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Economic Optimism Aside, Housing Market Still Shows Weakness
Last update: 4/9/2010 7:37:00 AM
(This article was originally published Thursday.)
By Prabha Natarajan
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Pundits and policy makers may be heralding signs of economic recovery, but a key piece of data continues to deliver disturbing news.
One in 10 prime-mortgage holders are behind in their payments, according to the latest home delinquency report from Fitch Ratings, a rate that is about two-and-half times the traditional average.
What matters most with mortgages is jobs, and the rise in unemployment claims Thursday suggests mortgage defaults may not improve soon. Also, in a vicious loop, the surge in foreclosed homes also announced Thursday is likely to lower home prices. This pushes more mortgages underwater, that is, makes the homes worth less than the loans used to buy them. It also sets the stage for another wave of delinquency as homeowners walk away from their obligations.
Making matters worse, the average rate on 30-year fixed-rate mortgages climbed 0.13 percentage point to 5.21%, the highest level since August 2009, Freddie Mac said Thursday in its weekly mortgage market survey.
The primary driver of delinquencies across all types of mortgages continues to remain the ability of the homeowner to earn enough to pay down their loans. Labor Department data released Thursday showed that the number of initial unemployment claims rose 18,000 during the week ended April 3. The four-week average, which smoothes out weekly spikes and gives a better sense of the trend, also rose.
In a way, this data knocked out some of the positive sentiment from last Friday, when the jobs report showed the unemployment rate held steady at 9.7% and the economy added 162,000 jobs in March.
Another disquieting bit of news was that 44% of unemployed in February had been without jobs for six months or more. This is up from 24.6% a year ago.
"Housing recovery is tied to job creation," said Andy Harding, chief investment officer of fixed income at PNC Capital Advisors, adding that until the unemployment rate falls it would be difficult to predict that the housing market will rise.
While unemployment continues to be a key factor in delinquencies, Vincent Barberio, a Fitch managing director who looks at these numbers on a monthly basis, said that underwater loans also have become important in recent months.
"It's hard to quantify what percentage of borrowers is walking away and what portion are not paying due to job loss," he said. "Unfortunately, the net effect is driving the delinquency rate up."
This is one reason the delinquency rate among prime jumbo borrowers, those who bought a home that cost more than the conforming loan limit, also soared above 10% this year from 4.8% a year ago.
"People are turning in the keys and just walking away," Barberio said.
The states with the highest level of jumbo-loan delinquencies are California, New York, Florida, Virginia and New Jersey.
"It concerns me when I read about people doing strategic defaults," said Didi Weinblatt, vice president of USAA's mutual funds portfolio. "People who have never thought of it a year ago are now doing it."
Weinblatt added that she started buying only mortgage bonds guaranteed by Fannie Mae (FNM), Freddie Mac (FRE) and Ginnie Mae, because she was worried about the decline in underwriting standards of other private-label loans.
In March, loans made to subprime borrowers, the least creditworthy borrowers, actually bucked the trend to show a slight drop in delinquency to 46.3%, from 46.9%, for the first time in 44 months.
Barberio said he didn't want to read too much into those numbers. "One month's change doesn't generate a trend," he said, adding that people often use tax refunds to pay down some of their debt at this time of year.
"We expect delinquencies to increase at least over the next four to six months," he said.
-By Prabha Natarajan, Dow Jones Newswires; 212-416-2468; prabha.natarajan@dowjones.com
(END) Dow Jones Newswires
April 09, 2010 07:37 ET (11:37 GMT)
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Spring Outlook: Housing Sales Are Looking as Bleak as Ever
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On Friday March 26, 2010, 11:44 am EDT
It's going to be another bad spring for the US housing market-unless you're a buyer.
With prices still falling and more distressed homes hitting the market, many experts are expecting the market to get even worse before it gets better.
"There's been some increase in inventory lately, mostly from distressed sales," says Walter Malony, spokesman for the National Association of Realtors. "Buyer's are pretty much in the driver's seat."
Even the Obama administration's new plan to help troubled homeowners, while praised by some economists, won't help the market much right away.
The $14 billion program, announced Friday, will try to stem a rising tide of home foreclosures by giving lenders incentives to erase some mortgage debt and slash mortgage payments for the unemployed. But it will take months before there is any impact, experts say.
"This change by the Obama administration is good news," says Mark Zandi, chief economist at Moodys. "It will help homeowners in a meaningful way. We should see the impact of this by the fall with fewer foreclosures. Housing needs this."
In the meantime, home values are continuing to drop and the amount of distressed property on the market is growing.
"There are still a lot of foreclosures in the pipe line," says Greg McBride, chief economist at Bankrate.com. "They're backed up because of paper work at the banks or moratoriums at the state level. But they are the elephant in room. And who knows what will happen when that inventory hits the market. It will more than likely hurt housing prices even more."
One thing that may help the market this spring: fewer people will be voluntarily putting their homes up for sale. That's partly because prices are still falling-but also because they don't feel they can afford to "trade up" to a bigger house.
"People who might want to sell at this time for a bigger home are worried about their jobs," says Bob Walters, chief economist at QuickenLoans. com. "That's keeping them somewhat in check as to whether they will sell or not."
The April 30 expiration of the first-time homebuyer tax credit is also a factor.
"Buyers took advantage of the $8,000 credit in earlier months and it ate up a lot of the inventory that would be there in spring," Walters says. "That will show up in the weeks ahead with fewer homes on the market than might be."
Concern over the rise in foreclosed and other distressed property remains strong. More homeowners who are "underwater"-or owe more than their home is worth-are expected to just walk away in the coming weeks, leaving more empty homes-and more inventory.
Buyers might be able to get great deals on foreclosed homes, but purchasers are often required to put at least 20 percent down on bank-owned homes-and closings can take up to six months or more due to red tape.
At the same time, a big rise in distressed property could help deflate home prices even further.
Sellers, meanwhile, have learned this spring to lower their expectations when it comes to asking price.
"Since a year ago, (asking) prices are more in line with what will sell and that's good for the market even if sellers wanted to get more money," says Robert Abbott, co-owner VP of Abbott Casert Realtors, a real estate firm in northern New Jersey. "They realize they can't all they expect right now."
Case in point-Jennifer McCoy Bartko and her husband who just put their three bedroom home on the market in Columbus, Ohio, to buy a bigger house so her widowed mother could come live with them.
"We priced our house competitively so that it will sell as quickly as possible," says the 36 year old Bartko, a program assistant at Ohio State University. "We don't expect to get the full asking price ($185,000) but pretty close to it. At this point, we won't be making any real profit off it, but that's OK with us. We want to sell."
But this spring's lower prices are keeping some potential sellers of the market.
"We tried selling our three bedroom home last year at this time but couldn't get our price," says one homeonwer from Morris Township, New Jersey, who fixed the home in order to sell and make a profit. "We are waiting for prices to go up. We really don't want to sell it now."
* Slideshow: Cities With the Most Home Price Reductions
Asking prices aside, the housing market faces other hurdles this spring and beyond as the latest numbers show existing home sales are in a downward trend and mortgage applications are falling.
For one, there's the first time homeowners tax credit-scheduled to end on April 30. (In cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.) The program's demise is no help to housing, at least in the short term.
"We're not seeing a lot of move up or move down buyers," says Jim Gillespie, president of Caldwell Banker Real Estate. "Those first time buyers are what's really important to the market."
Whether the Obama administration and Congress will extend the tax break is still in doubt.
Also in doubt-the future of the Federal Reserve's program of buying mortgaged back securities. The Fed announced last Tuesday that the program-which helped keep interest rates low-will end as planned on March 31. However the Fed did leave the door open that it could resume the purchases down the line.
If it doesn't, that could mean an increase for rates and higher mortgage payments. Thirty year rates are beginning to inch up-now at 5.01 percent-which is above last year's level at this time of 4.63 percent.
But some see that as a silver lining.
"If rates go up, I think it would spur on housing," says Dianne Saatchi, senior vice president with Saunders and Associates Realty in New York. "People will see rates rise and they will probably stimulate them to buy rather than wait for rates to go even higher."
Whether higher rates help or hurt the market, home buyers like Crystal Patterson, are learning that getting a loan continues to be tough.
Patterson and her husband are moving from Minneapolis, Minnesota to New Jersey for his new job as the CEO of the Bon Secours Charity Health System. They're currently living in a rental while the look to buy.
"We haven't talked to a bank yet but we've heard how difficult it is to get a loan," says the 34 year old Paterson who works as a lawyer. "That's why we sold our house in Minneapolis first, because we wanted to have the money to make a down payment. W don't want to get turned down."
Getting turned down may be more common in the days ahead. Stricter loan qualifications are still the order of the day-as well as a change on Wall Street.
"Banks have reconsidered their mortgage products," says Neil Garfinkel, a real estate attorney at AGMB law in New York. "There's going to be a hesitancy to lend for some time."
"I don't have a problem with that," Caldwell Banker's Gillespie adds. "Banks are restrictive but that's not so bad. We've gone back to like it used to be before the housing collapse. We need that to help stabilize the market."
With spring being a customary time of the year for housing to see some upswing, what sellers, buyers-and lenders-do over the next 2-3 months could be pivotal for a real housing recovery.
But if the housing collapse brought down the economy, it will take the economy to put the 'bloom' back on.
"There's been some good news on the job front lately with fewer cuts," says Bankrate's McBride. "But there's got to be a lot more job growth before housing really returns. It's the economy that's going to make housing recover."
Existing home sales plummet 16.7% in December
WASHINGTON (MarketWatch) - Sales of U.S. existing homes plunged 16.7% in December to a seasonally adjusted annual rate of 5.45 million from 6.54 million in November as a popular tax credit was set to expire, a national real estate trade group estimated Monday. The 16.7% percentage decline from November to December was the largest on record, the National Association of Realtors reported. The decline was larger than the 11% drop to 5.80 million that was expected by economists surveyed by MarketWatch. Sales in December were up 15% compared with December 2008. The median sales price rose to $178,300 in December, up 1.5% compared with a year earlier. It's the first year-over-year increase in prices since August 2007.
Builders stocks lower on new rules, housing data
By John Spence, MarketWatch
BOSTON (MarketWatch) -- The home-builder sector traded lower Wednesday after the Federal Housing Administration said it plans to increase some fees for borrowers and put stricter lending requirements in place.
The SPDR S&P Homebuilders ETF /quotes/comstock/13*!xhb/quotes/nls/xhb (XHB 15.42, -0.44, -2.77%) was down more than 2% in late-morning trade.
Separately, the Commerce Department on Wednesday said housing starts slipped 4% in December. See Economic Report on housing starts.
Deutsche Bank analyst Nishu Sood said the decline may have been more related to winter volatility and weather than anything else.
"New home sales are reapproaching all time lows while starts and permits are 28% and 41% above their all time lows. In our view the divergence is because builders are in a much better inventory, liquidity and expense position than they were a year ago," Sood said in a research note Wednesday.
"They are ready to look ahead to the spring season and housing recovery and even rebuild some inventory for the renewed tax credit," the analyst wrote. "The problem is that so far demand doesn't seem to be cooperating."
The housing market has shown some signs of life recently, but economists are worried that high unemployment, expiring government stimulus and rising foreclosures could weigh on the recovery.
The FHA on Wednesday announced policy changes designed to strengthen its capital reserves. The agency's proposals included increasing mortgage-insurance premiums, higher credit scores and down payments for new borrowers, and a reduction in seller concessions. Read full story on the FHA's new policies at WSJ.com.
"Specially, we believe the most important data point is that the minimum down payment requirement of 3.5% will not be raised for the vast majority of borrowers, in contrast to widespread expectations for a raise to 5%," said Michael Rehaut at J.P. Morgan.
