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  1. Real Home Prices Fall to 2001 Levels

    By on January 3, 2012

    According to the S&P/Case-Shiller Home Price Index, home values were down again across the country in October. The 10-city index fell 1.1% from September, while the 20-city index was down 1.2% from the month prior.  Both indices were down annually, with the 10-city and 20-city index falling 3.0% and 3.4% respectively.  In absolute terms, both indices are approximately at the same levels as they were in 2003.

    In a new post on his Housingviews blog, David Blitzer, the Chairman of the Index Committee for S&P, says that home prices have actually dipped even further than that.  When adjusted for inflation, home prices are now actually at 2001 levels, and “when allowing for a dip in home prices in the 1990s when inflation rose faster than houses, we’re almost back to 1989″.

    It seems unlikely that home prices have stopped their skid, and we are probably due for even further correction over the next couple of years.  There is still a lot of uncertainty surrounding the economy, which has depressed the rate of household formation and kept a lot of potential home buyers on the sidelines.  The lack of demand for houses, coupled with the large overhang of housing supply suggests that we could see prices fall even further.  For those looking to buy or sell a home, the real question is “when are we going to see prices bottom out”?

    As with all real estate matters, this answer is intensely local.  Many markets have seen the rate of home price declines slow, and some stronger markets will likely bottom out sometime toward the end of 2012 or the beginning of 2013.  Other markets are probably years away from seeing prices bottom out, however.  In areas where development was most intense during the bubble years (places in Nevada, Florida, and Arizona, among others) we are unlikely to see home prices stop declining for quite a few years.  These areas will continue to be plagued by an imbalance of supply and demand for some time to come.

     

     

    Category: Mortgage Rates

  2. Housing Market Yet to Bottom Out, Home Prices Continue Fall in October

    By on December 27, 2011

    Home prices fell again in October, according to the newest S&P/Case Shiller Home Price Index. The 10-city composite fell 1.1% from September while the 20-city index fell 1.2% over the same time frame.  The 10-city index is now down 3.0% from October 2010, while the 20-city index is down 3.4% from last year. Both indices are hovering around the same place they were in 2003. The S&P/Case Shiller Home Price Index is a three month average that is two months delayed.

    David Blitzer, Chairman of the Index Committee commented:

    “There was weakness in the monthly statistics, as 19 of the cities posted price declines in October over September. Eleven of the cities and both composites fell by 1.0% or more during the month. And even though some of the annual rates are improving, 18 cities and both Composites are still negative. Nationally, home prices are still below where they were a year ago. The 10-City Composite is down 3.0% and the 20-City is down 3.4% compared to October 2010.

    “In the October data, the only good news is some improvement in the annual rates of change in home prices, with 14 of 20 cities and both Composites seeing their annual rates of change improve. The crisis low for the 10-City Composite was back in April 2009; whereas it was a more recent March 2011 for the 20-City Composite. The 10-City Composite is about 2.4% above its relative low, and the 20-City Composite is about 1.9%.

    The only cities that saw year-over-year price improvements were Washington, D.C. (+1.3%) and Detroit (+2.5%). The cities seeing the biggest year-over-year losses were Atlanta (-11.7%), Las Vegas (-8.5%), and Minneapolis (-8.4%).

    At the end of the day, the housing market is still dealing with the same fundamental issue it has been dealing with for more than three years: a fundamental imbalance in the supply of houses and the demand for them.  The lack of demand is caused by trepidation about continuing price declines, lack of consumer confidence, unemployment. and a low rate of household formation due to unemployment.  The supply of homes is bloated primarily due to over-building during the bubble years and foreclosure.

    The problem is that all these factors create a vicious cycle that continues to drag down home values.  The lack of any sort of cohesive housing policy from the White House and our Congress is not helping matters.

    While the rate of home price declines is slowing, I don’t think most markets have hit bottom yet.  I fear that we still have a ways to go before we start seeing real improvements.

