House committee passes bill that would authorize FHA to guarantee $300 billion in relief to troubled homeowners.
May 1, 2008: 3:48 PM EDT
NEW YORK (CNN) -- A bill meant to help homeowners caught up in the spreading mortgage crisis received committee approval Thursday after Democrats fended off numerous Republican challenges to the bill.
The bill would authorize the Federal Housing Administration to guarantee up to $300 billion in new mortgages offered by government-approved private lenders.
The House Financial Services Committee passed the bill on a vote of 42 to 21. The full House is expected to take up the measure next week, committee aides said.
The committee estimates the program could help 1.5 million homeowners who are having difficulty paying their mortgages.
Committee chairman Rep. Barney Frank, the main author of the bill, says the millions of individuals who might face foreclosure because of the expanding credit crisis deserve help, even if they made a mistake by borrowing beyond their means.
"There are people who made loans that should not have been made; there are some people that were wrong to take the loans out, some wrong to make the loans. If nothing happens and all those loans go under foreclosure, the economy suffers," he said.
Republican amendments defeated. On Wednesday, the Democratic members of the House Financial Services Committee defeated several GOP amendments to the proposal, which would have excluded people with bad credit, limited the program to low- and middle-income borrowers and eliminated a requirement that lenders accept losses. They were all defeated on mostly party-line votes.
The Bush administration also "strongly opposes" the legislation, calling the bill a "bailout." The administration expressed its objections in a letter send last week to Franks.
The bill would not authorize the government to loan money directly to homeowners, but would guarantee new mortgages offered by government-approved private lenders. The new mortgages could at most equal 90% of a home's current value.
Only homeowners who have a mortgage-debt-to-income ratio of 35% or higher and who entered into a mortgage before January would qualify for the program.
For a homeowner to get a new FHA-backed loan, the holder of the current mortgage would have to accept a loss and take a payment totaling no more than 85% of the home's value.
The government would also get a share of profits if the homeowner sold the house in the future and would have to pay the lenders only if homeowners defaulted on FHA-backed mortgages. The Financial Services committee estimates that 1 to 2% of the new loans would default, costing the government $3 billion to $6 billion.
The administration touted existing FHA programs, including the FHASecure plan the president announced in August, calling them "simpler and more targeted" ways to help homeowners who are behind on their mortgage payments.
The administration says the FHASecure program will help half a million homeowners by the end of the year.
Saturday, May 3, 2008
Mortgage application volume slips
Mortgage Bankers Association's weekly application survey says volume fell 11.1% during the week ending April 25.
April 30, 2008: 7:39 AM EDT
WASHINGTON (AP) -- Mortgage application volume fell 11.1% during the week ending April 25, according to the Mortgage Bankers Association's weekly application survey.
The MBA's application index fell to 567 from 637.6 the previous week.
Refinance volume fell 16.7%, while purchase application volume decreased 4.8% during the week. Refinance applications accounted for 45.7% of total application volume.
The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.
An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 567 means mortgage application activity is 5.67 times higher than it was when the MBA began tracking the data.
The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50% of all residential retail mortgage originations each week.
Application volume fell despite declines in interest rates. The average interest rate for traditional, 30-year fixed-rate mortgages fell to 6.01% during the week ending April 25 from 6.04% the previous week.
Rates for 15-year fixed-rate mortgages, often a popular option for refinancing a loan, fell to 5.53% from 5.6%.
The average rate for one-year adjustable-rate mortgages declined to 6.86% from 6.93%.
April 30, 2008: 7:39 AM EDT
WASHINGTON (AP) -- Mortgage application volume fell 11.1% during the week ending April 25, according to the Mortgage Bankers Association's weekly application survey.
The MBA's application index fell to 567 from 637.6 the previous week.
Refinance volume fell 16.7%, while purchase application volume decreased 4.8% during the week. Refinance applications accounted for 45.7% of total application volume.
The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.
An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 567 means mortgage application activity is 5.67 times higher than it was when the MBA began tracking the data.
The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50% of all residential retail mortgage originations each week.
Application volume fell despite declines in interest rates. The average interest rate for traditional, 30-year fixed-rate mortgages fell to 6.01% during the week ending April 25 from 6.04% the previous week.
Rates for 15-year fixed-rate mortgages, often a popular option for refinancing a loan, fell to 5.53% from 5.6%.
The average rate for one-year adjustable-rate mortgages declined to 6.86% from 6.93%.
Housing relief efforts slow as pace of foreclosures rise
Hope Now reports that it has helped keep over a half a million home owners out of foreclosure this year. Critics say that still isn't enough.
By Les Christie, CNNMoney.com staff writer
April 28, 2008: 5:32 PM EDT
NEW YORK (CNNMoney.com) -- The pace of housing rescue efforts slowed in the first quarter of the year, according to a new report, while the number of people losing their homes to foreclosure skyrocketed during the same period.
More than a half million at-risk home owners had their loans reworked during the first three months of the year, according to Hope Now, the coalition of mortgage lenders, servicers, investors and community advocates put together to help ease the foreclosure crisis. Nearly 1.4 million homeowners have gone through some sort of loan workout since July.
