Unemployment
Unemployment continues to be a burden to many homeowners, and is probably the most salient driver of additional
foreclosures. The most current Employment Situation report released by the Bureau of Labor Statistics showed that job
losses were moderating, with most of the moderation occurring in temporary help services and health care jobs.
Traditionally, jobs added in temporary help services have foreshadowed further hiring in the future. If this is the case,
then in future reports we should see additional job growth in categories that could chip away at the current level of
long-term unemployed workers, which increased by 293,000 to 5.9 million in the month of November.
The high levels of long-term unemployed workers will be important to watch. When the economy produces more fulltime
jobs, cash inflows to households will become more stable and unemployed workers will spend less time between
jobs. This should decrease the likelihood of current homeowners defaulting on their loans while prompting potential
homebuyers who were sidelined by uncertainty in the economy to take advantage of current affordability in housing.
Proposed Changes for the FHA
On December 2, Housing and Urban Development Secretary Shaun Donovan testified before the House Financial
Services Committee. In his testimony he proposed a number of changes to the Federal Housing Administration (FHA),
which he oversees. Under the proposed changes, the FHA will:
• Step up enforcement of its standards;
• Require lenders to indemnify the FHA for their own failures to meet FHA requirements;
• Hold lenders accountable nationally for their origination quality and compliance with FHA policies rather than on
a branch-by-branch basis;
• Reduce the maximum seller concession from 6% to 3%;
• Raise the minimum borrower FICO score;
• Increase the up-front cash requirement for borrowers either through increasing the required down payment, the
current minimum is 3.5%, or by requiring the borrower to pay more fees;
• Increase FHA insurance premiums.
The proposed changes will be announced by the end of January.
1 Radar Logic defines “motivated” sales as sales at foreclosure auctions and REO sales by financial institutions. “Other” sales
are all sales not considered to be “motivated”.
www.radarlogic.com
4
On December 7, the FHA announced new lending rules that limit the number of buyers in condo buildings that can get
loans insured by the agency. The rules also put restrictions on buildings with poor finances, too many delinquent
owners and a high number of rentals. Under the new regime, only half of a condo building’s units can have FHAbacked
loans, with some exceptions. The limit falls to 30% in 2011. Another new rule requires at least 30% of units in
new buildings be pre-sold before the agency insures any loans. That number will rise to 50% in 2011. Clearly, the
new rules could have a chilling effect on housing demand in the densely-populated urban centers of New York, Los
Angeles and Miami, which have high concentrations of condominiums.
Mortgage Rates / Fed Purchases of Mortgage Debt
Recent stability and price appreciation in the housing market has been in large part due to the efforts made by the
Federal Reserve. In an address to the Economic Club of Washington, DC, on December 7th, Chairman Bernanke
reiterated that “…purchasing unprecedented volumes of mortgage-related securities and Treasury debt…” has
provided liquidity and favorable conditions to homebuyers. Much of these purchases have come from Fannie Mae and
Freddie Mac, resulting in continued availability of financing to homebuyers during a time where credit can be scarce.
The Federal Reserve has also made it clear that the target funds rate will stay at its lowest effective range, 0% to ¼%,
until the economy is capable of sustaining growth on its own.
The maintenance of the current target rate will be a positive force on housing prices in 2010. Other drivers of housing
demand, which include low prices and the current tax credit, will also persist in 2010 in addition to a strengthening
economy and moderate job growth. Low interest rates will also mitigate negative effects from ARM resets that are tied
to the one-year Constant Maturity Treasury.
Thursday, January 14, 2010
Tuesday, January 12, 2010
Trends in Home Prices and Home Sales
The 25-MSA Composite price declined only 0.7% during the month ending October 15, the smallest decline for that
time period since 2005. Prices increased month-over-month in 11 MSAs, mostly in the West Coast and Southeast
regions where seasonal factors are less salient than in other regions. Three- and six-month trends in the 25-MSA
Composite were also stronger than they have been at that time of year since 2005 (see Exhibit 3).
One-, three- and six-month trends in 25-MSA transaction counts were stronger in October 2009 than they have been
in any other October since the beginning of Radar Logic’s data in 2000 (see Exhibit 4). The 25-MSA transaction count
usually falls in August, September and October. This year, the 25-MSA transaction count has increased or remained
constant every month since January.
Transactions increased over the month ending October 15 in 22 of the 25 MSAs tracked by Radar Logic. Transactions
increased in all regions, with the exception of the Northeast, where Philadelphia (-21.2%) and Boston (-11.5%)
exhibited contraction in sales. New York outperformed its neighbors to the north and south, posting the first increase in
sales for the period since the beginning of Radar Logic data in 2000.
