Foreclosed property sales will continue to depress home prices this year, according to several analysts and economists like Pat Newport of IHS Global Research, Gus Faucher of Moody’s Economy.com and author Shari Olefson.

These analysts noted that home prices rose during the months of May to September, based on data from Standard & Poor’s/Case-Shiller, but they also stated that price levels remained flat in October. They predicted that house prices will drop by at least three percent in 2010.

Financial analysts at Fiserv Lending Solutions meanwhile predicted that house prices will decrease in 342 out of the 381 housing markets that it has been monitoring and that prices will drop by 11.3 percent on the average.

IHS economist Newport said that despite recent stabilization in house prices due largely to record-low mortgage rates and to tax credit and related first time home buyer incentives, home prices will decrease in 2010 because of three reasons: the expected increase in mortgage rates, the scheduled expiration of home buying tax incentives and the continued increase in foreclosed property sales.

Faucher of economy.com supported Newport’s contention by stating that the level of foreclosures this year will again be significant enough to dampen the nascent recovery of home prices in several housing markets.

Faucher predicted that home prices will drop by another 8 percent and that the biggest rate of decreases will occur in the most foreclosure-battered states like California, Arizona, Florida and Nevada.

Aside from the shortcomings of the federal loan modification program, other reasons for the continued rise in foreclosures, according to analysts, are the scheduled resetting of adjustable rate mortgage loans, the rise in strategic defaults among underwater borrowers, the upward movement of mortgage rates and the expiration of home buying tax incentives.

Olefson, who wrote the book “Foreclosure Nation: Mortgaging the American Dream,” said that a big percentage of over 350,000 homeowners with pay option ARM loans will default because of the drastic increase in monthly payments. She also predicted that many will deliberately default as the values of their houses plunge far below the amounts of their home loans.

Olefson predicted that home prices will fall by 5 to 15 percent in 2010, with around 10 percent as the median rate of price decrease.

One economist who predicted an increase in home prices despite the continued influence of foreclosed property sales in 2010 is Lawrence Yun of the National Association of Realtors who predicted a house price increase of more than 3 percent.

Buying foreclosed houses will become easier this week for qualified residents of West Palm Beach, Florida following the city’s implementation of a financial assistance scheme that will provide 50-percent financing to prospective buyers of houses in the Coleman Park community.

According to West Palm Beach Mayor Lois Frankel, the homeownership program was designed to help bring more moderate- or higher-income families into Coleman Park and help make the community safer and more stable.

Mayor Frankel explained that while the area was known for crime in the past, incidents of crime have been declining over the past years. She also said that Coleman Park is just 5 minutes to and from downtown and to the waterfront.

Andrew Weitch, home loan manager for Wells Fargo in West Palm Beach, said that prospective buyers can look at CityPlace in the south, which has been turned into a vibrant, stable and very safe neighborhood.

The houses to be sold include newly-built three-bedroom homes priced at $150,000, with buyers paying $75,000 and the city paying the other half. For those buying foreclosed houses rehabilitated by the city, they will pay only $44,500, with the city paying the rest to cover the selling price of $89,000.

The city expects police officers, city employees and other workers to take advantage of the offer. Applicants need to pass financial and criminal background checks, although there will be cases where credit levels lower than 600 may be considered.

Only lower-income buyers will be eligible under the program, excluding individuals earning more than $63,360 and married couples earning more than $72,360. A family of 5 must be earning only $97,680 or lower. Applicants must also commit to live in the properties, use them as their principal residence and not use them for investment purposes.

According to Mayor Frankel, the home buying program is one great deal because it runs in conjunction with other housing stimulus programs like the federal tax credit program and other closing-cost assistance programs.

In an earlier report about the program, city commissioners questioned the provision in the program under which buyers can resell the properties after three years and get back the money they invested plus the profit from the sale.

The commissioners said that they are not willing to use federal stimulus money for buying foreclosed houses to help supposedly needy buyers, but who are really shrewd people taking advantage of government programs for their investment purposes.

There have been almost 400 applicants for the NSP initiative, but not one has been approved because of various reasons, including the outbidding of applicants who have no cash to pay the sellers, the lack of foreclosures in places preferred by the applicants and the failure of applicants to find a home they like in the neighborhoods chosen by the county.

The NSP initiative has certain policies that recipient counties or cities receiving the funds must comply with, including the requirement that the foreclosure properties to be purchased must be located in the most foreclosure-battered neighborhoods in the county.

However, although NSP applicants in Palm Beach County find foreclosure homes that they like, they are always outbid by cash investors.

