Government-Backed 4% Fixed-Rate Mortgages?

From CNNMoney.com - "Obama pledges mortgage help":

Republicans, who opposed the president's stimulus package of over $800 billion largely because of its spending priorities, suggested mortgage help as well, proposing government-backed 4% fixed-rate mortgages for "any credit-worthy borrower," Senate Republican Leader Mitch McConnell said.

"The availability of these low-interest loans would increase demand for houses significantly and low-interest mortgages would boost household income," McConnell said in a separate radio address.

I'm not going to dissect the entire article, but I did want to bring attention to this one small excerpt (politics aside) discussing the ongoing possibility of the government clearing the way for extremely cheap government-backed mortgages. Even though this will not impact lending standards, it will continue to make owning a home cheaper without sellers actually having to reduce the price of the home (helping to shore future price erosion). If this ever gets past mere discussion and is ultimately enacted, this will also go a long ways towards motivating wannabe buyers sitting on the fence and bring urgency to buyers who are actively searching (helping to move inventory).

New Home Sales Plunge - Lowest Ever Recorded!

From CNNMoney.com - "New home sales plunge to lowest on record",

Sales of newly constructed homes plunged in December to the lowest level on record, going back to 1963, according to a government report released Thursday.

The U.S. Census Bureau reported that new home sales fell to an annual seasonally adjusted rate of 331,000 in December. That's down 14.7% from a revised 388,000 annual rate in November.

The December sales pace was 44.8% below the same month a year ago, when the annual rate of new home sales was 600,000.

Again, very unfortunate numbers for all of the jobs that are being lost in the new home sales industry and the countless supporting industries. On the bright side, this will, as we have said many times here before, help to reduce future housing inventory levels. The housing market is in disarray in large part due to the insane levels of inventory. Until this changes, the disarray will continue.

Mortgage Applications Tank

From CNNMoney.com - "Mortgage applications plunge":

Applications for U.S. home mortgages cratered to levels not seen since November last week as rates held stubbornly above record lows engineered by the Federal Reserve earlier this month, according to data from an industry group on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity plunged by 38.8% to 732.1 in the week ended Jan. 23.

Fixed 30-year mortgage rates averaged 5.22% in the week, down from 5.24% the previous week and 4.89% in early January, the MBA said.

The culprit:

Rising U.S. government borrowing to pay for financial bailouts and expected stimulus to stave off recession have begun to increase Treasury yields, offsetting Fed efforts to drive mortgage rates lower, analysts said. Benchmark 10-year Treasury yields, which help govern mortgage rates, have climbed nearly a half-percentage point since late December to 2.53% (up to 2.66% as of writing this post).

Refinances:

The MBA's seasonally adjusted index of refinancing applications plummeted 48% to 3,373.9 last week. The gauge of loan requests for home purchases declined 2.9% to 294.3.

The mortgage application numbers continue to be all over the board in recent reports - up and down. Even though mortgage rates have been trending higher, they're STILL CHEAP!

S&P Case-Shiller Housing Price Index - January 2009

From Standardandpoors.com - "Home Price Declines Continue as the S&P/Case-Shiller Home Prices Indices Set New Record Annual Declines":

Data through November 2008, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, shows continued broad based declines in the prices of existing single family homes across the United States, with 11 of the 20 metro areas showing record rates of annual decline, and 14 reporting declines in excess of 10% versus November 2007.

(Click on chart for better viewing)

The chart above depicts the annual returns of the 10-City Composite and the 20-City Composite Home Price Indices. Following the lead of the 11 metro areas described above, the 10-City Composite matched last month’s record decline of 19.1% and the 20-City Composites set a new record, down 18.2%.

(Click on chart for better viewing)

The chart above shows the index levels for the 10-City Composite and 20-City Composite Home Price Indices. It is another illustration of the magnitude of the decline in home prices over the past two years. As of November 2008, average home prices are at similar levels to what they were in the first quarter of 2004. From their peak in mid-2006, the 10-City Composite is down 26.6% and the 20-City Composite is down 25.1%.

