Big news for the upcoming week is the expected quarter-point cut in the Federal Funds Rate: Analysts expect the Fed to trim its key rate, now at 4.5 percent, by one-quarter of a percentage point at the meeting Tuesday. Some even speculate about the possibility of a half-point cut. Stocks are spring-loaded, awaiting that next Fed move, and could no doubt rally heartily, if briefly, should the bigger cut be announced. The Fed is also seen trimming the 5 percent discount rate by a quarter point or more. (KNX-AM, AP, CNBC, multiple dates)
Two jobs growth numbers were released this past week: Both the ADP Jobs Growth in the private sector and the Labor Department numbers showed a moderate growth in jobs. (KNX-AM, 12/5, 12/7)
The big real estate news from the past week came from Washington. The Bush administration unveiled a foreclosure relief plan, includes a five-year freeze on interest rate hikes for some subprime borrowers with adjustable-rate mortgages (ARMs). The White House says it could help 1.2 million distressed homeowners. In separate announcements, President Bush and Treasury Secretary Henry Paulson said the plan will streamline the mortgage modification process for many distressed borrowers. It will offer "more relief to more homeowners, more quickly," the president said. And it will include a five-year freeze on interest rates for borrowers current with their monthly payments. (CNN Money, 12/7)
Foreclosure Relief Plan Drawbacks - I hear overwhelmingly that this plan is too limited: It excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months. It also only covers borrowers with adjustable rate mortgages (ARMs) resetting beginning in 2008 and leaves out any who are judged capable of continuing to make mortgage payments at the higher reset rates. Borrowers who can't afford the loan even at low introductory rates also will be ineligible, according to Anne Canfield, executive director of the Consumer Mortgage Coalition, which represents lenders and mortgage servicers. Those borrowers will have to work with servicers on a case-by-case basis to determine if their homes can be saved. Additionally, the loan-to-value-ratio of the mortgage must be less than 97 percent. That is, the face amount of the loan must be less than what the home is actually worth. FICO credit scores also must not exceed 660 or have gained more than 10 percent since the origination of the mortgage. (CNN Money, 12/7; KNX-AM, 12/6; CNBC, 12/7)
Foreclosure Relief Plan Critics: Analysts also are arguing if this is the best thing for the economy and the open, Capitalist market that America is known for. Ben Stein, an economist, says it’s sad to see the government interfere with contracts between people and institutions. This Plan may go to court. Other economists and analysts are disappointed that the Plan prevents the fair market from ironing this out on its own. But in general, the consensus outside the market theorists seem to be that it is time for a bailout centered on the families and individuals, as long as we don’t bail out the lenders. Critics are also quick to note that this Plan is not a law, but a “best practices” document – not all lenders need to follow it, but the lenders that were a part of the discussions have agreed to do so. (CNN Money, 12/7; KNX-AM, 12/6; CNBC, 12/7)
The Dow is now up 9.3 percent year-to-date. Nasdaq is up 12 percent for the year, and S&P 500 is up 6.1 percent. Even in this volatile year, that’s better than your saving’s accounts and 1-year CDs! (CNN Money 12/7)
A Week of Economic Data Releases: Besides the Fed meeting, there is some important economic data expected in the coming week. Inflation data, in the form of both producer and consumer prices, are reported Thursday and Friday, respectively. Another big item is retail sales for November, on Thursday. (CNN Money 12/7)
Economists are in disagreement if there will be a recession in 2008. I’ve heard things this past week from “certainly” to “relatively remote.” See folllowing article...(CNBC, KNX-AM, 12/3-9)
UCLA Anderson Forecast states that the national economy is not technically in a recession, though the group’s economists are calling current conditions “a near recession experience.” A recession is defined as a two consecutive quarter decline in real Gross Domestic Product (GDP) and the UCLA Anderson Forecast is calling for real GDP growth to be just above 1% for the fourth quarter of 2007 and the first quarter of 2008. While acknowledging that an economy slowed to a 1% growth rate could slip further, the Forecast notes rather ironically that their near recession forecast “can be viewed somewhat optimistically.” In addition, job growth is strong and economic fundamentals all show strong numbers(AP, LA Times, 12/5; KNX-AM)
Bills for FHA Reform (Senate Bill 2338) and Freddie Mac/Fannie Mae loan limits appear to be running into some trouble in the Senate. National Association of Realtors and California Association of Realtors want people to write their Senators for passage of these bills. FHA reform will provide existing homeowners with secure and affordable refinancing alternatives and more mortgage options for first-time homebuyers. Increasing the supply of affordable mortgage money is a critical component for bringing stability to the nation’s turbulent housing markets. The other bill allows regional increases to the Freddie Mac/Fannie Mae loan limits and stress the need for quick Senate action on this vital reform. This change will make lower-cost GSE mortgage financing available to more families trying to buy homes in high cost areas and increase the supply of mortgage money. (CAR, NAR, 12/6)
According to the Mortgage Bankers Association, 5.12% of outstanding loans were in default in the second quarter, a rate about 17% higher than a year ago. (CNBC, 12/6)
GAVAR AV Market stats have not been updated yet. The figures shown on the monthly newsletter are still current.
