From the Desk of Pat DeDonato - Cartus · known as HARP or HARP 2.0. The new HARP program is ... As we all know, these are loans that could be made with 100% financing, badly damaged

From the Desk of Pat DeDonatoVice President, Real Estate Services & Supply Chain Management TeamThe verdict is still out, but there are some signs that the market is starting to recover. One of them is the report from the National Association of Realtors that contracts to buy previously owned homes neared a two-year high in January. The chief economist at Commonfund in Wilton, Conn., notes that a number of housing statistics are starting to turn. On the flip side, there are a lot of foreclosures and short sales, and inventory is still a problem. Keeping in mind both the optimistic notes and lingering problems of the national market, we take a look at some of the tried and tested practices we have used in selling the homes of our clients’ relocating employees.

Watching CostsOur clients continue to watch home sale costs closely. Now, more than in the past, senior executives or Finance department managers are reviewing their companies’ home sale programs and asking questions about the costs of the process. Many companies are looking at their relocation policies for potential cost savings. Some client policies state that home inspections are required only for homes older than 10 years, while other companies have inspections on a need-only basis to provide cost-cutting measures.

Some clients are asking whether repair and improvement allowances for items such as neutralizing paint colors or fixing roofs are needed. In some instances, clients have requested that only minimal repairs be done. The danger: following a strategy of allowing only basic repairs can create additional problems for the home seller and company during the selling process. Here’s an example: buyers have a lot to choose from, and those who see a need for a repair are frequently requesting a price reduction in the amount of double the cost of the repair.

It’s Still Price and ConditionIn the current market, the most effective strategy is to ensure that a home for sale is in good condition and is priced correctly. Clients are encouraged to provide for repair and improvement allowances. Though it may cost $4,000 to $5,000 to neutralize a home, it is likely a wise expenditure. In this market, the client may not recoup these costs on the sales price, but will save on carrying costs if the home sells faster. Carrying costs are typically 1% of the home’s appraised value per month, so a home appraised at $300,000 would cost $3,000 per month to carry, and this quickly adds up to a significant expense.

When a buyer is found, it is a best practice to sell on a contingency only if the buyer has a contract to sell his first home. Keeping in mind the adage that real estate is local, clients and relocating employees are reminded that prices are influenced by neighborhood conditions. If there are short sales and foreclosures in the neighborhood, the seller’s home value will decrease.

Down the RoadWe wait for the days in which the market is flourishing and homes will sell themselves. Until then, we will “work smart” to get homes sold.

M A R K E T W A T C HInformation from Cartus on Relocation and International Assignment Trends and Practices.

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Cartus reviews best practices for home sale and marketing. Cartus Home Loans shares answers to four frequently asked questions. National charts show price and sales activity trends. Local activity is reviewed in 14 different markets.

This is a periodic communication from Cartus intended to keep you informed about the current property market trends and conditions in the United States.

U N I T E D S TAT E S P R O P E R T Y


The Mortgage MemoFrom Cartus Home LoansCartus Home Loans answers some of the questions it is asked most frequently.

1. When we talk about the real estate market, we typically discuss it from a national perspective. But it seems that real estate can be very different from market to market – WHY?

We are sure that you’ve heard the phrase “location, location, location.” Simply put, it means identical homes can differ in value due to location. Home prices vary from city to city for a number of reasons: desirability, median income, and supply and demand. There are certain factors that will influence the supply and demand in markets across the country. If you think about a market with high foreclosure rates, you think about a market that is saturated with homes listed for sale. But research also shows that the high number of foreclosures could potentially lead to higher crime rates, which would make the market a less desirable place to live. On the other hand, in markets in which there wasn’t double digit appreciation back in the early to mid-2000’s, home prices are stable and are even showing a modest appreciation because they don’t have many foreclosures or short sales.

2. We talked about interest rates earlier and how they’re near historic lows. Can you tell me why everyone hasn’t refinanced into these low rates?

There are approximately 12 million creditworthy Americans who are overpaying their mortgage by an average of approximately $436 a month, who have yet to refinance. One of the reasons is because their home values have fallen dramatically so they wouldn’t qualify due to loan-to-value restrictions. However, the government has rolled out the second part of its home affordable refinance program – also known as HARP or HARP 2.0. The new HARP program is designed to remove some of the barriers that limited the program’s success the first time. For example, LTV restrictions are being removed entirely, which means that there are no appraisal requirements to complete the refinance process. So no matter how much a home value has dropped, the owner may still qualify. Refinancing is worth looking into for anyone who has a mortgage that is owned by Fannie Mae or Freddie Mac and also has an interest rate near or above 5%.

