Real Estate Insight

California home sales declined from both the prior month and year in January, according to data from the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). The median price also was lower, primarily due to a sales increase in the distressed market.

• Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 517,740 in January, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide.
  
  
• January’s sales were down 0.6 percent from December’s 520,940 pace and down 5.7 percent from the revised 548,760 sales pace recorded in January 2011. The statewide sales figure represents what would be the total number of homes sold during 2012 if sales maintained the January pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
  
  
• The statewide median price of an existing, single-family detached home fell to $268,280 in January, down 6.7 percent from $285,920 in December. The median price also dropped 3.9 percent from the revised $279,220 median price recorded in January 2011.
  
  
• “The decline in the January median home is largely a reflection of an increase in the share of distressed home sales,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “Seasonal factors in the non-distressed market also played a role in the softening of the median home price, as prices typically decline in the non-peak home buying season.”
  
  
• California’s housing inventory rose in January, with the Unsold Inventory Index for existing, single-family detached homes increasing to 5.5 months in January, up from 4.1 months in December but down from the 6.8-month supply in January 2011. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.
  

On Thursday, federal and state officials announced a $26 billion foreclosure settlement with five of the largest home lenders. California is expected to receive approximately $12 billion in principal write-downs, including through short sales, over the next three years, according to the state attorney general's office.

• The deal settles potential state charges about allegations of improper foreclosures based on robo-signing, seizures made without proper paperwork.
  
  
• The settlement sets up a federal monitor to oversee the process and try to prevent the challenges that tripped up many homeowners seeking help in earlier programs designed to address the housing crisis.
  
  
• Most of the relief will go to those who are underwater on their homes. That relief will come over the course of the next three years, with banks having incentives to provide most of the relief in the next 12 months.
  
  
• At least $17 billion will go to reducing the principal owed by homeowners who are underwater and behind on their mortgages.
  
  
• Up to 750,000 other underwater homeowners who are current on their mortgages will be able to refinance their current loans at lower rates. They will not receive a reduction in principal, but with mortgage rates near record lows, they could receive substantial savings on their monthly payments.
  
  
• Approximately $1.5 billion will go to homeowners who had their homes foreclosed upon between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria. They will receive up to $2,000 each.
  
  
• The five mortgage servicers that are parties to the settlement include Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial (formerly GMAC).
  

• Operated by the Federal Housing Administration, the plan would allow underwater homeowners to refinance into cheaper federally insured loans. Borrowers with good credit who are current on their loan payments are eligible.
  
  
• The measure also streamlines the process of refinancing an underwater mortgage, eliminating the need for an appraisal or submitting a new tax return.
  
  
• To qualify, borrowers must be current on their mortgage, have a minimum credit score of 580, and must be refinancing a loan on a single-family owner-occupied principal residence.
  
• Lenders only need to confirm that the borrower is employed. Loans that are more than 140 percent of the home value probably would not qualify until banks wrote down part of the balance.
  
• Congress must approve $5 billion to $10 billion in funding, leading housing experts to praise the plan’s objectives with skepticism of it passing this year.

The New York Times

• The rates quoted are averages drawn from a variety of financial institutions, and lenders use varied approaches to set them. Consumers who want to try for the lowest rates available need to consider basic factors, such as credit score, points, property type,down payment, and length of the loan.
  
  
• Credit score: The ideal borrower has a FICO score of 740 or higher, which puts the individual in the best place for pricing.
  
  
• Points: The lowest rates usually are decreased by paying a fee called a point, or 1 percent of the loan amount. Borrowers may buy points in order to get the best rates at many banks. Points might make sense depending on the borrower’s financial situation and how long they expect to stay in the home.
  
  
• Property type: Borrowers planning to buy a duplex or a four-unit build likely will have a higher interest rate. Condominiums also may have a rate premium rate, especially if they are newer or the down payment is less than 25 percent. Lenders also may charge more if the borrower is not planning to live in the home.
  
  
• Down payment: Borrowers who put down at least 25 percent are more likely to obtain the best interest rates. Lenders offer different breaks on rates if equity in the property is higher, so borrowers should ask what is available.
  
  
• Length of loan: Borrowers who are likely to move in a few years may want to look into an adjustable-rate loan with a low interest rate fixed for a few years, and adjusted afterword.

Just as in 2011, in 2012 many will be trying to figure out where housing is headed. While the housing market didn’t worsen in 2011, it also didn’t stabilize either. This year, the story will be about local markets. While many housing markets rose and fell together, they’re recovering at difference paces so talking about housing on a national level is not beneficial.

• Confidence and jobs: Housing is more affordable than it has been in decades, but many would-be buyers are worried about buying today if prices are going to be lower tomorrow. Still, others don’t want to buy a house until they have more evidence that they’re not going to get laid off or see their hours cut back.
  
  
• Foreclosures: Banks and other mortgage investors own around 440,000 foreclosed properties, but there’s another 3.4 million loans in foreclosure or serious delinquency, according to estimates by Barclays Capital. Because banks are faster to cut prices to unload inventory than are traditional sellers, home values can fall further as the share of distressed sales rises.
  
  
• Rents: If low mortgage rates aren’t enough to give urgency to would-be buyers, rent hikes could accelerate buyers’ decisions to take the plunge
  
  
• Mortgage credit and rates: It’s still hard for many buyers to get approved for a mortgage because banks are demanding lots of documentation of borrowers’ incomes.
  
  
• Regulation: Many analysts don’t expect Congress to make major changes to Fannie Mae and Freddie Mac during the election year, but several major regulatory changes could significantly reshape the future of the lending landscape in 2012.
  
  
• Meanwhile, the regulator that oversees Fannie and Freddie is revamping the way that mortgage companies are paid for collecting loan payments. This could lead to a broader shakeup in the mortgage industry that ultimately influences how much borrowers are charged for mortgages and how banks handle loans that fall into delinquency.