Housing Market – Stabilazition or Continued Drop?
Futures contracts that trade on the Chicago Mercantile Exchange forecast a further decline of 14.5% by November 2010, after which home prices likely will begin to revive.
Joseph Davis, the chief economist of Vanguard Group, agrees. Even if the tax break were immediate, "it's not going to be very effective," he says. "It's a down-payment issue. The (credit) door has closed shut for many households. And negative home-price psychology has them on the sidelines."
A subsidy to help buyers meet down-payment thresholds "would have been the biggest bang for the buck in housing stimulus," Davis says.
Overall, Davis judges the massive steps the federal government is making to address the current economic malaise to be "necessary but not a sufficient condition for economic stabilization. And the reason is, they do not directly address the two sources of considerable stress in the economy: One is the issue of solvency in the banking sector, and the second front is housing, and they're both related."
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Existing-Home Sales Up – Home Prices Fall
The National Association of Realtors reported that existing home sales rose 5.1% in February. This was the largest percentage gain since July 2003. Sales of foreclosed properties or short sales accounted for about 45% of transactions last month.
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Fed Spends $750 billion to Lower Mortgage Rates
The Federal Open Market Committee (FOMC) informed the public this week that it will expand its dominating position in the mortgage-backed security (MBS) market, throwing an additional $750 billion there. Markets rallied on the news with Treasuries shedding up to 51 basis points.
Economists were up in arms about the Fed's measures. Stephen Stanley of RBS Greenwich Capital said via the WSJ blogs:
Bloomberg summed it up in the lead of their coverage:
By committing to buy Treasuries and double his purchases of mortgage debt, Federal Reserve Chairman Ben S. Bernanke signaled his determination to avoid a repeat of the Great Depression and his willingness to pump as much cash into the economy as needed to end the current crisis. San Diego real estate
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Condo Loans … More Difficult to Obtain
Yesterday, Fannie Mae severely tightened its lending criteria for condominiums. As the vast majority of mortgage loans are sold to Fannie Mae, this change will make it much more difficult to sell condominiums in many condo developments.
From the Wall Street Journal:
The government-backed mortgage-finance company stopped guaranteeing mortgages in condo buildings where fewer than 70% of the units have been sold, up from 51%. In addition, the company won’t back loans for sales in buildings where 15% of current owners are delinquent on association fees or where more than 10% of units are owned by a single entity.
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No Housing Market in Florida
From a Florida reader: I am on the other side of the nation — Palm Beach area of Florida. The market hasn't reach near bottom because there is NO market. Housing & Stock Market Worries
The Obama new policy blitzkrieg has many worried. Just look at decline in stocks since Jan. 20 for the opinion of the investing public.
What are they so worried about? The short list includes:
- Proposals for higher income taxes on the highest earners.
- Higher taxes on capital gains and dividends.
- A new tax on all securities trades.
- "Cram-down" legislation forcing banks to accept lower profits on mortgages.
- The Employee Free Choice Act, which would give unions an advantage over management.
- The carbon tax & the resulting very possible double digit increase in utility rates.
- Limits on oil drillers' tax breaks.
- Limits on agricultural subsidies.
- Smaller deductions on mortgage payments.
- Cuts in subsidies to independent student loan providers.
- Limits on drug pricing and Medicare rates.
Housing Gains
>> Home Base
INFO THAT HITS US WHERE WE LIVE Among last week's interesting tidbits of information about housing, Radar Logic reported transaction-count increases in 14 of 25 metro areas tracked in December 2008, compared to December 2007. They put these gains to improvements in home affordability and low mortgage rates, but cautioned that their numbers don't necessarily reflect total transaction volume in each area.
Meanwhile, the Federal Housing Finance Agency reported the price of the average home sale in Q4 of last year was only 8.2% lower compared to the year before. The National Association of Realtors chimed in with data showing the average home sales price down 9.4% from a 2006 peak. We all know that parts of the country have experienced serious price drops. But the fact that these national averages aren't so severe, indicates price declines haven't been that bad for most of the country.
Conforming mortgage rates fell again last week, according to FreddieMac's weekly survey. The rate for 30-year fixed-rate mortgages is hovering just above January's all-time low. In fact, conforming mortga ge rates in the survey have only gone up and down about a quarter percent since the beginning of the year.
>> Review of Last Week
UP WE GO… After weeks of continual sliding, the market finally took off like a shot, posting its biggest weekly increase in months. This may not signal the start of a rebound for the market and the economy, but it could indicate a bottom, which is good. Bottoms show stabilization – that the contraction is slowing or has been stopped in some areas. Experts are saying things may go up and down on the way back up, but only time will tell if we're now at the bottom of this recession – and bear market.
