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WASHINGTON (Reuters) – The Senate on Thursday backed a measure to help bolster the housing market by making it easier for people to afford a home in wealthier neighborhoods.
The Senate voted 60-38 to attach the proposal to a spending bill that the chamber will consider later this year. It would restore the size of the loans the government buys or insures to a maximum of $729,500 from the previous cap of $625,500.
The cap, known as the "conforming loan limit," determines the maximum size of loans the Federal Housing Administration and the government's mortgage buyers, Fannie Mae and Freddie Mac, can buy or guarantee.
The higher loan limit expired at the end of September and was touted as one of the Obama administration's short-term plans to shrink the government's role in the mortgage market.
But with the housing sector hurting the country's economic recovery, lawmakers and the administration are looking for solutions.
"Getting our housing market moving again is one of the most important tasks facing the country," said Robert Menendez, a Democrat from New Jersey who introduced the bill amendment.
The majority of Senators agreed that the lower loan limit was making a weak housing market even weaker. "It makes it harder for middle class homebuyers to get credit when credit is tight," Menendez said.
It is unclear what will ultimately happen to the provision, given the deep divisions within the Democratic-led Senate and Republican-controlled House of Representatives. It would have to pass both chambers before President Barack Obama, a Democrat, could sign it into law.
Republican Senator Richard Shelby said the measure would help homebuyers who "do not need federal subsidies." "This is not a good use of taxpayer dollars," he said.
Republicans in the House have been trying to quickly unwind Fannie Mae and Freddie Mac, which were seized by the government at the height of the financial crisis and now back the bulk of the mortgage market. But the administration has cautioned against removing the government's support before the housing sector starts to stabilize.
LOS ANGELES – Fewer U.S. homes entered the foreclosure process or were seized by lenders in July, the latest sign banks are taking a measured approach to moving against homeowners who have fallen behind on mortgage payments.
Some 59,516 homes received an initial default notice last month, down 7 percent from June and down 39 percent from July 2010, foreclosure listing firm RealtyTrac Inc. said Thursday.
The notices, which are the first step in the foreclosure process, have fallen 58 percent below their April 2009 peak.
Homes scheduled for auction also declined in July, while the number of homes seized by banks slipped 1 percent from June and slid 27 percent versus July last year, the firm said.
The slowdown in foreclosure activity is not due to an improving housing market. It's the result of foreclosure processing delays and banks' reluctance to take back properties while there is a glut of unsold foreclosed homes on the market.
"I'm wondering if we're not seeing a new normal, where basically the lenders will move on these properties as quickly as they think they can sell them off in the market," said Rick Sharga, a senior vice president at RealtyTrac.
Banks are working through foreclosure documentation problems that first surfaced last fall and an ensuing logjam in some state courts. Lenders also have put off on taking action against delinquent borrowers as U.S. home sales have slowed this year.
Another factor stalling foreclosure activity is the prospect of a broad settlement of government probes into mortgage lending. Attorneys general in all 50 states and major banks have been working to reach an agreement to settle claims of shoddy mortgage and foreclosure practices.
For homeowners already behind in payments, the slowdown is helping them remain in their homes longer — in some cases for more than two years — particularly in states like New York and Florida, where courts play a role in the foreclosure process.
All told, banks took back 67,829 homes in July, that's down 34 percent from a peak set last September, RealtyTrac said.
Banks are now on track to repossess between 800,000 and 900,000 homes this year, down from more than 1 million last year, Sharga said.
The firm had originally anticipated some 1.2 million homes would be repossessed by lenders this year.
That's good news for homeowners, because foreclosures tend to sell at a discount to other properties, which can weigh down home values overall.
But it also spells a longer road to recovery for the housing market. That's because lenders now have about 850,000 foreclosed homes on their books, not counting the roughly 1.1 million homes that are in some stage of foreclosure, and many of those homes could end up being repossessed by lenders and eventually put up for sale at a discount.
In all, 212,764 U.S. homes received a foreclosure-related notice last month, a 4 percent drop from June and a 35 percent decline versus July last year. That translates to one in every 611 households, RealtyTrac said.
