This is a periodic communication from Cartus intended to keep you informed about the current property market trends and conditions in the United States. There is good news in the recovering real estate market. Homes are affordable, and opportunities exist for those looking to buy. The number of foreclosures and short sales, however, is hampering the housing rebound. The Qualified Residential Mortgage is being discussed by regulators, and the future of Fannie Mae and Freddie Mac is being debated by lawmakers. F ro m t h e D e s k o f P a t D e D o n a t o Vice President, Real Estate Services & Supply Chain Management Team As the current economy continues to make the process of selling homes more challenging, there are some positive indicators that we can focus on to help us adjust to market conditions. Economic Indicators Dow Jones Industrial Average at 12,595 in April 2011; up from a low of 9,686 in July 2010. Unemployment rate at 8.8% in March 2011; down from a high of 10.1% in October 2009 (average of 37.1 weeks of unemployment time) according to the U.S. Bureau of Labor Statistics. According to the Conference Board s Consumer Confidence Index, consumer confidence improved further to 72.0 in February 2011; up from 64.8 in January 2011. In March, the index took an unexpected downturn dropping nearly nine points which may be attributed to Japan s earthquake, tsunami, and the aftermath of that tragedy as well as higher gas and food prices in the U.S. The index went up to 65.4 in April. This is an area that is closely monitored by economists, since consumer confidence is essential for a housing rebound. Consumer spending continues to be the biggest contributor to growth (70% of GDP), per the Bureau of Economic Analysis. The National Association of Realtors Affordability Index, started in 1970, is at the highest level it has ever been. This is an important and encouraging factor. The troubling aspects of the downturn falling prices and rising inventory are causing the affordability index to rise. Opportunity awareness exists. Consumers see that housing is fairly valued. Investment demand is strong, and people are more confident with the idea that housing prices will not go much lower. A study released by Fannie Mae states that most Americans those who currently own and those who rent strongly aspire to own a home and to maintain homeownership despite the ongoing turmoil in the housing market. What Our Customers Are Facing Despite some positive indicators, other reports are causing concern for anyone working in real estate or trying to sell real estate. There is an increase in negative equity. Nevada, Arizona, Florida, Michigan, California, and Georgia are the six states that have the highest percentage of homeowners with negative equity. In 2009, 17% of the total equities processed by Cartus created a negative equity situation for the customer. In 2010, that number increased to 22%. In the first quarter of 2011, the number climbed to an even higher 28%. Home prices are decreasing. In some markets, prices have fallen only slightly, while in hard-hit areas such as Southern California, Nevada, Arizona, and South Florida, prices have fallen more than 50%. There is a high number of foreclosures across the country. Foreclosures and short sales complicate the market. Fewer buyers. The Mortgage Bankers Association s seasonally adjusted Purchase Index, released April 27, decreased 13.6% to its lowest level since February 25, 2011. Days on Market increasing. In 2003, according to the National Association of Realtors, 21% of all homes went into contract less than one week after going on the market. On average, houses sold in just five weeks. Today, the average time on market for a home is anywhere from 180 to 210 days or more. C A R T U S : U N I T E D S T A T E S P R O P E R T Y / P A G E 1 O F 1 0
What Our Customers Are Facing (cont.) Despite this environment, Cartus experience proves that good results can be obtained even in challenging markets. From January 1 to April 22, 2011, Cartus reduced the number of unsold homes in its inventory by 46%. To give our customers homes the best chance of selling, Cartus addresses the subjects of price, condition, and marketing strategy. We emphasize the importance of pricing the home correctly as soon as it goes on the market, which is when the majority of serious buyers will see the house. There will be fewer prospective buyers later in the listing period, even if the price is reduced. Repairs and improvements must be completed to make the home stand out among other properties. Curb appeal is especially important since getting buyers to look inside a house is the biggest challenge in selling. Home sale incentives help bring potential buyers to the door. Using our network of real estate brokers specially trained in relocation is another