"Overall, the changes outlined appear to be relatively modest, in our view, with the minimum down payment being raised to 10% for only borrowers with FICO scores of 580 or less, which we believe represents a small segment of FHA loans, raising the upfront fee by 50 bps to 2.25%, raising the annual insurance premium, and reducing the maximum permissible seller concession to 3% from 6%," the analyst wrote in a report to clients.
"Overall, we believe the down payment requirement not being raised for the vast majority of borrowers represents a solid positive relative to expectations, as this was potentially the most negative action that could have been taken," he said.
In other housing news Wednesday, mortgage applications rose in the latest week as rates pulled back. See full story on weekly mortgage applications.
On Tuesday, a home-builder trade group said its industry confidence index fell again in January. See complete article on builder confidence survey.
John Spence is a reporter for MarketWatch in Boston.
Housing starts slip 4% in December; building permits rise
For 2009, new construction falls to post-World War II low of 554,000 homes
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) -- Capping the worst year for housing since the end of World War II, U.S. housing starts fell 4% to a seasonally adjusted annual rate of 557,000 in December, the Commerce Department estimated Wednesday.
For all of 2009, an estimated 554,000 homes were started, down 39% from 2008's total and the lowest on record. Starts of single-family homes dropped 29% to a record-low 444,000 in 2009.
Housing starts of single-family homes, condominiums and apartments have been essentially flat over the past year, dipping one month only to rise the next. Compared with December 2008, starts are up 0.2%, the first year-over-year gain since early in 2006.
Mass. Vote Puts Dems' Health Bill in Jeopardy
Now that Republicans have won the Senate seat in Massachusetts, House Democrats are weighing whether they should pass the Senate's version of the health-care overhaul bill. Others say the bill may now be dead. WSJ's Janet Adamy reports.
Painted in the starkest terms, starts are down about 75% from the peak in 2006.
"This extremely depressed level of new construction should allow inventories of unsold new homes to enter the key spring selling season at reasonably balanced levels," wrote economists for Morgan Stanley.
The December estimate of 557,000 was better than the 540,000-unit rate expected in the median forecast of economists surveyed by MarketWatch. Read our complete economic calendar and consensus forecast.
November's starts pace was revised higher, to 580,000 from 574,000 previously reported. Read the full report on the government's Web site.
The home-construction industry has been busy slashing production of new homes to work off a massive inventory of unsold properties. As of November, the number of new homes on the market had fallen about 60% to just 235,000 -- the fewest since 1971.
For their part, builders remain very pessimistic about a recovery, despite a generous tax subsidy for buyers.
In January, the home builders' sentiment index dropped back to a reading of 15 from 16. Builders face tough competition from foreclosures of existing homes, and prospective buyers remain cautious about the job market. See our full story on the home builders' index.
The adjustment in home building isn't over yet: The number of homes under construction fell 4% in December to a seasonally adjusted annual rate of 511,000, a record low, the data showed.
For all of 2009, the number of homes completed fell 29% to 796,000, also a record low.
Some reasons for optimism
Details of the December report showed a stronger rebound in the housing market, however. The number of building permits rose 10.9% to a seasonally adjusted annual rate of 653,000, far above the level of starts and the highest in 14 months.
In December, building permits for single-family homes rose 8.3% to a seasonally adjusted annual rate of 508,000, the highest in 15 months. Many economists consider the single-family permits figure to be the most reliable and important number in the release.
Over time, permits and starts are highly correlated.
Permits are less affected by unseasonable weather than starts are. This December was one of the coldest and wettest on record.
"Some of the decline in starts may owe to messy weather conditions in the month which tend to affect permits less," wrote Julia Coronado, an economist for BNP Paribas. However it is still the case that the momentum in building activity as fizzled in recent months."
Starts fell sharply in the Northeast and Midwest, rose slightly in the South, and were essentially flat in the West.
The government cautions that its monthly housing data are volatile and subject to large sampling and other statistical errors. In most months, the government can't be sure whether starts increased or decreased.
In December, for instance, the standard error for starts was plus or minus 9.3%. Large revisions are common.
The standard error for monthly building permits data is much lower at plus or minus 2.4%.
It can take four months for a new trend in housing starts to emerge from the data. In the past four months, housing starts have averaged 562,000 annualized, down from 568,000 in the four-month period that ran through November.
In a separate report Wednesday, the Labor Department said producer prices rose 0.2% in December, while core prices -- which exclude food and energy prices -- were flat. Read our full story on the PPI.
Rex Nutting is Washington bureau chief of MarketWatch.
HOUSING SECTOR EVALUATION; Last post 0f 2009..
Still-rising delinquencies dog housing's recovery
3:46p ET December 29, 2009 (MarketWatch)
BOSTON (MarketWatch) -- Investors appeared to take a report on flat U.S. home prices in stride Tuesday, but still-rising mortgage delinquencies signal more foreclosures, putting a damper on hopes that the housing market is recovering.
"Delinquencies are a precursor to foreclosures," said Cameron Findlay, chief economist at LendingTree.com, in an interview Tuesday. "We're not seeing any decreases in delinquencies, which is very concerning."
More strapped borrowers are falling behind on their monthly payments during the recession as unemployment hovers around 10%.
Late Monday, Fannie Mae said serious delinquency rates in its conventional single-family-home mortgage portfolio rose to 4.98% in October from 4.72% the previous month. A year ago, the rate stood at 1.89%.
A wave of foreclosures would only add to the inventory overhang of unsold homes and delay a lasting recovery in residential real estate. Home prices peaked in the summer of 2006, before the credit crisis popped the bubble.
Values have rebounded somewhat in recent months, with some economists attributing the bounce to the expiration of the $8,000 tax credit for new homebuyers. The credit has been expanded and extended to spring.
The S&P/Case-Shiller home-price index of 20 major U.S. metropolitan areas released Tuesday showed values were flat in October, but still down more than 7% compared with October 2008. Home prices were off 29% from the 2006 peak.
Another potential headwind for home prices is rising mortgage rates, which boost the overall cost of owning a home. The rate on a 30-year fixed-rate mortgage broke above 5% in the latest week, according to a survey from Freddie Mac. Mortgage rates have been at rock-bottom levels, but they are widely expected to rise in 2010.
Analysts are watching the yield on the 10-year Treasury note, which is closely linked to mortgage rates. If demand for U.S. government debt wanes as a result of massive stimulus spending or other fears, it would send mortgage rates higher. And higher mortgage rates could lead to more foreclosures as adjustable-rate mortgages reset higher over the next two years, LendingTree's Findlay said.
The Federal Reserve has kept short-term rates near zero, and plans to keep interest rates low for an extended period. The Fed pumping liquidity into the mortgage market is also helping to keep mortgage rates artificially low. The Fed, however, plans to wind down its $1.25 trillion program to buy mortgage-backed securities by the end of the first quarter of 2010. Meanwhile, more-stringent lending standards mean it's more difficult for many borrowers to qualify for a mortgage.
Although the Fed is committed to keeping rates low and the market has been working off the inventories of houses for sale, "housing starts remain weak, fears that the market will be swamped by a wave of foreclosures are heard and government programs aimed at the housing market will expire in the first half of 2010," said David Blitzer, chairman of the index committee at Standard & Poor's, on Tuesday.
'Diminishing returns'
Home sales tend to drop off significantly during the colder months, so the spring season will be the big test for the recovery.
"From now through late January, we expect very limited activity in the housing market, as this is traditionally one of the slowest times of the year," said Buck Horne, a Raymond James analyst, in a Dec. 16 research note.
"Looking further ahead, though, we believe the extension and expansion of the homebuyer tax credit will provide a healthy tailwind for the industry once the 2010 spring selling season begins," he added. "That said, we also believe these incremental benefits likely have diminishing returns, and the back half of 2010 could be more challenging if meaningful job growth is still absent from the economy."
Earlier this month, Moody's Investors Service upgraded its outlook on the U.S. home-building industry to stable from negative. It cited strengthening indicators such as housing starts, sales, and improving home affordability.
"The industry's recovery remains precarious, however, given the sizable number of potential foreclosed homes that might eventually come to market, as well as the anticipated continued decline in home prices in 2010," Moody's said.
"The U.S. government's support for the sector is a critical source of strength," the ratings agency said. "A premature removal of government backing would put the industry's outlook at considerable risk of returning to negative."
HOUSING SECTOR I
Housing and commercial RE sectors in 2010
http://www.forbes.com/2009/12/29/commercial-real-estate-intelligent-investing-housing.html?partner=daily_newsletter
Sluggish new home sales show recovery is rocky
High foreclosure, jobless rates offset boost from tax credits
ANALYSIS
By John W. Schoen
Senior producer
msnbc.com
updated 12:15 p.m. ET, Wed., Dec . 23, 2009
The housing market is in the midst of a rocky recovery, but it’s too soon to declare an end to the worst real estate slide since the Great Depression.
That became clear Wednesday, when the government reported that sales of new homes dropped a sharp 11.3 percent, surprising and disappointing forecasters who had expected an increase.
The report dashed cold water on recovery hopes that had been raised Tuesday by news that sales of existing homes picked up sharply last month. But sales of existing homes got a big boost from a tax credit program for first-time home buyers that was scheduled to expire Nov. 30, before it was extended and expanded by Congress.
For technical reasons, the tax break didn’t give new sales the same boost as existing homes in November. That’s because new sales are recorded when contracts are signed, while existing sales are logged when the sale closes. To get the original $8,000 tax credit, buyers had to close by Nov. 30, so new homes purchased in November likely wouldn't have closed in time to qualify.
Although the tax break was extended through April, it remains to be seen whether the housing momentum will carry over into the new year. The uncertainty surrounding the program in the fall could result in some distortion in the monthly numbers, analysts said.
“Existing-home sales are likely to plunge in December,” said Patrick Newport, U.S. economist at IHS Global Insight.
The outlook is further clouded by a big wave of foreclosures that’s expected to break in the next two years.
“We have a tsunami of foreclosures — 3.5 million people who are 60 days delinquent, seriously delinquent, and probably another 3 million after that who are going to reach that stage,” said Yale University economics professor John Geanakoplos. “All six million of those will probably be kicked out of their houses.”
Under the new housing tax credit program approved by Congress and signed into law by President Barack Obama, buyers who have lived in their current homes for at least five years can claim a credit of up to $6,500 on a new home if they sign a purchase agreement by April 30.
Unlike the first program, the new effort could boost the market's midrange and upper end. Because it targeted first-time buyers, the impact of the original tax credit was felt most heavily at the low end of the market. More than 70 percent of November sales involved houses priced under $250,000.
The hope is that by next spring, the housing market and economy will begin showing sustainable growth without the help of the government. The risk is that the tax credit simply moves up future sales without creating new demand.
Although new-home sales account for less than 10 percent of the overall market, they are important because they represent construction and new economic activity.
November's decline, reported by the Commerce Department, was the biggest monthly drop since January, to a 355,000 unit annual rate. Still, there were some bright spots. The median sale price for a new home rose 3.8 percent from October to $217,400, the highest level since May.
A sustained housing recovery will depend on several factors, including a recovery in the labor market. Most economists expect the unemployment rate, currently at 10 percent, to remain close to that level for through next year. Without a paycheck, those jobless workers can’t get a mortgage.
The housing market also faces a stiff headwind from the continuing high rate of foreclosures, which drives down prices and adds to the backlog of unsold homes as lenders put those properties back on the market. Foreclosure filings in the U.S. will hit another record this year, with an estimated 3.9 million notices sent to homeowners in default, according to RealtyTrac. A record 14 percent of homeowners with mortgages are either behind on payments or in foreclosure.
“It looks like builders are having a real problem trying to compete with the depressed prices in the existing-home market,” said Joel Naroff, president of Naroff Economic Advisors.
Despite three government relief programs since the housing market collapsed in 2007, millions of families are expected to lose their homes over the next two years. Under the latest program launched in March, some 760,000 eligible borrowers have been offered modified loans, but only 31,000 of those trial plans had been made permanent as of last month, according to a report this week from bank regulators.
