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HomeReport Points to Double Dip in Housing
Posted by Larry Doyle on July 14th, 2010 2:01 PM |
While economists and analysts are aggressively debating whether our nation’s overall economy is poised for a double dip, one firm is not bashful in highlighting that our housing market specifically is beginning to slide down the slippery slope of a double dip. Thank you to our friends at 12th Street Capital for bringing this report to our attention.
Housing Wire, a leading financial website providing news on the mortgage market, highlights the following report, Economist Reports the Housing Market Double Dip Is Beginning:
Toronto-based Capital Economics, an independent macroeconomic research firm, said Tuesday that a double dip in the United States housing market is now materializing. (more…)
Foreclosures Cast Increasingly Long ‘Shadow Inventory’
Posted by Larry Doyle on December 17th, 2009 5:52 PM |
I continue to reiterate that as long as mortgage delinquencies increase, we will experience a subsequent increase in foreclosures, in turn excessive housing supply, and a weak housing market.
This dynamic is not about to change anytime soon. We saw evidence of this today as one of the largest homebuilders, Hovnanian Enterprises, reported extremely weak earnings. The Wall Street Journal covers the Hovnanian story specifically and housing in general in this video clip.
Specifically on the foreclosure front, Bloomberg reports Shadow Inventory of U.S. Homes Climbs:
The number of homes that may be in the pipeline for a sale because of foreclosure and delinquency climbed about 55 percent to 1.7 million at the end of September, according to estimates by First American CoreLogic.
The “shadow inventory” rose from 1.1 million a year earlier. Such properties include those taken over by banks and mortgage companies and those where the loans are at least 90 days delinquent, the Santa Ana, California-based research firm said in a report today.
How long might it take for the excess housing supply and foreclosure problem to abate? Bloomberg offers:
the pending supply reveals there is still quite a bit of inventory that will impact the housing market for the next few years,” First American said.
Batten down the hatches.
LD
Housing’s Catch-22
Posted by Larry Doyle on October 12th, 2009 9:28 AM |
What is the optimal policy to deal with our ongoing housing crisis? Should Uncle Sam continue to throw more money at mortgage modifications? Should banks be compelled to implement a principal reduction program? Should Uncle Sam step in and subsidize the principal writedown involved in a principal reduction program? Would that be the mother of all socialized housing programs? Let’s navigate and address these topics knowing full well that none of these questions have any easy answers.
I witness further evidence again this morning of a continued increase in home foreclosures amidst the prime mortgage space. The Wall Street Journal highlights this ongoing development in writing, Foreclosures Grow in Housing Market’s Top Tiers:
The report shows that foreclosures, after declining earlier this year, began to accelerate in the late spring and that more expensive homes have more recently accounted for a growing share of all foreclosures. “The slope of that curve in recent months is much sharper than it was recently,” said Stan Humphries, chief economist for Zillow. Rising foreclosures among more-expensive homes could create added pressure for a housing market that has shown signs of stabilizing in recent months as sales of lower-priced homes pick up.
Foreclosures are rising in more expensive markets as home values in those areas fall, leaving more homeowners with mortgages that exceed the value of their properties. Prime loans accounted for 58% of foreclosure starts in the second quarter, up from 44% last year, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosure starts, down from one-half last year.
The prime category includes so-called exotic mortgages that were increasingly used to buy more expensive homes, including interest-only mortgages that allowed borrowers to defer principal payments during an initial period. Borrowers often aren’t able to refinance out of these products because the drop in home values has left them with little equity in their homes.
Default rates are particularly high and expected to rise on option adjustable-rate mortgages, which allow borrowers to make minimum payments that may not cover the interest due. Monthly payments can increase to sharply higher levels after five years or when the outstanding balance reaches a certain level. A study by Fitch Ratings found that 46% of option ARMs were 30 days past due last month, even though just 12% of such loans have reset to higher monthly payments.
Zillow estimated that nearly one in four homes with mortgages was worth less than the value of the property at the end of June. Mr. Humphries said he didn’t expect to see foreclosure volumes level off until later in 2010. (LD’s emphasis)
![[Moving Up chart]](http://s.wsj.net/public/resources/images/NA-BB100_TOPTIE_NS_20091011211658.gif)
With the waves of foreclosures not abating, Uncle Sam’s plans to merely modify mortgages is proving largely insignificant in supporting the overall housing market. Homeowners are clearly showing a strong inclination to default on their mortgages when they are ‘underwater.’ Thus, how does Uncle Sam help people get ‘above water?’ Compel banks to reduce the principal balance of the mortgage. Will they do it? Not quickly, as a principal reduction would imply an immediate hit to the banks’ capital. (more…)
Economic Update: Housing and Retail Sales
Posted by Larry Doyle on May 13th, 2009 8:39 AM |
Ultimately, all economic roads lead back to the housing market. The breakdown in the integrity of housing finance led us into this economic mess and any self-respecting economist (or financial commentator) will tell you that a healthy housing market will lead us out. Let’s check the patient.
The Fed has supported housing by effectively “overpaying” for refinancings. Mortgage rates relative to rates on U.S. government debt are at 17 year narrows. This development is great for homeowners who can and have refinanced. However, the pool of eligible homeowners is finite and seems to have run its course for now as recent data indicates that refinancing filings have declined while purchase activity has been unchanged. This data is reflected in the U.S. MBA Mortgage Applications Index Fell 8.6% Last Week, as reported by Bloomberg.
How about new supply of homes coming onto the market? Well, certainly home building has come to a virtual standstill with over a year’s worth of homes currently on the market. As new housing starts occur this supply can be gradually absorbed. Thus, we once again are back to the concept of needing time for the patient to heal. However, are we subject to another bout of housing sickness to hit our economy? I believe we are. Why? Two reasons:
1. government programs forestalled but did not eliminate a number of “sick” mortgages. These mortgages would likely have defaulted with banks forcing foreclosures a few months ago.
2. a large supply of adjustable rate mortgages will soon reset to a considerably higher rate leading to payment problems for homeowners and likely foreclsoures. Data indicating increased rates of delinquency (late payments) clearly points to increased foreclosures.
In fact, foreclosure filings just hit a record level of 342k as reported by RealtyTrac which monitors this data nationwide. Foreclosure activity also seems to be spreading from California, Florida, Nevada, and Arizona to other parts of the country. In fact, Idaho has recently had a surge in foreclosure activity as the unemployment rate in and around Boise has spiked.
What about home prices? The declines in home prices have certainly sparked renewed interest in prospective homebuyers. Will they enter the market at this stage? Data indicates prospective buyers continue to be patient as Bloomberg reports, Home Prices In U.S. Drop Most On Record In Quarter.
When may consumers feel confident enough to enter into the market and purchase a home? The largest factor in that decision is consumer’s confidence in their employment situation. In my opinion, with the rate of unemployment nationwide likely to hit double digits by year end, housing will remain under pressure.
On a separate economic note, the retail sales figures for April were just released and declined .4%, and excluding auto sales, declined by .5%. The market expected April retail sales to be unchanged. This report is a clear indication the economy remains on life support. Not surprising to me, March retail sales were revised even lower from a decline of 1.1% to a decline of 1.3%.
With all due respect to credible journalists, analysts, and financial commentators, I personally do not see enough green shoots in the midst of reviewing the entire economic landscape.
The equity markets are moving sharply lower on this news.
LD
P.S. Sense on Cents welcomes feedback. Let us know what you are seeing in your local economies.