best practice that we employ. Members of the Cartus Broker Network were able to sell homes in an average of 36 fewer days than homes sold by brokers outside of the Network. Having a clear strategy for coordinating these elements is especially important in this economy. There is no magic bullet that sells homes. Selling involves using a combination of marketing efforts. If one thing doesn t work, the seller should try another. It is very important to make the home stand out among the rest of the inventory on the market. Sellers should ask themselves why a buyer would choose his or her home over all the other properties for sale. In today s economy, many factors influence the decision to buy a home job status, financial resources, and family considerations. For many people, owning a home is much more than just a financial decision; it is a place where they build families, memories, and futures. T h e M o r t g a g e M e m o From Cartus Home Loans Those of us in the mortgage industry are tracking developments within the overall housing market as well as changes that directly affect our business. One overall housing issue is the amount of shadow inventory that exists today. This is significant, as there is the potential for a significant number of homes to enter the market, thus depressing home prices further in the classic supply and demand model. Other mortgage industry issues important for today are potential changes to government-sponsored enterprises such as Fannie Mae and Freddie Mac and the Qualified Residential Mortgage. The Story with Shadow Inventory Home inventory is defined as the number of homes currently for sale in the U.S. market. The National Association of Realtors (NAR) has reported that, through February, there is an 8.6-month supply of inventory. A supply of six months is considered a sign of a strong economy. What is not as clearly defined is the amount of shadow inventory that exists. Shadow inventory is the number of homes that are not yet listed but are positioned to be on the market very soon. Shadow inventory is not included in the unsold inventory totals reported by NAR. While estimates vary, CoreLogic projects that there is a ninemonth supply of shadow inventory of properties that are in foreclosure, have a loan 90 days past due, or have been taken back by the lender and have not been listed for sale. Note that many experts consider homes owned by sellers who are waiting for prices to increase to be part of shadow inventory. The effect of shadow inventory has yet to be determined. If shadow inventory homes are released to the market gradually, home prices may not decrease drastically. If they are released in bulk, there will be an excess of inventory and the housing recovery will take much longer. It is important for relocation program managers to have their employees list their homes at realistic prices. Managers should have the right relocation policy in place for these conditions. Companies may also want to consider compensating transferees for losses on home sale transactions. The New Qualified Residential Mortgage As reported by NAR, Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires lenders that securitize mortgage loans to retain 5% of the value of the mortgage unless it is a Qualified Residential Mortgage (QRM) or is otherwise exempt. The purpose is to force lenders to have skin in the game on riskier loans. The proposed QRM rule would require an 80% loan-to-value ratio (LTV) which requires a 20% down payment. C A R T U S : U N I T E D S T A T E S P R O P E R T Y / P A G E 2 O F 1 0
The proposed rule would also limit the mortgage payment to 28% of gross income and 36% of all debts. Although this rule would not affect most relocating transferees buying homes, it would reduce the number of qualified buyers for those selling properties. Discussions on the QRM rule continue. Future of Fannie and Freddie? Another hot topic in the industry is the future role the federal government will play in guaranteeing mortgages. Currently the government backs more than 90% of loans. The U.S. Department of Treasury has released a report outlining three basic options for reform of government-sponsored enterprises which include creating a government agency that would insure mortgages at all times, starting a new agency that would only step in during times of market crisis, or not providing government backing for home loans beyond what s done by the Federal Housing Administration. If the government elects to eliminate Freddie Mac and Fannie Mae, estimates are that it will take five to 10 years to phase them out. As with any newly proposed legislation or recommendations, there likely will be many changes as we go down the path of reviewing and revising the responsibilities of Fannie and Freddie. The impact on relocation is uncertain, but since most