Part of the reason for the poor showing is that mortgage servicers don't have adequate staff and systems to process the increasing number of trial plans, the report said.
Lenders have also been slow to take more aggressive steps, such as cutting mortgage balances to reflect lost home values. Mortgages that were pooled and sold to investors have also created financial incentives for mortgage companies to drag out the process, according to Geanakoplos.
“They are leaving (owners) in their homes longer and longer because (mortgage servicers) realize they can continue to keep their fees coming, even as the people sit there,” he said.
Effective foreclosure relief is only one piece of the housing outlook puzzle. A sustained recovery will also depend on the cost and availability of credit.
Mortgage rates remain below 5 percent, though they’ve been inching up in recent weeks. Those low rates have been engineered largely by the Federal Reserve through its program to buy $1.25 trillion in mortgage-backed securities. About two-thirds of that has already been spent. In its latest regular policy statement, the Fed included a reminder that the program is set to end next spring. It’s not clear whether rates will begin rising after the Fed stops buying mortgage-packed paper.
Low mortgage rates have helped millions of homeowners reduce payments on their existing homes; roughly three out of four mortgage applications in the first two weeks of December were for refinancing, according to the Mortgage Bankers Association. That will help household budgets and shore up consumer spending, but it hasn’t spurred home buying.
Consumer spending rose for a second straight month in November as incomes recorded their biggest gain in six months, the Commerce Department reported Wednesday.
Falling real estate prices also have helped boost demand for homes by making homes more affordable. The median price of existing homes sold in November was $172,600, down 4.3 percent from a year earlier.
The combination of cheap mortgage money and lower prices has pushed the so-called “affordability” index close to its highest level in nearly two decades, according to the National Association of Home Builders.
As prices stabilize, lenders may become more confident about writing new mortgages, helping sustain demand after government incentives expire, said Richard DeKaser, an economist at Woodley Park Research. “I think that we’ll have the baton passed from the public to the private sector as lenders start to loosen up the purse strings," he said.
http://www.msnbc.msn.com/id/34528908/ns/business-personal_finance
Stronger than expected home sales!
Stocks rise for 3rd day after jump in home sales
Stocks gain for 3rd straight day after report showing big jump in home sales
Stephen Bernard and Sara Lepro, AP Business Writer, On Tuesday December 22, 2009, 5:16 pm
NEW YORK (AP) -- Stocks pushed higher for a third straight day after a surprisingly strong report on housing provided the latest evidence that the economy is picking up speed.
All major indexes gained less than 1 percent Tuesday, with the Standard & Poor's 500 index and the Nasdaq composite index closing at new highs for the year. The Dow Jones industrial average rose 50 points, bringing its three-day point gain to 156.
Stocks got off to a positive start after a report from the National Association of Realtors said home resales jumped 7.4 percent in November. That was much more than the 2.5 percent increase analysts expected. The government's tax breaks have spurred sales to their highest level in nearly three years.
The report added to a recent string of encouraging news on the economy, including upbeat earnings and forecasts from technology companies and more corporate dealmaking.
Toll Brothers Inc.'s (TOL, $18.75, -$0.74, -3.80%) fiscal fourth-quarter loss widened amid continued write-downs and a choppy housing market, but the luxury home builder said it is seeing some signs of a gradual recovery. The results were largely in line with Toll's preliminary earnings reported last month, which beat Wall Street's expectations and fueled a sharp rise in the company's stock. Still, a cautious tone underpinned the outlook for next year as the company predicted sales will be lower in the current fiscal year amid relatively slow recovery.
Commercial Property Fears Are Overblown: Zell, LeFrak
Associate Web Producer, CNBC.com
Commercial property is facing a tough time, but reports that it is likely to collapse and trigger a second round of the recession are exaggerated, three billionaire investors told CNBC Tuesday.
"I just don't believe that's the case," Sam Zell, chairman of Equity Group Investment, said about speculation that commercial real estate represents the second leg down of the financial crisis which hit the world two years ago.
"We haven't had a new real estate asset of any significance committed since July 2007," Zell said, adding that it may take another 24 to 36 months before a major project is committed.
Prices for commercial real estate have already fallen by about 40 percent, but the problem is that lots of owners are in negative equity now, said Richard LeFrak, president of the LeFrak Organization.
Commercial Real Estate
Owners don't sell because "the bottom line is there's more debt than there's value," Zell added.
However, debt makes up about 80 or 90 percent of commercial real estate projects in the US and because of the recession, unemployed people "need little retail space," Wilbur Ross, chairman and CEO of WL Ross & Co., said.
"I think it's going to be a long, hard struggle even without new construction," Ross said. "I think it is going to be tragic for the equity owners and for some of the lenders."
Typical regional banks in the US would have 25 percent of their assets in commercial property loans. "I think the biggest victims are going to be the regional banks," he added.
Malls are also likely to suffer, as "the new norm is that nobody goes shopping, everybody is saving," LeFrak said, adding that mall vacancy rates run at about 11-12 percent.
The worst-hit areas will be the ones to recover first, Zell said.
"I think that probably the most severe slowdown has been in office real estate and I'd suspect that probably that would be the first to recover," he said.
http://www.cnbc.com/id/34220044
DR Horton Q3 Misses, Stock Off 6%..builders in down trend!
By Tiernan Ray
DR Horton (DHI), the nation’s largest homebuilder by market cap, is falling hard, its shares down 65 cents, or 5.3%, at $11.60, after the company missed Q3 revenue estimates by 10% and a vastly deeper loss than expected.
Q3 sales fell 35% to $1.01 billion, missing the average $1.11 billion estimate, while the company’s net loss of 73 cents per share was more than double the 30-cent loss estimate. Revenue actually rose from Q2, but the so did the company’s losses.
Other homebuilders fell in sympathy, with Toll Brothers (TOL) off 40 cents, or 2%, at $20.11 and Pulte Homes (PHM) off 45 cents, or 5%, at $9.37.
up-down
CTX purchased by PHM.. can you take of it in charts?
tia
asset bubble: Japan vs USA--- Goldman sucks' study and take by iplaydecimate;
http://www.investorvillage.com/smbd.asp?mb=4245&mn=486365&pt=msg&mid=8192698
"The similarities to Japan, however, are quite frightening. Goldman Sachs recently wrote a piece detailing this point with a few counterarguments. Just how similar to Japan is the current deleveraging cycle in the United States? Let’s take a closer look:
Japan’s deflationary slump
The collapse of a massive asset bubble, a banking and credit crisis, zero interest rates and central bank balance sheet expansion, and massive fiscal stimulus: these features of the Great Recession sound eerily like Japan post-1990. The legacy of the Japanese bust was a pernicious deflation, burgeoning government debt, and a seemingly permanent reduction in trend growth casts a long shadow over the current crisis.
Will the Fed really be able to make sure it – deflation – doesn’t happen here?
Although a thorough comparison of the Japanese and US crises is beyond the scope of this paper, there are several reasons to believe things could turn out better in the United States:
1. A considerably smaller asset bubble.
Though the US bubble certainly looks large, Japan’s was truly epic three to four times as large by some measures. Exhibit 14 compares equity and home price booms and peak valuations in the two countries. At this stage, it appears that US financial sector losses from the bubble are likely to be proportionately smaller as well.
japan6
GS Equity & RE Prices (Exhibit 1)
This is not entirely true. If you take the short timeframe then yes, Goldman is correct, but if you back these charts out to 10 years then you’ll actually find that the bubbles in both real estate and equity markets were nearly identical. Goldman is essentially datamining in order to prove their point. The following chart shows that the 6 city Japan real estate composite is almost EXACTLY the same as the Case Shiller 10 city Composite:
japan1
10 Year Japan & U.S. RE Prices (Exhibit 2)
Exhibit 3 below shows nearly the exact same story in equities. The inflation adjusted prices over the 10 years prior to the peak were nearly identical. To Goldman’s credit, the PE ratio of the Nikkei was substantially higher at the peak than we experienced here in the U.S., but as regular readers know, PE ratios are about as useless as any pricing ratio. They are nothing more than an inefficient market price divided by a guess (analyst estimate) – or in the case of a trailing PE – a rear view mirror indicator. In other words, they are mostly worthless so I will refrain from elaborating.
16696
QE & Equity Prices (Exhibit 3)
Goldman goes on to argue that the policy approach has been far more proactive in the U.S.:
2. A far more aggressive and rapid policy response in the US.
The difference in monetary, fiscal, and regulatory policy in the two countries could not be more striking if we compare the behavior of policymakers following the equity market peak (October 2007 in the United States and December 1989 in Japan): In the first 18 months of the crisis the Fed cut its target rate more than 500 basis points, instituted numerous liquidity facilities, and announced plans to purchase assets worth 9% of GDP. The Bank of Japan took more than a year to begin cutting rates and more than seven years to expand its balance sheet significantly.
On the fiscal side, the US has already enacted a stimulus program worth about 5% of GDP; it was more than two years before more modest and piecemeal stimulus began in Japan. The US has completed a highly successful bank stress test and recapitalization program for institutions comprising about half of the aggregate balance sheet of the financial system. The Japanese authorities’ first significant injection of funds in the banking system began eight years after asset prices began to deflate (although with a shorter lag after the onset of severe financial market stress).
The following chart shows that the U.S. response was in fact much more swift than the Japanese approach:
japan3
BOJ vs. FED Response (Exhibit 4)
I would argue, however, that the reaction time has little to do with anything once the problem is this far along. The cancer in our system has already metastasized. The underlying problem was not that rates were too high or that there were no stimulus packages already in place – the real underlying problem was that there was too much debt in the total system.
That problem still exists and had already spread throughout the system by the time the Fed began to act. Nothing was done about it. All we’ve done is inject the patient with enough Percocet to put an elephant to sleep. In other words, the patient feels better, but the cancer is still there. Since the cancer had already metastasized by the time the BOJ and Fed began to act, it didn’t matter how quickly they responded.
The Fed would have had to have been much more proactive (for instance, not leaving rates so low in 2003) in order to contain the cancer. Regardless, Japan is a great example that government stimulus is not going to help fix the long-term problem once it is in motion:
japan4
Effects Of Stimulus In Japan (Exhibit 5)
Goldman continues:
3. Potentially better prospects for external adjustment.
Over the decade after the Japanese bubble peaked, the contribution of net exports to real GDP growth was essentially zero, despite a massive deceleration in domestic demand. We see three reasons why US net exports could do better.
* First, the United States economy is more open: trade (exports plus imports) as a share of US GDP is about 24%, versus around 15% in Japan in the lost decade.
Second, the dollar has appreciated only marginally since the onset of the crisis. The yen rose 7% in the comparable period after Japan’s bubble burst, on its way to a 25% real-trade weighted appreciation after five years.
Third, despite what we believe will be a slow US recovery, we expect global real GDP growth over the next couple of years to substantially outpace the early to mid-1990s, although much of the strength is likely to come from emerging market economies such as China rather than key US export destinations.
This is mostly spot-on. The only thing I would point out is that Japan is a clear example that GDP can expand while the stock market fundamentals can continue to deteriorate. Reference Exhibit 6 for a visual example of nominal GDP expansion during a deflationary period. In our consumer based economy it should not shock anyone that a continued debt drag on consumers might hinder future earnings growth.
japan2
GDP Japan & Commercial RE Prices (Exhibit 6)
Lastly, Goldman points to the demographic differences:
4. A smaller demographic challenge.
Japanese labor force growth slowed from about 2% per year in the final years of the bubble to a halt in the early 1990s. US labor force growth has also stalled in the recession, but American demographic challenges are less severe. The ratio of the working-age population to non-working age population fell more steeply in the lost decade than it will in the United States over the next decade.
