FHA Legislation Will Help Homeowners, Economy, Says NAR

The FHA Modernization Act of 2007, passed today by the U.S. Senate, would help protect the interest of America’s current and future homeowners by giving borrowers a safer alternative to riskier mortgage products while also helping many homeowners who may be facing foreclosure, according to the National Association of Realtors®.

“A reformed FHA is positioned to help homeowners who face unaffordable mortgage payments as a result of resetting adjustable subprime loans and help bring stability to local markets and economies,” said NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif. “NAR commends the leadership of Majority Leader Harry Reid, D-Nev.; Senate Banking Chairman Christopher Dodd, D-Conn.; and Sens. Mel Martinez, R-Fla., and Richard Shelby, R-Ala., for passing the Federal Housing Administration reform bill, S. 2338, today.”

NAR has long supported FHA modernization legislation that would increase loan limits, reduce or eliminate the statutory 3 percent minimum cash down payment, and give FHA increased flexibility and the ability to streamline certain programs, in addition to strengthening the loss mitigation program.

“FHA can once again be a leader in providing safe loan products and preventing foreclosures by authorizing lenders to help borrowers who are in default. That assistance will make a substantial difference for many families that may otherwise face foreclosure,” Gaylord said.

In addition, the increase in FHA mortgage loan limits would help first-time home buyers, minority buyers, and people who do not qualify for conventional mortgages. Increased loan limits would also help people living in high-cost areas; current FHA limits make the program unusable in these areas,” said Gaylord.

Gaylord noted that FHA has made mortgage insurance widely available to individuals regardless of race, ethnicity or social status during periods of prosperity and economic depression. The FHA program makes it possible for higher risk yet creditworthy borrowers to obtain prime financing.

“NAR recognizes and appreciates the Senate’s bipartisan effort. We hope this bill is sent quickly to the President and that he signs it into law swiftly,” said Gaylord. “As the leading advocate for homeownership and housing issues, NAR believes that FHA reform not only helps home buyers, but also is a good catalyst for the nation’s economy.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential

Statement on President Bush's Signing of Mortgage Forgiveness Debt Relief By NAR President Richard F. Gaylord

“On behalf of the many individuals and families who would have been burdened by a tax after losing their home, the National Association of Realtors® thanks President George W. Bush for signing the Mortgage Forgiveness Debt Relief Act into law. Today the president offered a Christmas present to many people who have suffered the agony and humiliation of losing their home due to a short sale, foreclosure, deed in lieu of foreclosure or any similar arrangement that relieves the borrower of the obligation to pay some portion of their debt.

“NAR has been advocating for such a change to the IRS tax code for nearly 10 years. We have always believed that it is clearly an issue of fairness and of not kicking people when they are down. By making the forgiven debt taxable income, individuals in already unfortunate situations most likely faced IRS actions because they did not have the money to pay the additional taxes. This legislation will relieve that additional burden and may also encourage families to work with their lender to negotiate terms, knowing they will now not be subject to an IRS bill.

“Today’s bill will ensure that any debt forgiven on a mortgage secured for a principal residence will not be taxed. This is very significant legislation. This may also mean that some day in the future these families can once again achieve the dream of homeownership.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.

Commercial Real Estate Fundamentals Are Sound But Investment Slowing

NAR Chief Economist Lawrence Yun said commercial fundamentals are essentially sound. “Although vacancy rates remain relatively low for all sectors, they are expected to rise slightly in the office and industrial markets during the coming year because much of the space being absorbed is in high-quality buildings or is built-to-suit,” he said. “As a result, there is a fair amount of older space on the market, particularly in the industrial sector where obsolescence is a factor, although industrial rents are showing healthy gains. Vacancy rates in the retail and multifamily sectors are projected to tighten in 2008 with rents rising in all sectors.”