relocation borrowers are viewed favorably, the effect of any such changes should be minimal and not immediate for transferring employees buying properties. As in the case of the QRM, changes to the practices of Fannie and Freddie may result in a smaller number of qualified buyers for homes being sold by relocating employees. Below are several leading-indicator charts from industry sources that give a bird s eye view of the national market. Four-Quarter Price Change by State: FHFA HPI Purchase-Only Index (Seasonally Adjusted) Source: Federal Housing Finance Agency The HPI, calculated using home sales price information from Fannie Mae- and Freddie Mac-acquired mortgages, was 0.8% lower on a seasonally adjusted basis in the fourth quarter than in the third quarter of 2010. Seasonally adjusted prices fell 3.9% from the fourth quarter of 2009 to the fourth quarter of 2010. C A R T U S : U N I T E D S T A T E S P R O P E R T Y / P A G E 3 O F 1 0
Pending Home Sales Inventory by Months Supply Pending Home Sale Index (Baseline from year 2001 is 100) 120 100 80 60 40 20 0 10 Mar Apr May Jun Jul Aug Sept Oct Nov Dec Source: National Association of Realtors Lawrence Yun, NAR chief economist, said, Since reaching a cyclical bottom last June, pending home sales have posted an overall gain of 24 percent and demonstrate the market is recovering on its own. The index means modest near-term gains in existing-home sales are likely, which would be even stronger if tight mortgage lending criteria returned to normal, safe standards. 11 Jan Feb Mar Months 12 10 8 6 4 2 0 2005 2006 2007 2008 2009 2010 2011 Thru March Total housing inventory at the end of March rose 1.5% to 3.55 million existing homes available for sale, which represents an 8.4-month supply at the current sales pace, compared with a 8.5-month supply in February. S&P/Case-Shiller Home Price Indices Source: Standard & Poor s & FiServ This chart shows the index levels for the 10-City and 20-City Composite Indices. As of February 2011, average home prices across the United States are back to the levels where they were in the summer of 2003. C A R T U S : U N I T E D S T A T E S P R O P E R T Y / P A G E 4 O F 1 0
Foreclosures by State Source: RealtyTrac In the first quarter of 2011, foreclosure filings decreased 15% from the previous quarter and 27% from the first quarter of 2010. Per James Saccacio, CEO of RealtyTrac, Weak demand, declining home prices and the lack of credit availability are weighing heavily on the market, which is still facing the dual threat of looming shadow inventory of distressed properties and the probability that foreclosure activity will begin to increase again as lenders and servicers gradually work their way through the backlog of thousands of foreclosures that have been delayed due to improperly processed paperwork. C A R T U S : U N I T E D S T A T E S P R O P E R T Y / P A G E 5 O F 1 0
P ro f i l e s o f K e y M a r k e t s Table contains data from fourth quarter 2010. Atlanta, Georgia Average Sales Price $223,600 $142,833 Average Days on Market 134 133 Absorption (Months of Inventory) 10 12 Active Listings 24,253 6,780 Closed in Last Six Months 13,987 3,257 Expired listings in last six months n/a n/a List Price to Sales Price Ratio 87% 86% Single family home values have increased slightly in some markets and price ranges, and continues to decline in others Condo prices are somewhat flat The absorption rate has decreased due to fewer homes on the market Per Atlanta Journal-Constitution, metro Atlanta home prices are at 2000 levels Most likely to buy are first-time homebuyers There is still a large number of foreclosures Boston, Massachusetts Average Sales Price $465,120 $388,008 Average Days on Market 113 120 Stable Absorption (Months of Inventory) 5 6 Active Listings 7,625 5,231 Closed in Last Six Months 8,751 5,318 Expired listings in last six months 5,167 4,434 List Price to Sales Price Ratio 92% 93% REOs and short sales continue to have an affect on sales in many communities Scheduled closings are often postponed, usually due to a strict lender Market data courtesy of the Cartus Broker Network. C A R T U S : U N I T E D S T A T E S P R O P E R T Y / P A G E 6 O F 1 0
Charlotte, North Carolina Average Sales Price $208,399 $156,774 Average Days on Market 114 120 Absorption (Months of Inventory) 11 14 Active Listings 16,949 3,063 Closed in Last Six Months 9,209 1,268 Expired listings in last six months 3,858 n/a List Price to Sales Price Ratio 94% n/a The number of pending contracts decreased 12% from the same period last year. Closings decreased 26%. Prices were up 10%. The number of housing permits fell sharply with a decrease of 56%. Companies continue to move employees to Charlotte. Chicago, Illinois Average Sales Price $253,082 $388,008 Average Days on Market 155 120 Absorption (Months of Inventory) 20 28 Active Listings 32,606 32,888 Closed in Last Six Months 10,418 7,682 Expired listings in last six months 6,559 6,092 List Price to Sales Price Ratio 93% 95% There is an increased number of foreclosures Potential buyers are having difficulty qualifying for mortgages There is a glut of condos on the market in downtown Chicago The number of first-time buyers remains steady while the move-up market is more stagnant C A R T U S : U N I T E D S T A T E S P R O P E R T Y / P A G E 7 O F 1 0
