News 
Market Data 
Discover
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Delinquencies May Be Down, But 4.3 Million Homes Are 90 Days Delinquent Or In Foreclosure
Calculated Risk.com
Dec. 31, 2010
LPS Applied Analytics released their November Mortgage Performance data. According to LPS:
* The average number of days delinquent for loans in foreclosure is a record 499 days
* Over 4.3 million loans are 90 days or more delinquent or in foreclosure
* Delinquency rates are down across all products as more loans entered foreclosure and new delinquencies declined.
* Foreclosure inventory increases are being driven both by elevated levels of foreclosure starts as well as a very limited amount of foreclosure sale activity.
LPS Data November
Image: Calculated Risk
This graph provided by LPS Applied Analytics shows the percent delinquent, percent in foreclosure, and total non-current mortgages.
The percent in the foreclosure process is trending up because of the foreclosure moratoriums.
According to LPS, 9.02% of mortgages are delinquent (down from 9.29% in October), and another 4.08% are in the foreclosure process (up from 3.92% in October) for a total of 13.10%. It breaks down as:
* 2.61 million loans less than 90 days delinquent.
* 2.16 million loans 90+ days delinquent.
* 2.16 million loans in foreclosure process.
For a total of 6.92 million loans delinquent or in foreclosure.
Note: I've seen some people include these 7 million delinquent loans as "shadow inventory". This is not correct because 1) some of these loans will cure, and 2) some of these homes are already listed for sale (so they are included in the visible inventory).
Two key numbers to watch in 2011 are:
* New delinquencies. With falling house prices, delinquencies could start to increase again.
* Foreclosures. With the end of the foreclosure moratoriums, foreclosure sales should increase - and the number of homes in the foreclosure process should decline. However REOs (Real Estate Owned) will increase unless the homes are sold.
http://www.businessinsider.com/delinquencies-may-be-down-2010-12#ixzz1A5mQMzrP
Housing Pain Pits Neighbor Against Neighbor in Florida
Dan Fitzpatrick
WallStreetJournal.com
Dec 31, 2010
Lauderhill, Fla.
Few things agitate Sid Schulman, who often shoots the breeze with other retirees and flirts with women friends at their condominium complex here.
But it galls him when neighbors stop paying their mortgages and maintenance fees, and leave the cost of community upkeep to others. "I am paying for these guys," said the 75-year-old sitting poolside, a diamond stud in his left ear.
Last year, he took matters into his own hands. Near the mailbox of each condo building he posted a list of residents delinquent on their maintenance fees, with the message "Pay up or move out" and the same in Spanish, Pague O Mudese. He also tried, unsuccessfully, to get the cable company to cut off service to nonpayers.
The public shaming angered some of those named. "You know where I live—come and tell me that to me face," said Lorena Garcia, 36, who lost her job and ability to pay.
The storm that struck the housing market has strewn many casualties—lenders, builders, real-estate agents, mortgage-bond investors.
Add to the list the comity of certain communities where residents live close together, some of them paying their mortgages and homeowner-association fees, and some not.
As banks slow foreclosures amid concerns about sloppy record keeping, some delinquent homeowners get to stay put even longer without paying. The delays are further inflaming some neighbors who consider that unfair.
The condo complex Mr. Schulman and Ms. Garcia share, called International Village, has installed a fingerprint-scanning device at its central clubhouse, to keep residents who are more than 90 days behind on their maintenance fees from swimming in the pools, playing on the racquetball courts and using the game room, where canasta and mah-jongg competitions are held.
In a particularly stark example of housing tensions found in many places to varying degrees, the International Village homeowners association responded to the banks' slowdown in foreclosures with an aggressive step: It began its own foreclosure process. Florida law permits that under certain circumstances. A nonprofit homeowners association can take temporary title of residential units from people who aren't paying monthly fees they agreed to pay.
The scene of these frictions is a 28-acre community in southeastern Florida's Broward County that spreads out on a peninsula, surrounded by a canal, a lake and an eight-foot stone wall. Oak trees shade the gated entrance to International Village, at the center of which is the Bavarian clubhouse, built with a 24-foot ceiling and stone fireplace. Three-story residential buildings, each with about 76 condos, are grouped according to their architectural roots, bearing names like Yorkshire and Bordeaux. In the morning, residents gather at the pool for "aquacise."
Early marketing brochures for the complex, built in the 1970s, lured well-off retirees and snowbirds by promising "seventh heaven for people who insist on living first class."
Later, easy lending during the housing boom put the condos within reach of lower-income buyers. According to Michael Schenkel, a real-estate professional who owns three units in the complex and manages others, average prices for its one-bedroom condos peaked at about $120,000 in 2006.
Then Florida's sagging economy started costing residents their livelihoods and ability to pay. Ms. Garcia bought a two-bedroom in International Village in 2005 for $190,000, but she lost her job. With her cash dwindling as she went through a divorce, she says, she stopped making her $1,500 monthly mortgage payments in 2008.
Special assessments pushed up the monthly maintenance fee she owed to the homeowners association. Ms. Garcia didn't pay that, either.
Now, owners of about 128 of the 832 units at International Village, just over 15%, are 90 days or more behind on their fees. Banks won't lend on residences in the complex until the percentage of fee delinquents drops below 15, according to Mr. Schenkel.
The problems feed on themselves: "Banks will not write mortgages in communities with high delinquencies," he said, "and property values will not increase until we get financing from major banks." He says the value of one-bedroom units has tumbled as much as 75%.
With the homeowners association unable to collect maintenance from so many units, the complex is showing the wear: torn screen doors, roofs in need of repair, carpets getting shabby. Earlier this year, the total of delinquent fees passed $1 million, equal to a third of the association's annual budget.
"The foreclosure process takes over two years," Mr. Schenkel said. "You can get away with living for free for two years, not paying mortgage and maintenance."
Larry Kornblith takes a dim view of that. "The ones who are delinquent are parasites," the 82-year-old bluntly declared, relaxing near the pool in a Fila shirt and white Nike tennis shoes. "If you can't afford it, get out."
There are divisions, too, among the people current on their payments, because they don't all agree on how the homeowners association should deal with those who aren't.
Doug Meyers, a resident who owns more than a dozen units and is up to date on his payments, voted on the association's board against installing the fingerprint scanner. He was skeptical it would work. He says some neighbors accused him of protecting residents who were delinquent.
"They make it personal. It bothers me, personally. It hurts me," said Mr. Meyers, 54, adding that he now tries to avoid some fellow residents.
Others wanted the association to get tougher. Among these was Michele Tersigni, a 53-year-old resident who works as an administrator at a doctor's office. She won a seat on the homeowners-association board early this year and in May became its president.
She quickly made changes, such as hiring security guards directly instead of through a service, to save money. And, responding to residents' complaints about people staying on in homes they were no longer paying on, she hired new lawyers who would be more aggressive.
After foreclosure problems such as "robo-signing" of documents erupted this fall, new applications for court approval of foreclosures in Broward County—which totaled 1,693 in September—tumbled to 224 in November and 137 in December through the 23rd of the month, according to Legalprise Inc., a data firm. Countywide, foreclosure applications on more than 38,000 residential units are awaiting a court's approval to proceed.
The homeowners association countered the delays. Acting under the Florida law, it took temporary title to two condos in October and another in November. It plans four to five more in January. The move enables the association to rent out the units and get them back to producing income.
If lenders eventually foreclose on the condos, the association can start proceedings against the lenders to obtain some past-due maintenance fees. Lenders that take over units are liable for maintenance fees as long as they own them.
Ms. Tersigni says something had to be done because maintenance was slipping. "I just want to give people who are paying the rights they deserve," she said.
The village is abuzz, she added, with stories of owners not paying even though they could afford to. Ms. Tersigni's predecessor as board president, Scott Samuels—who admits to not being aggressive enough in dealing with the delinquency problem—said some owners were letting their units go into foreclosure while renting them out to tenants not registered with the association.
"Owners are collecting money, and we are not getting our money," he said.
Ms. Tersigni said some owners "make the money—they just refuse to pay because they can get away with it. They will put money aside and buy something else."
Ms. Garcia says that was never true in her case. "Every house has its own problems. You can't judge people," Ms. Garcia said. The homeowners association, to her mind, is "taking advantage of people who really have problems."
In August, about two years after she stopped paying her mortgage, Ms. Garcia lost her apartment to a foreclosure by the lender, although she continued to live in International Village in someone else's unit.
On the day she and her husband were vacating their own apartment, two female neighbors openly celebrated while making their way to the pool. "Thank God they are moving out," said one, a blue ball cap pulled over her eyes.
The other, wearing an olive-green dress and sunglasses, said she couldn't understand why Ms. Garcia had been allowed to stay so long. "It takes so long to get them out," she said, and then listed others she said were behind on payments.
Some residents are troubled by the tensions, which are reflected in a sign put up near the clubhouse: "The prior leadership did not take a pro-active position with delinquents who failed to pay. We must not let this happen again."
"I feel like we are being singled out, like we're not part of the community," said one young resident, who added that he wasn't going to provide a fingerprint for access to the clubhouse because he knew he would be denied. "What do they want next, my DNA?"
Franck Noel, 32, said the homeowners association moved to foreclose on his unit even after he paid $1,753.79 in late fees. When he brought his situation up at a board meeting it got unruly. Someone called the police, who Mr. Noel says stayed out by the gate and didn't enter the clubhouse.