Positive economic indicators for the week included a better-than-expected retail sales number for February. It was down just 0.1% overall, but taking out auto sales, retail was UP 0.7%, following a 1.7% GAIN in January. Consumer sentiment also came in a tick up for the month. Fear seems to be abating. On Friday, White House economic advisor Larry Summers said it was indeed encouraging to see signs of a rise in consumer spending.
Best of all was the encouraging financial news. Citigroup said it had a profit the first two months of the year a nd won't need more TARP money. JPMorgan was also profitable in January and February. Some economists see this as early evidence that monetary policy is having some traction. In Washington, Barney Frank, who chairs House Financial Services, said he thinks the SEC will soon reinstate the uptick rule, which would make it harder to short financial stocks.His committee also held its hearing on mark-to-market accounting and seems to favor temporarily suspending the rules. They gave SEC and FASB accountants three weeks to come back with a plan. This is positive news because many experts feel adjusting mark-to-market is vital to fixing the banking system. It should ease capital concerns at banks, giving them increased capacity to lend, which is central to the recovery.
The Dow zoomed UP for the week 9.0%, to 7223.98; the S&P 500 went UP 10.7%, to 756.55; and the NASDAQ almost matched it, going UP 10.6%, to 1431.50.
With stocks enjoying a great week, you'd expect bonds to get hammered, but things weren't so bad. In spite of China's reservations about Treasuries, the price of the benchmark 10-year Treasury dropped just a tad. So its yield, which runs counter to price, only inched up to 2.890%, still comfortably under the 3% threshold. This bodes well for mortgage rates continuing at attractive levels.
>> This Week’s Forecast
THE FED MEETS AND MORE… Tuesday and Wednesday, the Federal Open Market Committee meets and no change is expected to the Fed Funds Rate. But the policy statement coming out of the meeting will be closely analyzed for indications of how the Fed may further support the financial system.
Economic indicators we want to look at include Housing Starts and Building Permits on Tuesday, plus the Consumer Price Index on Wednesday for a further check on inflation. We'll also have earnings from FedEx, General Mills, Nike and Oracle.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of Mar 16 – Mar 20
|
Date |
Time (ET) |
Release |
For |
Consensus |
Prior |
Impact |
|
M |
10:30 |
NY Empire State Mfg Index |
Mar |
–32.0 |
–34.65 |
Moderate |
|
M |
09:15 |
Industrial Production |
Feb |
–1.2% |
–1.8% |
Moderate |
|
M |
09:15 |
Capacity Utilization |
Feb |
71.1% |
72.0% |
Moderate |
|
Tu |
08:30 |
Housing Starts |
Feb |
453K |
466K |
Moderate |
|
Tu |
08:30 |
Building Permits |
Feb |
510K |
531K |
Moderate |
|
Tu |
08:30 |
Producer Price Index (PPI) |
Feb |
0.4% |
0.8% |
Moderate |
|
Tu |
08:30 |
Core PPI |
Feb |
0.1% |
0.4% |
Moderate |
|
W |
08:30 |
Consumer Price Index (CPI) |
Feb |
0.3% |
0.3% |
HIGH |
|
W |
08:30 |
Core CPI |
Feb |
0.1% |
0.2% |
HIGH |
|
W |
10:30 |
Crude Inventories |
3/13 |
NA |
–749K |
Moderate |
|
W |
14:15 |
FOMC Rate Decision |
0.0-0.25% |
0.0-0.25% |
HIGH |
|
|
Th |
08:30 |
Initial Jobless Claims |
3/14 |
NA |
654K |
Moderate |
|
Th |
10:00 |
Leading Economic Indicators (LEI) Index |
Feb |
–0.6% |
0.4% |
Moderate |
|
Th |
10:00 |
Philadelphia Fed |
Mar |
–40.0 |
–41.3 |
HIGH |
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months. Basically, no one is expecting the Fed to tighten monetary policy for some time to come. So no changes in the Fed funds rate are expected to come out of next week's meeting.
Current Fed Funds Rate: 0%–0.25%
|
After FOMC meeting on: |
Consensus |
|
Mar 18 |
0%–0.25% |
|
Apr 29 |
0%–0.25% |
|
Aug 12 |
0%–0.25% |
Odds of change from current policy:
|
After FOMC meeting on: |
Consensus |
|
Mar 18 |
1% |
|
Apr 29 |
5% |
|
Aug 12 |
10% |
This post information was provided by: Greg Brooks southwest area manager San Diego Mortgage Network (800) 287-8292 x 225 San Diego homes for sale
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New Law Extendeds California Home Foreclosures (again)
Though not widely publicized, the California state legislature passed a new bill which was signed by Gov. Schwarzenegger on February 20. It's titled the “California foreclosure prevention act, assembly Bill 7” and is designed to address the foreclosure problems in California.
