A return of homebuilding stocks?

Although it may still seem way too early to call for a rebound in housing stocks, a writer for Fortune magazine argues that there are some early signs that *some* homebuilders might be worth a look. From the article:

Is it finally time to buy homebuilder stocks? The basic math of the real estate market is now working in favor of an industry that, believe it or not, has done a remarkable job paring costs and harboring its financial strength for the recovery that's now dawning.

The two main bellwethers for housing's future - the supply/demand equation and affordability - are both pointing towards a recovery. The timing is impossible to predict, though the best guess is that home sales will stage a resurgence beginning late this year or in early 2010...

Fundamental demand is driven by household formation, which in turn depends on two factors: the rate of immigration and the number of Americans entering the labor market. Distilling all the data, the Congressional Budget Office reckons that new households can absorb around 1.5 million new houses, condos and rental units a year...

Since the number of new homes and apartments now isn't nearly big enough to accommodate the immigrants and young workers crowding the labor force, residents are buying and renting the existing units (albeit at a slow pace). That's driven the excess inventory down to less than 900,000 units. At the present slow pace of homebuilding, the glut will disappear by the end of 2009.

The other force behind the housing rebound: Call it the "New Affordability." According to the most recent Case/Shiller data, prices in many of the bubble markets have fallen at least 40% from their peaks. The declines are drawing people out of rental and into the home-buying market...

D.R. Horton (DHI, Fortune 500) America's biggest homebuilder specializes in the market's sweet spot: starter homes for first time homebuyers. Those customers don't need to sell their existing home to buy one of Horton's - they typically move straight from a rental...

Toll Brothers (TOL) At first glance, Toll would seem an unlikely pick since it specializes in mass-produced, luxury market of homes at $600,000 and up. But the stock is selling at a substantial discount to its peers (based on price-to-book-value)...

Meritage Homes (MTH) Meritage derives half its sales from Texas, one of the fastest growing states in the country. It's shrewdly changing its specialty from almost $300,000 send-and-third move up homes to starter houses priced at around $200,000...

California Builder magazine to cease publishing offline version

California Builder magazine, the CBIA-associated title which helped to launch my sideline writing career when I was with Hanley Wood Market Intelligence, has announced that the current edition will be the last offline version. Due to a lackluster ad sales environment and budget cuts, the magazine will now be only online.

Between January of 2006 and the middle of 2007, I wrote 9 or 10 feature-length articles for the magazine including market trends for SoCal/CentralCal/NorCal, high-rise condos, mixed-use developments, master-planned communities, transit-oriented developments and adjusting to the new market realities. I learned a lot from that experience, and it gave me the confidence (and the proof) to pursue more writing assignments with the Los Angeles Times and, more recently, Inman News.

John Frith, the VP of Public Affairs for CBIA and PCBC, has written a final farewell that I think makes an interesting read of its evolution. Some excerpts:

The downturn in both the homebuilding and publishing industries has caught up with us, and with ad revenue down sharply, it’s not possible for CBIA to subsidize the magazine’s production costs. So I thought I’d steal the headline from our late Chairman Ray Becker’s last column in 2008, because this issue marks the end of one era and the beginning of a new one.

The brand is not going to go away completely. The dead-tree edition is suspending publication but may return when times improve. But in the meantime, Editor Greg Robertson and I are working to reinvent California Builder as an online publication for our members. We’re still working out details, but we hope to continue publishing at least one trend story on our bimonthly publication schedule, and to create a blog and enhanced Web site to keep you all informed of breaking news in the industry....

During the first couple of years, cover stories ranged from economic forecasts to exclusive reports on landmark legislation such as SB 800, with promotions for PCBC and lavish coverage of the Gold Nugget Awards regularly occurring as well. We added some new standing features, including chief lobbyist Tim Coyle’s hard-hitting “Checks and Balances” column, which has anchored the back page since July/August 2002. How hard-hitting was it? Shortly after Tim started writing it, he asked us to stop sending the magazine outside the CBIA family so he could continue calling it the way he saw it.