The police department says it was informed there was hostility inside the clubhouse relating to a foreclosure and there was a request that the subject be removed. But no police report was filed on the incident.
Mr. Noel said a resident dragged him out by his collar. Ms. Tersigni said he left without being forcibly removed.
She acknowledged that the move against his residential unit was an error and said the association eventually recognized this and dealt with it.
Mr. Noel, noting that some board members own multiple units, alleged that the association was eager to foreclose because some on the board "want to buy these units cheap and own them for themselves." Mr. Meyers, a board member who owns a number of units, dismissed any talk of his manipulating the system as "lies" and "slander."
Said Mr. Noel: "I don't trust anybody here."
http://online.wsj.com/article/SB10001424052748703326204575616340542578852.html?mod=WSJ_hp_mostpop_read
Real Estate Spin Continues by Mainstream Media
Greg Hunter
USA WatchDog.com
27 December 2010
The mainstream media was at it again last week–putting a positive spin on the awful real estate market. The USA Today headline on top of the “Money” section last Thursday read “Optimism for home sales adds up.” The story said, “The trend is starting to move in the right direction,” says Diane Swonk, chief economist at financial services firm Mesirow Financial. A string of new housing data is building optimism. Existing home sales in November rose 5.6% from October to a seasonally adjusted annual rate of 4.68 million, the National Association of Realtors reported Wednesday. Demand has steadily improved since bottoming in July following the end of the buyers’ tax credit.” (Click here for the complete USA Today story.)
The headline and the beginning of the story would lead you to believe everything is turning around and the worst of the housing meltdown is behind us. The article failed to include the true context of that whopping 5.6% rise in sales. Here’s how Marketwatch.com reported the exact same story, “Sales of existing homes rose 5.6% to a seasonally-adjusted annualized rate of 4.68 million, the National Association of Realtors said Wednesday . . . Even so, sales were still 27.9% below prior-year levels and below the 5.26 million in June when a homebuyer tax credit existed.” (Click here to read the complete Marketwatch.com story.) Yes, the spin from USA Today left out the fact home sales were still nearly 28% below last year’s levels.
This is despite the homebuyer tax credit program that doled out up to $8,000 for buying a home. USA Today buried the real headline and that was this little morsel, “Home prices, down almost 30% from their 2006 peak, will fall 5% to 7% more before potentially rebounding later in the year, says Patrick Newport, IHS Global Insight economist. Banks will repossess 1 million U.S. homes next year, on top of 1 million this year, says market researcher RealtyTrac.” How are back to back years with millions of “home repossessions” and declining prices of another “5% to 7%” not the lead in a story? What does “Optimism for home sales adds up,” mean? Optimism adds up to another million foreclosures and another price decline? This is just another attempt to put lipstick on a pig of a housing market.
The best road map of where housing is going in the next couple of years can be foretold by looking at this mortgage reset chart from Credit Suisse. (see below) Look at the tsunami of mortgage resets for all sorts of Adjustable Rate Mortgages that don’t fall off until the end of 2012. I know I have used this chart in the past, but when it comes to predicting the real estate market, this is the proverbial picture that is worth a thousand words!
In the latest report from Shadowstats.com, economist John Williams says the “housing crisis appears to be intensifying.” Here’s what Williams says the so-called “recovery” looks like on a graph when it comes to housing start data. Do you see any recovery there? Is that what a “move in the right direction” looks like?
The NAR and USA Today omitted an important fact about those 4.68 million sales of existing homes. Williams says, “Foreclosure activity remained a major distorting factor for home sales, with “distressed” activity accounting for an estimated 33% of existing sales in the NAR’s November reporting. . .”
That means 1/3 (1.56 million homes) of that 4.68 million total were foreclosure sales. There’s not much “optimism” for the million and a half families who lost their homes this year. There is just no good way to spin that American tragedy.
http://usawatchdog.com/real-estate-spin-continues-by-mainstream-media/
Housing Returns: Similarity to S&L Crisis Is Eerie
Tom Lindmark
December 29, 2010
A couple of days ago I put up a post that reviewed returns on homes for the past decade. Here’s a bit more recent history via a great graph from CalculatedRisk.com.
Pretty awful isn’t it? Basically, we’re going nowhere which shouldn’t be at all surprising. The similarity to the S&L real estate debacle is eerie. Then we spent four or five years playing around with all sorts of schemes to avoid the pain of realizing value and clearing the market. The buzzword then was “regulatory goodwill.” Today we talk about modifications and foreclosure moratoriums as we seek to evade the inevitable.
Take the losses and move the inventory and this chart will start to look different. Keep on trying to deny reality and housing is not going to start to recover. Do what you want to ease the pain for those who will lose their homes, but finally admit that lose them they must for recovery to commence.
http://seekingalpha.com/article/243925-housing-returns-similarity-to-s-l-crisis-is-eerie
Case-Shiller: Welcome to the Housing Double Dip
The Fundamental Analyst
December 29, 2010
As I noted back in August, I thought we would ultimately tip back into year over year declines in the Case-Shiller Home Price Indices, the latest report from S&P for data through October shows that is the case. On a non-seasonally adjusted basis, US home prices are down -0.8% from a year ago for the 20 city composite index. This represents the third straight month of declines and more importantly the rate of decline is increasing with the 20 city composite index dropping -1.3% in the October report, the biggest month on month decline since March 2009. The latest report, which is an average of August, September and October showed price declines for all 20 MSA’s.
In terms of levels, the 20 city index is now just 4.4% above the low set in April 2009. I don’t think it’s outrageous to suggest that we will see new lows early in 2011. 6 cities, Miami, Tampa, Atlanta, Charlotte, Portland and Seattle have already hit new lows since prices started falling in 2006/07. Talk of a housing double-dip is no longer necessary, we are in the midst of it. With Realty Trac predicting another record year for foreclosures in 2011 it’s difficult to envision anything but a difficult year for the US residential housing market.
http://seekingalpha.com/article/243954-case-shiller-welcome-to-the-housing-double-dip
2011 Predictions: Not the Time to Buy a House
The Housing Time Bomb
December 31, 2010
I finished up my predictions for 2011 during Thursday's Wall St snoozefest. As always, these are just my opinions and they shouldn't be used as investment advice.
Here we go:
1. The US dollar will strengthen in the first half of the year thanks to the European debt crisis. This trend will then reverse midyear and the USD will close down 10% from 2010 levels by the end of the year.
2. Treasuries will trade in a large range early in the year before selling off later on as the Fed turns off QE2 and/or the the bond vigilantes finally get their way. The 10 year bond will end the year at 4.5%.
3. Gold will trade violently between $1000-$2000 as it reacts to inflationary and deflationary panics based on various central banking decisions that are made around the world in 2011. Gold will end the year at $1700 due to increasing demand as fears around fiat currencies continue to rise.
4. China will encounter severe inflationary issues and will raise rates substantially in order to avoid social unrest and political turmoil. I think these efforts will fail and I wouldn't be surprised to see another " Tiananmen Square" type event by the end of the year.
5. Two of the PIIGS will default and leave the Euro in an attempt to get their arms around their solvency issues. Just so we're clear here: A debt restructuring/haircut will be counted as a default.
6. Stocks: Volatility will rule the day. Equities will rise early in the year as a result of a massive European capital flight to safety. This will also help the treasury market. The S&P will then sell off hard as bond yields begin rising and the markets slowly realizes that the "economic recovery" was the recovery that never came. The S&P will close down 20% from today's levels by the end of 2011.
7. Oil and other commodities will see violent volatility as inflation/currency fears battle huge drop offs in demand as the economy slows down dramatically. This will trigger a giant tug of war on price. Oil will trade in a range of $50-150 dollars during the year and will end the year at $70.
8. 1-2 states will default and will need restructure their debts.
9. President Obama's approval rating will fall below 30% as the economy fails to recover and continues it's downward spiral.
10. One TBTF institution will need to be bailed out for a second time. If Congress refuses to approve the bailout then 1 TBTF bank will fail (unlikely scenario).
11. Housing prices will steadily continue dropping throughout the year and will end up down 20% down from today's levels. I will end my last prediction with an important graph.
One only needs to look at the chart below to see where home prices are eventually heading. In case you are blind or can't read let me help you: Home prices will eventually head back to their 2000 pre bubble levels. This may take several years but all bubbles revert to the mean. Just look at where tulip prices are today versus the 1630's!
Anyone involved in housing needs to eat a huge piece of "Reality Pie" and realize that prices are never coming back. Rates are going to rise and things are only going to get worse.
The Fed has basically thrown everything but the kitchen sink at housing for 3 years and it has done NOTHING to stop the price declines. Take this chart, hold it as a reminder in your back pocket and make sure you look at it if you ever have any urge to buy a house.
Now is definately NOT the time to buy:
http://static.seekingalpha.com/uploads/2010/12/31/saupload_case_shillerdec28_10.jpg
Why Housing Is Due to Revert to Mean Price
Cullen Roche
December 31, 2010
I’ve long predicted that housing prices would revert to their mean. The popular chart that depicts this long-term mean is the Case Shiller inflation adjusted housing chart (see first or second chart below).
The logic here is not terribly complex. In addition to the supply/demand imbalance, housing prices must revert to their mean for the simple reason that prices tend to have a very high correlation with inflation rates. Inflation rates, by definition, tend to have a very high correlation with wages. Since house purchases comprise such a substantial amount of the household balance sheet it makes sense for this correlation to remain very tight over any given period of time.
