Compound interest: L.A.'s ultra wealthy buying the houses next door

latimes.com
As an added layer of privacy through increased acreage or as a way to tell the world they have arrived, L.A.'s wealthiest residents are increasingly buying up houses next door or adjacent to their homes to increase their personal space - particularly on the Westside and in Malibu.
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Trading Down: Can It Still Bankroll Your Retirement? .

Trading down to a smaller home is a retirement-planning staple. According to an April study by the Society of Actuaries, 20% of not-yet retirees say they plan to downsize after the last child leaves the nest.
By: M.P. MCQUEEN: wsj.com
But it is getting a lot harder to do, even for wealthier people.

A study by the Joint Center for Housing Studies at Harvard University, scheduled to be released on Monday, shows that while mobility has slowed across all age groups during the real estate bust, "mobility rates among seniors have posted the sharpest drop." Trade-downs in March comprised about 8% of total home sales, down from 12% in October 2008, the first year for which there are historical comparisons, according to the National Association of Realtors.

Why are pre-retirees staying put? The housing crash has pounded the higher end of the market, to which many 50- and 60-somethings have graduated. That has narrowed the price gaps between the upper and middle markets, meaning smaller homes aren't always much cheaper.

Making matters worse, people took an enormous amount of money out of their homes during the bubble—$358 billion in the peak year of 2005 alone, according to Goldman Sachs. So-called cash-out refinancings raised mortgage burdens sharply. That, combined with the price plunge, has wiped out trillions in home equity during the bust, making empty-nesters unable to trade down easily.

Other factors, such as job complications and dealing with adult children, are getting in the way, too.

"Unless they live in a megamansion, I haven't seen enough in savings" to justify trading down, says Steven Levey, a financial planner in Denver.

The logic of downsizing is simple. Middle-class Americans devote 20% to 50% of their budgets to housing costs, says John Henry Low, a fee-only financial planner in Pine Plains, N.Y. So people who reduce that figure significantly can improve their spending power accordingly.

Laurence Kotlikoff, an economist at Boston University and president of Economic Security Planning Inc., has developed financial-planning software to help people figure out how much they need to save for retirement. According to his calculator, which is available at www.esplanner.com/basic, a couple with a combined preretirement income of about $200,000 and living in a $900,000 paid-off home could boost their annual retirement spending from $40,314 to $47,289 just by trading down to a $450,000 home. That translates into a 17.3% higher living standard for the next 42 years, says Prof. Kotlikoff.

But Diane Saatchi, senior vice president at Saunders & Associates, a real-estate firm in Bridgehampton, N.Y., says downsizing nowadays "costs more than people have in mind." In her area, she says, total transaction costs easily exceed 10% to sell and buy simultaneously. When you add in the possibility of capital-gains taxes and moving costs, she says, "you need a big spread to make it worth the effort, and sellers often think they're going to get more than they can for the sale."

Kay Carpenter, 59 years old, and her husband Robert, 58, wanted to sell their 5,900-square-foot, seven-bedroom house in Windsor, Colo., and buy a home about half that size in Denver, where Mr. Carpenter currently commutes to his job as a hospital laboratory director.

But their current home, which they purchased for $810,000 in 2003, has received only one offer, for $575,000. "It is difficult to sell because it is a large home," Ms. Carpenter says. The couple, whose last child left the nest in 2005, are finding that they will have to spend about $450,000 for a suitable house. Throw in the transaction costs, and the financial benefit of downsizing basically disappears.

Trading down is a bit easier in some parts of the country, like the Chicago suburbs, where there is a mix of housing types and lower-tax communities co-exist with higher ones. "It's actually very typical, a classic scenario here," says Richard C. Gloor, a real-estate broker/owner in Oak Park, Ill. "More traditionally, people wait until the last kid is out of the house, five or 10 years. But now the last child is in college still and people say they don't need the space and especially don't need the taxes."

In pricey coastal cities like New York, Washington and San Francisco, desirable lower-cost housing is often hard to find in neighborhoods of upscale homes, real-estate experts say. In many affluent neighborhoods where aspiring retirees want to be, the supply of smaller homes is limited, due to zoning restrictions and high land prices. As a result, many homeowners find they would have to move a considerable distance to reduce their housing costs significantly.

Other hurdles beyond the slumping real-estate market are getting in empty-nesters' way, too. Many people of retirement age are still working, for example, and need to stay near their jobs, meaning out-of-state moves are out of the question. Some are in two-income households, complicating the decision to relocate even more.

What's more, adult children are becoming more of an issue than they used to be. In the aftermath of the Great Recession, "more and more kids are moving in with parents and grandparents," says Jim Gillespie, president and chief executive of Coldwell Banker Real Estate LLC.

Some adult children object to their parents' selling the home they grew up in because they are afraid it will cut their inheritance, says Prof. Kotlikoff. One way to address that problem: Give the children some of the sales proceeds right away.

Other strategies for living better in retirement might include paying off the mortgage, working longer or postponing taking Social Security, or increasing taxable contributions to a Roth individual retirement account, some financial planners say.

