 5 percent or above, the longest such streak since the height of the bubble in 2006. In the short-term, this has been welcome news for homeowners. But in the long-term, this cannot be sustained, and consumers entering the market today should not expect this kind of appreciation to last,” Humphries said.

Fifty-percent of the 365 metros tracked reported rising home values in April. Of the 30 largest areas, Sacramento experienced the largest monthly increase at 3.4 percent. Other large metros with notable monthly gains include Las Vegas (3 percent) and San Francisco (2.8 percent).

On a yearly basis, 29 of the 30 biggest markets posted increases, with more than half going up by double-digit percentages. The largest improvements were seen in Phoenix (25.5 percent), Sacramento (25.4 percent), San Jose (25.2 percent), San Francisco (24.8 percent), and Las Vegas (23 percent). Chicago was the only market to see home values decline year-over-year (-0.2 percent).

For the 12-month period ending April 2014, Zillow projects home values will rise a more moderate 4 percent to approximately $164,648, reflecting shifts in supply and demand in some of the nation’s hard-hit markets.

“Overall, we expect home value appreciation to moderate as more supply comes on line over the next year, but in some areas, runaway home value appreciation, combined with expected interest rate hikes in coming years, runs a real risk of pricing out many potential buyers. Home values in these areas will have to flatten or even fall to come back in line,” Humphries explained.

Zillow also reported a slight monthly decline in national rents, which were down 0.2 percent from March. Year-over-year, rents were up 3.9 percent in April.

The number of completed home foreclosures in April fell to 4.81 homes foreclosed out of every 10,000 homes nationwide, down from March and April 2012. Foreclosure resales represented 12 percent of homes sold in April, down 1 percentage point from March and 4 percentage points from a year ago.

Foreclosures Led to Loss of $192B in Wealth in 2012

While the worst of the foreclosure crisis appears to be over, foreclosures led to the loss of $192.6 billion in wealth for Americans in 2012, according to a report from the Alliance for a Just Society, a national coalition of eight state-based grassroots community organizations.

On average, the estimated loss in wealth last year comes out to about $1,700 per household for 114.7 million households in the nation, according to the coalition.

The report, which explored how the foreclosure crisis impacted the country as a whole and people of color last year, also suggested the crisis is not yet over.

To illustrate the disproportionate impact of foreclosures on people of color, the coalition noted that in ZIP codes where the majority of the population included people of color, there were 17 foreclosures per thousand households, with an average loss of $2,200. In segregated white communities, the group found the rate of foreclosures was much lower, with 10 foreclosures per thousand households, and an average loss of $1,300 in each household.

Even though foreclosure activity has been on the decline, the coalition says there is evidence that the crisis is still here.

Currently, there are still millions of borrowers in negative equity, with estimates ranging from 9 million to around 13 million, and the Congressional Budget Office estimates 13 percent of underwater homeowners are seriously delinquent, which translates into a “foreclosure-in-waiting,” according to the report.

As the industry faces the threat of foreclosure from these delinquent, underwater borrowers, the report estimates nearly $221 billion in additional wealth could be lost if no action is taken to prevent foreclosures.

“America is not only still in the midst of a crisis, but faces the prospect of this crisis stalling an already uneven and uncertain economic recovery,” the report stated.

The group recommended the use of principal reduction to prevent underwater borrowers from going into foreclosure and to improve the overall economy.

“Writing down underwater mortgages to 30-year, fixed-rate loans at current market value and current interest rates would not only preserve much of the wealth that would otherwise be lost by homeowners, their neighbors, and government, but provide a significant economic stimulus by returning wealth,” the report stated.

By allowing homeowners to spend money on other needs, goods, and services, the coalition asserted local economies will receive an added boost and more jobs will be created.

According to the report, 2012 data shows that a principal reduction program could lead to an average savings of $7,710 per year ($640 a month) for underwater homeowners, provide $101.7 billion to the economy, and create 1.5 million jobs.