It is practically impossible for housing prices to revert from their inflation adjusted mean for any significant period of time. This is taking a complex argument and simplifying it far too much, but Gary Shilling recently expanded on this mean mean reversion that is likely to continue in housing (via Business Insider):
This huge and growing surplus inventory of houses will probably depress prices considerably from here, perhaps another 20% over the next several years. That would bring the total decline from the first quarter 2006 peak to 42%.This may sound like a lot, but it would return single-family house prices, corrected for general inflation and also for the tendency of houses to increase in size over time, back to the flat trend that has held since 1890 (Chart 26).
We are strong believers in reversions to the mean, especially when it has held for over a century and through so many huge changes in the economy in those years—two world wars and the 1930s Depression, the leap in government regulation and involvement in the economy, the economic transformation from an agricultural base to manufacturing and then to services, the post- World War II population shift from cities to suburbs, the western and southern transfer of population and economic strength, the movement from renting to homeownership and the accompanying spreading of mortgage financing, etc.
Furthermore, our forecast of another 20% fall in house prices may be conservative. Prices may well end up back on their long- term trendline (Chart 26), but fall below in the meanwhile. Just as they way overshot the trend on the way up, they may do so on the way down, as is often the case in cycles. Furthermore, another big house price decline will spike delinquencies and foreclosures leading to more REO sales by lenders,whichwillfurtherdepress prices. Our analysis indicates that a further 20% drop in prices will push the number of homeowners who are under water from 23% to 40%, resulting in more strategic defaults, more REO, etc.
This month’s Dallas Fed Economic Letter also discussed the phenomenon of mean reversion in housing:
As gauged by an aggregate of housing indexes dating to 1890, real home prices rose 85 percent to their highest level in August 2006. They have since declined 33 percent, falling short of most predictions for a cumulative correction of at least 40 percent.[1] In fact, home prices still must fall 23 percent if they are to revert to their long-term mean (Chart 1). The Federal Reserve’s purchases of Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) government-sponsored-entity bonds, which eased mortgage rates, supported home prices. Other measures included mortgage modification plans, which deferred foreclosures, and tax credits, which boosted entry-level home sales.
The government has thrown everything it has at the housing price decline. But as the housing tax credit recently proved, there is little the government can do to stop this inevitable and entirely necessary market adjustment.
The Dallas Fed expanded on the difficulties that the housing market confronts:
Measuring the success of these efforts is important to determining the trajectory of the economic recovery and providing policymakers with a blueprint for future action. New-home sales data, though extremely volatile, are considered a leading indicator for the overall housing market. Since expiration of the home-purchase tax credit in April, sales have fallen 40 percent to an average seasonally adjusted, annualized rate of 283,000 units. This contrasts with the three years through mid-2006 when monthly sales averaged 1.2 million on an annual basis. Before the housing boom and bust, single-family home sales ran at half that pace. Because current sales are at one-fifth of the 2005 peak, new-home inventories—now at a 42-year low—still represent an 8.6-month supply. An inventory of five to six months suggests a balanced market; home prices tend to decline until that level is achieved.
One factor inhibiting the new-home market is a growing supply of existing units. The 3.9 million homes listed in October represent a 10.5-month supply. One in five mortgage holders owes more than the home is worth, an impediment that could hinder refinancings in the next year, when a fresh wave of adjustable-rate mortgages is due to reset. The number of listed homes, in other words, is at risk of growing further. This so-called shadow inventory incorporates mortgages at high risk of default; adding these to the total implies at least a two-year supply.[2]
The mortgage-servicing industry has struggled with understaffing and burgeoning case volumes. The average number of days past due for loans in the foreclosure process equates to almost 16 months, up 64 percent from the peak of the housing boom. One in six delinquent homeowners who haven’t made a payment in two years is still not in foreclosure.[3] Mounting bottlenecks suggest the shadow inventory will grow in the near term.
Notably, not all homeowners in arrears suffer financial hardship due to unaffordable house payments. Those with significant negative equity in their homes may choose to default even though they can afford to make the payments. Such “strategic default” is inherently difficult to measure; one study found 36 percent of mortgage defaults are strategic.[4] Though the effect is not readily quantifiable, the growing lag between delinquency and foreclosure provides an added inducement for this form of default.
The government has won the battle, but ultimately, they are destined to lose this war with the market. They have attempted to keep “asset prices higher than they otherwise would be,” however, the laws of supply and demand always reinforce themselves over the long-term.
By propping up markets the government has merely kicked the can. The mean reversion will occur one way or another. The government appears to be attempting to ease the markets lower. That is arguably more desirable than crashing prices, but does not mean they will ultimately win the war.
Mean reversion will occur. It’s only a matter of how long we want to drag it out…
http://seekingalpha.com/article/244287-why-housing-is-due-to-revert-to-mean-price
Housing in 2011: Will Prices Fall Further?
NewstraderFX
January 02, 2011
Nouriel Roubini and Peter Schiff recently posted articles suggesting that housing prices will fall by another 20% (see here and here). My suggestion is that whether this is correct or not is likely to have very much to do with inflation because as you will see:
1. The real, median price is above historical levels
2. If the Fed creates a higher inflation rate, as they apparently are trying to do, real prices in most areas are likely to fall even if they rise nominally.
According to the latest Case Shiller HPI report:
The S&P/Case-ShillerHome Price Indices for October showed a deceleration in the annual growth rates in 18 of the 20 MSAs and the 10- and 20-City Composites in October compared to what was reported for September 2010.
The 10-City Composite was up only 0.2% and the 20-City Composite fell 0.8% from their levels in October 2009. Home prices decreased in all 20 MSAs and both Composites in October from their September levels.
In October, only the 10-City Composite and four MSAs – Los Angeles, San Diego, San Francisco and Washington DC – showed year-over-year gains. While the composite housing prices are still above their spring 2009 lows, six markets – Atlanta,Charlotte, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices started to fall in 2006 and 2007, meaning that average home prices in those markets have fallen beyond the recent lows seen in most other markets in the spring of 2009.
As the chart below shows, the median price when adjusted for CPI is still well above the historical range, suggesting that the real median price still needs to decline if the nominal gains made as a result of the housing bubble are to fully retrace.
What also is interesting about this chart is that it shows how steady the real median price was for over 50 years. Except to two periods in the early 1980's and 1990's (which adjusted back both times), from about 1947 until about 2000 the rise in nominal prices was almost entirely due to inflation alone.This is true because in order for real prices to remain constant, the percentage increase in nominal prices must be offset by the inflation rate.
The S&P CS HPI is indexed (year 2000 = 100) but price changes are reported on a nominal basis. The 10 city and 20 city indices are currently 159.03 and 145.32 respectively, meaning that prices are up 59.03% and 45.32% since 2000 before inflation. In CPI terms, the dollar's purchasing power has declined by 21.3% since 2000 ($100 today buys only $78.70 then). So, adjusted for inflation, the indices are up 37.7% and 24% respectively.
Taking inflation into account, when looking at each city's current index, a reading equal to 121.3 means that prices have exactly kept up with inflation since 2000.
Of the 30 cities making up both indices, 6 are currently below that level. Detroit has the lowest index at 68.86, meaning the nominal price is now 31.14% below where it was in 2000. But in real terms, price has declined by 52.4% since then (and obvioulsy by a much larger amount off the 2007 peak).
Minneapolis is exactly even with inflation and the remaining 23 are above. D.C. leads the way here, with prices up 86.67% nominally and by 65.37% in real terms.
So the question now is, what might happen going forward? The answer to that lies in part with how successful the Fed will be in its quest to create a higher inflation rate. If the overall median price is to return to its historical (pre-bubble) norm, any nominal price increases must be offset by a higher rate of inflation.
The 10 city composite had a nominal 0.2% YoY increase in Ocotober but in real terms, there was a 1% decline (October's unadjusted CPI-U was 1.2%). For the 20 city composite, the real YoY decline was 2%. Just 4 markets (D.C., L.A.,San Diego and San Francisco) had nominal increases greater than CPI, meaning they experienced real appreciation.
http://seekingalpha.com/article/244349-housing-in-2011-will-prices-fall-further
Housing Prices: Is There a Threat to Economic Recovery?
Mark Perry
January 02, 2011
In a post yesterday, I discussed Alan Reynolds' recent editorial in the IBD titled "Do Falling Home Prices Imperil Recovery?, where he points out that house price declines in a "few troubled cities in a few states [based on the Case-Shiller 20-city composite house price index] do not represent the entire nation." This was in response to a a recent front-page Wall Street Journal article ("Housing Recovery Stalls") that fretted about how "A new bout of declining home prices (based on the October decline in the Case-Shiller house price index) is threatening to hamper the U.S. recovery, just as consumers and the overall economy have been showing signs of healing."