The dependency ratio, however, in Japan and the U.S. is nearly identical. In 1990 Japan had a dependency ratio of 17%, but that spiked to 25% by 2000. As of today, the dependency ratio in the U.S. is 18% and is expected to jump to 25% by 2010.
Despite these mostly false counterarguments, Goldman goes on to agree with my primary argument:
Against this, some aspects of the US situation look more challenging. The United States generated significantly larger real economic imbalances during the boom. US consumption reached 70% of GDP and the current account deficit was nearly 5% of GDP at the onset of the crisis; Japan ran current account surpluses throughout.
These imbalances probably help explain the deep correction after the bust by most measures, the US has more spare capacity in the economy now than Japan did at any point in the lost decade, and therefore arguably more deflationary risk. The severity of the crisis and its interconnectedness with the rest of the world also means that aftershocks may be more of a risk to US trading partners’ growth prospects than they were to Japan’s trading partners in the 1990s.
In summary, it’s easy to draw several clear distinctions between the US and Japanese post-bubble episodes. But it’s much more difficult to decide which is the more challenging. While US policymakers faced a more manageable asset bubble and dealt with it more aggressively, they preside over an economy with substantially larger fundamental imbalances.
And while the United States arguably has better longer-term growth prospects due to productivity and demographics, it may be operating in a less friendly external environment. We are hopeful that the US situation will prove more manageable, and ultimately transitory. However, of the various cross-country historical comparisons to the current US outlook, we believe the Japanese experience provides the closest analogy.
Unfortunately, I am afraid the U.S. situation will not prove to be more manageable (ironically, because we are not managing it well). Our deleveraging issues lie with the U.S. consumer despite what the bankers will tell you about their own problems. The one weak leg of the recovery remains the debt-laden consumer.
The root of the problem is still alive and well and as government stimulus and endless money printing fail to ignite a sustainable recovery there will be a decline in confidence which will ultimately begin to feed on itself. SocGen’s Albert Edwards describes the phenomenon (for more from Edwards please see here):
One of the key lessons from Japan’s lost decade is that investors’ confidence that the authorities are in control of events will ultimately drain away. In a balance sheet recession, one should expect frequent downturns as the authorities balk at additional stimulus. Only then will zombie investors, sucked dry of confidence, squeeze the remaining puss from equity market valuations. Only then will the 20 year boil of equity market over-valuation be properly lanced.
While equity investors feed at the trough of greed bond investors are hunkering down for continued bout with deflation. Despite the Feds all out war on deflation and throttling of the printing press, the bond market isn’t buying it. 3 month t-bill yields remain near all-time lows – another striking similarity with Japan.
japan5
3 Month Bills (Exhibit 7)
We continue to ignore our past and the warnings from those who have dealt with similar financial crises. Keiichiro Kobayashi, Senior Fellow at the Research Institute of Economy, Trade and Industry is the latest economist with an in-depth understanding of Japan, who says the U.S. and U.K. are making all the same mistakes:
Bad debt is the root of the crisis. Fiscal stimulus may help economies for a couple of years but once the “painkilling” effect wears off, US and European economies will plunge back into crisis. The crisis won’t be over until the nonperforming assets are off the balance sheets of US and European banks.
The main issue, as Kobayashi elaborates on, is that the U.S. is ignoring our debt problems rather than confronting them. This reactive approach to deleveraging is very similar to the ways Japan dealt with their financial crises. They swept problems under the rug hoping the economy would improve, but it never rebounded substantially. Low rates and quantitative easing didn’t attack the problem of too much debt. Kobayashi sums it up beautifully:
So long as people hold onto the expectation that recovery could be brought about by fiscal measures, no national consensus can be built to proceed with the painful disposition of nonperforming assets. It is necessary to learn by firsthand experience that fiscal measures are only makeshift. In this context, the enormous fiscal deficit that will be built up in the US in the coming months may be the political cost for consensus building, which would be a replay of what Japan went through in the 1990s.
Up until several years ago, the US and European countries had repeatedly criticized Japan’s policy responses for being too slow. But it might be the case that US and European policy responses are just as slow as those of Japan when it comes to tackling the daunting task of solving nonperforming asset problems. By studying Japan’s experience, foreign policymakers have an excellent example from which they can learn what not to do. Yet, the recent developments show just how difficult it is to learn from the mistakes of others. We, as human beings, are by nature probably unable to take to heart anything having negative implications unless we learn its lesson the hard way through firsthand experience.
I know it’s not easy to take our medicine, but I fear that all we’ve done is create an economic recovery that is entirely dependent on money printing and government stimulus. In other words, it is not sustainable. We all need to get our financial houses in order (from the government to the corporations to the citizens) – that is the only true medicine. For now, I fear that we are simply repeating the mistakes of the past. This doesn’t necessarily mean that we are destined to suffer two decades of negative stock market performance as Japan has, but investors who are expecting a sustained v-shaped recovery are likely fooling themselves. These problems run deeper than the bankers and government will have you think.
And what if I am wrong and Ben reflates us back to health, you ask? Well, it’s likely that all Ben Bernanke has done then is fire up the economy for another round at the boom/bust cycle."
Toll Brothers Jumps as Luxury Home Orders Surge 42%
By Brian Louis and John Gittelsohn
Nov. 11 (Bloomberg) -- Toll Brothers Inc., the largest U.S. luxury homebuilder, gained the most since 1992 after orders surged 42 percent in the fiscal fourth quarter, cancellations slowed and revenue beat analysts’ estimates.
“The improvement in consumer confidence over the past year, the increasing stabilization of home prices, the decline in unsold home inventories and the reduction in buyer cancellation rates suggest that the new home market should be improving,” Chairman and Chief Executive Officer Robert Toll said in a conference call. “We sense that it is, though slowly.”
The builder focused on reducing unsold inventory and increasing cash to weather the housing recession. The median price for a new U.S. home was $204,800 in September after declining from a record high of $262,600 in March 2007, according to the Census Bureau.
Toll Brothers had been raising prices until September.
“Since Labor Day weekend up to the present, we do not think we have as much pricing power as we had,” Robert Toll said.
The builder’s net contracts climbed to 765 in the three months through October from 539 a year earlier and the cancellation rate dropped to 6.9 percent from 30.2 percent, Horsham, Pennsylvania-based Toll said in a statement yesterday.
The shares climbed $3.02, or 16 percent, to $21.41 at 4:15 p.m. in New York Stock Exchange composite trading, the highest gain since 1992. The Standard & Poor’s Supercomposite Homebuilding Index rose 6.9 percent, the most since May.
Upside Surprise
“The surprise was more on the upside,” said David Goldberg, an analyst with UBS Securities LLC in New York. “They did better than we thought.”
Toll stands to gain a bigger market share as smaller rivals struggle to secure financing for new construction, said Goldberg, who rates the shares “buy.”
Robert Toll said the housing recovery “will come in fits and starts” and be “through choppy waters.”
The gain in contracts signed surpassed the 17.5 percent increase projected by James McCanless, an analyst with FTN Equity Capital Markets Corp. in Nashville, Tennessee, who rates the shares “buy.”
Increased orders and a “faster-than-expected reduction in speculative inventory” should boost gross profit margins this fiscal year if the cancellation rate stays near current levels, McCanless wrote in a report today.
Revenue dropped to $486.6 million in the quarter from $698.9 million a year earlier, Toll said. Twelve analysts in a Bloomberg survey predicted an average of $373.5 million.
Toll Brothers issued preliminary results yesterday and plans to release a full earnings report Dec. 3.
Homeowner files class-action lawsuit against Texas' KB Home
By Dennis Norman, on November 13th, 2009
Lawsuit charges national price-inflation scheme to defraud consumers
A Texas homeowner filed a class-action lawsuit today against KB Home (NYSE:KBH) , Countrywide Financial and LandSafe Appraisal Services, claiming the three conspired to rig housing prices in Texas and Colorado, costing home purchasers millions of dollars and pushing homeowners into dangerous loans.
The suit, filed yesterday in U.S. District Court in Los Angeles, claims the three companies employed a well-planned scheme to control the typically independent appraisal process, jacking up home values, which, in turn, were used to determine the value of other homes sold by KB, affecting thousands of homeowners.
The suit claims KB Home targeted homeowners throughout Texas and Colorado with the scheme. The complaint states between 2006 and 2008 more than 19,000 homes were delivered to the area. At an average price of $167,533 a home, and conservatively assuming an average inflated appraisal of $20,000 per home, that amounts to almost $300 million in inflated contract prices, the suit states.
The homebuilder has a significant presence in Texas with 17 communities in the Austin area, 10 communities in the Dallas area, 16 communities around San Antonio and 24 communities in Houston, the suit states.
This is the fourth lawsuit Hagens Berman Sobol Shapiro (HBSS) has filed against KB Home, Countrywide and LandSafe alleging a national inflation scheme to defraud consumers. The other lawsuits represent homeowners in California, Arizona, Nevada, Florida, North Carolina and South Carolina.
“The lawsuit representing Texas and Colorado homeowners mirrors the others suits we’ve filed across the country,” said Steve Berman, managing partner at Hagens Berman Sobol Shapiro. “These three created a systemic and tightly controlled process to inflate home values and home sales with no regard for the homeowners or the dangerous loans the companies pushed on unsuspecting purchasers.”
According to the complaint, Countrywide funneled all its KB customers’ home appraisals to a single person at LandSafe, an appraisal subsidiary of Countrywide, who in turn would deliver an appraisal value at whatever KB and Countrywide ordered.
The named plaintiff, Alice Stacy, purchased her home in 2006, and initially signed a purchase agreement for $150,484. An initial appraisal submitted to Countrywide-KB mistakenly put the home’s value at $142,000 – this included a $14,000 sales incentive and rolled in the closing costs of the home that totaled $5,516, the suit states.
The appraiser mistakenly thought KB wanted to sell the home at $142,000, a number too low to support the loans KB and Countrywide decided to foist on Stacy. It was also too low to support the sales pitch KB delivered to Stacy, claiming the home’s value was $150,500.
The plaintiff obtained a report of the lower appraisal, contacted KB and demanded a lower contract price, and the company told her the appraisal was a mistake. KB insisted the house was in fact worth $150,500 and they would fix it, the suit states.
A few days later, the same appraiser submitted a revised appraisal showing an increased value on the home, exactly the level that KB promised Stacy.
“With this case, Alice called KB out and pretty much caught them red handed inflating values after the appraiser mistakenly issued the lower report,” said Berman. “The correction and inflation of the value speaks volumes to the practices we’ve alleged in all our complaints, that KB’s demanding specific home values and LandSafe is delivering without question.”
The lawsuit lists several claims against the defendants including violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), violation of California unfair competition law and unjust enrichment.
The lawsuit represents anyone who used Countrywide and LandSafe to finance a home purchased through KB Home in Texas or Colorado. To join this case, homeowners can contact attorneys by visiting www.hbsslaw.com/kbhomes, e-mailing kbhomes@hbsslaw.com or calling 206.623.7292.
Serious mortgage delinquencies up 147 percent in past year
By Dennis Norman, on October 20th, 2009
Dennis Norman
Yesterday the Federal Housing Finance Agency (FHFA) reported that Fannie Mae and Freddie Mac’s trial mortgage loan modifications under the Obama Administrations Home Affordable Modification Plan (HAMP) were up more than 40 percent in September 2009 from the previous month. According to the report, mortgage loans that are 60-plus-days delinquent increased to 1,401,000 borrowers in July, up a whopping 147 percent from July, 2008 when there were 566,000 borrowers 60 plus days delinquent.
Here are highlights from the report (all the data, unless noted otherwise is from July 31, 2009):
4.6 percent of Freddie Mac and Fannie Mae loans were 60 plus days delinquent. A scary thought that almost 1 in 20 homeowners with a mortgage in the US fall in this category.
58 percent of the borrowers in this category had a credit score that was equal to or better than 660 at the time they took out the loan. The remaining 42 percent had a credit score below 660 at the time of the loan.
