March 2012

State of the U.S. hoUSing Market

Will 2012 be the year of recovery for U.S. hoUSing?

The unseasonably warm winter has given the country spring fever. And as the nation prepares to enter the prime season for selling homes, the world wonders if 2012 will finally bring about a recovery to the U.S. housing market.
Positive news on the job front, home prices that are 38-percent less than what they were in the second quarter of 2006,1 and record-low mortgage rates have led to some renewed demand for single-family homes. Plus, the weather has enabled new home construction to start earlier than usual, which helps boost buyer traffic.2 However, foreclosures and general uncertainty still have the power to potentially derail the market. The housing market is important to the countrys overall economy. As inventory starts to move, broad price stabilization and even modest national price growth will occur according to the National Association of Realtors.3 And once the housing market becomes strong and healthy, the U.S. can experience a more certain long-term economic recovery.

leading economists by the Associated Press, the unemployment rate is expected to fall to 8-percent by Election Day (November 6) and then reach 7.4-percent by the end of 2013.5 Pending home sales, which track contract signings on existing and newly constructed homes, are on the rise. The index of pending home sales saw a gain of 2-percent in January, following a 1.9-percent decrease in December 2011.6 Januarys result represents the highest the index has been since numbers were inflated in April 2010 as people rushed to qualify for the homebuyer tax credit.7 The South and the Northeast have seen the biggest gains in pending home sales at 7.7-percent and 7.6-percent respectively.8 Perhaps, these gains could be attributed to the drops these regions saw in home values. The Northeast had a decrease in home value of 4.6-percent in 2011, bringing the median cost of
9 10 11 12 13 14

a home to $229,000.9 The South fared a little better last year, only losing 3.8-percent in home values, which puts the median home price at $146,500.10 Home sales, which are not recorded until closings take place, also are doing much better than they were a year ago. With a seasonally adjusted annual rate of 4.59 million in February,11 existing home sales reached a level not seen since May 2010 when likely most of the homes qualifying for the homebuyer tax credit actually closed.12 Mortgage rates continue to remain at record lows. Rates for 30-year mortgages averaged 3.88-percent for the week of March 8, 2012.13 In an interview on CNBCs Squawk Box, Warren Buffet said he viewed single-family homes as a cheap and attractive investment, and recommended using a 30-year mortgage to buy a single-family home.14

Finally, some good news.

The unemployment rate seems to be heading in the right direction down. Unemployment in February 2012 remained at 8.3-percent after the economy added 227,000 jobs during the month representing the best six months for job creation since 2008.4 Economists think this positive trend will continue as the year progresses. According to a February survey of
1 2 3 4 5 6 7 8

Susanna Kim. February Job Additions of 227,000 Continue Winning Streak for Economy. ABC News, March 9, 2012. Wells Fargo Securities. Housing Data Wrap-Up: February 2012. February 29, 2012. National Association of Realtors. Pending U.S. Home Sales Highest Level in Two Years. February 27, 2012. Susanna Kim. February Job Additions of 227,000 Continue Winning Streak for Economy. ABC News, March 9, 2012. Christopher S. Rugaber. Survey finds uptick in economic optimism. USATODAY, March 6, 2012. Shobhana Chandra. Pending Home Sales Show Industry Regaining Footing: Economy. Businessweek, February 28, 2012. National Association of Realtors. Pending U.S. Home Sales Highest Level in Two Years. February 27, 2012. Shobhana Chandra. Pending Home Sales Show Industry Regaining Footing: Economy. Businessweek, February 28, 2012.

Polyana da Costa. Home values fall even more, and sales rise. Bankrate, February 9, 2012. Ibid. National Association of Realtors. February Existing Homes Sales Slip But up Strongly from a Year Ago. March 21, 2012. Shobhana Chandra. Pending Home Sales Show Industry Regaining Footing: Economy. Businessweek, February 28, 2012. Susanna Kim. February Job Additions of 227,000 Continue Winning Streak for Economy. ABC News, March 9, 2012. Hao Li. Real Estate Forecast 2012 and Beyond: Warren Buffet Says Buy, Baby, Buy! International Business Times, February 29, 2012.

