December 2009 From the Desk of Renee Carnes-Rook Vice President, Real Estate Services Talk about going back to the basics. Getting homes sold both through effective marketing of employees' homes and successful inventory management lies at the core of what Cartus does. While the current recession has clearly slowed the real estate market, the tested best practice approaches that Cartus has applied in both good markets and bad over the decades is delivering results, and here are some key statistics to prove it: The company s sales rate for amended value homes is 74 percent through November 30. At the same time last year, the rate was 66 percent. In comparing November 2008 to November 2009, Cartus reduced the average number of days on market for inventory properties by more than three weeks. Direct Delivery Delivers These positive indicators are driven by two main areas: Cartus own processes and initiatives, and client policy. One example of a recent successful innovation is Cartus direct delivery service model. This model streamlines the communication between employee and expert, with a Cartus real estate specialist personally counseling the relocating employee on all aspects of the home marketing process. This makes expert information readily available to the transferee on all home marketing subjects including pricing. The specialist coordinates the process by working with the employee and the real estate agent. In the first 11 months of 2009, Cartus achieved a 10.3% higher amended sale rate on homes sold through the direct delivery program than on homes sold without it. For more information about how to improve home sales in your relocation program, contact us at 1.203.205.6610 www.cartus.com Best Policy Practices The second factor is client policy. Cartus has helped many of its clients structure policies to provide the best chance at home sale success. Some of the best practice policy components include offering an employee a home sale incentive and establishing mandatory marketing times and list price parameters. Cartus also advises clients to require transferees to use a member of the Cartus Broker Network, as Network brokers have designated departments with the specific expertise to handle relocation business and adhere to defined quality standards. Network brokers have proven results for selling homes faster and at less cost than non-network brokers. Market Advantages Last, transferees can benefit from current conditions. Interest rates are low. The government has recently extended and expanded the first-time homebuyer tax credit. The number of short sales is increasing and, in many cases, provides additional opportunities for relocation buyers to get better deals. 1 Though the current market certainly provides challenges, tried and tested expertise can get results. 2009 Cartus Corporation. All rights reserved. Cartus and the Cartus logo are pending or registered trademarks of Cartus Corporation.
The Mortgage Memo Kevin Russell, Senior Vice President Sales & Account Management, Cartus Home Loans This is a busy time in the mortgage industry. New regulations have been put into effect, and lenders are adapting to the housing crisis that has reached every part of the United States. I am happy to have this opportunity to discuss how current market conditions and new regulations affect the relocation market. Rates at Historic Lows The federal government is buying mortgage-backed securities. The effect of this is that mortgage interest rates have been kept at historic lows. This is good news for relocating employees seeking buyers for homes in the old location and mortgages for residences in the new location. All those involved in relocation should understand that, while rates are attractive, lending standards have changed. Tougher Lending Standards Documentation requirements and underwriting guidelines for conventional loans have tightened. Fannie Mae has instituted a policy of having a minimum credit score. The minimum score required would be based on the loan to value ratio, property type, and local real estate market. Some relocation guidelines have changed or been eliminated. For example, trailing wage earner income and temporary mortgage buydowns can no longer be used for qualification. I recommend that relocating employees get prequalified prior to taking their house-hunting trips and before accepting the offer to relocate. Condo Issues One of the consequences of the overall adjustment in lending standards is that financing for condominium purchases is now more difficult to obtain. These standards are expected to remain high for the next several years. Fannie Mae and FHA have instituted strict criteria for writing loans in new developments and have increased requirements for buyers with less than 25% down. Lenders are also requiring that homeowner associations be financially viable before underwriting loans to consumers. Relocating employees are advised not to purchase homes in which the homeowners association is inadequately funded. Companies should be aware that transferees could have a difficult time selling condos when prospective buyers cannot get financing. RESPA Reform Another mortgage topic in the news is the implementation of new Real Estate Settlement Procedures Act (RESPA) regulations. RESPA reform is intended to protect consumers from "unnecessarily high settlement costs by improving disclosures and making it easier for consumers to comparison shop. The new standardized GFE and HUD-1 are required for all applications taken as of January 1, 2010. The new GFE consolidates costs into standard categories to facilitate comparison to the HUD-1 statement. 2 Transferees should know that the term "origination fee" has been replaced with "origination charge" on the HUD-1. The IRS has stated that a loan originator can list any origination point paid on Line 801 of the HUD-1. RESPA changes will not result in additional costs to the transferee or the corporate client. There will be verbiage changes and differences where certain items appear on the revised forms.