What's happening where?

Monthly data also continues to show a housing market in decline. All 20 metro areas, and the two composites, posted their third consecutive monthly decline. In addition, eight of the MSAs posted their largest monthly decline on record – Atlanta, Boston, Charlotte, Chicago, Dallas, New York, Portland and Seattle. Although in decline over the past few years, some of these regions have out-performed on a relative basis, when compared to the national average. It is clear, however, that the decline in home prices is affecting all regions regardless of geography or employment opportunities.

Dallas and Denver faired the best in November, in terms of relative year-over-year returns. While in negative territory, their declines remained in low single digits of -3.3% and -4.3%, respectively. It should be noted, Charlotte reported its third consecutive largest monthly decline on record, down 1.9%. Denver and Cleveland were the best reporting markets for the month returning -1.1% and -1.2%, respectively. On a relatively positive note, eight of the 20 metro areas recorded better annual returns compared to last month.

(Click on chart for better viewing)

As expected, prices continue to decline and many of the declines have been drastic. We continue to assert that much of this can be attributed to sellers and, more so, banks, getting prices right and moving inventory. As a result, the new comparables are at the lower price points at which these homes have sold at the fire sale pricing. In return, as these sales are recorded we are now seeing these sales being reflected in the steep pricing declines noted in the Case-Shiller report. We've addressed this notion here repeatedly of recent, but it bares repeating since this is what needs to happen to stimulate buyers to buy to move all of this excess inventory. It's not pretty but it has to happen, and the numbers in many recent reports are starting to tell us that this is indeed what is happening.

The latest release of the existing home sales report hints at this notion as there has been an uptick in sales numbers in many locales nationwide. In some of the overheated housing markets (especially in the western region) sales numbers have been trending up year over year. Again, this is a good sign because we need to MOVE INVENTORY before housing is going to find a bottom and start moving in the right direction.

Will this trend continue?

Existing Home Sales Rise

From CNNMoney.com - "Existing home sales in surprise jump":

The number of existing homes sold in December rose 6.5% from the previous month, according to a report released Monday, as bargain hunters took advantage of plummeting prices.

The National Association of Realtors said that home sales increased to a seasonally-adjusted, annualized rate of 4.74 million units. That's up from a revised pace of 4.45 million units sold in November and more than the rate of 4.4 million units projected by a consensus of industry analysts as reported by Briefing.com.

Inventory shrinking?

Thanks to the sales increase, the number of homes available on the market decreased 11.7% in December from the previous month, to 3.68 million. That represents a 9.3-month inventory supply at the current pace of sales, down from a 11.2-month supply in November.

Surge in the West continues:

The number of homes sold nationwide was buoyed by a surge in the West, where the housing market has been hardest hit by a record number of foreclosures.

Existing home sales in the West surged 13.6% to an annual rate of 1.25 million in December, up 31.6% from a year ago. But the median price in the West was $213,100, down 31.5% from December 2007.

In the South, existing home sales increased 7.4% to an annual pace of 1.74 million in December, but that was still 11.2% lower than December a year ago. And sales in the Midwest increased 4% in December to an annual rate of 1.04 million, but were down 10.3% from the same period last year.

The Northeast saw sales edge 1.4% lower, to an annual pace of 720,000 in December, down 14.3% from December 2007.

Some markets are trying to turn the corner - a phrase that has been tossed around of recent. Yet, in many of these same markets, we have not yet seen price stability. Sound like a contradiction? It's not and I think this is an important point to address in greater detail.

We're trying to determine a bottom by evaluating market data and trends. Obviously, we know we've already hit bottom when housing prices stop dropping and ultimately start inching back up. Similarly, we knew housing was starting its crash when prices stopped rising and started falling. A lot of good it does us figuring it out after the fact.

