Housing prices have dumped significantly especially in the previously overheated boom markets. In a recent post (Case-Shiller Housing Price Index Continues to Plummet), we highlighted the severe drops that have been seen in the highest flying boom markets of yesterday. Amongst the top losers, Phoenix, Las Vegas, San Francisco, Los Angeles, and San Diego all whom saw year over year declines (according to the Case-Shiller housing price index report) of more than 25%.
Is this rational? Was the run-up of equally proportional numbers rational? From euphoria to dire straights, we have numbers, reality, and the human mind to sort it all out ... reality creating perception or perception creating reality?
Whichever camp you find yourself in, this is our reality and right now our reality is very grim.
If mortgage lending was the Wild West during the boom years, foreclosure-prevention counseling is the lucrative new frontier of the bust.
Nearly 1.6 million borrowers are in jeopardy of losing their homes this year, according to economist Mark Zandi of Moody's Economy.com, and thousands of new foreclosure-rescue companies are rushing in to offer the troubled homeowners loan work-out assistance. For a price.
They're looking for you:
Usually homeowners seeking mortgage modifications call their lenders directly or work with non-profit community groups. But many borrowers are now turning to for-profit companies as their mailboxes are flooded with work-out offers.
Each day private firms go online or visit courthouses across the country to pore over foreclosure filings, which are public records. "By 10 or 11 o'clock, they've mailed out solicitations to anyone with a foreclosure filing that day, promising to save their homes," says Jeff Hart, a prosecutor with the Ohio attorney general's office.
Once a borrower contacts a foreclosure-prevention company, the counselor takes their financial information, analyzes how much the client can afford, and then contacts the lender and negotiates new mortgage terms.
Look out, here comes the fraud:
"Folks need to be really careful," said Chris Kukla, a spokesman for the Center for Responsible Lending. "In many cases, these are no better than scams. You should look at all your low-price or free options before signing on with a for-profit company."
One of the main criticisms of for-profit foreclosure counselors is that they are not regulated, with oversight laws varying state by state. As a result, some marginal characters are drawn to the industry, ones who use high-pressure sales tactics and play on fear.
Many firms demand hefty up-front fees, which they keep even if a loan is not successfully modified. Only a dozen states, including Minnesota, New Jersey, New York, Nevada, Massachusetts and Maryland, prohibit that tactic.
As usual the markets are at work. Unfortunately, there's always an angle to be played when it comes to scam artists. As far as we're concerned, this housing market crisis is an endless playground that will enable these scam artists to take advantage of the most desperate individuals in their greatest time of need.
Guaranteed, people will be taken for a ride. Don't be one of them. It's always a few that make a bad name for the rest. Do your homework. Contact multiple experts. Get in the know.
... new mortgage applications increased last week by 12 percent, according to the Mortgage Bankers Association. Applications from people looking to buy houses with FHA loans were up by 15.3 percent, while applications from purchasers seeking conventional mortgages rose by six and a half percent.
Assertion #2:
... remember that there is a huge pent-up demand simmering away out there for housing -- especially from first-time buyers who want to scoop up low-priced deals.
Assertion #3:
When fixed interest rates drop -- and last week they were down by a quarter of a percentage point -- those buyers start doing the math and getting into the market with offers.
Assertion #4:
Another piece of positive news you may not have noticed: Pending home sales were higher than year-earlier levels for the second straight month -- 1.6 percent higher than September 2007 .
Although pending sales contracts were down slightly for the month, in the western states they were up by 3.7 percent, and now stand at an extraordinary 39.7 percent higher than they were at the same time in 2007.
Assertion #5:
At the National Association of Realtors' convention in Orlando, chief economist Lawrence Yun, warned the delegates not to expect a housing recovery overnight, certainly not with unemployment on the rise. But he projected a slow, steady, multi-year upward trend, with 5.02 million total sales this year, 5.3 million for 2009, and 5.6 million for 2010.
Already sales are up significantly in major markets in many parts of the U.S. Yun specifically mentioned the west coast of Florida, the Phoenix area, Virginia, Long Island New York, Kansas City, Minnesota and Idaho.
Harney's conclusion:
So here's the key point to keep in mind as you try to make sense of the headlines: The stock market is NOT the housing market. It's on a whole different set of tracks. And it's been in a highly volatile state for more than a month.
Housing, on the other hand, has already endured its painful correction for two and a half years … is now pretty much stabilized … and is slowing moving toward its cyclical recovery.
Do you agree with Harney's assessment?
Logic would dictate that we're closing in on the bottom because housing prices have been tanking and are nearing, in many locales, pre-housing boom levels. The Fed's have been endlessly pumping liquidity into our markets and have been working towards spurring the banks to start lending again. Naturally, there would be pent-up demand for housing as many potential home buyers have been "feared" to the sidelines or simply cannot obtain a loan with the latest round of tightening standards.
In short, the housing market is ready to bottom. However, one of the major problems still to be dealt with is the deteriorating economic conditions that we remain confronted with. Times are bad and people are currently losing their jobs in large numbers. We don't believe prices will continue to tank at the fevered level of the past year but we do believe that housing will struggle to find its footing until much of these economic problems can be dealt with or at least have the appearance of being dealt with to build consumer confidence.
Is it a good time to buy? We believe it is. Don't worry about the last 10% as you can make this up, and then some, by negotiating a good deal. Five years down the road, you'll be glad you did and wish you bought more.
Housing market predictions, housing boom, housing bubble, housing crash, economic recession. Some did get it right!
In a previous post (Housing Predictions) we highlighted a round-table housing market discussion which included Peter Schiff as one of the leading "housing expert" analysts. Schiff, despite being ridiculed by other panelist, was spot on in his analysis. In fact, as we stated before, his comments regarding the housing boom, housing bubble, and eminent housing crash were nearly prophetic in nature.
