With Thanksgiving this week, the holiday shopping season is here too. Economists are cautiously optimistic, not knowing how the housing slump and its effects on the home equity accounts of buyers, where most wealth lies, will affect holiday shopping sales. Most are saying that it will stay stable or rise very slightly versus last year. Here are some real estate and economic headlines from the past week:
Big news of the week came from RealtyTrac, which is known for tracking foreclosures nationwide: No slowdown yet in foreclosure filings. Hardest hit cities are on coasts and in Rust Belt. Three states, California, Florida and Ohio, continue to dominate new foreclosure filings, as most of the nation saw increases in the third quarter. During the period ended Sept. 30, 77 out of the nation's 100 largest metropolitan areas reported rises in delinquencies compared with the previous three months. The report shows seven cities in California (Stokton, Riverside, Sacramento, Bakersfield, and Oakland among others) and five each in Florida and Ohio were among the top 25 metro areas with the highest foreclosure rates. Nevada has the worst rate with one filing in every 61 households, while the nationwide rate is one filing for every 196 households. Riverside-San Bernardino also accounted for the most foreclosure filings in the U.S. during the quarter. According to the Center for Responsible Lending, 7.2 million households have subprime mortgages, and more than 14 percent of those are in default. It projects that one of every five of those loans issued in 2005 and 2006 will end in foreclosure, with 2.2 million families losing their homes. Stockton may top the list of states with the highest foreclosure rates, but mortgage defaults in the city are generating business for REALTORS® in an otherwise stalled market. Cleveland is a city that is noted for being hit especially hard. (RealtyTrac.com, AP, Reuters, 11/14; Stockton Record, 11/15)
Home loan demands at 1-year high as rates stay low – it increased 5.5% for the week ending Nov. 9. Mixed signals keep mortgage rates flat: Fixed 30-year rate holds steady at 6.24 percent as consumer confidence declines and third-quarter productivity grows. Mortgage rates were flat following mixed economic signals. The government-sponsored loan buyer said the rate on a 30-year fixed-rate loan remained at 6.24 percent for the week ended Nov. 15. The 30-year rate has not been lower since the week ending May 17, 2007, when it averaged 6.21 percent, Freddie Mac said. At this time last year, 30-year mortgage rates also averaged 6.24 percent. Freddie Mac said rates on 15-year fixed-rate loans averaged 5.88 percent, down from 5.90 percent last week. A year ago, the 15-year rate averaged 5.94 percent. The 15-year rate has not been lower since the week ending May 10, when it averaged 5.87 percent. Five-year adjustable-rate mortgages (ARMs) averaged 5.96 percent this week, up from 5.89 percent last week. A year ago, the 5-year ARM averaged 6.04 percent. One-year ARMs averaged 5.50 percent this week, unchanged from last week. At this time last year, the 1-year ARM averaged 5.53 percent. (CNNmoney.com, Mortgage Bankers Association, 11/15)
Mortgage bonds remain in a long-term uptrend in its rates with multiple support floors beneath present levels – translation: mortgage rates will more likely rise from here on and not fall in the short term forecast. And in this week's planned economic releases, any scent of inflation in the reports will be very bad news for Bonds - which deliver a fixed return that is eroded by the effects of inflation - so that would spell bad news for home loan rates as well. (Mortgage Market Guide, LLC, 11/13)
Fact Facts from the California Association of Realtors (11/15):
* Calif. median home price - September 07: $530,830(Source: C.A.R.)
* Calif. highest median home price by C.A.R. region September 07: Santa Barbara So. Coast $1,667,500(Source: C.A.R.)
* Calif. lowest median home price by C.A.R. region September 07: High Desert $271,940(Source: C.A.R.)
* Calif. First-time Buyer Affordability Index - Second Quarter 07: 24 percent (Source: C.A.R.)
