Economists and others weigh in on the the decline in existing-home sales
From blogs.wsj.com
There may be some hope. Yes, demand did ease in January, but purchases of single family homes actually rose. That’s something of a victory for the market as it has been almost a year since that happened. Condo sales plummeted, but this is the more volatile segment of the market. Meanwhile, prices of single-family houses continue to drop and were down over 5% since January 2007. That decline could start accelerating as the inventory of homes on the markets is rising sharply. With so many defaults making their way back on to the market and market prices should be depressed further. Eventually, sellers will end their denial and realize that if they want to unload their homes, they will have to cut prices even more. With mortgage rates low, declining prices should bring in more buyers. I expect sales to bottom over the next few months, though prices are likely to continue falling for quite some time. –Naroff Economic Advisors
The pace of contraction has slowed in recent months, giving some hope to the notion that the bottom of the sales trend is in sight. Nevertheless, the inventory of unsold homes remains very high, pressuring both new construction and particularly home prices which have now been falling on a year-on-year basis for 18 months. The housing correction, and its affect on the financial markets, will continue as long as home prices are falling. We haven’t reached bottom yet. –Steven A. Wood, Insight Economics
Sales ran below the level implied by the pending sales index — it pointed to a number near 5.1M in Jan — for the fourth straight month. This could mean people are now walking away from completing transactions even after paying a deposit at contract signing, which is not a good sign. –Ian Shepherdson, High Frequency Economics
Inventories are very high relative to sales rates, and would probably be even more so if all those wishing to sell their home actually had the house on the market instead of pulling it off in the face of weak demand and eroding prices. While price declines seen so far represent a reasonable start, we still have a long way to go before prices sink to levels necessary to balance supply and demand in the housing market. –Joshua Shapiro, MFR, Inc.
Inventories of homes for sale rose 5.5%, to 4.19 million, offsetting part of the decline in November and December. However, the data are not adjusted for seasonal variations, and homeowners commonly pull their homes off the market at year-end, likely explaining much of the volatility. After seasonally adjusting the data, inventories on the market appear to have increased notably in both December and January. –Michelle Meyer, Lehman Brothers
We believe the resale and inventory figures may be slightly understated as a result of the recent rise in foreclosure activity. The NAR’s data include all sales involving a member agent. Anecdotal reports indicate that real estate agents take part in most foreclosure sales but, in some instances, a bank or other entity will deal directly with the buyer and no agent is involved. In these cases, the sale is unlikely to be reported. –David Greenlaw, Morgan Stanley
Friday, February 29, 2008
Why it's a GREAT time to buy GOOD real estate.
Posted at Let's Make Your Move Real Estate Blog by Megan Coughlin
It is never a bad time to buy good real estate. By good real estate I mean real estate that is placed properly in the market and is the best value with the consideration of price and condition. Of course every investor wants the deal of the century but what about those of you who are looking for a HOME to live in? Many of them have some fears that are created by our economic uncertainties and the falling prices of real estate in general. Let’s take a look at three positive reasons to buy now.
1) Interest rates are low.
Interest rates are near the lowest point since the 1970’s. Many buyers want to wait to see how low they will actually go. However, comparing current rates to the past 35 years, what is available now is good, and history shows that rates have rarely been better. When rates have been lower, it’s not by much. What we do know is that rates are about the best that they have been in a long time. They have actually started to inch back up again.
2) Home prices have become more affordable.
Nationwide, average home prices increased dramatically from 1991 through 2005. Prices began to drop in 2005 and are now comparable to prices in the mid-1990s. Many believe that prices will continue to drop further and wait to buy. No one can actually predict when prices will hit bottom. We only know prices hit the bottom after they start to rise again, and then it’s too late to buy at the lowest point. We know homes are selling for less than they did in the past. Combined with sellers who are willing to make concessions and low interest rates, this is a great time to buy.
3) Inventory is high.
The increase in home prices that happened in the 1990s ultimately resulted in a lower number of affordable homes. When people cannot afford to buy homes, inventory increases. As inventory increases, prices drop. We’re at a point where prices are reasonable and inventory is high. Many feel that something better will come along and they make the choice to not act when they find the right home. In this market, like any other, the best houses sell fast. Buyers who wait get to select from the leftovers.
The great thing about having a REALTOR is that they can analyze the market for you and offer you only the “best-buys”. “Best-buys” are the homes that are “in” the market. They are priced right and are in the best condition for the price. These homes go quickly so it helps to have your REALTOR looking out for them consistently and sorting through the rest of the homes that are “out” of the market.
It’s never a bad time to buy good real estate!!!
It is never a bad time to buy good real estate. By good real estate I mean real estate that is placed properly in the market and is the best value with the consideration of price and condition. Of course every investor wants the deal of the century but what about those of you who are looking for a HOME to live in? Many of them have some fears that are created by our economic uncertainties and the falling prices of real estate in general. Let’s take a look at three positive reasons to buy now.
1) Interest rates are low.
Interest rates are near the lowest point since the 1970’s. Many buyers want to wait to see how low they will actually go. However, comparing current rates to the past 35 years, what is available now is good, and history shows that rates have rarely been better. When rates have been lower, it’s not by much. What we do know is that rates are about the best that they have been in a long time. They have actually started to inch back up again.
2) Home prices have become more affordable.
Nationwide, average home prices increased dramatically from 1991 through 2005. Prices began to drop in 2005 and are now comparable to prices in the mid-1990s. Many believe that prices will continue to drop further and wait to buy. No one can actually predict when prices will hit bottom. We only know prices hit the bottom after they start to rise again, and then it’s too late to buy at the lowest point. We know homes are selling for less than they did in the past. Combined with sellers who are willing to make concessions and low interest rates, this is a great time to buy.
3) Inventory is high.
The increase in home prices that happened in the 1990s ultimately resulted in a lower number of affordable homes. When people cannot afford to buy homes, inventory increases. As inventory increases, prices drop. We’re at a point where prices are reasonable and inventory is high. Many feel that something better will come along and they make the choice to not act when they find the right home. In this market, like any other, the best houses sell fast. Buyers who wait get to select from the leftovers.
The great thing about having a REALTOR is that they can analyze the market for you and offer you only the “best-buys”. “Best-buys” are the homes that are “in” the market. They are priced right and are in the best condition for the price. These homes go quickly so it helps to have your REALTOR looking out for them consistently and sorting through the rest of the homes that are “out” of the market.
It’s never a bad time to buy good real estate!!!
Why it's a GREAT time to buy GOOD real estate.
Posted at Let's Make Your Move Real Estate Blog by Megan Coughlin
It is never a bad time to buy good real estate. By good real estate I mean real estate that is placed properly in the market and is the best value with the consideration of price and condition. Of course every investor wants the deal of the century but what about those of you who are looking for a HOME to live in? Many of them have some fears that are created by our economic uncertainties and the falling prices of real estate in general. Let’s take a look at three positive reasons to buy now.
1) Interest rates are low.
Interest rates are near the lowest point since the 1970’s. Many buyers want to wait to see how low they will actually go. However, comparing current rates to the past 35 years, what is available now is good, and history shows that rates have rarely been better. When rates have been lower, it’s not by much. What we do know is that rates are about the best that they have been in a long time. They have actually started to inch back up again.
2) Home prices have become more affordable.
Nationwide, average home prices increased dramatically from 1991 through 2005. Prices began to drop in 2005 and are now comparable to prices in the mid-1990s. Many believe that prices will continue to drop further and wait to buy. No one can actually predict when prices will hit bottom. We only know prices hit the bottom after they start to rise again, and then it’s too late to buy at the lowest point. We know homes are selling for less than they did in the past. Combined with sellers who are willing to make concessions and low interest rates, this is a great time to buy.
3) Inventory is high.
The increase in home prices that happened in the 1990s ultimately resulted in a lower number of affordable homes. When people cannot afford to buy homes, inventory increases. As inventory increases, prices drop. We’re at a point where prices are reasonable and inventory is high. Many feel that something better will come along and they make the choice to not act when they find the right home. In this market, like any other, the best houses sell fast. Buyers who wait get to select from the leftovers.
The great thing about having a REALTOR is that they can analyze the market for you and offer you only the “best-buys”. “Best-buys” are the homes that are “in” the market. They are priced right and are in the best condition for the price. These homes go quickly so it helps to have your REALTOR looking out for them consistently and sorting through the rest of the homes that are “out” of the market.
It’s never a bad time to buy good real estate!!!
It is never a bad time to buy good real estate. By good real estate I mean real estate that is placed properly in the market and is the best value with the consideration of price and condition. Of course every investor wants the deal of the century but what about those of you who are looking for a HOME to live in? Many of them have some fears that are created by our economic uncertainties and the falling prices of real estate in general. Let’s take a look at three positive reasons to buy now.
1) Interest rates are low.
Interest rates are near the lowest point since the 1970’s. Many buyers want to wait to see how low they will actually go. However, comparing current rates to the past 35 years, what is available now is good, and history shows that rates have rarely been better. When rates have been lower, it’s not by much. What we do know is that rates are about the best that they have been in a long time. They have actually started to inch back up again.
2) Home prices have become more affordable.
Nationwide, average home prices increased dramatically from 1991 through 2005. Prices began to drop in 2005 and are now comparable to prices in the mid-1990s. Many believe that prices will continue to drop further and wait to buy. No one can actually predict when prices will hit bottom. We only know prices hit the bottom after they start to rise again, and then it’s too late to buy at the lowest point. We know homes are selling for less than they did in the past. Combined with sellers who are willing to make concessions and low interest rates, this is a great time to buy.
3) Inventory is high.
The increase in home prices that happened in the 1990s ultimately resulted in a lower number of affordable homes. When people cannot afford to buy homes, inventory increases. As inventory increases, prices drop. We’re at a point where prices are reasonable and inventory is high. Many feel that something better will come along and they make the choice to not act when they find the right home. In this market, like any other, the best houses sell fast. Buyers who wait get to select from the leftovers.
The great thing about having a REALTOR is that they can analyze the market for you and offer you only the “best-buys”. “Best-buys” are the homes that are “in” the market. They are priced right and are in the best condition for the price. These homes go quickly so it helps to have your REALTOR looking out for them consistently and sorting through the rest of the homes that are “out” of the market.
It’s never a bad time to buy good real estate!!!
The magic number for getting a loan
By Jen Haley
NEW YORK (CNN) -- From mortgages to refinancing and home equity lines of credit -- it's getting harder for people to qualify for a loan. And that makes your credit score even more vital.
Most lenders will look at your FICO credit score. The scores range from 300 to 850. The higher the number, the better credit you have and the lower interest rate you'll get.
Today, you'll need a higher score to get good loan terms.
"You really have to have good credit," said Bob Moulton, president of the Americana Mortgage Group.
Your credit score may have to be as high as 720 he says. "You can get credit in some places for 680. But that number gets higher every month," according to Moulton. Read excerpts from Gerri Willis' book
The first step to improving your credit is -- knowing where you stand. You can get a free copy of your report once a year from each of the three credit bureaus at https://www.annualcreditreport.com/cra/index.jsp. This is especially important if you think you will apply for a loan in six months.
Your credit report includes specific account information, like your balance, the date the account was opened and your payment pattern.
Pay close attention to detail. A study done by the U.S. Public Institute Research Group found that 25 percent of the credit reports contained errors serious enough to result in the denial of credit.
If you do find an error, make sure to put your complaint in writing, include any supporting documents and send it to the credit bureau. The credit bureau must investigate your claim and update your report if necessary. Keep in mind that your credit report is free, but you'll have to pay for your FICO score -- which will cost you about $15.
When it comes to calculating your credit score, your payment history is one of the biggest factors. So, keep making payments on time. Automate your bills online if it will help you avoid late fees. Even if you've made a few late payments, you can still re-establish a good credit score. The older the negative information, the less it counts against you.
"It may be tempting, but don't close old credit card accounts if you want to improve your credit score," says John Ulzheimer of Credit.com.
Your score also takes into account the difference between what credit is available to you and the amount you're using. If you shut down credit card accounts, the total amount of your available credit is lowered and your balances look much larger in comparison. This ratio then hurts your score.
Ideally your purchases should be within 10% of your credit limit, said Ulzheimer.
For example, if your credit limit is $6,000, don't charge more than $600.
Your FICO score also looks at how long you've been managing credit. So, the longer history you have, the better. If you have a card that you haven't used in a while, it's a good idea to use that credit card once every six months to keep it active, according to Craig Watts of Fair Isaac. This will ensure that your account is included in the calculation of that credit utilization ratio.
Improving your credit score isn't only about managing the credit you have, it's about saying no to new credit. Avoid opening up retail store credit cards. Every time you open up an account to save an extra 10 percent, you're giving the retailer permission to pull your credit score -- and that could hurt your score for as long as 12 months, according to Ulzheimer.
Applying for new lines of credit is even more damaging if you've only been handling credit for a little while. The credit score of a 20-year-old with one or two credit cards will drop substantially more than someone who's been managing their credit over 20 years.
Credit limits on retail cards are always very low, so even a few purchases, can max out the card and that can really damage your score.
Finally, be wary of credit repair companies. Complaints filed against these types of credit-repair companies are up almost 40 percent since 2004, according to the Better Business Bureau.
You may have heard about these companies on television and radio commercials or Internet advertisements. In some cases, consumers pay large upfront fees.
In return, these companies promise to erase any blemishes on credit records, get new Social Security numbers for clients, or allow consumers to piggyback on someone else's good credit record.
Don't fall for these scams. Whatever a credit repair company can do legally, is something you can do by yourself for free.
NEW YORK (CNN) -- From mortgages to refinancing and home equity lines of credit -- it's getting harder for people to qualify for a loan. And that makes your credit score even more vital.
Most lenders will look at your FICO credit score. The scores range from 300 to 850. The higher the number, the better credit you have and the lower interest rate you'll get.
Today, you'll need a higher score to get good loan terms.
"You really have to have good credit," said Bob Moulton, president of the Americana Mortgage Group.
Your credit score may have to be as high as 720 he says. "You can get credit in some places for 680. But that number gets higher every month," according to Moulton. Read excerpts from Gerri Willis' book
The first step to improving your credit is -- knowing where you stand. You can get a free copy of your report once a year from each of the three credit bureaus at https://www.annualcreditreport.com/cra/index.jsp. This is especially important if you think you will apply for a loan in six months.
Your credit report includes specific account information, like your balance, the date the account was opened and your payment pattern.
Pay close attention to detail. A study done by the U.S. Public Institute Research Group found that 25 percent of the credit reports contained errors serious enough to result in the denial of credit.
If you do find an error, make sure to put your complaint in writing, include any supporting documents and send it to the credit bureau. The credit bureau must investigate your claim and update your report if necessary. Keep in mind that your credit report is free, but you'll have to pay for your FICO score -- which will cost you about $15.
When it comes to calculating your credit score, your payment history is one of the biggest factors. So, keep making payments on time. Automate your bills online if it will help you avoid late fees. Even if you've made a few late payments, you can still re-establish a good credit score. The older the negative information, the less it counts against you.
"It may be tempting, but don't close old credit card accounts if you want to improve your credit score," says John Ulzheimer of Credit.com.
Your score also takes into account the difference between what credit is available to you and the amount you're using. If you shut down credit card accounts, the total amount of your available credit is lowered and your balances look much larger in comparison. This ratio then hurts your score.
Ideally your purchases should be within 10% of your credit limit, said Ulzheimer.
For example, if your credit limit is $6,000, don't charge more than $600.
Your FICO score also looks at how long you've been managing credit. So, the longer history you have, the better. If you have a card that you haven't used in a while, it's a good idea to use that credit card once every six months to keep it active, according to Craig Watts of Fair Isaac. This will ensure that your account is included in the calculation of that credit utilization ratio.
Improving your credit score isn't only about managing the credit you have, it's about saying no to new credit. Avoid opening up retail store credit cards. Every time you open up an account to save an extra 10 percent, you're giving the retailer permission to pull your credit score -- and that could hurt your score for as long as 12 months, according to Ulzheimer.
Applying for new lines of credit is even more damaging if you've only been handling credit for a little while. The credit score of a 20-year-old with one or two credit cards will drop substantially more than someone who's been managing their credit over 20 years.
Credit limits on retail cards are always very low, so even a few purchases, can max out the card and that can really damage your score.
Finally, be wary of credit repair companies. Complaints filed against these types of credit-repair companies are up almost 40 percent since 2004, according to the Better Business Bureau.
You may have heard about these companies on television and radio commercials or Internet advertisements. In some cases, consumers pay large upfront fees.
In return, these companies promise to erase any blemishes on credit records, get new Social Security numbers for clients, or allow consumers to piggyback on someone else's good credit record.
Don't fall for these scams. Whatever a credit repair company can do legally, is something you can do by yourself for free.