We took a big step at the beginning of 2004 when we unveiled a new design that Sandy and I had worked on for several months to make CB more professional. Among the new features were the hard-news “Developments” section in the front of the book and an expanded and rebranded “In the Know” section at the end of each issue to keep members apprised of happenings in the industry. We also introduced design consistency throughout the publication. While the design has been tweaked and improved on bit by bit since then, that look is still the framework for what you see in this issue.

A second major development in 2004 was that we hired a full-time editor. The magazine was averaging more than 48 pages per issue by the end of 2003, and it was hard finding time to give the magazine the attention it needed while carrying out my PR responsibilities. We hired Janelle Leader Lamb, a solid publications editor who helped us take CB to a higher level. Under her leadership we were finalists for the first time in the prestigious Western Publication Association’s Maggie Awards competition for magazines west of the Mississippi. And we expanded our coverage to such subjects as builders participating in Extreme Makeover: Home Edition, ways builders could fight back against trial lawyers and new trends in urban infill.

We took another leap forward at the end of 2005 when a new editor, Sarah Langford, came on board. Sarah had been the editor of a local weekly newspaper and she brought a lot of new ideas and energy. During 2006, we launched several popular standing features, including regular market trends articles from Hanley Wood Market Intelligence, a Perspectives column featuring a wide range of industry experts who often looked at issues from a completely new viewpoint, and a monthly Q&A with an industry legend or up-and-coming trendsetter...

It’s been a lot of fun being involved with the growth and successes of California Builder, and there’s a long list of folks to thank — too many to list here. For a full list, check the CB Web site, but I do want to recognize editors Janelle Leader Lamb, Sarah Langford, Dani Kando-Kaiser and Greg Robertson, and art directors Sandy Simpson and Deb Rasmussen for their talent and hard work over the years.

Special thanks go to Bob Rivinius, whose column ran in every issue and who was a strong supporter of the publication every step of the way, and to CBIA’s governmental and political affairs staff — especially Tim Coyle and Bob Raymer, whose work ran in both the first and last issues of CB and many in between.

Whatever the future holds, it’s been a privilege to help bring this member benefit to you over the years, and we look forward to offering you news you can use online. But it’s still hard for this former newspaper reporter to say adios if not necessarily goodbye to what we always tried to make the best association magazine in the land.

The next housing bust, courtesy of the FHA

I've continued to read warning signs of an impending disaster at the FHA, which now underwrites about one-third of all mortgages (up from about 2% during the boom years). Could taxpayers soon be on the hook for another bail-out -- this time of FHA? From an opinion piece in the Wall Street Journal:

Last year banks issued $180 billion of new mortgages insured by the FHA, which means they carry a 100% taxpayer guarantee. Many of these have the same characteristics as subprime loans: low downpayment requirements, high-risk borrowers, and in many cases shady mortgage originators. FHA now insures nearly one of every three new mortgages, up from 2% in 2006.

The financial results so far are not as dire as those created by the subprime frenzy of 2004-2007, but taxpayer losses are mounting on its $562 billion portfolio. According to Mortgage Bankers Association data, more than one in eight FHA loans is now delinquent -- nearly triple the rate on conventional, nonsubprime loan portfolios. Another 7.5% of recent FHA loans are in "serious delinquency," which means at least three months overdue.

The FHA is almost certainly going to need a taxpayer bailout in the months ahead. The only debate is how much it will cost. By law FHA must carry a 2% reserve (or a 50 to 1 leverage rate), and it is now 3% and falling. Some experts see bailout costs from $50 billion to $100 billion or more, depending on how long the recession lasts...

The bill that passed last summer more than doubled the maximum loan amount that FHA can insure -- to $719,000 from $362,500 in high-priced markets. Congress evidently believes that a moderate-income buyer can afford a $700,000 house. This increase in the loan amount was supposed to boost the housing market as subprime crashed and demand for homes plummeted. But FHA's expansion has hardly arrested the housing market decline. The higher FHA loan ceiling was also supposed to be temporary, but this year Congress made it permanent.

