Can SF really be leading a housing recovery ?

Compared with the prior month, 18 of the 20 areas covered in the S&P/Case-Shiller home-price index showed an increase on an unadjusted basis for April, led by a 2.4 percent gain in Washington and a 2.2 percent increase in San Francisco. Miami and New York were the only two cities showing a monthly decrease.

San Francisco could be reviving the U.S. housing market, Case said, if it is able to propel California, which comprises 25 percent of the national market. California accounted for the most national foreclosures during March, April and May.

Timeshares are long term financial commitments where owners do not have control over. Over 10 percent year increases are exorbitant.

…Her bill for 2010 totals $1,650, up 20% from last year plus a $250 charge to make up for “the deadbeats who have abandoned their time shares…Time-share mortgage defaults rose each quarter in 2009 compared with 2008, ARDA says. In the third quarter of last year, 2.9% of time-share mortgages went into default vs. 2.2% in 2008. About 8% of time-share mortgages were in default as of 2008. Maintenance fees have grown an average of 12% a year since 2005….ARDA’s Nusbaum says industry woes can be traced largely to developers no longer being able to package mortgage debt as asset-backed securities sold to Wall Street. … Developers have historically lent directly to customers. Cash back from investors on the sale of bundled mortgages was used to build more resorts. The mortgage-backed security market all but vanished in the 2008 financial crisis, and the industry has had to halt most new construction and cut back on free cruises, air tickets and hotel rooms given as incentives for customers listening to a sales pitch.

The downpayment requirement for $1M + homes in California is at nosebleed levels.

A total of 18,621 Golden State homes sold for a million dollars or more last year. That was down 23.8 percent from 24,436 in 2008. In 2007 it was 42,506; in 2006 it was 50,010; and in 2005 it peaked at 54,773… Among buyers who got mortgages, the median down payment was 39.4 percent of the purchase price. Bank of America, Wells Fargo and Union Bank were the top lenders for the $1 million-plus homes, according to DataQuick.

Does the housing market really need this ? What kind of recovery would result when flipping is encouraged by the FHA ?

This trend, which took hold more than a year ago, gained more ground last week when the Federal Housing Administration reversed a rule and decided to allow government-backed mortgages for homes sold and resold within 90 days. …Previously, the FHA refused to provide mortgage insurance for homes resold within 90 days to prevent fraud. A common scam was for investors to purchase a house, make minor repairs and sell it to a straw buyer who never planned to pay off their loan.

FHA, Freddie and Fannie loans are now 40 percent of the mortgage market for home purchases.

Meanwhile, prime borrowers are getting into trouble as unemployment keeps increasing and likely will do so in the next year. Can the government really hold up the market past the hump or merely preventing the inevitable. The bump in conforming limits expire at the end of the year.

In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.Rising defaults have eaten through the FHA’s cushion. Some 7.8% of FHA loans at the end of the second quarter were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, a figure roughly equal to the national average for all loans. That is up from 5.4% a year ago.

The Rising delinquencies on prime mortgages helped drive the total mortgage-delinquency rate to a record 9.24% in the second quarter, according to the Mortgage Bankers Association. The data reflect loans at least one payment past-due.

Such delinquencies on mortgages made to prime customers rose 5.8% in the second quarter, compared with a rise of 1.8% among subprime customers. Still, the delinquency rate for prime loans was 6.4%, far below the 25.4% rate for subprime loans, according to the Washington-based trade group.

Meanwhile, condo prices are tanking in SF as buyers and lenders balk at delinquent and high HOA fees.

“Many of the entry-level buyers these units were targeted at don’t have 10 or 20 percent down payments, so they’re limited to FHA financing,” says Tara-Nicholle Nelson, owner of the East Bay real estate brokerage REThink Real Estate. “Since FHA won’t lend if a certain percentage of other units are financed by federally insured loans or if too many fellow condo owners are behind on their HOA dues, some otherwise qualified buyers can’t get loans for these units.”

More signs of life in the new home sales market.
Sales of new one-family houses in July 2009 were at a seasonally adjusted annual rate of 433,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 9.6 percent (±13.4%)* above the revised June rate of 395,000, but is 13.4 percent (±12.9%) below the July 2008 estimate of 500,000.
The median sales price of new houses sold in July 2009 was $210,100; the average sales price was $269,200. The seasonally adjusted estimate of new houses for sale at the end of July was 271,000. This represents a supply of 7.5 months at the current sales rate.