But the effort is not keeping pace with the rate of foreclosures.
"Unless you think the foreclosure problem [is bottoming out], the deceleration in workouts might be considered a disappointment," said economist Jared Bernstein of the Economic Policy Institute. He doesn't think that the mortgage crisis has hit its nadir yet.
"All the signs indicate that we're still headed for the bottom," said Bernstein, who is the author of Crunch: Why Do I Feel so Squeezed?. "You definitely want to see these workouts ramping up at a higher rate."
The administration-backed coalition says that through the end of March it helped 503,000 homeowners avoid foreclosure. That's up just 6% from the roughly the 473,000 borrowers it helped in the last quarter of 2007 - and a notable slowdown from the 20% increase in the number of people Hope Now helped in 2007's third quarter.
Meanwhile, the number of homes lost to bank repossessions during the first three months of 2008 totaled 205,207, up 36% from 151,403 a quarter earlier, according to Hope Now.
"Hope Now is helping some people," said Bernstein, "but not enough to hasten the [housing] correction along. It's a small piece of the puzzle."
A report last week by the State Foreclosure Prevention Working Group concluded similarly that troubled borrowers aren't getting enough help. The coalition, formed last year by 11 state attorneys general and bank regulators, pointed out that although mortgage workouts had increased, the number of at-risk borrowers had risen just as quickly, if not faster. Its conclusion: seven out of 10 home owners who needed help were not getting it.
Better workouts
The good news is that a growing percentage of troubled borrowers are getting their mortgages modified, which makes mortgage payments more affordable by either reducing the loan's balance, lowering the interest rate or both. The rest get repayment plans, which add missed payments on to monthly bills, or tack them on to the end of the mortgage.
During the first quarter 36% of the borrowers who turned to Hope Now received mortgage modifications, up from 30% of borrowers who got modifications in the last quarter of 2007 and only 19% in the third quarter of last year.
"Hope Now is providing a way for homeowners to find real solutions so that they can stay in their homes," coalition director Faith Schwartz said in a prepared statement.
Bernstein conceded that Hope Now has helped a lot of people.
"It's great as far as it goes," he said. "It just doesn't go far enough."
By Les Christie, CNNMoney.com staff writer
April 28, 2008: 5:32 PM EDT
NEW YORK (CNNMoney.com) -- The pace of housing rescue efforts slowed in the first quarter of the year, according to a new report, while the number of people losing their homes to foreclosure skyrocketed during the same period.
More than a half million at-risk home owners had their loans reworked during the first three months of the year, according to Hope Now, the coalition of mortgage lenders, servicers, investors and community advocates put together to help ease the foreclosure crisis. Nearly 1.4 million homeowners have gone through some sort of loan workout since July.
But the effort is not keeping pace with the rate of foreclosures.
"Unless you think the foreclosure problem [is bottoming out], the deceleration in workouts might be considered a disappointment," said economist Jared Bernstein of the Economic Policy Institute. He doesn't think that the mortgage crisis has hit its nadir yet.
"All the signs indicate that we're still headed for the bottom," said Bernstein, who is the author of Crunch: Why Do I Feel so Squeezed?. "You definitely want to see these workouts ramping up at a higher rate."
The administration-backed coalition says that through the end of March it helped 503,000 homeowners avoid foreclosure. That's up just 6% from the roughly the 473,000 borrowers it helped in the last quarter of 2007 - and a notable slowdown from the 20% increase in the number of people Hope Now helped in 2007's third quarter.
Meanwhile, the number of homes lost to bank repossessions during the first three months of 2008 totaled 205,207, up 36% from 151,403 a quarter earlier, according to Hope Now.
"Hope Now is helping some people," said Bernstein, "but not enough to hasten the [housing] correction along. It's a small piece of the puzzle."
A report last week by the State Foreclosure Prevention Working Group concluded similarly that troubled borrowers aren't getting enough help. The coalition, formed last year by 11 state attorneys general and bank regulators, pointed out that although mortgage workouts had increased, the number of at-risk borrowers had risen just as quickly, if not faster. Its conclusion: seven out of 10 home owners who needed help were not getting it.
Better workouts
The good news is that a growing percentage of troubled borrowers are getting their mortgages modified, which makes mortgage payments more affordable by either reducing the loan's balance, lowering the interest rate or both. The rest get repayment plans, which add missed payments on to monthly bills, or tack them on to the end of the mortgage.
During the first quarter 36% of the borrowers who turned to Hope Now received mortgage modifications, up from 30% of borrowers who got modifications in the last quarter of 2007 and only 19% in the third quarter of last year.
"Hope Now is providing a way for homeowners to find real solutions so that they can stay in their homes," coalition director Faith Schwartz said in a prepared statement.
Bernstein conceded that Hope Now has helped a lot of people.
"It's great as far as it goes," he said. "It just doesn't go far enough."
Cash-out refinancing loans shrink sharply
Freddie Mac says percentage of homeowners tapping their equity through mortgage refinancing falls to lowest level since 2004.
By Beth Braverman, CNNMoney.com contributing writer
May 2, 2008: 3:11 PM EDT
NEW YORK (CNNMoney.com) -- The percentage of homeowners who refinanced with a Freddie Mac-owned loan in the first quarter of 2008 and received mortgages with loan amounts higher than their original mortgages, fell to the lowest levels since early 2004.