Although there has been a push for the use of principal reduction on Fannie Mae and Freddie Mac loans, Edward DeMarco, acting director of the Federal Housing Finance Agency—the GSEs’ conservator and regulator—opposes the use of principal reduction, arguing it is not in the best interest of taxpayers and would lead to a moral hazard issue, or to more strategic defaults.

Report Examines Home Price Improvements by Region

The recent rebound in residential real estate investment and housing prices is proving the old adage, “Real estate is local.” While national indexes paint a picture of a recovering housing market, a closer look reveals quite a wide range of activity across the country.

In general, those markets that fared worst during the housing downturn are the ones gaining the most from the recovery, according to CoreLogic’s MarketPulse report released Tuesday.

In the Pacific and Mountain divisions, prices declined 41 percent and 39 percent, respectively, from their peaks, according to CoreLogic. Prices took 70 months to bottom out in the Pacific Division and 66 months to reach bottom in the Mountain Division.

However, the Pacific Division has been on the rebound for 12 months, during which time prices have gained 5 percentage points. The Mountain Division has been improving for 14 months, allowing prices to gain 9 percentage points.

In contrast, the West South Central and East South Central divisions gave up less ground during the housing crisis but and are now gaining less. They also took less time to bottom out—51 months and 57 months, respectively compared to the 70 and 66 months in the Pacific and Mountain divisions.

Prices in the West South Central Division, which includes Texas, declined only 9 percent during the recession and have gained back just 3 percent. Prices in the East South Central Division declined 13 percent and have regained just 1 percent so far, according to CoreLogic.

The nation recorded a 10.5 percent year-over-year price increase in March. A few Western states topped the list of price appreciation for the month. Nevada experienced a 22.2 percent increase; California experienced a 17.2 percent increase, and Arizona posted a 16.8 percent increase.

“While home building and real estate markets are finally changing for the better, some things remain the same: Real estate is still a local phenomenon,” CoreLogic stated in its report.

Two Plead Guilty for Roles in Foreclosure Rescue Scam

Two men who allegedly operated online foreclosure rescue businesses pleaded guilty to conspiracy charges, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) announced in a statement.

According to the statement, Mark S. Farhood of San Diego and Jason S. Sant of Lecanto, Florida co-owned Home Advocate Trustees, which also went by several other names, and they operated various websites that were used to deceive homeowners.

Farhood and Sant claimed their businesses purchased distressed real estate to help homeowners avoid foreclosure. Instead, the properties were used to take over hundreds of residential properties, which were then rented out for profits.

The companies told homeowners they could negotiate with lenders to purchase mortgage notes at a discount and falsely claimed a 90 percent success rate in purchasing such notes.

To stall foreclosures, Farhood and Sant also submitted fraudulent loan modification applications for the Treasury’s Home Affordable Modification Program (HAMP) without the homeowner’s knowledge or consent. This allowed Farhood and Sant to maximize profits they were receiving from rental income. The homes that Home Advocate Trustees and its entities took over eventually ended in foreclosure.

“For nearly five years, in a nationwide scheme, Farhood and Sant personally profited from desperate homeowners and exploited TARP’s housing program, HAMP,” said Christy Romero, inspector general for TARP.

Farhood and Sant each face a maximum penalty of 30 years in prison and when they are sentenced in August.

Amid reports of bidding wars are markets where the art of flipping can still be maintained. After analyzing some 600 metros in its database, RealtyTrac came up with a list of 25 markets where investors can yield the highest gross profit (the difference between average original purchase price and the eventual flipped sales price) from flipping.

For the report, flipping was defined as a situation where the sale of a home occurred within six months or less of the previous sale of the same home.

Even though foreclosure discounts aren’t where they used to be, RealtyTrac expects the practice of flipping homes to remain favorable for investors this year as home prices continue to rise.

The online foreclosure marketplace found flippers in Orlando, Florida averaged the highest gross profit at 63 percent. The average purchase price in the area was $103,701 in 2012, while the average flipped price was $168,677.

Las Vegas came in second, where flippers saw a gross profit of 53 percent last year. Phoenix, a metro known for its rapid price gains over the last year, pulled in a gross profit of 44 percent, putting it at third. Four more Florida metros were in the top 10—Tampa (No. 4), Miami (No. 6), Lakeland (No. 7) and Sarasota (No. 9). Gross profits ranged from 34 percent to 43 percent in those cities.