6.76 percent of Freddie Mac and Fannie Mae loans were delinquent. Greater than 1 in 15 homeowners are delinquent on their mortgages. This has increased almost 20 percent since the beginning of the year when the rate was 5.68 percent.
There were 5,492 short sales (a sale at a price that nets less than the total amount due on the mortgage) in July, up 23.6 percent from the month before and up a staggering 268 percent from a year ago.
So far in 2009 there have been 25,251 short sales.
New Homes Sold Through Sept. down 26.6 Percent from Year Before
By Dennis Norman, on October 28th, 2009
Dennis Norman
This morning the U.S. Department of Commerce released a report showing the sale of New Homes in September were at a seasonally adjusted annual rate of 402,000, a 3.6 percent decrease from the revised August rate of 417,000 and is 7.8 percent below a year ago.
Like I pointed out however, in my post last month, about the August numbers, I don’t think discussing the “rate” of new home sales paints a realistic picture of the market. Here we are talking about 3/4 of the year being gone (not to mention the best selling season) and to say the new home sales “rate” is down 7.8 percent from a year ago doesn’t make sense to me when actual year to date sales of new homes are down 26.6 percent from this time last year.
The report shows through September, 30, 2009, there have been 293,000 new homes sold compared with 400,000 new homes sold as of the same date the year before for a decrease of 26.6 percent. There were 31,000 new homes sold in September, down 16.2 percent from the 37,000 new homes sold in August. Year to date new home sales is down form last year in all four regions with the South seeing the biggest decline at 29.0 percent follow by the Midwest at 28.0 percent. Not far behind is the West with a 25.3 percent decline and the Northeast is faring the best with a decline of 11.1 percent.
The median sales price of new homes sold in September was $204,800 and increase of 2.4 percent from the August median new home price of $199,900.
The supply of new homes for sale dropped to 251,000 at the end of September a decline of 3.8 percent from the August inventory of 251,000 and, based upon the current new home sales “rate”, an equivalent of a 7 month supply, which actually the lowest number we have seen for supply in well over a year and not far off from a “normal” supply of 5 or 6 months.
One concern I have, which I have echoed many times, including in my post earlier this month about new home starts, is that even the reduced new home construction activity is still outpacing new home sales. Seeing the inventory decline is encouraging, but until we start seeing a real indication of new home sales picking up pace, I don’t think we want to start building inventory again.
Last month I projected that we would end 2009 with about 385,000 – 395,000 new homes sold versus 485,000 new homes sold last year. I had hoped to see better numbers in September as a result of the home-buyer tax credit which soon may come to an end, but based upon where we stand now I would lower my estimate to 375,000 – 385,000 new homes sold for the year.
graphic - New Home Sales In US
Across the country, builders are donwsizing new construction
By MICHAEL M. PHILLIPS
THE WALL STREET JOURNAL
November 15, 2009 12:00 AM
SMYRNA, Ga. — For the first time in four decades in the luxury-home business, executives at John Wieland builders are thinking the unthinkable: Maybe houses in the South don't really need a fireplace.
They also are wondering whether new homes require 4,700 square feet of living space. Or private theaters with 100-inch screens. Or super-size-me foyers.
As they draw up blueprints for the house of the post-recession future, builders are struggling to distinguish among what home buyers need, what they want and what they can live without — Jacuzzi by Jacuzzi, butler's pantry by butler's pantry.
"You have to keep taking things out until you hit a critical point where people reject your product," said Jeff Kingsfield, senior vice president of sales at Smyrna-based John Wieland Homes & Neighborhoods.
It is an experiment brought on by necessity. Two years ago, closely held Wieland was building 1,800 houses a year in posh subdivisions in Georgia, Tennessee and the Carolinas, selling for an average of $650,000 each. Today, the company is closing on just 600 homes annually, according to Wieland. It has slashed staff to 330 employees from 1,100.
The American housing market continues to drag, with the Mortgage Bankers Association reporting last week that applications for home-purchase loans have hit a nine-year low, plunging a seasonally adjusted 11.7 percent in the week ending Nov. 6 from the previous week. U.S. sales of newly built homes have fallen sharply as well, from 1.3 million in 2005 to 485,000 last year. The latest Census Bureau data suggest that this year's sales will be even lower. Just 294,000 new homes sold through the first nine months of this year.
More often than not, builders say, post-crash buyers of new houses want smaller and simpler residences. The average new single-family house peaked at 2,507 square feet in 2007 and has since slipped to 2,392 square feet, according to Census Bureau data.
Average prices are sliding, too, by 16 percent — to $269,200 — from the first quarter of 2007 and the third quarter of this year, the Census Bureau reports. Wieland has been hit worse than most. The company's average sales price has dropped $153,000, to $497,000, or about 24 percent. Company executives expect that a year from now, 85 percent of its houses will go for less than $430,000.
That has forced Wieland to design a new range of compact homes and reconsider everything that goes into them. Replacing tiled tubs with fiberglass units can slice $4,000 off the house price. Skipping the fireplace can slash an additional $3,500. In its place, Wieland is trying out a media wall — essentially a place to hang a big television, surrounded by shelves.
Last year, Paula Bishop, one of the company's architects, designed the 4,700-square-foot Arden, a 107-foot-long, five-bedroom, three-stairway showcase planned for a lot near Suwanee, Ga. The laundry room was 10 feet by 7, the mudroom 12 feet by 8. Including the bedroom, bathroom and his-and-hers walk-in closets, the master suite stretched almost 40 feet. Above the garage was a guest suite with its own kitchen and recreation room. A covered breezeway stood off the vaulted breakfast room.
Wieland never built the Arden.
"The price point has dropped in the neighborhood," Bishop said.
So the company told her to squeeze 900 square feet and $60,000 out of the original $650,000 design.
The other day, Bishop sketched a new Arden on tracing paper. She erased the rear staircase and flattened the bay window. She cut the 94-square-foot pantry in half. She turned the mud and laundry rooms into a mud-and-laundry room. The three-car garage remained, but she redrew it so two cars now had to be parked bumper to bumper.
"I haven't gotten to the second floor yet, but it will be a ton smaller," she promised.
The trend toward smaller homes hasn't hit all builders evenly. Winchester Homes, a Bethesda, Md.-based unit of Weyerhaeuser Co., is launching five new floor plans from 1,973 to 2,800 square feet, the smallest houses the company has ever produced. Vintage Communities, a privately owned developer in Southern California, plans to unveil a 2,900-square-foot,
$1 million-plus model when the market improves, replacing a 3,600-square-foot house that it had priced as high as $1.5 million in Rancho Santa Fe.
Toll Brothers Inc., a Horsham, Pa.-based home builder whose average house sells for $600,000, reported last week that net contracts for new homes rose 42 percent in the three months that ended Oct. 31. The company says its luxury customers are more skittish about buying than they used to be, but when they do make a purchase, they still want large homes with all the frills.
Not so Aaron and Meredith Easley, who put aside the temptation to buy a foreclosed 4,500-square-foot manse and instead bought a 3,200-square-foot Wieland home in Pineville, N.C. "We weren't so concerned about square footage," said Aaron Easley, 31, a trainer with BB&T Corp. "I'm not all about keeping up with the Joneses."
There are few Joneses to keep up with. The Easleys were the first family to move into what is planned to be an 800-home development, living alone amid empty model houses and expanses of graded land. Wieland executives were so happy to have someone move in that they finished the attic level and put in hardwood stairs for free.
"There's a lot more that comes with those McMansions," said Aaron Easley, whose wife is a kindergarten teacher. "There's a lot more cleaning. There's a lot more heating, a lot more cooling."
Wieland said it believes the market downshift reflects "a fundamental change in the way people are going to want to live," and not just a reaction to scarce credit and insecure jobs, said F. David Durham, senior vice president. "We're not waiting for things to return to the way they were."
The shift is visible at BridgeMill, a Wieland subdivision in Lancaster County, N.C. The early houses, built near the front gate during the go-go years early in the decade, are massive brick structures. Further inside come the post-boom houses, more cottage than mansion.
The juxtaposition can prove awkward for Wieland. The company's new, smaller homes sometimes compete for buyers with bigger houses it built just a few years ago that hard-pressed owners are now reselling at a discount.
The turbulent market has led the builders to ponder just where they — and their customers — went wrong. Easy credit allowed some buyers to purchase more house than they could afford. And, in reflective moments, Wieland officials wonder whether the builders simply fell in love with the idea of creating giant houses loaded with cherry cabinets, body-spray showers and built-in wine coolers. Builders built them because they could; buyers bought them because they could.
Fearful that their market is evaporating, company executives have spent the past few months trying to figure out what buyers are willing to give up, and what they are not. On the latter list are four bedrooms, a downstairs powder room, a garage that fits at least two cars, and granite countertops in the kitchen. "We feel that's one of the things homeowners are still holding on to," said Shane Roach, vice president of home building operations.
The master bedroom must have its own bathroom, with separate tub and shower. The tub is still big, but the jets, standard equipment for at least a decade, are now optional in new models. It turns out that few buyers used the jets more than a couple of times. The children get one-piece, fiberglass tub-shower combinations instead of tiled walls.
The "home-management" center — a built-in desk in the family room — has disappeared from the newest plans. Such luxuries are now available at an extra charge. Window casings are 2¾ inches wide instead of 3½ inches wide in one scaled-down model that Wieland is just now putting on the market. In another, company officials want to move a master-bedroom window from the side wall of the house to the rear.
Smaller houses come on smaller lots, and having a window on the side makes it hard to avoid noticing that the neighbor's house is just a few yards away.
Mortgage Rates Fall This Week; 30-Year Fixed at 4.91%-Freddie
Last update: 11/12/2009 10:22:27 AM
DOW JONES NEWSWIRES
Mortgage rates fell this week, with the average rate on 30-year fixed-rate mortgages retreating further below the psychologically significant 5% level and hitting a 5-week low, according to Freddie Mac's (FRE) weekly survey of mortgage rates.
Treasury yields, which hit multi-decade lows earlier this year, have been bobbing up and down recently after they retraced from a big rebound in the summer. Mortgage rates tend to follow the yields.
The news comes amid mixed housing market data. Wednesday, the National Association of Realtors said sharply discounted foreclosed properties continued to push down the selling price of existing homes in the third quarter, while last week the S&P Case-Shiller index showed U.S. home prices increased in August for the fourth time in a row. And, although home resales surged in September according to Commerce Department data, the department said new-home sales fell unexpectedly in September after five months of growth.
The 30-year fixed-rate mortgage averaged 4.91% for the week ended Thursday, down from last week's 4.98% average and 6.14% a year ago. Rates on 15-year fixed-rate mortgages were 4.36%, down from 4.4% last week and 5.81% a year earlier.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 4.29%, down from last week's 4.35% and 5.98% a year earlier. One-year Treasury-indexed ARMs were 4.46%, down from 4.47% last week and 5.33% a year earlier.
To obtain the rates, the 30-year mortgage required payment of an average 0.7 point, while the rest required an average 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.
-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291; joan.solsman@dowjones.com
(END) Dow Jones Newswires
FHA's cash reserves have dropped well below amount required by law, audit shows
By Dina ElBoghdady
Washington Post Staff Writer
Thursday, November 12, 2009; 11:20 AM
For the first time since 1994, the Federal Housing Administration's cash reserves have shrunk to a point far below what is required by law and could turn negative if worst-case scenarios are factored in, according to an independent audit designed to measure the agency's financial soundness.
The reserve fund, which holds excess cash beyond what the agency needs to cover future losses on its outstanding loans, had an estimated value of $3.6 billion as of Sept. 30, an sharp drop from the $15.82 billion that last year's audit projected it would have by this time.
The $3.6 billion value represents 0.53 percent of the mortgages insured by FHA, well below the 2 percent ratio required by law and the 3 percent ratio maintained by the fund at the same time last year.