New figures show that 56% of homeowners with Freddie Mac (FRE, Fortune 500) owned loans received more than $29 billion in home equity through refinancing in the quarter. This represents the smallest cash-out refinancing percentage since the second quarter of 2004. In the fourth quarter of 2007 77% of refinances involved cash out.
Because credit has become more difficult to get, the quality of borrowers qualifying for cash-out refinance loans has significantly increased, said Mark Zandi, chief economist for Moody's Economy.com.
"Lenders are only refinancing those with 50% equity or more," he said. "There are a lot of home owners out there who don't have any debt besides their mortgage."
Zandi said many of these prime borrowers decided to refinance as interest rates have sharply declined. Freddie Mac expects 30-year fixed mortgage rates to average between 5.8% and 6.0% for prime loans over 2008.
By Beth Braverman, CNNMoney.com contributing writer
May 2, 2008: 3:11 PM EDT
NEW YORK (CNNMoney.com) -- The percentage of homeowners who refinanced with a Freddie Mac-owned loan in the first quarter of 2008 and received mortgages with loan amounts higher than their original mortgages, fell to the lowest levels since early 2004.
New figures show that 56% of homeowners with Freddie Mac (FRE, Fortune 500) owned loans received more than $29 billion in home equity through refinancing in the quarter. This represents the smallest cash-out refinancing percentage since the second quarter of 2004. In the fourth quarter of 2007 77% of refinances involved cash out.
Because credit has become more difficult to get, the quality of borrowers qualifying for cash-out refinance loans has significantly increased, said Mark Zandi, chief economist for Moody's Economy.com.
"Lenders are only refinancing those with 50% equity or more," he said. "There are a lot of home owners out there who don't have any debt besides their mortgage."
Zandi said many of these prime borrowers decided to refinance as interest rates have sharply declined. Freddie Mac expects 30-year fixed mortgage rates to average between 5.8% and 6.0% for prime loans over 2008.
Good credit can't protect borrowers from bad loans
More and more home owners with high credit scores are falling behind on their mortgage payments. Here's why.
By Les Christie, CNNMoney.com staff writer
Last Updated: April 29, 2008: 2:01 PM EDT
NEW YORK (CNNMoney.com) -- A good credit score doesn't mean you can't end up in foreclosure.
Many now troubled borrowers had excellent credit when they got their mortgages. But they took out loans that they couldn't afford to buy homes that were too expensive. Credit scores alone are no guarantee that borrowers will be able to keep up with their payments.
In September 2007, the most recent month for which data is available, more than 20% of subprime mortgage borrowers with nearly perfect scores of between 840 and 850 were 60 days or more delinquent, according to First American LoanPerformance. (See correction, below.) That default rate was roughly equal to that of borrowers with much lower scores, in the 540 to 599 range.
Housing bust: Share your story
Take Trish Phillips, an office manager for an AM radio station in Florida, who bought her Ft. Lauderdale home in early 2007. She had a FICO score of 780 and a very stable work history, with 14 years at the same job. Less than a year later, however, she was in danger of losing her home.
"We used FICO scores as a huge determinant for [loan] performance, but it doesn't always work that way," said Richard Bitner, a former subprime mortgage broker and author of "Greed, Fraud & Ignorance: A Subprime Insider's Look at the Mortgage Collapse."
The problem, he explained, is that underwriters failed to take other risk factors into account, such as income, the down payment, and total household debts.
In the runup to the bubble, underwriting standards eroded just as much for people with high FICO scores as they did for people with bad credit, said Bitner.
For Phillips, the problem was the she ended up with an exotic loan called an option adjustable rate mortgage (ARM). With these loans, a borrower has the option of making minimum monthly payments that don't even cover the loan's interest. That unpaid interest is then added to the mortgage principal, which means that the loan grows bigger - and more expensive - each month.
"These loans required borrowers to have FICO scores of 700 or better to get them in the first place," said Phillips' foreclosure prevention counselor, Michael Sichenzia, of Dynamic Consulting Enterprises. "But they are defaulting at a high rate."
These loans were very profitable for brokers and lenders, who peddled them to borrowers aggressively. What's worse, loan officers used the option ARM's minimum payment to determine whether a borrower had sufficient income and assets to carry the loan, rather than the full monthly payments. That ensured the loans would get written - and nearly guaranteed that payments would become unmanageable.
Home buyers were also complicit, turning to option ARMs and other dicey loans to buy homes more expensive than they could really afford.
Trish Phillips had enough income to pay about $1,300, perhaps $1,400 a month for her home, which cost $279,900. The minimum payment on her option ARM was $1,276, but she was incurring interest of more than $2,000 a month. The difference of about $800 was added to her mortgage balance every month.
Option ARMs have what's called a negative amortization cap. If the unpaid interest accrues to as little 10% of the original principal (that varies from loan to loan), the loan reverts to a traditional mortgage, where the borrow must make full monthly payments that pay down the loan's principle.