Charlie Horne, 71, a semiretired real-estate broker, and his wife, Barbara, 61, may have to use one of those strategies now that their downsizing move has turned out to be less advantageous than they had hoped. The couple recently sold their 3,000-square-foot, three-level house in Holliston, Mass., to move into a 2,200-square-foot condominium in a nearby development restricted to people 55 and older.

Their mistake: making a down payment on the new place before selling the old one. It took 11 months for the Hornes, who had owned their house for five years, to sell it, and it fetched just $540,000, far less than the $730,000 at which it was appraised the year before. The condo cost about the same with upgrades. "We thought it would be no problem [to sell]. I've been a Realtor for 52 years, and I've seen six recessions already," Mr. Horne says.

The couple's mortgage is about $380,000, or $3,900 a month. That, along with common charges of $310 per month, add up to just about as much as their old first and second mortgages and taxes. On the plus side, "the taxes were higher on the house than the condo," says Mr. Horne, who adds that he is saving money on maintenance.

Still, Mr. Horne says, if he had it to do over, he would sell the house first. "My timing was wrong," he says.
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Tax Credit Extension Could Help Tax Cheaters

Everett CollectionAs we reported Thursday, Congress is considering a proposal from Sen. Harry Reid (D., Nev.) to extend the closing deadline on the tax credit of up to $8,000 for home buyers.
By: James R. Hagerty: wsj.com
One risk of this proposal: It could help people who are trying to cheat Uncle Sam.

To qualify for the credit, buyers must have made a contract to buy the home by April 30. They are then supposed to complete the transaction by June 30. Because of the rush of people to close by then, mortgage companies and closing agents may have a hard time getting all the paper work done on time. So Realtors are pushing Congress for an extension. Sen. Reid has proposed to extend the deadline for closings to Sept. 30, so long as the buyers were under contract in April.

The danger is that this extension would also give more time to people who are merely pretending they were under contract in April and intend to backdate their documents.

Some real estate brokers see signs of dubious behavior. Glenn Kelman, chief executive of Redfin Corp., a Seattle-based broker that operates in nine states, says he started to wonder if tax fraud was on the agenda after hearing from some customers who were very insistent on closing by June 30 even though they went under contract after April 30.

Schahrzad Berkland, an agent for Fidelity Pacific Real Estate in San Diego, who helps produce analyses of that market, found that the number of homes listed as pending sales agreed upon in April continued to rise over the past few weeks. Normally, that number should decline as some deals fall through. Ms. Berkland thinks some buyers are backdating to April.

Beware: The Internal Revenue Service wants to see the paper trail. A spokesman for the IRS says people claiming the credit are required to “attach a copy of the pages from a signed contract to make a purchase showing all parties’ names and signatures, the property address, the purchase price, and the date of the contract.”

Backdating a contract would be both wrong and risky. “That would be fraud on the federal government,” notes Mark Fiedler of Coldwell Banker Legacy, Rio Rancho, N.M. “As a broker, I would not participate in that activity, although there may be others who might. My license enables me to earn a living, and the FBI is not someone I want to cozy up to.” Besides, Mr. Fiedler says, the FBI is “busy putting people in jail for mortgage fraud right now, so let’s not overwork them.”

Terry Smith, an agent at ReMax Integrity, Fort Worth, Texas, also thinks backdating is a bad idea. She says the IRS could demand to see fax dates on contracts, dates of emails discussing the deal and the date that the buyer put up a deposit as “earnest money.”

And is there really honor among thieves? Kevin Duffy, an analyst at ReMax Unlimited in Cincinnati, says: “First you would have to have all parties in agreement to fudge the dates, then hope no one gets mad and turns the (other) party into the IRS.”

Even without cheating, the tax credit will be expensive for Uncle Sam. The National Association of Realtors estimates that 4.4 million people will seek the credit at a cost of more than $30 billion.
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Banks Face Short-Sale Fraud as Home `Flopping' Spreads

Two Connecticut real estate agents found a way to profit in the U.S. housing bust: Buy low, sell fast. Their tactic was also illegal.
By: John Gittelsohn: bloomberg.com
Sergio Natera and Anna McElaney are scheduled to be sentenced in Hartford’s federal court in August after pleading guilty to fraud. Their crime involved persuading lenders to approve the sale of homes for less than the balance owed -known as a short sale - without disclosing that there were better offers. They then flipped the houses for a profit.

The Federal Bureau of Investigation, the California Department of Real Estate and mortgage finance company Freddie Mac have warned that such schemes may be spreading after a plunge in values left homeowners owing more than their properties are worth. The scams threaten to deepen losses for lenders that are increasingly agreeing to short sales as an alternative to more costly foreclosures.

“Short sales are an important tool that can help both the bank and the borrower,” said Morgan McCarty, executive vice president for mortgage servicing at Birmingham, Alabama-based Regions Bank, which lost money in the Connecticut case. “It’s just that criminals are always trying to find ways of profiting.”

Barofsky Report

An Obama administration effort to boost short sales may increase incentives for fraud, Neil Barofsky, special inspector general for the Troubled Asset Relief Program, wrote in an April 20 report to Congress. The government, through its Home Affordable Foreclosure Alternatives Program, that month began offering as much as $1,500 to servicers, $2,000 to investors and $3,000 to homeowners who close short sales.