Tennessee metros Memphis and Nashville were also among the top 10 for their gross profits of 42 percent and 35 percent, respectively. Tucson was at No. 10, where gross profit stood at 34 percent last year.

While not among the top 10, 11 California metros were represented on the list, including San Diego, San Francisco, Sacramento, Inland Empire, and Stockton.

Out of the 25 metros, Detroit, Michigan yielded the lowest gross profit for flippers at 8 percent.

Average purchase prices for the metros ranged from $68,444 for Lakeland up to $422,526 for San Jose.

Best Markets for Single-Family Rental Investors

As the rise in single-family rents slows and operating costs increase, Radar Logic stressed the need for institutional investors to focus on properties sold at steep discounts in order to yield a profit from rentals.

In a recent research report, Radar Logic noted data from Trulia shows single-family rentals rose by just 0.1 year-over-year in March, while the National Association of Home Builders found builders are feeling the impact of rising costs, which suggests the cost for refurbishing and maintaining rental properties is also going up.

While institutional investors tend to pay less for single-family homes compared to individual homebuyers since they buy in bulk, the discounts offered for properties vary widely, depending on the market, Radar Logic explained.

In order to pinpoint markets where investors are bringing in the biggest discounts, Radar Logic tracked prices paid by large-scale investors in some 300 metro areas. The research firm then compared the median price per square foot paid by investors to all housing transactions. The analysis was limited to markets where investors have purchased at least 1,000 properties during a one-year period ending in January 2013.

Furthermore, RadarLogic says the ability to make a profit ultimately depends on appreciation in property values. Thus, the markets recommended for institutional investors are areas the firm believes are more likely to benefit from home price appreciation.

Concerning its list, however, the firm warned discounts vary within metro areas, depending on neighborhoods, and discounts also need to be weighed in with renovation costs when deciding where to invest.

Top metro areas for institutional investors

1. Pittsburgh, Pennsylvania (-64%)
2. Cleveland, Ohio (-55%)
3. Detroit, Michigan (-54%)
4. St. Louis, Missouri (-50%)
5. Cincinnati-Middletown, Ohio-Kentucky-Indiana (-49%)
6. Baltimore-Towson, Maryland (-46%)
7. Richmond, Virginia (-42%)
8. San Francisco (-38%)
9. Virginia Beach-Norfolk-Newport News, Virginia-North Carolina (-36%)
10. Cape Coral-Fort Myers, Florida (-34%)

Impact of the California Homeowner Bill of Rights on Foreclosures

The California Homeowner Bill of Rights (HBR) has acted as the main vehicle behind the recent slowdown in foreclosure sales and short sales in the Golden State, according to a research report from Barclays. In addition to stalling the foreclosure process, provisions in the new bill, which took effect January 1, 2013, have also led to an increase in litigation risk for servicers, analyst at Barclays found.

According the report, foreclosure sales and short sale activity have been dwindling over the past few months, as indicated by foreclosure-to-REO and foreclosure-to-liquidation roll rates. At the same time, roll rates in other states appear to be steady.

As a result of the HBR, Barclays believes “servicers have become significantly more cautious when carrying out foreclosure sales” in the state. While the bill offers several protections to homeowners, one particular provision that allows borrowers to sue servicers for “material violations” of HBR could result in additional costs for servicers.

Violations of the HBR include dual-tracking, failing to provide a single point-of-contact, and neglecting to deliver proper notice of loss mitigation options.

The report explained that prior to a foreclosure sale, homeowners can seek injunctive relief to halt the foreclosure process. If a homeowner secures an injunction, the borrower can pass all legal costs to the servicer through the HBR, even if no material violation of the HBR is proven later, the report explained.

“Our understanding is that securing an injunction may require only a declaration from the borrower that a material violation of the HBR has occurred and some reasonable justification for further investigation into the alleged breach. It is possible that multiple consumer rights attorneys will offer their services on a contingent basis to borrowers facing foreclosure, effectively providing the homeowner with a zero-cost option to pursue litigation,” the report stated.

