Missy's Real Estate News

• According to the Mortgage Bankers Association National Delinquency Survey, the foreclosure inventory rate for all loans at the end of the fourth quarter of 2009 was 4.58 percent.
• The change between the 3rd and the 4th quarter varied among states with some states showing decreases in the foreclosure inventory.
• The largest increases were in Montana and Louisiana, 13.6 and 10.0 percent respectively.
• The largest decreases in the foreclosure inventory were in Washington, California, and Virginia.
• On average across the nation, foreclosure inventories increased by about 4 percent. Total national inventory increased by 2.5 percent.

The study was based on a sample using housing values from Arlington, Texas. In the sample, 40 percent of the homes were overpriced by Zillow by more than 10 percent, with only 0.88 percent underpriced by more than 10 percent. The study also finds that 59 percent of the Zestimates fall within ±10 percent of sale price. Zillow indicated that the Zestimates for this location are at its highest accuracy level because it has the best data for this area. In addition, this was a stable market during the sample period, with house price growth of approximately 1 percent per year in 2006 and early 2007.

This study provides some evidence on what variables may have been left out of the Zillow estimation model and may be affecting its accuracy. There is no doubt that appraisal districts track occupancy and use it in their estimations; however Zillow appears to leave this out of its model even though this information is accessible through both appraisal district data and some MLS data. Zillow also prices some housing characteristics differently than the market. Specifically, vacant properties are overvalued. It appears that Zillow does not track the occupancy of a property, yet vacancy is known to affect value. The other variables that are priced differently- Garage Spaces and Number of Stories- may be the result of measurement error or perhaps failure to include these variables in the Zillow's algorithms.

Given these results, homeowners can make good use of Zillow's Zestimates, but in most cases Zillow should not be relied on to provide an accurate estimate of value. Zillow's house value estimate and related information may be useful as a quick way to learn about the relative value of houses in a neighborhood, but it appears less precise than a homeowner's own estimate of home value. Homeowner motivation and factors other than housing characteristics may make it difficult to obtain accurate prices. It appears, based on results from prior research and the current results, that homeowners are able to determine the value of their own homes better than an automated system such as Zillow.

Source: Zillow's Estimates of Single-Family Housing Values. Daniel R Hollas, Ronald C Rutherford, Thomas A Thomson. The Appraisal Journal. Chicago: Winter 2010. Vol. 78, Iss. 1; p. 26 (7 pages).

"Copyright National Association of REALTORS®, Reprinted with permission."

Economist's Commentary: Most Commonly Asked Questions on the Economy and Real Estate Market

By Lawrence Yun, Chief Economist

1. How would you characterize the current state of the housing market?

It will be a fragile recovery. Existing home sales have come down from the brisk sales pace of late last year, when buyers rushed in to meet the original homebuyer tax credit deadline. Since then, sales have come down, though they remain higher than comparable months one year ago. The rush of buyers late last year greatly aided in bringing down inventory and has begun to stabilize home values. Inventory in recent months, however, has crept upwards. Home values are not declining as sharply as they have been for the past two years, but they are not yet on definitive positive ground either, broadly speaking. Some local markets, like Boston and San Diego, are ahead in the recovery process and have shown several consecutive months of positive price gains.

2. Is another surge in homebuying anticipated as the expanded and extended tax credit deadline approaches?

Yes. Remember that home sales had been falling for nearly 4 straight years, since the frenzy of activity in 2005. Then existing home sales squeaked out a positive gain in June of last year on a year-over-year basis as the tax credit stimulus finally filtered through the system. Sales then zoomed up 23 percent in October and by a whopping 43 percent in November. Sales still remain higher in more recent months compared to a year ago, but not with the same gusto. Based on last year’s experience with when consumers respond in big numbers, we will have to wait till May and June closings for the second surge to occur. (Consumers have to sign the contract to buy by the end of April, but must close by the end of June to get the tax credit for most homebuyers, depending on qualifying conditions.) I do expect the second surge to occur, but we’ll have to wait.