More Downgrades on CRE Exposure
American Banker (02/29/08) P. 18; Davenport, Todd
Citing their exposure to commercial real estate (CRE) and residential construction, Moody's Investors Service Inc. this week downgraded a number of regional and community banking firms. Among those downgraded were Regions Financial Corp., Synovus Financial Corp., Trustmark Corp. and Zions Bancorp. In its report, the agency wrote: "Recent trends bear out what we have been concerned with for some time--that sizable CRE loan concentrations increase the potential for asset quality and earnings volatility. Those that are heavily concentrated in CRE not only face potential credit losses from an industry downturn, but they may also experience a material decline in revenue from the associated slowdown in demand."
Citing their exposure to commercial real estate (CRE) and residential construction, Moody's Investors Service Inc. this week downgraded a number of regional and community banking firms. Among those downgraded were Regions Financial Corp., Synovus Financial Corp., Trustmark Corp. and Zions Bancorp. In its report, the agency wrote: "Recent trends bear out what we have been concerned with for some time--that sizable CRE loan concentrations increase the potential for asset quality and earnings volatility. Those that are heavily concentrated in CRE not only face potential credit losses from an industry downturn, but they may also experience a material decline in revenue from the associated slowdown in demand."
Freddie Mac's Quarterly Loss Widens
New York Times (02/29/08) P. C5
Freddie Mac on Feb. 28 reported that it lost a record $2.5 billion in the fourth quarter. The loss of $3.97 per share was far more than the loss of $2.48 a share anticipated by Wall Street analysts. The mortgage-finance giant cited higher defaults on mortgages that it guarantees as a factor and added that it expects to lose billions of dollars more as the downturn in the housing market continues and more borrowers fail to keep up with their payments. Earlier in the week, the Office of Federal Housing Enterprise Oversight said it would lift restrictions on the portfolios of Freddie Mac and Fannie Mae, but the companies have been more focused on writing down the values of mortgage securities and increasing reserves of late. Regulators believe Freddie Mac and Fannie Mae could use their capital to give the housing market a boost by financing mortgages.
Freddie Mac on Feb. 28 reported that it lost a record $2.5 billion in the fourth quarter. The loss of $3.97 per share was far more than the loss of $2.48 a share anticipated by Wall Street analysts. The mortgage-finance giant cited higher defaults on mortgages that it guarantees as a factor and added that it expects to lose billions of dollars more as the downturn in the housing market continues and more borrowers fail to keep up with their payments. Earlier in the week, the Office of Federal Housing Enterprise Oversight said it would lift restrictions on the portfolios of Freddie Mac and Fannie Mae, but the companies have been more focused on writing down the values of mortgage securities and increasing reserves of late. Regulators believe Freddie Mac and Fannie Mae could use their capital to give the housing market a boost by financing mortgages.
Wall Street Journal (02/29/08) P. A3; Simon, Ruth; Patterson, Scott
During previous housing slumps, homeowners would default on their mortgages only when payments became unmanageable due to job loss, illness, divorce or other financial problems. However, observers say more homeowners--some of whom purchased their homes as investments--are walking away from their properties even though they can afford the mortgage payments, simply because they owe more than the real estate is worth, cannot orchestrate a loan modification or cannot sell due to falling prices that show no signs of recovery in the short-term. PMI Mortgage Group Inc. chief economist David Berson notes that "delinquencies and defaults could be higher than the industry is estimating" if these scenarios indicate a national trend. Meanwhile, Fannie Mae officials are considering penalties for borrowers who abandon their mortgages despite having the means to repay, including litigation or forcing them to wait a certain period of time before qualifying for another mortgage backed by the government-sponsored enterprise.
During previous housing slumps, homeowners would default on their mortgages only when payments became unmanageable due to job loss, illness, divorce or other financial problems. However, observers say more homeowners--some of whom purchased their homes as investments--are walking away from their properties even though they can afford the mortgage payments, simply because they owe more than the real estate is worth, cannot orchestrate a loan modification or cannot sell due to falling prices that show no signs of recovery in the short-term. PMI Mortgage Group Inc. chief economist David Berson notes that "delinquencies and defaults could be higher than the industry is estimating" if these scenarios indicate a national trend. Meanwhile, Fannie Mae officials are considering penalties for borrowers who abandon their mortgages despite having the means to repay, including litigation or forcing them to wait a certain period of time before qualifying for another mortgage backed by the government-sponsored enterprise.
Mortgage Rates Rise for Third Week in Row
San Diego Union-Tribune (02/29/08)
Freddie Mac reports a jump in the 30-year fixed mortgage rate to a more than three-month high of 6.24 percent during the week ended Feb. 28 from 6.04 percent last week, marking the third consecutive weekly increase. Interest on 15-year fixed-rate mortgages climbed to 5.72 percent from 5.64 percent over the same period. Meanwhile, the five-year adjustable mortgage rate edged up to 5.43 percent from 5.37 percent, and the one-year ARM shot up to 5.11 percent from 4.98 percent.
Freddie Mac reports a jump in the 30-year fixed mortgage rate to a more than three-month high of 6.24 percent during the week ended Feb. 28 from 6.04 percent last week, marking the third consecutive weekly increase. Interest on 15-year fixed-rate mortgages climbed to 5.72 percent from 5.64 percent over the same period. Meanwhile, the five-year adjustable mortgage rate edged up to 5.43 percent from 5.37 percent, and the one-year ARM shot up to 5.11 percent from 4.98 percent.
Say good-bye to granite countertops
High-end kitchen and bath renovations just aren't boosting a home's value the way they used to. Sellers who succumbed to home over-improvement syndrome are feeling the pain.
By Les Christie, CNNMoney.com staff writer
February 28 2008: 11:44 AM EST
NEW YORK (CNNMoney.com) -- The granite countertop's glory days might be over.
During the housing boom, updating a kitchen with high end materials like cherry wood cabinets and a Viking stove was a sure bet to boost a home's value. Homeowners often recovered about 80% of the cost when the house was later sold.
But with so much more inventory on the market for buyers to choose from, they just aren't as impressed with the bells and whistles. Now most upscale renovations are returning less than 70% of their cost, according to a recent survey from the National Association of Realtors (NAR).
"Pay-back for high-end projects has declined over the past few years," said Kermit Baker, chief economist for the American Institute of Architects (AIA). "People planning to sell shouldn't over-improve," he said. "They won't get the money out if they sell in the next two or three years."
NAR's survey revealed that returns on investment for a wide range of high-end interior redecorations dropped in 2007. An upscale bathroom renovation cost an average of $50,590, nationally, but only added $34,588 to house value - a 68.4% return. In 2006, a high-end bath renovation returned 77.4% of its cost.
Adding a brand new bath didn't pay off as well either, earning just a 69% return in 2007, compared with 72.8% in 2006. High-end kitchen remodels held up better, adding value equal to 74.1% of the cost, compared with 75.9% in 2006.
Eco-friendly family baths
Many owners simply went too far amidst the mania, over-improving their homes beyond what the local market would bear, according to Darius Baker, a veteran Sacramento, Calif., contractor.
In the past his clients were more likely to opt for expensive redos even if they were planning to move, since they knew they'd recoup most of their costs.
"I definitely saw a lot of tract houses built in the 1970s, in developments with three basic floors plans, get expensive renovations," he said. "We did a lot of radical projects, moving walls around, installing granite counters instead of Formica and cherry wood cabinets instead of oak."
The numbers made sense. In 2005, a fancy kitchen renovation on the West Coast returned an average of 93% of its cost. Even if the owner got only a year or two use of it, the close-to-break-even return made it worthwhile. By 2007, the return had declined precipitously to 74%.
Today, people who are moving out soon, Darius Baker said, "are not looking to make the place a Taj Mahal." They're just doing enough to make the house presentable.
In the current environment, owners are cutting back on upscale renovations, according to Fred Ugast, chief operating officer of HomeTech, which supplies cost statistics for NAR's annual Cost vs. Value index report.
"We're seeing a lot of pull-back in the high end," he said.
A separate report from the AIA also found demand for luxury features waning in 2007 according to the AIA. The popularity of high-end appliances declined from 65% to 47%. Demand for larger pantry spaces went down from 64% to 51% and wine refrigerators fell from 53% to 49%.
Still, people are willing to spend on their own comfort. Most of the high-end jobs that Darius Baker is getting are for clients staying put for a long time.
"They're saying, ''I'm not concerned about the price because I'm not leaving until they carry me out,'" he said.
And returns for high-end exterior renovations are still holding up, according to the NAR report, with better pay-offs than interior work.
For example, sprucing up a home's look with expensive fiber-cement siding, which looks like wood but is more durable, returns 88% on investment, more than any other renovation NAR evaluated.
"It could indicate that curb appeal is even more important than in the past," said NAR spokesman, Walter Molony. "It might get the home more serious looks from buyers."
Mick De Giulio, of Chicago-based De Giulio Kitchen Design, also senses a downshift in the market. "The high-end is still strong, but there's something in the air," he said. "I just finished jobs for two very high-end clients. We put kitchens in their new homes, but they can't sell their old ones."
By Les Christie, CNNMoney.com staff writer
February 28 2008: 11:44 AM EST
NEW YORK (CNNMoney.com) -- The granite countertop's glory days might be over.
During the housing boom, updating a kitchen with high end materials like cherry wood cabinets and a Viking stove was a sure bet to boost a home's value. Homeowners often recovered about 80% of the cost when the house was later sold.
But with so much more inventory on the market for buyers to choose from, they just aren't as impressed with the bells and whistles. Now most upscale renovations are returning less than 70% of their cost, according to a recent survey from the National Association of Realtors (NAR).
"Pay-back for high-end projects has declined over the past few years," said Kermit Baker, chief economist for the American Institute of Architects (AIA). "People planning to sell shouldn't over-improve," he said. "They won't get the money out if they sell in the next two or three years."
NAR's survey revealed that returns on investment for a wide range of high-end interior redecorations dropped in 2007. An upscale bathroom renovation cost an average of $50,590, nationally, but only added $34,588 to house value - a 68.4% return. In 2006, a high-end bath renovation returned 77.4% of its cost.
Adding a brand new bath didn't pay off as well either, earning just a 69% return in 2007, compared with 72.8% in 2006. High-end kitchen remodels held up better, adding value equal to 74.1% of the cost, compared with 75.9% in 2006.
Eco-friendly family baths
Many owners simply went too far amidst the mania, over-improving their homes beyond what the local market would bear, according to Darius Baker, a veteran Sacramento, Calif., contractor.
In the past his clients were more likely to opt for expensive redos even if they were planning to move, since they knew they'd recoup most of their costs.
"I definitely saw a lot of tract houses built in the 1970s, in developments with three basic floors plans, get expensive renovations," he said. "We did a lot of radical projects, moving walls around, installing granite counters instead of Formica and cherry wood cabinets instead of oak."
The numbers made sense. In 2005, a fancy kitchen renovation on the West Coast returned an average of 93% of its cost. Even if the owner got only a year or two use of it, the close-to-break-even return made it worthwhile. By 2007, the return had declined precipitously to 74%.
Today, people who are moving out soon, Darius Baker said, "are not looking to make the place a Taj Mahal." They're just doing enough to make the house presentable.
In the current environment, owners are cutting back on upscale renovations, according to Fred Ugast, chief operating officer of HomeTech, which supplies cost statistics for NAR's annual Cost vs. Value index report.
"We're seeing a lot of pull-back in the high end," he said.
A separate report from the AIA also found demand for luxury features waning in 2007 according to the AIA. The popularity of high-end appliances declined from 65% to 47%. Demand for larger pantry spaces went down from 64% to 51% and wine refrigerators fell from 53% to 49%.
Still, people are willing to spend on their own comfort. Most of the high-end jobs that Darius Baker is getting are for clients staying put for a long time.
"They're saying, ''I'm not concerned about the price because I'm not leaving until they carry me out,'" he said.
And returns for high-end exterior renovations are still holding up, according to the NAR report, with better pay-offs than interior work.
For example, sprucing up a home's look with expensive fiber-cement siding, which looks like wood but is more durable, returns 88% on investment, more than any other renovation NAR evaluated.
"It could indicate that curb appeal is even more important than in the past," said NAR spokesman, Walter Molony. "It might get the home more serious looks from buyers."
Mick De Giulio, of Chicago-based De Giulio Kitchen Design, also senses a downshift in the market. "The high-end is still strong, but there's something in the air," he said. "I just finished jobs for two very high-end clients. We put kitchens in their new homes, but they can't sell their old ones."
Smart window shopping
Replacement panes are a costly renovation. So invest in new ones for the right reasons - and do the project the right way.
By Josh Garskof, Money Magazine contributing writer
February 29 2008: 7:03 AM EST
(Money Magazine) -- To hear window salesmen tell it, replacing old single-pane windows with modern double-pane ones will cut your heating and cooling bills in half. Don't believe the hype.
True, today's best windows are twice as energy-efficient as those installed just a decade ago, but because windows make up only a fraction of your home's exterior, your actual energy savings will be no more than 25%, and maybe just 5% or 10%. Considering that replacements run $300 to $1,200 a window, we'll all be using hydrogen power before your new windows pay for themselves.
Still, there are other reasons to replace windows: New ones open and close easily. They tilt in so you can clean from indoors without climbing a ladder. They don't rattle when trucks drive past or ever need exterior painting. And they can even increase your property value if you do the job right.
Preserve your home's character
You can't count on recouping the full cost of new windows when you sell - a 2007 National Association of Realtors study found that sellers got back about 80% of the expense.
But choose the wrong ones and you can shatter your house's salability. "Like mantelpieces and built-in cabinets, original wood windows are important architectural features," says Atlanta realtor Bill Golden. "Replace them with a downscale product and you downscale the house."
Avoiding this trap is simple: Buy windows that mimic the ones you're tearing out. Although vinyl windows ($300 to $800 installed) are the least expensive option, they have a plain-Jane look that's fine on a simple tract house but not on a classic prewar. Wood replacements ($400 to $1,000) need periodic painting.
So you're best off with a clad window ($500 to $1,200), which is made from wood with a pre-colored, no-paint-needed aluminum coating outside and a wood finish on the inside, giving you classic beauty that's also low maintenance.
The same goes for window style: If your old ones have "divided lights" - that is, multiple pieces of glass separated by dividers - your house will look best if the new windows display the same pattern.
Trouble is, true divided lights are available only on custom windows ($2,000 and up); the standard solution of snap-in grilles (a $25- to $50-a-window add-on) looks the part only from the inside.
For a well-dressed house, get simulated divided lights (a $200-a-window add-on), which have permanent grilles on the inside, outside and between the panes - and can pass for the real thing.
Think green
While it's not worth buying new windows solely for the energy savings, you should go for efficient ones if you're replacing them anyway.
In most of the country, says Dariush Arasteh, a staff scientist at the Lawrence Berkeley National Laboratory, you should spend an extra $10 to $20 each for windows that have argon gas between the panes and a low-e (low-emissivity) coating, an invisible film that blocks heat from going through the glass.
That can knock 8% to 15% off your heating and cooling bills, according to Nils Petermann, a senior associate at the Efficient Windows Collaborative in Washington, D.C. To see what's best for your climate, visit efficientwindows.org.
For installation, consider the trade-offs
A true window replacement involves removing the interior and exterior trim, attaching a new window to the house's framing, insulating and sealing the gaps and then reinstalling the trim.
That's a labor-intensive job that most installers skip by simply removing the sash (the framed glass sections) and popping in a window insert. This will save you $150 to $300 a window in labor. But because it's those uninsulated spaces around the old windows where much of the air escapes, inserts may not eliminate drafts - or yield any energy savings.
Also, the glass will likely be about an inch smaller - in height and width - and inserts can look decidedly like a retrofit, says Harleysville, Pa. contractor Dennis Gehman.
To decide what's right for you, get a wide range of bids. A good contractor will happily explain how he'll do the job, what the result will look like and how much it will cost. For inserts, major window manufacturers and home centers offer installation, or you can do it yourself and save another $100-plus per window. (The trickiest part is the measurements.) For a full-scale replacement, you'll need a general contractor.
Also, get two warranties: one from the manufacturer and another from the contractor. Some warranties are transferable to the next owner, providing you with one more selling point - in addition to your sparkling clean, easy-to-open, energy-efficient windows.
By Josh Garskof, Money Magazine contributing writer
February 29 2008: 7:03 AM EST
(Money Magazine) -- To hear window salesmen tell it, replacing old single-pane windows with modern double-pane ones will cut your heating and cooling bills in half. Don't believe the hype.
True, today's best windows are twice as energy-efficient as those installed just a decade ago, but because windows make up only a fraction of your home's exterior, your actual energy savings will be no more than 25%, and maybe just 5% or 10%. Considering that replacements run $300 to $1,200 a window, we'll all be using hydrogen power before your new windows pay for themselves.
Still, there are other reasons to replace windows: New ones open and close easily. They tilt in so you can clean from indoors without climbing a ladder. They don't rattle when trucks drive past or ever need exterior painting. And they can even increase your property value if you do the job right.
Preserve your home's character
You can't count on recouping the full cost of new windows when you sell - a 2007 National Association of Realtors study found that sellers got back about 80% of the expense.
But choose the wrong ones and you can shatter your house's salability. "Like mantelpieces and built-in cabinets, original wood windows are important architectural features," says Atlanta realtor Bill Golden. "Replace them with a downscale product and you downscale the house."
