If I had a housing-debate bingo card, I would have tossed it out halfway through the debate. In the only debate focused solely on domestic policy, the candidates never mentioned foreclosures, refinancing, Fannie Mae, or Freddie Mac. Instead, Romney gave a shout-out to “qualified mortgages” – which was definitely too obscure for my bingo card. What happened tonight? Two mentions of housing:
First, in his opening remarks, Obama said “housing has begun to rise.” He’s right: the housing market is in better shape today than when he took office in 2009. More surprising was that Romney didn’t argue. Romney did point out several ways that broader economic performance worsened during Obama’s presidency, but the housing market wasn’t one of them. Had Romney wanted to point to the ongoing pain from the housing crisis, he could have pointed to the stubbornly high foreclosure rate in many states or the fact that the market is still not even halfway back to normal. But he didn’t. (more…)
RISMEDIA, Saturday, June 02, 2012— Home valuations will start to climb again while adjacent consumer industries will capture significant new growth opportunities in 2012 and beyond as the U.S. housing market finally turns the corner, concludes a major new study released today by The Demand Institute. The recovery of the housing market will have far-reaching impacts in the coming years across the United States and international markets as U.S. consumers increase their spending on buying, renovating, furnishing and maintaining their homes.
Launched in February 2012 and jointly operated by The Conference Board and Nielsen, The Demand Institute is a non-profit, non-advocacy organization with a mission to illuminate where consumer demand is headed around the world.
The new report, The Shifting Nature of U.S. Housing Demand, predicts that average home prices will increase by up to 1 percent in the second half of 2012. By 2014, home prices will increase by as much as 2.5 percent. From 2015 to 2017, the study projects annual increases between 3 and 4 percent. This recovery will not be uniform across the country, and the strongest markets could capture average gains of 5 percent or more in the coming years.
“In these initial years, the prime driver of recovery won’t be new home construction, but rather demand for rental properties,” said Louise Keely, Chief Research Officer at The Demand Institute and a co-author of the report. “This is a remarkable change from previous recoveries. It is a measure of just how severe the Great Recession has been that such a wide swath of Americans had to delay, scale back, or put off entirely their dreams of home ownership.”
“In the long-term, we don’t expect home ownership rates to change,” said Bart van Ark, Chief Economist at The Conference Board and co-author of the report. “Over 80 percent of Americans in recent surveys still agree that buying a home is the best long-term investment they can make. What will be intriguing to watch is how their aspirations around home ownership are affected by this period of extended austerity.”
Between 2006 and 2011, some $7 trillion in American wealth was wiped out when home prices dropped 30 percent after dramatic climb in valuations during the housing bubble. Looking forward, the moderate growth expectations for coming years suggest a return to normalcy. As home prices continue to drop and interest rates fall further, first-time buyers and others who remained relatively cautious will be drawn back into the housing market. And, as the market recovers, so too will consumer spending.
“As the U.S. housing market strengthens, almost every consumer-facing industry will be impacted in the coming years,” said Mark Leiter, Chairman of The Demand Institute. “Business and government leaders will benefit by fully understanding the nature of this recovery. In doing so they will be better able to anticipate how consumer demand will evolve, and to formulate critical business and policy decisions to lead their organizations.”
Key Findings in the Report
In addition to the projected gains in home prices, the report discusses in detail the dynamics at work in the U.S. Housing market and the impacts across industries. What follows are highlights from the report:
• The recovery will be led by demand from buyers for rental properties, rather than, as in previous cycles, demand from buyers acquiring new or existing properties for themselves. More than 50 percent of those planning to move in the next two years say they intend to rent.
• Young people—who were particularly hard hit by the recession—and immigrants will lead the demand for rental properties. Developers and investors will fulfill it, developers by building multifamily homes for rent (that is, buildings containing two or more units, such as apartment blocks or townhouses), and investors by buying foreclosed single-family properties for the same purpose.
• Rental demand will help to clear the huge oversupply of existing homes for sale. In 2011, some 14 percent of all housing units were vacant, while almost 13 percent of mortgages were in foreclosure or delinquent—increases of 12 and 129 percent respectively over 2005 levels. It will take two to three years for this oversupply to be cleared, and at that point home ownership rates will rise and return to historical levels.
• The housing market recovery will not be uniform across the country. Some states will see annual price gains of 5 percent or more. Others will not recover for many years. The deciding factors will include the level of foreclosed inventory and rates of unemployment.
• There will also be vast differences within states. Here, additional factors count, such as whether local amenities, including access to public transport, are within walking distance of homes. By examining seven factors that influence house prices at a local level, the report identifies four categories of cities and towns in which prices will behave differently.
• The average size of the American home will shrink. Many baby boomers who delayed retirement for financial reasons during the recession will downsize. They will not be alone. The majority of Americans have seen little or no wage increase for several years, and many will scale back their housing aspirations. The size of an average new home is expected to continue to fall, reaching mid-1990s levels by 2015.
• Consumer industries including financial services, home furnishings, home remodeling will all experience shifts in demand and new growth opportunities. Part of this spending is linked to increases in wealth from improving home valuations, while an even bigger part is tied to the “transaction” of buying or selling the home which sets in motion increased demand for a wide range of products and services.
• Despite the number of Americans who have been hurt financially by the housing crash, the desire to own a home remains strong. We do not expect to see a long-term drop in ownership rates. Indeed, one survey has revealed that more than 80 percent of Americans recently thought buying a home remained the best long-term investment they could make.
The new report, The Shifting Nature of U.S. Housing Demand, can be downloaded at The Demand Institute’s website: www.demandinstitute.org.