Once again, it seems our elected lawmakers are totally misguided. All this bill does is extend the normal California foreclosure by an additional 90 days. Let me clarify this a little. Back in July of 2008, the California legislature passed a bill that requires lenders, prior to filing a notice of default, to make diligent efforts to contact the homeowner to see if something can be worked out prior to the notice of actual filing of default. This provision has added at least 30 days to the typical foreclosure process in California. Normally, in California, the foreclosure process is 90 days, plus 21 days for advertising. Add the thirty days from the July 2008 provision and we now have a four month process for foreclosure, not counting the required advertising. The newest law will add an additional 90 days on top of that, so what we're talking about now is a seven month foreclosure process in California, not counting the required 21 day advertising period.
I believe this well-intentioned law will just exasperate and extend the California real estate malaise. Plus, it seems to me that our lawmakers didn't consider any of the negative aspects of extending the foreclosure process.
First of all, the last four months of sales in California have been picking up, and quite dramatically in some areas. Of course, the majority of the sales have been foreclosed properties or short sales, but the fact remains that the free market seems to be working quite well without intervention. Before extending the foreclosure process no one asked “who pays for the additional 90 days?” If the average monthly mortgage payment was $2000, who is paying for the additional $6000 in missed payments that this extension will possibly generate? Yes, it's the taxpayers who will be paying as the government buys these toxic loans.
Plus, many distressed properties in California are governed by community association groups, condos, planned unit developments and planned residential developments. All of these homeowner associations have monthly dues, which are assessed for maintenance, and in many cases, utilities. Most distressed homeowners who stop paying their mortgage stop paying their HOA at the same time as, or prior to, their nonpayment of their monthly mortgage. Typically, monthly HOA dues can range anywhere from about $80 per month to $1000 per month for a high rise condominium in downtown San Diego. With this new extension of the time to foreclose, homeowners associations are looking to be out a minimum of three months worth of dues. Because of this new bill many of these associations, already in poor financial shape due to the number of lost payments and normal foreclosures, are worse off. In many cases the only recourse these associations have is to raise the monthly dues for existing membership, to cover the loss of non-paying members.
Also, how many California mortgage lenders will want to keep issuing new loans in the state when the ability to cut their losses when things go south is now hindered by the state? At the very least, additional fees will need to be added to all California mortgage loans to compensate lenders for this un-called for interference in the free market process by the California State Legislature.
San Diego downtown condominiums
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Are our Californian politicians screwed up or what? Can you believe that just days after passing a budget, the California legislature passed and Gov. Schwarzenegger signed, on February 20, 2009, a tax credit bill (Senate Bill 15) for taxpayers who purchase a principal residence any time after March 1, 2009, and before March 1, 2010. The allowed credit is for 5% of the purchase price or $10,000, whichever is less. The state of California allocated $100 million for this credit.
Although obviously well-intentioned, personally I cannot see how after raising the sales tax for the entire state, the state income tax, and the car registration fees, the state can turn around in just a few days and give away $100 million. In San Diego alone, $100 million had to be cut from the City school budget. Perhaps not giving away this new home buyer’s credit could have avoided any city school cuts!
As a Realtor, I am happy with any program that will increase sales,. As a California taxpayer I think it's unconscionable that at a time of fiscal deficits throughout the state, that this program is being instituted.
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Stock Market Rally … A Real Bottom?
At last!! It only took a few dew drops of good news for the Dow to recover from its near death experience and rocket 350 points. The “I love America trades” of long bonds and Treasuries came back with a vengeance. The “short America trades” were last seen running down the street with their tails between their legs, and gold breaking key support at $900. News that Citigroup was profitable in 2008, rumors of the suspension of the uptick rule and mark-to-market accounting were enough to do the trick. It also helped that every technical analyst on the planet was screaming “Buy!” Although this may not last, even a single day of fresh air is welcome.
Is this stock market rally just a one day 5% dead-cat bounce? The basic fundamentals of Citi has not changed. Of course the banks will all be profitable if Uncle Sam removes any and all losses. A one-way street upward as long as the taxpayers pay the losses… a market rally based on these fundamentals does not prove to be a true bottom. San Diego Realtors
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