3. The Federal Reserve is ending their mortgage purchase program on March 31st, which has helped keep mortgage rates at essentially rock-bottom. How much will the interest rate rise when this program ends?

The Fed has been a major buyer of mortgage-backed securities. Without this buying, mortgage rates would have been higher- perhaps notably higher, particularly so in the early months of the massive financial crisis, back in late 2008 and early 2009. However, now with the financial market stabilized and banks making profits, there appear to be plenty of private investors who are willing to purchase government-backed mortgages. Just as the Fed steps away at the end of March, the mortgage rates need not rise notably if the private investors step in. I think this will be case. After all, getting about a 5% government-guaranteed return is much more appetizing than getting a 1% return on certificates of deposit. So if the private money flows into mortgages, then the mortgage rates could remain pretty much where they have been recently. However, keep in mind that the macroeconomic forces, unrelated to the previously-mentioned Fed mortgage program, will no doubt push all interest rates higher by the year end. The economic recovery induces the Fed to step off the gas pedal and raise interest rates. Furthermore, the massive U.S. budget deficit could soon push government borrowing rates higher, which then inevitably pushes up mortgage rates.

4. What happens after the tax credit goes away? Is the housing market toast in the second half of the year?

In the immediate months after the tax credit deadline, home sales will fall notably. The rush of buyers to meet the deadline will have left very few in the pipeline. The more interesting question is what happens in the several months after the tax credit deadline, say from October and onwards. The housing recovery will depend heavily on jobs and on whether consumers have regained their confidence about home buying. Job creation naturally brings housing demand. In addition, if the home values have definitively stabilized or even show some modest increases then the many people who have been on the sideline waiting for the bottom will no longer have any further reasons to wait. According to my estimations, there appear to be more than a usual number of renters with the necessary finances to buy a home, but have chosen not to because they did not want to purchase a depreciating asset. This suggests a bottleneck in pent-up demand. If home prices show several consecutive months of stability, then there could be a rise in housing demand from these financially qualified renting households. There is no guarantee, but job creation and the removal of the ‘fear factor’ regarding home prices will provide support when the tax credit goes away.

5. What will mortgage rates be in 2011?

By December of this year, the average mortgage rate could be close to 6 percent from the current 5 percent average rate. By December of 2011, the rate could be 6.5 percent. I do not foresee the rate going above 7 percent, at least for a prolonged period, in the next two years. The reasons for the increase are due to the macroeconomic forces of a recovering economy and a very high budget deficit. But relatively benign consumer price inflation will keep the lid on mortgage rates from rising too high. For those engaged in the jumbo market, you will note that rates are already that high. But the high rate on jumbo mortgages and on construction loans is due to the lack of government backing for these loans. From about the second half of this year, the banks will clearly have built up a strong capital buffer, and any further bank profit will then be used for lending to non-government backed sectors. So the mortgage rates on jumbo and commercial real estate could indeed fall a bit due to an improvement in the bank capital situation just as rates on conventional and FHA mortgages rise from macroeconomic factors.

"Copyright National Association of REALTORS®, Reprinted with permission."

FHFA Home Price Index Released

The FHFA, Federal Housing Finance Agency, just released the March report, which gives us data about the period December 2009 through January 2010.  US house prices fell 0.6% on a seasonally adjusted basis during the period.  The U.S. Index is 13.2% below its April 2007 peak.

The FHFA monthly index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae and Freddie Mac.  For the nine Census Divisions, seasonally adjusted monthly price changes from December to January ranged from -1.8% in the East North Central Division to +2.0% in the Mountain Division.

Here is the complete report.

Mortgage and Treasury Rate Spread

Will mortgage rates remain low once the Fed ceases its purchases? The recent trend suggests that they will. However, other factors may push a broad spectrum of interest rates, including mortgage rates, up.

