This post first appeared on Minyanville.

After four years of searing pain, the US housing market is finally showing signs of life. And even as the causes and relative sustainability of this nascent “recovery” are being hotly debated, traditional buyers and investors alike are jumping into the market for homes with both feet.

It now appears that the biggest, baddest investor of them all, the one with infinitely deep pockets, is wading into the fray: Uncle Sam.

According to HousingWire, the US Department of Housing and Urban Development, or HUD, is giving state and local governments a total of $50 million to help deal with the onslaught of foreclosed homes, many of which lie vacant and blighted, ripe for vandalism, squatting, or worse. HUD has allocated chunks of cash to national development groups and local community organizations hoping to plug holes left by the private real estate investment market.

Funds are being distributed through the Neighborhood Stabilization Program which was established by former President George Bush in Economic Stimulus part one, which was then expanded by President Barack Obama earlier this year.

This investment directly into the real estate market highlights a new strategy in Washington’s fight against foreclosures, and one which is likely to grow in the coming years. That the federal government will increasingly be forced to take ownership — directly or indirectly through local organizations — is the subject of a recent piece I wrote on land banking for HousingWire, a mortgage and housing trade publication.

Land banks are publicly funded entities charged with taking ownership, rehabilitating, and putting back into use vacant or otherwise unwanted properties. The most well-known land bank in the country is run by Genesee County in Michigan, which is home to the woe begotten town of Flint.

Flint’s land banking initiatives began decades ago, as foreclosures and blight are not some new, post-housing bubble phenomenon. The program has gone a long way in providing Flint the chance at a future many of its Rust Belt neighbors can only dream of.

While as a loyal capitalist I loathe government meddling into the affairs of the private markets, to cry foul at bureaucrats for meddling in the housing market would redefine the old cliché of closing the barn door after the horses have left the barn. If taxpayer money is going to be heaped at our country’s ongoing housing nightmare, far better for it to go to community redevelopment than to the reckless inflation of the balance sheets, earnings, and salaries of the likes of JP Morgan Chase (JPM), Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C).

Initiatives like the recent allocation of money from HUD down to the local level do not represent some silver bullet to fix our housing woes, but seek to address some of the harsh realities of what, for most, is a foreclosure epidemic that plays itself out on CNBC and flashy websites like RealtyTrac or Foreclosure Radar: It just doesn’t seem real.

But drive through Oakland, California, Cape Coral, Florida, or Detroit and foreclosures aren’t just another statistic that evidences our dire economic situation. Foreclosures destroy neighborhoods, rip apart families, and set back years of what were otherwise positive improvements in some of the country’s most impoverished communities.

Real estate investors are reticent to put money to work in many of these areas because the risks simply don’t justify the rewards. Banks ignore many of these homes, abandoning the fight against looters and squatters, leaving the problems up to local police who are then dragged away from their regular beats. This isn’t a situation that benefits anyone.

It is, however, one of the uses for taxpayer money that can be reasonably justified. The list of government programs about which that cannot be said is far, far too long to list — and growing.

$50 million doesn’t even approach a drop in the bucket compared to what has already been spent bailing out AIG (AIG), Fannie Mae (FNM), Freddie Mac (FRE), General Motors (GM), Chrysler, Bank of America, Citigroup, and countless other, smaller firms that only now exist because taxpayers ponied up our hard-earned cash, whether we wanted to or not.

This $50 million is only the beginning. Lurking beneath the headlines of what many believe to be a respite from the Great Recession are neighborhoods with no hope of a recovery. The land banks, indeed, cometh.

When looking at a potential house to buy, it’s as important to consider what a broker doesn’t show you as it is to look at what they do show you. 2061 Ashton is a case in point. (click to enlarge images)

First, there are no photos of the front of the home contained in the listing. This is strange, since looking at the Google Street View of the home, it doesn’t look all that bad. Maybe not the most dramatically appealing home, but good enough for a listing photo. We have to wonder why the listing agent omitted this important piece
of information.

Second, in taking a quick peek at the street the most glaring feature is the giant power station just down the street. This is bad, and further compounds the question as to why the listing agent would omit the front of the home, since it’s logical to assume a potential buyer would check this out on their own.

The home itself seems fine, a smaller, reasonably updated house close to Alameda de las Pulgas in Menlo Park and in a great school district. But for under $1 million, this could be a good starter home … if of
course we can figure out whether 2061 Ashton is a
DEAL OR NO DEAL?