Avoiding this trap is simple: Buy windows that mimic the ones you're tearing out. Although vinyl windows ($300 to $800 installed) are the least expensive option, they have a plain-Jane look that's fine on a simple tract house but not on a classic prewar. Wood replacements ($400 to $1,000) need periodic painting.
So you're best off with a clad window ($500 to $1,200), which is made from wood with a pre-colored, no-paint-needed aluminum coating outside and a wood finish on the inside, giving you classic beauty that's also low maintenance.
The same goes for window style: If your old ones have "divided lights" - that is, multiple pieces of glass separated by dividers - your house will look best if the new windows display the same pattern.
Trouble is, true divided lights are available only on custom windows ($2,000 and up); the standard solution of snap-in grilles (a $25- to $50-a-window add-on) looks the part only from the inside.
For a well-dressed house, get simulated divided lights (a $200-a-window add-on), which have permanent grilles on the inside, outside and between the panes - and can pass for the real thing.
Think green
While it's not worth buying new windows solely for the energy savings, you should go for efficient ones if you're replacing them anyway.
In most of the country, says Dariush Arasteh, a staff scientist at the Lawrence Berkeley National Laboratory, you should spend an extra $10 to $20 each for windows that have argon gas between the panes and a low-e (low-emissivity) coating, an invisible film that blocks heat from going through the glass.
That can knock 8% to 15% off your heating and cooling bills, according to Nils Petermann, a senior associate at the Efficient Windows Collaborative in Washington, D.C. To see what's best for your climate, visit efficientwindows.org.
For installation, consider the trade-offs
A true window replacement involves removing the interior and exterior trim, attaching a new window to the house's framing, insulating and sealing the gaps and then reinstalling the trim.
That's a labor-intensive job that most installers skip by simply removing the sash (the framed glass sections) and popping in a window insert. This will save you $150 to $300 a window in labor. But because it's those uninsulated spaces around the old windows where much of the air escapes, inserts may not eliminate drafts - or yield any energy savings.
Also, the glass will likely be about an inch smaller - in height and width - and inserts can look decidedly like a retrofit, says Harleysville, Pa. contractor Dennis Gehman.
To decide what's right for you, get a wide range of bids. A good contractor will happily explain how he'll do the job, what the result will look like and how much it will cost. For inserts, major window manufacturers and home centers offer installation, or you can do it yourself and save another $100-plus per window. (The trickiest part is the measurements.) For a full-scale replacement, you'll need a general contractor.
Also, get two warranties: one from the manufacturer and another from the contractor. Some warranties are transferable to the next owner, providing you with one more selling point - in addition to your sparkling clean, easy-to-open, energy-efficient windows.
Mortgage woes force Thornburg to pay $300M
If available cash cannot cover future margin calls, Thornburg Mortgage may have to begin selling assets to raise cash.
February 28 2008: 9:35 AM EST
NEW YORK (AP) -- Thornburg Mortgage Inc., a mortgage lender, said Thursday it has been the subject of margin calls on a portfolio of securities backed by alt-A mortgages.
Alt-A mortgages are loans given to customers with minor credit problems or who cannot document their income or assets to get a traditional, prime mortgage. Margin calls force borrowers to repay loans or put up more collateral to secure them.
Shares of Thornburg (TMA) fell $3.09, or 26.8%, to $8.45 in premarket trading Thursday. Shares have traded between $7.49 and $28.40 during the past year.
Thornburg said in a regulatory filing it is facing margin calls because the value of the alt-A mortgage-backed securities has plummeted between 10% and 15% since the end of January. The margin calls come amid "a sudden adverse change in mortgage market conditions in general" that began on Feb. 14, Thornburg said in the filing.
As of Feb. 15, Thornburg said it has $2.9 billion of exposure to the troubled loans.
Thornburg said in a filing with the Securities and Exchange Commission its securities face a very low threat of future downgrades, which would reduce their value further, and even less risk of actual losses tied to the securities.
Here come more financiers' writedowns
So far, Thornburg has met margin calls totaling more than $300 million, which has reduced its available liquidity to meet future margin calls. If available cash cannot cover future margin calls, the lender said it may have to begin selling assets to raise cash.
In August, Thornburg was forced to sell some of its assets at a steep discount to shore up its capital reserves during a similar period where the value of securities the company held dropped precipitously. The company was able to manage through that period, while dozens of other mortgage lenders shut down.
Since the middle of 2007, investors have been worried about rising delinquencies and defaults among mortgages. That worry has all but dried up the market for securities and other debt backed by mortgages, leading to a decline in value among the debt.
Over the past month, the broader credit markets have continued to tighten, in some cases leaving bondholders unable to sell hundreds of millions or even billions of dollars in debt at any given time.
February 28 2008: 9:35 AM EST
NEW YORK (AP) -- Thornburg Mortgage Inc., a mortgage lender, said Thursday it has been the subject of margin calls on a portfolio of securities backed by alt-A mortgages.
Alt-A mortgages are loans given to customers with minor credit problems or who cannot document their income or assets to get a traditional, prime mortgage. Margin calls force borrowers to repay loans or put up more collateral to secure them.
Shares of Thornburg (TMA) fell $3.09, or 26.8%, to $8.45 in premarket trading Thursday. Shares have traded between $7.49 and $28.40 during the past year.
Thornburg said in a regulatory filing it is facing margin calls because the value of the alt-A mortgage-backed securities has plummeted between 10% and 15% since the end of January. The margin calls come amid "a sudden adverse change in mortgage market conditions in general" that began on Feb. 14, Thornburg said in the filing.
As of Feb. 15, Thornburg said it has $2.9 billion of exposure to the troubled loans.
Thornburg said in a filing with the Securities and Exchange Commission its securities face a very low threat of future downgrades, which would reduce their value further, and even less risk of actual losses tied to the securities.
Here come more financiers' writedowns
So far, Thornburg has met margin calls totaling more than $300 million, which has reduced its available liquidity to meet future margin calls. If available cash cannot cover future margin calls, the lender said it may have to begin selling assets to raise cash.
In August, Thornburg was forced to sell some of its assets at a steep discount to shore up its capital reserves during a similar period where the value of securities the company held dropped precipitously. The company was able to manage through that period, while dozens of other mortgage lenders shut down.
Since the middle of 2007, investors have been worried about rising delinquencies and defaults among mortgages. That worry has all but dried up the market for securities and other debt backed by mortgages, leading to a decline in value among the debt.
Over the past month, the broader credit markets have continued to tighten, in some cases leaving bondholders unable to sell hundreds of millions or even billions of dollars in debt at any given time.
Moody's eyeing Fannie Mae downgrade
Rating agency to review Fannie Mae's B+ rating for potential downgrade after massive profit loss.
February 28 2008: 9:38 AM EST
NEW YORK (AP) -- Credit rating agency Moody's Investors Service on Thursday said it put Fannie Mae's "B+" bank financial strength rating on review for possible downgrade.
Fannie (FNM), the largest buyer and backer of U.S. home loans, said Wednesday it lost nearly $3.6 billion in the fourth quarter of 2007, and $2.1 billion for the year, amid mounting home-loan delinquencies and soured bets on interest rates.
"This loss exceeded our expectations and represents a significant deterioration of surplus regulatory capital," Moody's said in a statement. Moody's said it expects Fannie to have sizable losses in the first half of 2008 and possibly a net loss for the year due to the continued deterioration in the residential mortgage sector.
Moody's affirmed Fannie's "Aaa" senior debt, "Prime-1" short-term debt, "Aa2" subordinated debt and "Aa3" preferred stock ratings with "Stable" outlooks.
Mortgage volume has fallen rapidly as banks tighten lending standards in response to rising delinquencies and defaults.
Fannie Mae could get relief from its dwindling capital surplus requirements if its federal regulator decreases the requirement, something it said it would discuss with Fannie Mae.
Moody's financial strength rating measures a financial institution's likelihood of requiring financial assistance from third parties to continue operating normally.
February 28 2008: 9:38 AM EST
NEW YORK (AP) -- Credit rating agency Moody's Investors Service on Thursday said it put Fannie Mae's "B+" bank financial strength rating on review for possible downgrade.
Fannie (FNM), the largest buyer and backer of U.S. home loans, said Wednesday it lost nearly $3.6 billion in the fourth quarter of 2007, and $2.1 billion for the year, amid mounting home-loan delinquencies and soured bets on interest rates.
"This loss exceeded our expectations and represents a significant deterioration of surplus regulatory capital," Moody's said in a statement. Moody's said it expects Fannie to have sizable losses in the first half of 2008 and possibly a net loss for the year due to the continued deterioration in the residential mortgage sector.
Moody's affirmed Fannie's "Aaa" senior debt, "Prime-1" short-term debt, "Aa2" subordinated debt and "Aa3" preferred stock ratings with "Stable" outlooks.
Mortgage volume has fallen rapidly as banks tighten lending standards in response to rising delinquencies and defaults.
Fannie Mae could get relief from its dwindling capital surplus requirements if its federal regulator decreases the requirement, something it said it would discuss with Fannie Mae.
Moody's financial strength rating measures a financial institution's likelihood of requiring financial assistance from third parties to continue operating normally.
Thursday, February 28, 2008
House Committee to Examine Subprime Mortgages, Vets; MBA, HOPE NOW to Testify
MBA (2/28/2008 ) Sorohan, Mike
The House Veterans Affairs subcommittee on Economic Opportunity holds a hearing this afternoon on the Subprime Mortgage Crisis and America’s Veterans. The Mortgage Bankers Association and the HOPE NOW Alliance, of which MBA is a member, will submit written and oral testimony, respectively.
MBA Chairman Kieran Quinn, CMB, will provide written testimony. Quinn is expected to express MBA’s support for assisting veterans achieve homeownership and provide an update on MBA members’ efforts in assisting them.
Larry Gilmore, deputy director of HOPE NOW and a former director of government affairs at MBA, will testify in person, detailing HOPE NOW’s efforts to reach out to homeowners facing mortgage delinquency and foreclosure. Since November, HOPE NOW has reached nearly one million such homeowners.
Also scheduled to testify:
• Roger Kubarych, chief U.S. economist with UniCredit Markets and Investment Banking;
• Donald Bisenius, senior vice president of credit policy and portfolio management with Freddie Mac;
• Anthony Agurs, member of the board of directors of the National Association of Realtors;
• Ellen Harnick, senior policy counsel with the Center for Responsible Lending; and
• Judith Caden, director of loan guaranty service at the VA;
Additionally, Todd Bowers, director of government affairs with the Iraq and Afghanistan Veterans of America, will provide written testimony.
The hearing begins at 2:00 p.m. ET in room 335 of the Cannon House Office Building. The hearing can be accessed live over the Internet at www.capitolhearings.org. MBA NewsLink will provide coverage.
The House Veterans Affairs subcommittee on Economic Opportunity holds a hearing this afternoon on the Subprime Mortgage Crisis and America’s Veterans. The Mortgage Bankers Association and the HOPE NOW Alliance, of which MBA is a member, will submit written and oral testimony, respectively.
MBA Chairman Kieran Quinn, CMB, will provide written testimony. Quinn is expected to express MBA’s support for assisting veterans achieve homeownership and provide an update on MBA members’ efforts in assisting them.
Larry Gilmore, deputy director of HOPE NOW and a former director of government affairs at MBA, will testify in person, detailing HOPE NOW’s efforts to reach out to homeowners facing mortgage delinquency and foreclosure. Since November, HOPE NOW has reached nearly one million such homeowners.
Also scheduled to testify:
• Roger Kubarych, chief U.S. economist with UniCredit Markets and Investment Banking;
• Donald Bisenius, senior vice president of credit policy and portfolio management with Freddie Mac;
• Anthony Agurs, member of the board of directors of the National Association of Realtors;
• Ellen Harnick, senior policy counsel with the Center for Responsible Lending; and
• Judith Caden, director of loan guaranty service at the VA;
Additionally, Todd Bowers, director of government affairs with the Iraq and Afghanistan Veterans of America, will provide written testimony.
The hearing begins at 2:00 p.m. ET in room 335 of the Cannon House Office Building. The hearing can be accessed live over the Internet at www.capitolhearings.org. MBA NewsLink will provide coverage.
New Home Sales, Durable Goods Orders Fall
MBA (2/28/2008 ) Velz, Orawin
New homes sales decreased 2.8 percent in January to a seasonally-adjusted annualized pace of 588,000, following a 3.9 percent drop in December and 13.1 percent plunge in November. The January pace is the slowest since February 1995.
New home sales were 33.9 percent lower than sales a year ago and 57.7 percent below their recent peak in July 2005. The Census Bureau/HUD revised up sales in December by 1,000 but revised down the previous three months by 3,000. Sales declined in three regions: the Northeast (10.3 percent); the Midwest (7.6 percent) and the South (2.4 percent). The West was the only region that saw an increase (2.2 percent).
The number of homes available for sale dropped 2.2 percent to 482,000. This is the 10th consecutive month of decline to the lowest level since August 2005. Despite the drop in inventory, the months’ supply (or the inventory-sales ratio) rose to 9.9 months from 9.5 months in December and from 7.2 months a year ago. This is the highest months’ supply since October 1981.
The reason that the inventory-sales ratio has not improved despite the steady cutback in housing starts over the past two years is because housing demand has fallen faster than the drop in new construction. Tighter lending standards for all types of mortgage loans, including prime loans, have reduced the number of qualified homebuyers. In addition, some qualified potential homebuyers are reluctant to buy in declining home price environments.
Elevated month’s supply continues to put downward pressure on home prices. The median price for new homes fell 15.1 percent in January from a year ago, the biggest year-over-year decline since the series’ inception in 1963.
Another reported raised concerns that business investment may be weak, failing to support economic growth in the near term as the housing market continues to drag on growth. New orders for manufactured durable goods declined 5.3 percent in January following a 4.4 percent increase in December. The 30.5 percent drop in nondefense aircraft orders to the lowest level since August 2006 and a 32.6 percent drop in military aircraft orders led the decline.
Nondefense capital goods orders excluding aircraft—a proxy for future business investment—fell 1.7 percent in January. This represented the biggest drop since October 2007, following a 5.2 percent jump in December. Shipments for nondefense capital goods excluding aircraft—a component used in the calculation of economic growth in the current quarter—rose by 0.1 percent, after increasing 1.7 percent in December.
The report confirms Fed Chairman Ben Bernanke’s view in his testimony before the House Committee on Financial Services yesterday. Bernanke said recent data indicate subdued investment in equipment and software during the first half of this year.
Bernanke acknowledged that economic activity has become “distinctly less favorable” since last July. He argued that downside risks to growth remain and added that Fed will act in a “timely manner as needed” to support growth and ensure against downside risks. On inflation, he attributed the recent acceleration in consumer prices to a steep increase in oil prices, a weak dollar and an increase in food prices. He noted that the Fed expects inflation to moderate significantly later on as energy and food prices flatten out. Taken together with the speech by Fed Vice Chairman Donald Kohn on Tuesday, Bernanke’s testimony suggested that downside risks to economic growth remain a primary concern, leaving the door open to further rate cuts.
Long-term yields changed little. The yield on 10-year Treasury notes hovered around 3.85 percent by mid-Wednesday afternoon.
New homes sales decreased 2.8 percent in January to a seasonally-adjusted annualized pace of 588,000, following a 3.9 percent drop in December and 13.1 percent plunge in November. The January pace is the slowest since February 1995.
New home sales were 33.9 percent lower than sales a year ago and 57.7 percent below their recent peak in July 2005. The Census Bureau/HUD revised up sales in December by 1,000 but revised down the previous three months by 3,000. Sales declined in three regions: the Northeast (10.3 percent); the Midwest (7.6 percent) and the South (2.4 percent). The West was the only region that saw an increase (2.2 percent).
The number of homes available for sale dropped 2.2 percent to 482,000. This is the 10th consecutive month of decline to the lowest level since August 2005. Despite the drop in inventory, the months’ supply (or the inventory-sales ratio) rose to 9.9 months from 9.5 months in December and from 7.2 months a year ago. This is the highest months’ supply since October 1981.
The reason that the inventory-sales ratio has not improved despite the steady cutback in housing starts over the past two years is because housing demand has fallen faster than the drop in new construction. Tighter lending standards for all types of mortgage loans, including prime loans, have reduced the number of qualified homebuyers. In addition, some qualified potential homebuyers are reluctant to buy in declining home price environments.
Elevated month’s supply continues to put downward pressure on home prices. The median price for new homes fell 15.1 percent in January from a year ago, the biggest year-over-year decline since the series’ inception in 1963.
Another reported raised concerns that business investment may be weak, failing to support economic growth in the near term as the housing market continues to drag on growth. New orders for manufactured durable goods declined 5.3 percent in January following a 4.4 percent increase in December. The 30.5 percent drop in nondefense aircraft orders to the lowest level since August 2006 and a 32.6 percent drop in military aircraft orders led the decline.