Ultimately, all of this comes down to simple supply and demand. Greatly simplified, lots of inventory equals more choices for buyers, stiffer competition for sellers, and softer home prices. As inventory tightens, the exact opposite occurs. When inventory levels constrict considerably and loans are given with reckless abandon, you have a housing boom.

Right now, banks are finally starting to move inventory by drastically dropping and aggressively pricing their properties. As a result, prices will continue to drop as sales are made and newer comparables are booked at the lower price points. The important point here is that inventory, now that the price is "right", is moving. As registered in this latest report, buyers are buying. In fact, many of the overheated markets are starting to see what looks to be a stabilization of inventory levels, new building starts and permits are at record lows, mortgage rates are cheap, and sales are trending up.

My crystal ball remains broken and it's nearly impossible to determine how all of the economic variables will play into determining the exact portrait of our housing future. However, even though these reports don't scream "it's the bottom" they're telling us that something is happening and the something, for the first time in years, is collectively moving in the right direction.

Until it's in the rear view mirror, it will be impossible to pinpoint that exact time when bottoms are hit or tops are reached, but the data will let you know that the time is near and the getting is good enough.

Housing Starts and Permits - Record Lows

From CNNMoney.com, "Record low for housing permits, starts":

Housing permits and starts both tumbled to record lows in December, according to a government report released Thursday.

The Commerce Department said housing permits fell 10.7% from the prior month to an annual rate of 549,000 in December, while starts were down 15.5% from November to an annual rate of 550,000.

Both measures were at the lowest levels since the government started tracking the data in 1959.

Housing numbers were worse than expected to boot:

The reports also came in much worse than expected. The Commerce Department was expected to report that building permits ticked down to an annual rate of 615,000, unchanged from a revised reading for the month prior, according to a consensus estimate of economist estimates compiled by Briefing.com.

Housing starts were expected to fall to 610,000 in December from a revised 651,000 in November.

Housing permits in December were 50.6% below the year-earlier rate of 1,111,000, and housing starts were down 45% from 1,000,000.

We're already seeing this in some of the housing markets that were severely overheated during the boom:

At some point the increase in the inventory level will cause prices to come down so dramatically that bargain hunters will sneak in and start buying up excess supply, Newport said.

As the usual broken record goes. The final tidbit of this article is GOOD NEWS for housing, definitely BAD NEWS short term on some real estate and construction related jobs:

For all of 2008, the report estimates 892,500 housing units obtained building permits, which was 36.2% below the 2007 figure of 1,398,400. Meanwhile, the government estimated that 904,300 housing units were started in 2008, which is 33.3% lower than the 1,355,000 units started in 2007.

The sooner we move this inventory, the sooner housing begins to stabilize. Until then, more grim reports will follow.

Real Estate Sales Boom?

This article was brought to my attention courtesy of the @LendingLadies via a Tweet on Twitter. This is another housing article that discusses the recent significant spur in real estate activities in markets that have been exceptionally battered during the housing crash.

From Realtor.org - "10 Cities Boasting Mini Sales Booms":

Some cities that were hardest hit by the real downturn are experiencing mini sales booms.

Las Vegas real estate properties are down 28 percent in price, but sales of homes are up 15 percent.

.....

Phoenix and San Diego are reporting similar experiences.

.....

Here are the cities where experts say it makes the most sense to buy now.

1. Las Vegas
2. Sacramento, Calif.
3. San Diego, Calif.
4. Los Angeles
5. Detroit
6. Phoenix
7. San Francisco
8. Washington, D.C.
9. San Jose
10. Atlanta

Source: Forbes, Matt Woolsey (01/12/09)

I'm not suggesting that all of housing or the specific markets mentioned in this article have bottomed, but it is important to note that currently there has been a significant increase in sales activity in some of the hardest hit areas. We attribute the drastic drop in housing prices in these markets coupled with incredibly low mortgage rates to the increase in buying / home sales activity.