If the request for an injunction is granted, legal costs could easily rise to the thousands as the court looks into the allegations. The process could also add another 6-12 months to the foreclosure process, according to the report.

“Furthermore, borrowers are much more incentivized to demand a copy of the promissory note, the chain of mortgage assignments, and the borrower’s payment history to collect evidence that a breach of HBR occurred, further stalling the foreclosure process,” the report explained.

Even though California is not a judicial state, analysts suspect the increase in litigation risks and the extended foreclosure timelines might cause servicers to pursue more judicial foreclosures, which are exempt from the HBR’s provisions.

Few markets crashed harder than Compton when California's real estate bubble burst.

The city's northwest side saw the median home price plummet to $94,000 in 2009, down from $385,000 at the peak. Foreclosures dotted the streets. Families fled, leaving trash and old furniture behind.

"There were a lot of empty houses. It was a big mess," said real estate broker Ruben Magdaleno of Re/Max VIP.

These days, the working-class community has a new identity: comeback kid.

Northwest Compton has posted the most dramatic price jump of any area in Southern California. The median home price in the 90222 ZIP Code rose 96.8% from the second quarter of 2009 to $185,000 at the end of last year.

Southern California's housing recovery: An interactive map

Although that's still a long way from the top, it's the biggest percentage gain in the Southland, according to a Los Angeles Times analysis of data provided by real estate information firm DataQuick.

Joining Compton among the top 10 fastest-recovering ZIP Codes is a diverse group of communities:

•San Diego's hip South Park and adjacent neighborhoods (92102), up 96.4% from their bottom to $299,000 in the fourth quarter of last year.

•Los Angeles' tony Hancock Park and diverse Koreatown (90004), up 85.8% to $1,050,000.

•The beach community of Cardiff by the Sea (92007) in San Diego County, up 81% to $860,000.

•Two blue-collar sections of San Bernardino (92411 and 92405), up 79.4% to $96,000 and up 76.9% to $115,000.

•The upscale Newport Coast area in Orange County (92657), up 76.7% to $2,885,000.

•The Conejo Valley's affluent Westlake Village (91361), up 73.5% to $1,127,500.

•The San Gorgonio Pass city of Banning in Riverside County (92220), up 68.4% to $141,000.

•Escondido's central neighborhood in northern San Diego County (92025), up 67.4% to $370,000.

Overall, the Southern California median price for single-family resale homes has risen 34.5% since bottoming out at the beginning of 2009. The median price is the point at which half of homes sold for more and half for less; it is influenced by the type of homes sold.

The median peaked at $550,000 during the second quarter of 2007 before crashing to $249,000 during the first quarter of 2009, according to DataQuick. At the end of last year, home buyers shelled out a median of $335,000 for a resale home.

"For the typical person who bought at the peak, they are still a long way away," said Richard Green, director of USC's Lusk Center for Real Estate.

So why the big gains in markets as dissimilar as Compton and Newport Coast? In general, those areas got hit harder during the meltdown and so now are particularly attractive to bargain hunters.

Trulia: Owning A Home Costs 44% Less than Renting

Home price gains may be outpacing increases in rent, but the cost of being a homeowner is still much less than that of a renter, according to Trulia’s Winter 2013 Rent vs. Buy report.

After factoring all cost components including transaction costs, taxes, and opportunity costs, Trulia found buying a home is 44 percent cheaper than renting, down slightly from 46 percent a year ago.

“Although buying a home is still cheaper than renting, the gap is closing,” said Jed Kolko, Trulia’s chief economist. “In 2013, home prices should rise faster than rents, and mortgage rates are likely to rise in the next year as the economy improves. By next year, buying could be more expensive than renting in some housing markets, even for people with the best credit.”

In the last year, asking home prices showed a 7 percent gain compared to a 3.2 percent increase in rents during the same time period, according to data from the real estate site.

Trulia explained low mortgage rates have kept the cost of owning down; for the analysis, a 3.5 percent mortgage rate was assumed.