Nondefense capital goods orders excluding aircraft—a proxy for future business investment—fell 1.7 percent in January. This represented the biggest drop since October 2007, following a 5.2 percent jump in December. Shipments for nondefense capital goods excluding aircraft—a component used in the calculation of economic growth in the current quarter—rose by 0.1 percent, after increasing 1.7 percent in December.
The report confirms Fed Chairman Ben Bernanke’s view in his testimony before the House Committee on Financial Services yesterday. Bernanke said recent data indicate subdued investment in equipment and software during the first half of this year.
Bernanke acknowledged that economic activity has become “distinctly less favorable” since last July. He argued that downside risks to growth remain and added that Fed will act in a “timely manner as needed” to support growth and ensure against downside risks. On inflation, he attributed the recent acceleration in consumer prices to a steep increase in oil prices, a weak dollar and an increase in food prices. He noted that the Fed expects inflation to moderate significantly later on as energy and food prices flatten out. Taken together with the speech by Fed Vice Chairman Donald Kohn on Tuesday, Bernanke’s testimony suggested that downside risks to economic growth remain a primary concern, leaving the door open to further rate cuts.
Long-term yields changed little. The yield on 10-year Treasury notes hovered around 3.85 percent by mid-Wednesday afternoon.
J.P. Morgan's Losses From Loans May Double
Wall Street Journal (02/28/08) P. C2
J.P. Morgan Chase reports a surge in charge-offs for home-equity loans to $564 million last year from $143 million the prior year. In the 2007 fourth quarter by itself, charge-offs soared more than 65 percent to $248 million from $150 million during the previous three-month period. J.P. Morgan Chase CFO Mike Cavanah predicts a jump in home-equity charge-offs to $450 million in the first quarter of this year, forcing the company to dramatically bolster reserves. The company's net charge-off rate rose to 0.62 percent in 2007 from 0.18 percent in 2006, hitting 1.05 percent in the fourth quarter.
J.P. Morgan Chase reports a surge in charge-offs for home-equity loans to $564 million last year from $143 million the prior year. In the 2007 fourth quarter by itself, charge-offs soared more than 65 percent to $248 million from $150 million during the previous three-month period. J.P. Morgan Chase CFO Mike Cavanah predicts a jump in home-equity charge-offs to $450 million in the first quarter of this year, forcing the company to dramatically bolster reserves. The company's net charge-off rate rose to 0.62 percent in 2007 from 0.18 percent in 2006, hitting 1.05 percent in the fourth quarter.
Foundations Weigh How to Allay Foreclosures
Wall Street Journal (02/28/08) P. B1; Simon, Ruth
Wealthy philanthropies such as the Ford Foundation and Living Cities are considering funding programs that will help keep families from losing their homes to foreclosure, make it easier for borrowers to modify the terms of their mortgages and put abandoned properties back into use. Living Cities--a consortium of major foundations such as the Bill and Melinda Gates Foundation and financial institutions such as Bank of America, which has been an advocate for affordable housing over the past decade--wants to make at least $10 million in flexible longer-term loans available for local programs and hopes policymakers will use public dollars to create a similar initiative nationally. The amount is relatively small compared to the scope of the mortgage crisis, but the foundations are still trying to determine the best way to respond to the rising number of foreclosures. "No one can figure out where the opportunity lies" and how to use their dollars most effectively, according to George McCarthy, a senior program officer with the Ford Foundation.
Wealthy philanthropies such as the Ford Foundation and Living Cities are considering funding programs that will help keep families from losing their homes to foreclosure, make it easier for borrowers to modify the terms of their mortgages and put abandoned properties back into use. Living Cities--a consortium of major foundations such as the Bill and Melinda Gates Foundation and financial institutions such as Bank of America, which has been an advocate for affordable housing over the past decade--wants to make at least $10 million in flexible longer-term loans available for local programs and hopes policymakers will use public dollars to create a similar initiative nationally. The amount is relatively small compared to the scope of the mortgage crisis, but the foundations are still trying to determine the best way to respond to the rising number of foreclosures. "No one can figure out where the opportunity lies" and how to use their dollars most effectively, according to George McCarthy, a senior program officer with the Ford Foundation.
Fannie Mae Reports $3.56 Billion Loss
Washington Post (02/28/08) P. D1; Hilzenrath, David S.
Citing declining home prices and growing defaults, Fannie Mae recorded a $3.56 billion loss in last year's fourth quarter versus a $604 million profit during the same period a year earlier. The government-sponsored enterprise (GSE) offered little in the way of optimism, forecasting that residential prices will continue to plunge and that its financial results will only worsen. Fannie Mae CEO Daniel Mudd lamented, "The overall economic outlook has dimmed, credit is tighter, home sales have stalled as buyers wait for prices to bottom out . . . and prices have fallen quickly in a number of states." The GSE now anticipates average peak-to-trough declines in housing prices of between 13 and 17 percent before the market rebounds, compared with its earlier projections of 10 to 12 percent.
Citing declining home prices and growing defaults, Fannie Mae recorded a $3.56 billion loss in last year's fourth quarter versus a $604 million profit during the same period a year earlier. The government-sponsored enterprise (GSE) offered little in the way of optimism, forecasting that residential prices will continue to plunge and that its financial results will only worsen. Fannie Mae CEO Daniel Mudd lamented, "The overall economic outlook has dimmed, credit is tighter, home sales have stalled as buyers wait for prices to bottom out . . . and prices have fallen quickly in a number of states." The GSE now anticipates average peak-to-trough declines in housing prices of between 13 and 17 percent before the market rebounds, compared with its earlier projections of 10 to 12 percent.
NAHB: Economy May Be Headed for 'Red Zone'
Inman News (02/28/08)
National Association of Home Builders chief economist David Seiders now expects total housing starts to decrease 25 percent in 2008, with single-family starts on track to slide 31 percent. In his latest forecast, he writes: "We still expect starts to begin edging up in the final quarter of this year, but we've also trimmed the outlook for 2009." Seiders adds that there is "a nearly even chance" that the U.S. economy will fall "into the red zone" during the first six months of this year. He concludes that the Economic Stimulus Act of 2008 recently signed by President Bush does offer some hope, as its temporary increases in loan-size limits will likely offer the most relief in such high-cost housing markets as California.
National Association of Home Builders chief economist David Seiders now expects total housing starts to decrease 25 percent in 2008, with single-family starts on track to slide 31 percent. In his latest forecast, he writes: "We still expect starts to begin edging up in the final quarter of this year, but we've also trimmed the outlook for 2009." Seiders adds that there is "a nearly even chance" that the U.S. economy will fall "into the red zone" during the first six months of this year. He concludes that the Economic Stimulus Act of 2008 recently signed by President Bush does offer some hope, as its temporary increases in loan-size limits will likely offer the most relief in such high-cost housing markets as California.
Paulson Dismisses Mortgage Rescue Plans
Wall Street Journal (02/28/08) P. A1; Phillips, Michael M.; Ip, Greg
Treasury Secretary Henry Paulson believes proposals being considered by lawmakers to curtail foreclosures are tantamount to bailouts of lenders, investors and speculators who engaged in risky deals, noting that they fail to help borrowers struggling to make their mortgage payments. According to Paulson, "I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street." Paulson insists that the market-based approach supported by the Bush administration is sufficient, but House Financial Services Committee Chairman Barney Frank, D-Mass., is among those lawmakers who believe the government needs to do more to ease the housing crisis. While lawmakers propose bills that would set aside billions of dollars to refinance distressed loans or help states and local governments purchase foreclosed properties, Paulson will continue pressuring mortgage servicers to work with subprime borrowers vulnerable to default if interest rates rise and extend such assistance to prime borrowers.
Treasury Secretary Henry Paulson believes proposals being considered by lawmakers to curtail foreclosures are tantamount to bailouts of lenders, investors and speculators who engaged in risky deals, noting that they fail to help borrowers struggling to make their mortgage payments. According to Paulson, "I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street." Paulson insists that the market-based approach supported by the Bush administration is sufficient, but House Financial Services Committee Chairman Barney Frank, D-Mass., is among those lawmakers who believe the government needs to do more to ease the housing crisis. While lawmakers propose bills that would set aside billions of dollars to refinance distressed loans or help states and local governments purchase foreclosed properties, Paulson will continue pressuring mortgage servicers to work with subprime borrowers vulnerable to default if interest rates rise and extend such assistance to prime borrowers.
Fed Amplifies Intentions on Consumer Protection
American Banker (02/28/08); Sloan, Steven
In the months since House Financial Services Committee Chairman Barney Frank, D-Mass., threatened to take away the central bank's rulemaking authority, Federal Reserve Chairman Ben Bernanke said it has been working on rules on unfair and deceptive lending practices that it plans to release this spring. Frank believes this is a step in the right direction, but Bernanke provided no information about which practices would be singled out. As for the release date, he said the central bank wants to issue the rules when final credit card disclosure practices are rolled out in order to minimize the burdens placed on the banking industry regarding implementation. Similar lending rules are under consideration by the Office of Thrift Supervision.
In the months since House Financial Services Committee Chairman Barney Frank, D-Mass., threatened to take away the central bank's rulemaking authority, Federal Reserve Chairman Ben Bernanke said it has been working on rules on unfair and deceptive lending practices that it plans to release this spring. Frank believes this is a step in the right direction, but Bernanke provided no information about which practices would be singled out. As for the release date, he said the central bank wants to issue the rules when final credit card disclosure practices are rolled out in order to minimize the burdens placed on the banking industry regarding implementation. Similar lending rules are under consideration by the Office of Thrift Supervision.
Bernanke Signals Rate Cuts on Concern About Economy
Washington Post (02/28/08) P. D1; Irwin, Neil
In testimony before the U.S. House Financial Services Committee on Feb. 27, Federal Reserve Chairman Ben Bernanke--citing concerns about the economic downturn, further softening in the labor market, worsening credit availability and even more declines in the housing market--insisted that the central bank is willing to reduce interest rates to prevent a major economic slump. According to Wells Fargo senior economist Scott Anderson, "He didn't say the word recession, but if you read between the lines, all this talk about further downside risk is dealing with the risk we may already be in one." Bernanke appeared more worried about inflation than previously, acknowledging that the central bank's expectation that a leveling off of food and energy prices will push down inflation this year could be off base. In response to Bernanke's testimony, the future markets are looking for a 0.5-percentage point cut in the federal-funds rate at the central bank's meeting on March 18.
In testimony before the U.S. House Financial Services Committee on Feb. 27, Federal Reserve Chairman Ben Bernanke--citing concerns about the economic downturn, further softening in the labor market, worsening credit availability and even more declines in the housing market--insisted that the central bank is willing to reduce interest rates to prevent a major economic slump. According to Wells Fargo senior economist Scott Anderson, "He didn't say the word recession, but if you read between the lines, all this talk about further downside risk is dealing with the risk we may already be in one." Bernanke appeared more worried about inflation than previously, acknowledging that the central bank's expectation that a leveling off of food and energy prices will push down inflation this year could be off base. In response to Bernanke's testimony, the future markets are looking for a 0.5-percentage point cut in the federal-funds rate at the central bank's meeting on March 18.
Sales of New Homes Slide
Los Angeles Times (02/28/08); Palmer, Doug
January new-home sales slid 2.8 percent to the lowest level seen in 13 years, the U.S. Commerce Department has reported. Economists had predicted sales to come in at a rate of 600,000 last month; but the government statistics showed the figure short of that expectation, with only 588,000 new homes purchased. In addition to the drop-off in sales activity, the Commerce Department also noted that the median price of new homes was down. The news further stoked recession fears and raised expectations of more interest-rate reductions by the Federal Reserve in March.
January new-home sales slid 2.8 percent to the lowest level seen in 13 years, the U.S. Commerce Department has reported. Economists had predicted sales to come in at a rate of 600,000 last month; but the government statistics showed the figure short of that expectation, with only 588,000 new homes purchased. In addition to the drop-off in sales activity, the Commerce Department also noted that the median price of new homes was down. The news further stoked recession fears and raised expectations of more interest-rate reductions by the Federal Reserve in March.
Regulators, Trying to Help Housing, Ease Buying Limits on Loan Giants
New York Times (02/28/08) P. C1; Bajaj, Vikas
The Office of Federal Housing Enterprise Oversight has agreed to eliminate limits on the amount of loans and securities that Fannie Mae and Freddie Mac can buy. The decision has the potential to boost the sagging housing market; and James Lockhart, director of the watchdog agency, said the move was made in light of the fact that the two government-chartered mortgage giants are now filing their financial reports in a timely manner. However, OFHEO decided not to relax the requirement that Fannie Mae and Freddie Mac hold 30 percent more capital than they are required to by law, citing lingering problems in the mortgage market. The mortgage finance giants welcomed the move to remove their purchase limits, which also has the support of Democrats in Congress and some mortgage industry officials.
The Office of Federal Housing Enterprise Oversight has agreed to eliminate limits on the amount of loans and securities that Fannie Mae and Freddie Mac can buy. The decision has the potential to boost the sagging housing market; and James Lockhart, director of the watchdog agency, said the move was made in light of the fact that the two government-chartered mortgage giants are now filing their financial reports in a timely manner. However, OFHEO decided not to relax the requirement that Fannie Mae and Freddie Mac hold 30 percent more capital than they are required to by law, citing lingering problems in the mortgage market. The mortgage finance giants welcomed the move to remove their purchase limits, which also has the support of Democrats in Congress and some mortgage industry officials.
Rates Up for 5th Week; Refi Volume Declines
MBA (2/27/2008 ) Kemp, Carolyn
Mortgage application activity fell by 19 percent last week, driven by a sharp decline in refinance activity as key interest rates rose for the fifth consecutive week, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending Feb. 22.
The average contract interest rate for 30-year fixed-rate mortgages increased to 6.27 percent from 6.09 percent, with points increasing to 1.15 from 1.10 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. Since Jan. 18, when the rate was 5.49 percent, the 30-year rate has risen by 78 basis points.
The rise in rates has effectively dampened refinance applications. The seasonally adjusted Refinance Index decreased 30.4 percent to 2458.9 from 3533.8 the previous week. Over the past five weeks, the Refinance Index has lost nearly half its volume, from a high of 5103.6 on Jan. 25. The four-week moving average is down by 14.2 percent to 3987.0 from 4648.2. The refinance share of mortgage activity decreased to 52.0 percent of total applications from 61.7 percent the previous week.
The drop in refinances also had an impact on the Market Composite Index, which fell to 665.1, a decrease of 19.2 percent on a seasonally adjusted basis from 822.8 one week earlier. On an unadjusted basis, the Index decreased 25.8 percent compared with the previous week but was up 5.1 percent compared with the same week one year earlier. The four-week moving average for the seasonally adjusted Market Index is down 9.7 percent to 909.5 from 1007.0.
Purchase applications, however, showed a slight uptick. The seasonally adjusted Purchase Index increased 0.2 percent to 358.2 from 357.6 one week earlier. The Conventional Purchase Index decreased by 1.5 percent, while the Government Purchase Index (largely FHA) increased 8.4 percent. On an unadjusted basis, the Purchase Index decreased 7.1 percent to 350.7 from 377.3 the previous week. The four-week moving average fell by 0.2 percent to 381.3 from 382.2.
The seasonally adjusted Conventional Index decreased 21.4 percent to 907.1 from 1153.4 the previous week; the seasonally adjusted Government Index decreased 3.8 percent to 261.5 from 271.8 the previous week.
Other rates increased as well. The average contract interest rate for 15-year fixed-rate mortgages increased to 5.77 percent from 5.55 percent, with points decreasing to 1.01 from 1.08 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for one-year adjustable-rate mortgages increased to 5.84 percent from 5.72 percent, with points decreasing to 0.86 from 0.91 (including the origination fee) for 80 percent LTV loans. The ARM share of activity increased to 15.0 percent from 12.8 percent of total applications from the previous week.
The survey covers 50 percent of all U.S. retail residential mortgage originations and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
Mortgage application activity fell by 19 percent last week, driven by a sharp decline in refinance activity as key interest rates rose for the fifth consecutive week, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending Feb. 22.
The average contract interest rate for 30-year fixed-rate mortgages increased to 6.27 percent from 6.09 percent, with points increasing to 1.15 from 1.10 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. Since Jan. 18, when the rate was 5.49 percent, the 30-year rate has risen by 78 basis points.
The rise in rates has effectively dampened refinance applications. The seasonally adjusted Refinance Index decreased 30.4 percent to 2458.9 from 3533.8 the previous week. Over the past five weeks, the Refinance Index has lost nearly half its volume, from a high of 5103.6 on Jan. 25. The four-week moving average is down by 14.2 percent to 3987.0 from 4648.2. The refinance share of mortgage activity decreased to 52.0 percent of total applications from 61.7 percent the previous week.
The drop in refinances also had an impact on the Market Composite Index, which fell to 665.1, a decrease of 19.2 percent on a seasonally adjusted basis from 822.8 one week earlier. On an unadjusted basis, the Index decreased 25.8 percent compared with the previous week but was up 5.1 percent compared with the same week one year earlier. The four-week moving average for the seasonally adjusted Market Index is down 9.7 percent to 909.5 from 1007.0.
