“Sudden and Dramatic Drop in U.S. Home Prices” – Clear Capital

October 27, 2010 · Posted in General Economics · Comment

A Clear Capital press release that I recently came across confirms our grim expectations on the housing front:

“Clear Capital’s latest data shows even more pronounced price declines than our most recent HDI market report released two weeks ago,” said Dr. Alex Villacorta, senior statistician, Clear Capital. “At the national level, home prices are clearly experiencing a dramatic drop from the tax credit-induced highs, effectively wiping out all of the gains obtained during the flurry of activity just preceding the tax credit expiration.”

This special Clear Capital Home Data Index (HDI) alert shows that national home prices have declined 5.9% in just two months and are now at the same level as in mid April 2010, two weeks prior to the expiration of the recent federal homebuyer tax credit. This significant drop in prices, in advance of the typical winter housing market slowdowns, paints an ominous picture that will likely show up in other home data indices in the coming months.

Clear Capital HDI Index and S&P/Case-Shiller 20-City Composite HPI

Tags: housing market

July 2010 – New One Family Home Sales at All Time Low; ZERO Units Over 750K Sold!!

August 27, 2010 · Posted in General Economics · 4 Comments

Two days ago the data on new home sales was published for July. What caught my (and probably everybody else’s) eye was the all time low in new one family home sales, at 276,000:

And how’s the high end market doing? See Breakfast with Dave:

The high-end market, in particular, is under tremendous pressure. In fact, it is becoming non-existent. Guess how many homes prices above $750k managed to sell in July. Answer — zero, nada, rien; and for the second month in a row. Only 1,000 units priced above 500,000 moved last month. That’s it!

This is really as bad as it gets. Mish sums it up succinctly:

Inventory is up, sales are down, sentiment has soured, and tax credits have gone poof.

Prices will follow.

Tags: housing market

July Home Sales Likely Worst Month in a Decade

August 24, 2010 · Posted in General Economics · Comment

The AP Writes July home sales likely plunged:

The housing market is taking a turn for the worse.

Tuesday’s report from the National Association of Realtors about sales of previously occupied homes is expected to show sales plunged in July. Economists are predicting as much as a 26 percent drop from a month earlier to a seasonally adjusted annual rate of 3.95 million. That would be the worst month for sales in more than a decade.

Many say the market is hurting because buyers and sellers are in a standoff over home prices. Sellers have unrealistic expectations about their home values and are listing properties on the high end.

Buyers are afraid home prices will start falling after being flat nationally for about a year and even rising in some parts of the country.

These are the inevitable workings of a slip back into recession, a double dip recession if you consider the phony reflation efforts of the past year to have been a break from the recession (which I would have my doubts about … but these are minor details in the grand scheme).

In short … The Great Depression 2.0:

Once existing stimulus programs and credit expansion attempts subside, there won’t be much left to pick up the slack. The consumer won’t be able to go back to business as usual unless he goes through a long period of reduced consumption, deleveraging, and savings, a period during which the majority of production and spending inside the US will have to be focused on capital goods, so as to restore a balanced ratio between the production of consumer goods and the production of capital goods.

At the point when these government stimuli wind down, Keynesian clowns will be jumping out of the bushes left and right, and demand that the government take on more debt and spend more money. But at some point their mindless tirades will no longer appeal to an overtaxed and overleveraged populace. Their ivory tower nonsense will be way too far detached from simple realities.

Any temporary recovery we witness now, is likely to be remembered as just that, a temporary phenomenon. All actions taken so far have set the perfect stage for a double dip recession of enormous proportions, the worst possible prolongation of the necessary correction.

If it was our dear government’s objective to repeat the playbook from the Great Depression one by one, then they have indeed succeeded phenomenally.

It should be clear by now to the most adamant believers … there was, is, and will be no recovery anytime soon.

Tags: home sales, housing market

Hope You Enjoyed the Housing Recovery … Because It’s History

May 10, 2010 · Posted in General Economics · Comment

Some considerations from Richard Suttmeier:

Since the recovery in house prices began last summer, homeowners and real-estate agents have embraced what many believe is a return to normalcy (forever rising prices).

In Wall Street-fueled markets like New York City, properties are once again getting multiple bids, and optimists are chattering about a quick return to old highs. If the trend continues, friends, neighbors, and real-estate agents will no doubt soon start repeating the adage that helped inflate the housing bubble in the first place: Real-estate is always a great investment.

But the trend won’t continue, says Richard Suttmeier, strategist at ValuEngine.com.

