Arizona saw small quarterly gains for the first time in two years
in the most recent report and Michigan is beginning to stabilize,
the study suggested.  While those markets stabilize, prices are
falling in the Northeast as inventory backlog starts to move onto
the market. Fitch says New Jersey and New York alone have watched
prices drop 10% and 7%, respectively, over the past five
quarters. The ratings giant expects further drops in those states
in the coming months.  The state of Georgia also became an
interesting case study for Fitch, with the ratings giant
reporting that home prices in the state are now 32% lower than
2000 levels. However, Georgia is very much a divided state with
the affluent northern suburbs of Atlanta and central city area
holding onto their values and the overall economy collapsing to
the city’s south.

The 2.6% gain in housing production this April was due to a
2.3% increase on the single-family side to a seasonally
adjusted, annual rate of 492,000 units and a 3.2% increase
on the multifamily side to a 225,000-unit rate. Regionally,
starts were mixed in April, with the Midwest and South
posting gains of 6.7% and 11.6%, respectively, and the
Northeast and West posting respective declines of 20.7% and
8.1%. Permit issuance – which can be an indicator of
future building activity – fell 7.0% to a seasonally
adjusted annual rate of 715,000 units in April following an
unsustainably large gain in the previous month. The decline
was entirely on the more volatile multifamily side, where
permits fell 20.8% to a 240,000-unit rate that is
essentially back to trend. Single-family permits gained 1.9%
to 475,000 units. Regionally in April, permit activity held
unchanged in the Northeast while declining 12.3% in the
Midwest, 3.2% in the South and 13.9% in the West,
respectively.

Short sales, once a rare event in local real estate market,
today are nearly as prevalent as foreclosures as lenders
seek to avoid adding to their foreclosure inventories and
troubled homeowners opt for a faster way out of default.
Historically, foreclosures have been discounted 10% or more.
Now, as short sales become more popular, the difference
between and short-sale discounts and foreclosure discounts
is shrinking, according to the latest LPS Home Price Index.
In April 2007, as the housing bubble burst, foreclosures
sold at a 19% discount and short sales sold at a discount of
10%. As the volumes of both forms of distressed sales have
increased, so have the discounts, but short sale discounts
have increased more. Today foreclosures sell at a 29%
average discount and short sales at an average discount of
23%, a difference of only 6%.

The shrinking discount may make short sales more attractive
to buyers than foreclosures. In general, home sellers
undergoing short sales are motivated to do so to protect
their credit to the extent possible and they tend to
maintain better condition of their properties than borrowers
undergoing foreclosure. Foreclosures also may be vacant for
long periods of time. Today’s average processing timeline
for foreclosures is about a year, and substantially higher
in some judicial states. With a short sale, the property may
not be vacated at all during the sales process. LPS
suggests that the task of managing the large number of
distressed properties in the market today is immense, which
may, in some cases, contribute to suboptimal pricing of some
distressed properties. Since 2007, discounts for both
foreclosures and short sales have increased, but short-sale
discounts increased a bit faster.

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The breakdown of active foreclosure listings vs pending, or
shadow inventory, foreclosures listings was consistent
across each market surveyed. On average, 29% of total
foreclosures across the counties are currently listed for
sale. Cook County, IL foreclosures were most heavily
represented with active listings, with 32% of its
foreclosures presently being marketed to buyers, and 68% of
foreclosures pending listing. Maricopa County, AZ
foreclosure listings for sale represent only 25% of recorded
foreclosures in the county, with 75% of local foreclosures
yet to be listed for re-sale. Miami-Dade, FL currently
offers 29% of its total foreclosures on the market for
re-sale, with 71% of its foreclosure inventory awaiting
listing on the market. According to RealtyStore, median
list prices of foreclosures for sale in Cook, Maricopa and
Miami-Dade counties continue to run below average home
prices. Cook County foreclosures are listed at a median
price of just $72,650 and an average price of $95,997.
Miami-Dade foreclosures list at a median price of $106,900
and average $145,059, while Maricopa lists foreclosed homes
slightly higher with a median of $109,900 and the average
foreclosure listed at a price of $168,744.

The foreclosure median list prices come in at 56% and 42%
below the median sales prices of single-family homes selling
in metro-Chicago and Miami, respectively, as reported by the
NAR in Q4, 2011. Metro-Phoenix posts a smaller price gap at
7%, suggesting foreclosure saturation may be peaking in
Maricopa County. Individual foreclosure listings continue
to cover all portions of the pricing spectrum, ranging from
as low as $5,900 for a single family foreclosed home in
Chicago, IL to as high as a foreclosed estate in Paradise
Valley, AZ listed at $5,700,000.