Purchase applications, however, showed a slight uptick. The seasonally adjusted Purchase Index increased 0.2 percent to 358.2 from 357.6 one week earlier. The Conventional Purchase Index decreased by 1.5 percent, while the Government Purchase Index (largely FHA) increased 8.4 percent. On an unadjusted basis, the Purchase Index decreased 7.1 percent to 350.7 from 377.3 the previous week. The four-week moving average fell by 0.2 percent to 381.3 from 382.2.
The seasonally adjusted Conventional Index decreased 21.4 percent to 907.1 from 1153.4 the previous week; the seasonally adjusted Government Index decreased 3.8 percent to 261.5 from 271.8 the previous week.
Other rates increased as well. The average contract interest rate for 15-year fixed-rate mortgages increased to 5.77 percent from 5.55 percent, with points decreasing to 1.01 from 1.08 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for one-year adjustable-rate mortgages increased to 5.84 percent from 5.72 percent, with points decreasing to 0.86 from 0.91 (including the origination fee) for 80 percent LTV loans. The ARM share of activity increased to 15.0 percent from 12.8 percent of total applications from the previous week.
The survey covers 50 percent of all U.S. retail residential mortgage originations and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
Education Benefits Borrowers, Prevents Trouble, Study Shows
MBA (2/27/2008 ) Palaparty, Vijay
Financial literacy—or lack thereof—has come front and center as organizations attempt to address growing financial problems, particularly among borrowers of mortgages. A study from the Community Development Corp. of Long Island reports that financial education has strong potential to improve credit and savings and increase financial knowledge.
“Financial education is a critical need for consumers in our community to maximize wealth building opportunities and prevent them from falling into traps that eventually lead to financial ruin,” said CDC President Marianne Garvin. “Financial education can also help potential homeowners become more aware of common pitfalls, including consumer scams and predatory lending practices and how to avoid them.”
The study focused on very-low income and highly credit-distressed individuals with average household incomes under $20,000 and those who, at the beginning of the study, had FICO scores averaging 570. Additionally, participants had on average $500 in savings and more than $10,000 in debt. These individuals, chosen a random, were enrolled in the CDC Financial Fitness, Health & Wealth program, a financial training program that teaches Long Island residents money management skills.
One year into the program, on average, participants experienced an increase in savings of at least $450, a 21-point decrease in credit scores, a 45 percent decrease in reaching the maximum allowable balance on a credit card, a 39 percent increase in their ability to follow a budget, a 74 percent increase in their ability to plan their financial future and a 25 percent increase in understanding credit management and budgeting.
“The documented effectiveness of financial education may encourage government and private industry funders to provide more resources for these programs,” Garvin said. “The final outcome would extend financial education to thousands of families ultimately bolstering our nation’s homeownership rate and decrease foreclosure filings.”
For every 100 clients who complete the CDC Financial Fitness Health & Wealth program, nearly $50,000 in assets are saved in savings accounts within one year, the report said.
Maximizing income, increasing savings and reducing debt are skills taught in the CDC program. The program also includes one-on-one counseling with a CDC financial educator to review credit and establish a family budget. The program resumes monthly and is available in both Nassau and Suffolk counties.
The training follows a standardized model similar to other financial education programs carried out by more than 230 NeighborWorks America organizations nationally, in which the Mortgage Bankers Association is a partner.
“Being financially fit is the key to building wealth — regardless of income,” said Ken Wade, CEO of NeighborWorks America. “This program puts Long Island families on a path to financial fitness; know-how that can pay dividends for years to come through increased resources and decreased debt.”
Financial literacy—or lack thereof—has come front and center as organizations attempt to address growing financial problems, particularly among borrowers of mortgages. A study from the Community Development Corp. of Long Island reports that financial education has strong potential to improve credit and savings and increase financial knowledge.
“Financial education is a critical need for consumers in our community to maximize wealth building opportunities and prevent them from falling into traps that eventually lead to financial ruin,” said CDC President Marianne Garvin. “Financial education can also help potential homeowners become more aware of common pitfalls, including consumer scams and predatory lending practices and how to avoid them.”
The study focused on very-low income and highly credit-distressed individuals with average household incomes under $20,000 and those who, at the beginning of the study, had FICO scores averaging 570. Additionally, participants had on average $500 in savings and more than $10,000 in debt. These individuals, chosen a random, were enrolled in the CDC Financial Fitness, Health & Wealth program, a financial training program that teaches Long Island residents money management skills.
One year into the program, on average, participants experienced an increase in savings of at least $450, a 21-point decrease in credit scores, a 45 percent decrease in reaching the maximum allowable balance on a credit card, a 39 percent increase in their ability to follow a budget, a 74 percent increase in their ability to plan their financial future and a 25 percent increase in understanding credit management and budgeting.
“The documented effectiveness of financial education may encourage government and private industry funders to provide more resources for these programs,” Garvin said. “The final outcome would extend financial education to thousands of families ultimately bolstering our nation’s homeownership rate and decrease foreclosure filings.”
For every 100 clients who complete the CDC Financial Fitness Health & Wealth program, nearly $50,000 in assets are saved in savings accounts within one year, the report said.
Maximizing income, increasing savings and reducing debt are skills taught in the CDC program. The program also includes one-on-one counseling with a CDC financial educator to review credit and establish a family budget. The program resumes monthly and is available in both Nassau and Suffolk counties.
The training follows a standardized model similar to other financial education programs carried out by more than 230 NeighborWorks America organizations nationally, in which the Mortgage Bankers Association is a partner.
“Being financially fit is the key to building wealth — regardless of income,” said Ken Wade, CEO of NeighborWorks America. “This program puts Long Island families on a path to financial fitness; know-how that can pay dividends for years to come through increased resources and decreased debt.”
Consumer Confidence Slides as Home Price Declines Intensify
MBA (2/27/2008 ) Velz, Orawin
Significant oversupply market conditions, as banks tighten lending standards and home buyers remain on the fence in a declining housing market, brought about a sharp deterioration in home prices at the end of 2007.
To examine home price trends, it is more appropriate to look at measures of home prices that track prices of the same home over time, using a repeat sales transaction methodology. Unlike median or average home prices, these measures are not biased by the change in the mix of sales. Yesterday’s economic releases offered two measures of home prices using this methodology. Both measures showed significantly worsening home price trend in the fourth quarter of 2007.
First, The Office of Federal Housing Enterprise Oversight (OFHEO) House Price Index (HPI) showed that home price appreciation slowed to 0.8 percent in the fourth quarter from a year ago, following a year-over-year increase of 2.3 percent in the third quarter. This was the slowest pace of year-over-year increase since the fourth quarter of 1990. The HPI includes prices based on refinance and purchase transactions. The index excluding refinance transactions (i.e., the purchase-only index), which has a shorter history than the overall index, showed a year-over-year decline of 0.3 percent—the first drop in the index’s 16-year history.
Of the 291 metropolitan areas covered by OFHEO, 99 posted declines in the overall HPI, up from 83 in the third quarter. All but two of the 20 worst-performing metro areas are in California or Florida, with Michigan and Nevada being the remaining two.
The second measure—the Standard and Poor’s Case-Shiller national house price composite index—covers only purchase loans. It showed that home price declines intensified in the fourth quarter. The index was down 8.9 percent in the fourth quarter of 2007 from a year ago, following a 4.6 percent year-over-year decline in the third quarter. The fourth quarter was the largest decline since the inception of the series in 1988.
While both measures showed worsening home price trend, the OFHEO HPI painted a relatively better picture of national home prices because it has not yet registered a year-over-year decline in this current housing downturn. The OFHEO HPI tends to overstate home price trends as it is based on data from Fannie Mae and Freddie Mac. Thus the index includes only conventional, conforming loans and effectively excludes jumbo loans.
In addition, the OFHEO data include relatively fewer subprime loans as well as adjustable-rate mortgage loans and other nontraditional mortgage loans, which have performed relatively worse over the past year. The Case-Shiller index therefore captured the impact of the considerable stress in the jumbo market since the August financial turmoil and significant tighter lending standards that is not reflected by the OFHEO HPI. While the Case-Shiller index has an advantage over the OFHEO HPI because it covers all loan products and sizes, it has a smaller geographical coverage than the OFHEO HPI, especially in smaller states.
Another report showed that consumer confidence has trended down significantly in recent months, weighed down by many factors, including declining housing market and home prices, more stringent lending standards in consumer and mortgage loans, slower employment growth and rising gasoline prices. The Conference Board’s Consumer Confidence Index fell to 75 in February from 87.3 in January. The index is now at its lowest since the second invasion of Iraq in 2003.
Both the present conditions and expectations components fell during the month. The expectations component fell 11.4 points to 57.9, its lowest level since 1991. The present conditions component dropped to 100.6 from 114.3 in January.
Consumers’ assessment of the labor market also deteriorated sharply. The share of respondents saying jobs are hard to get rose to 23.8 percent from 20.6 percent in January. The share of respondents indicating jobs are plentiful fell 3.2 percentage points to 20.6 percent, the lowest since 2005.
A separate report indicated that wholesale prices surged in January. The Producer Price Index (PPI) rose 1.0 percent, following a 0.3 percent decline in December, driven by jumps in energy and food prices. Excluding food and energy items, the core PPI was still up a strong 0.4 percent.
Over the past year, the PPI surged 7.7 percent, the biggest increase since October 1981. The core PPI rose 2.4 percent from a year ago, the largest gain since October 2007. While, the PPI is not a focus for the Federal Reserve’s policy, its recent rising trend is consistent with other price measures.
In his speech yesterday at the University of North Carolina, Fed Vice Chairman Donald Kohn said he does not expect recent price increases to sustain. Kohn acknowledged that the housing recession is spilling over into other sectors of the economy and added that slower economic activity poses a greater threat than inflation.
Long-term yields fell in response to weak economic data and Kohn’s speech suggesting that more rate cuts are likely. The yield on 10-year Treasuries stayed around 3.86 percent by mid-Tuesday afternoon, four basis points lower than the closing rate on Monday.
Significant oversupply market conditions, as banks tighten lending standards and home buyers remain on the fence in a declining housing market, brought about a sharp deterioration in home prices at the end of 2007.
To examine home price trends, it is more appropriate to look at measures of home prices that track prices of the same home over time, using a repeat sales transaction methodology. Unlike median or average home prices, these measures are not biased by the change in the mix of sales. Yesterday’s economic releases offered two measures of home prices using this methodology. Both measures showed significantly worsening home price trend in the fourth quarter of 2007.
First, The Office of Federal Housing Enterprise Oversight (OFHEO) House Price Index (HPI) showed that home price appreciation slowed to 0.8 percent in the fourth quarter from a year ago, following a year-over-year increase of 2.3 percent in the third quarter. This was the slowest pace of year-over-year increase since the fourth quarter of 1990. The HPI includes prices based on refinance and purchase transactions. The index excluding refinance transactions (i.e., the purchase-only index), which has a shorter history than the overall index, showed a year-over-year decline of 0.3 percent—the first drop in the index’s 16-year history.
Of the 291 metropolitan areas covered by OFHEO, 99 posted declines in the overall HPI, up from 83 in the third quarter. All but two of the 20 worst-performing metro areas are in California or Florida, with Michigan and Nevada being the remaining two.
The second measure—the Standard and Poor’s Case-Shiller national house price composite index—covers only purchase loans. It showed that home price declines intensified in the fourth quarter. The index was down 8.9 percent in the fourth quarter of 2007 from a year ago, following a 4.6 percent year-over-year decline in the third quarter. The fourth quarter was the largest decline since the inception of the series in 1988.
While both measures showed worsening home price trend, the OFHEO HPI painted a relatively better picture of national home prices because it has not yet registered a year-over-year decline in this current housing downturn. The OFHEO HPI tends to overstate home price trends as it is based on data from Fannie Mae and Freddie Mac. Thus the index includes only conventional, conforming loans and effectively excludes jumbo loans.
In addition, the OFHEO data include relatively fewer subprime loans as well as adjustable-rate mortgage loans and other nontraditional mortgage loans, which have performed relatively worse over the past year. The Case-Shiller index therefore captured the impact of the considerable stress in the jumbo market since the August financial turmoil and significant tighter lending standards that is not reflected by the OFHEO HPI. While the Case-Shiller index has an advantage over the OFHEO HPI because it covers all loan products and sizes, it has a smaller geographical coverage than the OFHEO HPI, especially in smaller states.
Another report showed that consumer confidence has trended down significantly in recent months, weighed down by many factors, including declining housing market and home prices, more stringent lending standards in consumer and mortgage loans, slower employment growth and rising gasoline prices. The Conference Board’s Consumer Confidence Index fell to 75 in February from 87.3 in January. The index is now at its lowest since the second invasion of Iraq in 2003.
Both the present conditions and expectations components fell during the month. The expectations component fell 11.4 points to 57.9, its lowest level since 1991. The present conditions component dropped to 100.6 from 114.3 in January.
Consumers’ assessment of the labor market also deteriorated sharply. The share of respondents saying jobs are hard to get rose to 23.8 percent from 20.6 percent in January. The share of respondents indicating jobs are plentiful fell 3.2 percentage points to 20.6 percent, the lowest since 2005.
A separate report indicated that wholesale prices surged in January. The Producer Price Index (PPI) rose 1.0 percent, following a 0.3 percent decline in December, driven by jumps in energy and food prices. Excluding food and energy items, the core PPI was still up a strong 0.4 percent.
Over the past year, the PPI surged 7.7 percent, the biggest increase since October 1981. The core PPI rose 2.4 percent from a year ago, the largest gain since October 2007. While, the PPI is not a focus for the Federal Reserve’s policy, its recent rising trend is consistent with other price measures.
In his speech yesterday at the University of North Carolina, Fed Vice Chairman Donald Kohn said he does not expect recent price increases to sustain. Kohn acknowledged that the housing recession is spilling over into other sectors of the economy and added that slower economic activity poses a greater threat than inflation.
Long-term yields fell in response to weak economic data and Kohn’s speech suggesting that more rate cuts are likely. The yield on 10-year Treasuries stayed around 3.86 percent by mid-Tuesday afternoon, four basis points lower than the closing rate on Monday.
Investment Firms Buy Mortgage Loans
Wall Street Journal (02/27/08) P. D4; Whitehouse, Kaja
BlackRock Inc. and Fortress Investment Group LLC are among the money managers snapping up whole residential mortgages at bargain prices in the hopes of turning a profit. The purchase of whole residential-loan portfolios has gained popularity since the credit crunch has choked activity in the mortgage securitization business. These investment firms are especially interested in delinquent mortgages, as they take control of the properties themselves in the event of foreclosure.
BlackRock Inc. and Fortress Investment Group LLC are among the money managers snapping up whole residential mortgages at bargain prices in the hopes of turning a profit. The purchase of whole residential-loan portfolios has gained popularity since the credit crunch has choked activity in the mortgage securitization business. These investment firms are especially interested in delinquent mortgages, as they take control of the properties themselves in the event of foreclosure.
Door Could Open to Class Actions
Washington Post (02/27/08) P. D1; Cho, David
The attorney for a Wisconsin couple that is suing Chevy Chase Bank says a federal appeals court is ready to issue a ruling on whether other borrowers can join their suit to get their mortgages cancelled due to mistakes in their loan documents--no matter how minor. "The case was somewhat interesting a couple years ago when it started, but its ramifications and impact have completely changed given the current environment," says Louis Pizante, chief executive of Mavent, a provider of consumer protection law services to major lenders. Some mortgage analysts and lawyers believe that allowing plaintiffs to file class-action suits will make it easier and more affordable for homeowners to seek mortgage cancellations or rescissions. Approximately 83 percent of federally supervised banks that issued mortgages at the height of the housing boom in 2005 have been cited for "significant compliance violations," according to the inspector general for the Federal Deposit Insurance Corp.
The attorney for a Wisconsin couple that is suing Chevy Chase Bank says a federal appeals court is ready to issue a ruling on whether other borrowers can join their suit to get their mortgages cancelled due to mistakes in their loan documents--no matter how minor. "The case was somewhat interesting a couple years ago when it started, but its ramifications and impact have completely changed given the current environment," says Louis Pizante, chief executive of Mavent, a provider of consumer protection law services to major lenders. Some mortgage analysts and lawyers believe that allowing plaintiffs to file class-action suits will make it easier and more affordable for homeowners to seek mortgage cancellations or rescissions. Approximately 83 percent of federally supervised banks that issued mortgages at the height of the housing boom in 2005 have been cited for "significant compliance violations," according to the inspector general for the Federal Deposit Insurance Corp.
Commercial Real Estate Will Be Iffy, But Not Ugly
Sarasota Herald-Tribune (FL) (02/27/08); Beck, Rachel
Some Wall Street insiders are concerned that commercial real estate may be the next market thrown into turmoil, pointing to a soaring CMBX index that indicates investors perceive increased risk in commercial mortgage-backed securities. However, Fitch Ratings' Commercial Mortgage-Backed Securities Index shows that actual delinquencies on commercial mortgage bonds were at a scant 0.28 percent at the end of last year. Even if that rate increases, it still would be nowhere near the double-digit default rates now being seen on subprime mortgages. In addition, only 28 percent of commercial mortgages since 1995 are securitized compared to 80 percent of subprime loans. Consequently, the losses on those loans can be recognized more slowly by financial institutions.
