While the numbers are small, less than 200 homes the incidence of foreclosure among ultra-high end homes has skyrocketed recently, even as the rate for average priced homes has plunged. RealtyTrac said today that foreclosure activity on homes valued at $5 million or more has jumped by 61 percent since October 2012 while the overall rate of filings has dropped 23 percent so far this year.
The 200 or so very expensive homes that have received a foreclosure notice this year pales in comparison to the total of 1.2 million homes in less rarified price ranges that have also received notices, but as RealtyTrac points out, each of these homes represents a much bigger potential loss to the lender than do median priced homes.
The company said the uptick in activity may indicate that lenders are now financially stable enough to face the potential big-ticket losses on these homes or it may indicate that they are looking at an improved market for more expensive homes and seeing the possibility of better recoveries through foreclosure.
“A home selling for $5 million or above represents the ultra-luxury end of the market, and so far in 2013 we’ve had 34 properties close over that price with the average sale being $7.7 million,” said Emmett Laffey, CEO of Laffey Fine Home International, covering the five boroughs of New York. “Any foreclosure properties in this type of ultra-luxury market usually get purchased very quickly since there is one thing all super rich buyers want – an outstanding deal on a real estate transaction, and in most cases foreclosures of this magnitude come with several million more dollars of built-in value.”
RealtyTrac said that the delayed rise in foreclosure activity on these high-end properties may not all be the doing of the lenders. Some of the homeowners may have had the means to hold out against foreclosure longer than most homeowners.
More than 60 percent of the high-end foreclosure activity was not surprisingly in Florida and California. Both states had notable real estate booms and busts and their coastal cities in particular have larger shares of expensive homes than in most of the U.S.
Home prices rose again nationally in September Lender Processing Services (LPS) said today, but in many areas, notably a lot of the older mill towns in the Northeast, prices are still declining, in some cases sharply. LPS’s Home Price Index (HPI) was up 0.2 percent from August to $232,000 and has risen 8.2 percent since the beginning of the year and 9.0 percent since September 2012.
Nationally the HPI has climbed back to within 14.1 percent of the peak level reached in June of 2006 when the index was at $270,000. In many states however, such as Florida (-35.1 percent) and even, despite its recent unprecedented gains, California (-25.3 percent) prices have far from fully recovered.
LPS derives its data from residential real estate transactions and its own property and loan-level data bases. The HPI is the result of a repeat sales analysis representing the price of non-distressed properties by taking into account price discounts for bank-owned real estate and short sales.
Five states had increases in their HPI of half a percent or more from August to September, Nevada was up 0.8 percent, Georgia and South Carolina increased by 0.7 percent and both Florida and Illinois were up 0.5 percent. The largest month-over-month declines were in Connecticut (-0.9 percent), New Hampshire (-0.6 percent), Massachusetts (-0.5 percent) and Colorado and Pennsylvania each of which declined 0.4 percent.
Colorado along with Texas established new peak prices in July but while Texas has gone on to even higher HPI levels and established another peak in September, Colorado has declined every month since. The state is now down 0.7 percent from its recent peak.
The biggest price gains among metropolitan areas were almost all in the south. Myrtle Beach, South Carolina gained 1 percentage point in September followed by Charleston South Carolina, Atlanta, and Miami with 9 percent increases. There were five metro areas that were up 0.8 percent, Naples, Florida, Reno and Las Vegas, Ocean Pines, Maryland; and Key West. Austin, Texas gained 0.6 percent and established a new peak price at $241,000.
The big losers were mostly in New England. Torrington (-1.0 percent), Bridgeport (-0.9 percent), and Norwich (-0.9 percent), Connecticut were followed by Springfield, Massachusetts and New Haven, down 0.8 percent. York, Pennsylvania and Kennewick, Washington, down 0.7 percent. Worcester, Massachusetts and Manchester, New Hampshire each lost 0.6 percent in value from September. Denver, which had, along with Colorado, set a new peak in July is now off that peak by 0.8 percent after falling half a point in September.
Completed foreclosures in September totaled 51,000 nationwide, down 39 percent from a year earlier when banks repossessed 84,000 homes. CoreLogic said, in its September National Foreclosure Report, that the number of foreclosures last month was virtually identical to that in August.
By way of comparison, CoreLogic said that in what might be considered a more normal market, the period from 2001 to 2006, there were an average of 21,000 foreclosures completed each month. The approximately 4.6 million foreclosures completed in the 60 months since the financial crisis began in September 2008 average 76,700 per month.
In September the foreclosure inventory, that is the number of homes in some stage of foreclosure, stood at approximately 902,000, down one third from 1.4 million one year earlier. The inventory decreased by 3.3 percent from August to September. The inventory in September represented approximately 2.3 percent of mortgages homes in the U.S., down from 3.2 percent in September 2012.