The San Francisco-based company also revealed that out of the 100 largest metros analyzed, buying was more affordable than renting in all metros.

In some metros, the cost of buying was much less than the national average. The buy-rent gap was the largest in Detroit, where buying costs 70 percent less than renting. For the next four metros in top five, the cost of owning was 63 percent less than renting; the four metros were Dayton and Cleveland in Ohio; Warren, Michigan; and Gary, Indiana.

Although owning was found to be less expensive in all metros, owners in San Francisco averaged the smallest savings at 19 percent, a steep decrease from the 35 percent savings seen in 2012.

If one were to receive a mortgage rate of 4.5 percent, Trulia noted the cost of buying would be just 9 percent cheaper in San Francisco. However, a rate of 4.5 percent would still make buying more affordable than renting in all metros analyzed.

“People who didn’t buy a home last year may have missed the bottom of the market, but they haven’t completely missed the boat,” Kolko added. “Even buyers who can’t get today’s lowest mortgage rates will still find that buying makes more financial sense than renting in nearly all local markets – so long as they can get a mortgage in the first place.”

Other metros where owning may not be as enticing to borrowers based on savings were Honolulu, where the cost of owning is 23 percent cheaper, followed by San Jose (-24 percent), New York (-26 percent) and Albany (-30 percent).

No Signs of a Slowdown for Prices; Real Estate Market Poised for Supply Increase

Housing inventory is now at its lowest level since January 1994; home sales have exceeded listings for the past 25 months; and the upward trajectory in home prices starting at the end of last year continues, according to the latest “US Housing Market Monthly” from Capital Economics.

Home sales are “normal” relative to population, but supply remains low, according to the firm.

Declining foreclosures are contributing to the current environment of tight inventory. In fact, Capital Economics points out the latest data from the Mortgage Bankers Association (MBA) reveals the foreclosure inventory rate fell from 4 percent of mortgages in the third quarter of 2012 to 3.7 percent in the fourth quarter.

The foreclosure start rate has fallen to its lowest level since the second quarter of 2007—about 0.7 percent, according to MBA data.

House prices increased 9.7 percent year-over-year in January, continuing a recent trend, and prices show “no signs of an imminent slowdown,” according to Capital Economics.

Despite these increases, housing affordability remains high. As of December, the National Association of Realtors calculated affordability at 200, meaning a family earning a median-level income has double the amount needed to afford a median-priced home.

“Higher prices and mortgage rates mean that affordability will have worsened since then,” Capital Economics stated in its report. “But the bigger picture remains that the monthly costs of owning a home are currently very low.”

Homes remain undervalued compared to rents, but the gap is closing, according to the economists. In the fourth quarter of 2011 houses were undervalued between 4 percent and 10 percent compared to rents. As of the fourth quarter of 2012, houses were undervalued between 1 percent and 5 percent compared to rents.

Regardless, “house prices can keep rising for a good while yet,” according to Capital Economics, and in fact, rising prices will help prompt some homeowners to sell, helping to boost inventory, according to the firm.

While mortgage rates have risen in recent months, economists at Capital Economics believe they are “a long way from becoming a constraint on the recovery.”

Additionally, changes in mortgage rates may not mean much for a market in which mortgage applications are on the decline. According to Capital Economics, home sales have increased 44 percent since July 2010, but mortgage applications have risen just 16 percent, indicating “investors and cash buyers are still driving the recovery in activity.”

Survey: Inventory Shortage Frustrates Buyers

Prospective homebuyers are starting to feel stung as the market slips away from them, according to responses in Redfin’s latest Real-Time Home-Buyer Tracker.

The survey shows a shortage of inventory and rising prices—both of which naturally benefit sellers—are creating frustration for buyers trying to get in on the ground floor of the housing recovery. According to Redfin’s findings, 79 percent of buyers who responded to the survey now believe home prices will increase in their neighborhood over the next year, up from 71 percent in Q4 2012. The share of buyers who believe prices will rise “a lot” more than doubled, increasing to 22 percent from 10 percent previously.

Forty percent of buyers said the trend of rising prices is a concern for them, up from 33 percent last quarter.