Sharon Burgess is one prospective buyer whose NSP application has been approved and has been pre-qualified for a $78,000 home loan. She said that she has been searching for a foreclosed house for over a month and her deadline to close is fast approaching.

Burgess related that whenever she goes to see some home foreclosures, she would find that the properties are already purchased by investors with cash.

Armando Fana, head of the Miami office of the U.S. Department of Housing and Urban Development, said that his department has been notified about the problem and he will be holding a meeting in November to meet with bankers and discuss the issue.

The NSP was funded by the Housing and Economic Recovery Act in 2008 with $3.92 billion, which was distributed to states, counties, cities and nonprofits.

Palm Beach County received $27.7 million, which was then divided to fund several schemes. Around $12.8 million will be spent to help individuals or families to buy foreclosed homes, $5 million will be provided to cities and nonprofits for their own initiatives of buying and fixing foreclosed houses and $7.5 million will be used to buy properties for public use.

Under the program, counties are allowed to be innovative in how they carry out the program as long as they comply with the basic requirements. Some are working with nonprofits like Habitat for Humanity; others are providing money for closing costs and down payments for the purchase of home foreclosures.

Williams added that many borrowers owe much more than the value of their homes and have already left their homes. Many of them have lost 40 percent of their home equity, making loan refinancing difficult to obtain.

He said that one out of ten homeowners with mortgages is delinquent and one out of 25 homes is in the foreclosure process. He added that the residential loan market is still tight, with government enterprises providing most of the liquidity. Fannie Mae and Freddie Mac have been providing about 70 percent of all new home loans, the Federal Housing Administration have been accounting for around 20 percent and private banks have been providing only 10 percent.

Williams also explained that he expects more homes in foreclosure because more than one million mortgage borrowers are not qualified for the Home Affordable Modification Program. Many residential properties were used to buy second homes through home equity loans. Many home loans also exceeded the conforming loan limit of $729,750.

Additionally, only 20 percent of homeowners who were given loan modification letters have responded, Williams said. The reasons for the lack of response range from job loss to doubts about the viability of the program.

In a foreclosure report released this week by a real estate research firm, nearly 358,500 households were notified with default, foreclosure auctions and lender repossessions in August. While the number marked a decrease from filings in July, housing analysts still expect for increased foreclosures in the coming months.

Fannie Mae and its smaller competitor Freddie Mac, who were rescued by the federal government last year, have been playing big roles in carrying out the Obama administration’s foreclosure prevention programs. They have been providing low-cost home loan refinancings and suspending some loan requirements to help more homeowners.

Since November last year, the two entities have received $95.6 billion in aid from the Treasury Department, which set aside a $400-billion credit line for them. Together, they hold $5.2 trillion in residential loans and have posted $165.3 billion in net losses quarterly since 2007.

Williams, who took over as head of Fannie Mae in April, said the nationwide housing market is showing positive signs, but still has to overcome lots of challenges including the rising number of homes in foreclosure.

The program was patterned after the foreclosure mediation program already being carried out in Connecticut and in other states.

Under the foreclosure mediation program, owners of homes in great danger of getting included in lists of foreclosed homes for sale can go to their county officials and ask for state-supervised mediation.

After York County has progressed in its pilot program and has shown progress in saving homes from lists of foreclosed houses for sale, the other 16 counties in Maine will be required to launch their own mandatory mediation programs by January next year.

According to Will Lund, head of the Maine Professional and Financial Regulation Office of Consumer Credit Regulation, District Court Judge Andre Janelle will head the statewide program to contain foreclosed houses for sale.

Using provisions of the statewide mediation law, Judge Lund and his office recruited several retired judges to help distressed borrowers and work as mediators. He has also launched a statewide hotline for troubled homeowners and has required all mortgage lenders operating in Maine to submit the names and street addresses of borrowers they are planning to sue for foreclosure.

As his office receives information from the lenders, the Consumer Credit Regulation Office sends documents to borrowers about foreclosure prevention services available, including a document that they can fill up to participate in the mandatory mediation program.

According to Lund, his office has been receiving around 150 names of borrowers to be helped under the program every week.

Under the mediation program, borrowers first meet with a foreclosure prevention counselor who will orient them about documentation and information required for the mediation session.

At the mandatory mediation session, borrowers meet with an authorized representative from the lender. According to the mediation law, the lender should send a representative with the authority to modify a loan.

As the pilot program in York County is still on its first days, county officials cannot yet say if the mandatory mediation program will be effective in reducing the rising number of foreclosed homes for sale across the state.

Nonetheless, Consumer Credit head Lund is positive the statewide program to contain foreclosure properties for sale will make some headway because of the positive response of troubled homeowners to the program.

