Stock market woes hit Stowe, Vt., second-home market

By Christine Dugas, USA TODAY

A population of haves and have-nots has created a two-sided housing market in Stowe, Vt., in Lamoille County.Stowe is a New England resort town that attracts affluent vacation home buyers. But the county also has small, rural towns where residents own moderately priced homes.

Home sales started to slide in July of last year, reflecting the economic downturn, says Tom Heney, a real estate agent at Lang McLaughry Spera. But for Stowe, the slide was much steeper.

Stowe has a second-home market that relies on executives from the financial services industry in New York and Boston. Because they’ve been hammered by the stock market collapse, vacation home sales have stalled.

Many second-home owners are putting their houses up for sale.

There are 221 properties for sale in Stowe, up from 179 a year ago, Heney says. Vacation home prices range from $400,000 to more than $1 million.

The problem is not worse because Stowe largely escaped the housing bubble. In part, that stems from Vermont’s strict rules for housing construction, which have prevented excessive building.

If the prices come down enough, buyers may be back, Heney says, because “at some point, Americans do love a bargain.” 

Stowe is still a popular vacation spot: Summers are lush, and in the winter, it’s known as the ski capital of the East.

Countywide, the market is so small that even a minor drop in sales exaggerates the percentage change.

In the first four months of the year, there were four home sales in Lamoille County, vs. 10 in the same period of 2006, says Jeffrey Carr, president of Economic & Policy Resources in Williston, Vt.

The county has a low foreclosure and delinquency rate.

“We’ve been lucky in that regard,” Carr says. “That’s attributable to the fact that our banks are more cautious and prudent lenders.”

Foreclosure crisis spreads from subprime to prime mortgages

By Stephanie Armour, USA TODAY

The pace of prime borrowers going into foreclosure is accelerating, especially in states with mounting unemployment or property values that saw a big run-up during the housing boom.It’s a marked shift from earlier this year, when foreclosures were driven by defaults on subprime loans. And it has major implications — ravaging the credit scores of borrowers who once had unblemished records and dragging down property values in more affluent neighborhoods.

It also threatens to undermine the housing recovery.

“It’s definitely a concern,” says Brian Bethune at IHS Global Insight. “(Unemployment) is a major driver of foreclosures, and it will frustrate the housing recovery process.”

In the first quarter, almost half of the overall increase in the start of foreclosures was due to the increase in prime, fixed-rate loans, according to the Mortgage Bankers Association (MBA). At the end of the fourth quarter, 2.4% of prime mortgages were seriously delinquent, more than double the 1.1% at the end of March 2008, according to a report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

“In the beginning, the higher-end (homes) were a bit isolated,” says Kevin Marshall, president of Clear Capital, a provider of real estate asset valuation. “But in the last several months, we’re seeing a significant erosion in the higher-end homes. It’s reached into the prime loans.”

California, Florida, Arizona and Nevada represent 56% of the increase in foreclosure starts, including half of the increase in prime fixed-rate foreclosure starts, according to the MBA.

That coincides with states reporting some of the highest unemployment rates. In California, the unemployment rate in April was 11%, according to the Department of Labor. In Nevada, it was 10.6%.

Economists fear that further increases in unemployment could lead to more defaults on prime, fixed-rate loans.

That’s what happened to Marvin Clayton, 47, of Waco, Texas. He lost income after his wife had a stroke and was unable to work. Then he lost his job a year ago. He’s now behind on his 30-year, 5.78% prime loan and is facing foreclosure in July. He is currently trying to get another job in retailing.

“I was trying to make it off one income but was struggling to make payments,” Clayton says. “I’m still hoping for a modification from my bank.”

Mortgage rates rise to 6-month high above 5%

By Stephanie Armour, USA TODAY

Mortgage rates have risen to their highest levels in six months, threatening to delay a housing turnaround by discouraging potential home buyers.The average rate on a 30-year, fixed-rate home loan climbed to 5.29% for the week ended Thursday, Freddie Mac reported. That’s the highest since December and up from 4.91% a week earlier.

In early and late April, the rate was at a record low: 4.78%.

“There’s a real risk interest rates could climb up beyond 6% or 6.5%, which can immediately shut down the housing recovery and undermine the national economy,” says Bernard Baumohl, chief global economist at the Economic Outlook Group. “That’s the big battle to watch in the next couple of months.”

Higher mortgage rates are already having an impact. Applications to buy a home or refinance a mortgage tumbled 16% in the week ended May 29 compared with a week earlier, the Mortgage Bankers Association reported this week. Refinancing activity fell 24%. The MBA’s purchase index rose 4.3%.