At the same time, 66 percent of buyers listed low inventory as a major concern in 2013’s first quarter, up from 59 percent in the fourth quarter. When asked what has surprised them most about their local real estate market, 38 percent of respondents mentioned a lack of inventory.

Given the situation, it seems buyers are now understanding how much of an advantage sellers currently have. Only 40 percent of buyers believe now is a good time to buy in their neighborhood, down quarter-over-quarter from 48 percent. Meanwhile, 48 percent say it is a good time to sell, up from 27 percent before.

These concerns are driving buyers to change their purchase plans, said Redfin blogger Tim Ellis.

“In response to the one-two punch of rising prices and tight inventory, more buyers are expanding their home search to new areas they haven’t considered before,” Ellis wrote on the company’s blog. “More buyers are increasing their budgets, as well. Thirty-four percent of respondents said they were ‘ready to pay more,’ up from 26 percent last quarter.”

Low interest rates were still the driving force behind most buyers’ current market presence; 58 percent selected that choice as the reason they want to buy now. Rising prices are also a factor, with 40 percent saying that is one of the reasons they’re currently in the market to purchase (up from 33 percent in last year’s fourth quarter).

While prospective buyers are clearly frustrated by the current market, most are still willing to keep trying. According to Redfin, the percentage of buyers who are “taking a break” dropped to 32 percent in the first quarter, down 6 percentage points from the last.

“Buyers are feeling the pinch and few are backing down. With expectations set for even more price increases in the coming year, anyone thinking of getting into the market as a buyer in the coming months should expect to encounter an intense market, where sellers have a clear upper hand,” Ellis wrote.”

RealtyTrac: Distressed Sales Make Up 43% of Home Sales in 2012

Foreclosure-related sales are on the decline but distressed sales continue to claim a “disproportionately high portion” of total home sales across the country, according to RealtyTrac’s most recent foreclosure and short sales report. The firm also found increases in prices for distressed properties in 2012.

Distressed property sales made up 43 percent of all home sales nationwide in 2012, according to RealtyTrac. Foreclosure-related sales made up 21 percent of all sales, while non-foreclosure short sales made up 22 percent of sales.

Together, foreclosure and REO sales decreased 6 percent from 2011 with a total of 947,995 sales over the year in 2012.

“Although foreclosure-related sales represent a shrinking share of total sales, primarily because of fewer bank-owned purchases, distressed sales are still a disproportionately high portion of the overall housing market,” said Daren Blomquist, VP at RealtyTrac.

Prices for properties in foreclosure or REO increased 4 percent year-over-year in the fourth quarter of 2012 and demonstrated a 2 percent rise from the third quarter. The average price for these properties in the fourth quarter was $171,704, according to RealtyTrac.

Blomquist pointed out distressed properties “are still selling at a significant discount compared to non-distressed properties.” However, “distressed property prices are increasing in many markets thanks to strong demand and limited inventory,” he said.

The average price for a pre-foreclosure property in the fourth quarter was $191,031, representing a 2 percent increase year-over-year. However, this remains 23 percent below the average price for a non-foreclosure property.

REO sales came at an average price of $151,998 in the fourth quarter of 2012, up 3 percent from the fourth quarter of 2011.

However, the average price for an REO is 39 percent below the average for non-foreclosure properties.

The share of REO sales declined for the year in 2012. Eleven percent of all home sales in 2012 involved REO properties, a decrease from the 13 percent share recorded for the year in 2011.

However, REO sales increased in 26 states. The highest increases were recorded in Illinois (19 percent), Pennsylvania (12 percent), and Massachusetts (12 percent).

Non-foreclosure short sales increased in each quarter of the year, ending the year with a 2 percent quarterly increase and a 17 percent yearly increase from Q4 2011.

In three states—Michigan, Florida, and Nevada—non-foreclosure short sales made up about one-third of all sales in those states, the highest share recorded compared to other states.

California claimed the highest percentage of foreclosure sales of any state, with about 38 percent of sales over the year falling into the category. However, while claiming the highest rate, California’s foreclosure sale share was still down from 2011 when 44 percent of all sales involved foreclosed properties.