State of the U.S. hoUSing Market

Chart 1: annual rate oF housing starts20

2M

1.5M

Rate
1M 500K
> 2005

2009

2010

2011

2012

Year
season of spring and early summer. However, come late summer and early fall, these new speculative homes will hit the market and compete with existing homes. For homeowners who have not updated or maintained their properties, this added competition could make selling their homes more difficult. Nationwide builders, including Beazer Homes, D.R. Horton, and Toll Brothers, have reported increases in orders for new homes.21 As a result of increasing orders, cheaper property, and low mortgage rates, builders are feeling more confident. Februarys National Association of Home Builders/Wells Fargo index of builder confidence registered its highest level since May 2007.22 The builder confidence index has risen five months in a row a feat that has not happened since April through October 1985.23 The index works by asking builders to identify whether current sales are good, fair, or poor; measure prospective buyer traffic; and gauge their outlook for the next six months.24 Ratings can

Despite these incredible low rates, people are still struggling to qualify for new mortgages or refinance their existing mortgages thanks to stricter underwriting, stringent document requirements, large down payment requirements, strict appraisal standards and fewer mortgage offerings.15 These conditions have made it especially difficult for first-time homebuyers to qualify for mortgages because they often have relatively new credit histories and lack the resources that will enable them to make large down payments. With many lenders requiring a 20-percent down payment, a potential homebuyer looking to purchase a $350,000 home would need to put down $70,000 along with closing costs and a one-percent mortgage initiation fee. With the Graebel Capped Lender Fee program that is offered through several major financial firms, the relocating employees of Graebel clients can choose a capped lender fee of $495, along with a streamlined process that can result in quick pre-qualification saving time and reducing the stress and frustration associated with the mortgage process.

ConstruCtion is moving again.

Housing starts ended 2011 on a positive note on a pace that was stronger than expected. The momentum continued into this year with an increase of 1.5-percent from December, or a seasonally adjusted annual rate of 699,000 homes anticipated for 2012.16 Construction on single-family homes is expected to increase by 8-percent this year, and multifamily construction should increase 12-percent.17 The South and West are leading the rebound in construction, posting increases of 18-percent and 12-percent respectively, but the Midwest actually saw a 41-percent drop.18 Typically, new single-family homes take about six months to build.19 That means homes that are just breaking ground now will likely not be ready for move-in during the busy real estate

Construction on single-family homes is expected to increase by 8-percent this year, and multifamily construction should increase 12-percent.17
Shobhana Chandra. Housing Starts in U.S. Rise above Forecasts. Bloomberg, February 16, 2012. Ibid. Ibid. Bloomberg News. US homebuilders feel more positive. Crains New York Business, February 15, 2012. National Association of Home Builders.

15

16 17 18 19

Ben Bernanke. The U.S. Housing Market: Current Conditions and Policy Considerations. U.S. Federal Reserve, January 4, 2012. Shobhana Chandra. Housing Starts in U.S. Rise above Forecasts. Bloomberg, February 16, 2012. Wells Fargo Securities. Housing Data Wrap-Up: February 2012. February 29, 2012. Shobhana Chandra. Housing Starts in U.S. Rise above Forecasts. Bloomberg, February 16, 2012. PATH. www.pathnet.org.

