Giant Gov't Mortgage Entity Freddie Mac "Bets" Against Homeowers

Disturbing details in long ProPublica article here. 
Podcast here. 
Outraged congressman calls for end to the shenanigans.

Since 2008 Freddie Mac and sister Fannie Mae have come to own or back a huge number of American mortgages.  Their mandate: to help make US housing more affordable.  Freddie Mac, along with Fannie Mae, was placed in government conservatorship in 2008 after losing billions of dollars in the housing bust.  Now, NPR and ProPublica discover it has been "betting" that homeowners won't be able to refinance into lower interest rate loans--though another sector of the company is responsible for denying or approving ReFi applications.

Is this legal?  Of course it is.  Though it smacks of unethical.

But it  should come as no surprise because:

•  Freddie Mac has been bleeding US taxpayers for years now: it loses billions each quarter. 
•  If anybody knows that home prices are going to continue to decline, it's Freddie Mac.  It needs to keep the older, higher rate mortgages on the books for as long as possible, so it doesn't lose the taxpayer any more money.  Right? ;0)
• The United States is a banktocracy.
• A home"owner" isn't a person or family to a bank or mortgage guarantor; the mortgage holder is simply a conduit to provide $.  And the more $$$, the better.

"Why the Housing Market Has Much Further to Fall"

Graphs: 1999 v 2011 for Charlottesville Area Home Sales - 1999 Wins

Though thousands of new homes were built in the past decade/half and the area has a growing population, home sales remained anemic in 2011 with lower prices and lower sales than 2010, which was a hot mess when the Fed tax cred expired.  

Sales were comparatively buoyant 13 years ago, even with the 30 yr fixed mortgage averaged around 7.5% in 1999.  2011 opened at 4.8% and closed at 3.8%.

Graph of Sales, All Types, Charlottesville Area

The data comes from this post at RealCentralVA; graphs are produced by this blog.  Click on images for larger versions in new window.

Graph of Sales, Single Family Homes, Charlottesville Area

What's Up?  No--what's down: sales and prices and mortgage rates and inventory.  Buyers have to plan to stay put 7-10 years in order to eat the further price declines, and loss of equity, that will occur if purchase is made in the next couple years.

• The Virginia Housing Development Authority chronicles the laggardly sales here. 

• See also the Charlottesville Area Association of Realtors 2011 Year-End Report. 

• And as The Daily Progress notes, it's going to remain a Buyer's Market in 2012 and beyond.

The Data for Graph 1, by Month

The Data for Graph 2, by Month

Tired sitcom joke, which works here: Ring! Ring!  Hello, Charlottesville Area? 1999 is calling to offer condolences for 2011's home sales.

Caveat Emptor.

The Top 10: Virginia Ranks #7 of States With Highest Mortgage Debt in the USA

And with high mortgage debt comes high negative equity: Virginia is #8 of states where mortgage holders owe more than the house is currently worth, approaching a whopping 30% underwater.  The Charlottesville Area, with sales at an anemic 13 year low,  has a housing market slowed by those in negative equity but simultaneously impacted much more by those mortgage holders with effective negative equity.

Top 10 States With Most Mortgage Debt via 24/7 Wall Street:
Click on image for larger version.

SOTU: President Obama Proposes Low Rate ReFi For All Mortgage Debtors

President Obama claims that this would save the average mortgage debtor $3,000 per year.  The big banks have been bailed out, so why not put more cash into the pockets of those who are renting money from them?  Though few details of the plan are available, many economists and housing analysts have created possible scenarios, described in the embedded article below. The POTUS was expected to, but did not, announce the $25 Billion drop-in-the-bucket settlement between States Attorneys General and five big banks for "robosigning" and MERS illegal activities.

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The Landmark Hotel's Creditors, Owed $17 Million, Get to Vote on New Developer's Offer of $2.8 Million to Buy Failed Hotel Out of Bankruptcy

With a deal that gives new meaning to the term "pennies on the dollar," what are the odds that the Landmark Hotel is going to come to fruition?  There's something of a hotel-building boomlet coming in Charlottesville, but this blog remains dubious that the eyesore that is The Landmark will be part of it.  Photo by Dave McNair/The Hook.