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: Purchase-Only Index (Seasonally Adjusted) Source: Federal Housing Finance Agency Inventory by Months Supply Source: National Association of Realtors 3
S&P/Case-Shiller Home Price Indices Foreclosures by State ' Source: RealtyTrac In the third quarter, foreclosure filings increased five percent from the previous quarter and nearly 23 percent from the third quarter of 2008. National forecast: One in every 136 housing units received a foreclosure filing in the third quarter. This is the highest total since Realty Trac began reporting in the first quarter of 2005. California, Florida, Arizona, Nevada, Illinois, and Michigan accounted for 62 percent of the nation's total foreclosure activity in the third quarter. 4
Profiles of Key Markets ATLANTA, GEORGIA 1 Total Number of Active Listings 27,672 38,270 Average Days on Market (Listed) Not available Not available Average List Price $389,000 $380,000 Total Number of Solds 8,499 9,893 Average Days on Market (Solds) 89 86 Average Sale Price $226,600 $247,600 List Price to Sale Price Ratio 94% 95% Absorption Rate (Months) 9.8 11.6 New construction is still having a major impact on the market. Builders continue to go bankrupt. Some are giving large incentives to buyers and agents. Metro Atlanta home foreclosures hit another record. Foreclosures have had a significant impact on the market as appraisers are using foreclosures to determine value. BOSTON, MASSACHUSETTS 2 Total Number of Active Listings 9,570 11,218 Average Days on Market (Listed) 156 159 Average List Price $724,873 $635,724 Total Number of Solds 5,981 5,594 Average Days on Market (Solds) 104 111 Average Sale Price $468,043 $492,571 List Price to Sale Price Ratio 93% 92% Absorption Rate (Months) 4.8 6.0 Many complexes and subdivisions of newly constructed houses have had sales, but have not sold out. Since these developments/projects have dropped prices drastically, many buyers are willing to pay slightly more for new construction rather than purchasing a resale home. In some communities, the majority of homes on the market are foreclosures, while other communities have very few. There have not been any major closings or mass layoffs that would add to the problem, so Boston has been shielded from the foreclosure problems that exist in other parts of the country. 5
CHARLOTTE, NORTH CAROLINA 3 Total Number of Active Listings 19,263 29,354 Average Days on Market (Listed) 146 132 Average List Price $344,477 $246,128 Total Number of Solds 5,686 6,573 Average Days on Market (Solds) 114 99 Average Sale Price $214,434 $234,178 List Price to Sale Price Ratio 94% 96% Absorption Rate (Months) 10.2 13.4 The number of new home permits is down dramatically. Builders have greatly reduced their prices and are offering incentives. Many builders are in foreclosure. There are foreclosures at every price point. They are becoming a standard part of the market. CHICAGO, ILLINOIS 4 Total Number of Active Listings 27,877 35,307 Average Days on Market (Listed) 77 79 Average List Price $205,000 $234,666 Total Number of Solds 2,330 1,877 Average Days on Market (Solds) 77 79 Average Sale Price $155,333 $205,000 List Price to Sale Price Ratio 96% 98% Absorption Rate (Months) 35.9 56.4 In the areas in which new construction is increasing, the marketing of existing homes has not been affected because of the incentives offered by builders. The unemployment rate in Chicago is currently 11.6%. The foreclosure rate is also high. In some areas, there are virtually none while in other areas, every fourth house on the market is a foreclosure. CINCINNATI, OHIO 5 Total Number of Active Listings 13,355 Not available Average Days on Market (Listed) 125 Not available Average List Price $223,407 Not available Total Number of Solds 5,621 5,288 Average Days on Market (Solds) 82 79 Average Sale Price $159,557 $165,602 6