The temporary increase in prices has been driven by government efforts to prop up the housing market, Suttmeier says, and those measures have come to an end. A new wave of foreclosures is hitting the market. Fannie Mae and Freddie Mac have become black holes into which taxpayers must shovel endless billions just to keep the mortgage engine running. Most importantly, as measured by the Case-Shiller index, housing prices are still way too high.

In most major house-price indexes, prices have already begun to roll over and head back down. Suttmeier thinks this trend will continue. In fact, he thinks prices could fall another 25% nationwide.

For a good overview of the trends that concern Suttmeier, see fund manager Whitney Tilson’s latest presentation on the housing market.

New Wave of Foreclosures

From Zillow:

Zillow recently released its first quarter Real Estate Market Reports for the nation and 135 metropolitan areas. The reports show that home values continued to decline nationwide in the first quarter, amid encouraging signs in California. However, growing negative equity and record foreclosures will likely delay a broader recovery.
The full national report, in its new, interactive format, is available at www.zillow.com/local-info or by emailing press@zillow.com. Additionally, in most areas data is available at the state, metro, county, city, ZIP and neighborhood level.
Topline National Results:

U.S. home values fell 3.8 percent year-over-year, and declined 1 percent quarter-over-quarter, marking the 13th consecutive quarter of year-over-year declines. Home values declined year-over-year in 106 of the 135 metropolitan statistical areas (MSAs) tracked by Zillow.

Home values in several large California markets have stabilized significantly, and show tentative signs of reaching a bottom.

Negative equity remains high with 23.3 percent of all single family homes with mortgages underwater, up from 21.4 percent in fourth quarter.

Foreclosures reached a new peak in March, with more than one out of every thousand homes (0.11 percent) being foreclosed.

The $8,000 first time homebuyer tax credit program has now run out, and so has the $6,500 repeat homebuyer program. Everyone knew that once those run out home prices would resume their natural and required path of price deflation, and foreclosures and underwater homeowners would be back in the news.

Tags: foreclosures, housing, housing market

1 in 4 Homeowners Under Water

November 25, 2009 · Posted in General Economics · Comment

WSJ reports nearly 1 in 4 homeowners are under water:

The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.

Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.

These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn’t expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.

The argument of oversupply is valid. But then, why would prices hit bottom in 2011, is it not rather likely that it will take many more years, if not decades to work through the overhang, coupled with continuously rising unemployment, government debt, and taxation, private deleveraging, increased savings, and declining consumption demand?

Keep in mind that things look even worse for borrowers in some of the bubble states:

Homeowners in Nevada, Arizona, Florida and California are more likely to be deeply under water, according to the analysis. In Nevada, for example, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth, said First American.

These, and more, are all reasons Why There Is More Pain to Come …

Tags: housing, housing market

Foreclosures Soar at Record Pace, Up 33% from 1 Year Ago

July 16, 2009 · Posted in General Economics · Comment

The AP reports Foreclosures rise 15 percent in first half of 2009:

The number of U.S. households on the verge of losing their homes soared by nearly 15 percent in the first half of the year as more people lost their jobs and were unable to pay their monthly mortgage bills.

The mushrooming foreclosure crisis affected more than 1.5 million homes in the first six months of the year, according to a report released Thursday by foreclosure listing service RealtyTrac Inc.

The data show that, despite the Obama administration’s plan to encourage the lending industry to prevent foreclosures by handing out $50 billion in subsidies, the nation’s housing woes continue to spread. Experts don’t expect foreclosures to peak until the middle of next year.

Foreclosure filings rose more than 33 percent in June compared with the same month last year and were up nearly 5 percent from May, RealtyTrac said.

“Despite all the efforts to date, we clearly haven’t got a handle on how to address the situation,” said Rick Sharga, RealtyTrac’s senior vice president for marketing.

More than 336,000 households received at least one foreclosure-related notice in June, according to the foreclosure listing firm’s report. That works out to one in every 380 U.S. homes.

It was the fourth-straight month in which more than 300,000 households receiving a foreclosure filing, which includes default notices and several other legal notices that homeowners receive before they finally lose their homes. Banks repossessed more than 79,000 homes in June, up from about 65,000 a month earlier.

On a state-by-state basis, Nevada had the nation’s highest foreclosure rate in the first half of the year, with more than 6 percent of all households receiving a filing. Arizona was No. 2, followed by Florida, California and Utah. Rounding out the top 10 were Georgia, Michigan, Illinois, Idaho and Colorado.

The Obama administration in March launched a $50 billion plan to give the lending industry financial incentives to modify mortgages to lower payments, but it’s off to a slow start.