Even more foolish has been the campaign to lower FHA downpayment requirements. When FHA opened in the 1930s, the downpayment minimum was 20%; it fell to 10% in the 1960s, and then 3% in 1978. Last year the Senate wisely insisted on raising the downpayment to 3.5%, but that is still far too low to reduce delinquencies in a falling market...

In a rational world, Congress and the White House would tighten FHA underwriting standards, in particular by eliminating the 100% guarantee. That guarantee means banks and mortgage lenders have no skin in the game; lenders collect the 2% to 3% origination fees on as many FHA loans as they can push out the door regardless of whether the borrower has a likelihood of repaying the mortgage. The Washington Post reported in March a near-tripling in the past year in the number of loans in which a borrower failed to make more than a single payment. One Florida bank, Great Country Mortgage of Coral Gables, had a 64% default rate on its FHA properties.

The Veterans Affairs housing program has a default rate about half that of FHA loans, mainly because the VA provides only a 50% maximum guarantee. If banks won't take half the risk of nonpayment, this is a market test that the loan shouldn't be made...

A major lesson of Fan and Fred and the subprime fiasco is that no one benefits when we push families into homes they can't afford. Yet that's what Congress is doing once again as it relentlessly expands FHA lending with minimal oversight or taxpayer safeguards.

More than 1 in 5 homeowners now underwater

According to the number crunchers at Zillow, more than 1 in 5 of homeowners in the U.S. are now technically under-water on their mortgages. At the same time, however, there has been a flattening in the rate of decline for certain markets, including parts of the Central Valley, Los Angeles and San Diego -- which may or may not indicate that the end is closer than before. Still, even when we hit bottom, expect so stay there for awhile. A story at Reuters explains:

Home values in the United States extended their fall in the first quarter, with more than one in five homeowners now owing more on their mortgages than their homes are worth, real estate website Zillow.com said on Wednesday.

U.S. home values posted a year-over-year decline of 14.2 percent to a Zillow Home Value Index of $182,378, resulting in a total 21.8 percent drop since the market peaked in 2006, according to Zillow's first-quarter Real Estate Market Reports, which encompass 161 metropolitan areas and cover the value changes in all homes, not just homes that have recently sold...

Nine consecutive quarters of declines have left eight regions -- including the Modesto, California, Stockton, California, and Fort Myers, Florida regions -- with median value declines of more than 50 percent since those markets peaked...

But in an early sign of improvement, 17 metropolitan areas across the country -- notably several hard-hit markets in California, including Los Angeles, San Diego and Modesto -- have seen two or more consecutive quarters of smaller year-over-year declines in home values, the reports showed.

Meanwhile, potential sellers appear to be holding back until evidence of an improved housing market. In a separate survey of homeowner sentiment, nearly one-third, or 31 percent, of homeowners said they would be at least somewhat likely to put their homes on the market in the next 12 months if they saw signs of a recovering real estate market, the reports showed...

"Slowing declines in select markets are a bright spot or, at least, what passes for one given current market conditions," Dr. Stan Humphries, Zillow vice president of data and analytics, said in a statement.

"Unfortunately, given the magnitude of the current rates of decline, we're still many months away from a bottom even as depreciation slows," he said. "Moreover, the additional information we have this quarter on 'shadow inventory,' with one-third of homeowners indicating they would like to put their home on the market if conditions improve, confirms our earlier fears that a bottom in home values could be quite protracted."

"Great recession" could redefine employment in the future

As jobs in certain industries continue to be cut, it's unclear which ones will return, which will not only require re-training for new occupations, but likely raise what may be a new level for an economy that's neither growing nor decreasing. That, of course, means a variety of difficult political decisions, as forcing an artificially low rate of unemployment could result in inflation, whereas doing nothing could mean lower tax revenues and continuing payments for unemployment. From a Bloomberg story (hat tip: Patrick.net):

Post-recession America may be saddled with high unemployment even after good times finally return.