3. I’ve heard that loan requirements continue to be more stringent than they were several years ago. Why is it harder to get a loan these days?

Until early 2007, the overheated lending market was pumping out toxic mortgages with hundreds of different mortgage programs such as option ARMs, no doc, and subprime loans.

As we all know, these are loans that could be made with 100% financing, badly damaged credit, or inadequate income, or were written so that the borrower had to make only minimum payments that didn’t even cover the interest on the loan. So lenders and investors experienced huge losses as a result of these relaxed requirements. Fast forward to today, when the vast majority of loans are sold to Freddie Mac and Fannie Mae. They have set the standard for getting loans approved by establishing qualifying criteria. And they’ve gone back to the basics and now require larger down payments, higher credit scores, and especially, more documentation that will show the borrower’s ability to repay the loan. There no longer are hundreds of mortgage programs from which to choose. Adjustable rates are still available, but more than three quarters of borrowers are going with a fixed rate. By taking a fixed rate mortgage, the borrower knows that, unlike with an adjustable, he will have a fixed payment. Lenders benefit from the writing of fixed rate mortgages because their risk of loss is minimized.

4. Why is it so much more difficult for condominiums than, say, single-family detached homes?

We know condos are popular, especially among first time homebuyers. After all, the average condo sales price is less than the average single family home. Condos also require less maintenance and most offer amenities like gyms and pools. But condos aren’t perfect. There are homeowners’ association rules and monthly fees and because of this, condos require special underwriting. When a buyer acquires a single-family home, the underwriting process is straightforward. The bank appraises the home to ensure its worth. With condos, the bank considers additional factors such as the financial condition of the homeowners’ association as related to its cash reserves. If there are several condo units in foreclosure or there are owners who have simply stopped paying their HOA fees, funds required for the upkeep will be limited. Also, condo-related documents such as the master deed and the by-laws are considered. Lenders will be on the lookout for any red flags in the condo docs that could create a situation that would cause the property to depreciate. Lenders will also look at the percentage of owner-occupied units. You need to consider the number of rented units and vacant units as a barometer for the property to holds its value. For all of these reasons, it’s more difficult to get a loan to buy a condo.


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Below are several leading-indicator charts from industry sources that give a bird’s eye view of the national market.

Four-Quarter Price Change by State: Purchase-Only Index (Seasonally Adjusted)

US Four-Quarter Appreciation= -2.4% (2010Q4-2011Q4)

Source: Federal Housing Finance Agency

• U.S. house prices were 0.1 percent lower in the fourth quarter than in the third quarter of 2011, according to the FHFA’s seasonally

adjusted purchase-only house price index (HPI).

• Over the past year, seasonally adjusted prices fell 2.4 percent from the fourth quarter of 2010 to the fourth quarter of 2011.

• “While FHFA’s national index shows a 2 percentage point price decline over the latest four quarters, 12 states and the District

of Columbia posted price increases,” said FHFA Principal Economist Andrew Leventis. “When coupled with the fact that about

half of all U.S. states saw price increases in the latest quarter, this growth adds to mounting evidence that real estate markets are

seeing at least some signs of life.”