According to Phillips, who was making the minimum payments, that meant her monthly bill would jump to $2,300 after just a couple of years and then to more than $3,000 a year after that She knew she couldn't afford it and went for help.
Phillips admits that she didn't clearly understand the loan terms before she closed on the house and says her mortgage broker didn't explain them. She had misgivings but, "I was afraid of losing the down payment," she said.
Home owners found themselves in this situation all over the nation - especially in pricey areas where many home buyers couldn't afford to get on the real estate merry-go-round without resorting to exotic loans, such as option ARMs or 2/28 hybrid ARMs. The latter feature two years of low, fixed, introductory interest rates. After that, they reset much higher and adjust every six months or so.
Just refinance
"When ARM rates were so low - 3.5%, 4% - many people, some with very high FICO scores, used them to buy houses they couldn't have afforded at 6%," said Steve Habetz, a mortgage broker in Connecticut. Home prices had run so far ahead of income that even well-paid borrowers had to stretch to buy homes.
"They anticipated home prices rising, or that they would get pay raises etc.," said Habetz. When that didn't happen, they were stuck in unaffordable loans.
"There were also a lot of unqualified loan originators and little government oversight," he said. "You had many mortgage brokers who took the path of least resistance - or the most profitable one. The elderly and minorities were often put in loans that didn't make any sense."
Borrowers were often told they could simply refinance before their mortgage rate reset using the home equity they'd accumulate as home prices rose. But of course, prices went down instead.
As for Phillips, she managed to get her loan modified, with Sichenzia's help. Her payment is now frozen for three years at $1,281 a month and her balance will not increase during that time. She hopes to refinance into a fixed rate loan before those three years are up.
And, since she succeeded in getting her mortgage modified before she even fell behind on her payments, her FICO score is still a healthy 775.
By Les Christie, CNNMoney.com staff writer
Last Updated: April 29, 2008: 2:01 PM EDT
NEW YORK (CNNMoney.com) -- A good credit score doesn't mean you can't end up in foreclosure.
Many now troubled borrowers had excellent credit when they got their mortgages. But they took out loans that they couldn't afford to buy homes that were too expensive. Credit scores alone are no guarantee that borrowers will be able to keep up with their payments.
In September 2007, the most recent month for which data is available, more than 20% of subprime mortgage borrowers with nearly perfect scores of between 840 and 850 were 60 days or more delinquent, according to First American LoanPerformance. (See correction, below.) That default rate was roughly equal to that of borrowers with much lower scores, in the 540 to 599 range.
Housing bust: Share your story
Take Trish Phillips, an office manager for an AM radio station in Florida, who bought her Ft. Lauderdale home in early 2007. She had a FICO score of 780 and a very stable work history, with 14 years at the same job. Less than a year later, however, she was in danger of losing her home.
"We used FICO scores as a huge determinant for [loan] performance, but it doesn't always work that way," said Richard Bitner, a former subprime mortgage broker and author of "Greed, Fraud & Ignorance: A Subprime Insider's Look at the Mortgage Collapse."
The problem, he explained, is that underwriters failed to take other risk factors into account, such as income, the down payment, and total household debts.
In the runup to the bubble, underwriting standards eroded just as much for people with high FICO scores as they did for people with bad credit, said Bitner.
For Phillips, the problem was the she ended up with an exotic loan called an option adjustable rate mortgage (ARM). With these loans, a borrower has the option of making minimum monthly payments that don't even cover the loan's interest. That unpaid interest is then added to the mortgage principal, which means that the loan grows bigger - and more expensive - each month.
"These loans required borrowers to have FICO scores of 700 or better to get them in the first place," said Phillips' foreclosure prevention counselor, Michael Sichenzia, of Dynamic Consulting Enterprises. "But they are defaulting at a high rate."
These loans were very profitable for brokers and lenders, who peddled them to borrowers aggressively. What's worse, loan officers used the option ARM's minimum payment to determine whether a borrower had sufficient income and assets to carry the loan, rather than the full monthly payments. That ensured the loans would get written - and nearly guaranteed that payments would become unmanageable.
Home buyers were also complicit, turning to option ARMs and other dicey loans to buy homes more expensive than they could really afford.
Trish Phillips had enough income to pay about $1,300, perhaps $1,400 a month for her home, which cost $279,900. The minimum payment on her option ARM was $1,276, but she was incurring interest of more than $2,000 a month. The difference of about $800 was added to her mortgage balance every month.
Option ARMs have what's called a negative amortization cap. If the unpaid interest accrues to as little 10% of the original principal (that varies from loan to loan), the loan reverts to a traditional mortgage, where the borrow must make full monthly payments that pay down the loan's principle.
According to Phillips, who was making the minimum payments, that meant her monthly bill would jump to $2,300 after just a couple of years and then to more than $3,000 a year after that She knew she couldn't afford it and went for help.
Phillips admits that she didn't clearly understand the loan terms before she closed on the house and says her mortgage broker didn't explain them. She had misgivings but, "I was afraid of losing the down payment," she said.
Home owners found themselves in this situation all over the nation - especially in pricey areas where many home buyers couldn't afford to get on the real estate merry-go-round without resorting to exotic loans, such as option ARMs or 2/28 hybrid ARMs. The latter feature two years of low, fixed, introductory interest rates. After that, they reset much higher and adjust every six months or so.