Despite the slowdown in foreclosure activity, several states posted outsized foreclosure rates last month.
Nevada continued to lead the nation, with one in every 115 households receiving a foreclosure notice in July.
Rounding out the top 10 states with the highest foreclosure rate in July are California, Arizona, Georgia, Utah, Florida, Michigan, Idaho, Illinois and Wisconsin.
WASHINGTON – Builders broke ground on more new homes in May, but not enough to signal a recovery in the troubled housing market.
New-home construction rose 3.5 percent from April to a seasonally adjusted annual rate of 560,000 units per year, the Commerce Department said Thursday.
Economists say the pace of construction is far below the 1.2 million new homes per year that must be built to sustain a healthy housing market. Many credit-strapped builders are struggling to compete with low-priced foreclosures.
Housing permits, a gauge of future construction, rose 8.7 percent last month, to the highest level since December. But apartment and condominium construction accounted for a large portion of that increase. Permits for buildings with five or more housing units jumped to its highest point since October 2008, well before a second wave of foreclosures knocked home prices down further.
The number of single-family homes started in May rose a modest 3.7 percent. It's at its highest point since January. But the construction pace of single-family homes, which accounts for about 80 percent of all residential construction, is well below the 2010 rate. The last two years were the worst for housing starts on records going back to 1959.
Fewer new homes mean fewer jobs. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
Builders are struggling to compete with millions of foreclosures that are forcing down prices for re-sold homes. The median price of a new home is about 34 percent higher than the median price for a re-sale. That's more than twice the markup in healthy housing markets.
"The high premium is expected to continue to sway potential buyers to existing homes and away from new ones," said Christos Shiamptanis, economist at TD Economics.
In some cities, prices are half of what they were before the housing market collapsed in 2006 and 2007. Tougher lending standards have made home loans hard to come by. Many would-be buyers who could qualify for loans are worried prices will fall further. Others are reluctant to put their own homes up for sale when prices are dropping.
Home prices in big metro areas have sunk to their lowest since 2002, the Standard & Poor's/Case-Shiller 20-city index showed last month. Since the bubble burst, prices have fallen more than they did during the Great Depression. It took 19 years for the housing market to regain its losses after the Depression ended.
And this time, prices aren't expected to come back up anytime soon.
Home building was uneven across the country: It fell 3.3 and 4.1 percent last month in the Northeast and Midwest, respectively, but rose 1.5 percent and 18.1 percent in the South and West. The big gains in the West were largely due to increased apartment construction.
Many foreclosures have been delayed as regulators and state attorneys general work out the details of new lending requirements and penalties for banks. Until those rules are finished, banks won't ease their stricter lending rules. Most private lenders are requiring 20 percent down payments.
Few people think it makes sense to put their home on the market in this environment. Roughly 92 percent of homeowners say it's a bad time to sell, according to the latest Thomson Reuters/University of Michigan index of consumer sentiment.
In some badly hit areas, such as Phoenix, Tampa and Las Vegas, a housing recovery could take years.
The homebuilders' trade group said Wednesday that its survey of homebuilder sentiment fell to 13 — the lowest level since September. Any reading below 50 indicates negative sentiment about the market. The index hasn't reached that level since April 2006.
Builders are not hopeful for a turnaround this year. An index that gauges sales expectations over the next six months fell in June to its lowest level on records dating back to 1985.
The weak housing market is weighing on the overall economic recovery.
But housing helps the broader economy in other ways.
Home equity accounts for most of the wealth of typical households. Equity is nearing its lowest point on records going back to the end of World War II. When prices fall, state and local property tax collections dry up and people spend less. Consumer spending fuels about 70 percent of the U.S. economy, more than any other industrialized nation.
In past modern-day recessions, housing accounted for 15 to 20 percent of overall economic growth. This time around, between 2009 and 2010, housing contributed just 4 percent to the economy.
LOS ANGELES – The number of U.S. homeowners who were put on notice for being behind on their mortgage payments fell in May to the lowest level since 2006, the result of a slowing housing market and lingering delays in banks' foreclosure process.