As the RPX values covered in this report correspond to transactions in early October, before Congress voted to extend
the $8,000 first-time homebuyer tax credit, the uptick in RPX transaction counts may reflect a rush of sales in advance
of the tax credit’s original November 30 deadline. In early November, Congress extended the program to include all
sales under contract by April 30, 2010 and closed by June 30, 2010.
www.radarlogic.com
3
Both motivated and other sales increased, with motivated sales growing by 7.3% and other sales growing by 6.2%.1
As other sales increased from a higher base volume in mid-September, they increased from 74% of total sales to 75%.
This stability in the mix of motivated and other sales helped stabilize the 25-MSA Composite price. This contrasts with
the trend in September, when motivated sales increased 27% while other sales decreased 5%, resulting in a shift in the
mix of sales toward motivated sales with relatively low prices. This mix shift put downward pressure on the 25-MSA
RPX Composite price.
time period since 2005. Prices increased month-over-month in 11 MSAs, mostly in the West Coast and Southeast
regions where seasonal factors are less salient than in other regions. Three- and six-month trends in the 25-MSA
Composite were also stronger than they have been at that time of year since 2005 (see Exhibit 3).
One-, three- and six-month trends in 25-MSA transaction counts were stronger in October 2009 than they have been
in any other October since the beginning of Radar Logic’s data in 2000 (see Exhibit 4). The 25-MSA transaction count
usually falls in August, September and October. This year, the 25-MSA transaction count has increased or remained
constant every month since January.
Transactions increased over the month ending October 15 in 22 of the 25 MSAs tracked by Radar Logic. Transactions
increased in all regions, with the exception of the Northeast, where Philadelphia (-21.2%) and Boston (-11.5%)
exhibited contraction in sales. New York outperformed its neighbors to the north and south, posting the first increase in
sales for the period since the beginning of Radar Logic data in 2000.
As the RPX values covered in this report correspond to transactions in early October, before Congress voted to extend
the $8,000 first-time homebuyer tax credit, the uptick in RPX transaction counts may reflect a rush of sales in advance
of the tax credit’s original November 30 deadline. In early November, Congress extended the program to include all
sales under contract by April 30, 2010 and closed by June 30, 2010.
www.radarlogic.com
3
Both motivated and other sales increased, with motivated sales growing by 7.3% and other sales growing by 6.2%.1
As other sales increased from a higher base volume in mid-September, they increased from 74% of total sales to 75%.
This stability in the mix of motivated and other sales helped stabilize the 25-MSA Composite price. This contrasts with
the trend in September, when motivated sales increased 27% while other sales decreased 5%, resulting in a shift in the
mix of sales toward motivated sales with relatively low prices. This mix shift put downward pressure on the 25-MSA
RPX Composite price.
Sunday, January 10, 2010
Tax credit drives home sales
WASHINGTON (AP) — Extraordinary government efforts to stabilize the housing market are paying off. What happens when the help runs out is anyone's guess.
Sales of previously occupied homes surged in November to the highest level in nearly three years, spurred by federal subsidies for starter homes and a massive Federal Reserve push to drive down mortgage rates.
The strong figures were driven by a race to take advantage of a tax credit of up to $8,000 for first-time homebuyers. The credit has since been extended to next spring, but the government initially planned to end it Nov. 30.
"It was like the end of the world," said real estate agent Stephanie Somers of Re/Max Access in Philadelphia. "All the first-time buyers converged onto that one month."
The pace of home sales is now up 46 percent from its bottom in January and still 10 percent shy of its peak from four years ago, according to data released Tuesday by the National Association of Realtors.
The real estate recovery depends not only on taxpayer dollars but also on the health of the economy at large, which grew at a less robust pace in the third quarter than previously thought.
The economy grew at a 2.2 percent annual pace from July to September, down from an initial reading of 2.8 percent, the government said Tuesday.
Experts think the economy is even stronger now than it was last quarter, but they expect it to ebb again early next year. And that's when the tax credit will wind down and the Fed plans to stop buying mortgage-backed securities, which could raise mortgage rates.
Whether the real estate rebound can continue without the help remains to be seen.
"The housing market recovery can't continue if the overall recovery in the economy doesn't persist," said Michelle Meyer, an economist with Barclays Capital.
While prices for homes in many parts of the country are still falling, analysts said the tax credit clearly helped the volume of sales.
"In the short run, it's an effective stimulus," said John Ryding, chief economist at RDQ Economics. "If you give someone money to spend on something, they will spend it."
