Greyfields: malls where annual sales per square foot is less than $150, or one-third the rate of sales at a successful mall. (this term is used to describe dying malls and was coined by PricewaterhouseCoopers and the Center for the New Urbanism after the term "brownfields": old industrial sites).

‘Strategic defaulters’ pay bills on time and plan ahead, study finds

By Dina ElBoghdady, Thursday, April 21, 9:22 PM

Some borrowers can’t keep up with their mortgage payments because they’re struggling to make ends meet.

Others choose not to keep up even though they can afford their monthly payments, and a new picture is emerging about who these borrowers are and why they walk away.

A growing body of research shows that these so-called “strategic defaulters” defy the tell-tale characteristics of most people whose loans go bad. They pay their bills on time, rarely exceed their credit-card limits and hardly use retail credit cards, according to a study released Thursday.

And they plan ahead.

They know their credit scores will take a hit after they fall behind on their mortgages, so they tend to open new credit cards in advance of defaulting, according to Thursday’s study, conducted by FICO, the firm that created the nation’s most widely used credit scoring system.

“These are savvy people who organize themselves,” said Andrew Jennings, FICO’s chief analytics officer. “This is a planned activity, not an impulse activity.”

This relatively new type of behavior is the latest sign of just how profoundly the mortgage crisis has reshaped consumer attitudes toward their homes and their finances. It is largely driven by plunging home values, which have left nearly a quarter of the nation’s homeowners underwater, or owing more on their mortgages than their homes are worth.

So some do the math and walk.

A team of researchers estimated that 35 percent of defaults in September may have been strategic, up from 26 percent in March 2009. But they acknowledge in a report published last month that the numbers are tough to tease out because “strategic defaulters have all the incentive to disguise themselves as people who cannot afford to pay,” according to the report by researchers from the European University Institute, Northwestern University and the University of Chicago.

That’s because lenders have become more aggressive about trying to recoup money lost on foreclosures, and they’re chasing after borrowers who they suspect have skipped out on a loan they could have paid.

In many localities — including Virginia, Maryland and the District — lenders have the right to pursue those borrowers and collect the difference between what the property sold for in foreclosure and what the borrower owed on it, also called a deficiency.

A handful of states do not allow lenders to pursue deficiencies. But in states that do, the laws vary widely. Some states limit how long the banks have to file a claim or collect the debt. Others may calculate deficiencies based on the fair-market value of the house. For instance, if a home sells for $200,000 yet its fair market value is $250,000, the borrower who owes $240,000 on the mortgage would not have a deficiency.

Many borrowers may not be aware of these laws. Instead, their decision on whether to strategically default may be tied more to emotion than anything else, the team of university researchers concluded in last month’s study.

They found that people are less willing to strategically default if they think it’s immoral. They are more likely to do it if they are angry about their financial situation or mistrust the banks and want them to be better regulated. They are also more willing to proceed if they know someone who defaulted strategically.

A year ago, another report added to the body of data being gathered about these borrowers. Those who have high credit scores and new mortgages with relatively large balances are more likely to default than those who don’t, Morgan Stanley analyst Vishwanath Tirupattur wrote.

Morgan Stanley’s analysis is cited in the FICO study and meshes with FICO’s conclusions. FICO defined strategic defaulters as borrowers who are underwater on their loans and fell 90 days behind on their mortgage yet kept up with all their other debts — a departure from the traditional pattern of a typical struggling borrower.

But Sam Khater, a senior economist at the mortgage research firm CoreLogic, said it’s important to put the numbers in perspective when trying to figure out how big a challenge these borrowers pose for the lending industry and the housing market at large.

The more people who default, for any reason, the tougher it will be for the housing market to recover. Foreclosures sell at a steep discount and drag down the value of the properties around them. Clearing them off the market is key to a rebound.

But even though 11 million homeowners in this country are underwater, only 7 percent of them have defaulted, Khater said. If every one of those loans belonged to a strategic defaulter, an unlikely scenario, it’s still a relatively small number, Khater said.

Still, “strategic default starts to make sense for borrowers who are extremely underwater on their loans with little prospect for price recovery,” Khater said. “But the factors pushing underwater borrowers toward strategic default are beginning to fade in part because home prices are nearing the bottom.”

One year ago, there were signs that housing was healing; new home sales were up and prices rising. Now, new home sales are below levels hit at the depth of the recession two years ago, and 23 percent of all borrowers -- more than 11 million homeowners -- owe lenders more than their homes are worth. The renewed weakness is keeping a lid on consumer confidence, consumption and growth.

Wells Fargo Exits Reverse-Mortgage Business on ‘Unpredictable’ Home Prices
By Dakin Campbell and Laura Marcinek - Jun 17, 2011 5:35 AM ET

Wells Fargo & Co. (WFC), the largest U.S. home lender, said it was exiting the business of reverse mortgages because of the possibility that property values will decline further, displacing as many as 1,000 employees.

“The decision was made based on today’s unpredictable home values,” the San Francisco-based lender said today in a statement distributed by Business Wire.