“It appears that the program may lack necessary antifraud protections,” Barofsky wrote.

A prevalent scam involves a practice called “flopping,” Barofsky said. In that scheme, investors or home buyers hire brokers to assess a home for less than its market value and convince banks to accept a sale at that level. The buyer conceals from the lender that he has lined up a higher offer and then quickly resells the property for a profit, as in the Connecticut case.

“Flopping” occurs in more than 1 percent of short sales and may cost lenders $50 million this year, according to estimates from CoreLogic Inc., a real estate data and research company in Santa Ana, California. About 12 percent of existing home sales, or almost 622,000 houses, were short sales in the 12 months through April, data from the National Association of Realtors show.

Quick Profit

“A majority of the short-selling fraud is related to LLCs and investment companies trying to make a quick profit,” said Tim Grace, vice president of fraud analytics at CoreLogic. LLCs refer to limited liability corporations.

The Treasury has “put reasonable protections in place” to prevent short-sale fraud, requiring that the buyer and seller have no hidden relationship and banning most resales within 90 days, said Laurie Maggiano, policy director of the department’s Homeownership Preservation Office in Washington.

Suspected property-valuation fraud almost doubled from the end of 2007 through the first quarter of this year, according to a June 8 report by Interthinx Inc., an Agoura Hills, California- based company that sells mortgage fraud detection software.

In addition to banks losing money, “flopping” may hurt homeowners who complete a short sale and face higher deficiency judgments as lenders seek to recover unpaid mortgage balances, Ann Fulmer, vice president of Interthinx, said in an interview today on Bloomberg Television.

‘On the Hook’

Borrowers are “on the hook for larger deficiencies,” she said. “And there are indications that banks are increasingly turning to collection agencies and to civil lawsuits.”

Investors often use real estate broker opinions, which may rely on drive-by inspections instead of full appraisals, to persuade lenders to sell at a low price, Fulmer said in a separate interview. She suggested an Internet search of “How to influence a broker price opinion,” which yielded 74,800 results.

Near the top of the list is a video hosted by Mark Walters of CashFlowInstitute.com in Glendale, Arizona. It shows Walters feeding carrots to a pot-bellied pig while advising how to influence brokers to reduce their valuation. Among his tips: provide prices of comparable short sales to make the broker’s job easier, and be clear you want a low price.

Swaying Favor

“See if you might be able to sway what they do in your favor,” Walters says on the video.

Walters didn’t respond to e-mails, a fax and phone messages requesting comment. In the video, Walters says he learned about influencing broker price opinions from Dean Edelson, owner of Elysium Investment Group Inc. in Sedona, Arizona.

Edelson said efforts to influence broker price opinions, or BPOs, are needed to counterbalance lender pressure to inflate values. Brokers often form an opinion based on a street view of a home, unaware of hidden flaws, he said. Attempting to influence their opinion is legal as long as there is no pressure or payment to get a desired outcome, according to Edelson, who says he has completed “a few hundred” short sales since 2003.

“How is influencing a BPO fraud?” Edelson, 53, a former producer of promotional trailers for television shows including “Seinfeld” and “Frasier,” said in a telephone interview. “What’s fair market value? It’s determined by what a buyer is willing to pay for the property.”

Investors can help the real estate market by paying cash to lenders, preserving property prices by reducing vacancies and helping homeowners avoid foreclosure, Edelson said.

“Investors move inventory and help prevent market values from declining,” he said.

Taxpayer Losses

By allowing broker price opinions, the Treasury exposes taxpayers to short-sale fraud after $49 billion of government bailouts for housing, Barofsky wrote to Congress.

“As constituted now, the program permits home valuation, the key vulnerability point for a flopping scheme, without a true appraisal,” he wrote. “No program of this type and scale can be considered well designed without robust protections of taxpayer funds against the predation of criminals, particularly given the inconsistent treatment of home valuation.”

Requiring a full appraisal instead of a broker opinion doesn’t guarantee getting the accurate value, the Treasury Department’s Maggiano said.

“It’s all in the integrity of the person doing the valuation,” she said. “Clearly there are poor quality appraisers, licensed or not, and there are poor quality real estate agents, licensed or not.”

Smaller Losses

Lenders usually lose less from short sales than foreclosures, because there’s less property deterioration and repossession cost, Maggiano said. In April, the average loss in principal for prime loans that went into foreclosure was 42 percent, compared with a 33 percent loss for short sales, according to Amherst Securities Group LP, an Austin, Texas-based company that analyzes home-loan assets.

At Bank of America Corp., the largest U.S. mortgage servicer, completed short sales are on pace to more than double this year from 2009, Jumana Bauwens, a spokeswoman for the Charlotte, North Carolina-based bank, wrote in an e-mail. She declined to provide more specific data.

“We have language in our short sale approval letter that prohibits the flipping of a property and after closing we will audit transactions to identify ‘flips’ or ‘flops,’ ” Bauwens wrote. “It’s not in the best interest of our investors or communities at large to encourage or allow flipping.”