Paul Krugman, on the record getting the housing boom, housing bubble, housing crash extremely right as well:
The signs are almost always there if you're willing to listen and you know what you're looking for. The problem. Few people are willing to listen and even fewer people know what they're looking for.
At least 7.5 million Americans owe more on their mortgages than their homes are currently worth, according to a real estate research firm's report released Friday.
In other words: If they sold their homes today, they'd have to bring a check to the closing. Ouch.
Another 2.1 million people stand right on the brink, according to the report by First American CoreLogic. Their homes are worth less than 5% more than the mortgages they're paying on them.
Top Ten States - Most Underwater Loans:
Top Ten States - Fewest Underwater Loans:
Ouch is right! The housing correction, battering, unraveling, whatever you want to call it continues. If you're wondering what that bang was you just heard, it's the balloon. The air is no longer seeping out of the balloon, the balloon just exploded.
"LONDON -- The European housing markets are turning as bitter as vinegar on chips as property sales and prices come tumbling down.
Property values fell to their lowest level in 30 years in September, according to the Royal Institution of Chartered Surveyors. According to another report, home sales fell to 17,000 in June 2008 from 105,000 in June of 2007, and that was before the financial collapse of late summer and fall.
Prices have fallen 15 percent in the last year with some local experts predicting a 50 percent drop before the bottom is reached. As many as 60,000 homeowners are dipping into "negative equity" per month. The U.S. market began to fall in late 2005. The U.K. market stayed strong until last year, but now it is falling fast."
"Doom and gloom" continues to rule the day in this ever growing global arena. The world, in it's expansion, continues to grow smaller and much more intimate.
Over appraisals, cash-out refinances, and inflated stated income may be a thing of the past but have no fear, new mortgage fraud strategies have found a new home. - (CNNMoney.com)
What's happening:
"The number of fraudulent loans issued during the second quarter this year increased 45%, compared with the same period in 2007, according to the Mortgage Asset Research Institute (MARI), a service of LexisNexis."
Popular mortgage fraud during the housing boom:
"During the boom, that might have meant a buyer who inflated his income to qualify for a bigger loan. Some went so far as to get a fake appraisal, invent a fake buyer, and after securing a mortgage, absconding with the cash."
Today's mortgage fraud:
"One modern gambit is under-appraising property values.
These schemes involve short sales, which come up when a struggling homeowner is 'underwater,' or owes more on his mortgage than the home is worth.
When done legitimately, the owner sells the home for the lower market value, and the lender agrees to accept just that amount and forgive the difference.
When illegitimate, fraudsters fake very low appraisals for the homes and use those appraisals to justify low short-sale prices - well below true market values.
If busy bankers don't check the appraisal closely, they may agree to sales of homes that should be worth $200,000, for $150,000 or even less.
The buyers - in cahoots with the owner - then flip them for a big profit."
Still more fraud - "new liar loans" for a depressed housing market:
"During the boom, many borrowers misrepresented their income or assets with 'no-doc liar loans,' approved on the basis of good credit scores with no documentation.
After the mortgage meltdown, no-doc loans vanished, but applicants who lie have not.
'Liar loans are now fully documented - but with really good fraudulent documents,' said Hagberg.
In one case investigated by Interthinx, a New York man buying an investment property in Georgia provided documents that showed double his actual salary.
Advanced information technology and photocopying equipment have gotten so accurate that very convincing papers, including income statements, savings accounts and tax returns can be produced on demand."
One more spin - "Buy and Bail":
"This is a new scheme that had no equivalent during the boom years.
You're underwater on your mortgage and want a new, cheaper home down the block.
You could just bail on the existing home, but no lender would give you a mortgage for the new one.
So you tell the bank you plan to rent out the current home - even though you have no intention of doing so.
'This is a very difficult scam to pin down,' said Jennifer Butts, a spokeswoman for MARI, because the rental agreements that borrowers proffer may not be scrutinized by lenders."
Different times, different tactics, business as usual.
"Initial construction of U.S. homes fell to a fresh 17-year low in September, according to a government report released Friday.
Privately owned housing starts fell to a seasonally adjusted annual rate of 817,000 in September, according to the Commerce Department. The rate was down 6.3% from August's revised reading of 872,000 and 31.1% lower than September 2007." - (CNNMoney.com)
It's ugly and getting uglier:
Housing starts have fallen nearly two-thirds from their peak of 2.3 million in January 2006, and were at the lowest annual pace since January 1991.
'This is bad news for anyone who works in the housing industry, bad news for the economy as a whole, and the decline in housing activity just continues to deepen,' said Mike Larson, an analyst for Weiss Research. 'This is one of the worst downturns in the housing market in the history of our country.'
A bright spot: Lower inventory levels will ultimately turn this housing market around (simple supply and demand economics). There is demand, there's no credit, and there's too many homes.
The Fed announced this morning, October 7, 2008, that they will enter the commercial paper market:
"... Fed will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers"
The Fed hopes this latest round of measures will help to liquidate the frozen business credit markets as many small businesses are increasingly feeling the pain of not being able to obtain business credit.
The short-term effects of the myriad of measures taken by the Fed over the past six months will undoubtedly begin to filter into the market over the next year. What will the long-term effects of pumping this unbelievable amounts of liquidity into the market?
The frozen credit markets are now widely impacting many markets. As if we weren't already feeling the crunch, it looks like economic conditions will continue to deteriorate.
You could say that real estate, your home, and many local housing markets are no strangers to these credit problems as real estate markets have been deteriorating in many locales for three plus years now.
Businesses are now widely beginning to feel the pain too. These additional ripples will continue resound the loudest (now even louder) in our pocket books!