Yun said the credit crunch has been impacting the market over the last few months, but 2007 is already a record for commercial real estate investment. “Tighter credit conditions will limit individual commercial real estate investment deals moving forward,” he said. “Because capitalization rates are already very low, it is likely that commercial property prices will ease. The era of rapid commercial property price increases has ended.”

A record $325.0 billion was invested in commercial real estate in the first 10 months of 2007, up from $306.8 billion for all of 2006; that total does not include transactions valued at less than $5 million or investments in the hospitality sector, based on analysis of data from Real Capital Analytics.

Patricia Nooney of Saint Louis, chair of the Realtors® Commercial Alliance, said commercial real estate investment is expected to stay historically strong. “Even with the credit crunch there’s been no significant impact on institutional investors, and it’s unrealistic to set new records every year in a cyclical business,” she said. “There’s been a shift in investment activity to foreign buyers, who are taking advantage of the dollar’s decline relative to other currencies. With many areas showing favorable fundamentals, commercial property in the U.S. has become very attractive to foreign investors.”

The NAR forecast in four major commercial sectors analyzes quarterly data for various tracked metro areas. The sectors are the office, industrial, retail and multifamily markets. Historic metro data were provided by Torto Wheaton Research and Real Capital Analytics.

Office Market

With jobs still being created, the demand for office space remains positive and is helping to absorb the more than 30 million square feet of new space becoming available in the current quarter. Investment grade office properties with solid income streams will be the most in demand by institutional investors, equity funds and foreign investors.

Since not all of the vacated space is being back-filled or leased, office vacancies are forecast to rise to 13.2 percent by the fourth quarter of 2008 from an estimated 12.9 percent in the current quarter; it was 12.6 percent at the end of 2006. Annual rent growth in the office sector should be 8.0 percent this year and 2.0 percent in 2008, after rising 5.2 percent in 2006.

Projections for the fourth quarter show areas with the lowest office vacancies include New York City; Honolulu; Tucson, Ariz.; Long Island, N.Y.; Los Angeles; and Riverside, Calif., all with vacancy rates of 10.0 percent or less.

Net absorption of office space in 57 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties, is likely total 55.4 million square feet in 2007 and 43.0 million next year, but below the 81.2 million in 2006.

Office building transaction volume in the first 10 months of this year totaled a record $173.5 billion, compared with $133.5 billion for all of 2006. So far this year foreign investors purchased $12.5 billion worth of office properties, with buyers from the Middle East and Germany accounting for half of that volume.

Industrial Market

The weaker dollar is fueling an increase in exports, but leasing activity has declined in port distribution hubs, and vacancy rates in those markets are edging up; some users are building or renting in secondary markets.

With abundant land and relatively low concerns regarding site remediation, secondary and tertiary markets are experiencing greater interest. So far this year, almost 16 percent of industrial investment has taken place outside of the 58 primary markets tracked.

Vacancy rates in the industrial sector are projected to average 9.4 percent in the fourth quarter and 9.5 percent by the end of 2008; vacancies averaged 9.4 percent in the fourth quarter of 2006. Annual rent growth will more than double to 3.3 percent by the end of 2007 and is seen at 1.3 percent a year from now, compared with a 1.4 percent annual gain at the end of 2006.

The areas with the lowest industrial vacancies include Los Angeles; San Francisco; Tucson; Orange County, Calif.; Portland, Ore.; and Las Vegas, all with vacancy rates of 6.1 percent or less.

Net absorption of industrial space in 58 markets tracked is expected total 127.4 million square feet in 2007 and 144.0 million next year, down from 205.4 million in 2006.

Industrial transaction volume in the first 10 months of 2007 was $35.8 billion, compared with $38.9 billion for all of 2006.

Retail Market

Even with a decline in consumer confidence, retail vacancy rates remain fairly stable. Declining production of new space will help improve fundamentals in this sector during 2008.