    Category: Mortgage Rates

  3. RadarLogic: Home Prices Fell 2.0% From September to October

    By on December 23, 2011

    Yesterday RadarLogic published its RPX Monthly Housing Report for the month of October. The found that homes prices were down 5.4% from October 2010, and 2.0% from September 2011.  This is the largest month-over-month decline in three years.  According to the report, there may be some seasonal factors at play here:

    “During the past two years, the RPX Composite price has dropped rapidly from August through October, temporarily stabilized in November, then dropped rapidly again in December and January.  If this pattern repeats this season, the RPX Composite will decline another five percent or so through early February, 2012.  From there, we expect it to stabilize temporarily before beginning its seasonal assent during the spring buying season.”

    Next Tuesday, the S&P/Case-Shiller Home Price Index for October will be released.  RadarLogic anticipates that this report will show a month-over-month decline, which I think is a pretty safe assumption.

    The same factors that have been causing home prices to fall for the past couple of years are still plaguing the housing market.  There is an acute lack of demand for housing in many markets as a result of unemployment, lack of consumer confidence and job security, and a low rate of household formation.  There is an overhang of homes both on the market and in shadow inventory as a result of foreclosure and overbuilding during the bubble years.  This is a simplification of the situation, but as long as this imbalance in supply and demand exists, home prices will continue to fall on average. With real estate being local, some markets are in better shape than others, and some places will begin to see improvements in the housing market before others.

     

     

     

    Category: Mortgage Rates

  4. Fannie Mae: Housing Will Experience a “Subdued Recovery” in 2012.

    1 By on December 20, 2011

    Today Fannie Mae released it Economics and Mortgage Market Analysis for December.  Fannie Mae economist Doug Duncan noted that “fourth-quarter economic activity seem[s] to indicate we will end 2011 on a positive note…however, the U.S. economy continues to face many obstacles, and we expect momentum to slow going into 2012″.

    As with everybody else, Fannie’s predictions for 2012 are muddled due to the ongoing European debt crisis.  Despite efforts by European authorities to formulate some sort of plan to deal with the problems, a solution has remained elusive, and the specter of sovereign defaults in Europe looms over the markets.  Duncan noted that “the global economic recovery appears to be losing steam.  We now expect that the Euro Zone has slipped into a recession in the current quarter that will likely last through the first half of 2012″.

    Another complicating factor is the uncertainty surrounding U.S. fiscal policy.  The ongoing payroll tax extension battle in Congress is emblematic of this.  Our elected officials are not very good at compromise, and the direction of U.S. fiscal policy is cloudy to say the least. Duncan notes that “fiscal contraction at all levels of government, including the scheduled increase in payroll taxes and reduction in unemployment benefits, will restrain growth”.

    As to housing, Fannie says that there are signs that low mortgage rates are spurring demand, and recent housing numbers (residential home construction and homebuilder confidence) have improved significantly (although by many measures home prices are still falling).  Regardless of recent improvements, Fannie predicts a “subdued recovery” for housing in 2012, muted by low household formation and an uncertain job market.

    Interestingly, Fannie “do[es] not anticipate that the Fed will engage in another round of quantitative easing” unless the European debt crisis gets worse, in which case the Fed could buy mortgage backed securities in an effort to drive down mortgage rates.  Personally, I think it is likely that the situation in Europe will get worse, and that the Fed will engage in QE3.

     

     

     

     

     

    Category: Mortgage Rates

  5. Foreclosures Fell in November, but New Wave of Repossessions Coming in Early 2012

    By on December 15, 2011

    Mixed news on the foreclosure front today: this morning RealtyTrac published its U.S. Foreclosure Market Report for November 2011.  They found that foreclosures declined 3% from October to November, and that foreclosures were down 14% from November 2010 to November 2011.  All told, a little over 224,000 foreclosure filings (default notices, scheduled auctions, and bank repossessions) were reported in November.  James Saccacio, co-founder of RealtyTrac commented:

    “Despite a seasonal slowdown similar to what we’ve seen in each of the past four years, Novembers’ numbers suggest a new set of incoming foreclosure waves, many of which may roll into the market as REOs or short sales sometime early next year”.  