To examine the functioning of the mortgage market, we look at the difference, or “spread”, between the mortgage rate and the “risk free” Treasury 10-year note rate. A higher spread indicates increased stress or risk associated with mortgages and higher rates on mortgages relative to the 10-year Treasury rate. From 2004 through the end of 2007, the spread averaged around 120 basis points or 1.2 percentage points despite rising to 2 percentage points by the end of 2007. It is important to note that the spread quoted here is the daily Wall Street Journal/Treasury spread. The Freddie Mac Treasury spread followed a similar pattern though its average was 1.6 percentage points or 160 basis points from 2004 to 2007.

Mortgage and Treasury Rate Spread Graph (PDF: 50K)

The graph provided above shows the difference between the 30-year fixed rate mortgage rate--as reported by the Wall Street Journal and New York Times--and 10-year Treasury note rate, or the mortgage/Treasury spread from 2008 on. The mortgage/Treasury spread rose sharply in the fall of 2008 due to increasing mortgage delinquencies and overall illiquidity. At the end of November 2008, the Federal Reserve announced a plan to purchase agency-backed mortgage-backed securities that was implemented in January 2009. The spread responded to the action by falling because there was now a buyer restoring liquidity to the market.

As the spread began to rise in mid-February, the Federal Reserve expanded the mortgage-backed security purchase program from $500 billion to $1.25 trillion and the expansion had the intended effect of further reducing the mortgage/Treasury spread, although not all the way to its pre-crisis level. The fallout from the mortgage crisis may cause rates to stabilize at this slightly higher level as lenders rethink the riskiness of mortgage assets.

Interestingly, despite the Fed’s September 2009 announcement that it would slow purchases of mortgage-backed securities and end them by the end of March 2010, the spread has trended further lower and is around 140 basis points as of mid-March. Again this refers to the WSJ/Treasury Spread; Freddie Mac Treasury spread is even lower, at about 130 basis points in February. As long as private buyers step in to buy as the Fed ceases purchasing, the spread is unlikely to widen and therefore unlikely to lead to an appreciable rise in mortgage interest. However, other macroeconomic forces such as a recovering economy or high budget deficits may cause both the 10 year Treasury rate and 30-year fixed-rate mortgage rate to rise—a change that would not be seen by looking at the spread.

  "Copyright National Association of REALTORS®, Reprinted with permission."

While I have to admit that I missed (actually was totally unaware of) the 1st Annual Harrisburg Days, I must admit it looks like they have quite an entertaining weekend planned.  This years event will be held on Friday June 11th through Sunday June 13 – which should translate to fairly nice South Dakota weather.   The events range from an ice cream social,  a fishing derby, to Kory & the Fire Flies performing Saturday evening.  It should definitely should be a fun filled weekend.

Friday June 11
5:00 PM – 7:30 PM Ice Cream Social
6:30 PM- 8:00 PM Car Cruse
8:00 PM- 11:00 PM Concert – DriveTime Performing

Saturday June 12th, 2010
7:30 AM- 9:00 AM 5K Walk – (Sponsored by Harrisburg Family Chiropractic)
9:30 AM -11AM Parade
9:00 AM- 12AM Pancake Feed
9:00 AM -11AM Big Sioux 3 on 3 Basket ball Tournament
9:00 AM- 5:00 PM Arts Festival
12:00 PM- 4:00 PM Kids Carnival – (Sponsored by Children’s Dental Center)
12:00 PM- 3:30 PM Car Show
12:00 PM- 3:30 PM Antique Tractor Show
4:00 PM- 6:00 PM Bean Bag Competition
4:00 PM- 6:00 PM Peddle Pull – (Sponsored by Enger Farms)
7:00 PM- 11:00 PM Concert – Kory and the Fire Flies Performing

Sunday June 13th 2010
10:00 AM- 11AM Community Church Service
1:00 PM- 3:00 PM Fishing Derby – Lake Alvin

About Housing Units and Households

The Value of Household Real Estate

Daily Forecast Update: Housing Starts

By Lawrence Yun, Chief Economist

Daily Forecast Update

• NAR's monthly official forecast as of March 4th
• GDP 2010 Q1: +2.5% (down)
• GDP 2010 Q2: +1.8% (down)
• GDP 2010 Q3: +2.3%
• Unemployment rate by the mid-2010: 10.2% (up)
• Average 30-year fixed mortgage rate by the mid-2010: 5.4%

What does today's data mean for REALTORS® and consumers?