“The foreclosure inventory continues to decline, now standing at an early 2009 level,” said Mark Fleming, chief economist for CoreLogic. “Just over 900,000 properties remain in the inventory, two thirds of them in judicial states where the foreclosure process is typically slower. Consequently, the pace of overall improvement in the inventory will slow down and distressed assets will cast a long shadow over housing markets in states with judicial foreclosure.”
“The number of seriously delinquent mortgages continues to drop across the country at a rapid rate with every state showing year-over-year declines in foreclosure inventory,” said Anand Nallathambi, president and CEO of CoreLogic. “We’re not out of the woods yet, but these are encouraging signs for a return to a healthier housing market in the U.S.”
Five states accounted for almost half of all completed foreclosures over the 12 months ended in September. Florida had 115,000 foreclosures, California 52,000, Texas 43,000, Michigan, 40,000, and Georgia 39,000. The states with the highest foreclosure inventory as a percent of mortgaged homes were Florida (7.4 percent), New Jersey (6.5 percent), New York (4.8 percent), Maine (4.0 percent) and Connecticut (3.7 percent).
Why refi? There are at least seven reasons to refinance a mortgage. You probably can think of the first one — to get a lower mortgage rate.
The average interest rate on an outstanding mortgage at the beginning of 2010 was 5.979 percent, according to the Bureau of Economic Analysis. However, lenders today are offering rates well below that benchmark, making a refinance a no-brainer for many.
But low rates are not the only motive for refinancing a home loan nowadays. The following are good reasons to consider a new
The No. 1 reason to refi is to get a lower mortgage rate. Despite sinking rates, a lot of people haven’t refinanced.
Many homeowners would like to refinance but can’t because they have little or no equity due to falling home values. Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Stuart, Fla., says too many of his clients can’t refi for this reason.
“But there are people who can, and some people who get so into whatever they’re doing that they don’t pay attention to the news and don’t pay attention to where rates are at,” Sahnger says.
So Sahnger will call to tell them that rates are near record lows.
Stability-hungry borrowers are ditching adjustable-rate mortgages and refinancing into fixed-rate loans.
“Everybody’s frightened about inflation, so if they have an adjustable loan, that’s the No. 1 reason they’re getting out of them,” says Jeff Lazerson, president of Mortgage Grader, a lender based in Laguna Niguel, Calif. “It’s not because you can get them at a better rate, but because you can get them at a stable rate.”
Other borrowers swing from one hybrid ARM to another, says Matt Hackett, underwriting manager for Equity Now, a direct mortgage lender based in New York City.
“We’ve done a few of those for people who were in a five-year ARM that they originated four years ago, that was getting ready to adjust,” Hackett says.
Even though the rates were about to adjust downward, they got new 5/1 ARMs to extend low rates another five years.
This isn’t, technically, a refi, but it’s close. Mortgage-free homeowners sometimes get mortgages to put cash in their pockets.
“There’s a lot of people who don’t have a mortgage,” Hackett says. “Maybe they want to go to Florida, buy a second home with cash. So they cash out their first home and take the cash and go down there and don’t need a financing contingency, and they’re in a better position to bargain.”
They could also take out a mortgage on a paid-off property to start a business or for other reasons.
When house prices were rising by 10 percent or more a year, millions of borrowers got cash-out refinances. They refinanced for more than they owed, got cash, and spent or invested it.
The cash-out refi craze ended when the housing bust began. But there are still a few cash-out refis.
“We’re still in the business of cashing out people — paying off credit cards, for example,” says Michael Moskowitz, president of Equity Now.
Michael Becker, mortgage banker at Happy Mortgage in Lutherville, Md., says: “It’s not like it was years ago, when people took cash out to buy things, like a pool, a car or an RV. It seems more to be paying down debt, lowering their debt service, trying to save money.”
Lately, Lazerson has noticed an interesting refinancing trend.
“One thing that’s a trend now is that people are taking money out to purchase other properties,” he says.
Often, it’s to buy investment properties.
Refinancing to buy property can bring up unexpected tax and mortgage underwriting issues. A lot depends upon how the refinanced house and the new property will be used.
For example, which property will be the primary residence? Will the other property be rented out? Those are issues for a financial adviser or tax professional to untangle.
Some homeowners want to combine their first mortgage with the home equity line of credit.
“I’m seeing a lot of people, even if their rates on their home equity line of credit is 3 percent, refinancing to get rid of them,” Becker says.
Why get rid of a loan with such a low rate?
“Because they’re worried if five years from now, what if that rate jumps up to 12 (percent), 11 (percent), 13 percent?” Becker says.
Divorces often lead to refis as a means of removing the absent former spouse from the note.
“That has less to do with rates and is more about timing,” Lazerson says.
Moskowitz says he recently did a $110,000 cash-out refi from a woman who used the money to bail out a son facing foreclosure on his own house.
That’s not how Moskowitz would spend his money from a cash-out refi. But to anyone who agrees with him, he says, “You’re clearly not a mother.”