Address: 2061 Ashton Ave., Menlo Park, CA 94025
(MLS Listing)
Status: ACTIVE
Bedrooms: 3; Bathrooms: 2
Living Space: 1,580 sq ft
Lot Size: 6,000
List Date: 6/18/2009
Original List Price: $999,000
Current List Price: $999,000
MLS no.: 80939201

Real Estate Agent Comment: WEST MENLO TOP REMODEL: RE-DO COMPLETED IN 2002 WITH MANY COMPLIMENTS THAT STRIKE THE EYE: STAR STUNNING CONTEMPORARY IN BEST COUNTY ALAMEDA AREA EXTRA AMPLE FRONT + REAR YARD WITH BEAUTIFUL LANDSCAPING; GREAT ROOM IS HEART OF HOME WITH WELL APPOINTED KITCHEN.

DEAL or NO DEAL?
Comment below and tell us what you think!

Optimism about the housing market is reaching near-unanimous levels. Sales of new homes in July rose 9.6%  from the month before, the biggest jump since the height of the housing boom in 2005. According to Bloomberg, inventories of new homes also fell to the lowest level in 16 years.

Purchase activity was the strongest in the Northeast, where sales leapt 32%. Meanwhile, out West, sales increased just 1%. This is an interesting trend to note, as thus far in the market’s correction the West has been a leading indicator for the rest of the country. That sales appear to be stagnating out West should be concerning for those hoping for a legitimate recovery.

The ultimate question is whether this bounce, which has been spurred largely by government intervention in the form of tax-incentives, low interest rates and support for the capital markets can be sustained through the traditionally slow fall and winter months. Time, it appears will be the true arbiter of the nascent housing recovery.

Broad measures of home prices continue to show improvements, as the S&P/Case Shiller Home Price Index registered its second straight monthly increase. According to the Wall Street Journal, Case Shiller’s 20-city index ticked up on a quarterly basis 1.4% from the three months ending May 31.

2 cities still showed month-over-month declines, woeful Detroit and Las Vegas. The only cities showing single digit annual declines, Dallas, Cleveland, Denver, Boston and Charlotte, were some of the markets that held up longer than most, and are still in the early stages of their price correction.

Yale’s Robert Shiller, who along with Carl Case devised the Case-Shiller Home Price Index, warns that despite the positive data, foreclosures and job losses could still hamper any legitimate housing recovery. Mortgage defaults, especially in the Prime market, continue to rise, which is leading to increased inventory and falling prices in high-end real estate markets around the country.

The experts at Cirios Real Estate are watching the data closely, especially as the summer buying season shuts down and we move into the traditionally slow fourth quarter. This transition will be the first true test of this housing “recovery.”

Eclipsing even the most optimistic expectations, July existing home sales registered a 2-year high this morning, jumping 7.2% from last month. According to Bloomberg, the National Association of Realtors (or NAR) reported that transactions climbed to a 5.24 million annualized pace, the highest rate since August of 2007.

NAR chief economist Lawrence Yun, the man who asserted the housing market’s slide had stopped back in 2006, is now quite certain the worst is behind us: “We are bouncing back, but we still need to wait until year-end before we see price stabilization.”

While on the surface, this report appears to be filled with nothing but rosy news, there is a kernel of caution amongst the positivity. Despite a jump in sales, inventory levels remained high, at 9.4 months’ supply. In other words, as buyers are coming back into the market, so are sellers.

This is a dynamic we have discussed previously here at Cirios Real Estate, and is a primary reason we are more cautious than most when it comes to this nascent housing market recovery. Even as some markets may stabilize, others will continue to fall until prices return to more sustainable, affordable levels.

Want to know which category your market falls into? Contact Cirios today!

In a market where updated, well-priced, move-in ready homes are few and far between, the opportunity to buy fixer uppers is considerable. Current mortgage outlets, namely the US government, are reticent to give out loans on homes that need some work, which creates an opportunity for all-cash investors to buy homes that need some upgrades, do the work and resell them to homeowners looking for a turnkey home. (click to enlarge images)

731 Stannage Ave in Albany appears to be just this sort
of opportunity. Located in Albany, a quiet suburb just
north of Berkeley with extremely good public schools,
this home is in need of a face lift. Just look at those carpets. Structurally, it appears to be sound, so repairs would be kept to cosmetic items: New counters, carpets/flooring, paint, bathroom and some landscaping.

With some TLC, this home could very very attractive.

But at just under $500,000, this is not an investment for the faint at heart. Is the risk worth the reward? Is 731 Stannage a DEAL OR NO DEAL?

Address: 731 Stannage Ave., Albany, CA 94706
(MLS Listing)
Status: ACTIVE
Bedrooms: 3; Bathrooms: 1
Living Space: 1,302 sq ft
Lot Size: 3,800
List Date: 8/13/2009
Original List Price: $499,000
Current List Price: $499,000
MLS no.:40424505

Real Estate Agent Comment: STYLISH OLDER HOME IN NEED OF SOME WORK, GREAT ALBANY LOCATION, SPACIOUS ROOMS, FIREPLACE IN
LIVING ROOM, FORMAL DINING, BASEMENT, TANDEM GARAGE, GOOD SIZED YARD TOO, TAKE A LOOK.