Like the chart in the previous post, the chart above provides further evidence of the significant disconnect between the Case-Shiller Home Price Index (10-city composite above for Boston, Chicago, Denver, Las Vegas, LA, Miami, NYC, San Diego, San Francisco, and Washington D.C.) and the FHFA U.S. House Price Index. As Alan Reynolds pointed out, the FHFA U.S. House Price Index based on 50 states increased by 1.07% in the third quarter of this year vs. the previous quarter, the largest quarterly gain since the 1.30% increase in the fourth quarter of 2006. Based on the FHFA House Price Index, there's no threat to the U.S. economic recovery.
http://seekingalpha.com/article/244368-housing-prices-is-there-a-threat-to-economic-recovery
Case-Shiller Shows House Prices Are Double-Dipping
Wall St. Cheat Sheet
December 28, 2010
October Case-Shiller Home Price Indices came in down 0.8% — far below Wall Street expectations for a 0.2% drop. Behold the dreaded double-dip:
“The double-dip is almost here, as six cities set new lows for the period since the 2006 peaks. There is no good news in October’s report. Home prices across the country continue to fall.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “The trends we have seen over the past few months have not changed. The tax incentives are over and the national economy remained lackluster in October, the month covered by these data. Existing homes sales and housing starts have been reported for both October and November, and neither is giving any sense of optimism. On a year-over-year basis, sales are down more than 25% and the months’ supply of unsold homes is about 50% above where it was during the same months of last year. Housing starts are still hovering near 30-year lows. While delinquency rates might have seen some recent improvement, it is only on a relative basis. They are still well above their historic averages, in both the prime and sub-prime markets."
And now for the visual:
http://seekingalpha.com/article/243863-case-shiller-shows-house-prices-are-double-dipping?source=hp_latest_articles
HOME PRICES WILL DOUBLE DIP AND STOCKS ARE EXPENSIVE
Robert Shiller
April 18, 2010
Robert Shiller is out with his updated PE ratio and stocks are once again creeping into the very expensive zone
http://pragcap.com/the-market-is-historically-expensive
Where Are All the Foreclosure Lawyers?
Tim Padgett
Time Magazine Online
Oct. 24, 2009
A foreclosure sign stands in front of a home in Miami Beach, Florida.
Home foreclosure isn't a legal abstraction for Yolanda Paschal, a recent graduate of the University of Miami School of Law. Her parents are facing foreclosure on the Miami house she grew up in. They're luckier than others, since they have another home to fall back on, but the experience has convinced Paschal how acute the crisis is in Florida, which now has the nation's highest mortgage foreclosure rate, at 17%. "I'm part of this community," says Pascal, 25. "I can't escape how deeply this is affecting not just my neighbors, but me as well."
Paschal plans to practice business litigation next fall once she joins the firm that hired her. In the meantime, she will put her legal education to use for South Floridians like her family thanks to a $10,000 "foreclosure defense fellowship" she received from the UM law school. The innovative new grant program has sent out eight recent grads this month to help local residents navigate one of the law's most labyrinthine arenas. (See pictures of Cleveland's struggle with the housing crisis.)
But as much as Paschal and her UM colleagues can help a little, they only represent a drop in the bucket: with foreclosures continuing to rise, the shortage of lawyers available to represent homeowners trying to save their most precious asset has reached emergency proportions. (See a video of Joel Stein exploring the foreclosures of Las Vegas.)
Unlike similar legal fields such as bankruptcy, foreclosure is rarely a full-time practice and is often handled by real estate attorneys or legal aid services agencies. Still, more than 3 million property foreclosures were filed in the U.S. last year; South Florida is expected to see more than 150,000 this year compared to fewer than 25,000 three years ago. And while mortgage modifications had been on the upswing in recent months, the Boston-based National Consumer Law Center reported this week that many large banks and other mortgage servicers have decided it's cheaper to foreclose than to offer more affordable loan terms. Making matters even worse, as many as 86% of foreclosure victims in hard-hit areas didn't have legal counsel last year, according to the Brennan Center for Justice at the NYU School of Law, which released a report earlier this month.
If those numbers don't draw more attorneys into foreclosure law, at least as a short-term specialty until the crisis subsides, homeowner advocates hope it will at least motivate more of them to shift more of their pro bono work in that direction. In hard hit counties like Miami-Dade, bar associations are responding by holding foreclosure defense clinics for local lawyers. Otherwise, the fear is that far more people than necessary stand to lose homes, possibly slowing economic recovery and clogging a civil court system already ravaged by states' budget cuts. (See a video of people facing foreclosure in Tampa.)
That specter of judicial paralysis helped spur UM law professor Michael Froomkin to create the foreclosure defense program. It places fledgling attorneys like Paschal with legal aid service organizations to help tackle the backlog of cases — more than 50,000 foreclosure filings so far this year in Miami-Dade County alone. Many homeowners don't know what legal defenses are available to them as they battle lenders to keep their properties — or at least make foreclosure less painful, and costly. "Potentially, one of the most significant [defenses] is that the lender, because so many home loans were securitized during the housing boom, often doesn't even know who owns the mortgage anymore," says Froomkin. That, he adds, could throw into question the lender's right to bring the foreclosure case in the first place.
Carolina Lombardi, senior attorney at Legal Services of Greater Miami Inc., which is mentoring some of the UM fellows, says foreclosure defendants also need attorneys to help them fend off all too frequent lender practices such as exorbitant escrow claims. "Homeowners who have lawyers are usually prevailing in those cases," says Lombardi. But she notes that unless homeowners fall below the federal poverty line ($22,000 for a family of four), they can't qualify for the free legal aid that agencies like hers provide. That creates an obstacle for most foreclosure defendants, who aren't impoverished but, due to job loss and other circumstances that brought them to the brink of losing their home, often can't afford a lawyer.
Another impediment is foreclosure law itself, a bureaucratically convoluted field worthy of a Dickens novel. "It's a labor-intensive area of practice," says Paschal. "It involves a ton of paperwork." Yet another is the relatively low pay attorneys usually reap from defending foreclosure clients. Melanca Clark, counsel at the Brennan Center and co-author of this month's study, urges Congress and state legislatures to create incentives, like more funding for foreclosure legal representation, that "level the playing field" against lenders and their comparatively well paid lawyers. Restrictions on government funding for legal services should be relaxed, she says, especially rules that don't let victorious foreclosure defendants collect attorney fees, as prevailing parties in most other kinds of civil litigation do. "We need structural reforms as badly as we need more [foreclosure defense] lawyers," says Clark.
A growing number of court jurisdictions are attempting to reduce the need for lawyers, as well as the glut of cases, by mandating mediation between lenders and homeowners. Courts that cover Miami-Dade now require such arbitration, as they do in cities like Philadelphia. But the efforts to modify mortgage terms or find other ways to avoid full-blown foreclosure don't always work, and many cases still end up in court. State bar associations like Florida's are also promoting pro-bono foreclosure work. The effort is helped, says Lombardi, by a new awareness among many lawyers who once deemed foreclosure victims foolish, lazy or unethical borrowers, but who now realize "this is often about decent, hardworking people who fell prey" to loans whose conditions weren't always clear.
Still law schools like Miami's may be one of the best untapped sources. Other programs, like the Yale Law School's ROOF Project, also send students into local communities to aid foreclosure cases; but UM's is one of the first to create a paid fellowship. It also makes sense, says Paschal, since so many law firms today are trimming costs by delaying the start date for new hires by a year or more. That gives law grads time to pursue this kind of work — whose complexity, Paschal adds, is ideal for cutting young legal teeth. Says Froomkin, "It's a great opportunity to give recent graduates some invaluable experience and help your neighbors through this enormous spike in foreclosures," if not help end it sooner.
http://www.time.com/time/nation/article/0,8599,1932075,00.html?imw=Y
sumisu,...i hope it is not in the cards but by the look of it we've got a treacherous '10 coming to a neighborhood near all of us.
and another snapshot of the same graph,...
New wave of commercial foreclosures looms
STAFF PHOTOS / E. SKYLAR LITHERLAND Buy photo
Orion Bank foreclosed on the Pan American Professional Center in North Port in January.
By Michael Braga
Published: Sunday, October 25, 2009 at 1:00 a.m.
Last Modified: Saturday, October 24, 2009 at 9:53 p.m.
http://www.heraldtribune.com/article/20091025/ARTICLE/910251027/2107/BUSINESS&tc=email_newsletter#
Land at 5150 N. Tamiami Trail near the Sarasota-Bradenton International Airport was to be developed -- until the developer defaulted on the loan.
Banks have foreclosed on more than 400,000 square feet of office space, more than 400 hotel rooms, more than 1,250 condominum units, more than 100,000 square feet of warehouse space and more than 150 acres of raw commercial land in Sarasota and Manatee counties since November.
This is prime commercial real estate that about 80 investors bought and developed during the real estate boom with loans totaling nearly $300 million.
With those investors unable to make interest payments, the properties will soon be taken over by banks -- a prospect that few in the financial community look forward to.
Just as the housing market starts to recover and the national economy tentatively emerges from the deepest recession since the 1930s, banks across the country are bracing for another wave of foreclosures.
Nationwide, $1 trillion in commercial real estate loans comes due next year. Many borrowers are unlikely to be able to refinance, causing defaults that could lead to more bank failures and could even knock the economy back into recession.
The only hope of averting a wave of defaults: a resurgence of investor buyers. Most observers think those buyers are waiting for fire-sale prices before they jump in.
Paul Kasriel, Northern Trust's chief economist, predicts the new wave of foreclosures means the growth the U.S. economy saw in the third quarter will not be matched again until the last quarter of 2010.
"This tsunami will not be as big as the first one," said Kasriel, meaning the wave of residential foreclosures. "But it will wash over the financial system and cause a lot of damage."
Office and hotel defaults
The big office complex that Peter Shipps erected on Tamiami Trail in North Port is a symbol of overbuilding during the boom.
Thinking that Southwest Florida would benefit from a sustained population increase, bankers willingly lent money without developers having to pre-lease the space.