Vacancy rates in the retail sector will probably rise to 8.9 percent in the current quarter from 8.0 percent at the end of last year, and then ease to 8.6 percent by the fourth quarter of 2008. Average retail rent should grow by 2.2 percent this year and 1.9 percent in 2008, after rising 3.9 percent in 2006.

Retail markets with the lowest vacancies include San Francisco; Orange County, Calif.; San Jose, Calif.; Ventura County, Calif.; Washington, D.C.; and San Diego, all with vacancy rates of 5.5 percent or less.

Net absorption of retail space in 53 tracked markets is forecast at 18.6 million square feet for 2007 and 24.7 million next year, up from 10.5 million in 2006.

Retail transaction volume in the first 10 months of this year totaled $52.9 billion, exceeding the $46.9 billion for all of 2006. The Southeast is the most sought-out region this year.

Multifamily Market

The apartment rental market – multifamily housing – is experiencing increased demand from the slowdown in home sales. With a rising population and a growing number of households, vacancies are tightening and rents are rising.

Multifamily vacancy rates are projected to average 5.4 percent in the current quarter, down from 5.9 percent in the fourth quarter of last year, and then continue to decline to 5.1 percent by the end of 2008. Average rent is likely to rise 3.1 percent for 2007 and 3.8 percent next year, following a 4.1 percent increase in 2006.

Multifamily net absorption is expected to total 234,400 units in 59 tracked metro areas in 2007, below the 229,500 last year, but should rise to 245,800 in 2008.

The areas with the lowest apartment vacancies include Northern New Jersey, Salt Lake City, San Jose, San Diego, Nashville and Philadelphia, all with vacancy rates of 3.3 percent or less.

Multifamily transactions in the first 10 months of this year totaled $62.3 billion, compared with $87.4 billion for all of 2006. The sale of buildings originally constructed as condos are being sold to multifamily investors in markets like Washington, D.C., and South Florida. Many markets have seen condo “for sale” signs change to “apartment for lease” signs almost overnight. Some condominium complexes are being converted into office buildings, and others are becoming mixed-use projects.

The COMMERCIAL REAL ESTATE OUTLOOK is published by the NAR Research Division for the Realtors® Commercial Alliance. The RCA, formed by NAR in 1999, serves the needs of the commercial market and the commercial constituency within NAR, including commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and NAR affiliate organizations.

Organizations in the RCA include the CCIM Institute, the Institute of Real Estate Management, the Realtors® Land Institute, the Society of Industrial and Office Realtors®, and the Counselors of Real Estate. The RCA also provides commercial products and services.

Nearly 140,000 NAR members offer commercial services, and 73,000 of those are currently members of the RCA.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
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The next Commercial Leading Indicator index will be February 20; the next commercial real estate market forecast is scheduled for March 12.

Realtors' Forecast Bucks Conventional Wisdom

Bucking conventional wisdom, a trade group for real estate agents on Monday said the battered housing market is on the verge of stabilizing and inched up its outlook for 2007 and 2008 home sales.

The revised monthly forecast from the National Association of Realtors, which followed nine straight months of downward revisions, calls for U.S. existing home sales to fall 12.5 percent this year to 5.67 million - the lowest level since 2002. Last month, the association predicted 5.66 million existing homes would be sold this year.

The Realtors' group also forecast sales will rise slightly in 2008 to 5.7 million, up from last month's prediction of 5.69 million.

Numerous other economists, however, are far less optimistic than the trade group. They predict weak sales and falling prices through next year and beyond and emphasize that those problems could worsen if the economy sinks into a recession.

Mark Zandi, chief economist at Moody's Economy.com, predicted at a housing forum last week that, if the economy slips into recession or if efforts to prevent foreclosures don't pick up substantially, the housing market downturn could last through the end of the decade.

The trade group's chief economist, Lawrence Yun, cited job growth and the replacement of subprime lenders to borrowers with weak credit with government-backed loans as reasons for the improved outlook.