Just refinance
"When ARM rates were so low - 3.5%, 4% - many people, some with very high FICO scores, used them to buy houses they couldn't have afforded at 6%," said Steve Habetz, a mortgage broker in Connecticut. Home prices had run so far ahead of income that even well-paid borrowers had to stretch to buy homes.
"They anticipated home prices rising, or that they would get pay raises etc.," said Habetz. When that didn't happen, they were stuck in unaffordable loans.
"There were also a lot of unqualified loan originators and little government oversight," he said. "You had many mortgage brokers who took the path of least resistance - or the most profitable one. The elderly and minorities were often put in loans that didn't make any sense."
Borrowers were often told they could simply refinance before their mortgage rate reset using the home equity they'd accumulate as home prices rose. But of course, prices went down instead.
As for Phillips, she managed to get her loan modified, with Sichenzia's help. Her payment is now frozen for three years at $1,281 a month and her balance will not increase during that time. She hopes to refinance into a fixed rate loan before those three years are up.
And, since she succeeded in getting her mortgage modified before she even fell behind on her payments, her FICO score is still a healthy 775.
Vacant homes for sale hit a record high
Government report says 2.9% of U.S. homes up for sale were vacant in the first quarter.
Last Updated: April 28, 2008: 1:02 PM EDT
WASHINGTON (AP) -- The percentage of vacant homes for sale in the United States set a new record high in the first quarter of this year, the government said Monday.
The Census Bureau report shows that shows that 2.9% of U.S. homes -- excluding rental properties -- were vacant and up for sale, compared with 2.8% in the fourth quarter of 2007. It was the highest quarterly number in records going back to 1956.
That works out to 2.28 million properties, up from 2.18 million in the same quarter last year, according to the report.
The West had the biggest gain in vacancy rates among homeowners, rising to 7% in the January-March period from 6.5% in the fourth quarter of 2007. Vacancy rates fell in the Midwest and South, but rose in the Northeast. The national vacancy rate, including new and existing homes, has been steadily rising since mid-2005.
Global Insight economist Patrick Newport called the report "worrisome."
"The inventory problem has not gotten any better," Newport said. Although glut-fighting homebuilders have reined in construction, "they still will have to cut back more."
The Census Bureau's report also said that the U.S. homeownership rate remained at 67.8% in the first quarter, down from a peak of 69.2% at the end of 2004.
The housing market's five-year boom is quickly becoming a faint memory, as sales and home prices have fallen dramatically over the past two years in once hot sales areas such as California and Nevada.
Last week, a Commerce Department report said sales of new homes plunged in March to the slowest pace in 16 1/2 years.
Centex Corp. (CTX, Fortune 500), Pulte Homes Inc. (PHM, Fortune 500), Hovnanian Enterprises Inc. (HOV, Fortune 500) and other builders have been caught with unsold properties over the past year as mortgages became harder to get, sales slowed and the economy soured.
Builders have slashed prices, but the discounts have done little to lure buyers who are holding out, uncertain about when the price-drop will stop.
The National Association of Realtors reported last week that sales of existing homes also fell in March, dropping by 2%, with prices declining on a year-over-year basis by 7.7%.
Last Updated: April 28, 2008: 1:02 PM EDT
WASHINGTON (AP) -- The percentage of vacant homes for sale in the United States set a new record high in the first quarter of this year, the government said Monday.
The Census Bureau report shows that shows that 2.9% of U.S. homes -- excluding rental properties -- were vacant and up for sale, compared with 2.8% in the fourth quarter of 2007. It was the highest quarterly number in records going back to 1956.
That works out to 2.28 million properties, up from 2.18 million in the same quarter last year, according to the report.
The West had the biggest gain in vacancy rates among homeowners, rising to 7% in the January-March period from 6.5% in the fourth quarter of 2007. Vacancy rates fell in the Midwest and South, but rose in the Northeast. The national vacancy rate, including new and existing homes, has been steadily rising since mid-2005.
Global Insight economist Patrick Newport called the report "worrisome."
"The inventory problem has not gotten any better," Newport said. Although glut-fighting homebuilders have reined in construction, "they still will have to cut back more."
The Census Bureau's report also said that the U.S. homeownership rate remained at 67.8% in the first quarter, down from a peak of 69.2% at the end of 2004.
The housing market's five-year boom is quickly becoming a faint memory, as sales and home prices have fallen dramatically over the past two years in once hot sales areas such as California and Nevada.
Last week, a Commerce Department report said sales of new homes plunged in March to the slowest pace in 16 1/2 years.
Centex Corp. (CTX, Fortune 500), Pulte Homes Inc. (PHM, Fortune 500), Hovnanian Enterprises Inc. (HOV, Fortune 500) and other builders have been caught with unsold properties over the past year as mortgages became harder to get, sales slowed and the economy soured.
Builders have slashed prices, but the discounts have done little to lure buyers who are holding out, uncertain about when the price-drop will stop.
The National Association of Realtors reported last week that sales of existing homes also fell in March, dropping by 2%, with prices declining on a year-over-year basis by 7.7%.