Refinancings’ share of mortgage activity dropped to 62.4% of total applications from 69.3% the previous week.

While the Federal Reserve is trying to hold down mortgage rates by buying mortgage-backed securities and Treasury securities, other factors are driving up rates.

Mortgage rates have been pushed up by recent increases in yields on long-term Treasury securities, a benchmark for mortgage rates.

If interest rates rise more, that could make a purchase too expensive for some buyers. Weakened demand would delay the reduction of a high inventory of unsold homes, which is considered essential for the market’s recovery.

Some economists say the fundamental building blocks of a housing recovery are already in place and that rising interest rates will not derail the process.

“(Higher interest rates) could slow down refinancing, but the housing recovery is going to be one that takes time, and we’ll see setbacks on the way,” says Michael Darda, chief economist at MKM Partners. “I don’t think the housing market recovery is going to be derailed.”

Lawrence Yun, chief economist at the National Association of Realtors, say rising interest rates often have a short-term effect of driving more buyers into the market. Those buyers rush to buy so they can lock in rates before they go still higher.

But that impact is short lived.

“Further rises will impact buyers. That’s a risk,” Yun says. “Mortgage rates have been the lifeblood of the market.”

Could Austin Be Headed Toward a Housing Shortage?

By: David Tandy, CEO

Gracy Title, a Stewart company

As published on Realty Line Magazine 8/2010<http://www.realtylineonline.com/Monthlypdfs/RealtyLine_Aug_10.pdf#page=27>

While the Austin MSA continues its rapid population growth rate, single family and multi-family construction has gone through a dramatic slow-down.  Will this slow-down in new construction cause a housing shortage?

In June, Austin was the fastest growing market (year-over-year) in the U.S with a 1.3% annual growth rate. Although our population growth has slowed from its hyper-growth rate in 2006 and 2007, we are still projected to grow between 40,000 to 50,000 in 2010. We have averaged over 55,000 per year for the last 5 years. According to the City of Austin Household and Population analysis, one household is created for every two and 1/2 new Austin residents; therefore, we will be adding about 20,000 new households per year to the Austin area based on our population growth. Looking forward over the next decade, those projections show we will add between 500,000 and 600,000 new residents: the equivalent of the entire population of Austin in 1980.

So the question is:  Will Austin have sufficient housing options for these new residents?

It’s doubtful multi-family options will meet Austin’s housing needs.  For the Second Quarter of 2010 the Austin Planning Commission showed only 975 multi-family units in projects with site plans under review and 8,885 units in projects with site plans approved.  Since it takes at least a year to obtain planning commission approval and a year to build and there are only 975 units currently under review, it seems likely that a shortage of apartment units over the next several years will begin to develop. Real Estate developers would already be building more projects but for the challenges of securing commercial financing.

The Texas A&M Real Estate Center projects there will only be about 2,500 units completed this year and we could have as few as 1,000 building permits issued for multi-family units. This would compare to about 8,000 multi-family building permits in 2006 and 2007. Add the additional single family new construction and it’s still hard to imagine how Austin’s housing needs will be addressed. There were 6,678 Residential (single family) building permits issued in 2009 and we are on track to issue about 7,000 for 2010.  By comparison, there were 17,600 permits issued in 2006.

To summarize, if Austin’s population continues to grow at its historical rate, in 2010 we will create about 20,000 new households but will create fewer than 10,000 new single and multi-family units combined. These were about the same number of units created for 2009. Due to the difficulty in financing new subdivisions and new apartment projects, we should see a similar deficit in new housing units in 2011 and 2012. At some point, Austin will have a noticeable shortage of new housing units which will impact resale inventories and home prices. Austin has not seen this small number of new housing units since around 1994 when the Austin MSA population was just under 1,000,000.

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New 1099 Rules Aimed at Curbing Tax Cheaters

Self-employed real estate practitioners should expect a host of new paperwork beginning in 2012.

That will be the first year that whenever a firm buys more than $600 a year in goods or services from a vendor – whether it is a giant company or a one-person show – the vendor will be due a 1099 from the purchaser at the end of the year.

Lawmakers passed the provision to help fund healthcare changes by closing the “tax gap” created by cheaters. An estimated $300 billion of revenue is lost to tax evasion every year.

Critics say the new rules expand current reporting requirements significantly, with the burden falling on sole proprietors and other very small businesses. The new rules require tracking payments throughout the year to see if they fall into the over-$600 category.

If the vendor fails to supply his or her tax ID number, then the payer is required to withhold 28 percent of the payment and send that amount to the IRS.

There is a way around this. Businesses that pay with credit or debit cards are excused from sending 1099s.

Source: The Wall Street Journal, Laura Saunders (07/17/2010)