With April 30 as the new deadline, experts forecast sales will drop during the winter and pick up again in the spring. Without the looming deadline, "buyers have no sense of urgency now," said Gary DeRosa, an agent with ZipRealty Inc. in Seattle.
About 2 million homebuyers have taken advantage of the credit so far, the Realtors group said. It expects 2.4 million more to use it by the middle of next year. First-time buyers made up about half of all transactions last month, driving sales up 44 percent above last year's levels, a record.
Overall, sales of existing homes rose 7.4 percent in November to a seasonally adjusted annual rate of 6.54 million, up from 6.09 million in October. That was far stronger than the 6.25 million forecast by economists surveyed by Thomson Reuters.
The inventory of unsold homes on the market shrank about 1 percent to 3.5 million. That's a healthy supply of about six and a half months' worth, the smallest in three years.
That home prices are still falling shows one government housing program, an effort to get lenders to prevent foreclosures by lowering monthly payments for hundreds of thousands of borrowers, isn't working as well as the Obama administration would like. Only about 31,000 borrowers have completed the process so far.
In the meantime, high unemployment is causing homeowners to default on their loans in record numbers. Banks are unloading foreclosed homes, driving prices down in many areas, particularly Arizona, California, Florida and Nevada.
Nationwide, the median sales price was $172,600 in November, down 4 percent from a year earlier, but flat from October.
Many experts warn that lenders have millions of properties in the foreclosure pipeline that have yet to come on the market, suggesting prices could fall even further.
"When they start thinking they can sell them, we could see a surge in homes for sale," wrote Joel Naroff, president of Naroff Economic Advisors.
In the meantime, homebuyers can take advantage of record-low mortgage rates, deeply discounted prices and federal incentives.
Besides the tax credit for first-time buyers, owners who have lived in their homes for at least five years can now claim a tax credit of up to $6,500 if they relocate. To qualify, they have to sign a purchase agreement by April 30.
Real estate agent Tim Surratt of Grenwood King Properties in Houston said activity has remained healthy this month, even only days before Christmas. "The window to purchase where the prices are right and the interest rate is right is closing," he said.
Sales of previously occupied homes surged in November to the highest level in nearly three years, spurred by federal subsidies for starter homes and a massive Federal Reserve push to drive down mortgage rates.
The strong figures were driven by a race to take advantage of a tax credit of up to $8,000 for first-time homebuyers. The credit has since been extended to next spring, but the government initially planned to end it Nov. 30.
"It was like the end of the world," said real estate agent Stephanie Somers of Re/Max Access in Philadelphia. "All the first-time buyers converged onto that one month."
The pace of home sales is now up 46 percent from its bottom in January and still 10 percent shy of its peak from four years ago, according to data released Tuesday by the National Association of Realtors.
The real estate recovery depends not only on taxpayer dollars but also on the health of the economy at large, which grew at a less robust pace in the third quarter than previously thought.
The economy grew at a 2.2 percent annual pace from July to September, down from an initial reading of 2.8 percent, the government said Tuesday.
Experts think the economy is even stronger now than it was last quarter, but they expect it to ebb again early next year. And that's when the tax credit will wind down and the Fed plans to stop buying mortgage-backed securities, which could raise mortgage rates.
Whether the real estate rebound can continue without the help remains to be seen.
"The housing market recovery can't continue if the overall recovery in the economy doesn't persist," said Michelle Meyer, an economist with Barclays Capital.
While prices for homes in many parts of the country are still falling, analysts said the tax credit clearly helped the volume of sales.
"In the short run, it's an effective stimulus," said John Ryding, chief economist at RDQ Economics. "If you give someone money to spend on something, they will spend it."
With April 30 as the new deadline, experts forecast sales will drop during the winter and pick up again in the spring. Without the looming deadline, "buyers have no sense of urgency now," said Gary DeRosa, an agent with ZipRealty Inc. in Seattle.
About 2 million homebuyers have taken advantage of the credit so far, the Realtors group said. It expects 2.4 million more to use it by the middle of next year. First-time buyers made up about half of all transactions last month, driving sales up 44 percent above last year's levels, a record.
Overall, sales of existing homes rose 7.4 percent in November to a seasonally adjusted annual rate of 6.54 million, up from 6.09 million in October. That was far stronger than the 6.25 million forecast by economists surveyed by Thomson Reuters.
The inventory of unsold homes on the market shrank about 1 percent to 3.5 million. That's a healthy supply of about six and a half months' worth, the smallest in three years.