Mortgage application volume rose 22.5 percent during the week ending Nov. 30, according to the Mortgage Bankers Association's weekly application survey. The MBA's application index climbed to a seasonally adjusted 791.8 points from 646.3 last week. That figure was revised down from a previously reported 652.5 because of an error by one of the larger reporting agencies, the MBA said. Refinance volume jumped 31.9 percent and purchase volume increased 15.2 percent. The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom. The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50 percent of all residential retail mortgage originations each week. The average interest rate for 30-year fixed-rate mortgages decreased to 5.82 percent from 6.09 percent a week earlier. That's the lowest in 2 years! The average interest rate for one-year adjustable-rate mortgages increased to 6.28 percent from 6.24 percent the previous week. (AP, 12/5)
The amount of equity homeowners hold in their homes slipped in the third quarter to just above 50 percent, according to a report from the Federal Reserve Thursday. In its quarterly U.S. Flow of Funds Accounts, the central bank reported that homeowners' percentage of equity dipped to 50.4 percent from 51.1 percent from the previous quarter. On average, housing is Americans' single largest asset. (AP, 12/6)
Some 16,000 San Diego County homeowners are seeking property tax relief, either due to declining home values or damages caused by the October wildfires. (SD Union Tribune 12/7)
Two economic reports predict a dismal 2008 for California, although, so far, recession is off the table. (SF Chronicle, 12/5)
I've been saying since June 2007 that I expect the housing downturn to become positive in the Spring of 2009. Moody's Economy.com, though, states no market upturn until 2010. In its study, 'Aftershock: Housing in the Wake of the Mortgage Meltdown', Moody's Economy.com said US housing prices should reach a trough in early 2009, by which time they will have fallen 12 pct nationally according to data gathered from 381 US metropolitan areas. The US housing market is awash in unsold inventory and with home prices already down more than 5 pct from two years ago, the sector in the midst of the worst downturn since 1945. While activity will stabilize in 2009, it will not be until 2010 before a measurable improvement in sales, construction and pricing will emerge, the report said. I think the key here is measurable improvement - when we see the changes affect the numbers. I do think people's mental state will change in 2009, numbers routinely lag behind reality. (Moody’s Economist.com, Forbes, Washington Post, Reuters,12/6)
The low point in the U.S. housing market may not come for another three to six months. Third-quarter home delinquency rates rose to the highest since 1986. (Bloomberg, 12/6)
I end today’s blog with a comparison of housing markets around the world: Australian Home-Loan Approvals Unexpectedly Fall on Higher Interest Rates Australia's home-loan approvals unexpectedly fell for a second month in October as interest rates at an 11-year high discouraged borrowing. New Zealand Home Prices Rise at Slowest Pace in Six Months on Higher Rates New Zealand's house prices rose at the slowest pace in six months in November, adding to signs that higher borrowing costs are curbing domestic demand. London Luxury-Home Prices Gain 0.1%, Smallest Advance in About Three Years London luxury-home prices rose the least for 35 months in November, as concern about the economy deterred some buyers, Knight Frank LLC said. U.K. Housing Transactions Will Drop 15% in 2008 as Prices Stall, HBOS Says U.K. housing market transactions will drop next year as prices stagnate, in a sign higher interest rates are cooling demand for homes, HBOS Plc said. (Bloomberg, 12/5-7)
Sources: Associated Press, San Diego Union-Tribune, San Francisco Chronicle, Moody’s Economist.com, Forbes.com, Washington Post, Reuters, Bloomberg, KNX-AM, California Association of REALTORS, National Association of REALTORS, CNBC, CNN Money
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