Regions Bank, a unit of Regions Financial Corp., completed 498 short sales with $175 million in unpaid principal balances in 2009, double the value of its 2008 transactions, McCarty said. The lender completed 303 short sales worth $93 million this year through May.

Short Sale Requirements

The company requires a full appraisal before a resale, McCarty said. It also demands short-sale buyers sign statements affirming the transactions are arms length, with no hidden buyer-seller relationships, and that there are no agreements to resell the property.

In the Connecticut case, Regions Bank in April 2008 agreed to a short sale of a Bridgeport house for $102,375, unaware that Natera and McElaney had a bidder willing to pay $132,500, according to the plea agreements. Eight weeks after the bank sold for a loss, the pair resold the house for a $30,125 gain.

Natera’s phone has been disconnected and he couldn’t be reached for comment. Arnold Kriss, his defense attorney in New York, declined to discuss the case before sentencing.

McElaney declined to comment when reached by phone. Her New York-based attorney, Mark Bederow, said he couldn’t discuss specifics of the case.

“The mere act of a buyer in a short sale selling again quickly isn’t per se fraudulent,” he said. “That’s business.”
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Pending home sales race to 6-month high

Pending sales of previously owned homes rose more than expected in April, scaling a six-month high as prospective home owners took advantage of a popular homebuyer tax credit, a survey showed on Wednesday.
By: Lucia Mutikani, Editing by Chizu Nomiyama: Reuters.com
The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in April, increased 6.0 percent to 110.9, the highest since October.

It was the third straight month of gains in the index, which leads existing home sales by a month or two. Pending home sales rose by a revised 7.1 percent in March, a figure previously reported as a 5.3 percent increase.

Analysts polled by Reuters had forecast pending home sales rising 5.0 percent in April.

Compared to April 2009, the index was 22.4 percent higher.

Pending home sales were boosted by a government tax credit for home buyers. Prospective buyers had to sign contracts by the end of April and close by the end of June to be eligible for a federal tax credit.

Pending home sales are measured at the time of contract signing. Existing home sales, which are counted at contract closing, are likely to increase until next month.

Given that the tax credit has pulled forward some sales, activity is expected temporarily slacken, but the strengthening economy and job market are seen supporting the housing market in the absence of additional government aid.

"The housing market has to get back on its own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs," said Lawrence Yun, chief economist with the NAR.
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Wealthy Investors Bet on Property, Stocks as Caution Reigns, Barclays Says

Wealthy investors globally are avoiding derivatives and hedge funds and turning to property and stocks following the global financial crisis and economic downturn, Barclays Wealth said, citing a survey.
By: Sophie Leung: bloomberg.com
More than half of the investors surveyed said they are more cautious than they were before the crisis, Barclays said in a statement in Hong Kong today.
About 2,000 wealthy investors who have more than 1 million pounds ($1.47 million) in investments from 20 countries participated in the survey in February and March, it said.

“The uncertainty around the prospects and timing of the global economic recovery is causing investors to favor” equities and real estate, Joanna Chu, managing director and head of North Asia at Barclays, said in the statement.

Almost 90 percent of the surveyed investors in Singapore said the property market is likely to perform well in the next 12 months, while 68 percent of the Australian respondents said they are positive on equities, according to the survey.
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Fed Officials Upbeat On U.S. Recovery

Two senior Federal Reserve officials were upbeat Monday about the U.S. economic recovery despite the worsening debt crisis in Europe, but gave no indication the Fed is anywhere near raising interest rates.
By: In-Soo Nam and William Mallard: wsj.com
“Right now, the prospects for continued growth in the U.S. remain relatively solid,” Charles Plosser, the president of the Federal Reserve Bank of Philadelphia, told a news conference during a Bank of Korea seminar in Seoul.
“I hope, I anticipate at this point that the U.S. won’t have a double-dip recession.” He added that the European crisis “raises some clouds on the horizon” and that the Fed would have to “be cautious” in response.

Charles Evans, president of the Chicago Fed, said the U.S. recovery is “well under way” but still-low inflation means the central bank should keep rates very low “for an extended period,” in line with its official policy statement.

“Inflation is severely under-running price stability, so it’s still appropriate to keep an accommodative policy,” Mr. Evans told a separate news conference at the Seoul event. “But if the situation turns rapidly, policy will need to respond more quickly.”

A few weeks ago, many analysts expected the Fed to begin raising interest rates by the end of 2010. As the situation in Europe worsened in May, those expectations have been put off and now many analysts don’t expect the Fed to move until 2011.

Mr. Evans said the European crisis would likely damp U.S. exports to a small degree but that for now it wasn’t likely to have a big impact or change the outlook for Fed policy.

Fed Chairman Ben Bernanke, addressing the Seoul conference by video, said the world’s central banks will exit their economic-stimulus policies at different times, weighing local factors as they seek to be neither hasty nor tardy in tightening, U.S. Federal Reserve Chairman Ben Bernanke said.

“Because economic conditions vary, the appropriate timing of the exit is likely to differ across countries,” Bernanke said. “To guide these important decisions, each central bank will have to carefully monitor economic developments in its own jurisdiction.”

