May
28
Buyers who were brave enough to dive into the market for a bargain-priced house helped provide a modest boost to sales last month. Sales of inexpensive foreclosures and other distressed low-end properties have even sparked bidding wars in places like Las Vegas, Phoenix and Miami. But the market for high-end properties is at a virtual standstill, mainly because it remains difficult to get a mortgage for expensive homes.
“We’re looking at a dual market right now,” said Sherry Chris, chief executive of Better Homes and Gardens Real Estate.
The National Association of Realtors said Wednesday that home sales rose 2.9 percent to an annual rate of 4.68 million in April from a downwardly revised pace of 4.55 million in March. Sales were 4.6 percent below April last year, without adjusting for seasonal factors.
Compared with January, the lowest point in the housing recession, April sales were up nearly 4 percent. But compared with the peak in September 2005, sales are still down 35 percent.
And they have not kept pace with foreclosures, which continue to pile up at an alarming pace. Those properties helped drag down the median sales price to $170,200.Affordability brought Rogelio Gonzalez, 44, back into the Miami market. Gonzalez sold his five-bedroom home in 2004 for $485,000 and has been renting ever since. Now, prices have dropped to the point where he wants to buy a foreclosure in the $150,000 range, but he’s finding plenty of competition.
“Since I sold at the highest point, I was waiting until I could buy at the lowest point,” Gonzalez said. “I’ve been to open houses and I’ve run into eight, 10, 15 people looking for houses.”
May
27
The $4 Trillion Housing Headache
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House prices have returned to 2002 levels, but mortgage debt hasn’t deflated from its bubbly highs.
NEW YORK (Fortune) — House prices are taking a long ride in the wayback machine. Unfortunately, Americans’ housing-related debt isn’t going anywhere fast.
Prices in big U.S. cities posted their biggest-ever decline in the first quarter, according to the most recent S&P/Case-Shiller National Home Price index. After nearly three years of declines, house prices nationwide are back at 2002 levels — and still falling.
Yet as bad as that is for overburdened homeowners and their bankers, the mighty mountain of mortgage debt Americans have taken on is an even bigger concern – especially for those who believe an economic recovery is in sight.
Even though the amount of home mortgage debt outstanding declined in 2008 for the first time since the Federal Reserve started keeping track in 1945, mortgage debt levels remain distressingly high.
Home mortgage debt outstanding was 73% of gross domestic product last year, according to government data. That’s the third-highest reading on record, after the 75%-plus bubble years of 2006 and 2007.
Getting that ratio down to a more manageable number will mean more lean years ahead, as Americans further cut spending to rebuild their savings and banks struggle to boost their capital amid heavy loan losses.
How long this process might take is a key question for those trying to gauge the prospects for an economic recovery.
To get the mortgage debt-to-GDP ratio down to a more normal level such as the 46% average of the 1990s, Americans would have to cut their mortgage debt to $6.6 trillion from $10.5 trillion at the end of 2008. The last time the national mortgage debt count was below $7 trillion was 2003, according to Federal Reserve data.
We might call this mortgage overhang the $4 trillion elephant in the room for policymakers, who have spent the past year injecting liquidity into the economy – a course of action that will do little to solve the problem of too much debt.
Of course, these figures reflect only back-of-the-envelope estimates. Depending on the level of interest rates and how successful officials are in restoring the vigor of the lending markets, mortgage debt may or may not need to drop that far to relieve some of the stress on consumers.
Still, there is little doubt that above-average debt levels will impede the sort of consumer-driven economic rebound that has taken place after the last few recessions.
“I don’t think that there is any magic to the ’90s debt levels,” said Dean Baker, an economist at the Center for Economic and Policy Research in Washington. “The point is that with higher debt levels, people will be consuming less.”
Borrowers who are overstretched on their mortgages are less able to spend money on other goods and services, and more apt to fall behind on payments. That could mean more painful writedowns ahead for already troubled banks.
The scale of the mortgage overhang may help explain why, even after banks such as JPMorgan Chase (JPM, Fortune 500) and Citigroup (C, Fortune 500) received generally upbeat stress test results, some prominent skeptics of the housing bubble are warning that the financial system’s problems aren’t over.
“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” former Fed chief Alan Greenspan said last week in an interview with Bloomberg. He added that “until the price of homes flattens out we still have a very serious potential mortgage crisis.”
May
26
Homes: Almost 20% Cheaper
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S&P/Case-Shiller index reports huge decline of 19.1% for the first quarter.