DEAL or NO DEAL?
Comment below and tell us what you think!

The bounce rolls on. This morning, US Homebuilders gave their most positive outlook on the market in the past 12 months, as the National Association of Homebuilders/Wells Fargo Housing Market Index ticked up to 18, from 17.

To be sure, 18 is a dismal reading, but builders appear to see a light at the end of the tunnel. The question, of course, is whether that light is the end of the tunnel, or a train.

NAHB Chief Economist David Crowe echoed the positive sentiment:

“There is definitely a sense of hope among builders that the worst of the downturn is over and that a turning point is near at hand. Meaningful action by Congress could ensure that this upward momentum continues and that housing can help push the economy back onto solid ground.”

Builders have slashed prices to keep up with falling property values, as first time homebuyers and investors alike snatch up bank owned homes at what they perceive to be firesale prices. And with the current limited supply of foreclosed properties on the market, eager buyers may once again be turning to newly built homes.

This article first appeared on Minyanville.

The only question that really matters in the housing market right now is the following: Does the recent strengthening in sales data signal an imminent bottom, or are we smack in the middle of a dead-cat bounce?

The answer, of course, is complicated. And as I’ve discussed in the past, the concept of a “bottom” in the housing market is meaningless, as stabilization and eventual recovery will happen on a localized, market-by-market basis.

Nevertheless, there are some key factors to watch that will provide clues as to how long this rally’s legs really are, and what could trigger a reversion in the miserable state of the market we’ve become accustomed to over the past 4 years. Here are, in my mind, the top 3 “tells” to watch when it comes to the direction of the housing over the next 6-12 months:

1. Jobs

In the words of HousingWire’s Paul Jackson, “If housing is central to recovery, and jobs are central to housing, and jobs aren’t doing very well — what’s the real forecast for housing?”

Despite jobs data that appears to have stopped getting worse, the employment outlook in the US remains dismal. Government-backed loans through the Federal Housing Administration (FHA), Fannie Mae (FNM), and Freddie Mac (FRE) dominate the mortgage market right now, all of which have strict requirements for job stability. This means that even if companies start hiring again, recently laid-off workers will still have a hard time qualifying for a mortgage.

Furthermore, even though layoffs have slowed, the majority of firings that occurred in the past year haven’t yet resulted in mortgage delinquency. As struggling homeowners gradually succumb to the pressures of losing a job, default and eventual foreclosure can occur many months after the layoff itself. We’re yet to see any material improvement in default data, especially in high end markets.

2. The FHA

The FHA offers taxpayer-backed insurance for mortgages that are underwritten to their specific guidelines. Originally intended to provide home loans for low-income borrowers by requiring minimal down payments and overlooking blemished credit records, by the end of 2008, FHA loans accounted for almost 40% of all new loans — up from less than 5% at the beginning of 2007, according to data compiled by Lender Processing Services (LPS).

In distressed markets, where ongoing foreclosure moratoria are keeping bank-owned homes off the market to artificially limit supply, FHA borrowers make up the vast majority of buyers. This has helped the likes of Wells Fargo (WFC), Bank of America (BAC), and Citigroup (C) unload foreclosures at higher prices, but it has prolonged the eventual recovery as banks slowly bleed out distressed homes into the market.

To help alleviate the housing crisis, Washington upped FHA limits so that in some areas, buyers can get an FHA loan for as much as $719,000. This widening of FHA’s lending criteria has helped buoy many mid-tier markets, as borrowers can now buy $500,000 or $600,000 homes with a paltry 3% down. (Just ask Toll Brothers (TOL) if the FHA helped boost sales in the past 6 months.)

If the FHA tightens its guidelines or lowers its loan limits, look out below, as a huge source of liquidity for the housing market will evaporate.

3. November 30, 2009

This November, the $8,000 first-time homebuyer tax credit expires. If I were a betting man (which I’m not), I’d wager if the market stumbles even slightly between now and the end of the year, a new tax credit will be issued in some form. (They may extend it regardless of how the market performs.) Even if the credit is extended, many first-time homebuyers are already scrambling to make purchases while they can still get a check from Uncle Sam.

To wit, check out the advertisement currently running on ZipRealty, a popular online real estate brokerage:

Circle November 30 with a big red pen, because first-time buyers now account for fully one-third of purchase transactions according to the National Association of Realtors. If this demand dries up, sales could resume their downward spiral.

The bottom line is this: The outlook for housing is murky, at best.

Low-end markets are benefiting from government support on both the supply side (foreclosure moratoria) and demand side (tax credits, FHA) of the equation. Meanwhile, high-end markets — as defaults on prime mortgages keep rising and the job market remains lousy — are seeing steep home-price declines.

Anyone touting housing’s so-called “bottom” is likely trying to sell you something — namely, a house.