Round two of the foreclosure fight..from Arizona to FLA

By LARRY LOCKHART, Dispatch News Editor June 02, 2009


Brace yourselves. A silver lining to the cloud of bad news surrounding the housing market may be just a mirage. Realtors and lenders are preparing for two more waves of foreclosed homes flooding the market within the next year.
Economists expect any recovery from the nation's economic downturn to be delayed until the foreclosures that helped spark the recession can be cleared out. And the folks at Fannie Mae and Freddie Mac, the federal mortgage agencies, are telling Realtors that we aren't done yet.


Recent reports show that in Casa Grande and western Pinal County, as in much of the state and nation, home sales are rising, but prices continue to fall. The number of foreclosed properties on the market now, and expected on the market soon, seems to be the driving force.

"We've been told [by Fannie Mae and Freddie Mac] that there are thousands and thousands of foreclosures in the pipeline," said Darrah Dremler, an agent with Coldwell Banker Excel Realty who specializes in foreclosure sales. "Banks are starting to price things a lot lower to clean out their inventory before this big rush hits."

Moratorium's effect

Dremler said people have overlooked the fact that lenders essentially had a moratorium on foreclosures the last several months. That allowed bargain-hunters to snap up some of the foreclosed properties on the market, reducing inventory and giving the impression that things were improving as sales numbers rose. But it also built a backlog of foreclosed properties about to inundate the market, and the apparent good news probably was fueled by worries over that next wave of foreclosures. Although sales rose, she said it's false hope given the number of foreclosures in the pipeline.

"What we're hearing is that it will be August, September when they would hit the market," Dremler said.

And that's just the first wave, she said. Another wave is likely by early next year.

"There were a lot of adjustable-rate mortgages sold," Dremler said of the period from 2003 to 2005. "They've hit the three years [before the interest rate could be raised]. They think it will start again when the five years [many ARMs had five-year terms] is up, and that starts this year. It takes about six to eight months of not being able to make payments before they get foreclosed on."

Programs' aid

Federal and state programs to stimulate sales are helping, but only to a point.

"They're definitely making it very enticing for people, it's just difficult to actually qualify for that loan," Dremler explained. "We see a lot of multiple offers, but we see a lot of fallout because buyers can't qualify."

The federal incentive is being offered as an $8,000 tax credit through the Federal Housing Administration under the Federal Recovery and Reinvestment Act. It's aimed at people who haven't owned a home in the last three years. The FHA program is really a tax-free loan, since it must be repaid eventually, and is the lesser of 10 percent of the home's purchase price or $8,000. A recent change allows it to be applied to the down payment through a bridge loan, rather than the homebuyer's having to wait months to receive the credit.

As many as half of all would-be first-time buyers do not have enough cash for a down payment and closing costs, according to building and real estate industry estimates. By advancing prospective buyers as much as $8,000 at closing, many more would be able to afford the purchase. Officials at the National Association of Home Builders say the bridge loan feature could double the total number of home purchases stimulated by the tax credit program to more than 300,000, depending on how many private lenders and state housing agencies participate.

Critics fear the down payment option will attract buyers who really can't afford the homes they are purchasing, prompting another wave of foreclosures later by repeating the process that caused the current problem.

The Arizona Department of Housing also offers help for first-time homebuyers through its Your Way Home AZ program, which provides 22 percent of the purchase price for select foreclosed homes. The assistance is in the form of a second mortgage loan with no interest, no monthly payment and the opportunity to be forgivable after a period of time. Factors for eligibility include median income, current debt-to-income ratio, using the home as a primary residence and attending a homebuyer education class.

Funding for the program is through more than $20 million made available by the U.S. Housing and Urban Development Neighborhood Stabilization Program to help stabilize the state's hardest-hit neighborhoods.

For more information on the state program, visit its Web site at http://yourwayhomeaz.com/index.html. The FHA site for the federal program is http://portal.hud.gov.

Construction slow

The market for new homes continues to lag, locally and nationally. Permits for new homes in Casa Grande are well behind year-ago levels, with only 73 permits for new homes issued during the first four months of this year. That compares to 206 in the same period last year.

Nationally, the Commerce Department said construction of homes and apartments fell 12.8 percent last month to a seasonally adjusted annual rate of 458,000 units. That's the lowest pace on record going back a half-century. Applications for new building permits nationally dropped 3.3 percent to an annual rate of 494,000, also a record low.

Commercial building permits in Casa Grande also are well behind 2008 levels, with 28 permits through April 2009 for a total valuation of nearly $5.4 million. That compares with 66 commercial permits in the first four months of 2008 with a combined valuation of just over $21 million.

Total home sales in Casa Grande and other western Pinal County communities this April were close to April 2008 levels, according to figures from Melissa Data Corp., but prices were running well below year-ago levels. For example, 94 homes sold in the 85222 ZIP Code in Casa Grande this April, compared to 113 in April 2008, but the average price dropped from $166,000 last year to $116,000 this year.

First-quarter home sales figures compiled by Arizona State University's Realty Studies give the same mixed message for all of Pinal County for the first three months of this year compared to 2008: Sales of existing homes are nearly double the previous year, but foreclosed properties continue to make up nearly half of the sales and the median price has dropped precipitously since last year.

Of the 2,960 homes sold in the county in this year's first quarter, 1,260 were foreclosures. That compares with 1,680 sales in the first quarter of 2008, 785 of them foreclosures. The median price of homes sold in the first quarter of 2008 was $156,160, compared to $105,000 in the first quarter this year.

Nearly half of the homes sold in each Pinal County municipality in the first quarter of both years were foreclosures, though total sales roughly doubled over the last year. Prices declined in every city since last year, by thousands of dollars in most cases. Casa Grande's median selling price of an existing home fell from $146,000 to $111,900, the ASU figures showed, Arizona City from $114,500 to $65,450, Coolidge from $119,950 to $77,520, Eloy from $95,939 to $91,290, Florence from $141,660 to $80,000 and Maricopa from $170,000 to $113,250.

Currently, 2,692 homes are in the Multiple Listing Service in the Casa Grande, Maricopa, Stanfield, Arizona City, Eloy, Coolidge and Florence area. Of those, 797 are foreclosures and another 956 are short sales (pre-foreclosures). That means that homes that have been foreclosed, or will be in the next few months, make up 65 percent of the current listings in western Pinal County.

The supply of unsold existing homes nationally at the end of March fell 1.6 percent from a month earlier to 3.7 million, according to the National Association of Realtors, but still remained at elevated levels. With sales sluggish, it would take nearly 10 months to rid the market of those properties, compared with about 6.5 months in 2006, according to the Realtors' data. And that doesn't take into account the two waves of new foreclosures that are projected.

Still looking for a silver lining? It sounds as if we have to look further into the future, but there is hope.

"It will definitely be a cleansing of sorts," Dremler said of what the market is going through now. Not just in getting rid of a lot of bad loans, but also weeding out some lenders and others "who weren't doing the right thing."



©