Mr. Plosser and Mr. Evans both cited recent improvement in the U.S. labor market as promising signs for the broader recovery and predicted the improvements will continue. Mr. Plosser said many people may be surprised by how fast employment bounces back, while Mr. Evans said that if inflation expectations should surge, the Fed would need to respond quickly–shifting its current emphasis on promoting growth.

Mr. Evans, asked about the outlook for the Fed to sell back some of the massive amount of mortgage-backed securities it has bought in a bid to provide liquidity to the financial system, said he expects this would come after the Fed unwinds other emergency measures.
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Bernanke Says Central Banks May Differ on Timing of Monetary Tightening

Federal Reserve Chairman Ben S. Bernanke said central banks around the world will probably unwind monetary expansion at different times because of differences among their economies.
By: Scott Lanman: bloomberg.com
“In the medium term, like the Federal Reserve and many other central banks, the Bank of Korea will have to manage its exit from accommodative policies,” Bernanke said in pre- recorded remarks to a conference hosted by South Korea’s central bank in Seoul today. The Bank of Korea “will have to weigh the risks of a premature exit against those of leaving expansionary policies in place for too long,” Bernanke said.

The Fed chief didn’t elaborate on the outlook for the U.S. economy or monetary policy. Bernanke praised South Korea’s response to the global financial crisis over the last few years, including its decisions to reduce its policy interest rate by 3.25 percentage points and to set up a fund to keep its banking system stable.

“This suite of policy responses helped stabilize Korean financial markets and promote a swift recovery of economic activity,” Bernanke told the Bank of Korea event, according to a text distributed by the Fed in Washington.

South Korea’s stock market has erased much of its losses since late 2008, and gross domestic product has “rebounded decisively” since contracting at a 17 percent pace in the fourth quarter of 2008, he said.

Asset Purchases

In the U.S., the Fed cut its benchmark interest rate to near zero in December 2008 and purchased $1.7 trillion in Treasuries and housing debt to revive growth. Officials are debating when and how fast to raise rates and sell mortgage assets. “Because economic conditions vary, the appropriate timing of the exit is likely to differ across countries,” Bernanke said.

Countries must cooperate to improve financial regulation and ensure that firms are “well capitalized, liquid and transparent,” Bernanke said. The leadership of the Group of 20 countries is “essential” for producing effective and consistent changes, Bernanke said.

In addition, central banks “must continue to place great weight on the factors that have been shown to enhance the credibility and effectiveness of monetary policy: central bank independence, accountability and transparency, and effective communication,” the Fed chief said.
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Homeowner Confidence Rises Nationally, But Western Homeowners Remain Pessimistic

As some parts of the U.S. housing market work their way out of the housing recession, while the majority of markets continue to decline, homeowners across the country had mixed opinions of the state of their...
RISMEDIA
own homes’ values, according to the Zillow Q1 Homeowner Confidence Survey. Nationally, homeowners were overconfident, with half (50%) believing their own home’s value declined in the past year. In reality, 65% of U.S. homes declined in value, according to Zillow’s Q1 Real Estate Market Reports.

Meanwhile, 7% of homeowners, which translates to 5.3 million homes, said they would be “very likely” to put their home on the market in the next 12 months if they see signs of the housing market improving. By comparison, 5.2 million existing homes were sold during 2009. An additional 8% said they would be “likely” to put their home on the market, and another 14% said they would be “somewhat likely.” These homeowners represent “sidelined sellers,” a component of shadow inventory that if materialized, could significantly delay timing of a market recovery.

The most pessimistic homeowners reside in the West, even as home values in many California and Colorado metros have stabilized over the past year, according to the Zillow Q1 Real Estate Market Reports. Eighteen percent of Western homeowners believe that their home gained value over the past year when in reality 31% of Western homes gained value. That resulted in a Misperception Index of -12 (a Misperception Index of zero would indicate that homeowner perception is in line with reality, and a negative Misperception Index indicates that homeowners are overly cynical about their own homes’ values).

On the other end of the spectrum were Southern homeowners, who were overly optimistic, even as many Southern markets continue to see significant decreases in home values. Thirty-four percent of Southern homeowners said that their home gained value over the past year when in reality 27% of homes gained value. That resulted in a Misperception Index of 14.

Homeowners in the Northeast and Midwest recorded Misperception Indexes of -2 and 4, respectively.

“It is clear that there is a lag between market realities and public perceptions of home values. For quite a while after the market peak, Western homeowners continued to believe their own homes’ values were doing better than they were in reality,” said Zillow Chief Economist Dr. Stan Humphries. “Conversely, after years of press coverage about declining home values, homeowner perceptions are now in line with market conditions from early last year, although the Western market has improved since then.

“We see the opposite phenomena in the South where home values in most markets – with the exception of Florida – took some time to begin falling. Many markets there have recently joined the housing recession in earnest, with five of the nine Southern states tracked by Zillow hitting their home value peak after 2007, but homeowners there are likely to believe the downturn has not affected them. This could also be a result of the fact that most attention has been on the hardest-hit areas of California, Florida, Nevada, Arizona and Michigan, and homeowners outside of these markets may have less information about what has happened in their local markets.