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Sales of foreclosed properties may be helping the numbers, as
investors have swarmed the market, buying up distressed
properties and turning them into rentals. Many of those
properties have been either abandoned or vandalized and need at
the very least basic refurbishing and at the most full
renovations.  Great news for US companies that serve the
remodeling market, and of course their stocks. Sherwin Williams,
which gets 77% of its revenue from the US market, is trading at
an all time high, going back to its IPO in 1964. Home Depot is
seeing the best levels since April of 2002, and shares of Lowes
are at a high not seen since 2007. Both get all of their revenue
from US customers.  Others poised to profit: Weyerhaeuser, which
takes about 65% of its revenue from US sales and of course US
Gypsum, whose shares are up 103% in the last three months, United
Rentals, which rents construction equipment, shares up 44% this
year, and MASCO, which makes all kinds of building products.
This entire sector is exceptionally well placed because it can
profit off not only distress in the overall housing market, but
improvements in it as well.  As homebuyers trickle back in this
spring, they will fuel further renovations, and as banks work
through distressed loans and sell foreclosures off to investors,
there will be ever more housework to be done.”

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While home prices still haven’t hit bottom nationally, demand is starting to grow, especially for distressed properties on the low end of the market. Large scale investors, like hedge funds and other private equity firms are rushing in with cash on hand, and that gives them the upper hand in competition for these properties.

So how does an individual investor, without extra cash lying around, get in? Retirement funds.

It may sound risky, but with strong rental demand and relatively little supply of single-family homes, it could be far less risky than the stock market. That’s because your gains are largely coming from rental income, not home appreciation, which is why this works so well in today’s market.

“Here in Reno, prices are half of what they were at the top of the bubble, so, yeah, it might go down a little bit more but I don’t think it will go to zero, like some of my stocks have gone to zero,” says Terry Vander Ploeg, who invested $105,000 in a Reno foreclosure.

The catch is that you have to do it through what’s known as a self-directed IRA. Not a lot of firms do this, but some do: Guidant Financial, Sterling Trust, IRA Resources and PENSCO are a few. The firms act as custodian of your self-directed IRA, holding the property and dealing with all associated expenses.

“It’s really an account that provides greater flexibility than what a third party administered 401K, for example, would provide,” says Kelly Rodriques, CEO of PENSCO, which has doubled its assets in the past four years. “That’s in part because real estate has become a pretty well priced or at least valued investment area, given the downturns,” according to Rodriques.

Rich Pregel had money in a 401K from a previous employer and experience in the real estate business. Late last year he decided to put his money to work in real estate. The 48 year old Cincinnati resident bought a commercial foreclosure in his home town to rent.

“I’m generating close to $80,000 on $140,000 investment after expenses, it’s pretty much a no brainer,” says Pregel, who used a self-directed IRA.

This type of IRA does carry restrictions. The property must be used purely as an investment, with all the income going directly back into the IRA. The owner may not occupy the home or even use it as a vacation property. The owner can manage the property, doing maintenance and supervising the renting, or can hire a rental management company which would be paid for out of the IRA.

It is also possible to get a mortgage through the IRA, but it has to be what’s called a non-recourse loan.

“It’s a loan that can only seek the property, the collateral, as its sole recovery, if the property goes into default, so you as an individual can’t sign up to guarantee the loan,” says Rodriques. The IRA is not just purchasing the property, but it is responsible for liabilities and payments.

All this may sound complicated, but some say it’s worth the extra time and energy. With a rising number of foreclosed properties coming to the market this spring, and banks far more willing to do short sales on troubled loans, opportunities are everywhere.

“Right now, we bought it for a good price, put some money into it to get it up to rentable specs, and now we’ll see,” says Vander Ploeg. “We have a renter in, and we’ll see how it goes. You’ve got to have the right renters.”

NOTE: You may also use your self directed IRA to invest in fix & flip rehab properties. Contact Singer Construction to learn how you could earn between 8% and 12% return on your money by investing in foreclosure properties.

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Owners, according to Cook, may be spending too much time and
money on maintenance. Jacobs’ group, however, is very
profitable, with 8-9 percent annual returns on his properties.
His renters stay, he says, with a 65-70 percent re-up rate. He
credits good management and hopes, someday, that his long-term
renters will become buyers. Unfortunately, that may take a while,
as so many of them need to rebuild their credit. Empire Group has
already passed the first round of pre-qualification for the FHFA
REO to Rent program and is hoping to clear the second round and
start bidding on bulk properties in the next few weeks.

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Last week at the Mortgage Bankers Association servicing
conference in Orlando, FHA Commissioner Carol Galante said there
would be upcoming insurance premium changes for the streamline
refinance program. An FHA spokesman said these changes would be
included in a letter to lenders due soon.  The MMI fund slipped
below the Congressionally mandated 2% threshold in 2008, and in
slipped to 0.2% last year. According to an analysis of President
Obama’s budget, the fund could have declined further in 2013 and
possibly needed a bailout from the Treasury Department. Nearly $1
billion in revenue from settlements with mortgage servicers
announced in the last few weeks will also keep the fund from
needing assistance, according to FHA.  ”After careful analysis of
the market and the health of the MMI fund, we have determined
that it is appropriate to increase mortgage insurance premiums in
order to help protect our capital reserves and to continue
encouraging the return of private capital to the housing market,”
Galante said. “These modest increases are one of several measures
we are taking towards meeting the Congressionally mandated 2%
reserve threshold, while allowing FHA to remain a valuable option
for low- to moderate-income borrowers.”

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