As of early July, about 130,000 borrowers were enrolled in three-month trial modifications under the plan, and 25 mortgage companies have signed up to receive potential payments of up to $18.6 billion, according to the Treasury Department. But analysts and housing counselors say it isn’t having much of an impact.

“The plan isn’t going well, at least not yet,” said Mark Zandi, chief economist at Moody’s Economy.com. “It’s a creative plan with lots of incentives, but it’s very complex.”

In testimony prepared for delivery at a Senate hearing on Thursday, Bank of America executive Allen Jones said the company has about 80,000 loan modifications in the works under the new government guidelines, including some that aren’t in the three-month trial phase yet.

“We have achieved this level of success by devoting substantial resources to this effort,” Jones said, noting that the company has more than 7,000 employees handling calls and working on modifications. Industry experts, however, say the response from most mortgage companies has been lackluster.

“They’ve been slow to make sure they understand it and put all the processes and people in place,” said Joel Lewis, vice president of financial services at Convergys Corp., which runs call centers for the financial industry and other companies.

A week ago, Treasury Secretary Timothy Geithner and Housing Secretary Shaun Donovan sought to ramp up pressure on the industry, saying in a letter to participating mortgage companies that the industry needs to “devote substantially more resources to this program for it to fully succeed.” They also summoned mortgage executives to a July 28 meeting with top government officials.

Though the program was launched months ago, few companies are upgrading their computer systems to process loans rapidly, said Bill Kelvie, chairman of Overture Technologies in Bethesda, Md.

“They need to automate the process, and they need better technology, and they need to do this quickly,” he said.

Obama’s ill-conceived foreclosure prevention plan is in the final steps of falling apart. The backlog that the moratorium naturally created, is beginning to flood the market.

It won’t be too long and people will start asking where the $50 billion subsidies for mortgage adjustments went. And then people will start acting surprised when they find out that yet another chunk of taxpayer money went down the drain.

Hopefully the administration will do the right thing and put an end to their foreclosure postponement plans. This would be the right thing to do. All they have accomplished and will accomplish is to prolong the period of agony. I am afraid their conclusion will be a different one: We didn’t do enough, we need to throw more money at it.

Tags: foreclosures, housing market

Home Prices – April 2009

July 1, 2009 · Posted in General Economics · Comment

Click on image to enlarge.

In April 2009 composite home prices declined by 18.1% from 1 year ago.

Top 3 annual declines:

1. Phoenix, Az: 35.26%
2. Las Vegas, NV: 32.25%
3. San Francisco, CA: 28.04%

Top 3 monthly declines:

1. Las Vegas, NV: 3.48%
2. Phonix, AZ: 2.23%
3. Miami, FL: 2.08%

Noteworthy: Prices actually rose a bit from 1 month ago in a few cities: San Fracisco (1st time since April 2007), Denver, Washington DC (1st time since May 2006), Atlanta, Clevelend, Dallas, and Seattle.

Tags: april 2009, case shiller, home prices, housing market

Krugman Asked for Housing Bubble

June 17, 2009 · Posted in General Economics · Comment

In 2002 Paul Krugman said we needed a housing bubble. It is not surprising that he would espouse such nonsense, but just in case there are still people out there listening to this guy, please consider Dubya’s Double Dip?:

The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

… great how the internet doesn’t forget.

Tags: housing bubble, housing market, paul krugman

Housing/Credit Crisis – Why There Is More Pain To Come

June 3, 2009 · Posted in General Economics · Comment

Some of the slides and statements that caught my attention on T2 Partners’ Overview Of The Housing/Credit Crisis And Why There Is More Pain To Come:

Home Equity vs. Debt:

Click on image to enlarge.

Debt and Financial Profits:

Click on image to enlarge.

Mortgage Delinquencies Soaring in Q1 2009:

Click on image to enlarge.

Mortgage Losses To Come (note the whopping 3.5 trillion for commercial mortgages):

Click on image to enlarge.

Recent Signs of Stabilization Are Likely the Mother of All Head Fakes:

Rather than representing a true bottom, recent signs of stabilization are likely due to two short-term factors:

1. Home sales and prices are seasonally strong in April, May and June due to tax refunds and the spring selling season

2. A temporary reduction in the inventory of foreclosed homes

– Shortly after Obama was elected, his administration promised a new, more robust plan to stem the wave of foreclosures so the GSEs and many other lenders imposed a foreclosure moratorium

– Early this year, the Obama administration unveiled its plan, the Homeowner Affordability and Stabilization Plan, which is a step in the right direction – but even if it is hugely successful, we estimate that it might only save 20% of homeowners who would otherwise lose their homes

–The GSEs and other lenders are now quickly moving to save the homeowners who can be saved – and foreclose on those who can’t

–This is necessary to work our way through the aftermath of the bubble, but will lead to a surge of housing inventory later this year, which will further pressure home prices

$2.5 Trillion Alt-A Mortgage Resets Are Only Still Ahead of Us:

Click on image to enlarge.