Mortgage lenders, many of which are still working through foreclosure documentation problems that surfaced last fall, also took back fewer properties in May, the second monthly decline in a row, foreclosure listing firm RealtyTrac Inc. said Thursday.
The delays continue to push the 2 million U.S. homes already on banks' books or in some stage of foreclosure further into limbo and put banks on track to repossess about 200,000 fewer homes this year than in 2010, the firm said.
"The problem with that, even though it sounds better, is that all of those foreclosure auctions we should have seen this year roll into next year, and that means it's going to take that much longer for the housing market to recover," said Rick Sharga, a senior vice president at RealtyTrac.
The pace of homes entering the foreclosure process and those ending up as bank-owned properties began slowing sharply last fall, when allegations surfaced that many banks relied on erroneous documents when they foreclosed on thousands of homes.
Since then, banks, federal regulators and state attorneys general have been reviewing how foreclosures were carried out the past two years. That has prompted lenders to resubmit paperwork on foreclosures and, in states where courts play a role in the process, caused a logjam of foreclosure cases.
Lenders also have put off on taking action against delinquent borrowers as U.S. home sales have slowed this year.
In many cases, banks are only going forward with the foreclosure process as quickly as they can sell the properties they already have on the market, Sharga said.
Banks have almost 900,000 properties already on their books, so if the ones on the market aren't selling, there's little incentive for them to take back more homes that will end up sitting vacant.
Combined with the 1.1 million homes in some stage of foreclosure, the properties represent more than three years of housing inventory at the current sales pace — and that's if no other homes go into foreclosure.
The backlog spells further declines in home values, as homes in foreclosure sell at a 20 percent discount on average, and those discounts erode prices throughout a neighborhood.
One bright spot is that the number of home loans that are at least 90 days late has fallen five quarters in a row and are at the lowest level since the start of 2009, according to the Mortgage Bankers Association.
That's partly because loans made in the aftermath of the credit crisis, when lenders tightened underwriting standards, are not becoming delinquent as often as riskier loans made between 2005 and 2007. That means fewer of those loans are likely to into foreclosure.
In all, 214,927 properties received a notice of default, scheduled home auction or home repossession in May, down 2 percent from April and down 33 percent from May last year, RealtyTrac said.
That represents one in every 605 U.S. households. The notices can lead up to a home eventually being lost to foreclosure.
The number of homes receiving an initial notice of default fell to 58,797, the lowest level since December 2006. The notices fell 7 percent from April and 39 percent from a year earlier, the firm said.
Underscoring the scope of the foreclosure delays, initial notices of default, which mark the start of the foreclosure process, have posted annual declines the past 16 months, even though there are some 4 million U.S. homeowners who are at least three months behind on their mortgage. Ordinarily, most of them would already be in foreclosure.
The pace of bank repossessions slowed in May to 66,879 properties, down 4 percent from April and down 29 percent from May 2010, the firm said. In the past eight months, bank repossessions have posted three annual increases and been down the other five.
Still, lenders did take back more homes last month in several states, including Georgia, New York, Virginia, New Jersey and Michigan.
Going by the pace of home repossessions so far this year, Sharga estimates banks will take back 800,000 homes this year, down from more than 1 million last year.
Despite the drop in foreclosure activity last month, several states continue to have outsized foreclosure rates.
Nevada led the nation, with one in every 103 households receiving a foreclosure notice in May. Bank repossessions fell 21 percent from April, but initial notices of default rose 8 percent.
Rounding out the top 10 states with the highest foreclosure rate in May are Arizona, California, Michigan, Utah, Georgia, Idaho, Florida, Illinois and Colorado.
WASHINGTON – Falling real estate prices are eating away at home equity. The percentage of their homes that Americans own is near its lowest point since World War II, the Federal Reserve said Thursday. The average homeowner now has 38 percent equity, down from 61 percent a decade ago.
The latest bleak snapshot of the housing market came as mortgage rates hit a new a low for the year, falling below 4.5 percent for a 30-year fixed loan. But even alluring rates have failed to deliver any lift to the depressed housing industry.
The Fed report is based on data from the first quarter of this year. Another report last week found that home prices in big cities have fallen to 2002 levels.