If FHA's reserves drop below zero, FHA taxpayer money would automatically flow into that fund from the U.S. Treasury.
Under more pessimistic scenarios, FHA would lose so much in premiums that it would run out of capital in fiscal year 2011, requiring $1.6 billion in borrowing from the Treasury in fiscal year 2012, according to the report submitted to Congress.
The FHA's financial health is in the spotlight because it is playing a key role in supporting the housing market. But as its volume of loans has exploded, its default rate has climbed. The agency attributes the dramatic slide in its reserve fund to hefty losses on loans it insured from 2005 through 2008 -- when home prices declined, the economy soured and unemployment soared.
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FHA does not make loans. It insures them against default.
"The story of FHA's financial status at the end of FY 2009 is then the tale of two portfolios," says a report Secretary of Housing and Urban Development Shaun Donovan submitted to Congress on Thursday. "The older portfolio has high rates of delinquencies and is expected to have high rates of insurance claims in the future. The new portfolio, which soon will be larger than the older portfolio, is expected to have more modest claim rates over the life of the loan guarantees."
Since its creation in 1934, FHA has been self-sustaining, meaning no public money has been used to cover its mortgage losses. Instead, FHA borrowers pay premiums into an insurance fund to cover defaults and foreclosures.
The FHA also maintains a financing fund, which it uses to pay out claims on defaulted loans, and is separate from the capital reserve, which holds surplus cash. The two funds combined total $31 billion in value, which in theory would be enough to cover an estimated 4.5 percent of outstanding loans, the FHA said in a statement.
However, the ration of loans that the cash reserves alone would cover is barely a quarter of the legally required 2 percent.
"There are real risks to the FHA and we are aggressively addressing those real risks with real reforms," FHA Commissioner David H. Stevens said in a statement.
up-down;
waz going on/ how is everything? where else are you in nowadays?
Home Buyer Credit Gets New Life Article
OCTOBER 29, 2009
By COREY BOLES and JOHN D. MCKINNON
WASHINGTON -- Senate negotiators reached a tentative deal to extend a tax credit for first-time home buyers, but its passage remains uncertain.
The agreement would extend the existing credit for first-time home buyers, worth up to $8,000, while offering a new credit of up to $6,500 for some existing homeowners, Senate aides said. The reduced credit would be available to all home buyers who have been in their current residence for a consecutive five-year period in the past eight years.
The new provisions are aimed at broadening availability of the credit beyond first-time buyers and giving the weakened real-estate market a bigger boost while preventing real-estate investors from benefiting.
Many property experts have cited the credit as a reason for signs of recovery in the housing market in recent months. But that recovery was somewhat undercut by the September drop in new-home sales reported Wednesday.
The credit would be extended from its current expiration date of Dec. 1 to all contracts entered into by April 30, and closed before July 1. It is expected that income limits on people claiming the credit would be increased to $125,000 for singles and $250,000 for couples, from the current $75,000 and $150,000, aides said. The credit phases out for people making more than those amounts.
While Senate lawmakers appear to have reached a deal on the substance of the tax credit, they are still at odds over how it would be brought to the Senate floor. Senate Majority Leader Harry Reid (D., Nev.) hopes to add it to a bill currently on the Senate floor to extend federal unemployment insurance benefits. But agreement on that hasn't been finalized.
While Senate Republicans are likely to support the measure, House Democrats have raised concerns that it carries a high cost to the government. The Internal Revenue Service is examining the program for alleged abuse.
Write to Corey Boles at corey.boles@dowjones.com and John D. McKinnon at john.mckinnon@wsj.com
http://online.wsj.com/article/SB125678511901015147.html
Home prices stabilizing and even increasing in 20 cities? This must be cause of buyers bottom fishing and housing credits..
Case-Shiller: Home prices rise again
Bizjournals.com - Home prices in 20 US markets, including Miami, rose in August, according to the latest S&P Case-Shiller home price index. Home prices nationwide were up 1 percent from the previous month on a seasonally adjusted basis.
New Home Sales scheduled for Wednesday.
New home sales fall 3.6 percent
Bookmarks Print AP – In this photo made Oct. 26, 2009, a new development of townhouses is seen in Wakefield, Mass. Sales of …
Slideshow: Housing Crisis Play Video
Economy Video: How Will We Know The Recession Is Over?
BZH 4.39 -0.43
DHI 11.26 -0.55
HOV 3.99 -0.31
KBH 14.34 -0.77
By ALAN ZIBEL, AP Real Estate Writer Alan Zibel, Ap Real Estate Writer – 20 mins ago 10/28/2009
WASHINGTON – Sales of new homes dropped unexpectedly last month as the effects of a soon-to-expire tax credit for first-time owners started to wane.
The Commerce Department said Wednesday that sales fell 3.6 percent to a seasonally adjusted annual rate of 402,000 from a downwardly revised 417,000 in August. Economists surveyed by Thomson Reuters had expected a pace of 440,000.
It was the first decline since March. Sales in September were down 7.8 percent from a year ago.
The median sales price of $204,800 was off 9.1 percent from $225,200 a year earlier, but up 2.5 percent from August's level of $199,900.
The drop in sales was driven by a nearly 11 percent decline in the West and a 10 percent drop in the South. Sales rose 35 percent in the Midwest and were unchanged in the Northeast.
The data reflect contracts to buy homes, not completed sales. Many new homes are sold while they are still under construction, and buyers may be worried that they won't be able to complete the deal before the Nov. 30 deadline to take advantage of a tax credit of up to $8,000 for first-time buyers.
Congress is considering extending the tax credit through March 31 and gradually phasing it out over the rest of next year.
"If they don't extend it, then I think the pullback could be quite significant," said Brad Hunter, chief economist with Metrostudy, a real estate research firm.
Even builders of more upscale homes have felt the impact of the looming deadline. That's because those move-up buyers will have trouble selling their homes without the incentive of the credit.
"The fact that the first-time homebuyer tax credit runs out is hurting," said Bob Mitchell, chief executive of Rockville, Md.-based builder Mitchell & Best, who has gone from selling 80 to 100 homes annually to around 30 this year. Still, he noted, "we're at least selling something."
There were 251,000 new homes for sale at the end of September, down 3.8 percent from August and the lowest inventory in nearly 17 years. At the current sales pace, that represents 7.5 months of supply
http://news.yahoo.com/s/ap/20091028/ap_on_bi_go_ec_fi/us_new_home_sales
Pimco's Gross Unwinds Mortgage Positions
By Sam Mamudi
The manager of the world's largest bond fund has raised the pace at which he's leaving mortgage-related securities.
Bill Gross, manager of Pimco Total Return Fund (PTTRX), has been busy reducing his exposure to mortgage-related securities, selling roughly $30 billion of assets in September and leaving his fund with its smallest portion of mortgage holdings in more than four and a half years.
Most of the securities were agency mortgage-backed securities--debt issued by the government-sponsored mortgage finance firms, Fannie Mae (FNM) and Freddie Mac (FRE) and also Ginnie Mae, which guarantees mortgage loans made to low-income borrowers.
Total Return Fund's holdings of mortgage-related securities fell from 38% of the portfolio on Aug. 31 to 22% on Sept. 30, the latest date for which figures are available. On July 31, 47% of the fund was in mortgages--the fund's largest category holding at that time.
The fund's assets under management on July 31, Aug. 31 and Sept. 30 were $169 billion, $177.5 billion and $185.7 billion, respectively.
The last time Total Return Fund had less allocated to mortgages was Feb. 28, 2005, when the level was 19%. The fund's assets under management at that time were $75.8 billion.
The fund explained the sell-off in its Quarterly Investment Report. "Pimco's significant overweight to high-quality, agency mortgage-backed securities has recently been strongly positive for returns," it noted. "With MBS valuations having richened substantially, and the Federal Reserve's mortgage-purchase program slated to end in March of next year, Pimco plans on moving to an underweight in an effort to benefit from an expected cheapening of agency MBS."
The Fed started buying agency-backed mortgages in January in an attempt to bring down mortgage rates in the face of the credit crisis. Since then, it has bought the majority of so-called agency MBS on the market. Once the Fed stops buying mortgages, the fall in demand will lead to a drop in MBS prices.
Total Return Fund's allocation to mortgage-related securities in the past year peaked at 86% on Feb. 28. At the time, the fund had $138.4 billion in assets. By the end of March, it had cut the allocation to 66% of the portfolio and was steadily reducing its exposure until September's $30 billion sell-off.
"By all measures, mortgages look really rich right now," said William Chepolis, head of Retail MBS at DWS Investments, a unit of Deutsche Bank AG (DB). "Everyone knows it, and they're trying to get out of their positions by the end of the Fed program."
But, he added, some people are still staying in. "There are people who figure they have two to three months" to still enjoy the benefits of government involvement in the market.
Chepolis said he believed that Wall Street banks were likely big buyers of Pimco's sell-off. "Banks like the zero credit rating. ... No one knew Pimco was selling until they announced it," which suggests that it had lined up deals with a few banks.
Finally, Chepolis pointed out that he's in agreement with Pimco's new approach. "I would be in favor in scaling back a little--maybe not everything, but certainly taking profit off the table."
Home sales scale 2-year high in September
^DJI 9,972.18 -109.13
^GSPC 1,079.60 -13.31
^IXIC 2,154.47 -10.82
By Lucia Mutikani Lucia Mutikani – Fri Oct 23, 4:56 pm ET
WASHINGTON (Reuters) – Sales of previously-owned U.S. homes jumped to a two-year high last month, according to data on Friday, though the looming expiry of a tax incentive for first-time home buyers was a major factor spurring sales.
The National Association of Realtors said sales of existing homes jumped 9.4 percent in September to an annual rate of 5.57 million units, the highest level since July 2007. Financial markets had expected sales to rise to a 5.35 million unit pace after a surprise decline in August.
Sales were partly driven by first-time buyers rushing to take advantage of the government's popular $8,000 tax credit, which is due to expire at the end of November. Sales were up 9.2 percent compared to September of last year.
"The rapid gain in home sales over the past few months likely owes, in part, to the home buyer tax credit. That said, the trend in home sales is still higher amid greater affordability and an improving economic outlook," said Michelle Meyer, an economist at Barclays Capital in New York.
Despite the bullish report, U.S. stocks fell as investors fretted over disappointing results from chipmaker Broadcom Corp and silicon producer MEMC Electronic Materials Inc, which bucked a recent trend of solid earnings reports.
The blue-chip Dow Jones industrial average ended down 1.08 percent at 9,972 points, slipping below the psychological 10,000-mark for the first time in two days.
However, home appliances maker Whirlpool Corp and manufacturing group Fortune Brands Inc reported third-quarter profits that were above market expectations. Fortune Brands also raised the low end of its full-year profit forecast, citing signs of stabilization in housing construction.
The housing sector's collapse and subsequent global credit crisis helped to push the U.S. economy into recession at the end of 2007. The downturn was the worst in 70 years.
The housing market is now crawling out of a three-year slump and analysts believe homebuilding probably contributed to economic growth in the third quarter, which would be its first positive contribution since the end of 2005.
ECONOMY GROWING AGAIN
Signs of recovery in the housing market coupled with other fairly upbeat data strongly suggest the economy started growing again last quarter for the first three-month period since the second quarter of 2008. The government will release data on third-quarter gross domestic product next week.
Sales for both new and previously-owned homes have been boosted by a combination of the tax credit, depressed prices and low mortgage rates.
But there are worries the expiration of the tax credit could hamper the recovery, and many lawmakers want to extend the program, with some pushing to expand it to all buyers.
The tax credit has so far cost the government about $10 billion and the Obama administration has yet to decide whether it will back an extension, weighing it against the impact it will have on an already bloated budget deficit.