"Despite over-exaggerated negative coverage on the housing conditions, many local markets are actually seeing price increases," Yun said at a press briefing. "Mortgage availability is improving"

The trade group also said its index that forecasts near-term home sales inched upward in October. The trade group's seasonally adjusted index of pending sales for existing homes rose 0.6 percent to 87.2 from an upwardly revised September index of 86.7, but was down 18.4 percent from a year ago - the third-largest year-over year decline on record.

The Realtors group also said the median price for U.S. existing homes - the point at which half sold for more and half for less - will sink by 1.9 percent to $217,600 this year and rise 0.3 percent next year to $218,300.

If median prices fall this year, it will be the first price decline in the nearly 40 years that the trade group has tracked that data.

Other ways to measure national housing prices, such as the S&P/Case-Shiller index, have already shown price declines.

A government index of national home prices in the fourth quarter marked a quarterly decline for the first time in 13 years in the third quarter.

Home prices dipped 0.4 percent nationwide in the July-September period, compared with the previous quarter, the Office of Federal Housing Enterprise Oversight said last month, citing weakening prices in much of the country.

Compared with the third quarter of 2006, U.S home prices posted an increase of 1.8 percent, but it was the smallest year-over-year increase since 1995, according to the agency, which oversees the big mortgage-finance companies Fannie Mae and Freddie Mac.

California new-home sales sink 46% in October

New-home sales dropped 45.6 percent in California while median new-home prices fell 10.8 percent in October compared to October 2007, the California Building Industry Association and Hanley Wood Market Intelligence reported today.

The groups reported 3,292 new-home sales statewide for all new-home types in October, down from 6,047 sales in October 2006, according to the report. The median price across all new-home types was $405,900, down from $455,000 in October 2006.

Single-family new-home sales fell 37 percent, from 4,075 in October 2006 to 2,568 in October 2007, while the median price of single-family new homes fell 12.9 percent, from $461,400 in October 2006 to $401,990 in October 2007.

Among those market areas with more than 100 sales in October, sales for all new-home types fell 75 percent in Sacramento compared to October 2006 and dropped 54.1 percent in Santa Ana-Anaheim-Irvine, 51 percent in San Diego-Carlsbad-San Marcos, 47.6 percent in Bakersfield, 41.4 percent in Los Angeles-Long Beach-Glendale, 34.5 percent in Oakland-Fremont-Hayward, 28.6 percent in Riverside-San Bernardino-Ontario and 10.7 percent in Fresno.

The median price for all new-home types in the Fresno area dropped 14.1 percent year-over-year in October, and fell 12.2 percent in Riverside, 10.7 percent in Bakersfield, 6.3 percent in Sacramento, 1 percent in San Diego, and 0.6 percent in Los Angeles while rising 0.5 percent in Oakland and 13.5 percent in the Santa Ana market area.

New condo sales dropped 70.6 percent in California year-over-year in October, falling from 1,481 in October 2006 to 436 in October 2007. And the median price of new condos in the state dropped 1 percent, from $415,000 in October 2006 to $411,000 in October 2007.

Sales of new townhomes and plexes (duplexes, triplexes, etc.) dropped 41.3 percent, from 491 in October 2006 to 288 in October 2007, while the median price of new townhomes and plexes dropped 11.3 percent, from $469,000 in October 2006 to $415,900 in October 2007.

Jonathan Dienhart, director of published research for Manley Wood Market Intelligence, said in a statement, "There doesn't currently seem to be an end in sight in regards to the problems in the mortgage industry. The market must once again find equilibrium; that can only happen when more home buyers gain access to credit again, and home prices have relaxed to the point where they can still qualify for a mortgage under more strict lending guidelines."

He added, "If potential home buyers are convinced it's a bad time to purchase a house, there is only so much that pricing and credit options are going to help. Consumers need to regain their confidence regarding housing before we will see widespread recovery."