Hundreds of thousands of jobs have vanished forever in industries such as auto manufacturing and financial services. Millions of people who were fired or laid off will find it harder to get hired again and for years may have to accept lower earnings than they enjoyed before the slump.

This restructuring -- in what former Federal Reserve Chairman Paul Volcker calls “the Great Recession” -- is causing some economists to reconsider what might be the “natural” rate of unemployment: a level that neither accelerates nor decelerates inflation. This state of equilibrium is often described as “full” employment.

Fallout from the recession implies a “markedly higher” natural rate of unemployment, says Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel Prize in economics. “It was 5.5 percent; maybe it will be 6.5 percent, maybe 7 percent.”

That has implications for policy makers as well as workers. The Obama administration and the Federal Reserve are counting on the jobless rate to fall to a medium-term equilibrium of about 5 percent as the economy recovers. A natural rate significantly above that would drive up the annual budget deficit -- which will top $1 trillion for the first time this year -- by reducing tax revenue and pushing up spending on unemployment benefits.

A higher rate would also require the Fed to make a choice: Accept an economy with more Americans permanently out of work, or try to boost employment at the risk of heating up inflation...

Already, almost a quarter of the unemployed have been out of work for 27 weeks or longer, the highest proportion since 1983. Permanent layoffs -- for workers who don’t expect to ever regain the same job -- hit a record 51.5 percent in March. Mass layoffs, those that affect 50 or more people, rose to a record 2,933, comprising almost 300,000 lost positions.

“We’re shedding jobs in industries in a significant way, and we’re not going to see those same industries be the source of job creation,” Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, said in an April 21 interview. “We’re going to be living in a world in which we’re going to be feeling that the normal on the unemployment rate is above 6 percent....

“People tend to think that when you come out of a recession you get the labor market you had when you entered it,” says Lawrence Mishel, president of the Economic Policy Institute in Washington. “This time you may get something quite different.”

More on the demolished homes in Victorville

L.A. Times reporter Peter Hong recently took up the story of what happened with those demolished homes in the high desert city of Victorville. From his article:

The homes were part of a planned 16-unit project in this community 100 miles north of Los Angeles. The Texas bank that owns the failed development decided to demolish the houses, a cheaper alternative to completing and selling them...

The Victorville demolition is one of the most dramatic ends to a bad bet made during the housing boom, but abandoned developments have become an all-too-common sight in California. Nearly 250 residential developments totaling 9,389 homes have been halted across the state, according to one research firm...

Officials of Guaranty Bank of Austin, Texas, which took over the development last year, were unavailable for comment. But Victorville city spokeswoman Yvonne Hester said the bank decided not to throw good money after bad.

"It just didn't pencil out for them," she said. "They'd have to spend a lot of money to turn around and sell the houses. They just made a financial decision to just demolish them."

The development was in a part of town remote even for Victorville, a wind-swept high desert city of about 100,000 residents. A dozen of the homes were in various stages of construction. Some had frames erected, and a few others had drywall hung, said Jorge Duran, Victorville's code enforcement manager.

The four finished homes, however, were richly appointed with granite countertops, whirlpool bathtubs and dual-pane windows...

Ron Willemsen, president of Intravaia Rock and Sand, the Montclair company handling the demolition, said he was glad to see people finding uses for the materials. But wrecking a pristine house troubled him.

"It's a waste of a lot of resources and perfectly good construction," he said.

Willemsen, whose family has run the business for 50 years, said it was the first time the firm had demolished a new housing project to return a potential neighborhood to soil.

In addition, The Wall Street Journal's Michael Corkery also covered this story in a video report:

Lessons from the housing bust

For better or for worse, the depth and length of this housing bust is sure to change the way in which many builders do business. Although this blog has been regularly tracking these changes, Builder magazine's John Caulfield has written an article that summarizes just what types of changes we may see in the future.