Some Wall Street insiders are concerned that commercial real estate may be the next market thrown into turmoil, pointing to a soaring CMBX index that indicates investors perceive increased risk in commercial mortgage-backed securities. However, Fitch Ratings' Commercial Mortgage-Backed Securities Index shows that actual delinquencies on commercial mortgage bonds were at a scant 0.28 percent at the end of last year. Even if that rate increases, it still would be nowhere near the double-digit default rates now being seen on subprime mortgages. In addition, only 28 percent of commercial mortgages since 1995 are securitized compared to 80 percent of subprime loans. Consequently, the losses on those loans can be recognized more slowly by financial institutions.
Cool Reception to Fannie Idea on Appraisals
American Banker (02/27/08) P. 1; Berry, Kate; Hochstein, Marc
In response to an investigation by New York Attorney General Andrew Cuomo into whether Washington Mutual pressured The First American Corp. and its eAppraiseIT LLC subsidiary to artificially boost home values, Fannie Mae will institute new appraisal policies on Sept. 1. At that time, the government-sponsored enterprise will cease buying mortgages whose appraisals were ordered by brokers and prohibit lenders from using in-house appraisers and appraisal management units. Lenders are balking at the new rules, insisting that appraisal units eliminate pressure on appraisers to meet a particular valuation. According to Title/Appraisal Vendor Management Association executive director Jeff Schurman, "What Fannie is saying in this context is you can't use independent appraisers that are engaged by a captive or affiliate, but you can use that same independent appraiser if they are engaged by some other appraisal management company." ValueAmerica Inc. Chairman and CEO Bob Murphy says conflicts of interest between lenders and appraisers have not been eliminated over the years, noting that Fannie Mae simply is ordering that the two be separated.
In response to an investigation by New York Attorney General Andrew Cuomo into whether Washington Mutual pressured The First American Corp. and its eAppraiseIT LLC subsidiary to artificially boost home values, Fannie Mae will institute new appraisal policies on Sept. 1. At that time, the government-sponsored enterprise will cease buying mortgages whose appraisals were ordered by brokers and prohibit lenders from using in-house appraisers and appraisal management units. Lenders are balking at the new rules, insisting that appraisal units eliminate pressure on appraisers to meet a particular valuation. According to Title/Appraisal Vendor Management Association executive director Jeff Schurman, "What Fannie is saying in this context is you can't use independent appraisers that are engaged by a captive or affiliate, but you can use that same independent appraiser if they are engaged by some other appraisal management company." ValueAmerica Inc. Chairman and CEO Bob Murphy says conflicts of interest between lenders and appraisers have not been eliminated over the years, noting that Fannie Mae simply is ordering that the two be separated.
Experts Say Housing in US Still Freefalling
Nashua Telegraph (02/27/08); Elphinstone, J.W.
More and more experts are coming to the realization that the housing market may remain in turmoil for a long time to come. The latest Standard & Poor's/Case-Shiller home-price index shows that U.S. home prices decreased 8.9 percent in the fourth quarter of last year compared to a year earlier, reflecting the steepest decline in the index's 20-year history. The Office of Federal Housing Enterprise Oversight's index of residential values, meanwhile, found that prices dipped just 0.3 percent at the end of 2007; however, its readings are based on a narrower population of loans worth $417,000 or less and excludes many properties purchased via riskier types of financing. David Abromowitz, a senior fellow at the Center for American Progress, laments, "The housing value crisis is spreading and deepening. It has gone way beyond subprime borrowers stretched too far with bad loans and now has clearly extended into the housing markets more broadly."
More and more experts are coming to the realization that the housing market may remain in turmoil for a long time to come. The latest Standard & Poor's/Case-Shiller home-price index shows that U.S. home prices decreased 8.9 percent in the fourth quarter of last year compared to a year earlier, reflecting the steepest decline in the index's 20-year history. The Office of Federal Housing Enterprise Oversight's index of residential values, meanwhile, found that prices dipped just 0.3 percent at the end of 2007; however, its readings are based on a narrower population of loans worth $417,000 or less and excludes many properties purchased via riskier types of financing. David Abromowitz, a senior fellow at the Center for American Progress, laments, "The housing value crisis is spreading and deepening. It has gone way beyond subprime borrowers stretched too far with bad loans and now has clearly extended into the housing markets more broadly."
Democrat Floats Plan to Refinance Home Loans With U.S. Help
Wall Street Journal (02/27/08) P. A14; Paletta, Damian
House Financial Services Committee Chairman Barney Frank, D-Mass., in advocating increased government involvement to ease the mortgage crisis, wants to reserve approximately $15 billion over five years for the government to buy distressed loans and refinance them into FHA-backed mortgages. Observers expect some resistance from the Bush administration, but Frank insists, "It was the lack of government intervention that got us here." For the plan to be successful, loans would have to be discounted by lenders to more manageable amounts. Additionally, Frank has proposed helping state and local governments purchase foreclosed or vacant properties at discount prices using $20 billion in federal grants and loans. Meanwhile, Senate Banking Committee Chairman Christopher Dodd, D-Conn., also plans to introduce a measure to help struggling borrowers refinance.
House Financial Services Committee Chairman Barney Frank, D-Mass., in advocating increased government involvement to ease the mortgage crisis, wants to reserve approximately $15 billion over five years for the government to buy distressed loans and refinance them into FHA-backed mortgages. Observers expect some resistance from the Bush administration, but Frank insists, "It was the lack of government intervention that got us here." For the plan to be successful, loans would have to be discounted by lenders to more manageable amounts. Additionally, Frank has proposed helping state and local governments purchase foreclosed or vacant properties at discount prices using $20 billion in federal grants and loans. Meanwhile, Senate Banking Committee Chairman Christopher Dodd, D-Conn., also plans to introduce a measure to help struggling borrowers refinance.
HUD Plans Mortgage Rule Changes
Los Angeles Times (02/27/08)
Proposed rules from HUD aim to help mortgage borrowers better understand the costs involved before signing loan documents. Under the new scenario, lenders would have to present borrowers with a good-faith estimate spelling out balloon payments, prepayment penalties and other loan terms and fees; and the actual settlement costs could not exceed that good-faith estimate by more than 10 percent. Additionally, the good-faith estimate would detail any payments to mortgage brokers. National Association of Mortgage Brokers President-elect Marc Savitt opposes the disclosure because lenders would not have to reveal payments to other parties handling the loan. Savitt also believes that listing the payment as a "credit to the borrower" would cause confusion.
Proposed rules from HUD aim to help mortgage borrowers better understand the costs involved before signing loan documents. Under the new scenario, lenders would have to present borrowers with a good-faith estimate spelling out balloon payments, prepayment penalties and other loan terms and fees; and the actual settlement costs could not exceed that good-faith estimate by more than 10 percent. Additionally, the good-faith estimate would detail any payments to mortgage brokers. National Association of Mortgage Brokers President-elect Marc Savitt opposes the disclosure because lenders would not have to reveal payments to other parties handling the loan. Savitt also believes that listing the payment as a "credit to the borrower" would cause confusion.
Bush Vows to Veto a Mortgage Relief Bill
New York Times (02/27/08) P. C4; Andrews, Edmund L.
Mortgage lenders will do whatever they can to defeat a bill by Senate Democrats that would give bankruptcy judges the authority to modify the terms of a mortgage as they restructure a borrower's debt in a bankruptcy filing, Mortgage Bankers Association chief lobbyist Steve O’Connor says of the industry's campaign against the legislation. President Bush on Feb. 26 vowed to veto such a bill, which advocates say has the potential to keep 600,000 households from losing their homes to foreclosure. O'Connor says such a change in the bankruptcy law would force mortgage lenders and investors to respond to the added risk. "They will likely charge a higher interest rate, likely charge more points on the mortgage and likely demand higher down payments," he warns.
Mortgage lenders will do whatever they can to defeat a bill by Senate Democrats that would give bankruptcy judges the authority to modify the terms of a mortgage as they restructure a borrower's debt in a bankruptcy filing, Mortgage Bankers Association chief lobbyist Steve O’Connor says of the industry's campaign against the legislation. President Bush on Feb. 26 vowed to veto such a bill, which advocates say has the potential to keep 600,000 households from losing their homes to foreclosure. O'Connor says such a change in the bankruptcy law would force mortgage lenders and investors to respond to the added risk. "They will likely charge a higher interest rate, likely charge more points on the mortgage and likely demand higher down payments," he warns.
Wednesday, February 27, 2008
Say good-bye to granite countertops
High-end kitchen and bath renovations just aren't boosting a home's value the way they used to. Sellers who succumbed to home over-improvement syndrome are feeling the pain.
By Les Christie, CNNMoney.com staff writer
February 27 2008: 11:11 AM EST
NEW YORK (CNNMoney.com) -- The granite countertop's glory days might be over.
During the housing boom, updating a kitchen with high end materials like cherry wood cabinets and a Viking stove was a sure bet to boost a home's value. Homeowners often recovered about 80% of the cost when the house was later sold.
But with so much more inventory on the market for buyers to choose from, they just aren't as impressed with the bells and whistles. Now most upscale renovations are returning less than 70% of their cost, according to a recent survey from the National Association of Realtors (NAR).
"Pay-back for high-end projects has declined over the past few years," said Kermit Baker, chief economist for the American Institute of Architects (AIA). "People planning to sell shouldn't over-improve," he said. "They won't get the money out if they sell in the next two or three years."
NAR's survey revealed that returns on investment for a wide range of high-end interior redecorations dropped in 2007. An upscale bathroom renovation cost an average of $50,590, nationally, but only added $34,588 to house value - a 68.4% return. In 2006, a high-end bath renovation returned 77.4% of its cost.
Adding a brand new bath didn't pay off as well either, earning just a 69% return in 2007, compared with 72.8% in 2006. High-end kitchen remodels held up better, adding value equal to 74.1% of the cost, compared with 75.9% in 2006.
Eco-friendly family baths
Many owners simply went too far amidst the mania, over-improving their homes beyond what the local market would bear, according to Darius Baker, a veteran Sacramento, Calif., contractor.
In the past his clients were more likely to opt for expensive redos even if they were planning to move, since they knew they'd recoup most of their costs.
"I definitely saw a lot of tract houses built in the 1970s, in developments with three basic floors plans, get expensive renovations," he said. "We did a lot of radical projects, moving walls around, installing granite counters instead of Formica and cherry wood cabinets instead of oak."
The numbers made sense. In 2005, a fancy kitchen renovation on the West Coast returned an average of 93% of its cost. Even if the owner got only a year or two use of it, the close-to-break-even return made it worthwhile. By 2007, the return had declined precipitously to 74%.
Today, people who are moving out soon, Darius Baker said, "are not looking to make the place a Taj Mahal." They're just doing enough to make the house presentable.
In the current environment, owners are cutting back on upscale renovations, according to Fred Ugast, chief operating officer of HomeTech, which supplies cost statistics for NAR's annual Cost vs. Value index report.
"We're seeing a lot of pull-back in the high end," he said.
A separate report from the AIA also found demand for luxury features waning in 2007 according to the AIA. The popularity of high-end appliances declined from 65% to 47%. Demand for larger pantry spaces went down from 64% to 51% and wine refrigerators fell from 53% to 49%.
Still, people are willing to spend on their own comfort. Most of the high-end jobs that Darius Baker is getting are for clients staying put for a long time.
"They're saying, ''I'm not concerned about the price because I'm not leaving until they carry me out,'" he said.
And returns for high-end exterior renovations are still holding up, according to the NAR report, with better pay-offs than interior work.
For example, sprucing up a home's look with expensive fiber-cement siding, which looks like wood but is more durable, returns 88% on investment, more than any other renovation NAR evaluated.
"It could indicate that curb appeal is even more important than in the past," said NAR spokesman, Walter Molony. "It might get the home more serious looks from buyers."
Mick De Giulio, of Chicago-based De Giulio Kitchen Design, also senses a downshift in the market. "The high-end is still strong, but there's something in the air," he said. "I just finished jobs for two very high-end clients. We put kitchens in their new homes, but they can't sell their old ones."
By Les Christie, CNNMoney.com staff writer
February 27 2008: 11:11 AM EST
NEW YORK (CNNMoney.com) -- The granite countertop's glory days might be over.
During the housing boom, updating a kitchen with high end materials like cherry wood cabinets and a Viking stove was a sure bet to boost a home's value. Homeowners often recovered about 80% of the cost when the house was later sold.
But with so much more inventory on the market for buyers to choose from, they just aren't as impressed with the bells and whistles. Now most upscale renovations are returning less than 70% of their cost, according to a recent survey from the National Association of Realtors (NAR).
"Pay-back for high-end projects has declined over the past few years," said Kermit Baker, chief economist for the American Institute of Architects (AIA). "People planning to sell shouldn't over-improve," he said. "They won't get the money out if they sell in the next two or three years."
NAR's survey revealed that returns on investment for a wide range of high-end interior redecorations dropped in 2007. An upscale bathroom renovation cost an average of $50,590, nationally, but only added $34,588 to house value - a 68.4% return. In 2006, a high-end bath renovation returned 77.4% of its cost.
Adding a brand new bath didn't pay off as well either, earning just a 69% return in 2007, compared with 72.8% in 2006. High-end kitchen remodels held up better, adding value equal to 74.1% of the cost, compared with 75.9% in 2006.
Eco-friendly family baths
Many owners simply went too far amidst the mania, over-improving their homes beyond what the local market would bear, according to Darius Baker, a veteran Sacramento, Calif., contractor.
In the past his clients were more likely to opt for expensive redos even if they were planning to move, since they knew they'd recoup most of their costs.
"I definitely saw a lot of tract houses built in the 1970s, in developments with three basic floors plans, get expensive renovations," he said. "We did a lot of radical projects, moving walls around, installing granite counters instead of Formica and cherry wood cabinets instead of oak."
The numbers made sense. In 2005, a fancy kitchen renovation on the West Coast returned an average of 93% of its cost. Even if the owner got only a year or two use of it, the close-to-break-even return made it worthwhile. By 2007, the return had declined precipitously to 74%.
Today, people who are moving out soon, Darius Baker said, "are not looking to make the place a Taj Mahal." They're just doing enough to make the house presentable.
In the current environment, owners are cutting back on upscale renovations, according to Fred Ugast, chief operating officer of HomeTech, which supplies cost statistics for NAR's annual Cost vs. Value index report.
"We're seeing a lot of pull-back in the high end," he said.
A separate report from the AIA also found demand for luxury features waning in 2007 according to the AIA. The popularity of high-end appliances declined from 65% to 47%. Demand for larger pantry spaces went down from 64% to 51% and wine refrigerators fell from 53% to 49%.
Still, people are willing to spend on their own comfort. Most of the high-end jobs that Darius Baker is getting are for clients staying put for a long time.
"They're saying, ''I'm not concerned about the price because I'm not leaving until they carry me out,'" he said.
And returns for high-end exterior renovations are still holding up, according to the NAR report, with better pay-offs than interior work.
For example, sprucing up a home's look with expensive fiber-cement siding, which looks like wood but is more durable, returns 88% on investment, more than any other renovation NAR evaluated.
"It could indicate that curb appeal is even more important than in the past," said NAR spokesman, Walter Molony. "It might get the home more serious looks from buyers."
Mick De Giulio, of Chicago-based De Giulio Kitchen Design, also senses a downshift in the market. "The high-end is still strong, but there's something in the air," he said. "I just finished jobs for two very high-end clients. We put kitchens in their new homes, but they can't sell their old ones."
Home price plunge accelerates
2007 year-end results are in and the news is bad: Major housing markets were down even more than anticipated.
By Les Christie, CNNMoney.com staff writer
February 26 2008: 10:19 AM EST
NEW YORK (CNNMoney.com) -- The decline in residential real estate accelerated though the end of 2007, and home prices in 20 key markets plunged 9.1% for the year, according to a survey released Tuesday.
The S&P Case/Shiller Home Price index showed its largest annual drop in its 20-year history. By comparison, during the 1990-91 recession, home prices fell 2.8%.
Prices dropped faster throughout 2007 with the index recording a 9.1% year-over-year drop in December.
"We reached a somber year-end for the housing market in 2007," said Robert Shiller, Chief Economist at MacroMarkets LLC and co-founder of the index, in a statement. "Home prices across the nation and in most metro areas are significantly lower than where they were a year ago."
All metro areas are now reporting at least four consecutive monthly declines.
Case/Shiller's 10-city index fell even more sharply and finished down 9.8%.
The Case/Shiller indexes compare same-home sale prices. The industry considers them to be among the most accurate snapshots of housing prices.
Of the 20 metro areas examined, all but three posted declines for the year. Miami homes lost 17.5% in value - more than any other metro area - and Las Vegas and Phoenix both had 15.3% declines.