20 21 22 23 24

State of the U.S. hoUSing Market

Chart 2: builder ConFidenCe25

>

February 2012

27
>

January 2009

8
>

June 1999

77
>

January 1985 (when records began)

50
>

10

20

30

40

50

60

70

80

situation and determine if a price adjustment is needed and what new marketing approaches can be taken. Sales of distressed homes have made up the largest portion of all purchases since April 2011. In January 2012, 35-percent of existing home sales were foreclosures or short sales.30 As these homes can sell for significantly less than other properties, they have caused home prices to fall 2-percent year-over-year from January 2011.31 Since 2006, overall home prices have fallen 33-percent, equating to a $7 trillion loss in household wealth.32 Buyers today have leverage to negotiate prices on non-distressed homes in markets with foreclosures. According to research by Woodstock Institute and Georgia Institute of Technology, overall values for homes within an eighth of a mile of a property with a foreclosure filing fall about 1-percent.33 Once that home sells at auction or is taken back by the lender, homes within a quarter mile lose approximately 4-percent of their value.34 This unfortunate reality continues to put downward pressure on new construction and home sellers.

household Formation and ConstruCtion will need to balanCe.

Prior to the recession, the U.S. averaged 1.34 million housing starts, when only 1.05 million households were formed.35 This boom of construction created more housing supply than the demand could absorb. During the recession, household formation slowed significantly as people moved in with parents, found roommates, or delayed separating. Construction slowed as well. Now that the job market is picking up, people are gaining confidence in the economy. An increased level of household formation is a direct result of increasing confidence. But new housing construction is still lagging. In 2011, 609,000 homes were started a far cry from the 1.14 million households that were formed in the same year.36 If these trends continue, the oversupply will disappear and the pendulum will swing the other way with demand exceeding supply.

range from 0 to 100, and a rating of less than 50 means that more builders view conditions as poor than good.26 Multifamily housing (townhomes and apartment buildings) has led the gains in construction. As reported in Graebel ReloTRENDSsm released on March 15, 2012, foreclosures, tighter lending standards, high unemployment, and uncertainty in housing prices have turned many Americans into renters. As a result of increased demand for apartments, rents are expected to increase 5.5-percent this year.27 Approximately 85,000 new units will enter the market by the end of 2012, but overbuilding is not expected to occur until at least 2013.28

ForeClosures still lurk.

Distressed houses returning to the market compete with newly constructed and existing homes, driving prices down. More than 230,000 loans entered the foreclosure process in January 2012, creating a month-over-month increase of 28-percent from December.37 January also saw the number of repeat foreclosures, which are caused by failed loan modifications, reach an all-time high.38 How states handle the foreclosure process has a direct impact on the amount of foreclosure inventory available. States with judicial foreclosure processes (i.e., those that require a judge in the foreclosure process) will take longer to work through their inventory of foreclosed homes because the judicial process adds months to the timeline. Currently, these states have 63 months of foreclosure

its a buyers market. but buyers may still have diFFiCulty.

Realtors are experiencing higher rates of contract failures caused by low appraisals and rejected mortgage applications due to stricter lending standards. In February 2012, 31-percent of Realtors had contract failures nationwide.29 Graebel recommends companies require relocating employees to have at least two Broker Market Analyses (BMAs) completed prior to listing their homes so properties will be properly priced and marketed competitively. Should a property linger on the market, another BMA should be conducted to further analyze the
25 26 27 28

29

30 31

Headline Trading: 2011 Theme Slogs Into 2012. The Basis Point, January 18, 2012. Bloomberg News. US homebuilders feel more positive. Crains New York Business, February 15, 2012. Julie Schmit. Apartment rents heading higher for 3rd year in a row. USA Today, January 5, 2012. Elaine Misonzhnik. No Danger of Overbuilding in Multi-family Sector until 2013. National Real Estate Investor, January 18, 2012. National Association of Realtors. February Existing Homes Sales Slip But up Strongly from a Year Ago. March 21, 2012. AnnaMaria Andriotis. Foreclosure Sales Flood Market. Smart Money, March 6, 2012. Shobhana Chandra. Pending Home Sales Show Industry Regaining Footing: Economy. Businessweek, February 28, 2012.