NEW YORK (CNNMoney.com) — The home price slide accelerated during the first three months of 2009, according to a report issued Tuesday.
The S&P/Case-Shiller National Home Price index, a bellwether of real-estate market direction, plunged a record 19.1% during the quarter compared with the first three months of 2008. That followed an 18.2% drop last quarter.
The Case-Shiller 20-city index dropped 18.7% year-over-year, also a record. It fell 18.5% during the last three months of 2008. This index has plummeted 32.2% from its July 2006 peak and has fallen 32 straight months.
The national index covers almost all homes sold throughout the United States and is reported quarterly, while the 20-city index reports sales in 20 major metro areas and represents a cross section of the national market. The 20-city index comes out every month.
“Declines in residential real estate continued at a steady pace into March,” said David Blitzer, chairman of the Index Committee at Standard & Poor’s in a prepared statement. “All 20 metro areas are still showing negative annual rates of change in average home prices with nine of the metro areas having record annual declines.”
The ugly report was somewhat unexpected, according to Mike Larson, a real estate analyst for Weiss Research.
“The market was anticipating better results,” he said. “There had been some signs of increased sales in post-bubble markets.”
But that sales increase has not translated into higher prices. Bargain hunting – bottom fishing really – for foreclosures and other distressed properties has driven sales volume up while further depressing prices.
The foreclosure sales, which many appraisers used to ignore when they evaluated home prices because they represented outliers rather than typical sales, now have to be accounted for.
“These used to be anomalies,” said Larson. “Now, when sales are dominated by foreclosures, where they represent 50% or more of [transactions], they are the market.”
The market plague has burst far beyond its Sun Belt epicenter, as the latest month’s data reveals. In March, Minneapolis recorded the largest monthly price loss of any metro area in the 20-city index, losing 6.1% compared with February. That is the biggest single-month decline for a city in index history.
Sun-Belt cities still had the largest year-over-year declines in March, with Phoenix prices down 36%, Las Vegas off 31.2% and San Francisco dropping 30.1%.
Two cities have now have fallen more than 50% from their peak prices: Phoenix is down 53% since June 2006 and Las Vegas is off 50.4% from its August 2006 high. Dallas prices suffered the smallest loss from peak, just 11.1% since June 2007.
May
25
As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures.
In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans — those extended to home buyers with troubled credit — to the far more numerous prime loans issued to those with decent financial histories.
With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.
“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”
Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher.
“We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.”
Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis.
Economy.com expects that 60 percent of the mortgage defaults this year will be set off primarily by unemployment, up from 29 percent last year.
Robert and Kay Richards live in the center of this trend. In 2006, they took a 30-year, fixed-rate mortgage — a prime loan — borrowing $172,000 to buy a prefabricated house. They erected the building on land they owned in the northern Minnesota town of Babbitt, clearing the terrain of pine trees with their own hands.
Mr. Richards worked as a truck driver, hauling timber from a nearby mill. His wife oversaw the books. Together, they brought in about $70,000 a year — enough to make their monthly mortgage payments of $1,300 while raising their two boys, now 11 and 16.
But their truck driving business collapsed last year when the mill closed. Mr. Richards has since worked occasional stints for local trucking companies. His wife has failed to find clerical work.
“Every month that goes by, you get a little further behind,” Mr. Richards said.
Last June, they missed their first payment, and they have since slipped $10,000 into arrears. They are trying to persuade their bank to cut their payments ahead of a foreclosure sale.
From November to February, the number of prime mortgages that were delinquent at least 90 days, were in foreclosure or had deteriorated to the point that the lender took possession of the home increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic, a real estate research group. Those loans totaled more than $224 billion.
During the same period, subprime mortgages in those three categories increased by fewer than 14,000, reaching 1.65 million. The number of similarly troubled Alt-A loans — those given to people with slightly tainted credit — rose 159,000, to 836,000.
Over all, more than four million loans worth $717 billion were in the three distressed categories in February, a jump of more than 60 percent in dollar terms compared with a year earlier.
Under a program announced in February by the Obama administration, the government is to spend $75 billion on incentives for mortgage servicing companies that reduce payments for troubled homeowners. The Treasury Department says the program will spare as many as four million homeowners from foreclosure.
But three months after the program was announced, a Treasury spokeswoman, Jenni Engebretsen, estimated the number of loans that have been modified at “more than 10,000 but fewer than 55,000.”
In the first two months of the year alone, another 313,000 mortgages landed in foreclosure or became delinquent at least 90 days, according to First American CoreLogic.