Even still, given the highly politicized environments at most large building companies, just because someone has a good idea doesn't mean it will make it past the egos potentially in the way. In fact, I know of one senior executive from a top public builder who was shown the door when he was trying to throw up red flags that the market was starting to slow and they should get rid of their land positions -- and this was back in 2004! From the article:

For more detailed information on the six recommendations visit here.

Many builders would argue that recessions come and go, and this one, too, will pass, so why make dramatic changes? But many of these same builders have called this recession the absolute nastiest they’ve experienced, and no one wants to go through this again. So, to help readers who want to avoid such scenarios in the future, BUILDER has assembled six “lessons learned” from the housing bust, based on our reporting since last fall, when the economy took a severe turn for the worse.

Some of these strategies would require simple changes. Others are more complicated to achieve. All of them, though, do ask builders to muster the guts and the vision to look beyond the status quo, and be flexible and open to new ideas for operating a home building business for the long term, through the booms and the busts...

1. Build Smarter

2. Limit Your Land Holdings

3. Find New Cash Streams

4. Respond Quicker to Market Conditions

5. Value Your Workers and Trades

6. Diversify Beyond New-Home Construction

The Housing Chronicles Blog cited in most recent Carnival of Real Estate

Out of 40 entries this week, the post "The Future of Housing is Green" has been given the "Samuel Bellamy" award by the HotPads Daily Blog for the 140th Carnival of Real Estate (aka "The Pirate Edition"):

Samuel Bellamy: Patrick Duffy presents The future of new housing is green posted at Housing Chronicles, saying, "With increasing consumer sensitivity towards sustainability and a higher awareness among home builders that energy-efficient homes can boost both absorption rates and profits, building green homes will likely become the most important trend this industry has seen in a generation."

So just who was Samuel Bellamy? From wikipedia:

Though his known career as a pirate captain lasted little more than a year, Bellamy and his crew captured more than 50 ships before his death at age 28. Called "Black Sam" in Cape Cod folklore because he eschewed the fashionable powdered wig in favor of tying back his long black hair with a simple band, Bellamy became known for his mercy and generosity toward those he captured on his raids. This reputation gained him the second nickname of the "Prince of Pirates," and his crew called themselves "Robin Hood's Men."

Sounds about right!

Thanks to HotPads Daily for hosting the blog and recognizing The Housing Chronicles Blog!

Cities increasingly holding lenders responsible for maintaining foreclosures

With cash-strapped cities lacking the funds (or really the responsibility) to maintain foreclosed units, some are getting quite serious about chasing down the scofflaws -- even if that means threatening an East Coast banker with a crime. And the few billions that the stimulus plan offered cities to clean up derelict housing? A veritable drop in the bucket. From a Wall Street Journal story (subscription required):

Officials at a Citigroup Inc. office in St. Louis placed a call to this desert town recently. The bank had caught word that Indio was coming after the lending giant with fines and threats of criminal charges. The offense: an algae-infested swimming pool at 79760 Eagle Bend Court.

Citigroup wound up in charge of the foreclosed home, one of thousands of such properties it was managing across the country. But last year, Indio passed a law that allowed it to charge banks with a criminal misdemeanor if they allowed a home to fall into disrepair...

The hard-line approach is part of this town's attempt to gain leverage over some of the nation's largest lenders. A couple of years ago, Indio was a real-estate bonanza. Old date farms were closing down, sprouting subdivisions in their places. Today it's a different scene with one in 10 houses either in default or foreclosure...

Lenders say that such repairs and upkeep are part of the normal course of business, and that Indio's ordinance hasn't prompted any special actions. A Washington Mutual spokesman said local real-estate agents send in photos of bank-owned properties so the lender can watch for disrepair from afar. A Fannie Mae spokeswoman said the lender's first goal is to "stabilize neighborhoods." New York Mellon said its role as trustee didn't merit citations from Indio.