“However, when homeowners across the country do start to believe that their home’s value has stopped declining, we can expect to see a lot of new inventory entering the market via sidelined sellers. This added inventory, combined with current elevated inventory levels and continued high rates of foreclosure in many areas, will likely serve to keep home values treading near the bottom for several years. Inventory must come down for home values to go up.”

Homeowner Perception of Future Home Values
Looking forward, homeowners are fairly positive about their own home’s value over the next six months, but like Misperception Index, the degree of optimism varies wildly among regions. In the Northeast, more than half (51%) of homeowners believe their home’s value will increase over the next six months while in the Midwest less than one-third (29%) of homeowners believe their home’s value will increase. Nationally, 39% of homeowners believe their own home’s value will increase during the next six months.
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Bernanke `Extended Period' Resolve May Be Eroded as Delinquencies Decline

Consumer delinquency rates are dropping at U.S. retailers and banks such as American Express Co. and Bank of America Corp., signaling an incipient lending thaw that may spur economic growth.
By Bob Willis and Anthony Feld: Bloomberg.com
Past-due loans at Bank of America, the second-largest card lender, fell for a fifth month in April and by the most in four years, while AmEx’s delinquencies were down 34 percent from a year earlier. Target Corp., the second-largest U.S. discount retailer, last week reported its lowest delinquency rate in the latest quarter since the second quarter of 2008.

With fewer tardy borrowers to worry about, banks are more likely to extend fresh credit to American consumers, whose spending makes up 70 percent of the economy. That may weaken Federal Reserve Chairman Ben S. Bernanke’s commitment to an “extended period” of low interest rates - once policy makers determine the European debt crisis no longer poses a risk to the recovery, said economist Stephen Stanley.

“Then we get back to the scenario where the U.S. banking system is gradually healing, credit quality is gradually improving and creditworthiness of borrowers is improving,” said Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “Some evidence of stability in the banking sector is an additional precondition to normalizing monetary policy.”

U.S. central bankers on April 28 kept the benchmark federal funds rate in a range of zero to 0.25 percent, where it has been since December 2008, and said “subdued” inflation and high unemployment are likely to keep rates “exceptionally low.” They repeated their assessment that consumer spending was likely to be restrained by “tight credit.”

‘Reasons for Optimism’

Bernanke, in a May 6 speech in Chicago, said bankers’ attitudes on lending “may be shifting,” citing as “reasons for optimism” the economic recovery and expectations among senior loan officers for a “modest reduction” in troubled loans. The comments were overshadowed by that day’s 9.2 percent intraday plunge in the Dow Jones Industrial Average, which was sparked in part by concerns about euro-zone defaults.

“The Fed chairman is getting closer to saying the economy has reached a turning point, and the confidence he expressed was overlooked due to the market’s extreme volatility,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “When we look back some months from now, his remarks may be seen as prescient in forecasting a sustainable economic recovery.”

Loan Officer Survey

The Fed’s latest survey of senior loan officers, released May 3, showed the smallest proportion of banks in two years restricted lending standards in the first quarter. Other Fed data released May 7 showed consumer borrowing unexpectedly rose in March for the second time in three months, signaling Americans are becoming more optimistic about the recovery.

“One of the factors the Fed watches when deciding when it’s appropriate to begin normalizing rates is when banks stop tightening lending standards,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “This is starting to happen.”

Economists surveyed by Bloomberg between April 29 and May 10 cut their forecasts for Fed rate increases to a quarter point rise in the fourth quarter from the half point gain forecast in the month-earlier survey.

“If lending standards start to stabilize, that’ll be another reason to remove the emergency measures, including the zero rate,” said Jay Bryson, a senior global economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who formerly worked at the Fed in Washington.

Target Profits

Minneapolis-based Target reported May 19 that credit-card loans more than 60 days overdue declined to 5.3 percent of the total in the first quarter, from 6.3 percent in the previous period, helping it post profits that beat analysts’ projections.

Citibank’s new U.S. card account originations fell 17 percent in March from a year earlier, about half the 35 percent drop posted in January. Originations climbed 3 percent in February, which was the first annual gain since the data started being reported in Oct. 2008, according to the Treasury’s monthly lending report.

“The fundamentals here in the U.S. are suggesting the Fed should already be on a path towards tightening,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, which manages about $30 billion in client accounts. “They should already be taking some action to be preparing to raise rates; however, the drama overseas is likely to encourage policy makers to pursue a cautious path.”
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Addicted to Real Estate

By now, everyone knows the financial reasons for the housing bubble, from lax lenders to greed.
By: JUNE FLETCHER: wsj.com
But there's another, emotional side: In our rootless and confusing culture, our domiciles have become more than mere shelters, investments, havens or even status symbols. Rather, they have become extensions of our narcissistic personalities, glorified by entire industries of shelter magazines, websites and cable networks.

It's no wonder, writes Meghan Daum in her new book "Life Would Be Perfect If I Lived In That House," (Alfred A. Knopf), that by the middle of the decade, scads of Americans were "buying real estate and melting it down to liquid form and then injecting it into their veins."