32

33 34 35

36 37 38

Ben Bernanke. The U.S. Housing Market: Current Conditions and Policy Considerations. U.S. Federal Reserve, January 4, 2012. AnnaMaria Andriotis. Foreclosure Sales Flood Market. Smart Money, March 6, 2012. Ibid. Hao Li. Housing Market Forecast beyond 2012 from Warren Buffet. International Business Times, February 28, 2012. Ibid. Diana Olick. Huge Spike in Repeat Foreclosures. CNBC, March 6, 2012. Ibid.

State of the U.S. hoUSing Market

states with judiCial ForeClosure proCesses39

> > > > > > > > > > >

Connecticut Delaware Florida Hawaii Illinois Indiana Iowa Kansas Kentucky Louisiana Maine

> > > > > > > > > > >

New Jersey New Mexico New York North Dakota Ohio Oklahoma Pennsylvania South Carolina South Dakota Vermont Wisconsin

In February, five major banks (Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial) agreed to settle with 49 states and the U.S. government thus ending the investigation into abusive foreclosure practices.43 Under the $25 billion settlement, more than 200,000 underwater homeowners could have their loans from Bank of America written down to market value.44 To qualify, homeowners must be more than 60 days delinquent on their payments, which must account for at least 25-percent of their income. The other banks involved in the settlement will also make the principal reductions, but they are not required to offer as much relief. When all is said and done, the settlement will offer financial assistance to 750,000 to one million homeowners.45 This settlement could actually lead to an increase in foreclosures, as lenders start to work through the backlog of foreclosures now that the cloud of uncertainty over foreclosure processes has been lifted. This process is necessary to identify the shadow inventory hanging over the housing market.46

Federal government takes steps to help stabilize the market.

A new program announced in March will allow an estimated two to three million borrowers with loans backed by the Federal Housing Administration (FHA) to refinance and save.47 To qualify for an FHA loan, borrowers must have low to moderate incomes and be unable to make large down payments. This new plan would reduce fees, specifically on mortgage insurance, to create savings on top of those available through refinancing FHA loans of all sizes. Currently, the FHA charges an upfront mortgage insurance premium of 1-percent of the loan balance along with a fee of 1.15-percent of the balance per year. Through this program, these fees will be cut to .01-percent and 0.55-percent respectively.48 To qualify, homeowners even those underwater on their homes must:49
>

inventory; while this seems high, it is significantly less than the staggering all-time high of 147 months from February 2011.40 About 11.1 million Americans are underwater on their homes, owing more than their homes are worth.41 Of that, four million loans are in various stages of delinquency.42 These loans have not begun the foreclosure process, and while some may be saved through loan modification, it is unclear how many of these will end up as foreclosures.

Be seeking a new loan through the FHAs streamlined refinancing program Be current on payments and income verifications Have a loan that was taken out before June 1, 2009

>

>

39 40 41 42 43 44

Mortgage Bankers Association. Judicial Versus Non-Judicial Foreclosure. Diana Olick. Huge Spike in Repeat Foreclosures. CNBC, March 6, 2012. Margaret Chadbourn. Obama offers mortgage relief to millions of homeowners. Chicago Tribune, March 6, 2012. Diana Olick. Huge Spike in Repeat Foreclosures. CNBC, March 6, 2012. Shobhana Chandra. Housing Starts in U.S. Rise above Forecasts. Bloomberg, February 16, 2012. Ben Hallman. Bank of America to Offer Some Homeowners Extra Assistance under Settlement. Huffington Post, March 6, 2012.

45 46 47 48

49

Ibid. Wells Fargo Securities. Housing Data Wrap-Up: February 2012. February 29, 2012. Margaret Chadbourn. Obama offers mortgage relief to millions of homeowners. Chicago Tribune, March 6, 2012. The White House Office of the Press Secretary. Fact Sheet: President Obama Announces New Steps to Provide Housing Relief to Veterans and Servicemembers and Help More Responsible Homeowners Refinance. March 6, 2012. Margaret Chadbourn. Obama offers mortgage relief to millions of homeowners. Chicago Tribune, March 6, 2012.