Bank of America is testing a mortgage-to-lease program in four states. The idea: Instead of evicting homeowners who face foreclosure, it lets them stay as tenants and sells the homes to investors.
Unable to qualify for modifications on Bank of America mortgages, a few of California’s most distressed homeowners are being offered one last chance to stay in their homes: Become renters instead.
Testing a mortgage-to-lease program in the Golden State, Bank of America Corp. sent 300 letters this week inviting borrowers without other options to apply. An additional 1,500 letters will go out in the next few weeks as BofA — which also is testing the program in three other states — evaluates whether a national rollout is feasible.BofA plans to sell the homes to investors. It typically would recoup far less than what’s owed but would come out far ahead compared with where it would be after evicting borrowers, making “cash for keys” payments to help them move and selling empty and often vandalized foreclosures in the troubled housing market.
Evicted homeowners tend to look for single-family homes to rent in their own neighborhoods anyhow, so why not let them exchange the deed to the home for a lease, BofA executive Ron D. Sturzenegger said.
“It’s good for us, it’s good for the borrower and ultimately good for the community,” said Sturzenegger, who oversees 50,000 employees handling workouts and foreclosures on troubled loans.
Borrower advocates say the approach, providing a cushion for homeowners at the end of their rope, is long overdue. They point out that mortgage giant Fannie Mae has had a similar “deed-for-lease” program for 2 1/2 years for the occupants of foreclosed homes it owns.
Some investors already have been pursuing similar goals, such as the partnership that acquired Eduardo and Juanita Quezada’s home in Moreno Valley.
The Quezadas’ financial setbacks began in 2005, when they refinanced the home after a strike at the supermarket chain where they worked. The walkout wiped out their savings.
Bank of America, which serviced their loan, began foreclosure proceedings in October 2010 after the couple fell behind on payments. Lengthy efforts to qualify for a loan modification were denied, the couple said, because their household income fell short of their monthly expenses by $90.
TwinRock Partners of Newport Beach bought the three-bedroom, two-bathroom home at a foreclosure sale last year and worked out a deal to rent it to them for $1,310 a month, about $40 less than their old mortgage. Staying in place helped them at the time, but has been a difficult experience, Eduardo Quezada said.
“We both have jobs, me and my wife. I thought for sure we would work it out some way,” he said. “I had invested a lot in the house, and to walk away from it was depressing.”
The Quezadas, who started with a one-year lease and have signed on for an additional six months, are thinking of downsizing to an apartment in a better school district.
“It’s like going backward,” Quezada said. “It’s like you’re going back in time.”
TwinRock Chief Executive Alexander Philips said his partnership prefers to keep former owners as renters when it buys distressed homes. Often, though, the residents are suspicious and must be convinced of the advantages because the experience of losing ownership was so horrible.
“Once you get them through that adjustment, [they understand that] it actually makes economic sense to stay in the house,” Philips said. That’s in addition to “the comfort of being in their own house, the convenience of staying where they are, with the kids close to their friends in the neighborhood and keeping them in the same schools.”
Bank of America emphasized that its test program is limited to borrowers it selects, so homeowners can’t sign up themselves. It’s available only on mortgages the bank owns — just 15% of the home loans for which it collects payments. The other 85% are owned by investors in mortgage securities.
The homeowners must be at least 60 days behind on payments and must have been run through every available loan-modification program without success, because they either didn’t qualify or had rejected an offer from the bank.
Those willing to become renters must resubmit financial information so the bank can verify that they can afford typical rent payments for their local housing markets. If they qualify, they’ll conduct what’s known as a deed-in-lieu transaction, swapping their claim to ownership for a lease.
The leases are for a year, with options for the residents to renew for two more years. Since the damage to credit ratings from deed-in-lieu transactions is erased after three years, the renters at that point would have an easier shot at buying a home again, Sturzenegger said.
By E. Scott Reckard and Alejandro Lazo, Los Angeles TimesMay 26, 2012, 5:00 a.m.
The housing recovery will come in two phases. First, home prices will rise by just under 1 percent in the second half of 2012. In 2013, prices will rise by 1.5 percent, then go up another 2.5 percent in 2014. For the second phase, home prices will increase 3 to 3.5 percent between 2015 and 2017. These are the predictions from a report released by the Demand Institute, which is jointly operated by The Conference Board and Nielsen.
The report, titled The Shifting Nature of U.S. Housing Demand, stated investors who buy rental properties will lead phase one of the recovery, as opposed to buyers who purchase properties as their own residence.
However, Bart van Ark, chief economist at The Conference Board and co-author of the report, said the expectation for homeownership rates is not expected to change in the long-term.
“Over 80 percent of Americans in recent surveys still agree that buying a home is the best long-term investment they can make. What will be intriguing to watch is how their aspirations around home ownership are affected by this period of extended austerity,” he said.
During the first phase, the demand for rental properties will come from young people hit hard by the recession and immigrants.
As investors buy up the oversupply of homes to take advantage of low prices and rising rents, the report also predicts that this will lead to the absorption of the existing surplus, which will clear by the start of 2015.
Then, phase two will begin with higher home prices and a return to home ownership.
According to the report, currently, 11 percent of homeowners say they would like to sell their home, but about half of these homeowners say they aren’t listing their property because they won’t get the price they want.
The prediction is that once prices rise by 3 percent in 2015, homeowners will start to return to the market, increasing the volume of home sales.
Credit will also become more accessible as standards ease, leading to more renters to become buyers. The report stated a crash in demand for rental properties is unlikely.
According to the report, about $7 trillion in American wealth was lost when home prices dropped 30 percent after the housing bubble burst.
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