Lots of news this week but if I had to have a headline, it would center around 2 speeches by the Fed hinting at a rate cut during their next meeting Dec. 11. Jobs data, now 4.7%, hit a low of 4.4 percent in March of this year and is likely to hit 4.8 percent in November. Fed Chairman Bernanke acknowledged the weakening labor market but suggested it was consistent with a slowing economy and not particular worrisome. With the exception of revised third-quarter GDP data, virtually all the economic data released this week -– from consumer confidence to weekly jobless claims to the personal income and spending figures released Thursday –- show deterioration in two areas of the economy once thought to be the remaining areas of some strength. (CNBC, 11/30)
Foreclosures are all the rage in many conversations I have with potential clients. It hardly seems like the holiday spirit to take advantage of other people’s misfortunes, but many people claim to be getting excellent deals and tout strategies to get them. Are foreclosure homes right for you? What are they? Find out in this month’s FAQ at http://changhomes1.blogspot.com/2007/12/faq-what-is-foreclosure.html.
The rising number of foreclosures in Los Angeles and beyond has become the nation's biggest economic concern - and possibly the biggest economic problem globally, Rep. Maxine Waters said as she convened a congressional subcommittee hearing on the issue at the California Science Center. Waters said the foreclosure crisis is larger than originally anticipated. She quoted former Treasury Secretary Lawrence Summers, who has said the chances of avoiding recession are less than 50% - unless decisive actions are taken. LA Mayor Villaraigosa said 2007 has been the worst year for foreclosures in the city, with 716 foreclosures in the first quarter, 850 in the second and 1,177 in the third quarter. In contrast, there were just 115 foreclosures in the city during the first quarter of 2006, the mayor said. In Los Angeles County, 5,000 notices of default were filed in October, a 102% increase from the same time last year, said Pastor Herrera Jr., director of the county's Department of Consumer Affairs. (AV Press, 12/2)
Housing Slump's Third Year to Be `Deepest' Since WWII - Standard & Poor's 15-member Supercomposite Homebuilding Index tumbled 62 percent this year as of yesterday, the largest drop since the benchmark was started in 1995. The companies have lost about $35 billion of market value. The outlook is bleak with new home sales projected to fall 13 percent in 2008, according to estimates from the National Association of Realtors in Chicago, even as interest rates drop. Losses at Fannie Mae and Freddie Mac, the two biggest U.S. providers of mortgage financing, may restrict the availability of home loans, and chief executive officers at D.R. Horton Inc. and Centex Corp. expect another tough year. Total new home sales peaked in July 2005 and have declined for 19 of the last 28 months through October, according to Commerce Department data. Existing home sales peaked in September 2005. The median price for a new home dropped 13 percent in October, the most since 1970, and the annual sales rate for new homes in September was the lowest in almost 12 years. (Bloomberg, 11/30)
One third of adjustable-rate subprime home loans in the U.S. were delinquent as of August, according to a study by the Federal Reserve Bank of New York. The study found that adjustable-rate subprime mortgages had the highest rate of delinquencies and foreclosures. Twelve percent of 26,642 such loans sampled were more than 60 days delinquent and 7 percent were in foreclosure, according to data released today. Another 13 percent were less than 60 days overdue. (Bloomberg, 11/30)
The Treasury Department is finalizing a plan with mortgage industry leaders that will hold interest payments steady for many subprime borrowers facing higher rates and possible foreclosure. The mortgage representatives and regulators are focusing in on restructuring "2-28" and "3-27" subprime loans, which start with a fixed mortgage rate of up to three years but then reset to a much higher rate.As envisioned, the plan would effectively extend the fixed-rate period for stressed borrowers and so shield them from a payment spike that could push them into foreclosure. (Reuters, 11/30)
C.A.R. reports entry-level housing affordability at 24 percent in California - The minimum household income needed to purchase an entry-level home at $482,910 in California in the third quarter of 2007 was $99,590, based on an adjustable interest rate of 6.56 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $3,320 for the third quarter of 2007. At 48 percent, the High Desert region was the most affordable in the state, followed by the Sacramento region at 46 percent. Santa Barbara was the least affordable region in the state at 11 percent, followed by the Monterey region at 16 percent. (CAR, 11/29)