In our local market, we are noticing exactly the same housing trends discussed in this article. The lower priced homes (our market is in the 200k range) aggressively priced (REO's, etc.) are selling, in many instances, for over the asking price with multiple offers, under 30 days on market.

Change Coming to Real Estate Markets?

From RealityTimes.com - "Real Estate Outlook: Change Anticipated":

The national economic headlines continue to be bearish, but some of the underlying fundamentals for real estate are pointing to better days ahead.

Mortgage rates remain unbelievably low:

Take home mortgage rates: Last week thirty year fixed rates dropped below the seemingly-unbreakable five percent barrier for the first time on record, according to the Mortgage Bankers Association.

New thirty year loans went for an average 4.89 percent, while fifteen year loans were just above 4.6 percent.

Programs coming which will potentially put an end to foreclosures?

In a letter to Congress last week, Lawrence Summers, Obama's nominee to head the National Economic Council, said the incoming administration plans to use portions of the remaining $350 billion in "TARP" -- or "Troubled Asset Relief Program" -- money to rework monthly payments for what Summers called "responsible home owners" now facing economic challenges in the recession.

Though Summers did not go into detail, the program is likely to be based on FDIC chairman Sheila Bair's proposed "mass-modification" concept that the Bush administration rejected last Fall.

Versions of that program might include widespread principal write-downs -- outright reductions in home owners' mortgage balances -- and guarantees to lenders in the event borrowers re-default.

The Obama administration is also likely to institute an immediate ban on all foreclosure actions, possibly for three months, and is certain to enact bankruptcy reform legislation allowing judges to modify mortgage terms to forestall foreclosures.

Harney's final assertion is that an improved tax credit may be the final nail in the coffin to make all of our housing woes go away:

Add in still another factor: Congress may create a new and improved tax credit -- one that's not repayable and covers all home purchases, not simply first-time buyers -- and we just might be looking at a FAR more positive outlook than a lot of people could imagine.

It's hard to argue that some housing markets are now starting to benefit from the severe price declines seen over the past few years with increased sales activity. The end result is that housing fundamentals and affordability have, in many markets, become much more realistic thanks to the drastic drop in home values coupled with historically low mortgage rates (for those who can qualify).

Foreclosures, Foreclosures, Foreclosures

From CNNMoney.com - "Foreclosures up a record 81% in 2008":

U.S. foreclosure filings spiked by more than 81% in 2008, a record, according to a report released Thursday, and they're up 225% compared with 2006.

A total of 861,664 families lost their homes to foreclosure last year, according to RealtyTrac, which released its year-end report Thursday. There were more than 3.1 million foreclosure filings issued during 2008, which means that one of every 54 households received a notice last year.

And .... as has been quite evident for sometime now during this economic mess, nothing is working to prevent additional foreclosures! Despite everyone's attempts (pretty pathetic to this point) the markets are doing their thing:

"Clearly the foreclosure prevention programs implemented to date have not had any real success in slowing down this foreclosure tsunami," said James Saccacio, CEO of RealtyTrac in a statement.

And despite those efforts on the part of both the government and the banking industry to quell the housing crisis, defaults continued to climb as 2008 came to an end. Foreclosure filings were up 17% in December over November, and rose 41% compared with December of 2007.

"The big jump in December foreclosure activity was somewhat surprising given the moratoria enacted by both Freddie Mac (FRE, Fortune 500) and Fannie Mae (FNM, Fortune 500), along with programs from some of the major lenders and loan servicers aimed at delaying foreclosure actions against distressed homeowners," said Saccacio.

Perhaps a rest before the walloping continues and the reality that more future mortgage payments won't be able to be made:

Both of the government-sponsored mortgage giants suspended foreclosures starting November 26, 2008 through January 31, 2009.

The devastating numbers are unlikely to improve soon.