“I don’t think there’s any chance of government measures making more than a small dent,” said Alan Ruskin, chief international strategist at RBS Greenwich Capital.
Last year, foreclosures expanded sharply as the economy shed an average of 256,000 jobs each month. Since then, the job market has deteriorated further, with an average of 665,000 jobs vanishing each month.
Each foreclosure costs lenders $50,000, according to data cited in a 2006 study by the Federal Reserve Bank of Chicago, so an additional two million foreclosures could mean $100 billion in lender losses.
The government’s recent stress tests of banks concluded that the nation’s 19 largest could be forced to write off as much as a fresh $600 billion by the end of 2010, bringing their total losses to $1 trillion. The Federal Reserve concluded that these banks needed to raise another $75 billion.
Many economists pronounce that assessment reasonable, while cautioning that it could become inadequate if foreclosures continue to accelerate.
“The margin for error is not that big,” said Brian Bethune, chief United States financial economist for HIS Global Insight. “It’s kind of like, ‘Let’s keep our fingers crossed that we’ve seen the worst.’ ”
Among prime borrowers, foreclosure rates have been growing fastest in states with particularly high unemployment. In California, for example, the unemployment rate rose to 11.2 percent from 6.4 percent for the year that ended in March, while the foreclosure rate for prime mortgages nearly tripled, reaching 1.81 percent.
Even states seemingly removed from the real estate bubble are seeing foreclosures accelerate as the recession grinds on.
In Minnesota, three of every five people seeking foreclosure counseling now have a prime loan, according to the nonprofit Minnesota Home Ownership Center.
In Woodbury, Minn., Rick and Christine Sellman are struggling to persuade their bank to reduce their $2,200 monthly mortgage on their five-bedroom home.
Mr. Sellman, a construction worker, found some work putting in asphalt driveways last summer, but he is now receiving unemployment. Ms. Sellman’s scrapbooking businesses shut down last summer. Since then, they have slipped $19,000 behind on their mortgage.
“We were always up on our house payments,” Ms. Sellman said. “You work so hard to keep what you have, and because of circumstances beyond our control now, there’s nothing we can do about it.”
May
22
President Obama signed into law the Helping Families Save Their Homes Act, and the Fraud Enforcement and Recovery Act (FERA), on May 20. The Helping Families Save Their Homes Act is aimed at helping homeowners by making mortgages more affordable and preventing “avoidable” foreclosures.
The Fraud Enforcement and Recovery Act gives the federal government more tools to crack down on the kind of fraud that put thousands of hardworking families at risk of losing their homes despite doing everything right to live within their means. It expands the Department of Justice’s ability to prosecute at virtually every step of the process from predatory lending on Main Street to the manipulation on Wall Street. It also creates a bipartisan Financial Crisis Inquiry Commission to investigate the financial practices that brought us to this point, so that we make sure it never happens again.
May
21
The average 30-year fixed mortgage rate jumped to 5.24%, up from 5.21% the previous week, according to Bankrate.com’s weekly national survey.
Even with the increase, rates remain at historic lows, the report said. Rates have plunged since late October, when 30-year fixed home mortgage rates averaged 6.77%.
Home mortgage rates were mixed this week, with the average 30-year ticking higher, according to a report released Thursday.
“The economy remains very weak, and those concerns are balancing out the worries investors have about the amount of government debt issuance,” the report said, because mortgage rates are closely tied to long-term Treasurys.
“The prospect of ongoing purchases of government and mortgage-backed debt, as well as the possibility that the Fed could increase the pace of those purchases should conditions warrant, will help keep a lid on rates for the balance of 2009,” the report added.
Six months ago, the average 30-year fixed mortgage rate was 6.33%, meaning a $200,000 loan would have carried a monthly payment of $1,241.86.
With the average rate now at 5.24%, the monthly payment for the same size loan would be $1,103.17, meaning homeowners who refinance now would save $138 per month.
Other rates: The average 15-year fixed rate mortgage fell to 4.74% from 4.76% the week prior.
The average jumbo 30-year fixed rate fell to 6.37%.
Adjustable rate mortgages were also mixed, the report said, with the average 1-year ARM falling to 4.94% while the 5-year ARM increased to 4.96%.
May
20
Mortgage Loan Applications increased 2.3% in the week ending May 15, according to the Mortgage Bankers Association on Wednesday morning.
WASHINGTON, D.C. (May 20, 2009) — The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending May 15, 2009. The Market Composite Index, a measure of mortgage loan application volume, was 915.9, an increase of 2.3 percent on a seasonally adjusted basis from 895.6 one week earlier. On an unadjusted basis, the Index increased 2.0 percent compared with the previous week and increased 42.0 percent compared with the same week one year earlier.