Even before the mortgage crisis erupted in full, big cities like Cleveland and Buffalo had fashioned laws of their own to browbeat banks into taking care of urban blight. Now some small towns are also taking matters into their own hands.

Indio's neighbors Palm Springs, Desert Hot Springs and Cathedral City each pushed ahead with laws much like Indio's. The town's own ordinance was fashioned off a 2007 law from Chula Vista, a city south of San Diego which began fining lenders up to $1,000 a day for unsightly or dangerous code violations such as broken windows...

City officials say they ginned up a campaign to notify the banks about the new law, but few took action. "The banks were trying to test us to see if we were serious about this," says Jason Anderson, a code-enforcement officer in Indio.

Countrywide, one of the biggest lenders in the area, initially just tried to make the problem go away by writing checks, say city officials. Instead of attending to the upkeep on the properties, they'd ask, "How big was the fine?" Mr. Anderson recalls.

City officials say Countrywide has since become one of the most proactive lenders, contracting local real-estate agents to monitor properties and paying for gardeners to handle the upkeep. "There's considerable financial incentive for the bank" to maintain properties, a Countrywide spokesman said...

Most of those pending sales? Still driven by foreclosures.

Although the recent uptick in pending home sales is good sign for the housing market and overall economy, our sources at Credit Suisse indicate that it's still largely due to the end of the temporary moratorium on foreclosures and lower mortgage rates. Over the last several months, foreclosures have accounted for 50% (and rising) of overall home sales, which means a declining portion of sales for market-rate home sales. The largest gains were noted in the South and West, which is also where we've seen the largest percentage of distressed home sales. In the Northeast and Midwest, pending sales fell by single digits.

The reliance on discounted sales also puts continued pressure on new home sales, especially as the total volume of foreclosures continues to rise. Given the price premium for new homes in many places, the pace of new home sales will pick up only in those areas in which the supply of decent foreclosures has waned.

Looking ahead to future data releases, existing home sales should also continue to rise to an annualized rate of about 4.75 million.

More good news on the housing market?

Given the length of the housing bust, it's easy to see why people would want to declare any good news on the economy as the sign of a rebound. So is the latest news on the rise in construction spending and pending home sales simply a blip or the beginning of a better trend? From an AP story via the L.A. Times:

Hopes that the recession is easing got a boost Monday from reports that construction spending and pending home sales both fared better than expected in March.

The Commerce Department said construction spending increased 0.3% in March, the best showing since a similar rise last September. Economists surveyed by Thomson Reuters had expected spending to drop 1.5% for a sixth straight monthly decline...

Meanwhile, the National Assn. of Realtors said its index of pending home sales rose 3.2% to 84.6 in March, the second straight monthly increase after it hit a record low in January. The pending sales index also is 1.1% above last year's levels. Typically, there is a one- to two-month lag between a contract and a done deal, so the index is a barometer for future home sales.

The demand for new homes appears to be recovering faster than that for previously occupied homes. In March, sales of pre-owned homes fell 3% to an annual rate of 4.57 million from a downwardly revised pace of 4.71 homes in February, the National Assn. of Realtors reported.

Economists called the new data faint glimmers of hope that construction activity might be stabilizing, although at very low levels...

Economists, however, cautioned that the construction rebound could be temporary, given all the problems facing the industry as a severe financial crisis has made it hard for builders to obtain financing.

Spending on private residential projects fell 4.2% in March, the latest in a series of declines that began three years ago when the housing bubble burst with disastrous effects for the home industry and the overall economy...

