Assist2Sell

The Oracle of Omaha, in his annual letter to shareholders of Berkshire Hathaway Inc., has written, “Within a year or so, residential housing problems should largely be behind us. Prices will remain far below ‘bubble’ levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits.” The decline in the U.S. housing market has led to record foreclosures and an over-supply of housing. Buffett thinks it will take another year before housing demand catches up with supply. Buffett said reduction in new housing starts is the best way to reduce inventory overhang, and joked that the only other options are to destroy existing homes in a “tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program” or “speed up householder formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers.” Berkshire, which owns companies in the real-estate space, has su
 ffered on account of the housing slump. Clayton Homes, the pre-fab housing company owned by Berkshire, saw a drop in profit by about 9% last year, while earnings at Shaw Industries, a carpet manufacturer, dropped 30%. Buffett decried the “punitive differential” in mortgage rates between factory-built homes and site-built homes. While buyers of site-built homes obtain a 30-year loan at a little over 5% on account of guarantees offered by Fannie Mae and Freddie Mac, buyers of homes built by Berkshire companies such as Clayton pay as high as 9% on their mortgage since “very few factory-built homes qualify for agency-insured mortgages.”

According to DSNews.com a new study released by First American CoreLogic Tuesday, more than 11.3 million residential properties were in negative equity at the end of 2009. That equates to 24 percent of all homes in the United States with mortgages, up from 23 percent, or 10.7 million homes, at the end of last year’s third quarter. All told, the nation’s homeowners are a combined $801 billion underwater. First American says 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.  As of the end of last year, Nevada had the highest percentage negative equity, with 70 percent of all of its mortgage properties underwater. It was 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 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.  “Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners,” said Mark Fleming, chief economist with First American CoreLogic. “Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come.”

Case-Shiller recently released the following December home price numbers.

WASHINGTON (MarketWatch) -- Home prices in 20 major U.S. cities fell a not-seasonally adjusted 0.2% in December compared with November, according to the Case-Shiller home price index released Tuesday by Standard & Poor's. Prices were down 3.1% in the past year. A quarterly index covering the entire nation showed home prices fell 1.1% in the fourth quarter compared with the third. National home prices were down 2.5% in the past year.

Home price declines are rarely good news. These numbers were expected and given the time of year not a big surprise. The numbers for the first 2 quarters of this year will give us a better indication of where markets are headed.  

According to US Census Bureau data, the homeownership rate dipped in Q409, bringing the rate of homeowners at its lowest point since the second quarter of the year 2000.  The Q409 rate of 67.2% is down slightly from Q309’s rate of 67.6%, and is also down from Q408, when the homeownership rate was 67.5%.  Seasonally adjusted, the Q409 rate was 67.3%, down from the seasonally adjusted rate of 67.4% in Q309 and 67.6% in Q408. The seasonally adjusted homeownership rate is also at its lowest level since Q200.  Regionally, The biggest drop was in the South, where the rate declined to 69.1% from 69.7% in Q309 and 69.8% in Q408. The West declined to 62.3% from 62.7% in both Q309 and Q408. Homeownership in the Midwest decreased to 71.3% from 71.6% in Q309 and 71.4% in Q408. In the Northeast, homeownership declined to 63.9% from 64% in both Q309 and Q408.

RealtyTrac, the Irvine, California-based real estate data company, says in its Year-End 2009 Metropolitan Foreclosure Market Report that cities in four Sun Belt states accounted for all top 20 foreclosure rates in 2009 among metropolitan areas with a population of 200,000 or more.  California accounted for nine of the top 20 metro foreclosure rates, followed by Florida with eight, Nevada with two and Arizona with one.  Outside these states, the highest-ranked was Boise City-Nampa, Idaho at No. 24 with 4.66 percent of its housing units receiving at least one foreclosure notice in 2009.  "The first wave of foreclosures was driven by home prices that were unsustainable and unbelievably poor lending practices, but now we have a second wave of foreclosures that it is being driven by unemployment," Rick Sharga, senior vice president at RealtyTrac, said in an interview.  "Foreclosures will likely increase in some of the secondary markets that are the most heavily impacted by unemployment," he said.  James J. Saccacio, chief executive officer of RealtyTrac, says "Areas like Provo, Utah, Fayetteville, Ark., Portland, Ore., and Rockford, Ill., all posted foreclosure rates above the U.S. average in 2009, and markets like Honolulu, Minneapolis and Seattle saw foreclosure activity increase at more than twice the national pace over the past 12 months — although all three of those markets still had 2009 foreclosure rates that were at or below the U.S. average." Unemployment started driving foreclosures in late 2009 and will not crest until the end of 2010, he said.  Negative equity has also been one of the biggest banes of homeowners, making many unqualified for home loan refinancing and preventing some from selling.