Home for sale by any means
Are you really serious about selling your home in this market? Then be prepared to try anything - and everything.
By Carolyn Bigda, Money Magazine writer-reporter
Last Updated: April 30, 2008: 9:47 AM EDT
(Money Magazine) -- For nearly two years, Adriel and Lance Bush tried unsuccessfully to sell their 1925 home in West Palm Beach, Fla. First the couple went the traditional route: They hired a realtor (three of them, in fact) who gave them standard advice, like getting rid of all the clutter caused by their twin toddler boys. They also renovated their master bath and added granite counters to the kitchen. Still no takers, which wasn't surprising: Home sales in the West Palm Beach area have fallen by double digits.
Then Lance, 43, who had already accepted a new job in Tucson, relocated his family out West. That's when the Bushes got desperate. Between the mortgage, property taxes and insurance (including hurricane coverage) on their Florida home - along with their Arizona housing expenses - the couple was shelling out more than $7,000 a month.
Though they had already slashed the price on their 3,500-square-foot Mediterranean-style home several times - from $1.3 million to $795,000, which is about what they originally paid - they were willing to go even lower.
They also got creative. For instance, they decided to consider a lease-to-own deal, which makes it easier for cash-strapped buyers to take the plunge.
And they even went so far as to hire a feng shui expert, who for a fee of $250, added minor touches around the front entrance of their home to give it more "positive" energy. "I figured it wouldn't hurt anything, so why not try it?" says Adriel, 38, a professional organizer. A few weeks later, they found a buyer.
Nine ways to enhance a home's curb appeal
Of course, the Bushes aren't saying it was feng shui that triggered the eventual sale. But in today's market, where there are more homes for sale than corn in Kansas, one thing's becoming increasingly clear: You've got to be open to anything.
At last count, there were 4 million pre-owned houses for sale. That's up 14% from the start of last year. In cities and counties hardest hit by the real estate downturn, the numbers are even more dizzying. In Orlando, for example, there are now 26,000 homes up for sale. In 2004, "we were lucky if we had 3,000," says Lydia Pisano, former president of the city's local board of realtors.
In such a hypercompetitive market, you have to go way beyond what everyone else is doing - especially if you want to move your home quickly. Old standbys like slapping a fresh coat of paint on your clapboards or throwing in a complimentary plasma TV just won't cut it.
Instead, you have to rely on guerilla marketing tactics to get your home noticed. Maybe you start pitching your home on popular message boards. Certainly you'll need to seek out buyers rather than wait for them to find you. And you can no longer limit yourself to conventional sales agreements.
Here's what you have to do to move your home quickly in today's market.
Find your hook
When Kelly Andrews, 28 and just married, decided to sell her one-bedroom Atlanta condo in February, hers was one of about a dozen on sale in a 936-unit complex. Being in public relations, though, Andrews knew to play up the condo's one unique feature: its former owners.
So she called up a reporter for the Atlanta Journal-Constitution and told a tale of how she and the two prior owners of unit No. 163 were single women who ended up finding their future husbands there. After the paper dubbed Andrews' unit "Cupid's Condo," she was flooded with calls from single women (and agents representing them).
One of those women offered to lease the unit for the precise amount of Andrews' mortgage payment. She thought this might work out even better than an outright sale, since leasing would allow her to build equity while waiting for the market to improve (Andrews hopes she can sell at a higher price).
The lesson: Highlight what makes your house special. Generic descriptions about "spacious bedrooms" or "modern appliances" are too common. "If I see one more listing that says 'sparkling pool,' I'm going to throw up," says Veronica Mullenix, a broker associate at Coldwell Banker United, Realtors in Katy, Texas.
Instead, "paint a lifestyle, a story," Mullenix says. And be as specific as you possibly can. Don't simply mention that your home is near local amenities. Let buyers know they can live within "a five-iron shot of the 15th tee."
Be a hunter, not a gatherer
In today's market, you can't wait for potential buyers to find you - you have to go to where they are. This means marketing your real estate in the virtual world.
The fact is, 84% of buyers search for homes online, more than double the percentage that did so in 2001. And looking for them online is even more important if you're in an area that appeals to out-of-town buyers. Patty Kelley, president of the Greater Las Vegas Association of Realtors, says real estate in Sin City is being bought sight unseen through sites like helloWorld.com, which allows agents to do business over a live broadcast.
In addition to traditional spots like Realtor.com, check out alternative sites where buyers are flocking, like Craigslist.org, Realestate.yahoo.com, Zillow.com, Trulia.com and Base.google.com, Google's classified section.
Because many home seekers are getting to these sites through a search engine, it's critical to offer a comprehensive description of your home, so searches will find you through any number of listed features.
And don't just look for buyers - look for people who know potential prospects. John DuPriest, a real estate broker in Penryn, Calif., suggests a simple way to generate word of mouth offline: In addition to basic marketing fliers, make up business cards with a picture of your home, contact info and the price. Cards are easier to hand out - and be passed around - than fliers.
DuPriest noted that he recently passed out four or five cards to people who looked at one of the homes he was showing. One of them gave it to a member of his church, who then passed it along to another agent, who then showed the home to his clients. It wasn't exactly viral marketing, but the property eventually sold for $495,000 - just $4,000 shy of the home's list price.