"We are hopeful the tax credit will be extended and possibly expanded to more buyers ... because the rising sales momentum needs to continue for a few additional quarters until we reach a point of self-sustaining recovery," said Lawrence Yun, chief economist at the Realtors' trade group.
Distressed properties made up 29 percent of sales last month and first-time buyers accounted for 31 percent, but analysts said other forces also helped.
"Our view is that near-record affordability and falling inventory is pulling people into the market," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
The inventory of existing homes for sale in September dropped 7.5 percent to 3.63 million units, the NAR said.
September's sales pace pushed the supply of previously owned homes on the market down to 7.8 months' worth, the lowest in 2-1/2 years, from 9.3 months in August.
On the prices front, the national median home price fell 8.5 percent to $174,900 in September from a year earlier, the smallest percentage decline in 13 months.
U.S. Housing: Momentum Slows but Recovery Continues
At the headline level, the United States housing market lost some momentum in the data released last month. I described in last month’s article how July data was almost universally positive, prompting the question of how sustainable the recovery might be. Despite a drop in the latest August figures for existing home sales, there are good reasons to believe the momentum in housing will continue at least for a few more months.
While foreclosure prevention efforts by the U.S. government have amounted to virtually nothing, the first time home buyers tax credit has been effective. This tax credit which was part of the federal government’s $787 billion stimulus program is set to expire at the end of November 2009. We shall see what happens after that point. At a minimum, the momentum should continue until then.
New home sales are up only slightly but inventory is dropping fast. Sales of new homes increased in August but only by a marginal amount, 0.7%. Inventory of new homes for sale continues to drop both in absolute terms and in terms of months of supply on the market. After peaking at 12.4 months in January 2009, the new home inventory now stands at 7.3 months. The total number of new homes on the market has been cut in half from a peak of 548,000 homes in April 2007 and now stands at 262,000 today.
Many problems of the U. S. housing market remain. However, the inventory of new homes is one issue that has been corrected in the last year. In absolute terms, the inventory level of 262,000 new homes on the market represents 27 year low. If you adjust for population, we are more than 10% below the lowest inventory year on record (1967).
Thus, it is not surprising that housing starts have rebound 34% from the beginning of this year.
Existing home sales dropped 2.7% but are likely to continue upward trend. After four consecutive monthly increases, the sales of existing homes figure dropped nearly 3% in August. The inventory of existing homes on the market also fell 8.6% and now stands at 3.6 million homes. This works out to be to 8.5 months of sales inventory, down from a peak of over 11 months. This is no record low but it does represent a healthy correction.
As for the rate of existing homes sales, the seasonally adjusted annualized rate of 5.1 million homes reported for August remains the third best figure in last two years. If this was the beginning of a downward trend it might be troubling but it is likely that homes sales will remain strong, at least until the first time homebuyers tax credit expires at the end of November.
Pending home sales figures remain strong ahead of the tax credit expiration deadline. It is fair common for sales of existing homes to have an up/down saw tooth pattern but continued upward trend in pending home sales (a leading indicator of homes sales about 60 days later) indicates that sales of existing home will remain strong for two more months at least.
Pending home sales will remain a key factor to watch as the first time home buyer tax credit expires soon. This government subsidy has a chance of being extended but whenever it ends many fear that this will have less of a jump-start effect (where momentum continues on) and more of a cash-for-clunkers effect (where all momentum is lost upon program expiration). We shall have to see what momentum remains.
Foreclosures continue to play a meaningful role in home sales. Home foreclosures as tracked by RealtyTrac remain persistently high. Sales from foreclosures accounted for about 30% of the home sales in August. These sales have become an important dynamic in the market. Defaults still remain elevated and these defaults appear to be translating more rapidly into foreclosure sales than was the case last year.
The makeup of these foreclosures is transitioning away from problem states of CA, AZ, and FL and toward a more broad set of states related to job losses. We should know in the coming 2-3 months if foreclosures are at their peak or whether another wave is on its way. There are good arguments for both sides of that debate.
Home prices continue to strengthen through the summer. The July data for the Case-Shiller Index showed a third straight monthly gain in prices. All but two of the 20 cities showed price increases, virtually all of those posting more than a percentage point gain. The 1.7% increase for the composite indexes represents the strongest monthly gain since the summer of 2004 when the housing boom was in full force.
While home prices may increase slightly throughout the rest of the year, it is unlikely it would continue with this strength, as the Case-Shiller Index is not seasonally adjusted. It tends to show the strongest data in the summer and the weakest results in the winter months.
Mortgage rates are trending back down. Last week the 30-year fixed rate (as tracked by Freddie Mac) dropped below 5.0% for the first time in almost four months. Mortgage rates surged in June along with other long term interest rates in U.S. This rise was triggered by rising government debt levels in the United States and the United Kingdom but was fueled by the market perception that this borrow and Asian growth would lead to imminent inflation. As I described back in July, Asian growth was insufficient to fuel this “reflation trade” and rates have steadily declined since.
Mortgage rates below 5.0% have neither a profound nor an immediate effect on the housing market. Yet on the margin, low rates help create record home affordability, which in turn brings buyers into the market despite alarmingly high unemployment.
While the momentum of the housing recovery in the United States has slowed in the latest round of monthly data, the recovery still remains in place. Plenty of negative factors weigh on the U.S. economy such as high unemployment, elevated foreclosures, and an overleveraged consumer but record affordability and stimulus programs should keep the momentum in place throughout the remainder of the year.
http://seekingalpha.com/article/164788-u-s-housing-momentum-slows-but-recovery-continues?source=email
Two built-in environ related funds by AIM: Good diversification: ASRAX; IARAX..
Housing, mortgage-related stocks take a hit
10:20a ET October 21, 2009 (MarketWatch)
BOSTON (MarketWatch) -- The pullback in stocks tied to the U.S. housing and mortgage markets the past month is a worrying signal that residential real estate will see more pain as delinquencies and foreclosures rise.
Companies linked to the mortgage-insurance business like Radian Group Inc. , MGIC Investment Corp. , PMI Group Inc. and MBIA Inc. have been among the market's worst performers over the past four weeks. The overall financial sector has been slightly positive over the period in volatile trading.
Shares of mortgage-finance giants Fannie Mae and Freddie Mac sold off this week after some Wall Street analysts said the firms' common and preferred shares are likely worthless even if the troubled companies are recapitalized by the banking industry. The stocks were recovering somewhat on Wednesday.
Additionally, home-builder stocks such as KB Home and Pulte Homes Inc. have seen pullbacks in the range of 20% over the past month.
On Monday, a builder trade group said its industry confidence index posted an unexpected decline in October.
Builder stocks traded lower Tuesday after the Commerce Department reported housing starts were roughly flat in September. "The looming expiration of the homebuyer tax credit has likely begun to affect new construction at this point," wrote Adam York, an economist for Wells Fargo Securities. Building permits for single-family homes dropped 3%.
A busy week for housing data will wrap up on Friday with a report on existing home sales for September.
The decline in builder confidence "confirms the view that the late spring and summer was a period of strong momentum for the housing market, but that this momentum has slowed recently across the country," said Deutsche Bank analyst Nishu Sood.
Pointing to the expiration of the $8,000 tax credit as the most obvious factor, he said it's also likely that pent-up demand from late 2008 and early 2009 is largely exhausted.
"This has exposed the weak foundations for organic housing demand, which is being constrained by a difficult employment situation, depressed consumer sentiment and an ongoing transition back to more normalized mortgage-lending standards," Sood wrote in a note to clients this week.
Mortgage insurers
The outlook is similarly bleak for the mortgage insurers. Shares of MGIC lost 12% on Friday after the company said its third-quarter net loss grew to more than $500 million as delinquencies rose.
Commenting on MGIC's results, Morningstar analyst Jim Ryan said on the basis of fundamentals, things should be looking up for the company.
"After all, penetration into new mortgage originations is on the rise as lenders seek mortgage insurance in lieu of creative financing schemes for borrowers with low down payments," he wrote in a research note. "Falling home prices prolong the time a borrower must continue making mortgage insurance payments, thereby extending the life of a policy and the revenue stream to MGIC."
At the same time, underwriting standards have grown stricter after the credit crunch, which reduces the risk to mortgage insurers, while the price of mortgage insurance has risen over the past year, Ryan said.
"But all of the positives cannot circumvent the primary issue: MGIC is on the verge of running out of capital to support writing new insurance, and existing capital may not be sufficient to cover claims from existing insured mortgages," the analyst said.
MGIC said losses incurred in the third quarter rose to $971 million from $788.3 million in the same quarter the prior year, primarily due to an increase in delinquencies.
"Mortgage delinquencies have exploded as borrowers lured into unaffordable mortgages default at record pace. Housing prices have cratered, leaving an expanded group of homeowners with no equity in their homes," Ryan said. "And though the economy may be somewhat on the mend, an overextended, overleveraged, and tapped-out consumer will find it difficult to manage his or her budget, including mortgage payments."
Credit trends
As more mortgage insurers report quarterly results, analysts will be looking for any improvement in delinquencies and defaults.
"We expect this quarter could prove a bit more challenging as prime credit trends continue to worsen in conjunction with unemployment trends," said Nathaniel Otis at Keefe, Bruyette & Woods in an earnings preview for the group. "In the end, third-quarter results should provide another important data point to help further clarify ultimate losses."
Although most mortgage-insurance companies have seen a modest slowdown in subprime delinquencies, Otis said prime borrowers are an area of growing concern as the economy weakens.
"With the prime segment representing approximately 80% of the risk in force for the companies, we believe that small shifts in the trends in this segment can have a material impact on the ultimate loss expectations for the companies," the analyst said.
"With job losses in the overall U.S. economy continuing to mount, albeit at a slower pace, and with the expectation that job growth is likely to be a very slow process once overall economic growth resumes, we believe delinquencies in the prime segment may continue to increase at an elevated pace," Otis added.
Millions of Americans are falling behind on their mortgage payments, which is putting serious stress on the government's mortgage-modification programs designed to stem foreclosures.
no problem up-down. I am forced to carry that crap advertising and popups on the site by freeservers because I do not pay them to host the site. I state that on the disclaimer page. Dont need more traffic lol, AFXM.com is ranked in the top ten out of about 90million for "free stock research" on Google & AOL. LOL, ranked ahead of yahoo for free stock research on MSN.
That is a good idea though about putting a link in the signature like you have in yours.
NEW YORK (AP) -- A disappointing report on housing starts made investors nervous about the economy Tuesday and sent stocks lower even as profits at many companies exceed expectations.
Tuesday October 20, 2009
Stocks retreated from 2009 highs after the Commerce Department said applications for home building permits fell in September by the largest amount in five months. That is a discouraging signal for future construction.
Investors will get another measure of the housing market's health Friday with a report on sales of existing homes. After several months of upbeat data, the past few weeks have brought signs that a housing recovery could be slowing.
A rebound in the dollar from 14-month lows against other major currencies also hurt stocks by driving down commodities prices and, in turn, sending energy and materials companies lower. Bond prices rose after the government said wholesale prices fell last month.
The housing data and the stronger dollar overshadowed strong earnings reports from Apple Inc., Caterpillar Inc. and health insurer UnitedHealth Group Inc.
I only have access to manage the board that I moderate, FNM.
AFXM: let me try to contact him. Do you have an access to the moderator's manage function?
Is it ok with the moderator up-down ? If yes, let me know when the link has been put in the ibox here and I'll get the link on FannieWatch within 30minutes after I see it. I have done link-exchanges with the DRY & STEM boards, plus a few others. It's going to be a while before I get the individual HomeBuilder research page completed. It takes me about 8 hours to do an individual page.
excellent idea!