Option ARMs by State (Good Night, California!):

Click on image to enlarge.

Home Prices Need to Fall 5-10% to Reach Trend Line:

Click on image to enlarge.
…but after they reach the trendline, what keeps them from falling deeper? Markets always overshoot in both directions.

Comments From Mark Hanson, The Field Check Group, May 5, 2009:

California housing – at the low end – is ‘bottoming’ mostly because: a) median prices are down 55% from their peak over the past two years, thereby making the low end affordable; b) foreclosures have temporarily been cut by 66% through moratoriums reducing supply; and c) demand is picking up going into the busy season.

But the moratoriums are ending and the number of foreclosures in the pipeline is massive – they will start showing themselves as REO over the near to mid-term. The Obama plan held the foreclosure wave back, creating a huge backlog and now the servicers are testing hundreds of thousands of defaults against the new loss mitigation initiatives. We presently see the Notice of Defaults at record highs and Notice of Trustee Sales back up to nine-month highs – there is no reason for a loan to go to the Notice of Trustee Sale stage if indeed it wasn’t a foreclosure. However, the new ‘batch’ are not only from the low end but a wide mix all the way up to several million dollars in present value.

Because the majority of buyers are in ultra low and low-mid prices ranges, the supply- demand imbalance from foreclosures and organic supply will crush the mid-to-upper priced properties in 2009. We already have early seasonal hard data proving this. As the mid-to-upper end go through their respective implosions this year and the volume of sales in these bands increase as prices tumble, the mix shift will raise median and average house prices creating the ultimate in false bottoms. We also have data proving this phenomenon.
After a year or so the real pain will occur when the mid to upper bands are down 40% from where they are now, and the price compression has made the low to low-mid bands much less attractive – the very same bands that are so hot right now. Rents are tumbling and those that bought these properties for investment will be at risk of default (investors have been buying all the way down). Investors have just started to get taken to the woodshed from all of the supply and this will get much worse. Mid-to- upper end rental supply is also flooding on the market making it much better to rent a beautiful million dollar house than putting $300,000 down and buying.

After investors are punished — and with move-up buyers gone for years – it will leave first-time homeowners to fix the housing market on their own. Good luck and good night. Five years from now when things look to be stabilizing, all of these terrible kick-the-can-down-the-road modifications that leave borrowers in 5-year-teaser, ultra-high-leverage, 150% LTV, balloon loans will start adjusting upward and it will be Mortgage Implosion 2.0. These loan mods will turn millions of homeowners into over-levered, underwater, renters and ensure housing is a dead asset class for years to come.

Due to a confluence of events including a national foreclosure moratorium and near-zero sales in the mid to upper end during the off season, the broader housing data show signs of stabilization. Taken in context, it is a blip. There are no silver linings or green shoots in housing whatsoever other than by these first-time homeowners – former renters – who now find it cheaper to own than rent. This is a very good thing, but it only applies to a small segment of the population and will not be able to support the market. In addition, the first-time buyers who come out of the rental market put continuous pressure on rents.

Our data shows that the mid-to-upper end housing market is on the precipice of the exact cliff that the market fell off of in 2007, led by new loan defaults. What happens to the economy when you hit the mid- to-upper end earners the same way the low-to-mid end was hit with the subprime implosion? We will find out soon enough. When we look back on housing at the end of 2009, anyone that made positive housing predictions this year will not believe how far off they were.

…as I already noted in March, there is a Major Collapse in High End Properties Underway.

Tags: credit crisis, economic outlook, housing crisis, housing market

Barney Frank on Housing – Clueless in 2005, Clueless Now

May 27, 2009 · Posted in Politics · Comment

I quote:

… but you’re not going to see the [housing] collapse that you see when people talk about a bubble and so those of us on our committee in particular will continue to push for home ownership…

Thanks, Barney, for admitting, at least back then, that you were on the forefront of pushing for excessive home ownership and thus being instrumental to the housing crisis. Would you come forward today and say the same things? But then, I guess, nobody could see this coming, right?

Nobody? Here’s Ron Paul in 2003:

The special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital that they could not attract under pure market conditions. Like all artificially created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing, the damage will be catastrophic.

… who would you rather listen to?

Tags: barney frank, housing market, ron paul