Shipps, a successful Venice builder and developer, approached Naples-based Orion bank with a plan to build five Class A office buildings. Orion lent him more than $10 million for the first phase.
But just as Shipps' first two buildings came out of the ground, the real estate market entered its prolonged slide. He was unable to lease enough space to make interest payments and defaulted on $7.3 million in January.
"They are great buildings in a great location," said Chad Maxwell, a North Port commercial real estate agent. "They just created too much space on the market."
The worldwide recession only made things worse, said Stan Rutstein, a commercial agent with Re/Max in Bradenton.
"Every doctor's office, every attorney's office, every imaging center and every dentist's office cut back," Rutstein said. "People have left the market, tourism is down and businesses have cut back staff. It's pretty bloody."
A large of amount of office space built is sitting empty. Vacancy rates hover around 14 percent in downtown Sarasota, 20 percent in Lakewood Ranch and 30 percent in Venice and Bradenton, according to Manatee and Sarasota counties' economic development organizations.
The fortunes of local hotel developers also plummeted.
In 2005 and 2006, there was a mini-boom in hotel acquisitions and developments. A group led by Harvey Birdman paid $10 million for the 178-room Holiday Inn on Tamiami Trail near the Sarasota-Bradenton International Airport in April 2005. Reliance Realty Partners out of Stamford, Conn., invested more than $30 million in a vacation rental and marina project on Holmes Beach. Bernard LeBlanc's family bought the 160-room Holiday Inn on the U.S. 41 bypass in Venice for $10 million in August 2006.
All three have since defaulted, on more than $50 million in loans.
Another beat-up segment is office condominiums.
During the boom, these 1,000- to 2,000-square-foot spaces sold as fast as they came to market at ever-increasing prices. Condos that started selling for $55 per square foot soared as high as $155, said Carl Wise, a commercial real estate agent who founded Sarasota's Preferred Commercial.
But their owners are now defaulting in large numbers.
"They're in a terrible place now," Wise said. "They are losing their shirts and will continue to do so."
Banks swamped
Banks that lent money to commercial developers and investors are suffering along with their customers.
"I talked to one banker back in June and he said he had a stack of foreclosures two feet thick in his office," said Jeff Button, a commercial agent with the Sarasota's Kleiber Group. "And that's just one bank."
Analysts expect Florida community banks to be hit especially hard because they tended to make a lot of commercial property loans. Southwest Florida already has seen five banks go under -- Bradenton's Flagship National Bank, First Priority Bank and Freedom Bank and First State Bank of Sarasota and Community National Bank of Venice. They may not be the last.
In the meantime, the problems will be felt in the broader economy.
Banks have the capital to make loans. It just makes no sense to chase after commercial real estate when values are dropping, said Bill Sedgeman, chairman of Community National Bank of Manatee.
"What's coming to us now are people who are underwater on their mortgages," Sedgeman said. "They owe more than the properties are worth."
The only way banks can refinance them is if customers are willing to bring cash to the closing table.
Their properties are now sometimes worth only a third of the value they had when the loans were made, so they will have to repay some of what they borrowed. But few borrowers can come up with the cash. So banks will have to foreclose and sell off the properties.
With more and more properties coming onto the market through foreclosures, commercial property values will continue to drop.
Until buyers start taking more properties off the market than are coming on, banks will not lend, Sedgeman said.
"We need to have buyers and we don't have buyers," Sedgeman said. "The reason we don't have buyers is that our economy is so construction-oriented. Until construction gets started again, we won't have jobs and without jobs there will be no tenants for commercial space."
Awaiting private investors
With banks out of the picture, cash-rich private investors and private equity funds will rule the day.
But those investors are unlikely to buy until prices fall to 10 to 20 cents on the dollar, said Rutstein, the Bradenton agent. That is when the powerful private equity money from the Related Companies, Steve Roth of Vornado Realty Trust and Granado Real Estate will get involved.
"Buyers are not going to adjust prices," Rutstein said. "There's no reason. There's more supply than demand and every week supply gets bigger. The most used word in commercial real estate these days is 'carry.' 'What will it cost me to carry this property and for how long?' These are unknown questions.
"The price has to be right and we really haven't come to terms with the right price at the moment."
Generational wealth
The only good to come of all this turmoil: "People who have money will be able to create generational wealth," said Chad Maxwell, a North Port commercial real estate agent. "They will be able to buy properties for far less than the cost of construction."
In Southwest Florida, the residential market will gradually strengthen, allowing home builders to begin construction again. As the economy improves elsewhere, retirees will show up in greater numbers. Those builders and their subcontractors will expand staff. Offices and warehouses will start to fill. The growing population and rising employment will boost consumption.
Once all that happens, commercial real estate lease rates will stop falling, analysts said.
But how long will it take?
"In the old days, you could make a reasonable guess," said Ian Black, a Sarasota-based commercial real estate broker. "Even now, investors are willing to come back in the market. But there is still a tremendous gap between what people are willing to pay and what banks will let properties go for."
"Slow" Banks May Point To Commercial Real-Estate Crisis
Daniel Carty
CBS News.com
October 7, 2009
U.S. banks "are slow" to absorb losses on commercial real-estate loans, according to a Federal Reserve analyst. That's stoking fears that banks will face a crisis similar to the one fueled by the collapse of the residential housing market.
According to a Wall Street Journal report ($) Wednesday, a Fed real-estate expert told banking regulators last month that "banks will be slow to recognize the severity of the loss - just as they were in residential."
Commercial property values are down along with rental payments, pummeling lenders. But instead of taking hits on bad loans immediately, many banks are "extending loans when they come due even if they wouldn't make those loans now," the Journal states.
"There's been an extend-and-pretend philosophy by banks to forestall hits to their balance sheets that might occur," Patrick Phillips, new chief executive of the Urban Land Institute, told the Journal.
A Journal analysis also finds that banks heavily exposed to commercial real estate are keeping less cash on hand to cover bad loans – setting aside just 38 cents in reserves for every $1 in loans during the second quarter. That's down from $1.58 in extra capital for every dollar in bad loans at the beginning of 2007.
According to the Fed presentation, commercial real-estate losses are expected to hit 45 percent next year.
http://www.cbsnews.com/blogs/2009/10/07/business/econwatch/entry5368683.shtml
The Housing Market is about to Become Even More Oversupplied
John Burns Real Estate Consulting, Inc.
October 2009
While both the media and stock investors believe that housing has bottomed, they are unaware of the massive supply of homes that are already in the foreclosure process that will certainly drive home prices down even further when they are sold. We have been projecting a "W" shaped recovery for some time, and we are becoming even more convinced that we are right. The shape of the second leg down is almost completely dependent on the level of government intervention that will take place.
For a number of reasons, banks have not been aggressively taking title to homes and selling them, which has resulted in very few distressed sales in comparison to the actual level of distress in the market. This delay in REO sales, along with historically low mortgage rates and an $8,000 tax credit, has helped to stabilize the housing market - temporarily.
It is very clear that price stabilization is temporary unless something is done. Here are some facts to help project what housing will be like in 2010:
• 13.54% of the 44.7 million mortgages tracked by the Mortgage Bankers Association are delinquent.
• 7.57 million homeowners are delinquent, applying the same percentage to the 11.2 million mortgages not tracked by the MBA (55.9 million total mortgages in the U.S.). That means that 10% of all homeowners in the country are delinquent.
• Based on historical trend analysis by Amherst Securities, 6.94 million homes that are already delinquent will be liquidated, which is more than a one year supply of distressed sales poised to hit the market sometime in 2010 and 2011. During Q1 2005, that figure was only 1.27 million.
• Defaults continue to grow at the rate of approximately 300,000 per month, assuring that the number of distressed sales will grow and will continue through 2012.
2009 Government Intervention
Government intervention to date has been extremely helpful in preventing an even more dramatic decline in home prices. As shown in the chart at right, housing demand has only fallen to "normal" levels and stabilized there. Without historically low mortgage rates, support for Freddie Mac, Fannie Mae and FHA, and an $8,000 tax credit, how far would sales have fallen this year and what would that decline in demand have done to pricing?
Conclusion
Demand needs to continue to be stimulated to bring down supply, particularly while the country continues to lose jobs. Without continued government intervention, home prices will plummet, banks and the GSEs will continue to lose money, and the economy has virtually no chance of increasing overall employment in 2010.
Economic Growth............................................................................D
Economic growth deteriorated this month as the economy remains very weak. Annual job losses continued, marking one of the worst losses in 60 years. The headline unemployment rate increased to 9.8%, after reaching 9.7% last month. Mass layoff events - defined as a cut of 50 or more jobs from a single employer - also increased this month, and are up nearly 43% year-over-year. Currently, it takes job seekers twice the normal length of time to find employment. The CPI (all items) decreased at a slower rate in August, recording a decline of 1.5%, while the Core CPI (minus food and energy) showed an increase of 1.4%. The final second-quarter GDP growth rate is at -0.7%, which is a significant improvement from the -6.4% decline in the first quarter.