List Price to Sale Price Ratio 94.7% 95.3% Absorption Rate (Months) 7.1 Not available Builders are offering incentives to realtors and buyers including deals that involve the builder buying the house, remodeling it, and selling it. More than 30% of listings are distressed properties. DALLAS/FORT WORTH, TEXAS 6 Total Number of Active Listings 15,916 16,994 Average Days on Market (Listed) 121 147 Average List Price $386,000 $271,000 Total Number of Solds 9,499 11,166 Average Days on Market (Solds) 34.8 34.2 Average Sale Price $381,000 $399,000 List Price to Sale Price Ratio 91% 93% Absorption Rate (Months) 5.0 4.6 Builders are only building custom houses at this time, not spec houses. As such, new home construction is having less of an impact on prices. There are fewer foreclosures because lenders are trying to work out short sales. Initiations from Fannie Mae are down significantly. We are coming into the time of the year when lenders are foreclosing on fewer properties due to the holidays. DENVER, COLORADO 7 Total Number of Active Listings 18,245 18,246 Average Days on Market (Listed) 161 161 Average List Price $545,818 $545,761 Total Number of Solds 10,607 12,644 Average Days on Market (Solds) 94 93 Average Sale Price $285,727 $285,206 List Price to Sale Price Ratio 97% 97% Absorption Rate (Months) 5.2 4.3 Homes under $300,000 that are priced correctly are selling quickly. The first-time homebuyer credit has helped to spur purchases of homes in this price range. There is very little new construction. Denver ranks eighth in the United States in foreclosures. These foreclosures are selling very well if priced right. 7
DETROIT, MICHIGAN 8 Total Number of Active Listings 9,288 12,286 Average Days on Market (Listed) 222 124 Average List Price $173,266 $213,344 Total Number of Solds 4,238 4,971 Average Days on Market (Solds) 123 124 Average Sale Price $165,716 $202,301 List Price to Sale Price Ratio 95% 95% Absorption Rate (Months) 6.6 7.4 The market has benefitted from the first-time homebuyer program. The unemployment rate in Detroit is one of the highest in the nation. More layoffs and plant closings are scheduled. An overwhelming number of foreclosure homes are still on the market. There is almost no new construction in the Detroit area. Foreclosures account for 62% of sales. LAS VEGAS, NEVADA 9 Total Number of Active Listings 10,329 16,928 Average Days on Market (Listed) 160 168 Average List Price $163,900 $239,818 Total Number of Solds 12,225 6,060 Average Days on Market (Solds) 56 63 Average Sale Price $150,384 $235,594 List Price to Sale Price Ratio 101.2% 99.4% Absorption Rate (Months) 2.5 8.4 New construction is selling faster due to great finance terms. Foreclosures are 70% of the business, but only 20% of the inventory. LOS ANGELES, CALIFORNIA 10 Total Number of Active Listings 20,905 46,225 Average Days on Market (Listed) Not available Not available Average List Price $647,000 $675,000 Total Number of Solds 16,235 16,523 Average Days on Market (Solds) 70 76 Average Sale Price $478,000 $564,000 List Price to Sale Price Ratio 96.6% 92.7% Absorption Rate (Months) 3.9 8.4 8
There is not a great deal of new construction in Los Angeles County. New home starts are having a negligible impact on prices. REO transactions have been on the rise as have short sale opportunities, especially in the San Fernando Valley area of Los Angeles County. Properties must be well priced to compete with REO offerings. MIAMI, FLORIDA 11 Total Number of Active Listings 27,146 41,375 Average Days on Market (Listed) Not available Not available Average List Price $549,000 $507,000 Total Number of Solds 5,107 3,417 Average Days on Market (Solds) 113 123 Average Sale Price $268,000 $395,000 List Price to Sale Price Ratio 49% 78% Absorption Rate (Months) 16.0 36.3 There is some new construction in the Homestead area. The properties are not