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-8.3%Washington

-2.0%Oregon

-4.6%California

-12.9%Nevada

-1.1%Idaho

-3.7%Utah

-2.3%Arizona

2.0%Montana

-0.4%Wyoming

-2.7%Colorado

-4.7%New Mexico

4.4%North Dakota

1.3%South Dakota

3.7%Nebraska

-3.2%Kansas

0.2%Oklahoma

1.5%Texas

-4.2%Minnesota

-0.1%Iowa

-1.1%Missouri

2.7%Arkansas

-0.3%Louisiana5.1%

Alaska

-3.6%Hawaii

-4.2%Wisconsin

2.2%District of Columbia

-6.6%Illinois

0.2%Indiana

3.2%Mississippi

-0.8%Tennessee

-1.4%Alabama

-2.7%Georgia

-2.8%Florida

-2.1%Ohio

-2.6%Kentucky

-2.9%New York

-2.7%Pennsylvania

-1.7%West Virginia

-2.3%South Carolina

-4.9%North Carolina

-0.8%Virginia

-1.4%Michigan

-1.9%Maryland

-5.6%New Jersey

-7.3%Delaware

-3.0%Connecticut

-7.9%Rhode Island

-2.3%Massachusetts

0.9%Maine

2.2%Vermont

-1.5%New Hampshire

-12.9% to -3.1%

-3.0% to -2.1%

-2.0% to -0.1%

0.0% to 5.1%

Pending Home Sales Inventory by Months’ Supply

0

20

40

60

80

100



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0

2

4

6

8

10

1212

10

8

6

4

2

0M

onth

s

2005

2006

2007

2008

2009 20

11

Thru Ja

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0

Pend

ing

Hom

e Sa

le In

dex

(Bas

elin

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m y

ear 2

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is 10

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2010Ja

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100

80

60

40

Source: National Association of Realtors®

• NAR said its Pending Home Sales Index, based on contracts signed in January, increased 2% to 97 points, the highest reading since April 2010.

• Lawrence Yun, NAR chief economist, said, “Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year. With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations.”

• Total housing inventory at the end of January fell 0.4 percent to 2.31 million existing homes available for sale, which represents a 6.1-month supply at the current sales pace, down from a 6.4-month supply in December.

• “The broad inventory condition can be described as moving into a rough balance, not favoring buyers or sellers,” Yun said. “Foreclosure sales are moving swiftly with ready home buyers and investors competing in nearly all markets. A government proposal to turn bank-owned properties into rentals on a large scale does not appear to be needed at this time.”

• Total unsold listed inventory has trended down from a record 4.04 million in July 2007, and is 20.6 percent below a year ago.

Feb Mar Apr MayJu

ne July

Aug Sept

Oct Nov Dec Jan

20

‘11

‘12

Source: Standard & Poor’s & FiServ• Data through December 2011 showed that all three headline composites ended 2011 at new index lows. The national composite fell by

3.8% during the fourth quarter of 2011 and was down 4.0% versus the fourth quarter of 2010. Both the 10- and 20-City Composites fell by 1.1% in December over November, and posted annual returns of -3.9% and -4.0% versus December 2010, respectively.

• “In terms of prices, the housing market ended 2011 on a very disappointing note,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “With this month’s report we saw all three composites hit new record lows. While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended.”

• As of the fourth quarter of 2011, average home prices across the United States are back at their late 2002 levels.

States with the Highest Foreclosure RatesData listed is ratio of foreclosure filings to housing units for February 2012

• One in every 637 U.S. housing units had a foreclosure filing during February.

• Foreclosure filings were reported on 206,900 U.S. properties in February. That was a 2 percent decrease from the previous month and an 8 percent decrease from February 2011, the lowest annual decrease since October 2010.

• “February’s numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed,” said Brandon Moore, CEO of RealtyTrac. “Although national foreclosure activity was pushed lower by decreases in a handful of larger states, 21 states posted annual increases in foreclosure activity, the most states with annual increases since November 2010.“


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Information from Cartus on Relocation and International Assignment Trends and Practices.

California1 in 263

Arizona1 in 312

Nevada1 in 278

South Carolina1 in 489

Illinois1 in 398

Wisconsin1 in 596 Michigan

1 in 433

Georgia1 in 328

Florida1 in 341

Source: RealtyTrac

Ohio1 in 543



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Market data courtesy of the Cartus Broker Network.

P ro f i l e s o f Key Market s

Atlanta, Georgia1

Fourth Quarter 2011 Fourth Quarter 2010

Total Number of Active Listings 18,298 25,066

Average Days on Market (Listed) n/a n/a

Average List Price $317,000 $320,850

Total Number of Solds 8,084 7,060

Average Days on Market (Solds) 127 140

Average Sale Price $185,000 $214,120

List Price to Sale Price Ratio 58% 67%

Absorption Rate (Months) 6.9 10.8

Notes • Although 2011 had record low housing starts, the fourth quarter had the most starts of the four

quarters.

• Developments that were foreclosed on have been bought, and the new builders have been constructing homes at much lower price points than those planned in the original development.

• Most builders are offering agent and buyer incentives.

• Actual REO properties account for about 25% of the listing inventory, but when you add in short sales, more than 40% of transactions are distressed properties.

• Atlanta had the fourth-highest private sector job loss during the recession of September 2007-September 2011, according to the U.S. Bureau of Labor Statistics.

• Even though the market still has excessive inventory, it has declined dramatically year-over-year.

• Properties priced under $150,000 are being sold at a reasonable rate, but homes at price points over that are still in a buyer’s market with excess of eight months of inventory.

Boston, Massachusetts2



Average Days on Market (Listed) 179 177







Notes • The market is starting to see approvals for new construction permits.