Don't just sell - swap
If you're having trouble drumming up buyers through a traditional listing, consider swapping your home. Hey, it worked with lunches in the school cafeteria, why not in the real estate market?
The idea is simple. Instead of struggling to rope in reluctant buyers, look for like-minded sellers who'll need a new place to move into once they close their own deals. In the past year, free websites such as DomuSwap.com and GoSwap.org, along with paid services like OnlineHouseTrading.com ($19.95 to list), have cropped up to bring home swappers together. Keep in mind these services are still new. A recent search on DomuSwap showed a listing of 1,021 Florida homes but only 43 in New York.
Once you post details of your property - and what you're looking for in a new home - these sites will ping you back with a list of houses that come close to your wish list whose owners are interested in a property like yours. If you find something you like, just click on it and send the owner a message. Once a match is made, the transaction can move quickly. Within four days of posting their home on DomuSwap, Sherry Crosslin, 53, and James Ray, 63, of Hampton, Va. were contacted by a prospective buyer. And nine weeks later, the deal closed.
Keep in mind, you don't have to trade for equivalent value. While it's called a swap, it's really two separate transactions, where both trading partners take out mortgages based on the price they agree to pay.
So if you're an empty-nester who wants to downsize - and pocket some of the equity you've built in your home - you might choose to swap with a younger couple with a growing family.
Lock in a future buyer now
With banks tightening lending standards, your problem might not be finding an interested buyer; it could be attracting a buyer with the means to purchase your home. One option is to give the buyer time to improve his credit or save for a bigger down payment through a lease-to-own contract.
Here's how it works: You agree to rent the property to the interested buyer. At the end of the lease, which normally lasts 18 months or less, the buyer has an option to purchase at an agreed-upon price. With the help of an attorney, you can draft these contracts however you see fit. Some homeowners, for example, charge a nonrefundable "option fee," as much as 2% of the home's value. This fee, which is typically applied to the down payment if the renter buys, also serves as a penalty if he decides against purchasing.
For the Bushes of West Palm Beach, the lease-to-own option they offered their prospective buyers helped seal their deal. That couple, who showed up shortly after the Bushes experimented with feng shui, needed time to clean up their credit report. Today their rent covers the Bushes' mortgage, insurance and property taxes - and they're expected to buy in July.
"It's a huge relief," says Adriel. "We can finally move on." She doesn't know if the lease-to-own offer turned out to be more crucial than feng shui. All she knows is that she and Lance were able to get out of the home and go on with their lives in one of the most difficult markets in recent history. Now that's positive energy.
By Carolyn Bigda, Money Magazine writer-reporter
Last Updated: April 30, 2008: 9:47 AM EDT
(Money Magazine) -- For nearly two years, Adriel and Lance Bush tried unsuccessfully to sell their 1925 home in West Palm Beach, Fla. First the couple went the traditional route: They hired a realtor (three of them, in fact) who gave them standard advice, like getting rid of all the clutter caused by their twin toddler boys. They also renovated their master bath and added granite counters to the kitchen. Still no takers, which wasn't surprising: Home sales in the West Palm Beach area have fallen by double digits.
Then Lance, 43, who had already accepted a new job in Tucson, relocated his family out West. That's when the Bushes got desperate. Between the mortgage, property taxes and insurance (including hurricane coverage) on their Florida home - along with their Arizona housing expenses - the couple was shelling out more than $7,000 a month.
Though they had already slashed the price on their 3,500-square-foot Mediterranean-style home several times - from $1.3 million to $795,000, which is about what they originally paid - they were willing to go even lower.
They also got creative. For instance, they decided to consider a lease-to-own deal, which makes it easier for cash-strapped buyers to take the plunge.
And they even went so far as to hire a feng shui expert, who for a fee of $250, added minor touches around the front entrance of their home to give it more "positive" energy. "I figured it wouldn't hurt anything, so why not try it?" says Adriel, 38, a professional organizer. A few weeks later, they found a buyer.
Nine ways to enhance a home's curb appeal
Of course, the Bushes aren't saying it was feng shui that triggered the eventual sale. But in today's market, where there are more homes for sale than corn in Kansas, one thing's becoming increasingly clear: You've got to be open to anything.
At last count, there were 4 million pre-owned houses for sale. That's up 14% from the start of last year. In cities and counties hardest hit by the real estate downturn, the numbers are even more dizzying. In Orlando, for example, there are now 26,000 homes up for sale. In 2004, "we were lucky if we had 3,000," says Lydia Pisano, former president of the city's local board of realtors.
In such a hypercompetitive market, you have to go way beyond what everyone else is doing - especially if you want to move your home quickly. Old standbys like slapping a fresh coat of paint on your clapboards or throwing in a complimentary plasma TV just won't cut it.
Instead, you have to rely on guerilla marketing tactics to get your home noticed. Maybe you start pitching your home on popular message boards. Certainly you'll need to seek out buyers rather than wait for them to find you. And you can no longer limit yourself to conventional sales agreements.
Here's what you have to do to move your home quickly in today's market.