That home prices are still falling shows one government housing program, an effort to get lenders to prevent foreclosures by lowering monthly payments for hundreds of thousands of borrowers, isn't working as well as the Obama administration would like. Only about 31,000 borrowers have completed the process so far.
In the meantime, high unemployment is causing homeowners to default on their loans in record numbers. Banks are unloading foreclosed homes, driving prices down in many areas, particularly Arizona, California, Florida and Nevada.
Nationwide, the median sales price was $172,600 in November, down 4 percent from a year earlier, but flat from October.
Many experts warn that lenders have millions of properties in the foreclosure pipeline that have yet to come on the market, suggesting prices could fall even further.
"When they start thinking they can sell them, we could see a surge in homes for sale," wrote Joel Naroff, president of Naroff Economic Advisors.
In the meantime, homebuyers can take advantage of record-low mortgage rates, deeply discounted prices and federal incentives.
Besides the tax credit for first-time buyers, owners who have lived in their homes for at least five years can now claim a tax credit of up to $6,500 if they relocate. To qualify, they have to sign a purchase agreement by April 30.
Real estate agent Tim Surratt of Grenwood King Properties in Houston said activity has remained healthy this month, even only days before Christmas. "The window to purchase where the prices are right and the interest rate is right is closing," he said.
Friday, January 8, 2010
Don’t Believe the Hype: Housing Won’t Collapse in 2010
Despite the fact that housing prices and home sales are outperforming historical trends for this time of year, many
economists and housing market observers remain pessimistic, offering dire predictions of a second large decline in
home prices in 2010. While we acknowledge that serious troubles remain in the nation’s housing markets, we think
predictions of a second “collapse” of the housing market are exaggerated.
Our view is that recent trends point to continued stability in the housing market, and if efforts to ease foreclosures can
and do succeed, there could be significant recovery in housing values in spring 2010. Housing demand is strong, as
indicated by recent increases in sales activity at a time of year when transactions usually fall. With the 25-MSA RPX
Composite 30% below its peak, low prices are attracting owner-occupiers and investors alike into the housing market.
Stories abound of fierce bidding pushing up prices at foreclosure auctions. On the supply side, we are encouraged by
falling inventories of new and existing homes as well as declines in new-home permits and starts.
The principal threat to the housing market is the looming inventory of distressed homes. Delinquencies have reached
their highest levels in decades. Foreclosures and bank repossessions are also elevated from historical levels, but they
have not kept pace with rising delinquencies. As a result, there is a glut of seriously delinquent mortgages awaiting
foreclosure and a glut of foreclosed homes awaiting auction and/or repossession.
Bearish observers of the housing market point to the fact that government loan modification programs have prevented
the inventory of distressed properties from entering the housing market and argue that distressed homes will flood into
the market when the programs end, driving up the supply of unsold homes and pushing down home prices.
We think it is more likely that distressed properties will enter the housing market at a controlled rate that can be
absorbed by the existing housing demand without drastically reducing prices. Thanks to federal bailout money and a
general improvement in their financial health, banks have been relieved of the urgent need to liquidate their assets. As
a result, lenders and government entities like Fannie Mae and the FDIC have been able to curtail sales to raise prices
and avoid recording losses on properties. There is no incentive for banks to foreclose on a home if they will suffer a
greater loss from liquidating the property than carrying the delinquent loan. Thus, banks are not likely to foreclose on,
repossess and try to liquidate the current pipeline of delinquent mortgages in a rapid manner that would depress the
value of the properties they are trying to sell. Moreover, the Federal Government will probably continue to support
banks seeking to take a measured approach to liquidating distressed properties, either through the Home Affordable
Modification Program (HAMP), the Troubled Asset Relief Program (TARP) or by other means.
www.radarlogic.com
2
In contrast to bearish housing market observers, who argue that high unemployment will weigh heavily on housing
demand in 2010, we are heartened by the fact that housing demand is currently so robust despite the fact that
unemployment is high. Once the unemployment rate hits its peak and begins to decline, which many expect in occur
within the next two or three quarters, housing demand should get stronger.
Bears argue that the government’s interventions to boost housing demand are unsustainable and temporary, and its
efforts to modify distressed mortgages have only succeeded in shifting the burden of foreclosures into the future.
Eventually, the bears say, the government’s manipulations of the laws of supply and demand will have to come to an
end, and when they do, home prices will crash once again.