Leading Indicators...........................................................................C-
Many leading indicators continue to improve, and suggest that the worst of the recession is behind us. The Leading Economic Index 6-month growth rate rose in August to its highest level since early 2004. The ECRI Leading Index - an indicator of future U.S. growth - has increased almost 21% since the beginning of the year - the largest growth rate since 1971. Stocks continued to rise through September and the four major indices now range from -10% to +2% year-over-year. The S&P Homebuilding Index rose in August, increasing 14% from the previous month, but remains down 5% year-over-year and down 72% from its peak in July 2005. The Net Employment Outlook turned negative for only the second time in the 20-year history of the index (the first was last quarter), as more employers that were surveyed foresaw staff levels decreasing than increasing. The average hours worked per week by Americans declined slightly in September, reaching its lowest levels on record, partly due to furloughs forced upon both government and private sector employees. The price of crude oil declined to a monthly average of $69.46 per barrel in September, representing a 2% month-over-month decline.
Affordability......................................................................................C-
Affordability improved this month as both mortgage rates and the median resale price fell compared to last month. Currently, our housing-cost-to-income ratio has fallen to 26.7%, which is near the lowest level since we began calculating the index in 1981. Due to the correction in home prices and low mortgage rates, owning a home is now essentially the same cost as renting, making it favorable for first-time home buyers to purchase a home. Household income has fallen 6% year-over-year to $52,856 as a result of job losses and furloughs. Despite the decline, the median-home-price-to-income ratio has fallen to 3.3, which is now equal to the historical average. The 30-year fixed mortgage rate fell again in September, reaching 5.04% by month-end, while adjustable mortgage rates reached 4.52% at September month-end. The Fed's overnight lending target rate remains at a range of 0.00% to 0.25%, which is the lowest level on record. The share of ARM applications increased to 5.6% in the last week of August, according to the Mortgage Bankers Association. However, the share of ARM applications remains extremely low when compared to peak levels above 35% of total applications in early 2005.
Consumer Behavior..........................................................................D-
Consumer behavior was mixed this month. Consumer confidence declined after increasing last month, falling to 53 - far below the historical average of 97. Consumer sentiment increased in September to 73.5, reaching its highest level since January 2008. The Consumer Comfort Index also increased in August to -46.4. The personal savings rate has fallen in the last two months after spiking at 6.9% in May. The U.S. net worth increased nearly two trillion dollars in the second quarter compared to the first quarter. This represents the first increase in net worth in almost two years, and is largely due to recent large gains experienced in the stock market. Despite the recent improvement, the second quarter year-over-year decline is the third worst on record in the 50-year history of this data point, losing $7.4 trillion of wealth in the past year. Both unemployment and inflation increased this month, resulting in a rising Misery Index (the sum of the two rates).
Existing Home Market.......................................................................D+
The existing home market remains weak yet seems to be stabilizing. Seasonally adjusted annual resale activity in August declined almost 3% from last month to 5.1 million homes, an improvement of 3% compared to one year ago, according to the National Association of Realtors (NAR). The rolling 12-month count of resale sales activity has increased for the second month in a row. The national median resale price fell to $177,500, and has declined 12% year-over-year. Weak consumer confidence and increased foreclosure sales continue to put downward pressure on resale prices. The Case-Shiller index, which tracks paired sales, fell 15% in the second quarter of 2009 compared to the second quarter of 2008. In August, the number of unsold homes declined sharply to 8.5 months of supply yet remains elevated compared to history. Pending home sales volume increased this month, and represents a 12% year-over-year gain. As of the second quarter, 32% of all homes with a mortgage were worth less than the original value of the mortgage.
New Home Market...............................................................................D
A few components of the new home market improved this month. Builder confidence increased in September to a Housing Market Index rating of 19 - the third consecutive month of an increasing index. The inventory of unsold homes continued to improve and has fallen to 7.3 months of supply. Seasonally adjusted new home sales are down 3% year-over-year and are down 69% from a peak of nearly 1.4 million annual sales in July 2005. The rolling 12-month count of new home sales was flat compared to last month - the first time since 2005 it hasn't declined from the previous month. The median single-family new home price dropped sharply to $195,200 in August from July's $215,600 median - representing an 11.7% year-over-year decline.
Housing Supply....................................................................................F
Seasonally adjusted total permits increased to 579,000 as a result of a large jump in multifamily permits, while single-family permits declined slightly. Seasonally adjusted total new home starts decreased in August to 479,000, due to a 3% drop in single-family starts, and are down 22% from one year ago.
U.S. HOUSING MARKET STATISTICS TABLE
Data Current Through October 6, 2009
Follow Link
http://www.realestateconsulting.com/Newsletters.aspx?quicklaunch=true&newsletter=US/us200910
Federal Reserve Buys More Than 100% of Mortgages Issued in 2009
by cmartenson
Monday, September 28, 2009, 11:13 am
What follows is a snippet from the most recent Martenson Report (Housing and Wealth: Part II).
--------------------------------------------------------------------------------------------------------------------------------
This is important information. What I've found and present below is that the Federal Reserve is not just supporting the housing market, it is the housing market.
Just as important as a person's desire to buy a home is their ability to gain access to mortgage funding.
The mortgage market is a gigantic beast with many moving parts, but it is pretty easy to understand from a high level.
The process works like this: A homeowner secures a mortgage from a bank or mortgage company. Then the mortgage is sold off to another company, with the cash generated by that sale now available to lend to other potential homeowners. Ultimately the mortgage may pass through several sets of hands but ultimately it lands with a terminal holder.
In that chain, the mortgage might get sold off several times, or perhaps sliced and diced by Wall Street wizards, but all that matters is that some company (with cash) is there at the end to buy the mortgage to keep the whole chain moving along.
Lately, the "terminal buyers" in that chain have increasingly ended up being the federal government (through the GSEs) and the Federal Reserve.
And not just by a little bit, but by a lot.
Here are the numbers:
So far in 2009 (through August), a total of 3.2 million existing homes were sold for an average price of $217,000, while 263,000 new homes were sold for an average price of $264,000.
Taken together, and assuming that we live in a world where 10% is the average down payment, we get this table:
That is, a total of ~$686 billion in new mortgages were issued in 2009 (through August).
Now let's look at how many Mortgage Backed Securities (MBS) and agency debt obligations were accumulated by the Federal Reserve on its balance sheet over the same period of 2009:
<a href=http://www.clevelandfed.org/research/data/credit_easing/index.cfm(Source)</a
It turns out that in 2009 (again, through August), the Federal Reserve has bought $624 billion of MBS and a further $98 billion of Agency debt, for a total of $722 billion in money injection into the housing market through Fannie Mae, Freddie Mac, and the FHLB.
In other words, the Federal Reserve alone bought $722 billion of mortgages and agency debt when only $686 billion in new mortgages were issued. So, through August, the Fed bought more than 100% of the entire supply of new (purchase) mortgages in 2009.
That's not a free housing market; that's a market bought, owned, and sustained by the Federal Reserve's willingness to print up three quarters of a trillion dollars out of thin air.
While the individual mortgages issued in 2009 may or may not be the exact same ones purchased by the Federal Reserve, that's immaterial. All the mortgage issuers care about is that when they issue a mortgage, a purchaser with money exists somewhere down the line. The chain needs a terminal buyer, and that buyer has become the Federal Reserve.
The impact of these purchases by the Federal Reserve is to both provide liquidity and to drive down the rate of interest for new mortgages. By lowering both the long end of the Treasury curve (which the Fed does by actively buying Treasuries) and providing more than sufficient demand for MBS and agency paper, long-term interest rates come down.
Without the Fed's activities, it is a rock-solid certainty that mortgage interest rates would be higher than they are, and possibly a LOT higher.
What all this means is that when (not if) the Federal Reserve begins to try and unwind itself from all of the magnificent interventions of the past year, it must contend with the fact that it is the housing market.
Where the Fed is hoping that it can gently release the soft chubby fingers of the housing market, which will then toddle off under its own power, it will discover that it is actually carrying a helpless newborn.
http://www.chrismartenson.com/blog/federal-reserve-buys-more-100-mortgages-issued-2009/28343
Wall Street's Near-Meltdown Gave Rise to New Lies About the Economy, All Designed to Blame Anyone But Those Responsible
Nomi Prins
Wiley Press
September 29, 2009
To hear it from the big financial companies, the big crash started when poor people bought homes they couldn't afford. But that was at most 1% of the problem.
Editor's note: The following is an excerpt from Nomi Prins' new book, "It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street."
The Second Great Bank Depression has spawned so many lies, it's hard to keep track of which is the biggest. Possibly the most irksome class of lies, usually spouted by Wall Street hacks and conservative pundits, is that we're all victims to a bunch of poor people who bought McMansions, or at least homes they had no business living in. If that was really what this crisis was all about, we could have solved it much more cheaply in a couple of days in late 2008, by simply providing borrowers with additional capital to reduce their loan principals. It would have cost about 3 percent of what the entire bailout wound up costing, with comparatively similar risk.
Just as great oaks from little acorns grow, so, too, can a Second Great Bank Depression from a tiny loan grow. But so you know, it wasn't the tiny loan's fault. It was everyone and everything that piled on top. That's how a small loan in Stockton, California, can be linked to a worldwide economic collapse all the way to Iceland, through a plethora of shady financial techniques and overzealous sales pitches.
Here are some numbers for you. There were approximately $1.4 trillion worth of subprime loans outstanding in the United States by the end of 2007. By May 2009, there were foreclosure filings against approximately 5.1 million properties. If it was only the subprime market's fault, 1.4 trillion would have covered the entire problem, right?