State of the U.S. hoUSing Market

The Federal Housing Finance Authority hopes to stabilize the housing market by creating rental units out of foreclosed properties.50 The pilot program will start with properties that Fannie Mae has already leased through a program that allows tenants to rent homes when their landlords go into foreclosure. This program involves $250 million in real estate across Southern California, Las Vegas, Chicago, Phoenix, Atlanta, and Florida.51 To qualify for the program, investors will be required to have enough finances and experience to handle the rental process, and keep the properties as rentals for at least five years.52 Freddie Mac and the FHS are expected to launch similar programs in the future. These three entities have more than 83,000 homes listed for sale, of which California, Georgia, Michigan, and Florida have the largest concentration.53 By courting investors to use these properties as rentals, families who lost their homes to foreclosures will be able to find affordable rental housing.54 Additionally, the government has taken steps to help members of the military who have been

hurt by mortgage abuses. Through an agreement with the President, major loan servicers will:55
>

companies that are relocating employees and even better for the employees themselves. While some negativity does still exist, mainly in the foreclosure situation, the improving economy and job market and steps the federal government is taking could help shore up and stabilize the situation. Companies should stay abreast of whats happening with real estate to help ensure their relocation policies best meet the needs of their transferring employees, their organizations culture, and business objectives. Relocating is a stressful time, and employees should be given proper tools and easily accessible, expert support to ensure the process is as positive as possible. After all, satisfied transferees are more likely to remain productive throughout their relocations, stay in their new positions, and may be more willing to transfer again. Graebel provides relevant updates on the housing market and other topics that affect relocation programs through white papers, case studies, best-practice documents, and ReloTRENDSsm a complimentary e-news bulletin. Additionally, Graebel participates in proactive and ongoing dialogue with each client and their transferees, regularly conducts in-depth business reviews with clients, facilitates regional round-table discussions for the Fortune 500, and an annual Relocation Policy Summit for executives in the industry. Through these efforts, Graebel clients gain insight that can help them transform their global mobility approaches into successful and cost-efficient programs.

Review foreclosures of service members since 2006 and provide compensation equal to a minimum of lost equity, plus interest, and $116,785 for wrong foreclosures. Refund money lost if service members were wrongfully denied the opportunity to refinance. Provide relief for those members who had to sell their homes for less than what they owed due to a permanent change in station. Extend certain foreclosure protections allowed under the Servicemember Civil Relief Act for those individuals receiving hostile fire/imminent danger pay.

>

>

>

the season For sales.

Spring and summer are the prime times for selling homes and the recent news on the housing market may indicate the selling season could be positive. This news is good for

thinking ahead. Moving you forward. transform your approach to global Mobility with graebel. #1 in the hro today relocation bakers dozen two years running, 2010 and 2011.
For more information on Graebel: Graebel World Headquarters | 16346 Airport Circle | Aurora, CO 80011 | 800.723.6683 | 303.214.2156 (fax) | marcom@graebel.com | www.GRAEBEL.com
The information contained in this document represents the current research of Graebel Companies, Inc. on the issues discussed as of the date of publication. Because of changing market conditions, Graebel cannot guarantee the accuracy of any information presented after the date of publication. 2012 Graebel Companies, Inc. All rights reserved. All trademarks are property of their respective owners.
50 51 52 53

Nick Timiraos. On Foreclosures, Uncle Sam Courts Investors. The Wall Street Journal, February 2, 2012. Ibid. Wells Fargo Securities. Housing Data Wrap-Up: February 2012. February 29, 2012. Ibid.

54

55

Ben Bernanke. The U.S. Housing Market: Current Conditions and Policy Considerations. U.S. Federal Reserve, January 4, 2012. The White House Office of the Press Secretary. Fact Sheet: President Obama Announces New Steps to Provide Housing Relief to Veterans and Servicemembers and Help More Responsible Homeowners Refinance. March 6, 2012.