"I don't see how we can avoid three million foreclosures again in 2009," said Rick Sharga, a RealtyTrac spokesman. His company now has nearly a million sales listings for bank-owned homes.

A brief look back in history for comparison:

"The number of mortgages 30 days past due are still below what they were during the 2001 recession," said Brinkman. But the proportion of those loans that went into foreclosure was much lower, he added - about 10%.

What's happening in your neighborhood?

The three states hit hardest by foreclosure in 2008 were Nevada, Florida and Arizona. In Nevada, 7% of homes received a foreclosure filing - such as a notice of default, auction sale notice or foreclosure sale - during the year, up 126% from 2007.

Florida filings soared 133%, hitting more than 4.5% of all households, while Arizona filings jumped 203%, also to about 4.5%. California had the highest total number of filings for any state, 523,624, more than double 2007 levels.

Stockton, Calif. had the highest rate of foreclosures of any metropolitan area, at 9.5%. Las Vegas was second with 8.9% and Riverside/San Bernardino Calif. was third with 8%.

Of the top 20 cities for foreclosures, most are in the Sun Belt, with the exception of Detroit at number 10, Memphis, which ranked 18th and Denver which was 19th.

The broken record continues to scratch out the worn out tune of housing doom and gloom. Foreclosures, foreclosures, foreclosures!

Own a Home for $1000

From CNNMoney.com - "Radical cheap: $1,000 homes":

The real estate market is so awful that buyers are now scooping up homes for as little as $1,000.

There are 18 listings in Flint, Mich., for under $3,000, according to Realtor.com. There are 22 in Indianapolis, 46 in Cleveland and a whopping 709 in Detroit. All of these communities have been hit hard by foreclosures, and most of these homes are being sold by the lenders that repossessed them.

Pull out your credit card, this could be yours:

In Detroit for instance, Century 21 Villa owner Randy Eissa has a three-bedroom, one-bath bungalow of about 1,000 square feet listed at just $500. It's a nice place with lots of light, but it needs a total rehabilitation inside, which Eissa estimates will cost between $15,000 and $20,000. But that's not bad, considering that the home last sold for $72,000 in late 2007, according to Zillow.com.

What's happening behind the scenes:

With prices this low, lenders aren't looking to make any money on these deals. They just want to get these houses off their books, so they don't have to bear the cost of maintaining them and paying property taxes.

In fact, the $500, $1,000 or $3,000 that a buyer forks over often goes straight to the real estate brokers as a commission. And often the lenders have to kick in extra cash to make it worthwhile for a realtor even take the listings, according to Eissa.

"Usually these homes are bank repossessions that the lenders have already tried to sell on the market, perhaps then put up for auction without success and then re-listed," he said.

Really, I never would have guessed. "Small fixer-uppers"? How about MAJOR fixer-uppers?:

These houses are almost always small fixer-uppers. Wiring, plumbing and heating systems have to be replaced, walls and ceilings sheet-rocked, plumbing and light fixtures installed and new kitchen cabinets and counters put in. Few come with working appliances.

Ahhh, they finally get to the EXTREMELY IMPORTANT POINT that I was going to ensure was made:

Buying homes like these is certainly a leap of faith; they're generally not in the best of neighborhoods and they're often surrounded by many other vacant and deteriorating homes. Still, some of these neighborhoods may turn around and
provide residents with good, dirt-cheap housing.

We can attest to these types of values. They're real and they're out there. The previously quoted paragraph is worth reading a few more times. Most of these deals are great ONLY on paper. Investors are in every market. If these homes couldn't be sold before they were foreclosed upon, were taken back by the bank and couldn't be sold, and finally went to the auction and still couldn't be sold, there's a problem. Yes, there's a chance somebody could have overlooked a gem, but, like winning the lottery, not likely.

I'm not here to offer discouraging sentiments as our livelihood depends upon real estate investing. There are great opportunities out there right now. Just do your homework and surround yourself with proven real estate investing experts local to these types of deals and markets otherwise this may be the worst $1000 you've ever spent.

