Increasingly, it appears banks are turning to demolition teams instead of realtors to rid them of their least valuable repossessed homes. Last month, Bank of America announced plans to demolish 100 foreclosed homes in the Cleveland area. The land is then going to be donated back to the local government authorities. BofA says the recent donations in Cleveland are part of a larger plan to rid itself of its least saleable properties, many of which, according to a company spokesperson, are worth less than $10,000. BofA has already donated 100 homes in Detroit and 150 in Chicago, and may add as many as nine more cities by the end of the year... And BofA is not alone... The banks do the deals because once the properties are donated they no longer have to pay taxes or for upkeep. Tax experts say the banks may also be able to get a write off for the donation. That appears to be a better deal than trying to repair some of these homes.
The number of people who bought previously occupied homes fell in July for the third time in four months. This year is on pace to be the worst in 14 years for home sales, as more Americans worry that the economy could slip back into another recession.
Home sales fell 3.5 percent last month to a seasonally adjusted annual rate of 4.67 million homes, the National Association of Realtors said Thursday. That's far below the 6 million that economists say must be sold to sustain a healthy housing market.
Excess inventories are the mortal enemy of housing prices. Lower prices are needed to unload surplus inventory, but in turn, lower prices bring forth more inventory from anxious sellers. The anxiety of house sellers and the reluctance of buyers are enhanced by the realization that house prices can fall – and are falling for the first time in 70 years.
Those excess inventories are huge. Historically, new and existing inventories listed for sale have averaged about 2.5 million. So that's the normal working inventory level, and anything above 2.5 million is excess. It's currently about 4 million, implying excess inventories of 1.5 million. But wait! There's more! As foreclosures keep mounting, a "shadow" inventory of as many as 500,000 additional homes will become visible as many more Americans choose to sell rather than endure further price declines.
[The] huge and growing surplus inventory of houses – at least 2 million above normal working levels – will probably depress prices considerably from here, perhaps another 20 percent over the next several years. That would bring the total decline in house prices from the April 2006 peak to 45 percent. My forecast may be optimistic, because declines tend to overshoot on the downside just as bubbles do on the upside.
The Federal Reserve sketched a dim outlook for the economy Tuesday, suggesting it will remain weak for two more years. As a result, the Fed said it expects to keep its key interest rate near zero through mid-2013.
It's the first time the Fed has pegged its "exceptionally low" rates to a specific date. The Fed had previously said only that it would keep its key rate at record lows for "an extended period."
The Fed announced no new efforts to energize the economy in its statement released after its one-day policy meeting. But the statement held out the promise of lower rates on mortgages and other consumer loans longer than many had assumed.
The decision was approved on a 7-3 vote. Three Fed regional bank presidents who have been worried about inflation objecting. It was the first time since November 1992 that as many as three Fed members have dissented from a policy statement. [emphasis mine]
The average rate on a 30-year fixed mortgage has fallen to its lowest level on records dating to 1971.
The rate on the most popular mortgage dipped to 4.15 percent from 4.32 percent a week ago, Freddie Mac said Thursday. Its previous low of 4.17 percent was reached in November.
The last time long-term rates were lower was in the 1950s, when 30-year loans weren't widely available. Most long-term home loans lasted 20 or 25 years.
Few expect record-low rates to energize the depressed home market. Over the past year, the average rate on the 30-year fixed mortgage has been below 5 percent for all but two weeks. Yet prices and sales remain unhealthy and are holding back the overall economy.
Five years ago, the average 30-year fixed rate was near 6.5 percent. In 2000, it exceeded 8 percent...
...After previous recessions, housing accounted for 15 percent to 20 percent of overall economic growth. This time, in 2009 and 2010, housing contributed just 4 percent to the economy...
...The average rate on a 15-year fixed mortgage, which is popular for refinancing, fell to 3.36 percent, also a record low. It's the third straight week of record lows for the popular refinancing option. Freddie Mac's records date to 1991, but analysts believe the new low on the 15-year mortgage is the lowest ever.