• Builders cut production in February. The multifamily housing starts took a tumble while single family starts remained at very low levels. Low demand for the more expensive newly construction homes and the lack of construction loans have greatly hampered homebuilders.
• Less home construction holds back economic growth, but it helps wean off housing inventory. The oversupply of inventory, from overproduction during the boom years and from the continued high number of foreclosed homes, needs to be burned off before housing can firmly regain stability.

Housing Starts

• Housing starts fell to 499,000 annualized units in February from 502,000 in January. The multifamily units fell 30 percent while the single family starts fell by less than one percent.
• The Midwest and the West regions saw gains while the Northeast and the South regions fell.
• Housing permits, which needs to occur before the actual digging or housing starts can happen, fell for the second straight months though modestly. That means in the upcoming six months, housing starts are assured to be at depressed levels.
• The broad housing demand has been predominantly in the lower-priced homes in the past year. Many buyers have turned towards distressed underwater and foreclosed homes. As a result the builders of luxurious homes are hardly seeing any demand. For homebuilders who specialize in lower priced home construction, many still cannot build even if they desired because of the difficulty of obtaining construction loans.
• The newly constructed housing inventory was 234,000 in January – the lowest level in 40 years. However, from a home buyer’s perspective there is still a plentiful of inventory from existing homes.
• The annual historic average is about 1.5 million. The housing starts for the full year in 2010 are only expected at 600,000 to 650,000. In 2011, housing starts may just reach 1 million.

• With high levels of foreclosures in many areas of the country, purchasing a foreclosed home has been a consideration for some buyers.

• Almost half of all buyers and 56 percent of first-time buyers considered purchasing a foreclosed home but did not, up almost 10 percentage points from last year. Most of these buyers could not find what they were looking for.

• A large share of also thought that the process was too complex or that the homes were in poor condition.

• Ten percent of all buyers ended up purchasing a foreclosed home, 4 percentage points more than last year.

   

"Copyright National Association of REALTORS®, Reprinted with permission."

• Ninety percent of sellers using an agent reported that the agent listed their home on the Internet.
• In marketing homes, real estate agents are continuing to be ever more creative with social media and video hosting web sites coming onto the survey's radar this year.
• A yard sign remained the second most frequent marketing method used by 82 percent of sellers.
• The share of sellers who used an agent and held an open house remained at 59 percent.
• Other marketing methods were much less frequently used.
• In general, marketing in print media, such as real estate magazine and newspaper advertisements, dropped significantly in comparison with other advertising media, down 8 percent and 5 percent respectively.

"Copyright National Association of REALTORS®, Reprinted with permission." 

Negative Equity Mortgage Report

According to First American CoreLogic’s most recent negative equity report more than 11.3 million--24 percent--of all residential properties with mortgages, were in negative equity at the end of the fourth quarter of 2009, up from 10.7 million and 23 percent at the end of the third quarter of 2009. An additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity. Together, negative equity and near-negative equity mortgages accounted for nearly 29 percent of all residential properties with a mortgage nationwide.

Negative equity continues to be concentrated in five states: Nevada, the highest at 70 percent of all of its mortgaged properties underwater, followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (35 percent). Among the top five states, the average negative equity share was 42 percent, compared to 15 percent for the remaining 45 states. In numerical terms, California (2.4 million) and Florida (2.2 million) had the largest number of negative equity mortgages accounting for 4.6 million, or 41 percent, of all negative equity loans.
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The net increase in the number of negative equity borrowers in Q4 2009 was 620,000, with the largest
percentage increases occurring in Nevada, Georgia and Arizona. Among the states with the highest negative equity shares, California had the smallest increase in the negative equity share, which only rose 0.4 percent to 35.1 percent. In numerical terms, Florida had the largest increase in the number of negative equity borrowers rising by more than 141,000, followed by Georgia (65,000) and Illinois (55,000).