The housing bust's impact on job mobility

It's one thing to read some generic story about people who are under-water on homes not being able to sell, pick up and move for another job, but it's a different story when there are some numbers to back up the claim. In the current issue of BusinessWeek magazine, the cover story reports that the U.S. has 3 million job openings -- openings which should be filled by the 13 million currently reported as unemployed. Although one major reason for the disconnect is due to an American workforce largely untrained for the jobs that are going begging -- such as those in education and health services, professional/business services and government -- another reason is the lower mobility. This housing bust has reduced people's ability move since the U.S. Census Brueau started keeping records in 1948, with homeowners only one-fifth as likely to move than renters. Whether by choice or not, this is an instance in which housing and economics play an inter-connected role. From the story:

Surprising statistic: In the midst of the worst recession in a generation or more, with 13 million people unemployed, there are approximately 3 million jobs that employers are actively recruiting for but so far have been unable to fill. That's more job openings than the entire population of Mississippi.

Sound like good news? It's not. Instead, it's evidence of an emerging structural shift in the U.S. economy that has created serious mismatches between workers and employers. People thrown out of shrinking sectors such as construction, finance, and retail lack the skills and training for openings in growing fields including education, accounting, health care, and government. At the same time, the worst housing bust in decades has left the unemployed frozen in place. They can't move to get work because they can't sell their homes...

The danger is that the U.S. labor market will become less flexible at the very time that Europe's labor market is finally loosening up. To avoid that situation, both employers and governments will have to step up retraining. Meanwhile, workers and employers will have to accept harsh new realities: lower pay for workers starting new careers, and imperfect fits for employers filling vacancies...

Even some people from hard-hit cities such as Detroit and Cleveland have passed up well-paying jobs with medical device companies in places like North Carolina because they don't want to move, says Lisa Mesnard, an executive recruiter with the Wellington Group in Fuquay-Varina, N.C. "I find it daily," she says. "They're ingrained in the community. [Although] they don't have a job, they're willing to wait it out....

The truth is, displaced workers may have to move down a few rungs as they switch careers because their skills are irrelevant in their new roles, says David H. Autor, a labor economist at the Massachusetts Institute of Technology. Many laid-off Wall Street financial engineers still haven't absorbed that, says Fred Wilson, a partner in Union Square Ventures, a New York venture capital firm. "For them to take a job that pays a lot less, they have to make a meaningful change in their lifestyle. And that is an issue."...

Tips on buying a foreclosed home

It's easy to think that buying foreclosures is a sure path to riches, but from what I've heard, only those who specialize in the process of buying/fixing/flipping can earn money, and even then return can be dubious. But for others looking for a long-term hold, deals do abound, but before jumping in, carefully consider the following 5 tips from a Money magazine story:

1. Finding one has become easier

You don't need to show up at courthouse auctions or comb through legal filings. These days many banks sell foreclosed homes through real estate agents...

2. It's best to buy from a bank

If you buy a foreclosed home at an auction before the bank repossesses it, you'll have to pay in cash, and you usually cannot inspect the property. You may also later discover that there are liens against it...

3. Bring in a contractor before you buy

Many foreclosed homes have been abandoned, some even vandalized, and they often require major repairs...

4. Bid low

Banks aren't necessarily selling foreclosures at fire-sale prices; some are listed at market value, says Gene Hacker, a broker in Orange County, Calif. So be prepared to haggle. The bigger the inventory of foreclosed homes the bank has and the longer the property has sat, the greater your chances of nabbing a great deal, says Chris Matty of ForeclosurePoint.com..

5. Be prepared to wait

While some lenders are getting back to bidders within 36 hours, others are dealing with an enormous backlog that can hold up their response for as long as three months...

No mortgage cram-downs for buyers in bankrtuptcy

Delinquent homeowners in bankruptcy who were also hoping to achieve principal reductions and other loan modifications from bankruptcy judges are sure to be disappointed in the Senate's decision to vote down the measure. Still, the law only prevents such cram-downs for principal homes, and allows judges to enact measures for vacation homes and investment properties. In other words, maybe move out, treat it as an income property and THEN file? From a CNNMoney.com story:

The Obama administration lost a bid to add a powerful weapon in its fight against foreclosure Thursday, after the Senate voted down a proposal to allow bankruptcy judges to modify mortgages.