In April, the median sales price of a pre-owned house in Fresno dropped by more than 7 percent to $130,000 in April after a nearly 10-percent jump in March. The increase in March was the first home price increase in the area in a period of 13 months, based on county real estate sales data.

Real estate analysts in Fresno said home prices are expected to fluctuate in the area as inventories of foreclosure homes also fluctuate.

As of the first weeks of July, current inventory consists of 2,384 condo units and houses in Fresno and in Clovis, which can be sold in only two months at current pace.

A total of 829 pre-owned homes were sold in June in Fresno, a 4.4 percent rise from home resales in May.

Another reason for buyers’ interest in Fresno is the price declines in the higher-cost portion of the market. Homes previously listed at $600,000 have been selling at $300,000. A real estate investor representing McKinley Capital Partners even said that he has bought homes previously priced at $300,000 for $100,000.

Investors said the pace of foreclosures in the county has slowed down because of several foreclosure moratoriums implemented in California, but they said more foreclosed homes will enter the housing market when these moratoriums expire.

Banks are also expected to release foreclosure homes which they have been holding in an effort to control the level of their nonperforming loans, but they are now forced to sell them because of rising defaults in the industrial and commercial real estate sectors.

However, some analysts said that banks may hold off foreclosure proceedings for a little longer because of intensified pressure from state and federal officials.

Recently, Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan pressured banks to work out more loan modifications. They also started a scheme under which they will monitor how the country’s largest mortgage banks are implementing the Making Home Affordable program.

Publishing the performance of these mortgage banks will be one effective way of pressuring lenders to work out loan modifications.

Nevertheless, as home affordability improves in Fresno and as opportunities for real estate investments arise, buyers will continue to look for and heighten the demand for more foreclosure homes.

According to Jeremy Burgess, co-owner of Urban Detroit Wholesalers, most investors snapping up properties in bulk from foreclosed housing inventories in Detroit come from outside the state and outside the U.S.

Burgess buys underpriced homes, repairs them and then rent them out or sell them to other investors.

Another realtor, Mike Shannon, said only a few are local investors because they are either unemployed, out of money or have already made their home investments. Shannon specializes in selling foreclosed housing and has customers from Australia, New Zealand, England and other countries.

Shannon advises investors in Detroit’s foreclosed housing market to plan for an investment period of five to ten years. He also advises them to take advantage of the Section 8 housing federal program, which is a voucher program designed to help lower-income households.

Under the voucher program, needy families can rent privately-owned housing with the rent fully or partially paid by the national government.

An investor can buy a foreclosed property, repair it, find a qualified Section 8 renter and then collect a fair market rent, which could be anything between $850 and $1,200 for a three-bedroom unit.

Another tip from Shannon is to get in touch with local housing nonprofits that are helping families with lower credit scores. These nonprofits work with these families to repair their credit and find affordable financing for them. Investors can sell their restored foreclosed housing units to these families.

Another Detroit investor, David Butler, said he has moved away from speculative investments. What he does is to buy foreclosed homes from Urban Detroit Wholesaler and then offer these restored homes through lease-option agreements.

Lease-option agreements enable lower-income families to rent while accumulating amounts for a future purchase of the rental property. The families can complete the purchase when their incomes improve or when the mortgage market improves and they are able to obtain affordable home loans.

Butler said that he looks for ways to make costs minimal so that the final product would be affordable. He said he limits his purchase, repair and tax costs for one housing unit to only $45,000 and then sells it through a nonprofit with a profit margin of about 12 percent.

Altogether, the investors in the Detroit foreclosed house market have various ways to earn income from their investments. The best ways would be those that make profits and at the same time help low-income households finally own a home.

The S&P home price index showed declines in home prices in the 20 major cities monitored by the index, but the price declines were not as steep as declines in January.
Analysts said that the price declines were moderated by the rising number of first-time homebuyers and investors taking advantage of attractive prices of units in foreclosed home auctions and other foreclosures sources.

Home prices may be near bottoming out, analysts said, but price recovery may take a longer time as unemployment rates continue to rise and as housing units continue to be sold through foreclosed home auctions.

S&P executive David Blitzer said it will take a longer time to see a significant shift or trend in home prices.

The S&P/Case-Shiller 10-City Composite Home Price Index declined in March by 18.6 percent compared to March 2008, a slight drop from the 19.4-percent record decline. More than 50 percent of the metro areas tracked showed big declines compared to price levels in 2008.

Aside from San Francisco, the two other metro areas with the largest price declines were Phoenix, with a 36-percent decline, and Las Vegas, with a 31.2-percent decline.