Yet the Federal Reserve, the Treasury, and the FDIC forked out more than $13 trillion to fix the "housing correction," as Hank Paulson steadfastly referred to the Second Great Bank Depression as late as November 20, 2008, while he was treasury secretary. With that money, the government could have bought up every residential mortgage in the country — there were about $11.9 trillion worth at the end of December 2008 — and still have had a trillion left over to buy homes for every single American who couldn't afford them, and pay their health care to boot.
But there was much more to it than that: Wall Street was engaged in a very dangerous practice called leverage. Leverage is when you borrow a lot of money in order to place a big bet. It makes the payoff that much bigger. You may not be able to cover the bet if you're wrong — you may even have to put down a bit of collateral in order to place that bet — but that doesn't matter when you're sure you're going to win. It is a high-risk, high-reward way to make money, as long as you're not wrong. Or as long as you make the rules. Or as long as the government has your back.
The Second Great Bank Depression wouldn't have been as tragic without a thirty-to-one leverage ratio for investment banks, and, according to the
New York Times
, a ratio that ranged from eleven to one to fifteen-to-one for the major commercial banks. Actually, it's unclear what kind of leverage the commercial banks really had, because so many of their products were off-book, or not evaluated according to what the market would pay for them. Banks would have taken a hit on their mortgage and consumer credit portfolios, but the systemic credit crisis and the bailout bonanza would have been avoided. Leverage included, we're looking at a possible $140 trillion problem. That's right — $140 trillion! Imagine if the financial firms all over the globe actually exposed their piece of that leverage.
But for $1.4 trillion in subprime loans to become $140 trillion in potential losses, you need two steps in between. The most significant is a healthy dose of leverage, but leverage would not have had a platform without the help of a wondrous financial feat called securitization. Financial firms run economic models that select and package loans into new securities according to criteria such as geographic diversity, the size of the loans, and the length of the mortgages. A bunch of loans are then repackaged into an asset-backed security (ABS). This new security is backed, or collateralized, by a small number of original home loans related to the size of the security. Some securities, for example, might be 10 percent real loans and 90 percent bonds backed by those loans. Some might be 5 percent real loans. Whatever the proportion, the money the mortgage holders pay to lenders on their loans is used to make payments on new assets or securities. Those securities, in turn, pay out to their investors.
During the lead-up to the Second Great Bank Depression, the securities themselves were a much bigger problem than the loans. Between 2002 and 2007, banks in the United States created nearly 80 percent of the approximately $14 trillion worth of total global ABSs, collateralized debt obligations (CDOs), and other alphabetic concoctions or "structured" assets. Structured assets were created at triple what the rate had been from 1998 to 2002. Bankers from the rest of the world created, or "issued," the other 20 percent, around $3 trillion worth. Everyone was paid handsomely. In total, issuers raked in a combined $300 billion in fees. Fees can be made for all types of securitized assets, but the more convoluted they are, the riskier and more lucrative they become. Fees ranged from .1 percent to 0.5 percent on standard ABS deals and up to 0.3 percent for mortgage-backed securities (MBSs) and whole business securitization (WBS) deals. Fees were better for CDOs—between 1.5 and 1.75 percent for each deal, and higher for the riskier slices. All told, the $2 trillion CDO market alone netted Wall Street around $30 billion before CDO values headed south. Because U.S. investment banks were making huge profits from packaging churning loans and leveraging them, mortgage-and asset-backed security volume skyrocketed.
Investment banks, hedge funds, and other financial firms could use the $14 trillion of new securities as collateral against which to borrow money and incur more debt (leverage them). There is no way of knowing exactly how much was leveraged, because the players operated in an opaque system — that is, a system without proper regulatory oversight or enforcement to detect or curtail leverage. But a conservative estimate of the average amount of leverage is about ten to one, considering the roughly eleven-to-one leverage of the major commercial banks and the thirty-to-one leverage of investment banks. So, we're talking about a system that ultimately took on $140 trillion in debt on the back of $1.4 trillion of subprime loans. How insane is that? And, it happened so fast.
In 2005, the mortgage on some little home in Stockton provided the capital for two or three ill-advised loans that soon disappeared into an ABS. But it was the global banks, the insurance companies, and the pension funds — particularly in Europe — that purchased the related ABSs. Like their U.S. counterparts, European financiers bought boatloads of ABSs with borrowed money. 13 They also shoved them off-book into structured investment vehicles (SIVs) that required no capital charge and little reporting.
By the fall of 2008 those ABSs, CDOs, and all their permutations would be known as "toxic assets." They were considered by many to be the major cause of Big Finance's failures and losses. The push for TARP centered on ridding banks of these poisonous creatures. But make no mistake: toxic assets are not the same as defaulted subprime mortgage loans; loans are merely one of the ingredients that make up the assets. All the subprime loans in existence could have defaulted and the homes attached to them could have been devalued to zero (which didn't happen), but without the feat of securitization, the banks wouldn't have become nearly insolvent. Toxic assets became devoid of value, not because all the subprime loans stuffed inside them tanked, but because there was no longer demand from investors. If no one wants your Aunt Mary's antique gold-plated, diamond-encrusted starfish, for all intents and purposes, it has no monetary value at the moment. This basic supply-and-demand concept is something our government apparently didn't understand when it offered to take the toxic assets off the banks' books. And the Fed, as we'll see, doesn't seem to care that it took on trillions of dollars' worth of these assets.
Lazy Lending Legislation
The greedy predatory lending that fueled the Second Great Bank Depression could have been avoided. Back in 1994, there was actually enough popular pressure to introduce legislation that would have ushered in controls on lending and other banking activities. As is par for the course, a handful of consumer-oriented congresspeople and watchdog groups initially faced an uphill battle against a band of well-funded, well-placed politicians such as Florida's Bill McCollum, Texas's Phil Gramm, and Iowa's James Leach and Charles Grassley, who were carrying Wall Street's torch toward deregulation.
But a burgeoning predatory lending crisis reached a very public head in 1994 amid allegations that Fleet Finance Group had gouged hundreds of low-income and minority consumers. Busloads of irate anti-loan-shark-T-shirt-sporting citizens rallied through the halls of Congress to chronicle lending abuses.
In response, just before Newt Gingrich assumed power as Speaker of the House under Democrat president Bill Clinton, the House battled for the Home Ownership and Equity Protection Act of 1994 (HOEPA) to cap the most outrageous predatory loans. 37 It was the last piece of legislation that attempted to regulate appalling lending practices. Perhaps if lending had been better regulated, subprime loans wouldn't have been the fodder for the Second Great Bank Depression. Maybe something else would have been. But that wasn't the case.
HOEPA contained several provisions that curbed "reverse redlining," in which nonbank lenders target low-income and minority borrowers. But it didn't reinstate full interest rate caps, which had been deregulated during the previous two decades, or limit fees or tighten requirements to determine the ability of borrowers to repay their loans. As you can imagine, the industry and certain Republicans bitterly opposed the original House bill.
"Why can't the lenders police themselves?" Senator Richard C. Shelby (R-AL) asked. Sure, and while we're at it, why not let power companies determine what's pollution and what isn't? Why not let agribusiness make the rules about what farms can do? Why not put lions in charge of your gazelle sanctuary or hire a fox to guard the henhouse? Shelby, as you may reca ll, later sprouted an activist streak in 2009 and took the Treasury Department to task for lying to Congress about TARP.
Even with the best intentions, HOEPA's passage had dire consequences. First, it left a huge gap between the first and second tier of rates and fees a lender could charge. If lenders didn't want to hit the new caps, they had plenty of fertile ground to play on by extending loans with rates and fees just beneath the HOEPA triggers. Because lenders would make less money from each loan, due to the reduced rates and fees, they'd have to find more borrowers to make the same profits. Voil à , the quiet birth of predatory subprime lending.
During those early and middle years of the Gingrich revolution, there was no talk of regulation. The market zoomed, and even though a spate of corporate fraud was percolating, it didn't look broke, so no one in Congress fixed it.
As the late 1990s stock market boom headed into the new millennium, there were renewed legislative attempts to rein in the lending industry. Notably, in April 2000, the dynamic duo of Representative John LaFalce (D-NY) and Senator Paul Sarbanes (D-MD) introduced the Predatory Lending Consumer Protection Act of 2000 (PLCPA) to strengthen the Truth-in-Lending Act.
PLCPA would have brought down the HOEPA triggers and cut origination fees so that profit from home mortgages had to come from payments, ensuring that everyone in the chain had an interest in homeowners' ability to repay loans. Sarbanes and Senate staffer Jonathan Miller worked feverishly to line up cosponsors.
The industry attacked the bill and won, with help from McCollum and Connie Mack III (R-FL). What did pass, however, was Phil Gramm's Commodity Futures Modernization Act of 2000 (CFMA). That act ushered in tremendous growth of unregulated commodity trades through its "Enron Loophole," which allowed companies to trade energy and other commodity futures on unregulated exchanges.
It also sparked growth in the unregulated credit derivative trades that bet on defaults of corporations or loans, which became the main ingredient in the hot new Wall Street financial gumbo. Credit derivatives were a type of insurance contract written against not just one corporation or loan but on investments that scarfed up bunches of subprime loans and stuffed them into the unregulated CDOs that imploded and hastened the greater lending crisis. The problem was that they weren't regulated (even half-heartedly) like insurance policies were.