It was an addiction shared by Ms. Daum, an essayist, novelist and columnist for the Los Angeles Times. And it almost ruined her life, she writes.

Fully aware of how neurotic such an obsession is, Ms. Daum examines it neurotically, almost as if she were a recovering abode-aholic. She reveals personal details that—even in this blogging age—sometimes made me a bit squeamish (do I really need to know about the dog poop on the patio of one of her many temporary abodes)?

Nevertheless, her candor also reveals the roots of her restlessness: Her jingle-writing father, who settled the family in New Jersey, really longed to live in Manhattan, while her creative and frustrated mother channeled her suburban ennui into constant redecorating and endless trips to open houses.

Ms. Daum doesn't make the connection overtly, but the reader feels how much she internalized this sense of familial dislocation and discontent (her parents eventually separated). Her longing for a safe place where she'd belong is revealed in one bittersweet childhood anecdote: Instead of fantasizing about a grand wedding, like most little girls, she re-enacted cozy scenes from Little House on the Prairie.

By the time she was a Vassar student, Ms. Daum simply assumed that your habitat defined you. And yet, no place ever quite felt right. She blew through a succession of dorm rooms, and then overpriced Manhattan apartments. But, as she wrote more than a decade ago in a widely-read New Yorker essay, she could never afford the sort of glamorous place she salivated over in decorating magazines, and wound up buried in about $80,000 of debt. Worse, her materialistic aspirations also impoverished her spirit: At one point, her aesthetic snobbery caused her to evict a roommate simply for the sin of owning a baby-blue carpet and orange chair.

“ By the middle of the decade, scads of Americans were "buying real estate and melting it down to liquid form and then injecting it into their veins." ”

Fortunately, she tired of this shallow identity and tried on a new one, inspired by her Prairie fantasies. Unfortunately, her restlessness remained. In friendlier and more affordable Lincoln, Neb., she donned and discarded a series of farmhouses, as well as a boyfriend. By now, her obsession is full-blown: The houses are described in loving detail; the boyfriend is simply called "an aging slacker." Inevitably, the nameless boyfriend soon becomes known as the Ex. She also acquires a dog during this phase, named Rex.

During her Nebraska days, she wrote a novel, "The Quality of Life Report," which attracts the attention of Hollywood. So she packs up again and moves to Los Angeles, Rex in tow, to re-frame her life in a series of unsatisfying rentals that she deems too tacky to show to potential dates—so she stops going on them. She becomes ever lonelier, but doesn't yet connect the dots of her disconnection. She describes the problem as "being alone with awful furniture."

The solution, she decides, was to commit—not to a person, but a house. Unfortunately, she starts searching at the height of the bubble, and so has to settle for a tiny stucco box with dirty white carpet and a dilapidated garage. (She's now about $100,000 underwater on her mortgage, she writes.) Still, ripping up the carpet, installing stainless-steel ceiling fans and buying a purple futon seem to settle her—so much so, that she soon begins spending far too much time alone in her pajamas in her newly remodeled kitchen, eating Stovetop stuffing.

At this point, a reader may want to scream: "It's time to break up with the house!" But Ms. Daum doesn't realize this obvious fact until a promising new boyfriend tries to move his bikes and books in, and their arguments (including whether or not to saw his beloved sofa in half) threaten to derail the relationship.

I don't want to spoil the ending, so I'll just mention the opening scene in the book, set in the present day, when a chunk of stucco siding falls off in Ms. Daum's hand and–instead of running to a repairman–she simply throws it away.
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Mortgage rates sink to lowest this year

Mortgage rates have fallen to the lowest level of the year as investors poured money into the safe haven of U.S. government securities.
By: ALAN ZIBEL: AP Associated Press
The average rate on a 30-year fixed rate mortgage dipped to 4.78 percent this week from 4.84 percent a week earlier, mortgage company Freddie Mac said Thursday. It was the lowest level since early December, when rates fell to a record low of 4.71 percent.

The average rate on a 15-year fixed-rate mortgage fell this week to 4.21 percent_ the lowest level in nearly two decades.

Concerns over the European debt crisis have sent yields for 10-year and 30-year Treasury bonds to their lowest levels of 2010. Rates on 30-year home loans often rise and fall in line with the 10-year note.

Analysts say the opportunity may not last. If Europe's woes subside and the U.S. economic recovery stays on track, rates are likely to move higher. That's because traders will move their money back into riskier investments.

"Strike now," said Greg McBride, senior financial analyst at Bankrate.com. "If they move quickly against you, it just takes money right out of your pocket."

Homeowners appear to be taking notice. Applications to refinance surged this week to the highest level since October 2009, the Mortgage Bankers Association said Wednesday.

But mortgage applications to purchase homes fell to the lowest level since April 1997. A major reason for that drop: tax credits expired on April 30.

A campaign by the Federal Reserve to reduce borrowing costs for consumers pushed rates down to extraordinarily low levels last year. Rates were expected to rise after the program ended this spring. Instead, they have dipped. Fears that Greece's government would default on its debt shook world markets and boosted demand for U.S. Treasurys.

Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.

Rates on five-year, adjustable-rate mortgages averaged 3.97 percent, up from 3.91 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 3.95 percent from 4 percent. That was the lowest average since May 2004.