And Robert Rivinius, president and CEO for the state builders' group, said in a statement, "As of this week, the latest projections are that the state's budget next year will be $14 billion in the red -- with much of the deficit directly linked to the continued weakness in the housing sector."

New-home sales and prices, October 2007, all new-home types

House ponders mortgage bankruptcy bill

Committee to vote Wednesday; lending industry opposed to proposal, which would aid bankrupt homeowners by letting judges reduce their loans.

WASHINGTON (AP) -- A House committee is scheduled to vote Wednesday on legislation that would permit judges to shrink the size of home loans for bankrupt homeowners - a mortgage-mess remedy supported by consumer advocates and ardently opposed by the lending industry.

Many Democrats say the proposal is a better way to help homeowners than a plan to freeze interest rates announced by the Bush administration last week and negotiated with lenders and investors.

Mortgage-industry leaders say the proposed legislation would open a floodgate of bankruptcy filings, further threatening the industry's already shaky footing. Lenders, they argue, would be forced to charge higher rates to offset any unpaid loan balances that would be reduced in court.

The House Judiciary Committee's hearing is scheduled for 10:15 a.m. EST. The bill is unlikely to head to the full House until next year, but could gather steam as Congress faces increasing pressure to do something about mounting foreclosures and defaults.


Under existing law, judges can't modify loan terms on a borrower's primary residence, but can do so for mortgages on second homes.

Democrats have pushed for legislation to extend a bankruptcy judge's so-called 'cramdown' power to primary home loans. Doing so, advocates say, could help more than 500,000 homeowners avoid foreclosure.

The bill up for consideration Wednesday is a compromise between House Judiciary Committee Chairman John Conyers, D-Mich., and Rep. Steve Chabot, R-Ohio.

It would apply to subprime loans made since 2000 to borrowers with shaky credit, and other nontraditional loans, such as those in which borrowers only make interest payments.

The bill "assists a broad category of homeowners who would not otherwise benefit" from the Bush administration's proposal, Conyers said in a statement Tuesday.


The Center for Responsible Lending, a Durham, N.C.-based consumer group, estimates that 145,000 households will qualify for the administration's rate freeze. Mark Zandi, chief economist with Moody's Economy.com, calculates that about 250,000 borrowers will likely benefit from it.

President Bush, announcing the initiative last Thursday, said 1.2 million homeowners could be eligible for relief, which includes the rate freeze and efforts to helping people refinance into more affordable mortgages.

Financial markets have been turbulent for much of the year amid worries about the growing scope of losses in investments tied to residential mortgages. On Tuesday, the chief executives of government sponsored mortgage-finance companies Fannie Mae (Charts) and Freddie Mac (Charts, Fortune 500) warned the suffering isn't over for their ailing mortgage-finance companies.

Freddie's CEO, Richard Syron, said the McLean, Va.-based company could lose an additional $5.5 billion to $7.5 billion over the next few years from soured home loans.

Mortgage applications rise

Despite a jump in interest rates, the Mortgage Bankers Association's application index increases in latest week to 811.8 from 791.8.

WASHINGTON (AP) -- Mortgage application volume increased 2.5 percent for the week ending Dec. 7, according to the trade group Mortgage Bankers Association's weekly application survey.

The MBA's weekly application index rose to 811.8 from 791.8 the previous week.

Refinance volume increased 4.3 percent, while purchase volume grew 1.7 percent. Refinance applications accounted for 57.6 percent of total mortgage applications during the week ending Dec. 7, compared with 56 percent during the prior week.

The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.

An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 811.8 means mortgage application activity is 8.118 times higher than it was when the MBA began tracking the data.

The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50 percent of all residential retail mortgage originations each week.

Mortgage applications rose despite a jump in interest rates. The average interest rate for traditional, 30-year fixed-rate mortgages grew to 6.07 percent during the week ending Dec. 7, from 5.82 percent during the prior week.

The average interest rate for one-year adjustable-rate mortgages increased to 6.31 percent from 6.28 percent.