Reverse mortgages allow retirees to create a lifetime stream of income by tapping the equity in their homes. Lenders are repaid from the sale of the home when the borrower dies or moves. Bank of America Corp., the second-largest U.S. home lender, said in February it was retreating from the business because of “competing demands and priorities” at the Charlotte, North Carolina-based company.

“Why be in the reverse mortgage business if the equity that you’re lending, your collateral, is disintegrating?” said Terry Wakefield, a mortgage-industry consultant in Wisconsin.

Home prices slid 3.6 percent in the first quarter to the lowest level since 2003 in the S&P/Case-Shiller index of values in 20 U.S. cities.

The 1,000 employees in the business are invited to apply elsewhere in the company for jobs, according to the statement.

Wells Fargo will maintain its obligations on existing reverse-mortgage contracts, without originating new deals. The contracts represented about 1.2 percent of overall mortgage volume as of 2010, the company said.

..........Almost no locale in America suffered as severe a housing bust as Miami. Prices fell more than 50% from peak to trough - and more than 65% in terms of the Brazilian real.

"In Rio [de Janeiro's] exclusive Leblon enclave," Bloomberg News reports, "apartments sell for an average $1058 a square foot... In Miami's South Beach, the average condominium price was $354 a square foot during this year's first quarter. 'Five years ago, it was the other way around,' explains Craig Studnickly, president of a Miami real estate firm that caters to Brazilian buyers. 'Miami was trading for $500-$1,000 a foot. Rio was trading for $300 or $500. It has absolutely switched.'"

Not surprisingly, therefore, Brazilians and many other foreigners with strong currencies are snapping up select portions of America's deeply discounted real estate. To take maximum advantage of the simultaneous declines in US real estate and the US dollar, most foreign buyers purchase their properties with all-cash transactions.

"Brazilians today have the tide and the winds in their favor," Jose Nunes, owner of a Miami-based realty explains to Bloomberg News. "The exchange rate being the tide and prices here being the winds. If one of these falters, demand will also falter."

All-cash buyers are becoming an increasingly visible presence, especially in second-home markets like Miami and Phoenix. Nationwide, all-cash buyers now represent more than 30% of all homebuyers - up from about 15% two years ago and around 7% throughout the housing boom....

Mortgage Rates in U.S. Tumble to Lowest in More Than 50 Years
U.S. mortgage rates fell to the lowest in more than half a century as concern that the global economic recovery is faltering spurred demand for bonds that guide home loans, according to Freddie Mac.

The average rate for a 30-year fixed loan dropped to 4.15 percent in the week ended today from 4.32 percent, the McLean, Virginia-based mortgage financier said in a statement today. That was the lowest in more than 50 years, Freddie Mac said. The average 15-year rate fell to 3.36 percent from 3.5 percent.

The decline followed a slide in yields for 10-year Treasury notes, a benchmark for consumer debt including mortgages. The yield touched a record low today of 1.9735 percent, after Morgan Stanley cut its forecast for global growth and concern grew that Europe’s debt crisis may deepen. Lower mortgage rates have done little to boost home demand as the housing market stagnates.

“Low interest rates are helpful at the margins but it’s indicating a lot of concerns about the economy,” said Scott Brown, chief economist for Raymond James & Associates Inc. in St. Petersburg, Florida. “The move into Treasuries is driven by fear.”

Housing demand is depressed as the U.S. unemployment rate sticks above 9 percent and lenders tighten standards. Sales of previously owned homes unexpectedly dropped in July, according to a report today by the National Association of Realtors. Purchases fell 3.5 percent to a 4.67 million annual pace, the weakest since November. The median forecast of economists surveyed by Bloomberg News called for an increase in sales....

A property consultant and consumer advocate, Neil Jenman, says the most compelling proof that this is a dangerous game is that many of the country's big-name property spruikers are now spruiking US product. Obviously having decided this is more profitable than flogging overpriced units on the Gold Coast, they've linked up with US promoters to offer one-stop-shop services to Australian investors dazzled by those cheap US prices.

Which is where the second warning bell should sound.

While promoters might claim a one-stop-shop provides simplicity and convenience, it also means buyers are not given the chance to get independent opinions on their investment. Like the bad old days when spruikers advertised free flights to the Gold Coast to control potential buyers and prevent them from asking around and checking out prices of comparable real estate, a one-stop service makes buyers heavily reliant on the information provided by the seller. That can't be a good thing.

A quick search online provides a long list of companies offering their expertise in the US market to Australian investors. But they don't answer a few very simple questions.

Such as if the buying is so good, why aren't US investors snapping up these bargains? Or do we assume that Australians know more about the market than the locals do?

And where are these properties being sourced? Jenman says many properties are being bought direct from the promoters who might have paid, say, $10,000 to on-sell at a bargain $70,000 to you....................


Read more: http://www.smh.com.au/money/us-property ... z1fRObMXqM

USA December house sales were the worst in nearly half a century.