The three that posted modest gains: Charlotte, N.C., 2.3%; Portland, Ore., 1.2%; and Seattle, at 0.5%.
Los Angeles, the nation's second biggest housing market, was the worst performer in December, when prices fell 3.6% compared with November; the decline for the year was 13.7%.
Other double-digit losers for the year were San Francisco, down 10.8%; Tampa, 13.3%; Detroit, 13.6%; and San Diego, 15.0%. Losses in the nation's biggest market, New York, were more modest, down just 5.6% for the year.
By Les Christie, CNNMoney.com staff writer
February 26 2008: 10:19 AM EST
NEW YORK (CNNMoney.com) -- The decline in residential real estate accelerated though the end of 2007, and home prices in 20 key markets plunged 9.1% for the year, according to a survey released Tuesday.
The S&P Case/Shiller Home Price index showed its largest annual drop in its 20-year history. By comparison, during the 1990-91 recession, home prices fell 2.8%.
Prices dropped faster throughout 2007 with the index recording a 9.1% year-over-year drop in December.
"We reached a somber year-end for the housing market in 2007," said Robert Shiller, Chief Economist at MacroMarkets LLC and co-founder of the index, in a statement. "Home prices across the nation and in most metro areas are significantly lower than where they were a year ago."
All metro areas are now reporting at least four consecutive monthly declines.
Case/Shiller's 10-city index fell even more sharply and finished down 9.8%.
The Case/Shiller indexes compare same-home sale prices. The industry considers them to be among the most accurate snapshots of housing prices.
Of the 20 metro areas examined, all but three posted declines for the year. Miami homes lost 17.5% in value - more than any other metro area - and Las Vegas and Phoenix both had 15.3% declines.
The three that posted modest gains: Charlotte, N.C., 2.3%; Portland, Ore., 1.2%; and Seattle, at 0.5%.
Los Angeles, the nation's second biggest housing market, was the worst performer in December, when prices fell 3.6% compared with November; the decline for the year was 13.7%.
Other double-digit losers for the year were San Francisco, down 10.8%; Tampa, 13.3%; Detroit, 13.6%; and San Diego, 15.0%. Losses in the nation's biggest market, New York, were more modest, down just 5.6% for the year.
Mortgage applications slide again
For the third week in a row, home finance applications fall as interest rates rise steadily.
February 27 2008: 7:53 AM EST
WASHINGTON (AP) -- Mortgage application volume tumbled 19.2% during the week ended Feb. 22, according to the Mortgage Bankers Association's weekly application survey.
The MBA's application index fell to 665.1 from 822.8 the previous week. It was the third straight week application volume fell. During that time, volume has dropped 39% as interest rates have risen steadily.
Application volume fell as refinance volume plummeted 30.4% during the week. Purchase volume increased 0.2%.
Refinance volume accounted for 52% of total mortgage applications. Refinance applications accounted for 73% of all application activity about a month ago.
The index peaked at 1,856.7 during the week ended May 30, 2003, at the height of the housing boom.
An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 665.1 means mortgage application activity is 6.651 times higher than it was when the MBA began tracking the data.
The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50% of all residential retail mortgage originations each week.
Application volume declined as interest rates continued to rise. The average rate for traditional, 30-year fixed-rate mortgages increased to 6.27% from 6.09%. In 2008, the average rate was as low as 5.49% during the week ended Jan. 18.
The average rate for 15-year fixed-rate mortgages, often used for refinancing a home, increased to 5.77% from 5.55%.
The rate on one-year adjustable-rate mortgages increased to 5.84% from 5.72%.
February 27 2008: 7:53 AM EST
WASHINGTON (AP) -- Mortgage application volume tumbled 19.2% during the week ended Feb. 22, according to the Mortgage Bankers Association's weekly application survey.
The MBA's application index fell to 665.1 from 822.8 the previous week. It was the third straight week application volume fell. During that time, volume has dropped 39% as interest rates have risen steadily.
Application volume fell as refinance volume plummeted 30.4% during the week. Purchase volume increased 0.2%.
Refinance volume accounted for 52% of total mortgage applications. Refinance applications accounted for 73% of all application activity about a month ago.
The index peaked at 1,856.7 during the week ended May 30, 2003, at the height of the housing boom.
An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 665.1 means mortgage application activity is 6.651 times higher than it was when the MBA began tracking the data.
The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50% of all residential retail mortgage originations each week.
Application volume declined as interest rates continued to rise. The average rate for traditional, 30-year fixed-rate mortgages increased to 6.27% from 6.09%. In 2008, the average rate was as low as 5.49% during the week ended Jan. 18.
The average rate for 15-year fixed-rate mortgages, often used for refinancing a home, increased to 5.77% from 5.55%.
The rate on one-year adjustable-rate mortgages increased to 5.84% from 5.72%.
Insuring your home against disaster
If the worst happens, you can't be sure you'll collect enough to bring back the home you love. Here's what to do.
By Gerri Willis, Money Magazine contributing writer
February 27 2008: 9:21 AM EST
(Money Magazine) -- If last fall's devastating California wildfires weren't enough of a wake-up call, consider this: Nearly 60% of homes nationwide don't carry enough insurance coverage to be fully rebuilt. On average those homes are underinsured by 21%. To give yourself a chance of being made whole, follow these steps before and after disaster strikes.
Beef up your policy
Remember you're insuring for future rebuilding costs. That means avoiding an actual-cash-value policy, which reduces your payout by how much your possessions have depreciated.
A guaranteed replacement-cost policy, which reimburses you for the full cost of rebuilding, is the gold standard but is almost impossible to find. Go for an extended replacement-cost policy, which pays you a set amount (the "dwelling limit"), plus a 20% to 25% margin. Add a building-code endorsement to cover the cost of complying with future rule changes.
Setting your dwelling limit high from the outset and reviewing it every few years is crucial. A good agent should be able to help, or for $8 you can create a custom estimate at accucoverage.com.
As a rough guide, keep in mind that the average cost to rebuild is $250 a square foot.
Document what you own
In order to be reimbursed, you need records: pictures and videos of your stuff, receipts, model numbers and so on.
"Agent after agent tells me that if there is any dispute, the documentation makes the decision," says Robert Rusbuldt, chief executive of the Independent Insurance Agents & Brokers of America.
At the California Department of Insurance's website (insurance.ca.gov), you can download a 36-page guide that walks you through every room in the house (under Consumers, click on Information Guides and then on Residential Series). Keep these records outside your home.
Manage your claim with care
After a disaster, call your agent immediately - but don't agree to a settlement too quickly. You'll get an initial check (or prepaid credit card) to cover hotel rooms, clothing and dining out; a typical up-front payment is $5,000. Then prepare to negotiate hard, especially if the damage is severe.
"The insurance industry has gotten a lot tougher," says Amy Bach, executive director of UnitedPolicyholders.org. "It's more adversarial."
Your agent will have an adjuster come up with a damage estimate (the "scope of loss"), but if you anticipate a dispute, do your own research too, says industry consultant Andrew J. Barile.
Ideally, have the contractor you plan to work with create an estimate that details construction expenses room by room, including the cost of all materials and labor.
If you feel the insurer's offer is a lowball one, don't sign anything, and appeal to a supervisor. It may also help to complain to your state insurance regulator. If you hit a wall, Bach suggests hiring a public adjuster who will chase the claim on your behalf for a 7% to 10% cut. You can search for one at the National Association of Public Insurance Adjusters' site, Napia.com.
Alternatively, you can work with an independent cost estimator, who will prepare a competing scope-of-loss report. That will cost you several thousand dollars, but it's worth the price if you can sweeten your settlement by far more - and rebuild your home sweet home.
By Gerri Willis, Money Magazine contributing writer
February 27 2008: 9:21 AM EST
(Money Magazine) -- If last fall's devastating California wildfires weren't enough of a wake-up call, consider this: Nearly 60% of homes nationwide don't carry enough insurance coverage to be fully rebuilt. On average those homes are underinsured by 21%. To give yourself a chance of being made whole, follow these steps before and after disaster strikes.
Beef up your policy
Remember you're insuring for future rebuilding costs. That means avoiding an actual-cash-value policy, which reduces your payout by how much your possessions have depreciated.
A guaranteed replacement-cost policy, which reimburses you for the full cost of rebuilding, is the gold standard but is almost impossible to find. Go for an extended replacement-cost policy, which pays you a set amount (the "dwelling limit"), plus a 20% to 25% margin. Add a building-code endorsement to cover the cost of complying with future rule changes.
Setting your dwelling limit high from the outset and reviewing it every few years is crucial. A good agent should be able to help, or for $8 you can create a custom estimate at accucoverage.com.
As a rough guide, keep in mind that the average cost to rebuild is $250 a square foot.
Document what you own
In order to be reimbursed, you need records: pictures and videos of your stuff, receipts, model numbers and so on.
"Agent after agent tells me that if there is any dispute, the documentation makes the decision," says Robert Rusbuldt, chief executive of the Independent Insurance Agents & Brokers of America.
At the California Department of Insurance's website (insurance.ca.gov), you can download a 36-page guide that walks you through every room in the house (under Consumers, click on Information Guides and then on Residential Series). Keep these records outside your home.
Manage your claim with care
After a disaster, call your agent immediately - but don't agree to a settlement too quickly. You'll get an initial check (or prepaid credit card) to cover hotel rooms, clothing and dining out; a typical up-front payment is $5,000. Then prepare to negotiate hard, especially if the damage is severe.
"The insurance industry has gotten a lot tougher," says Amy Bach, executive director of UnitedPolicyholders.org. "It's more adversarial."
Your agent will have an adjuster come up with a damage estimate (the "scope of loss"), but if you anticipate a dispute, do your own research too, says industry consultant Andrew J. Barile.
Ideally, have the contractor you plan to work with create an estimate that details construction expenses room by room, including the cost of all materials and labor.
If you feel the insurer's offer is a lowball one, don't sign anything, and appeal to a supervisor. It may also help to complain to your state insurance regulator. If you hit a wall, Bach suggests hiring a public adjuster who will chase the claim on your behalf for a 7% to 10% cut. You can search for one at the National Association of Public Insurance Adjusters' site, Napia.com.
Alternatively, you can work with an independent cost estimator, who will prepare a competing scope-of-loss report. That will cost you several thousand dollars, but it's worth the price if you can sweeten your settlement by far more - and rebuild your home sweet home.
Foreclosures, repossessions on the rise
By LESLIE PAPPAS, The News Journal
Posted Wednesday, February 27, 2008
The number of homes facing foreclosure jumped 57 percent in January compared to a year ago, with lenders increasingly forced to take possession of homes they couldn't unload at auctions, a mortgage research firm said Monday.
Nationwide, some 233,001 homes received at least one notice from lenders last month related to overdue payments, compared with 148,425 a year earlier, according to Irvine, Calif.-based RealtyTrac Inc. Nearly half of the total involved first-time default notices.
The worsening situation came despite efforts by lenders to help borrowers manage their payments by modifying loan terms, working out long-term repayment plans and other actions
According to RealtyTrac, Delaware had 173 foreclosure filings in January, up 62 percent over January 2007. In Delaware, RealtyTrac tracks filings for properties that were either listed for sheriff's sale or repossessed by the lender, said Daren Blomquist, RealtyTrac's marketing communications manager.
The Office of the State Bank Commissioner compiles data on foreclosure filings, but it tracks the initial court filings, documents that lenders file with county courts after a homeowner falls 90 days or more behind on payments. The initial court filings are considered the beginning of the foreclosure process. Initial filings show 402 households slipped into foreclosure in January, up 73 percent from the same month a year earlier, when there were 233 filings.
Since the foreclosure process takes about 9 months in Delaware, many initial foreclosure filings are resolved before the home is repossessed or listed for sheriff's sale, and do not appear in RealtyTrac's counts.
Posted Wednesday, February 27, 2008
The number of homes facing foreclosure jumped 57 percent in January compared to a year ago, with lenders increasingly forced to take possession of homes they couldn't unload at auctions, a mortgage research firm said Monday.
Nationwide, some 233,001 homes received at least one notice from lenders last month related to overdue payments, compared with 148,425 a year earlier, according to Irvine, Calif.-based RealtyTrac Inc. Nearly half of the total involved first-time default notices.
The worsening situation came despite efforts by lenders to help borrowers manage their payments by modifying loan terms, working out long-term repayment plans and other actions
According to RealtyTrac, Delaware had 173 foreclosure filings in January, up 62 percent over January 2007. In Delaware, RealtyTrac tracks filings for properties that were either listed for sheriff's sale or repossessed by the lender, said Daren Blomquist, RealtyTrac's marketing communications manager.
The Office of the State Bank Commissioner compiles data on foreclosure filings, but it tracks the initial court filings, documents that lenders file with county courts after a homeowner falls 90 days or more behind on payments. The initial court filings are considered the beginning of the foreclosure process. Initial filings show 402 households slipped into foreclosure in January, up 73 percent from the same month a year earlier, when there were 233 filings.
Since the foreclosure process takes about 9 months in Delaware, many initial foreclosure filings are resolved before the home is repossessed or listed for sheriff's sale, and do not appear in RealtyTrac's counts.
No bottom in sight for home prices
For recovery, inventories must be sold and mortgages made available, experts say
By J.W. ELPHINSTONE, Associated Press
Posted Wednesday, February 27, 2008
NEW YORK -- House prices may still have a long way to fall.
Across much of the nation, home values are dropping and banks are repossessing more every day. Most experts say the dive won't hit bottom for another year, and only after excess inventory is sharply reduced and credit markets improve.
"The housing value crisis is spreading and deepening," said David Abromowitz, a senior fellow at the Center for American Progress. "It has gone way beyond subprime borrowers stretched too far with bad loans and now has clearly extended into the housing markets more broadly."
Home prices dropped 8.9 percent in the final quarter of 2007 compared with a year ago, according to the Standard & Poor's/Case-Shiller home price index released Tuesday. That marked the steepest decline in the index's 20-year history.
Meanwhile, the narrower Office of Federal Housing Enterprise Oversight said Tuesday that nationwide prices dipped 0.3 percent in the fourth quarter, the first annual decline in 16 years. Eleven states posted declines in values for the year, while prices in nine states appreciated more than 5 percent.
The OFHEO index is calculated on mortgages of $417,000 or less that are bought or backed by government-sponsored Fannie Mae or Freddie Mac. That excludes properties bought with some of the riskier types of home loans or homes in more expensive markets like California and the Northeast.
"We reached a somber year-end for the housing market in 2007," said Robert Shiller. "Home prices across the nation and in most metro areas are significantly lower than where they were a year ago. Wherever you look, things look bleak."
That's bad news for Sheila Prior and her husband, Matthew. Despite the weakness in the housing market, they are putting their three-bedroom home in Durham, N.C., up for sale this week. After being laid off in December from GlaxoSmithKline PLC, Matthew accepted a job offer in Plymouth, Minn.
The couple, who have a 1-year-old daughter, initially wanted to list their home for $250,000. But after checking what other homes sold for in the area recently, their real estate agent recommended $233,000 -- the same price they paid for it in June 2006.
"It was less than what we were hoping for, but renting it out wasn't financially viable, either, so we decided to sell it anyway," Sheila said. She's optimistic that they can sell the house within six months, but worries about the competition from KB Home, which is selling new houses in the area at discount prices.
Builders across the nation are slashing prices, giving upgrades, even offering trade-ins to sell homes from an inventory that's near record levels. Residential construction, meanwhile, has fallen 60 percent from the peak.
"That's the only way of clearing out a mountain of unsold inventory to allow markets to find a bottom," said Mark Zandi, chief economist with Moody's Economy.com. "But also, housing won't pick up again until mortgage credit becomes available."
By J.W. ELPHINSTONE, Associated Press
Posted Wednesday, February 27, 2008
NEW YORK -- House prices may still have a long way to fall.
Across much of the nation, home values are dropping and banks are repossessing more every day. Most experts say the dive won't hit bottom for another year, and only after excess inventory is sharply reduced and credit markets improve.
"The housing value crisis is spreading and deepening," said David Abromowitz, a senior fellow at the Center for American Progress. "It has gone way beyond subprime borrowers stretched too far with bad loans and now has clearly extended into the housing markets more broadly."
Home prices dropped 8.9 percent in the final quarter of 2007 compared with a year ago, according to the Standard & Poor's/Case-Shiller home price index released Tuesday. That marked the steepest decline in the index's 20-year history.
Meanwhile, the narrower Office of Federal Housing Enterprise Oversight said Tuesday that nationwide prices dipped 0.3 percent in the fourth quarter, the first annual decline in 16 years. Eleven states posted declines in values for the year, while prices in nine states appreciated more than 5 percent.
The OFHEO index is calculated on mortgages of $417,000 or less that are bought or backed by government-sponsored Fannie Mae or Freddie Mac. That excludes properties bought with some of the riskier types of home loans or homes in more expensive markets like California and the Northeast.
"We reached a somber year-end for the housing market in 2007," said Robert Shiller. "Home prices across the nation and in most metro areas are significantly lower than where they were a year ago. Wherever you look, things look bleak."