MLKR, I would like to do a link exchange with your HomeBuilders board and the fanniewatch page on afxm.com
The link to your board can be put under the Home Builders CNBC Real Time Quotes link in exchange for a link to the fanniewatch page put in your Ibox here. I plan to build an individual research page for the HomeBuilders in the near future. I do have a couple of the home builders (BZH & HOV) plugged into the streamer and the main research links section of http://AFXM.com/FannieWatch.html
Home sales and residential REITs up. so are home builders;
Pending U.S. home sales up seven months in a row
Residential construction spending rises at fastest pace in 16 years
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) -- The pending-home-sales index rose 6.4% in August to its highest level since March 2007, the National Association of Realtors reported Thursday.
The index, which tracks sales contracts signed on existing homes and is designed to forecast actual sales, has risen for seven months in a row for the first time since the gauge was created in 2001, the industry trade group said. Read the full release.
Nearly everyone's de-leveraging
First it was Wall Street, and now it's households paying down debts and starting to save a little. In the meantime, the government is still borrowing like there's no tomorrow, hoping to ease credit-contraction pains, as David Wessel discusses.
Buyers may be rushing to complete their purchase before Nov. 30 to qualify for an $8,000 tax credit from the federal government. The tax credit is "adding to a more fundamental recovery in demand that reflects low prices and mortgage rates," said economists for UBS Securities.
On Thursday, Freddie Mac reported average mortgage rates fell below 5% for 30-year fixed loans, and to a record-low 4.36% for a 15-year fixed. See full story.
Buyers who've been on the fence could also be jumping in now, after seeing prices rise for several months. Still, credit conditions remain very tight for potential home buyers, with almost every bank reporting that they've tightened up on the criteria to get a loan.
Meanwhile, the Commerce Department reported that spending on construction projects increased 0.8% in August, led by a 4.7% rise in spending on private residential buildings, the largest monthly gain since 1993. August's surprising increase followed a sharp downward revision to July's spending figures, leaving total outlays lower than expected. Read the full government report.
In the past year, construction spending is down 11.7%, while spending on private homes is down 27%.
With increases in the past few months, however, residential investment is on track for the first quarterly gain in nearly four years.
The pending home-sales index has been much stronger than existing home sales, which are recorded at the closing of the sale -- usually a month or two after a sale contract is signed. The pending-sales index has risen 19% since December, while closed sales are up about 8%, according to data from the real-estate group.
The NAR has complained that new rules that require an independent appraiser are hurting sales. Banks are also killing many short sales that have been negotiated. (A short sale means selling for less than is owed on the house.)
'Extending and expanding the tax credit is the best tool in our arsenal to encourage financially qualified buyers to stimulate the economy and help reduce the budget deficit.'
Lawrence Yun, NAR
"The rise in pending home sales shows buyers are returning to the market and signing contracts, but deals are not necessarily closing because of long delays related to short sales, and issues regarding complex new appraisal rules," said Lawrence Yun, chief economist for the real-estate agents.
"No doubt many first-time buyers are rushing to beat the deadline for the $8,000 tax credit, which expires at the end of next month," he added. The government is offering a subsidy for first-time buyers, but sales must close before Nov. 30 to qualify. It's taking about two months to close a deal after a home goes under contract.
The real-estate industry is lobbying Congress to extend or expand the home-buyer tax credit. See related story on the rush to capitalize on the home-buyer tax credit.
"Sales will decline when the tax credit expires because we are not yet on a self-sustaining recovery path. It also raises a risk of a double-dip recession," according to Yun. "Extending and expanding the tax credit is the best tool in our arsenal to encourage financially qualified buyers to stimulate the economy and help reduce the budget deficit."
First-time buyers accounted for about 43% of buyers in August, according to a survey conducted by Campbell Communications.
The NAR has estimated that about 2 million buyers will take advantage of the tax credit this year, with 350,000 additional sales resulting. The others would have bought a house even without the subsidy.
Rex Nutting is Washington bureau chief of MarketWatch.
CORRECT: FHFA: July US Home Prices Up Seasonally Adjusted 0.3%
Last update: 9/22/2009 11:41:33 AM
("=UPDATE: FHFA: July US Home Prices Up Seasonally Adjusted 0.3%," at 10:38 a.m. EDT, misstated the affected states in the fourth paragraph. The correct version follows:)
By Jessica Holzer
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--U.S. home prices rose a seasonally adjusted 0.3% in July, a government agency reported Tuesday, as some of the country's worst-hit housing markets showed signs of recovering.
Still, prices, which fell 4.2% for the 12 months that ended in July, remain 10.5% below their April 2007 peak, the Federal Housing Finance Agency said. The agency also said it revised the 0.5% price increase it reported for June downward to a 0.1% price rise.
FHFA's monthly index is calculated using purchase prices for homes backing mortgages guaranteed by Fannie Mae (FNM) and Freddie Mac (FRE).
Prices along the West Coast and Alaska and Hawaii climbed 1.6% in July, the FHFA reported. The Rocky Mountain region, which includes some of the hardest-hit states of Nevada and Arizona, rose 0.3% during the month. Meanwhile, the Southeast and mid-Atlantic areas rose 0.6% and 1.0%, respectively.
Those gains were offset by price declines in the Midwest, New England and parts of the South. The latter region, encompassing Kentucky, Tennessee, Mississippi and Alabama, saw prices drop 0.9% in July.
Housing construction in revival for sure now! commercial sector URE broke $6.00 resistance performing better than UYG which is trading less than $6.00..
FRE AND FNM future in government accountability office's study:
Government accountability office's study for future of FNM and FRE: To see GAO's --govt accountability office-- report in PDF format
click open at the end of REUTER's summary article. couldnt bring up PDF document here: worth sticking it in IHUB bOX..
http://www.reuters.com/article/rbssConsumerFinancialServices/idUSN1040139220090910?pageNumber=2&virtualBrandChannel=0
One mortgage co another causalty:
Taylor, Bean & Whitaker Mortgage Corp. Announces Chapter 11 Filing
2:05p ET August 24, 2009 (Business Wire)
Taylor, Bean & Whitaker Mortgage Corp. announced today that it has filed for relief under Chapter 11 of the U.S. Bankruptcy Code. The filing follows a series of events in recent weeks that have crippled the company's business operation.
On August 3, 2009, the Federal Housing Administration suspended Taylor Bean's authority to issue FHA-insured loans, which was immediately followed by notices from the Government National Mortgage Association (Ginnie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) suspending Taylor Bean as an issuer of mortgage-backed securities and mortgage seller/servicer. These agencies immediately transferred servicing from Taylor Bean to other providers.
Taylor Bean appealed the Freddie Mac termination and intends to appeal the HUD and Ginnie Mae terminations later this month, but has no way to continue normal business operations in the interim. Therefore, the company was forced to abruptly lay off about 2,000 employees on August 5, 2009.
The company believes that these events are related to various investigations surrounding the failure of Colonial Bank, which for years was Taylor Bean's primary bank. On or about August 6, 2009, approximately 100 Taylor Bean bank accounts were frozen by Colonial Bank. This action created myriad problems in processing borrower payments and making payments on their behalf - such as homeowner's insurance premiums and real estate taxes.
Taylor Bean is currently in discussions with the FDIC, the receiver for Colonial, in hopes that this circumstance can be remedied immediately and so that individual borrowers are not affected further by Taylor Bean's inability to access its Colonial bank accounts.
These events also resulted in the issuance of cease and desist orders and other administrative proceedings by numerous state regulators. Taylor Bean has been in ongoing discussions with these regulators since early August and hopes that these can be resolved in the near future.
As a result of these events and the impact on Taylor Bean's business operation, the company today filed for Chapter 11. Under Chapter 11, Taylor Bean will operate on a scaled-down basis and begin the work of recovering, restructuring and possibly liquidating its assets. The Chapter 11 case will be administered before the United States Bankruptcy Court in Jacksonville.
Taylor Bean also announced that the business will be directed by two newly appointed independent directors: Bill Maloney and Bruce Layman, both of whom have extensive experience in restructuring distressed businesses. This new board has appointed Neil Luria of Navigant Capital Advisors as Chief Restructuring Officer. The company's previous board and management team worked closely with the Office of Thrift Supervision to obtain expedited, conditional approval of Messrs. Maloney, Layman and Luria.
"This is a very complicated business, and the speed of its collapse has been stunning," said Mr. Luria. "We are very appreciative of the efforts of the members of management and other company employees, along with a large team of professionals, who have worked tirelessly under very stressful circumstances to make today's filing possible. Much remains to be done, but we are committed to creating and realizing the value of the company's assets."
ABOUT TAYLOR, BEAN & WHITAKER:
Taylor, Bean & Whitaker Mortgage Corp. is a 27-year-old company that grew from a small Ocala-based mortgage broker to become one of the largest mortgage bankers in the United States. In 2009, Taylor Bean was the country's third largest direct-endorsement lender of FHA-insured loans of the largest wholesale mortgage lenders and issuer of mortgage backed securities. It also managed a combined mortgage servicing portfolio of approximately $80 billion. The company employed more that 2,000 people in offices located throughout the United States.
Problem Mortgages ; new record
http://www.marketwatch.com/story/mortgage-delinquencies-hit-another-record-mba-2009-08-20-10100?siteid=bnbh
Shares of home builders pulled back from last week's rally, as analysts said investors are trying to determine if the strong gains were warranted. Among the decliners was Ryland Group Inc. (RYL, $22.92, -$1.07, -4.46%), which fell after FTN Equity Capital cut its stock-investment rating on the company to neutral from buy, saying the shares are fairly valued. Other companies trading lower were Hovnanian Enterprises Inc. (HOV, $4.19, -$0.23, -5.21%), D.R. Horton Inc. (DHI, $12.96, -$0.56, -4.14%) and Lennar Corp. (LEN, $12.96, -$0.48, -3.54%).
HomeBuilders. Please post any industry links that you think should be added to the front page.
http://finance.yahoo.com/q/cq?s=CHCI,DHI,HOV,LEN,MTH,PHM,RYL,TOL,XHB&d=v2
Fundamental Company Comparison
http://www2.barchart.com/sectors.asp?level=2&sort=6&title=Residential+Construction&sec=0....
Industry Data site:
http://www.meyersgroup.com/homebuilding/homebuilding.asp
New Residential Construction Report- US Census Bureau
http://www.census.gov/indicator/www/newresconst.pdf
New Home Sales Report- US Census Bureau:
http://www.census.gov/const/newressales.pdf
Mortgage Bankers Assoc. Weekly Survey:
http://www.mortgagebankers.org/NewsandMedia
List of Stocks in this Industry:
http://bigcharts.marketwatch.com/industry/bigcharts-com/stocklist.asp?bcind_ind=hom&bcind_period....
Industry Link:
http://bigcharts.marketwatch.com/industry/bigcharts-com/focus.asp?bcind_ind=hom&bcind_sid=171546....
CandleGlance of 10 builders:
http://stockcharts.com/candleglance?TOL,KBH,LEN,CTX,PHM,RYL,MDC,BZH,SPF,HOV/B/B14
CandleGlance- Mortgage Lenders
http://stockcharts.com/candleglance?AHMH,CFC,GPT,NCEN,FBC,WM,SOV,GDW,NFI
Quicken Fundie comparison:
http://www.quicken.com/investments/stats/?defview=TABLE&p=TOL%2CKBH%2CLEN%2CPHM%2CCTX%2CRYL%2CBZ....
Mortgage and Market Data:
http://www.mbaa.org/marketdata/
Bar Charts of interest from PrudentBear
http://www.prudentbear.com/bc_chart_library.html
National Association of Realtors-existing home sales
http://www.realtor.org/Research.nsf/Pages/EHSdata
Realtor Magazine- Online
http://www.realtor.org/rmodaily.nsf
List of Home Mortgage Traded companies
http://www2.barchart.com/sectors.asp?sec=0068.sec&hlt=NCEN&level=2&title=Mortgage+Invest....
FreddieMac
http://www.freddiemac.com/news/finance/
Good Trading, Joe
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