Normally, home equity rises as you pay off the mortgage. But home values have fallen dramatically since the bubble in prices burst in 2006. So many homeowners are losing equity even though the outstanding balance on the loan is getting smaller.
Nicole Rosen's home in tiny Spanaway, Wash., just outside the military base where her husband works, has lost $150,000 in value since she paid $275,000 for it in 2006. She has battled mortgage lenders in court for two years to stay out of foreclosure. In the meantime, the couple are paying off credit cards, figuring it's the only "positive thing we could do."
"We're paying off all our debt. We only have $200 left on our credit cards. But we're stuck in our house," Rosen said.
Home equity is important for the economy because it has a lot to do with how wealthy people feel. If they feel swamped by a mortgage loan, they're less likely to spend freely on other things. Home equity also serves as collateral for some loans.
There are 74.5 million homeowners in the United States. An estimated 60 percent have a mortgage. The rest have either paid off the loan or bought with cash.
Of the people who have mortgages, 23 percent are "under water," meaning they owe more on the mortgage than their home is worth, according to the private real estate research firm CoreLogic. An additional 5 percent are nearing that point.
The outlook for the housing market remains dim.
Fixed mortgage rates average 4.49 percent, extremely low by historical standards, and have fallen for eight straight weeks. But most people can't meet tougher lending requirements. Falling rates make it easier to refinance, too, but many of the people who can afford to do that already have.
And foreclosures keep hammering the housing market. On Thursday, the Obama administration said the three largest U.S. lenders — Wells Fargo, Bank of America and JPMorgan Chase — haven't helped enough people lower their mortgage payments to stay in their homes.
The government said it has started withholding the cash incentives it established for lenders under its 2-year-old foreclosure prevention program. The administration had hoped the program would prevent as many as 4 million foreclosures, but it has helped fewer than 700,000 people.
Foreclosures have economic ripples: Homes in foreclosure sell at a 20 percent discount on average, and those discounts erode prices throughout a neighborhood.
Many foreclosure sales have been delayed while federal regulators, state attorneys general and banks review how those foreclosures were carried out over the past two years. When those foreclosures go through, prices may fall even further.
Home prices are expected to keep falling until the number of foreclosures for sale is reduced, companies start hiring in greater force, banks ease lending rules and more people think it makes financial sense again to buy a house. In some areas of the country, that could take years.
The Federal Reserve report found that Americans' overall net worth grew 1.65 percent in the January-to-March period, to $58.06 trillion, mostly because of stock market gains. Most of those gains have been erased since March, though.
Net worth is the value of assets such as homes and stocks, minus debts like mortgages and credit cards.
The report found household debt declined at an annual rate of 2 percent from the previous quarter, mostly because of a decline in mortgage debt, which has fallen for 12 straight quarters.
But the decline is deceiving. Mortgage debt is coming down because so many Americans are defaulting on payments and losing their homes to foreclosure, not just because people are paying off loans.
"A lot of this debt reduction is not voluntary," said Dana Saporta, director of U.S. economics at Credit Suisse.
The Fed report suggests the average household owes about $119,000 on mortgages, credit cards, auto loans and other debt.
Debt now equals 119 percent of the money Americans have left over after taxes. In late 2007, when the country was binging on debt, it was 135 percent. In the healthier 1990s, it was roughly 90 percent.
Auto loans, student loans and other consumer credit rose 2.4 percent during the quarter, a second straight gain. Analysts say more people, many of them unemployed, are borrowing money to attend school.
The Fed's quarterly report documents wealth, debt and savings for corporations, governments and households. It covers most of the financial transactions that take place in the United States.
It found that corporations are still hoarding cash. Excluding banks and other financial firms, companies held $1.9 trillion in cash at the end of the quarter. That was slightly more than in the previous quarter and set another record.
The reluctance of companies to spend more of their cash helps explain why job growth has been slow since the recession ended. The unemployment rate is 9.1 percent, slightly higher than when the year began.
Household net worth in America is up nearly 19 percent from early 2009 but still about 11 percent below its peak in 2007. Normally, greater wealth would spark consumer spending. But the lost home equity is counteracting it.