As the housing market is central to the health of the economy as a whole, we are confident that the government will
continue its efforts to support housing demand and mitigate foreclosures for the foreseeable future. We are
encouraged by the Federal Government’s commitments to support the housing market well into 2010. The Federal
Reserve has indicated that it will help keep mortgage rates low until the economy is capable of sustaining growth on
its own, and it will keep providing liquidity to the housing market by purchasing agency mortgage-backed securities
through the end of March 2010. Congress has extended the housing tax credit to include home sales that close by June
30, 2010, and the Treasury has indicated that it will extend the TARP to October 2010 and focus much of the new
commitments under the program on mitigating foreclosures and supporting the housing market. If the government and
Wall Street can find a way to effectively mitigate foreclosures, home values may well go up in 2010.
While we are not out of the woods yet, our view is that housing is showing signs of stability, markets are showing
signs of rational behavior and everyone is starting to understand the fundamental problems that brought us here. As
such, we think the bears are overdoing it.
economists and housing market observers remain pessimistic, offering dire predictions of a second large decline in
home prices in 2010. While we acknowledge that serious troubles remain in the nation’s housing markets, we think
predictions of a second “collapse” of the housing market are exaggerated.
Our view is that recent trends point to continued stability in the housing market, and if efforts to ease foreclosures can
and do succeed, there could be significant recovery in housing values in spring 2010. Housing demand is strong, as
indicated by recent increases in sales activity at a time of year when transactions usually fall. With the 25-MSA RPX
Composite 30% below its peak, low prices are attracting owner-occupiers and investors alike into the housing market.
Stories abound of fierce bidding pushing up prices at foreclosure auctions. On the supply side, we are encouraged by
falling inventories of new and existing homes as well as declines in new-home permits and starts.
The principal threat to the housing market is the looming inventory of distressed homes. Delinquencies have reached
their highest levels in decades. Foreclosures and bank repossessions are also elevated from historical levels, but they
have not kept pace with rising delinquencies. As a result, there is a glut of seriously delinquent mortgages awaiting
foreclosure and a glut of foreclosed homes awaiting auction and/or repossession.
Bearish observers of the housing market point to the fact that government loan modification programs have prevented
the inventory of distressed properties from entering the housing market and argue that distressed homes will flood into
the market when the programs end, driving up the supply of unsold homes and pushing down home prices.
We think it is more likely that distressed properties will enter the housing market at a controlled rate that can be
absorbed by the existing housing demand without drastically reducing prices. Thanks to federal bailout money and a
general improvement in their financial health, banks have been relieved of the urgent need to liquidate their assets. As
a result, lenders and government entities like Fannie Mae and the FDIC have been able to curtail sales to raise prices
and avoid recording losses on properties. There is no incentive for banks to foreclose on a home if they will suffer a
greater loss from liquidating the property than carrying the delinquent loan. Thus, banks are not likely to foreclose on,
repossess and try to liquidate the current pipeline of delinquent mortgages in a rapid manner that would depress the
value of the properties they are trying to sell. Moreover, the Federal Government will probably continue to support
banks seeking to take a measured approach to liquidating distressed properties, either through the Home Affordable
Modification Program (HAMP), the Troubled Asset Relief Program (TARP) or by other means.
www.radarlogic.com
2
In contrast to bearish housing market observers, who argue that high unemployment will weigh heavily on housing
demand in 2010, we are heartened by the fact that housing demand is currently so robust despite the fact that
unemployment is high. Once the unemployment rate hits its peak and begins to decline, which many expect in occur
within the next two or three quarters, housing demand should get stronger.
Bears argue that the government’s interventions to boost housing demand are unsustainable and temporary, and its
efforts to modify distressed mortgages have only succeeded in shifting the burden of foreclosures into the future.
Eventually, the bears say, the government’s manipulations of the laws of supply and demand will have to come to an
end, and when they do, home prices will crash once again.
As the housing market is central to the health of the economy as a whole, we are confident that the government will
continue its efforts to support housing demand and mitigate foreclosures for the foreseeable future. We are
encouraged by the Federal Government’s commitments to support the housing market well into 2010. The Federal
Reserve has indicated that it will help keep mortgage rates low until the economy is capable of sustaining growth on
its own, and it will keep providing liquidity to the housing market by purchasing agency mortgage-backed securities
through the end of March 2010. Congress has extended the housing tax credit to include home sales that close by June
30, 2010, and the Treasury has indicated that it will extend the TARP to October 2010 and focus much of the new
commitments under the program on mitigating foreclosures and supporting the housing market. If the government and
Wall Street can find a way to effectively mitigate foreclosures, home values may well go up in 2010.
While we are not out of the woods yet, our view is that housing is showing signs of stability, markets are showing
signs of rational behavior and everyone is starting to understand the fundamental problems that brought us here. As
such, we think the bears are overdoing it.
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