    “Scheduled foreclosure auctions reached a nine-month high in November, corresponding to a recent surge in default notices that began back in August.  Many of the new defaults that started the foreclosure process over the past few months are now being scheduled for public foreclosure auction”.

    The states with the highest foreclosure rates remain Nevada, California, and Arizona. For the 59th month in a row, Nevada has the top foreclosure rate in the country.  This comes despite a tough new anti-foreclosure law in Nevada which makes it a felony for a lender, servicer, or trustee to make false representations or claims over a title. California, Michigan, Illionois, Georgia, and Florida had the highest total number of foreclosures.

    While foreclosure rates are elevated across the country, their concentration in Nevada, California, Arizona, Florida, Michigan, Georgia, and Illiniois is going to make a housing recovery in these states very prolonged.

    It is this coming wave of foreclosures, and their concentration in a few states that makes me doubt reports that home prices are likely to stabilize in the coming year.  It is entirely possible that home prices will stabilize in many states, but the afforementioned hard hit states are likely to continue to see home values fall, and this will negatively impact the national average.

    Another thing to keep an eye on is the mounting pressure on banks to reform their foreclosure practices.  Recently the attorneys general for California and Nevada announced a joint investigation into alleged mortgage fraud.  Nevada recently began pursuing criminal charges against several robo-signers in that state.  Massachusetts announced its own lawsuit against major lenders and the Mortgage Electronic Registration System (MERS) earlier in the month.  The AGs for Delaware and New York are also working jointly to investigate mortgage origination, securitization, and foreclosure practices. I could see a scenario where these criminal and civil lawsuits force the big banks to put a halt on foreclosures.  It is also possible that these lawsuits’ impact will be felt later in the year, and that this new wave of foreclosures will be allowed to manifest itself.

     

     



    Category: Mortgage Rates

  6. Clear Capital: Home Prices Seen Stabilizing

    By on December 12, 2011

    Late last week Clear Capital published its December 2011 Home Data Index Market Report.  Clear Capital found that quarter-over-quarter home prices were mostly stable, increasing by 0.3%. The pace of growth slowed from the prior quarter, when home prices were up 0.6%. Year-over-year, home prices were down 2.2% from November 2010, which is somewhat better than the y-o-y loss in October (-2.8%), but is still the 14th consecutive month with year-over-year declines.

    Dr. Alex Villacorta, the Director of Research and Analytics at Clear Capital commented:

    “The overall market stability in this month’s report gives me hope that housing markets are settling after a very turbulent two years.  With only a once percent drop in national home prices since January and virtually no change in prices over the last six months, strong evidence suggest the big swings that many market participants are accustomed to could become a thing of the past.

    Although many of the nation’s major markets are experiencing no significant movement in prices, there are still several micro markets that are under-performing the overall market due to high levels of REO saturation.  As lien holders continue to process their foreclosures and the flow of REOs continues to come to market, it will be critical for industry participants to ensure they understand the micro economic nature of specific markets”.  

    By and large, home prices were relatively stable in most of the country, quarter-over-quarter.  In the northeast, prices rose by 0.5%, prices rose 0.2% in the south, and by 1.2% in the midwest.  The only region where prices fell was in the west, which saw a 0.8% q-o-q decline.

    Notably, REO saturation was close to 25% in November, meaning that about one quarter of sales were REO.  This is one of the primary reasons that home prices are still falling, and the main reason that I don’t think that we have seen the end of declining prices.