Per household, it comes to about $518,000. But the gap between the super-rich and everyone else in the United States has grown over the past three decades. So while average wealth is increasing, most Americans don't feel the difference.
___
AP Business Writer Matthew Craft in New York contributed to this report.
When Travis Slocum and his partner contemplated selling their Washington, D.C., home this spring, they had high hopes of upgrading to a larger place. After all, in recent months, nationwide news has underscored falling home prices and historically low mortgage rates, both boons for would-be home buyers.
But Slocum found the selection disappointing. "We really didn't find anything on the market that 'wowed' us," says the 34-year-old banker. "[Some] might have had more space, but they weren't as updated, or they were well out of our price range."
[In Pictures: 10 Major Cities Where Buying Beats Renting.]
Despite what some housing experts say is the best buyer's market in years, house hunters like Slocum are finding themselves discouraged by tighter lending standards and the challenge of selling existing properties. Rather than purchasing a new home, some would-be buyers are considering other options. For example, Slocum and his partner, who own a two-bedroom, two-bathroom home, are considering adding on to their existing property, remodeling, or even finishing their basement to create a separate rental unit and another source of income.
Jay and Stephanie Herbert opted to refresh the exterior of their Alpharetta, Ga., home instead of moving, adding Craftsman-style touches like stacked stone columns and shaker shingles. "That's really what's making us stay in this house," says Stephanie, a 36-year-old homemaker. "If we could stay here and have our house paid off when our kids hit high school, it would be great to not have to worry about the burden if my husband were to lose his job."
[See Why Declining Homeownership Rates Might Not Be a Bad Thing.]
"People don't want to sell now because the market is so depressed," says Mitch Hochberg, principal at New York City-based Madden Real Estate Ventures. "They feel the smarter investment would be to put money into their current house that they will hopefully be able to recover when the market turns around."
If you're a discouraged house hunter looking for alternatives, here are a few ways you can adapt your current home to meet your needs:
Room conversions. Whether you're converting a bedroom into a home office or morphing a recreation room into an in-law suite, simply re-purposing your living space can be one of the most affordable ways to adapt your home to a change in lifestyle needs.
Remodels. High-traffic areas such as kitchens and bathrooms take a beating over the years. The good news is that on average, homeowners recoup 73 percent of their investment for a minor kitchen remodel and 64 percent for a bathroom remodel, according to the most recent Remodeling Cost vs. Value Report. On average, minor kitchen remodels cost about $22,000, while bathroom remodels will set homeowners back about $16,000. "People are absolutely spending more in renovating and expanding their existing homes rather than making the more significant investment of buying a new home," Hochberg says. "Someone maybe living in an older house and may want to put in a new kitchen or bathroom because that was one of the main drivers for moving."
[See Overcoming the Mortgage Obstacle.]
Finishing basements. Although this is one of the more pricey upgrades--on average, finishing a basement costs almost $65,000--finished basements can add extra living space for families feeling cramped in their current homes. "It's a fairly easy one to do," says Hochberg. "You don't have to deal with foundations and the roof."
Exterior face-lifts. Some homeowners are choosing to up the curb appeal of their homes. While the Herberts undertook a more complex project to refresh the exterior of their home, simply replacing the front door or even a garage door can spruce up a tired-looking façade. A new garage door costs about $1,300, on average, but homeowners can expect an almost 84 percent return on their investment. Entry doors return a whopping 102 percent, on average.
Additions. Major construction projects can be pricey, but if homeowners plan on remaining in their house for awhile, they can recoup almost two-thirds of their investment, on average. Popular additions include sunrooms and outdoor living spaces, such as decks and pergolas, according to Jannis Vann, a residence designer in the Atlanta metro area. Clients are also expanding in-law suites, she says.
[See The Ultimate Spring Home Buyers' Guide.]
But while some renovation choices might be right for certain markets, the same upgrades might not fetch the same return on investment in other markets. "Really know what kind of neighborhood you're in. If only 1 in 10 homes have granite counters, you don't need to install granite counters," Shuman says. "You really need to understand what you're putting into the renovations you do."
Twitter: @mmhandley