Find your hook
When Kelly Andrews, 28 and just married, decided to sell her one-bedroom Atlanta condo in February, hers was one of about a dozen on sale in a 936-unit complex. Being in public relations, though, Andrews knew to play up the condo's one unique feature: its former owners.
So she called up a reporter for the Atlanta Journal-Constitution and told a tale of how she and the two prior owners of unit No. 163 were single women who ended up finding their future husbands there. After the paper dubbed Andrews' unit "Cupid's Condo," she was flooded with calls from single women (and agents representing them).
One of those women offered to lease the unit for the precise amount of Andrews' mortgage payment. She thought this might work out even better than an outright sale, since leasing would allow her to build equity while waiting for the market to improve (Andrews hopes she can sell at a higher price).
The lesson: Highlight what makes your house special. Generic descriptions about "spacious bedrooms" or "modern appliances" are too common. "If I see one more listing that says 'sparkling pool,' I'm going to throw up," says Veronica Mullenix, a broker associate at Coldwell Banker United, Realtors in Katy, Texas.
Instead, "paint a lifestyle, a story," Mullenix says. And be as specific as you possibly can. Don't simply mention that your home is near local amenities. Let buyers know they can live within "a five-iron shot of the 15th tee."
Be a hunter, not a gatherer
In today's market, you can't wait for potential buyers to find you - you have to go to where they are. This means marketing your real estate in the virtual world.
The fact is, 84% of buyers search for homes online, more than double the percentage that did so in 2001. And looking for them online is even more important if you're in an area that appeals to out-of-town buyers. Patty Kelley, president of the Greater Las Vegas Association of Realtors, says real estate in Sin City is being bought sight unseen through sites like helloWorld.com, which allows agents to do business over a live broadcast.
In addition to traditional spots like Realtor.com, check out alternative sites where buyers are flocking, like Craigslist.org, Realestate.yahoo.com, Zillow.com, Trulia.com and Base.google.com, Google's classified section.
Because many home seekers are getting to these sites through a search engine, it's critical to offer a comprehensive description of your home, so searches will find you through any number of listed features.
And don't just look for buyers - look for people who know potential prospects. John DuPriest, a real estate broker in Penryn, Calif., suggests a simple way to generate word of mouth offline: In addition to basic marketing fliers, make up business cards with a picture of your home, contact info and the price. Cards are easier to hand out - and be passed around - than fliers.
DuPriest noted that he recently passed out four or five cards to people who looked at one of the homes he was showing. One of them gave it to a member of his church, who then passed it along to another agent, who then showed the home to his clients. It wasn't exactly viral marketing, but the property eventually sold for $495,000 - just $4,000 shy of the home's list price.
Don't just sell - swap
If you're having trouble drumming up buyers through a traditional listing, consider swapping your home. Hey, it worked with lunches in the school cafeteria, why not in the real estate market?
The idea is simple. Instead of struggling to rope in reluctant buyers, look for like-minded sellers who'll need a new place to move into once they close their own deals. In the past year, free websites such as DomuSwap.com and GoSwap.org, along with paid services like OnlineHouseTrading.com ($19.95 to list), have cropped up to bring home swappers together. Keep in mind these services are still new. A recent search on DomuSwap showed a listing of 1,021 Florida homes but only 43 in New York.
Once you post details of your property - and what you're looking for in a new home - these sites will ping you back with a list of houses that come close to your wish list whose owners are interested in a property like yours. If you find something you like, just click on it and send the owner a message. Once a match is made, the transaction can move quickly. Within four days of posting their home on DomuSwap, Sherry Crosslin, 53, and James Ray, 63, of Hampton, Va. were contacted by a prospective buyer. And nine weeks later, the deal closed.
Keep in mind, you don't have to trade for equivalent value. While it's called a swap, it's really two separate transactions, where both trading partners take out mortgages based on the price they agree to pay.
So if you're an empty-nester who wants to downsize - and pocket some of the equity you've built in your home - you might choose to swap with a younger couple with a growing family.
Lock in a future buyer now
With banks tightening lending standards, your problem might not be finding an interested buyer; it could be attracting a buyer with the means to purchase your home. One option is to give the buyer time to improve his credit or save for a bigger down payment through a lease-to-own contract.
Here's how it works: You agree to rent the property to the interested buyer. At the end of the lease, which normally lasts 18 months or less, the buyer has an option to purchase at an agreed-upon price. With the help of an attorney, you can draft these contracts however you see fit. Some homeowners, for example, charge a nonrefundable "option fee," as much as 2% of the home's value. This fee, which is typically applied to the down payment if the renter buys, also serves as a penalty if he decides against purchasing.
For the Bushes of West Palm Beach, the lease-to-own option they offered their prospective buyers helped seal their deal. That couple, who showed up shortly after the Bushes experimented with feng shui, needed time to clean up their credit report. Today their rent covers the Bushes' mortgage, insurance and property taxes - and they're expected to buy in July.
"It's a huge relief," says Adriel. "We can finally move on." She doesn't know if the lease-to-own offer turned out to be more crucial than feng shui. All she knows is that she and Lance were able to get out of the home and go on with their lives in one of the most difficult markets in recent history. Now that's positive energy.
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