Mortgage Applications Dip

From Reuters.com - "Mortgage applications dipped before Fed move: MBA":

Applications for U.S. residential mortgages slipped from lofty levels last week as homeowners slowed refinancings ahead of expected federal action to lower housing costs, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity fell for the first week in four, dropping 8.2 percent to 1,143.8 in the week ended January 2. A week earlier, it hit a five-year high.

A potential cause (not quite so sure the average borrower is this informed):

Borrowers may have slowed applications in anticipation of the Federal Reserve's program to purchase up to $500 billion in mortgage-backed securities, which is aimed at lowering rates lenders charge to consumers, an MBA economist said. The Fed began its purchases on Monday, fueling a sharp drop in premiums that investors demand to own the bonds, and by extension, a probable drop in mortgage rates this week, analysts said.

What are the rates doing?

Fixed 30-year mortgage rates averaged 5.07 percent in the week, up from 5.03 percent the prior week, according to the MBA's survey. The rate has plunged from 6.47 percent at the end of October, mostly after the Fed announced its intentions.

The usual foolishness, not looking at the big picture. Gotta get a 4.5% interest rate. 5.0% rates are not good enough. This notion is fine as long as something unexpected doesn't drive those rates higher. Obviously not expected but, when you have 5.0% money, you should be shouting from the rooftops with glee. In the Real Estate business, you don't need to hit home runs, preventing major mistakes is far more important:

"With all the talk the Fed is buying (MBS), rates could drop further and (borrowers) may say, 'Why not wait a little more'" before refinancing, said Orawin Velz, associate vice president of economic forecasting at the MBA.

Where we should be headed with rates and its impact on housing (no guarantees):

Average 30-year fixed rates are headed toward, or below, 4.75 percent, compared with 5.1 percent in a recent Freddie Mac survey, Tony Crescenzi, chief bond market strategist at Miller Tabak & Co., said in a client note on Tuesday.

The plan to lower mortgage rates is seen as one of the most promising federal plans to stabilize the housing market, which is in its worst downturn since the 1930s. But because lending standards have tightened across the industry, many troubled borrowers will not be helped no matter how low the rate.

Pending Home Sales - November 2008

From CNNMoney.com - "Pending home sales sink to 7-year low":

The number of homes under contract to be sold fell 4% in November, according to a report released Tuesday.

The Pending Home Sales Index fell 4% to 82.3 for the month of November, to its lowest level since the series began in 2001, according to the National Association of Realtors (NAR). That's a drop from a downwardly revised reading of 85.7 in the month of October.

The November index is 5.3% below the same month a year ago, when the Index stood at 86.9.

What's the problem (as if we didn't already know)?

A combination of factors kept home buyers side-lined, according to Mike Larson, real estate analyst at Weiss Research. "You have the recession, rising unemployment, slumping consumer confidence and tighter mortgage standards are the icing on the cake," he said.

What happened in your neighborhood?

Pending home sales across all regions were down from October to November. But sales in the West were actually up significantly from November 2007.

The pending home sales index fell 7.2% to 63.2 in the Northeast and stood 14.6% below its November 2007 levels. In the Midwest, the index slipped 6.7% to 74.2 and was down 10.1% year-over-year. In the South month-to-month losses were more modest, with the pending home sales index down 2.2% to 85.3, but it was off 12.7% from a year ago.

In the West, however, while the index was down 2.4% in the month to 101.2, pending sales jumped 19.3% from November 2007. That sales increase is due to the dramatic drop in home prices in states like California, Arizona and Nevada, which has spurred new deals, according to Larson.

The pending home sales continue to trend in the right direction in the West as values have plummeted and buyers are taking advantage of the deals. Will this trend continue to help mop up the absurd inventory levels or is this merely a fleeting moment of hope that will soon disappear into continued housing despair?