The defeat left many housing advocates questioning the effectiveness of the president's loan modification plan. The so-called cramdown provision, which would allow judges to reduce mortgage principal, would have put pressure on servicers to modify loans before borrowers file for bankruptcy...

Bankruptcy reform was a key part of Obama's foreclosure prevention plan, which was introduced in mid-February. It aims to encourage servicers to be more aggressive in modifying loans through a mix of carrots, in the form of incentive payments, and the stick of cramdowns. Servicers have come under fire for not helping enough homeowners through voluntary initiatives...

Servicers covering 75% of the nation's mortgages are now participating in the modification program, which calls for banks to lower troubled borrowers' monthly payments to 31% of their pre-tax income. Many major servicers said they have beefed up their loan workout departments to handle more calls.

However, most just started accepting applications, so experts say they won't be able to judge the program until the fall at the earliest. By then, hundreds of thousands of borrowers could lose their homes...

House hunters finding that it's not a buyer's market everywhere

I was happy to (finally) see an article on how housing markets vary greatly by neighborhood; one of my chief complaints with the press (and many economists) is offering punditry on the latest regional releases from Case-Shiller or Dataquick while providing almost zero guidance on what that actually means for buyer and sellers. While these stats are certainly useful in gauging the overall trends for a metropolitan area, they're not necessarily germane to the neighborhoods in which people live or are looking to buy. From an L.A. Times story:

Real estate brokers and investors say would-be buyers misunderstand how the drop in housing prices has affected desirable neighborhoods. Just because an abandoned house in a troubled part of San Bernardino County might be going for $200,000, it doesn't mean you can get a nice place in Sherman Oaks for that amount -- or even twice that amount.

House hunters are trying to pounce on deals from sellers they expected to be frantic -- if not curled in the fetal position. What they're finding instead are bidding wars as low interest rates and pent-up demand in traditionally stable or chic areas have kept prices up -- not as high as the market's peak, but not nearly as low as they had hoped.

"The biggest problem," said agent Phyllis Harb, "is that people are overreacting to housing statistics, thinking they can come in and make an offer 20% below price."

As sales figures and home buyers' anecdotes are underscoring, when the residential real estate bubble burst, it set off several distinct sprays that created false hopes and confusion.

Though nearly 20,000 homes in Southern California sold in March, a 52% jump from a year earlier, a sizable number of those transactions occurred in Riverside and San Bernardino counties, where foreclosures exploded. In the region overall, foreclosure sales accounted for 55% of March's deals.

Bank-owned or not, the cheaper properties are dominating the sellers' block in the notoriously expensive L.A. County real estate market. In March, 2,871 homes under $300,000 were sold compared with only 734 a year earlier, according to real estate information firm MDA DataQuick.

At the higher end, just 202 homes priced above $1.2 million changed hands last month, compared with 354 in March 2008.

Houses priced from $400,000 to $800,000 represented less than a quarter of the market in March, down from about 45%, meaning fewer offerings for would-be buyers in that mid-market or pickier sellers, according to DataQuick....

In classic economics, buyers should have a decided advantage in neighborhoods in which supply dwarfs demand. Where there's typically a six-month inventory of houses for sale in coveted Beverly Hills, Pacific Palisades and West Hollywood, for instance, there's a year to two years' worth today, agent Christopher Hain said...

Predicting where values are headed is hardly a science either, no matter what the cable-TV experts or the galaxy of websites with every imaginable statistic say. For one thing, people selling costlier homes tend to have deep pockets buffering them from needing a fire sale to stay afloat. If they don't like the bids, they can pull their property off the market.

Banks are an even bigger X factor, and not just because of their stricter lending requirements and bailout havoc. USC real estate professor Tracey Seslen said she'd heard that lenders were carefully timing the release of homes they'd repossessed to avoid further flooding the market and driving prices down more. Those institutions also know that a fresh avalanche of foreclosures from people with resetting loans may be looming...

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