The S&P index, issued every last Tuesday of the month, monitors actual price declines or gains for previously owned single-family houses. The Bay area drop of 2.2 percent in March compared to February represented the composite decline in the counties of Contra Costa, Alameda, San Francisco, Marin and San Mateo.

Patrick Newport, economist working for HIS Global Insight, said that home price levels are no longer dropping in a free fall, but they are still dropping. He expects home prices to decrease further by about 15 percent and to bottom out in 2010. But he admits that the number of housing units in foreclosed home auctions will still influence home price movements.

Based on San Diego-based research company MDA DataQuick, operators of foreclosed home auctions in California could expect additions in the next several months as mortgage default numbers increased in the first quarter.

Meanwhile, the California Building Industry Association lauded the state-issued tax credit incentives for buyers of newly-built homes. But some analysts said the tax incentives would only encourage new construction in an area where houses continue to be added to foreclosed home auctions.

The 40-level skyscraper called 1330 Avenue of the Americas, located on Sixth Avenue near the Museum of Modern Art in New York and in the nation’s wealthiest commercial district, was sold in April for only $100,000 to Canada’s biggest pension fund Cadim after building owner Harry Macklowe failed to make required payments on his $130 million mortgage loan.

Macklowe bought the skyscraper for $498 million in 2006, borrowing $130 million to help pay his equity. Two-thirds of the skyscraper is leased, with the Financial Times as its most prominent leaseholder.

In March, the building called John Hancock Tower, considered the tallest skyscraper in Boston, also followed the fate of foreclosed condos thrown into auctions. The tower was sold for only a little over $20 million in an auction.

Next month, the 33-level Equitable Building in the central business district of Atlanta will be auctioned just like foreclosed condos after its owners failed to lease half of the structure and defaulted on over $50 million.

Real property analysts said that developers are losing sources of cash as their tenants are leaving and units are unsold or abandoned and they are having a difficult time finding financing to help them weather the foreclosure crisis and the recession.

The analysts added that the rising number of loan delinquencies in the commercial real estate sector have created a glut in distressed commercial properties, including foreclosed condos, pushing down the prices of prominent skyscrapers.

But together with the low prices, buyers must agree to take on the large debts owed by the sellers to the banks and other lenders.

Matthew Haines, head of real estate service Propertyshark.com, said the flood of foreclosures in the commercial sector will drastically reduce the values of prime real estate.

According to commercial real estate research firm Real Capital Analytics, the total value of distressed commercial properties across the country has reached $86 billion in April, with distressed Manhattan properties valued at more than $6 billion.

Dan Fasulo, a top executive of Real Capital Analytics, said that other New York City skyscrapers in danger of following the fate of foreclosed condos are the Moinian Group building facing the New York Public Library, which was acquired at $160 million in 2007, and a Fifth Avenue office building which Moinian and Whitehall purchased in 2007.

It spread so fast that in Long Island alone, 6 percent of mortgage loans are 90 days delinquent. However, the report noted that the most devastating effect of Foreclosure is felt on black and Latino communities. Loan defaults occur as often as three times in minority households than in whites,

The report also showed that 85 percent of neighborhoods hardest hit by foreclosures have a big concentration of black and Latino homeowners. Most of their neighborhoods have default rate not less than twice the regional average.

In the city of New York, a black middle class household makes over $68,000 annually and are five times more likely to have subprime mortgages with high interest similar to whites who have lower incomes.

It used to be that black homeownership was rare because of zoning practices and discriminatory lending that discouraged blacks from purchasing properties. Today, black homeownership is rising and so is the sector’s foreclosure problem. Most black families lose their savings and damage their credit, their neighbors seeing a decline in their home values and renters being evicted.

Meanwhile, a study released by the Pew Research Center showed that foreclosure rate is highest in cities and towns with predominantly black and Latino residents. And the study cited the New York region as one of the areas badly affected by the foreclosure crisis.

Black and other minorities used to have difficulty in obtaining bank loans. However, for the past several years, minorities have become primary targets of banks marketing subprime loans.

According to the study, subprime mortgage loans accounted for 50 percent of all loans issued to black middle income homeowners in the New York region between 2005 and 2006. In fact, the National Association for the Advancement of Colored People filed a class action lawsuit against several banks for alleged unfair lending practices.

In his speech at the New York University, U.S. Housing and Urban Development Secretary Shaun Donovan said that about 33 percent of subprime mortgages issued in New York in 2007 went to homeowners who have credit scores that qualified them for conventional loans with prevailing rate. New York’s foreclose activity increased by 32 percent in the first quarter of 2009, according to data release by RealtyTrac.