• More affordable communities have a significant number of foreclosures and short sales. There has been far less foreclosure and short sale activity at the higher end.



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Charlotte, North Carolina3










Notes • The number of building permits is down. Builders continue to offer large incentives to buyers and are

building fewer specs.

• Although foreclosures have declined by 30% in the Charlotte market, there are still foreclosures at every price point and in every neighborhood. These are causing prices to decrease.

Chicago, Illinois4










Notes • Values are dropping slightly each month in the Chicago area while sales are showing an uptick.

• Foreclosures continue to be an issue, but are declining somewhat.

• The unemployment rate hovers around 10%, which is above the national average.

• Building activity is still at historically low levels, but is starting to pick up minimally.

Cincinnati, Ohio5










Notes • Twenty-six percent of total sales are foreclosures.

• The market has softened somewhat over the last year with a decline in average sale price and a slight increase in days on market.

• Ohio in general is a soft market with more people moving out of the state than into it.

Dallas/Fort Worth, Texas6










Notes • Buyers are looking and making offers. There are multiple offers in niche areas.

• Credit worthiness of buyers and low appraisals are still issues.

R E A L E S TAT E M A R K E T I N G U P D AT E


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Denver, Colorado7










Notes • There were 69% more building permits issued in the fourth quarter of 2011 than in the fourth

quarter of 2010.

• There were 29% fewer foreclosures in the first 11 months of 2011 than in the same period of 2010.

• Rentals are in high demand and the vacancy rate for rentals in the area is reported to be 1.4%, which is bringing many investors into the market to purchase properties for rentals.

• The year-end active inventory for the Denver Metro area was down by 40% from a year ago. Many sellers pulled their homes off the market during the holidays, and others are waiting to list to see what happens to the economy.

Detroit, Michigan8










Notes • Foreclosures are still selling before privately-owned homes, thus the low average sale price.

• There is very little new construction.



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Las Vegas, Nevada9










Notes • Forty-seven percent of resale closings are foreclosed homes.

• REO homes spend less time on the market than traditional or short sales.

• Short sale and traditional homes can only compete on location and quality.

Los Angeles, California10










Notes • New construction has slowed. Prices of new construction have continued to drop, which makes

new construction tough competition for resale homes.

• Foreclosures continue to have a major presence in the Los Angeles market. They are dragging down prices and slowing the process of recovery.



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Miami, Florida11










Notes • New construction sales are increasing.

• There are fewer non-distressed properties, but short sales are still very strong.

Phoenix, Arizona12










Notes • Inventory is significantly lower, which is causing homes that are priced well and are affordable to

move fairly quickly, and in many cases receive multiple offers.

• Some potential sellers are reluctant to list their homes because there is not much to choose from to buy after selling.

• Rental homes are still in demand with competitive and rising prices.

• Many potential sellers are reluctant to list because of the volatility of the market, and are only doing so if they really need to move.

• There is some optimism in the Greater Phoenix marketplace, as news reports show that the area is on a gentle upswing. In January 2012, lockbox activity was up 40% and the jobless rate remained at 8.7%.



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Seattle, Washington13










Notes • The overall sales price continues to decline, largely due to a high number of foreclosures and

short sales.

• The averages for days on market and inventory continue to decline, indicating that the Seattle market is better poised to recover once the distressed properties are absorbed.

• Area businesses such as Amazon.com, Boeing, and Google are hiring again.

Washington, District of Columbia14










Notes • New construction in areas just west of the District and the immediate suburbs in Northern

Virginia are attracting buyers.

• The effect of foreclosures changes from subdivision to subdivision.



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Footnotes1 Atlanta data represents single family homes.2 Boston data represents single family homes and condominiums.3 Charlotte data represents single family homes.4 Chicago data represents single family homes.5 Cincinnati data represents single family homes.6 Dallas/Fort Worth data represents single family homes.7 Denver data represents single family homes and condominiums.8 Detroit data represents single family homes and condominiums.9 Las Vegas data represents single family homes.10 Los Angeles data represents single family homes, condominiums, and townhouses.11 Miami data represents single family homes.12 Phoenix data represents single family homes, condominiums, and townhouses.13 Seattle data represents single family homes and condominiums.14 Washington data represents single family homes, condominiums, and townhouses.

TouchPoint2011a



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From the Desk of Pat DeDonato - Cartus · known as HARP or HARP 2.0. The new HARP program is ... As we all know, these are loans that could be made with 100% financing, badly damaged