ASU report: Foreclosures still impacting sales

Thursday, February 11, 2010

Phoenix Business Journal - by Mike Sunnucks

Close to half of the existing home sales in the Phoenix metro area last month were foreclosed properties exhibiting continued struggles in the housing market, according to an Arizona University report released Thursday.

The report also said that two out of three home sales in the Valley in January were either foreclosures or re-sales of foreclosed homes.

“Even in response to hiatus and mortgage modification programs, foreclosure activity did not slow,” said Arizona State University economist Jay Butler. “It takes some time to finish recording transactions, though, so some slowing might still be evident in the next few months.”

ASU’s W.P. Carey School of Business reported Thursday there were 3,500 single-family foreclosures in January with a total of 7,725 total home sales. There were 495 condo foreclosures during January with 1,150 total condo sales last month.

There were 1,085 foreclosures of single-family homes in Phoenix last month; 140 in Scottsdale and 335 in Mesa.

Median single-family home prices in the Phoenix area dropped from $140,000 in December to $136,500 in January. The median price was $136,000 in January 2008.

 

Principal Cuts May Prevent Foreclosures

At least 7 million borrowers will lose their homes this year and next unless there is a broad increase in property values or lenders become much more willing to cut the principal on mortgage loans, an analyst with Amherst Securities Group told the U.S. House Financial Services Committee last month.

That testimony has motivated Federal Deposit Insurance Corp. Chair Sheila Blair to consider incentives for lenders to cut principal on $45 billion in mortgages her agency has acquired from seized banks.

“We’re looking now at whether we should provide some further loss-sharing for principal write downs,” says Bair. “Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs.”

While principal reductions are rare, some banks are doing them. In the third quarter of 2009, about 21,000 home loans were modified by reducing the principal, according to Mortgage Metrics, a government publication.

Mark Zandi, the chief economist for Moody’s Economy.com, suggests that banks receive a federal match of $1 for every $2 in principal reductions they offer to home owners.

“You’re not going to wipe out all the borrowers’ negative equity,” he says. “This just gives them enough hope to get them committed again.”

Source: Bloomberg, John Gittelsohn and Prashant Gopal (01/07/2010)