The rise in negative equity is closely tied to increases in pre-foreclosure activity and is a major factor in changing homeowners’ default behavior. Once negative equity exceeds 25 percent, or the mortgage balance is $70,000 higher than the current property values, owners begin to default with the same propensity as investors.

The aggregate dollar value of negative equity was $801 billion, up $55 billion from $746 billion in Q3 2009. The average negative equity for an underwater borrower in Q4 was -$70,700, up from -$69,700 in Q3 2009. The segment of borrowers that are 25 percent or more in negative equity account for over $660 billion in aggregate negative equity.

Of the over 47 million homeowners with a mortgage, the average loan to value ratio (LTV) is 70 percent. More than 23 million, or 49 percent of all homeowners with a mortgage, have at least 25 percent equity in their home and over 12 million have at least 50 percent equity in their home.

"Copyright National Association of REALTORS®, Reprinted with permission."

Sioux Falls Plumbing Retrofit Rebate Programs

March 5, 11:04 AMSioux Falls Home Improvement ExaminerPenny Nickols

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Residential and non-residential customers of Sioux Falls Utilities can take advantage of the following Plumbing Retrofit Rebate Programs.

NOTE: New construction does not qualify for these rebate programs because the purpose is to conserve water by replacing old and inefficient devices.

Clothes Washer Rebate
After completing a residential application or a non-residential application, providing a sales receipt, and completing an inspection, receive up to $125 for purchasing and installing a qualifying clothes washer to replace an older model.


Toilet Rebate
After completing a residential application or a non-residential application providing a sales receipt, and completing an inspection, receive up to $75 (residential) or $50 (non-residential) for purchasing and installing a new toilet to replace a model manufactured before 1992 (look inside the tank for the date stamp). Residential rebates for replacing additional toilets are $60 for the second one and $50 for others.

Irrigation Rebates
Rain Sensors:
After completing a residential application or a non-residential application, providing a sales receipt, and completing an inspection, receive up to $50 for purchasing and installing a rain sensor to an existing irrigation system. Rebates for additional rain sensors are $35.

System Timers:
After completing a residential application or a non-residential application, providing a sales receipt, and completing an inspection, receive up to $80 for purchasing and installing a qualifying timer with additional functionality to an existing irrigation system. Rebates for additional timers are $65.

For more information, contact the Sioux Falls Public Works Administration from 8:00 a.m to 5:00 p.m., Monday through Friday.

Address: 224 West Ninth Street (first floor of City Hall), Sioux Falls, SD 57117-7402
Phone: 605-367-8600

A special day of shopping, art and entertainment downtown! Enjoy a full day and evening of culture and activity. Visit a variety of retailers, artist venues and fabulous restaurants, plus music and drinks at all your favorite hot spots!  The weather should be accommodating so come out and enjoy the day in lovely downtown Sioux Falls.  It is a great time to explore and find out what’s new.

In March we are teaming up area artists with your favorite retail and entertainment locations for a culturally rich and interactive downtown experience. And don’t forget, you can RIDE THE TROLLEY for FREE between 5-9pm!

Check out info@dtsf.com for details  on they day full of events and participants as they develop.

Soccer...Finally Coming to a South Dakota School Near You!

It is about time that South Dakota schools are finally giving soccer it's due. South Dakota high schools received the go-ahead Wednesday to add soccer as a sanctioned sport for boys and girls starting in fall 2012.  The High School Activities Association board voted 8-0 to accept a report on how to implement the sport, and 5-3 on adding it beginning in the 2012-13 school year.

South Dakota is the very last state to add soccer to the schools!  While I understand the cost factor of adding another sport will impact the schools, it is the most popular sport in the world.  Look at the city of Sioux Falls and how much money it makes from the sport of soccer.  While I don't (unfortunately) have any numbers to validate my point, I would wager that the amount of money this city makes off soccer tournaments is significant.  Soccer fields are filling up the city and I am delighted for soccer to gets in rightful place in the South Dakota school systems.