The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount.

The nationwide fee for loans in Freddie Mac's survey averaged 0.7 a point for 30-year, 15-year and 5-year loans. The average fee for 1-year loans was 0.6 of a point.
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Sales of previously owned homes up 7.6% in April

Completed purchases rose in every region but the West, where they fell 6.2% as California buyers delayed closing deals to take advantage of a tax credit.
By: Alejandro Lazo: latimes.com
The National Assn. of Realtors attributed the increase in sales of previously owned homes in April to cheap prices, low interest rates and federal tax incentives that expired April 30. Above, a house for sale in Maryland. (Jonathan Ernst, Reuters / May 23, 2010)

Fueled by federal incentives for home shoppers, the U.S. housing market gained ground in April with sales of previously owned dwellings jumping 7.6% from March, the National Assn. of Realtors said Monday.

Buyers were motivated last month by cheap prices, low interest rates and federal tax incentives that expired April 30, the Washington real estate group said. Sales jumped in every region but the West, where they fell 6.2% as shoppers appeared to time purchases to take advantage of a tax credit in California.

To qualify for the federal credit of up to $8,000 for first-time buyers and up to $6,500 for certain current homeowners, contracts had to be signed by the end of April and those deals must close by June 30. The California tax credit of up to $10,000 for some purchases requires deals to close May 1 or after.

The national median home price — including single-family homes, town homes and condominiums — was $173,100 in April, up 1.4% from March and 4% from April 2009.

Economists are predicting sales will fall later this year after the tax-credit surge ends. The weak recovery in housing will probably continue if the job market improves, although the possibility of more foreclosures hitting the market remains a concern, economists said.

"In the grand scheme of things, housing is affordable again. Lenders aren't really tightening standards anymore. And the employment situation has stabilized. That's the good news," said Michael D. Larson, a housing and interest rate analyst with Weiss Research.

"The bad? The backlog of distressed homes remains extremely high. Uncle Sam is just about the only guy making or backing home loans. And we're certainly not seeing a rip-roaring rebound in the job market," Larson said.

The National Assn. of Realtors' data are based on its proprietary multiple-listing service and are reported as a monthly estimate that is adjusted for seasonal variations. Homes sold at a seasonally adjusted annual rate of 5.77 million units in April from an upwardly revised 5.36 million in March, the group said. Sales were up 22.8% from the 4.7-million-unit pace in April 2009.

Housing inventory jumped 11.5% at the end of April to 4.04 million previously owned homes available for sale, representing an 8.4-month supply at the current sales pace. That was an increase from an 8.1-month supply in March.

Regionally, resales of all types of homes surged 21.1% from March in the Northeast, 9.9% in the Midwest and 8.6% in the South. Sales fell 6.2% in the West but rose 5.2% from April 2009.

In California, April sales of single-family homes totaled 483,830, down 6.4% from March and off 8.1% from April 2009, according to the California Assn. of Realtors. The median price of a previously owned single-family detached home in the state was $306,230 in April, edging up 1.5% from March and jumping 21% from April 2009.

"It's likely that the state tax credit that went into effect May 1 created an incentive for many buyers to postpone closing escrow so they could take advantage of both the state and federal tax credits that were available," said Steve Goddard, president of the California real estate group. "We should see the pace of closed sales edge up in May and June as these tax-incentivized transactions close."

A report last week by San Diego real estate research firm MDA DataQuick showed that sales of new and previously owned homes in California declined 1.3% in April from the same month last year. April sales in Southern California fell year-over-year for the first time in 22 months.

Analysts attributed that decline to fewer foreclosures on the market as well as some buyers possibly timing their purchases to take advantage of the California tax credit.
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Consumer Confidential: Home sales soar, Ford goes electric, cable TV saved

Here's your heavens-to-Murgatroyd Monday roundup of consumers news from around the Web:
--Uncle Sam wanted people to buy homes last month, and he got what he wanted.
By: David Lazarus: latimes.com
A last-minute rush to take advantage of an expiring tax credit caused sales of existing home to soar almost 23% from a year earlier. The National Assn. of Realtors said the increase topped expectations and suggested the housing market was regaining some health. "For people who were on the sidelines, there's been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low," says Lawrence Yun, an economist with the organization. Now let's see how we do without the tax credit.

-- Our friends at Ford Motor Co. say they want up to a quarter of their vehicles to run on electricity. To achieve that lofty goal, the company says it will invest $135 million and add 220 jobs at three Michigan facilities. The short-term aim is to get at least five electric vehicles on the market by 2012. As many as 25% of Fords will be battery-powered within a decade, the company says. An ambitious plan. I'll believe it when I see it.

-- Whew, that was close! Remember the wayward satellite that was supposed to disrupt cable programming throughout the United States? Well, the owner of the cable satellite, SES World Skies, now says that off-course bird kept its distance, and thus box watchers nationwide were able to enjoy their hundreds of cable channels without interruption (not counting commercials, of course). Imagine if "Lost" had gone off the air during the big finale. There would have been rioting in the streets. Or at least a whole lot of griping.
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