The market was initially disappointed with the 1/4% drop in Federal Funds and Discount Funds Rates by the Fed on Tuesday. The Fed followed Wednesday with an agreement with world Central Banks for the opportunity for U.S. banks to “auction” for additional funds. Later in the week, Producer Price Index rose dramatically, signaling inflation. The people I hear speculate that the Fed had already known these numbers, and therefore were more conservative in its rates drop. (KNX-AM, 12/11, 12/12)
The Fed seeks to add protections to back even the riskiest borrowers, already hit hardest by the housing and credit crunches. Rules expected to be proposed Tuesday would apply to loans made by all types of lenders, including banks and brokers. The plan from the Fed, which has regulatory powers over the nation's financial system, could be finalized next year. (AP, 12/11)
More to Come in 2008: For U.S. homeowners, builders, bankers and realtors, the crash of 2007 will only get worse in 2008. Everyone from mortgage-finance company Fannie Mae to Lehman Brothers Holdings Inc. expects declines next year. Existing home sales will drop 12 percent and existing home prices will fall 4.5 percent, Washington-based Fannie Mae says. Lehman analysts estimate almost 1 million mortgage loans will default in 2008, up from about 300,000 this year. (Bloomberg, 12/14)
USGS has released mudflow maps showing the potential for destructive mudslides in the wake of the recent Southern California wildfires at http://landslides.usgs.gov/research/wildfire/07sca/. They estimate the size of potential debris flows, commonly known as mudflows, and the areas that could be affected when rainfall begins on recently-burned areas. According to the National Weather Service, hillsides that have been denuded of brush and vegetation by fire can often become unstable because they lose the root systems that hold dirt in place. Heavy rains can over-saturate the vulnerable soil which can then lead to hillsides giving way under pressure.
Recession? “Morgan Stanley became the first major Wall Street firm this week to predict a recession, a mild recession,” said KNX Business Hour host Frank Mottek. (12/11)
Fannie Mae and Freddie Mac are changing their criteria for purchasing delinquent home loans they've guaranteed, in order to reduce the number they buy from investors. (AP, 12/11)
Los Angeles city officials are considering a law aimed at curbing the building of so-called “McMansions,” by limiting the square-footage of new or remodeled houses. (LA Times, 12/11)
Robert Kiyosaki (Rich Dad, Poor Dad) says that buying foreclosures is for the experts, and even he doesn't pursue them. Foreclosure purchases may be on the rise, but reportedly they can come with many pitfalls and take much longer to complete than a traditional home sale. (KNX-AM, 12/10, LA Times, 12/10)
The NATIONAL ASSOCIATION OF REALTORS®’s revised monthly forecast calls for U.S. existing home sales to fall 12.5 percent this year to 5.67 million, but predicts sales in 2008 will be higher than the trade group predicted a month ago. (AP, 12/10)
The median price of an existing home sold jumped 43 percent between 2001 and 2005, but year-over-year price declines started in late 2006 and are expected to fall almost 2 percent this year, according to the National Association of Realtors. That would mark the first year with a decline in prices. (AP, 12/10)
What has started as the U.S. Housing Crisis has become the Global Credit Crisis (KNX-AM, 12/13)
Mortgage applications rise: Mortgage application volume increased 2.5 percent for the week ending Dec. 7, according to the trade group Mortgage Bankers Association's weekly application survey. The MBA's weekly application index rose to 811.8 from 791.8 the previous week. Refinance volume increased 4.3 percent, while purchase volume grew 1.7 percent. Refinance applications accounted for 57.6 percent of total mortgage applications during the week ending Dec. 7, compared with 56 percent during the prior week. 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. Mortgage applications rose despite a jump in interest rates. The average interest rate for traditional, 30-year fixed-rate mortgages grew to 6.07 percent during the week ending Dec. 7, from 5.82 percent during the prior week. The average interest rate for one-year adjustable-rate mortgages increased to 6.31 percent from 6.28 percent. (AP, 12/12)
On Capitol Hill, follow-up on last week: Key senators have reached a deal to expand the nation's largest federal homeownership program in a move that could help struggling subprime borrowers avoid foreclosure, legislative and industry sources said. If the deal holds, underwriting standards at the Federal Housing Administration will be loosened so that the program can help 200,000 troubled borrowers save their homes, according to the overseers of the program. Under the deal, lawmakers have agreed to a limited debate on FHA reform that will allow the full Senate to vote on the reform package. The Senate moved Friday against the worsening mortgage crisis, voting to make it easier for thousands of homeowners with ballooning interest rates to refinance into federally insured loans. The legislation, approved 93-1, would allow the Federal Housing Administration to back refinanced loans for borrowers who are delinquent on payments because their mortgages are resetting to sharply higher rates from low initial "teaser" levels. (AP, 12/13, 12/14)
This week in Economics: On Thursday, the Commerce Department releases its final reading on third-quarter gross domestic product. Economists are anticipating GDP to come in at 4.9 percent, as estimated last month; however, they are less optimistic about growth in the quarters to come. Late in the week will be the Labor Department's report on personal income and spending in November, which will also include the Fed's preferred inflation measure: the core personal consumption expenditures deflator. Core PCE is expected to show year-over-year growth of 1.9 percent - within the Fed's comfort range of 1 percent to 2 percent. (AP, 12/16)
Once again, like last week, I’ll close with a view of worldwide real estate, this week, we’ll focus on England. London Leads Biggest Drop in British House Prices for at Least Five Years London led the biggest drop in U.K. home values for at least five years this month as higher mortgage costs and the prospect of further declines in prices kept away buyers, a report by Rightmove Plc showed. U.K. Commercial Real Estate Returns Drop by Record Amount, IPD Report Says U.K. commercial real estate returns fell by a record amount last month as higher interest rates and a drop in bank lending pushed prices down, according to Investment Property Databank Ltd., a London-based research firm. (Bloomberg, 12/14)
Fannie Mae chief executive tells shareholders he sees no recovery in housing before 2009 - blames unaffordable prices for current housing woes. Average home prices will decline another 4 to 5 percent in 2008, according to Fannie Mae Chief Executive Dan Mudd. (CNNMoney, 12/14)
Sources: KNX-AM, Associated Press, Bloomberg, Los Angeles Times, CNNMoney.
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