The Refinance Index increased 4.5 percent to 4794.4 from 4588.6 the previous week and the seasonally adjusted Purchase Index decreased 4.4 percent to 254.0 from 265.7 one week earlier.
The four week moving average for the seasonally adjusted Market Index is down 6.4 percent. The four week moving average is up 0.1 percent for the seasonally adjusted Purchase Index, while this average is down 8.2 percent for the Refinance Index.
The refinance share of mortgage activity increased to 73.6 percent of total applications from 71.9 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 2.4 percent from 2.3 percent of total applications from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.69 percent from 4.76 percent, with points decreasing to 1.13 from 1.18 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.44 percent from 4.50 percent, with points decreasing to 1.01 from 1.08 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for one-year ARMs decreased to 6.38 percent from 6.41 percent, with points decreasing to 0.10 from 0.11 (including the origination fee) for 80 percent LTV loans.
**SPECIAL NOTES**
The survey covers approximately 50 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.
May
19
New Home Building Hits Record Low
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Government report shows surprising sharp drop in housing starts in April. Building permits also plummet to record low.
NEW YORK (CNNMoney.com) — Initial construction of U.S. homes sank to a record low in April, according to a government report released Tuesday, as increased unemployment and skyrocketing foreclosures of existing homes deterred new builders.
Housing starts fell 12.8% to a seasonally adjusted annual rate of 458,000, down 12.8% from a revised 525,000 in March, according to the Commerce Department.
The reading is the lowest level since the government began keeping records in 1959. The second lowest reading came in January, when the rate of housing starts was 488,000.
Economists were expecting housing starts to come in at 520,000, according to a consensus estimate compiled by Briefing.com. Compared to the same month last year, privately owned housing starts were 54.2% below the revised April 2008 rate of 1,001,000.
The silver lining in an otherwise grim report was that new construction of single family homes, considered the core of the housing market, rose 2.8% in April over the prior month to an annual rate of 368,000.
Meanwhile, new construction of multi-family homes with 5 units or more sank to an annual rate of 78,000, down 42% from a revised 135,000 in March.
Applications for building permits, an indicator of future construction activity, fell 3.3% to a seasonally adjusted annual rate of 494,000 in April. The measure for building permits was also a record low, going back to January 1960, the furthest back the government has records.
Economists were expecting permits to come in at 530,000 in April, according to the Briefing.com consensus.
Similar to housing starts, the majority of the drop off in building permits was centered in multi-family homes. Building permits for single family homes rose 3.6% in April to a seasonally adjusted rate of 373,000. Building permits for multi-family units with five or more units fell 21% to an annualized rate of 103,000.
May
17
May
13
Refinance Activity Slows, Purchase Applications Steady in Latest MBA Weekly Survey
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Refinancing demand has trended down from its mid-April peak, while purchase mortgage demand has increased modestly in recent weeks, even after accounting for normal seasonal increases this time of the year.
WASHINGTON, D.C. (May 13, 2009) — The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending May 8, 2009. The Market Composite Index, a measure of mortgage loan application volume, was 895.6, a decrease of 8.6 percent on a seasonally adjusted basis from 979.7 one week earlier. On an unadjusted basis, the Index decreased 8.1 percent compared with the previous week and increased 28.4 percent compared with the same week one year earlier.
Refinancing demand has trended down from its mid-April peak, while purchase mortgage demand has increased modestly in recent weeks, even after accounting for normal seasonal increases this time of the year. The Refinance Index decreased 11.2 percent to 4588.6 from 5169.3 the previous week and the seasonally adjusted Purchase Index increased 0.5 percent to 265.7 from 264.3 one week earlier.
The four week moving average for the seasonally adjusted Market Index is down 5.1 percent. The four week moving average is up 0.2 percent for the seasonally adjusted Purchase Index, while this average is down 6.5 percent for the Refinance Index.
The refinance share of mortgage activity decreased to 71.9 percent of total applications from 74.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 2.3 percent from 2.1 percent of total applications from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.76 percent from 4.79 percent, with points increasing to 1.18 from 1.17 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.50 percent from 4.57 percent, with points increasing to 1.08 from 1.07 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for one-year ARMs increased to 6.41 percent from 6.36 percent, with points decreasing to 0.11 from 0.12 (including the origination fee) for 80 percent LTV loans.
**SPECIAL NOTES**
The survey covers approximately 50 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.