appraising out, especially with VA financing. This means that the mortgage appraisal does not support the purchase price. Buyers are looking for good deals and can most often do better with short sales and foreclosures. The large number of short sales and foreclosures are causing prices to decline. The market seems to have leveled in some areas, but if the next round of foreclosures hits the market in early 2010 as expected, prices will decline even more. PHOENIX, ARIZONA 12 Total Number of Active Listings 38,500 52,000 Average Days on Market (Listed) 157 83 Average List Price $361,678 $384,558 Total Number of Solds 24,826 27,055 Average Days on Market (Solds) 100 117 Average Sale Price $173,571 $168,528 List Price to Sale Price Ratio 97% 96% Absorption Rate (Months) 4.7 5.8 9 Permits for new construction are down. Builders are marketing heavily to counter the number of foreclosures on the market and are offering many incentives to attract buyers. Although Phoenix consistently ranks as one of the top four foreclosure markets in the country, many of the foreclosure homes in the lower- and mid-priced inventory have been sold. The foreclosure problem is now
spreading to the upper end of the market. Many higher-priced homes are expected to process through the foreclosure system in early 2010. Job losses, salary cuts, unpaid work furloughs, and investment losses continue to plague the Phoenix market. Banks are approving more short sales in an effort to limit the number of foreclosures. The area has both a buyers market and a sellers market, depending on the area. The Tempe and Scottsdale markets have remained relatively stable over the past two years. El Mirage and Glendale have had many foreclosures and sharp price declines during the same time period. Homeowner associations are increasingly difficult to work with as they attempt to collect back fees owed on foreclosed properties. SEATTLE, WASHINGTON 13 Total Number of Active Listings 4,331 5,063 Average Days on Market (Listed) Not available Not available Average List Price $664,000 $649,000 Total Number of Solds 2,291 2,212 Average Days on Market (Solds) 64 64 Average Sale Price $440,000 $449,000 List Price to Sale Price Ratio 97% 97% Absorption Rate (Months) 5.7 6.9 Short sales and foreclosures, as comparables, are driving down listing and sales prices in many neighborhoods. WASHINGTON, DC/FAIRFAX, VA 14 Total Number of Active Listings 3,452 3,787 Average Days on Market (Listed) 94 117 Average List Price $531,676 $552,012 Total Number of Solds 4,368 4,174 Average Days on Market (Solds) 81 96 Average Sale Price $505,342 $531,786 List Price to Sale Price Ratio 95% 93% Absorption Rate (Months) 2.4 2.7 The reduced number of new construction housing starts and stabilized prices have brought new home sales back on the market. There likely will be a shortage of homes in late 2010 and early 2011. Buyers are purchasing a significant number of foreclosure homes. An increase in the number of foreclosures is expected by the summer of 2010. 10
Footnotes 1 Atlanta data represents single family homes. 2 Boston data represents single family homes and condominiums. 3 Charlotte data represents single family homes 4 Chicago data represents single family homes. 5 Cincinnati data represents single family homes. 6 Dallas/Fort Worth data represents single family homes. 7 Denver data represents single family homes and condominiums. 8 Detroit data represents single family homes and condominiums. 9 Las Vegas data represents single family homes. 10 Los Angeles data represents single family homes, condominiums, and townhouses. 11 Miami data represents single family homes. 12 Phoenix data represents single family homes, condominiums, and townhouses. 13 Seattle data represents single family homes and condominiums. 14 Washington/Fairfax data represents single family homes, condominiums, and townhouses. 11