Home sales decreased 40.2 percent in October in California compared with the same period a year ago, while the median price of an existing home fell 9.9 percent. C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in October 2007 was 16.3 months, compared with 6.4 months (revised) for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate. Thirty-year fixed-mortgage interest rates averaged 6.38 percent during October 2007, compared with 6.36 percent in October 2006, according to Freddie Mac. Adjustable-mortgage interest rates averaged 5.68 percent in October 2007 compared with 5.56 percent in October 2006. The median number of days it took to sell a single-family home was 59.3 days in October 2007, compared with 56.5 days for the same period a year ago. (CAR, 11/28)
The cost of financing a home remains out of reach for many households in California in the wake of the Office of Federal Housing Enterprise Oversight (OFHEO) conforming loan limits for 2008, announced earlier today. The maximum 2008 conforming loan limit for single-family mortgages will remain at $417,000, unchanged since 2006. The conforming loan limit determines the maximum size of a mortgage that Fannie Mae and Freddie Mac can buy or guarantee. Non-conforming or jumbo loans typically carry a higher mortgage interest rate than a conforming loan, increasing the monthly payment and negatively impacting affordability for households in California. (CAR, 11/27)Single-family existing-home sales were stable in October while the condo sector was down. Lingering effects of the credit crunch were a drag on sales but the mortgage situation has improved significantly. (NAR, 11/28)
Offset mortgage may be a new program coming from Britain - You get a mortgage linked to a non-interest-bearing savings account whose deposits "offset" your loan balance. So if you owe $200,000 on your home but have $50,000 on deposit, the bank calculates your monthly interest as if you borrowed only $150,000. The bank gets its back scratched by getting to use your deposit interest-free. You pay off your mortgage faster because more of your monthly payment is applied to principal - and you can get your hands on your savings any old time. Because this deal would give you an extra weensy tax break under U.S. law, however, no offset mortgages are allowed here. But two U.S. companies - CMG Financial Services and Macquarie Mortgages USA - have introduced a version that passes muster with the IRS. (Money Magazine, 11/29)
Mortgage applications fell 4.3%. 30 yr fixed mtg 5.69% - 15 yr fixed mtg 5.27% - 30 yr fixed jumbo mtg 6.60% - 5/1 ARM 5.56% - 5/1 jumbo ARM 6.04% (Mortgage Bankers Association, 11/28)
Third-quarter home prices dropped 1.7% from prior quarter, largest drop in 21-year history. Yale economist and index co-founder, Robert Shiller conceded that most economists are still optimistic; employment is strong, consumer spending robust and the weaker dollar has increased exports. But, there's a big question in his mind whether subprime problems will lead to a retrenchment in consumer demand. According to Shiller, the current situation is unprecedented - there's never had been a housing boom quite like the one that ended last year - and how we come out of the bust is anyone's guess. (S&P Case/Shiller and KNX-AM, 11/27)
More than 50,000 lost their homes in October; foreclosure rates expected to rise in 2008 as adjustable-rate mortgages reset. For the full year, RealtyTrac expects 2 million homes to have entered the foreclosure process - including bank repossessions, default notices and auction sale notices. The national foreclosure rate for the month was one filing for every 555 households. While California foreclosure activity decreased nearly 2 percent from the previous month, the state's foreclosure rate still ranked second highest, with one foreclosure filing for every 258 households. Among city foreclosure rates, California cities took six out of the top 10 spots in October, with Merced topping the list. Stockton, Modesto, Riverside-San Bernardino, Vallejo-Fairfield and Sacramento also were in the top 10. (CNNMoney and KNX-AM, 11/29)
Mayors and public officials worry about effects of housing downturn. As home values plummet and neighborhoods deteriorate under soaring foreclosure numbers, public governments will see lower tax collections. California, for example, had been expecting a balanced budget, but because of the real estate downfall, they are expecting a shortfall now. Notice has gone out to department heads to expect and prepare for budget cut of 10% or more across the board for the next fiscal year. (CNNMoney and KNX-AM, 11/28, 11/29)
Lenders quietly began offering such freezes during the summer. Last week California officials announced a rate-freeze deal with four major lenders. And now the Hope Now Alliance, coalition of lenders, servicers, investors and community groups, put together by the Treasury Department, is working on its own version of a freeze. But for a borrower with an adjustable rate mortgage (ARM) at 7 percent on a $200,000 loan, a freeze would mean substantial savings. If the loan were to reset to 10 percent, the monthly payment would jump from $1,331 to $1,755. Judging from other lenders' plans, a reset freeze would be available only to those borrowers judged unable to make payments at the reset rates. (CNNMoney, 11/30)
Sources: California Association of REALTORS (CAR), CNNMoney, Reuters, National Association of REALTORS (NAR), Money magazine, S&P Case/Shiller, KNX-AM, Bloomberg, CNBC, Antelope Valley Press.
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