    Fundamentally, there is still too much housing supply and too little housing demand.  High unemployment and uncertainty is inhibiting household formation, which depresses demand for housing. Additionally, there is still $700 billion worth of negative equity in the real estate market, and this negative equity needs to be cleared for the market to heal.  Whether it is cleared through foreclosure, principal write-downs, or some other mechanism, this must happen.  In the meantime, foreclosures and REO will continue to trickle onto the market, adding to the excess supply.

    I suspect that we will continue to see home prices fall through the winter, and I doubt they will stabilize nationwide until 2013.

    Category: Mortgage Rates

  7. Fannie Mae: Sentiment on Housing Market Slowly Improving, but Still Negative

    By on December 7, 2011

    Fannie Mae’s Monthly National Housing Survey for the month of November was published this morning.  They found that consumer sentiment has improved slightly over the “deeply negative housing market sentiment witnessed this summer”.  So while sentiment is improving, our understanding is tempered by the knowledge that it would have been hard for consumer sentiment to be more negative, and it really had no where to go but up.

    Doug Duncan, VP and chief economist of Fannie Mae commented:

    “Though their home price expectations have become slightly positive, consumers remain concerned about the direction of the economy and continue to view their household finances as being relatively flat.  Most Americans expect no improvement in their personal financial situation in the next 12 months and will likely remain wary about undertaking the significant financial obligation with homeownership until their view of the their income, expenses, and job security heads in a more positive direction”.

    The survey found that on average, respondents expect home prices to rise 0.2% over the next twelve months, showing a marked improvement from the prior three months when respondents forecast home prices declines.  The number of people who expect home prices to rise in the next year is up slightly, from 19 percent to 22 percent, while the number that believe prices will fall dropped from 23 percent to 22 percent.

    Despite the expectation of price increases, Americans remain bearish on the housing market.  The number of people saying that it is a good time to buy or sell a house remained essentially the same, with 68 percent of people saying now is a good time to buy, and only 10 percent saying now is a good time to sell.

    When looking at the economy as a whole, only 16 percent of people believe that the economy is on the right track, a figure which is unchanged from the previous three months.  Those that say the economy is on the wrong track fell slightly, from 77 percent to 75 percent.

    Clearly, there is still a lot of improvement that has to occur before Americans believe the economy and the housing market are healing.

    Category: Mortgage Rates

  8. CoreLogic: Home Prices Fall in October as Glut of Unsold Homes Weighs on Market

    By on December 6, 2011

    This morning CoreLogic released its October Home Price Index.  CoreLogic found that October home prices declined 1.3 percent from September, and that home prices were down 3.9 percent from October 2010.  Mark Fleming, the chief economist for CoreLogic remarked:

    “Home prices continue to decline in response to the weak demand for housing.  While many housing statistics are basically moving sideways, prices continue to correct for a supply and demand imbalance.  Looking forward, our forecasts indicate flat growth through 2013″.

    The states seeing the highest year-over-year price appreciation in October were West Virginia (+4.8%), South Dakota (+3.1%), New York (+3.0%), Washington D.C. (+2.4%), and Alaska (+2.1%). The states seeing the largest year-over-year declines were Nevada (-12.1%), Illinois (-9.4%), Arizona (-8.1%), Minnesota (-7.9%), and Georgia (-7.3%).

    The same factors that have plagued the housing market for the last three years are still putting downward pressure on home prices. There is a glut of unsold homes due to foreclosure and over-building during the bubble years, and there is little demand for homes due to continuing high unemployment, lack of certainty surrounding the economy, weak household formation, and falling home values.

    All of these factors are inter-related, and are causing a self-reinforcing spiral of foreclosure and falling home prices.  Foreclosed properties drag down the value of neighboring properties, and as prices fall, homeowners are more and more likely to have negative home equity.  Negative equity strongly correlates with foreclosure, which reinforces price declines, and causes more foreclosures.  Presently 10.7 million home owners with mortgages are underwater, but just as crucially 2.4 million homeowners have less than 5 percent home equity.  It is these homeowners with near-negative equity that are most likely to go underwater and fall victim to foreclosure.