Meanwhile, the quixotic Sarbanes and LaFalce soldiered on, trying to avert lending disaster through appropriate regulation. They reintroduced their bill as the Predatory Lending Consumer Protection Act of 2001, but the mortgage industry and its mouthpieces were relentless. In July 2001, Stephen W. Prough, chairman of Ameriquest Mortgage Company, said at the Senate's Banking Committee hearings, "'Predatory' is really a high-profile word with no definition." In August 2001, Senate Banking Committee chairman Gramm concurred, "Some people look at subprime lending and see evil," he said. "I look at subprime lending and I see the American dream in action." The 2001 version of PLCPA also died.
Down and nearly out, Sarbanes and LaFalce tried to pass their act again in May 2002. It failed again and then again, for the final time, on November 21, 2003. Bush's ownership society ideology was in full swing by then, and the country was at war. Any hope for regulation or transparency in the lending or banking sector was basically dead.
The culmination of years of minor and significant acts of deregulation coalesced with mortgage industry sycophants beating back solid attempts at regulation or transparency. Loans that lenders pushed on homeowners were the perfect fodder for Wall Street, which eagerly packaged the loans and profited. House prices, in turn, skyrocketed.
How Lenders Created a Risk-Free Business
Meanwhile, lending practices had gotten really wild. Alan Greenspan had chopped rates dramatically to bolster the economy following the stock market plunge in 2001 and 2002. Lower rates meant that it was cheaper for banks to borrow more money from the Fed and from one another. It also meant that lenders had more funds to play with. Because prime loan rates fell in tandem, these loans weren't funneling as much profit to lenders. To make up for it, lenders extended riskier (nonprime) loans at higher rates to more borrowers.
With cheaper money, lenders were able to fund more mortgages for those riskier borrowers. If some loans didn't go well, it wouldn't matter. Lenders bet that they could either sell the underlying homes for higher prices, which would more than cover the defaulted loans, or convince the borrowers to take out equity loans backed by the homes' presumably rising value.
That increased the risk of default and, more so, the potential loss to the lender: the same house could now back two loans instead of one, so if its value fell and the borrower couldn't pay up, both loans were screwed. Super-low teaser interest rates lasted for two or three years and begged to be refinanced (for which lenders got extra fees) before they zoomed up. This added more risk to the system: loans couldn't be refinanced, and borrowers couldn't make the high rate payments. But as long as home prices kept rising as they had since at least the early 1960s, systemic loan defaults weren't a huge concern.
While rates remained fairly low, there was always more cash for lenders to dole out. Lenders pushed an ongoing cycle of refinancing and new home purchases, both of which could be classified as new mortgages on their books, which was good for stock prices. Between 2002 and 2005, the stock price of the once-largest independent mortgage lender, Countrywide Financial, had tripled — well before Bank of America agreed on January 11, 2008, to buy its remains. The firm created $434 billion in new loans in 2003, a 75 percent increase over 2002, securing a post in Forbes America's top twenty-five fastest-growing big companies for 2003. The number-three home lender, Washington Mutual, issued $384 billion in loans that year. (Emulating Countrywide's rapid descent later in the decade, Washington Mutual lost a combined $4.44 billion in the first and second quarters of 2008, before JPMorgan Chase swooped in to buy it, with the government's help, on September 25, 2008.) Wells Fargo, which hung on to buy Wachovia in October 2008, topped the charts in 2003 with $470 billion in new loans. That's a combined $1.3 trillion in new home loans created by the big three mortgage lenders in 2003.
As home prices spiked amid low rates, demand increased for securitized loans, and more loans were offered. In 2003, the securitization rate of subprime loans matched that of prime loans in the mid-1990s. From 2002 to 2006, subprime loan originations went from 8.6 percent of all mortgages to 20.1 percent.
The more subprime loans there were in the market, the more the securities piled on top of them became exposed to the risk that a larger number of loans than expected might default. Of course, this risk was hidden until home prices started to fall and defaults started to rise. Subprime defaults decreased to 5.37 percent in 2005 (nearly half of what they'd been during the 2001 recession), right before those seeds of risk between lenders and borrowers began to sprout like Audrey II, the alien plant in Little Shop of Horrors.
Consumer protections were simultaneously chucked. On April 20, 2005, President George W. Bush signed the 2005 Bankruptcy Abuse and Consumer Protection Act, sponsored by Senator Charles Grassley (R-IA), which worsened the quietly growing housing crisis for consumers. 55 Borrowers facing bankruptcy could no longer negotiate down the principal of their mortgages with their creditors if the market declined, meaning that they had no way to avoid foreclosure, even if they wanted to.
On September 1, 2005, two years after the final Sarbanes-LaFalce bill failed to gain traction, Office of Federal Housing Enterprise Oversight (OFHEO) chief economist Patrick Lawler said, "There is no evidence here of prices topping out. On the contrary, house price inflation continues to accelerate, as some areas that have experienced relatively slow appreciation are picking up steam."
Markets weren't yet constrained for credit. Because lenders were assured money through securitizations on Wall Street, they didn't have to worry about guidelines on individual loans. If rating agencies would certify trillions of dollars worth of collateralized packages of loans with the highest possible rating, AAA, Wall Street investment banks could sell them to a wider pool of investors, which included pension funds, university endowments, and municipalities. High-interest loan volume, which includes most subprime loans, soared to a combined $1.5 trillion between 2004 and 2006, representing 29 percent of home loans made in 2006. Home equity loans bulged simultaneously. It was a loan-lending fest until adjustable rates ultimately kicked in, and prices topped out. At the same time that housing values were faltering, borrower mortgage payments jumped by 25 to 30 percent as adjustment periods began. Then the foreclosures ramped up to levels last seen during the Great Depression.
The Cruelest Lie of All
There are those who blame lending, and certainly subprime lending was terribly predatory. Conservatives, however, toward the end of 2008, began to blame the people getting the subprime loans and the Democrats for pushing through the Community Reinvestment Act (CRA) in 1977, which sought to end discriminatory home-lending practices.
CRA "led to tremendous pressure on Fannie Mae and Freddie Mac — which in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity," the conservative columnist Charles Krauthammer wrote on September 26, 2008, in his nationally syndicated column. Translation: the Democrats allowed Poor People to do this. And innocent Wall Street paid the price.
Krauthammer continued, "Were there some predatory lenders? Of course. But only a fool or a demagogue — i.e., a presidential candidate — would suggest that this is a major part of the problem." 95 (Of course, maybe Krauthammer is just always reactionary. At the beginning of the Iraq War, he wrote, "Hans Blix had five months to find weapons. He found nothing. We've had five weeks. Come back to me in five months. If we haven't found any, we will have a credibility problem." 96 Credibility problem indeed.)
Since late 2008, plenty of fools and demagogues have argued and, in fact, proved Krauthammer wrong. But for a while, conservative stalwarts such as Fox News's Neil Cavuto and newspaper columnist George Will echoed the idea that it wasn't greed but a 1977 regulatory law that brought down the economy. 97 Given that the value of subprime loans in the market is overwhelmed by the amount of the full federal bailout by a factor of ten to one, that's not anywhere near reality.
The finance community's theory is one of selective Darwinism: Little people who take bad risks deserve the consequences. Companies that take bad risks are a welcome addition to the fallen competitor list. Banks that survive the chaos can reposition themselves at the top of the financial piles, and deserve all the federal bailout money, and assistance in growing even bigger, that they can get.
Indeed, after the Bear Stearns bailout, then treasury secretary Paulson said of his former competitor, "When we talk about moral hazard, I would say, 'Look at the Bear Stearns shareholder.'" 98 Blaming the bad apple and delivering some well-chosen words about America's destiny will usually mute the need for regulation. That's why current congressional packages tend to offer cosmetic financial solutions to long-term regulatory dilemmas.
No matter where the blame lies, as housing prices kept dropping and foreclosures kept rising, the feds jumped into gear late and indicted several hundred mortgage players, including former Bear Stearns credit hedge fund stars and current scapegoats Ralph Cioffe and Matt Tannin, and many lesser-known characters. The FBI and the Department of Justice targeted a slew of small and big firms after the fact, from Puerto Rico – based Doral Financial Corporation, unknown to most households, to more prominent names: AIG, Countrywide Financial, Washington Mutual, Bear Stearns, Lehman Brothers, UBS AG, New Century Financial, Freddie Mac, and Fannie Mae.
When all is forgotten and we've moved on to our next financial crisis, there will be certain fingers frozen in time pointing at the subprime loans as the cause of the calamity. Big Finance would prefer that. But the truth is that the subprime loan tragedy was merely the catalyst that exposed the mega-tiered securitizations of securitizations, the massive leverage chain derivatives attached to nothing concrete, and the ineffective regulatory restraints. All of which led us down the rabbit hole of the Second Great Bank Depression.
Nomi Prins is a senior fellow at the public policy center Demos and author of Other People's Money and Jacked: How "Conservatives" are Picking Your Pocket (Whether You Voted for Them or Not)
http://tinyurl.com/y9x6439
|
Followers
|
20
|
Posters
|
|
|
Posts (Today)
|
0
|
Posts (Total)
|
1222
|
|
Created
|
10/25/06
|
Type
|
Free
|
| Moderators | |||
I created this forum link so I could post various news articles on the coming Real Estate Bubble Burst and its affect on the Economy. There were so many articles and opinions that I wanted to have a place to collect them and watch the catastrophe unfold.
Encased in this catastrophe is a trickle-down effect that is now extending to the banking sector produced by irresponsible unregulated sub-prime lending practices. Those articles are also included in this forum.