The "New Normal" in 2012: Renting Doesn't Mean "Throwing Money Away" and Buying a House Isn't an "Investment"

The US Homeownership rate continues to drop.  It used to be that typically, housing appreciated at the rate of inflation, 2% per year, plus an additional 1-2% per year.  Not so post-bubble.  Locally and nationally, home price declines are expected to continue for the next couple years; C'ville Area's home sales are at a 13-year low.  Nationwide, more and more folks are coming to the conclusion that renting is the more prudent financial choice.  

Recapping the CAAR 2011 Year-End Report: Home Sales Remain 50% Below Peak - Prices Continue to Drop - Distressed Sales Rise to 1 in 5 Transactions - Recovery Not Yet Begun

The CAAR's  2011 Year-End Report contains a plethora of numbers, data, graphs for the City of Charlottesville and surrounding counties.  You may access the whole thing here.  But below are the major take-aways.

The report concludes that this Area Remains a Buyer's Market.  No kidding.  The value of any property is only what a buyer is willing to pay.  And there remain fewer buyers here than ever.  A seller can point to comparables or trends or history or tax assessments or appraisals, but an asking price means nothing if there is not a buyer agreeing to it.  As stated recently, this blog expects the bottom in 2015. 

Number of Home Sales in Central Virginia Remain Down 50% From Bubble Peak

Sales remain low despite hundreds of new homes and units built, as well as condo conversions. CAAR no longer gives historical sales data: 2010 and 2011 numbers come from this year's report; the rest of the numbers appear here.

2011 Prices Decline Significantly Compared to 2010

This data, from the current report, is for all property types (condo, townhouse, single family); median price declines vary more when parsed by individual property type.  A future post will contain more info on price decreases.  Buyers have to expect to stay put for 7-10 years because even small decreases in prices put recent buyers underwater - owing more than the house is worth. 

Charlottesville -6.1%
Albemarle -4.0%
Fluvanna -2.5%
Greene -8.6%
Nelson -13.5%
Louisa -15.6%

Foreclosures and Short Sales

2011 saw 440 foreclosure re-sales and Short Sales (bank agrees to take less than what seller owes).   This is 19% of total sales of 2300 for the area.  According to the 2011 CAAR recap, 2011 foreclosure resales rose over 2010, and Short Sales nearly doubled from 2010: 76 to 112.

Often, short sales don't work, however: Pricing.  Banks and buyers can't agree on the value.  118 listings marked as "short sales" expired in the MLS, unsold, as of December 31.  They'll be back--or they'll turn into foreclosures.

Median price for foreclosure resales: $130,000
Median price for short sales: $211,000
Median price for "traditional" sales: $265,000

Despite banks pulling way back on foreclosure filings in 2011 due to "robosigning" and MERS title issues, the rate of homes lost to foreclosures increased every month in 2011 over 2010.

Short Sale and Foreclosure listings:

Distressed v. Traditional sales:

Inventory

It's an article of faith in the NAR alternate universe that lower inventory is a good sign, because buyers who buy will take whatever is on the market.  Not any more.  That happened for bubble-era buyers; today's buyer is more savvy.  Lower inventory doesn't automatically lead to sales or higher prices.   Especially in a town that has so many rentals.   Lower inventory comes from folks realizing they can't sell for what they want or need to make and is due to letting homes slide to foreclosure.  

There are currently 11.6 months of inventory at the 2011 sales pace.  There is pent-up seller demand.  As soon as one guy sees his neighbor sell, he's gonna try, too....   The surge in new and re-listings has already begun for 2012.  

Conclusions

• For Sellers: trying to "wait out the market" has proven a failed strategy.
• For Buyers: a house is not an investment. 
• The housing market in this area continues to struggle.  
• So for those who want to buy, offer accordingly.
  

Images copyright CAAR.  Top graph from this blog.