Posted on 06/09/2005 10:52:16 AM PDT by AdamSelene235
1st-time home buyers hit hardest, report on sales jump suggests
By John Rebchook, Rocky Mountain News June 9, 2005
The 30 biggest lenders in the Denver metro area sold 58.6 percent more foreclosed homes in the first quarter of the year than during the same quarter of 2004, according to a study released Wednesday.
The foreclosed sales accounted for 7 percent of all the previously owned homes sold in the first three months of the year, while they accounted for 4.6 percent of the total sales in the first quarter of 2004.
And the number of foreclosed homes sold priced under $125,000 jumped by 145 percent, according to the study by Housingmetrics Inc., headed by Boulder economist Michael Kone.
Kone and other experts blame the rising foreclosure sales, which hit first-time home buyers the hardest, on high-risk loans and a refinancing frenzy, coupled with the slower economy. Many fear that the popularity of interest-only loans and zero-down-payment programs will worsen the problem.
The positive side is that it can present an investment opportunity as well as potential home bargains in an area that for most of the past decade has had the highest home prices between the two coasts.
The number of foreclosure sales likely will continue to rise.
"It's just crazy; I've never seen it like this," said Carrie Straight of Classic Advantage Real Estate, which tries to cut deals with lenders on foreclosed homes even before the actual sale. "The phone calls to our office have probably tripled since February. But probably one-quarter of them are so far underwater, we can't help them."
She said many homeowners who lose their homes refinanced all of the equity out of them.
The report, the first of its kind in the metro area, showed that in the first three months of the year, giant lenders sold 686 homes that went through foreclosure sales, compared with 430 in the first quarter of 2004. These are known in the industry as real estate owned, or REO, properties.
The study does not include homes sold by the Department of Housing and Urban Development, which sold 222 homes in the first quarter. Kone didn't include HUD homes because he didn't have comparable data for 2004.
Lenders sold $140.057 million in homes in the first quarter, about 50 percent more than the $93.428 million sold a year earlier.
Independent broker Gary Bauer said that many people several years ago unwisely borrowed 25 percent more of the value of their home when they bought their house. Then, they couldn't afford the mortgage if they lost their jobs or got divorced.
"I am a bit surprised the numbers are so high," Bauer said. "I would have thought they would have plateaued by now."
The foreclosure sales tracked by Kone account for about 20 percent of the homes that enter the foreclosure process. Many of those ultimately aren't sold as foreclosures, because there are dozens of groups that try to work out deals with lenders before the foreclosure sale is completed.
Adams County showed the biggest increase in REO sales, with the number jumping 150 percent - from 54 to 135.
"We certainly have seen an increase in foreclosures," said Jeannie Reeser, Adams County public trustee. "I think a lot of it has to do with ARM loans. When they kick in a bit more, people can't afford the payments. I really feel bad about this. So many people out there are confused and don't know what to do."
Kone said that he's not surprised that the biggest increase in foreclosure sales is at the low end of the housing market.
"There's a pretty clear pattern here," he said. "The foreclosures seem to mimic where there is the most weakness in price appreciation. If you bought a low-end home at the peak of the market at 2000 or 2001, and then your home lost 12 percent to 15 percent of its value and you are faced with paying a broker's commission, you're clunked."
Because of the aging population, there are fewer buyers for low-end properties, he said. Also, home builders in recent years have been building more starter homes in the north metro area, increasing the supply of lower-priced homes, he said. In addition, because of low mortgage rates, many people who might have been looking at a $150,000 home in the past instead are buying $200,000 homes.
Peter Lansing, president of Universal Lending, said that higher-risk loans are one of the culprits.
"The first-time home buyer is always the highest-risk borrower," he added.
Another problem is that people have too much consumer debt, he said.
"Every year, consumers more and more use credit cards at Burger King" and for other consumer purchases and don't pay off the bill off, he said. Instead they take out home loans to make ends meet. "What ends up happening is they amortize the cost of that burger over 30 years."
Tom Clark, executive vice president of the Metro Denver Economic Development Corp., said he thinks Kone's report is "right on the button." But Clark sees the increase in REO sales as a good economic indicator.
"I think we've got a lot of bargain shoppers in the market right now," Clark said. "They want to take advantage of interest rates, which are about as low as they're going to get. One of my neighbors just bought a couple of condos at 60 percent of their value. He's going to turn them into rentals, and they'll start to cash flow right away."
Interesting, in the Phoenix area, there are hardly any foreclosures because homes have appreciated so fast, some 30% in the past year. If people cannot make their payments, they can easily sell their home for more than the mortgage balance. Perhaps the Denver area prices are not as good because the city is so liberal.
And,how, pray tell, does your theory apply to San Francisco's skyrocketing real estate?
Check when memories joined.
bttt
San Francisco is an aberration; for instance, how high would prices climb if the city was not so liberal. What if the homeless did not have the right to pee on the sidewalk and eat out of garbage cans. What if the schools did not sue to have tests given in 10 different languages. What would real estate prices be then?
It could be argued that this is a classic sign of a bubble.
San Francisco is an aberration; for instance, how high would prices climb if the city was not so liberal.What if the schools did not sue to have tests given in 10 different languages. What would real estate prices be then?
You ignore the high regulatory costs asscociated with housing in San Fran as well as the restrictions imposed on housing supply by the local government.
Ok, how about New York.
Check when NYorkerInHouston joined...
Denver doesn't capture the imagination of internet buyers, here or overseas. The well-known cities and the beautiful places are where the action has been. There are derivatives of sorts popping up, paper houses sort of like paper gold. It's going to get even stranger, in my opinion, so long as rates stay low, appreciation doesn't turn into depreciation and the stock market continues sideways. The end of all this can't be good, but it might be a few years yet. Outlook from some highly placed sources seem to think that this trend of low long term rates could continue for 3 - 5 years, dropping to as low as 3.5%.
It's scary, and I would prefer that it calm down sooner rather than later, myself. But, this is what I've read over the last few days.
This is a GOOD thing, rather see it affect the individual. Teach the ones a lesson....
Long term rates are falling not rising......
Of course, this doesn't mean you can't have a real estate bubble pop in the presence of low rates, see Japan.
The real problem is the the fact the Governement Sponsored Enterprises which pump money into the real estate market profit from the spread between short term and long term rates by borrowing short and lending long. Methinks this is the reason Fannie Mae is incapable of issuing a financial statement for the last three years.
Right about the time that all the 125% financed, no money down, zero interest loans have to be re-financed. If mortgage rates go to 8%, all these people better hope their property value went up 30% per year.
"Right about the time that all the 125% financed, no money down, zero interest loans have to be re-financed."
When finance became entangled with social engineering, we should have known to expect a huge jump in foreclosures. But, since credit standards are now discriminatory, it may well be that foreclosure will become so, too. Who knows what to expect. I honestly don't, but am watching closely.
Why rates aren't rising is baffling, as Greenspan commented a few days ago.
LT Rates aren't rising because credit and money are still loose.
Long term rates are falling, as you correctly point out, but this only makes the initial ARM rates that much more attractive.
I believe most ARMs are tied to short term rates.
Wouldn't what you're saying imply that real estate prices are more "real" than the government's inflation statistics?
I'd believe in BigFoot before I believed the CPI.
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