Compared to January 09, sales had significant increases both in rates and prices.
Sales of new one-family houses in January 2009 were at a seasonally adjusted annual rate of 309,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.
This is 10.2 percent (±15.4%)* below the revised December rate of 344,000 and is 48.2 percent (±6.8%) below the January 2008 estimate of 597,000.
The median sales price of new houses sold in January 2009 was $201,100; the average sales price was $234,600. The seasonally adjusted estimate of new houses for sale at the end of January was 342,000. This represents a supply of 13.3 months at the current sales rate.

According to Case Schiller, homes prices went up 1.4 percent in June over May after being up 0.4 percent in May. Quarterly, prices increased 2.9 percent in Q2. This coincides with the global recovery in equity and real estate markets as liquidity is injected into the economy. Will reflation work yet one more time at the cost of the an exploding deficit ? The $8000 first time homeowner tax credit likely had an impact on sales ($8K amounts to 4.5 percent of the US median home price)

San Francisco and Cleveland led the advance with close to 6 and 10 percent jumps over last quarter while Las Vegas, Miami still went down 8 and 2 percent.

Is this the beginnings of another mini bubble ?

All-cash sales are most common where prices are low and bank-owned properties account for the lion’s share of listings. In foreclosure-ridden Pittsburg, for instance, 42.7 percent of home sales in the first three weeks of July had no record of a purchase loan, according to county data analyzed by MDA DataQuick. The median price for those transactions was $105,000….

For the same period in San Pablo, 45.1 percent of sales appeared to be cash transactions; their median price was $110,000. In the Bay Area overall, 22.2 percent of sales in the July period looked like cash transactions; their median was $200,000, DataQuick said…”As properties hit below 100 bucks a square foot and the cash-flow ratios are there, investors are out buying 10 properties at a time in some of the same areas where first-time home buyers are looking,” said Kevin Kieffer, an agent with Keller Williams Realty in Danville.

“If you buy a $150,000 home in Pittsburg, you can rent it out for $1,500 a month. But if you get a $500,000 home in Walnut Creek, renting it out for $5,000 is not going to happen.”

The rent expectations above are unrealistic given the current economy.

What is a shock is the extent at which prime mortgages are starting to spoil. Jay Brinkmann, MBA’s Chief Economist said, “While the rate of new foreclosures started was essentially unchanged from last quarter’s record high, there was a major drop in foreclosures on subprime ARM loans. The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase.”

as median prices keep falling.

Home sales across the Western region of the country posted an annual increase of nearly 4 percent in July as buyers snapped up foreclosures and first-time homeowners rushed to take advantage of a temporary tax credit, the National Association of Realtors said Friday.
Those fire-sale prices helped drag down the median home price in the West by 28 percent to $202,300.

Add to this recipe the abnormally low interest rate environment and abnormally easy credit with a dollop of government manipulation, we have a bubble.

“The baby boom generation has pushed up housing prices over the past three decades, as they steadily moved up the ladder and bought housing. So people think the last three decades are normal. But at some point boomers will start to cash out.”

On the other side, we have falling incomes and increased savings.
The latest report for June 2009 shows the continuing decrease.

Private wage and salary disbursements decreased $28.6 billion in June, compared with a decrease of $11.3 billion in May.
Goods-producing industries’ payrolls decreased $11.1 billion, compared with a decrease of $10.9 billion;
Manufacturing payrolls decreased $6.7 billion, compared with a decrease of $8.4 billion. Services-producing industries’ payrolls decreased $17.5 billion, compared with a decrease of $0.4 billion.
Government wage and salary disbursements increased $2.8 billion, compared with an increase of $4.3 billion.

Two thirds of income is from wages at (54 percent) and supplements to wages (pension, insurance at 12 percent and social security contributions at 4 percent). Government salaries amount to 9 percent , service industries at 35 percnet and a mere 10 percent from manufacturing industries. Businesses incomes contribute 10 percent, rental at 1 percent and investment incomes at 17 percent (interest at 10 and dividend at 7). Government transfer payments make up the remaining 14 percent of incomes.

Deutsche Bank projects half of the homeowners in the US will be underwater by 2011 increasing from a quarter today.

Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent. …Of option adjustable-rate mortgages — which cut payments by allowing principal balances to rise — 89 percent will be underwater in 2011, up from 77 percent, the report said.

If true, the housing market is in for a long recovery and it also means higher end homes have further to fall since lower end homes seem to be bouncing off rock bottom.