    At some point home prices will bottom out, but I don’t think we are there quite yet.

     

     

     

     

    Category: Mortgage Rates

  9. Negative Equity Dips Slightly, 10.7 Million Homes Still Underwater

    By on November 30, 2011

    Yesterday CoreLogic published its Third Quarter Negative Equity Report.  Although negative equity declined somewhat, 10.7 million homes with mortgages are still underwater, comprising 22.1 percent of all residential homes with mortgages.  This is down from the second quarter, where 10.9 million homes and 22.5% of homeowners with mortgages were underwater.  An additional 2.4 million homes have less than five percent equity.

    Mark Fleming, the chief economist for CoreLogic commented on the report:

    “Although slightly down, negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur, such as job loss or illness.  the nearly $700 billion mortgage debt overhand has touched many corners of the market, and this overhand is holding back the recovery of the housing market and the broader economy”. 

    It is notable that 22 million borrowers have loan-t0-value ratios higher than 80%.  Of these people, 69% have mortgages with interest rates above 5 percent.  Generally speaking, it is much more difficult to refinance your mortgage with an LTV above 80%, and it can become impossible to refinance above 105%.  The recent changes to HARP are supposed to make it easier for those with negative equity to refinance at today’s lower rates, but it remains to be seen how effective that program will be.

    Negative equity is concentrated in a few states that experienced the most dramatic price drops.  The states with the highest percentages of negative equity are Nevada (58% of all mortgaged residential homes underwater), Arizona (47%), Florida (44%), Michigan (35%), Georgia (30%), and California (30%).

    Negative equity is the biggest problem facing the housing market, and has been so for some time now.  None of the housing plans that have been enacted by the government have done anything whatsoever to cut the amount of negative equity in the housing market (for an excellent read on this matter, I recommend this article by Georgetown Law Professor Adam Levitin).  This is frustrating to me, because the problem is glaringly obvious. At one time negative equity could have been addressed through bankruptcy, but bankruptcy laws were gutted.  At another time, the banks issuing loans could have written down the principal balances on mortgages that were still viable, but securitization of mortgages made this difficult or impossible.  It seems very unlikely that we will grow our way out of this problem in the near future.  Now the main ways of clearing negative equity are foreclosure or short sales, and foreclosure is largely wasteful, while short sales are extremely difficult to complete.

    For the good of everybody, the time has come to write down at least some of this negative equity, moral hazard arguments be damned.  Winston Churchill once said that “America will always do the right thing, but only after exhausting all other options” – we have just about reached that point.

     

    Category: Mortgage Rates

  10. Home Prices Down 0.6% in September, Down 3.6% From Last Year

    By on November 29, 2011

    This morning S&P published the S&P/Case-Shiller Home Price Index for September.  The index is a three month average of home prices in 20 major U.S. cities, delayed by two months.  It was found that home prices were virtually unchanged in the third quarter of 2011, rising 0.1% from the second quarter.  The pace of year-over-year declines slowed, with home prices down 3.9% from Q310 to Q311, compared to losses of 5.8% from Q210 to Q211.

    Home prices in September for the 10- and 20-city indices were down 3.3% year-over-year and 3.6% year-over-year, respectively. David Blitzer, Chairman of the Index Committee at S&P commented:

    “Home prices drifted lower in September and the third quarter.  The National Index was down 3.9% versus the third quarter of 2010 and up only 0.1% from the previous quarter.  Three cities posted new index lows in September 2011 – Atlanta, Las Vegas, and Phoenix.  Seventeen of the 20 cities and both Composites were down for the month. Over the last year home prices in most cities drifted lower.  The plunging collapse of prices seen in 2007-2009 seems to be behind us. Any chance for a sustained recovery will probably need a stronger economy”.   

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    Category: Mortgage Rates

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