The Commerce Department said Thursday new-home sales fell 2.2 percent last month to a seasonally adjusted annual pace of 307,000. The pace is less than half the 700,000 that economists say must be sold in a healthy economy.

About 302,000 new homes were sold last year. That’s less than the 323,000 sold in 2010, making last year’s sales the worst on records dating back to 1963. And it coincides with a report last week that said 2011 was the weakest year for single-family home construction on record.

The median sales prices for new homes dropped in December to $210,300. Builders continued to [slash prices] to stay competitive in the depressed market. Associated Press

Business Insider :

Michelle Meyer, the well-known housing analyst for BofA/ML, has some bad news: The US housing crisis isn’t over. In fact, in her 2012 outlook piece, she says it’s “far from over” and that prices still have another 7% to decline nationally.

The basic problem: There are still tons more foreclosures or “liquidations” yet to come...our securitized products research team estimates another eight million homes will be liquidated over the next four years, which adds to the six million homes that have already been liquidated since 2007. All told, we expect 14 million foreclosures or a quarter of all homeowners with a mortgage.

Ms. Meyer’s estimates seem rather optimistic to us. We’d guess that US house prices will go down another 20%. Maybe more. Because, people have less money to spend on housing. Real disposable incomes are lower today than they were a year ago.

People who buy houses don’t really worry too much about the price. What concerns them is the monthly payment. They buy as much house as their monthly income will allow.

That was the real driver of the housing bubble of ’05-’07. Interest rates had been going down for 30 years, lowering monthly mortgage payments. That made it easier to pay a mortgage. Housing prices were going up steadily, giving the impression that houses were a good investment. And the mortgage industry would lend to anyone, solvent or insolvent, jobless or working, dead or alive. That put a lot of air into the housing market.

Now, interest rates are still going down, as near as we can tell. But with incomes going down and lenders much more cautious, the air has whooshed out of the market. It’s no longer pressure-packed. Now it’s vacuum-sealed.

Remember, household debt-to-income was only 70% at the beginning of the ’80s. Now, it’s 120%. In order to get it down, households need to unload debt — especially mortgage debt. That is, they need to save. Savings rates have recently fallen...to 3.5% down from 5.7%. They will probably go back up as the Great Correction continues.

Which will mean...housing will fall, maybe by 20% more.

Bill Bonner in The Daily Reckoning

US home ownership hits 15-year low - Tue 01-May-2012 - BusinessFinance

The American dream of owning a home is at its lowest point in 15 years, the latest evidence of a housing market still far from recovery five years after the housing crash. Figures released on Monday by the Census Bureau show the rate of US home ownership fell in the first three months of the year to 65.4 per cent. That's down from 66.4 per cent in the first quarter last year.

The last time the rate hit 65.4 per cent was in the first quarter of 1997. The rate peaked at 69.2 per cent in the fourth quarter of 2004, during the high-flying days of the housing boom.

Recent housing and economic data have been encouraging, prompting some economists to predict an improvement in housing this year. But few believe the US will ever return to its mid-decade peak. January and February made up the best winter in five years for US sales of previously occupied homes, although sales fell in March. Still, a report last week tracking the number of signed contracts to buy a home rose to its highest level in nearly two years in March. That could point to improved sales over the next two months.

Still, a backlog of foreclosures is expected to come on the market this year, weighing on home prices. Banks are stepping up foreclosures in about half the states after slowing sharply last year while five of the biggest mortgage lenders resolved foreclosure-abuse claims.

Many potential homebuyers are still holding off from purchasing a home. Despite recent job gains, unemployment remains high. Many buyers can't qualify for loans, and lenders are requiring higher credit scores and larger down payments. And some who can qualify are hesitant to buy because they worry home prices will keep falling.

On a regional basis, the Northeast, Midwest, South and West all posted lower ownership rates in the first quarter than a year earlier. The Midwest had the highest ownership rate at 69.5 per cent, while the West had the lowest at 59.9 per cent.

Americans 65 years or older accounted for the highest rate of ownership during the quarter at 80.9 per cent. That's stayed pretty much the same going back to 2006. Those under 35 represented the smallest group, with an ownership rate of 36.8 per cent. That's down from 37.9 per cent a year ago.

The census also sliced the latest ownership figures by race. Non-Hispanic, white Americans had a 73.5 per cent rate of ownership, down from 74.1 per cent in the prior-year quarter. Blacks had a 43.1 per cent rate, down from 44.8 a year ago. The rate for Hispanics was 46.3 per cent, down from 46.8 per cent.

It's probably not surprising that households with incomes equal to or greater than the national median family income had a higher ownership rate (80.3 per cent) than those who earned below the median (50.4 per cent). But both sides of the income divide saw their ownership rate decline.

While ownership is down, fewer homes and rental properties are empty. The first-quarter figures show national vacancy rates for rental housing slipped to 8.8 per cent, down from 9.7 per cent a year earlier. Vacancy rates among homeowners fell to 2.2 per cent from 2.6 per cent.