R E A L E S TAT E M A R K E T I N G U P D AT E Cincinnati, Ohio Average Sales Price $163,063 $138,938 Average Days on Market 111 171 Decreasing Absorption (Months of Inventory) 10 16 Active Listings 10,878 2,007 Closed in Last Six Months 6,599 771 Expired listings in last six months 6,861 1,128 List Price to Sales Price Ratio 85% 88% Buyers are negotiating prices down as far as possible, using short sale homes as leverage Builders are offering much lower prices per square foot and are including fully finished basements in price Lenders are reluctant to write loans on condos unless covenants, conditions, and restrictions as well as financials are very strong Several corporations are moving divisions to Cincinnati this year. P&G has a large group move The sales markets in Indiana and Northern Kentucky are more sluggish than that of metro Cincinnati Dallas/Fort Worth, Texas Average Sales Price $201,333 $175,333 Average Days on Market 85 114 Absorption (Months of Inventory) 9 11 Active Listings 38,062 3,547 Closed in Last Six Months 27,539 1,584 Expired listings in last six months 18,000 1,600 List Price to Sales Price Ratio 90% 90% There are a greater number of prospects at open houses Sellers are now more realistic when listing home initially Transactions are still difficult due to lender scrutiny Buyer inspections are causing buyers to walk away There is an increase in renters at all price ranges C A R T U S : U N I T E D S T A T E S P R O P E R T Y / P A G E 8 O F 1 0
Los Angeles, California Average Sales Price $365,000 $282,000 Average Days on Market 73 85 Absorption (Months of Inventory) 7 9 Active Listings 21,126 8,121 Closed in Last Six Months 23,554 7,536 Expired listings in last six months 33,951 10,942 List Price to Sales Price Ratio 91% 94% There is still an overload of inventory from foreclosures and short sales. These properties are clogging the market because of the time it takes to negotiate sales and process closings Miami, Florida Average Sales Price $319,000 $237,000 Average Days on Market 88 103 Stable Absorption (Months of Inventory) 10 13 Active Listings 8,156 15,117 Closed in Last Six Months 4,889 7,246 Expired listings in last six months n/a n/a List Price to Sales Price Ratio 90% 92% There are a considerable number of domestic and international prospective buyers There are also a lot of cash buyers looking at homes The luxury market continues to be active Phoenix, Arizona Average Sales Price $160,678 $90,103 Average Days on Market 107 22 Decreasing Absorption (Months of Inventory) 6 6 Active Listings 45,709 4,892 Closed in Last Six Months 42,363 2,624 Expired listings in last six months 7,558 1,428 List Price to Sales Price Ratio 95% 93% Arizona relies heavily on new building construction, but the number of building permits is down Banks are pursuing short sales instead of foreclosures Appraisal issues are a concern for all parties C A R T U S : U N I T E D S T A T E S P R O P E R T Y / P A G E 9 O F 1 0
Seattle, Washington Average Sales Price $452,000 $298,000 Average Days on Market 77 91 Decreasing Absorption (Months of Inventory) 14 12 Active Listings 9,284 3,343 Closed in Last Six Months 7,715 1,757 Expired listings in last six months n/a n/a List Price to Sales Price Ratio 91% 91% There is an overabundance of short sales and foreclosures in the greater Seattle area The days on market and number of homes in inventory figures appear to be stabilizing Prices are declining slightly, mainly due to the impact of distressed properties Local companies such as Google, Microsoft, Boeing, and Starbucks are hiring again Washington, District of Columbia Average Sales Price $505,000 $335,000 Average Days on Market 58 47 Absorption (Months of Inventory) 3 2 Active Listings 2,958 2,574 Closed in Last Six Months 4,876 2,354 Expired listings in last six months 366 198 List Price to Sales Price Ratio 98% 96% There is significant activity in the lower priced segment of the market from first-time home buyers There is a recent increase in the number of REOs released by banks The unemployment number is relatively low compared to other markets The upper end of the market is sluggish For more information, please email: trustedguidance@cartus.com www.cartus.com trustedguidance@cartus.com C A R T U S : U N I T E D S T A T E S P R O P E R T Y / P A G E 1 0 O F 1 0