* Mortgage rates - week ending 11/08: 30-yr. fixed: 6.24%; Fees/points: 0.4% 15-yr. fixed: 5.90%; Fees/points: 0.5% 1-yr. adjustable: 5.50%; Fees/points: 0.6% (Source: Freddie Mac)
Despite declining home prices as recently reflected in an S&P/Case-Shiller home price statistics survey, on average, the nation's top markets have experienced price appreciation by as much as 50 percent over the past five years, according to comparable data from the National Association of Home Builders (NAHB). "It's important to keep things in perspective," said NAHB President Brian Catalde. "The current housing price correction is most pronounced in the once super-heated markets in California, Nevada, Florida and Arizona. In most other markets, price declines have been pretty modest." According to the NAHB's comparable data tables, home prices in Los Angeles dipped 5.7 percent in the last year, but have appreciated by 88.9 percent since 2002. San Francisco home prices have declined 4.2 percent in the last year, but have seen appreciation of 46.7 percent since 2002. Home prices in San Diego have fallen by 8.3 percent in the last year, but have appreciated 54 percent since 2002, according to the report. (CAR, 11/14)
Fannie Mae changed the way the company calculates losses on home loans in its earnings releases, fueling speculation it is hiding the number of bad loans it holds to downplay its potential losses. (AP, Moody’s Economist.com, 11/16)
A ruling by a federal judge in Ohio could lead to a shift of longstanding policies regarding mortgage pools, possibly offering homeowners facing foreclosure some bargaining power. (NY Times, 11/15)
Online lender E-Loan announced it intends to cut more than 400 jobs from its Pleasanton, CA (San Francisco-area) headquarters as part of a large-scale restructuring plan. (Oakland Tribune, 11/13)
Countrywide Financial Corp. reported that October loan volume fell 48 percent from a year earlier, but said its reduction of high-risk home loans is producing credit stabilization. (Reuters, 11/13)
US business confidence remains moribund. Sentiment has not changed appreciably since plunging in August during the height of the subprime financial shock, and it remains consistent with an economy that is expanding very slowly. (Moody’s Economy.com, undated but estimated to be around 11/9)
Office of Management and Budget Director Jim Nussle offered a note of caution on how an economic slowdown could affect government finances - Nussle did not offer a specific projection for the deficit, though. (Christian Science Monitor, 11/15)
There has been a fair amount of sobering news on the economy lately. Last week, Federal Reserve Chairman Ben Bernanke said the US economy will slow "noticeably" in the final three months of the year. And this week, Augustine Faucher, an economist with Moody's Economy.com, told the Associated Press that he expected the federal budget deficit for the current budget year to rise to about $200 billion. (Moody's Economy.com, 11/15)
The West isn’t the only area reacting poorly in the housing market. Boston Globe noted Northeast economy is not projected to grow slowly through 2011 (11/14)
A perfect storm is brewing that threatens the entire mortgage lending industry. We believe that state and federal law enforcement and regulatory agencies will feel pressure to prosecute even inadvertent instances of regulatory noncompliance. Similarly, either through desperation or in an attempt to profit from public fear over what the media calls the "mortgage crisis," we believe that defaulting and troubled borrowers will increasingly take aggressive postures by challenging foreclosures through affirmative consumer claims (Bracewell & Giuliani LLP through Moody’s Economy.com, 11/13)
Goldman Sachs sees risk of recession as subprime reduces lending by $2 trillion - The slump in global credit markets may force banks, brokerages and hedge funds to cut lending by $2 trillion and trigger a "substantial recession'' in the U.S., according to Goldman Sachs Group Inc. (Moody’s Economy.com, 11/15)
Existing home sales seen hitting 5-year low: Sales numbers are expected to decline 12.7 percent this year, worse than expected - A modest recovery for existing-home sales is expected in 2008 as the impact of the credit crunch subsides, while pending home sales indicate near-term stability. Lawrence Yun, NAR chief economist, said the housing market will improve from a steady unleashing of pent-up demand, and from a wide abundance of safer mortgage products. “The level of pent-up demand reaching the market next year is a bit uncertain, and it is possible for even higher home sales activity than we’re forecasting if buyers regain their confidence about the long-term benefits of homeownership. Over the near term, home sales are likely to be fairly flat as the lingering impact of the credit crunch filters through the system through the end of the year.” The Pending Home Sales Index, a forward-looking indicator based on contracts signed in September, rose 0.2 percent to a reading of 85.7 from an index of 85.5 in August. It was 20.4 percent lower than the September 2006 level of 107.6. “Even with relatively low fourth quarter sales, 2007 will be the fifth highest year on record for existing-home sales. The median existing-home price in 2007 will have fallen by less than 2 percent from an all-time high set in 2006,” Yun said. (National Association of Realtors and AP, 11/13)
National Association of Realtors’ 2007 National Housing Pulse Survey shows Americans are more concerned about obtaining a mortgage but remain convinced that buying a home is a good long-term investment. (NAR, 11/14)
National Association of Realtors survey shows consumers very satisfied with agent performance. Both buyers and sellers value the personal touch and services real estate professionals offer. (NAR, 11/13)
S&P reports mortgage turmoil to worsen in 2008 -- The chaos in the mortgage markets is only going to get worse in 2008 and will put a dent in U.S. mortgage bank earnings, according to a report released Tuesday by Standard & Poor's. Next year will be the worst for mortgage bank earnings since the 1990s, the ratings agency said. Loose lending standards, especially to people with shaky credit, are at the heart of the problem. (AP, Bloomberg, 11/14)
The formerly obscure ABX index has become a closely watched gauge of just how bad the market for subprime securities is getting. (CNNMoney, 11/14)
Sources: AP, Bloomberg, National Association of Realtors, Moody’s Economy.com, Boston Herald, Boston Globe, Christian Science Monitor, Reuters, Oakland Tribune, NY Times, Freddie Mac, California Association of Realtors, Mortgage Market Guide, LLC, CNNmoney.com, Mortgage Bankers Association, RealtyTrac.com, Stockton Record
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