That's bad news for Sheila Prior and her husband, Matthew. Despite the weakness in the housing market, they are putting their three-bedroom home in Durham, N.C., up for sale this week. After being laid off in December from GlaxoSmithKline PLC, Matthew accepted a job offer in Plymouth, Minn.
The couple, who have a 1-year-old daughter, initially wanted to list their home for $250,000. But after checking what other homes sold for in the area recently, their real estate agent recommended $233,000 -- the same price they paid for it in June 2006.
"It was less than what we were hoping for, but renting it out wasn't financially viable, either, so we decided to sell it anyway," Sheila said. She's optimistic that they can sell the house within six months, but worries about the competition from KB Home, which is selling new houses in the area at discount prices.
Builders across the nation are slashing prices, giving upgrades, even offering trade-ins to sell homes from an inventory that's near record levels. Residential construction, meanwhile, has fallen 60 percent from the peak.
"That's the only way of clearing out a mountain of unsold inventory to allow markets to find a bottom," said Mark Zandi, chief economist with Moody's Economy.com. "But also, housing won't pick up again until mortgage credit becomes available."
Tuesday, February 26, 2008
Home price plunge accelerates
2007 year-end results are in and the news is bad: Major housing markets were down even more than anticipated.
By Les Christie, CNNMoney.com staff writer
February 26 2008: 10:19 AM EST
NEW YORK (CNNMoney.com) -- The decline in residential real estate accelerated though the end of 2007, and home prices in 20 key markets plunged 9.1% for the year, according to a survey released Tuesday.
The S&P Case/Shiller Home Price index showed its largest annual drop in its 20-year history. By comparison, during the 1990-91 recession, home prices fell 2.8%.
Prices dropped faster throughout 2007 with the index recording a 9.1% year-over-year drop in December.
"We reached a somber year-end for the housing market in 2007," said Robert Shiller, Chief Economist at MacroMarkets LLC and co-founder of the index, in a statement. "Home prices across the nation and in most metro areas are significantly lower than where they were a year ago."
All metro areas are now reporting at least four consecutive monthly declines.
Case/Shiller's 10-city index fell even more sharply and finished down 9.8%.
The Case/Shiller indexes compare same-home sale prices. The industry considers them to be among the most accurate snapshots of housing prices.
Of the 20 metro areas examined, all but three posted declines for the year. Miami homes lost 17.5% in value - more than any other metro area - and Las Vegas and Phoenix both had 15.3% declines.
The three that posted modest gains: Charlotte, N.C., 2.3%; Portland, Ore., 1.2%; and Seattle, at 0.5%.
Los Angeles, the nation's second biggest housing market, was the worst performer in December, when prices fell 3.6% compared with November; the decline for the year was 13.7%.
Other double-digit losers for the year were San Francisco, down 10.8%; Tampa, 13.3%; Detroit, 13.6%; and San Diego, 15.0%. Losses in the nation's biggest market, New York, were more modest, down just 5.6% for the year.
By Les Christie, CNNMoney.com staff writer
February 26 2008: 10:19 AM EST
NEW YORK (CNNMoney.com) -- The decline in residential real estate accelerated though the end of 2007, and home prices in 20 key markets plunged 9.1% for the year, according to a survey released Tuesday.
The S&P Case/Shiller Home Price index showed its largest annual drop in its 20-year history. By comparison, during the 1990-91 recession, home prices fell 2.8%.
Prices dropped faster throughout 2007 with the index recording a 9.1% year-over-year drop in December.
"We reached a somber year-end for the housing market in 2007," said Robert Shiller, Chief Economist at MacroMarkets LLC and co-founder of the index, in a statement. "Home prices across the nation and in most metro areas are significantly lower than where they were a year ago."
All metro areas are now reporting at least four consecutive monthly declines.
Case/Shiller's 10-city index fell even more sharply and finished down 9.8%.
The Case/Shiller indexes compare same-home sale prices. The industry considers them to be among the most accurate snapshots of housing prices.
Of the 20 metro areas examined, all but three posted declines for the year. Miami homes lost 17.5% in value - more than any other metro area - and Las Vegas and Phoenix both had 15.3% declines.
The three that posted modest gains: Charlotte, N.C., 2.3%; Portland, Ore., 1.2%; and Seattle, at 0.5%.
Los Angeles, the nation's second biggest housing market, was the worst performer in December, when prices fell 3.6% compared with November; the decline for the year was 13.7%.
Other double-digit losers for the year were San Francisco, down 10.8%; Tampa, 13.3%; Detroit, 13.6%; and San Diego, 15.0%. Losses in the nation's biggest market, New York, were more modest, down just 5.6% for the year.
January foreclosures up 57%
NEW YORK (CNNMoney.com) -- Foreclosure filings nationwide soared 57% in January over the same month last year - another indication that the nation's housing woes are deepening.
A study released Tuesday by RealtyTrac, an online marketer of foreclosure properties, showed that 233,001 homes were affected, 8% more than in December. Of that total, 45,327 homes were lost to bank repossessions.
The only good news was the comparatively modest month-to-month increase in total filings.
"It could be that some of the efforts on the part of lenders and the government - both at the state and federal level - are beginning to take effect," said James Saccacio, RealtyTrac's chief executive.
"The big question is whether those efforts are truly helping homeowners avoid foreclosure in the long term, or if they are just forestalling the inevitable for many beleaguered borrowers," he said.
Many mortgage-assistance efforts simply give borrowers a chance to pay off missed payments, rather than lowering monthly payments, which effectively just delays foreclosures. But now lenders claim they are restructuring more mortgages by lowering or freezing interest rates and reducing balances. These solutions are much more likely to help people save their homes.
Nevada, California and Florida had the highest foreclosure rates in the nation. During the housing boom, all three states recorded big price run-ups, and saw a large proportion of homes sold to investors. In Nevada, one of every 167 homes was in some foreclosure stage last month.
California had the largest total number of foreclosures among the states. There were more than 57,000 foreclosure filings there in January, one for every 227 homes. Florida trailed well back in total foreclosures with 30,000, but its rate of one for every 273 households was only slightly behind its West Coast rival.
Several states recorded massive jumps in foreclosure activity in the last twelve months. In Rhode Island filings rose 279%; in Maryland they spiked 430%; and in Virginia they leapt 634%.
Las Vegas tops foreclosure list
All three of those states had fairly modest rates to begin with. In Virginia, for example, even with that whopping increase, the rate, overall, was one in every 617 homes, about a quarter the rate in Nevada.
Eighteen states substantially improved since last January. In Pennsylvania, foreclosure filings fell 55% to just 1,683, one for every 3,226 households. West Virginia recorded a drop of 54% to a miniscule 53, one for every 16,667 households. And Vermont's total dropped in half, from two to one.
Foreclosure and lending laws vary greatly from state to state, and that can have a huge impact on foreclosure rates. But most places have been recording ever-higher foreclosure numbers as home prices stagnated, and the effects of many of the non-traditional mortgages issued during the boom years took hold.
Subprime, hybrid adjustable rate mortgages, with interest rates that reset to much higher, often unaffordable levels after a two or three year period of low rates, caused many borrowers to default.
Even more exotic products, such as interest-only loans, where balances don't shrink, or, worse yet, option ARMs, where balances grow, also contributed to foreclosure problems.
Those products have just about disappeared from the marketplace today and that should, eventually, lead to healthier foreclosure statistics in the future. But, before that happens, real estate markets will have to improve and, according to many experts, that's not likely to happen much before the end of 2009.
Merrill Lynch, for example, is forecasting home prices will fall by 15% in 2008 and another 10% in 2009. That will likely continue to fuel high foreclosure rates.
A study released Tuesday by RealtyTrac, an online marketer of foreclosure properties, showed that 233,001 homes were affected, 8% more than in December. Of that total, 45,327 homes were lost to bank repossessions.
The only good news was the comparatively modest month-to-month increase in total filings.
"It could be that some of the efforts on the part of lenders and the government - both at the state and federal level - are beginning to take effect," said James Saccacio, RealtyTrac's chief executive.
"The big question is whether those efforts are truly helping homeowners avoid foreclosure in the long term, or if they are just forestalling the inevitable for many beleaguered borrowers," he said.
Many mortgage-assistance efforts simply give borrowers a chance to pay off missed payments, rather than lowering monthly payments, which effectively just delays foreclosures. But now lenders claim they are restructuring more mortgages by lowering or freezing interest rates and reducing balances. These solutions are much more likely to help people save their homes.
Nevada, California and Florida had the highest foreclosure rates in the nation. During the housing boom, all three states recorded big price run-ups, and saw a large proportion of homes sold to investors. In Nevada, one of every 167 homes was in some foreclosure stage last month.
California had the largest total number of foreclosures among the states. There were more than 57,000 foreclosure filings there in January, one for every 227 homes. Florida trailed well back in total foreclosures with 30,000, but its rate of one for every 273 households was only slightly behind its West Coast rival.
Several states recorded massive jumps in foreclosure activity in the last twelve months. In Rhode Island filings rose 279%; in Maryland they spiked 430%; and in Virginia they leapt 634%.
Las Vegas tops foreclosure list
All three of those states had fairly modest rates to begin with. In Virginia, for example, even with that whopping increase, the rate, overall, was one in every 617 homes, about a quarter the rate in Nevada.
Eighteen states substantially improved since last January. In Pennsylvania, foreclosure filings fell 55% to just 1,683, one for every 3,226 households. West Virginia recorded a drop of 54% to a miniscule 53, one for every 16,667 households. And Vermont's total dropped in half, from two to one.
Foreclosure and lending laws vary greatly from state to state, and that can have a huge impact on foreclosure rates. But most places have been recording ever-higher foreclosure numbers as home prices stagnated, and the effects of many of the non-traditional mortgages issued during the boom years took hold.
Subprime, hybrid adjustable rate mortgages, with interest rates that reset to much higher, often unaffordable levels after a two or three year period of low rates, caused many borrowers to default.
Even more exotic products, such as interest-only loans, where balances don't shrink, or, worse yet, option ARMs, where balances grow, also contributed to foreclosure problems.
Those products have just about disappeared from the marketplace today and that should, eventually, lead to healthier foreclosure statistics in the future. But, before that happens, real estate markets will have to improve and, according to many experts, that's not likely to happen much before the end of 2009.
Merrill Lynch, for example, is forecasting home prices will fall by 15% in 2008 and another 10% in 2009. That will likely continue to fuel high foreclosure rates.
Foreclosure bill faces Senate test
A vote Tuesday could indicate whether mortgage bankruptcy reform proposal will proceed.
By Les Christie, CNNMoney.com staff writer
February 25 2008: 5:39 PM EST
NEW YORK (CNNMoney.com) -- Foreclosure gets Congress' attention Tuesday when the Senate decides whether to end debate on a bill aimed at helping homeowners avoid losing their homes.
The Foreclosure Prevention Act of 2008's most important - and most controversial - provision would allow judges to reduce mortgage balances for at-risk borrowers to current market prices.
House prices have fallen sharply during the past year, taking many mortgage borrowers "underwater," meaning they owe more than their homes are worth.
Under the bill, a mortgage balance of, for example $200,000, could be reduced to what the home would sell for, say $160,000, on the open market. That would save the borrower hundreds of dollars a month in mortgage payments.
Senate Democrats will seek to force an immediate vote on the bill, according to Jaret Seiberg, senior vice president at the Stanford Group, a Washington policy research firm.
"They need 60 votes to prevail and, right now, they're short of that goal," Seiberg wrote in an e-mail. "That means they will need to compromise to pick up GOP support."
In the Senate, the opposition coalesces around three groups, according to Jack Williams, resident scholar at the American Bankruptcy Institute: Those opposed to giving bankruptcy judges any more discretion; those who favor individual rights and responsibilities; and those aligned with lenders.
"I don't see the roadblock in the Senate breaking up," he said.
Bankruptcy courts once had more control over the process, but the lending industry worked to make it more difficult for borrowers to discharge debts. Lenders don't want new laws that will make it easier for judges to act unilaterally.
Many opposition lawmakers cite responsibility issues; for them, anyone who signs a loan contract should abide by its terms.
But most opposition stems from the possibility that mortgage bankruptcy reform will make mortgage borrowing more expensive for everyone.
The Mortgage Bankers Association claims that if judges are allowed to reduce loan balances, cutting into lenders' profits, it would introduce extra risk for lenders, which they would pass on to borrowers.
The MBA said such a situation could increase interest rates by the equivalent of 1-1/2 percentage points, which would add a couple of hundred dollars a month to a $200,000, 30-year, fixed-rate mortgage.
Community and consumer advocates counter those numbers by pointing out that no substantial premium attaches to second-home mortgages, which judges are allowed to adjust.
Despite the opposition, the bill has some momentum because it could help several hundred thousand borrowers stay in their homes at no cost to the government, according to one of its sponsors, Sen. Richard Durbin, D- Ill., .
"That's very appealing politically as the election season heats up," said Seiberg. "It is the only comprehensive solution to keep people in their homes that does not require taxpayers to foot at least a large chunk of the bill."
Will it pass?
He pegged the odds of passage at 60%, but said Republicans may try to remove the bankruptcy reform provision.
In turn, "Democrats may still decide that it is politically more attractive to watch Republicans kill the bill than to pass a watered-down version," said Seiberg. Plus "There's a real question about whether the president (Bush) will accept a housing stimulus bill that includes mortgage bankruptcy reform."
One reason the mortgage industry opposes the bill is that, even without actually going into bankruptcy, borrowers could use it to threaten lenders reluctant to restructure mortgages.
"And, savvy borrowers may decide it is worth carrying the stigma of bankruptcy in order to cut their monthly mortgage payments," said Seiberg. "We would expect an advertising wave from consumer bankruptcy lawyers to educate and entice borrowers to look at whether they could use bankruptcy to reduce their monthly mortgage costs."
If Senate Democrats fail to achieve cloture Tuesday, it means the bill is still open to debate, and may be filibustered by Republicans. Nobody relishes that, and it may push Senate Majority Leader Harry Reid, D-Nev., to table the whole thing.
In fact, he may even cancel the cloture vote because of that, according to Williams.
The other provisions in the bill have drawn far less fire. These include:
Allocating $200 million in addition spending for foreclosure prevention counseling;
Allowing Housing Finance Agencies, state chartered organizations created to help home buyers find financing, to issue refinancing bonds for home owners with subprime loans;
Authorizing communities with high foreclosure rates to use community development funds to buy vacant, foreclosed properties, rehabilitate them and resell or rent them;
Simplifying disclosure forms so that mortgage borrowers can more easily understand their payment obligations; and
Allowing companies that have suffered losses to use those losses to offset profits from as many as five prior years instead of the current two.
A bill with a similar mortgage-bankruptcy-reform provision is working its way through the House of Representatives. It's still pending a vote in the full House but has picked up an additional 66 co-sponsors, according to the office of Rep. Bradley Miller, D-N.C., the bill's sponsor.
By Les Christie, CNNMoney.com staff writer
February 25 2008: 5:39 PM EST
NEW YORK (CNNMoney.com) -- Foreclosure gets Congress' attention Tuesday when the Senate decides whether to end debate on a bill aimed at helping homeowners avoid losing their homes.
The Foreclosure Prevention Act of 2008's most important - and most controversial - provision would allow judges to reduce mortgage balances for at-risk borrowers to current market prices.
House prices have fallen sharply during the past year, taking many mortgage borrowers "underwater," meaning they owe more than their homes are worth.
Under the bill, a mortgage balance of, for example $200,000, could be reduced to what the home would sell for, say $160,000, on the open market. That would save the borrower hundreds of dollars a month in mortgage payments.
Senate Democrats will seek to force an immediate vote on the bill, according to Jaret Seiberg, senior vice president at the Stanford Group, a Washington policy research firm.
"They need 60 votes to prevail and, right now, they're short of that goal," Seiberg wrote in an e-mail. "That means they will need to compromise to pick up GOP support."
In the Senate, the opposition coalesces around three groups, according to Jack Williams, resident scholar at the American Bankruptcy Institute: Those opposed to giving bankruptcy judges any more discretion; those who favor individual rights and responsibilities; and those aligned with lenders.
"I don't see the roadblock in the Senate breaking up," he said.
Bankruptcy courts once had more control over the process, but the lending industry worked to make it more difficult for borrowers to discharge debts. Lenders don't want new laws that will make it easier for judges to act unilaterally.
Many opposition lawmakers cite responsibility issues; for them, anyone who signs a loan contract should abide by its terms.
But most opposition stems from the possibility that mortgage bankruptcy reform will make mortgage borrowing more expensive for everyone.
The Mortgage Bankers Association claims that if judges are allowed to reduce loan balances, cutting into lenders' profits, it would introduce extra risk for lenders, which they would pass on to borrowers.
The MBA said such a situation could increase interest rates by the equivalent of 1-1/2 percentage points, which would add a couple of hundred dollars a month to a $200,000, 30-year, fixed-rate mortgage.
Community and consumer advocates counter those numbers by pointing out that no substantial premium attaches to second-home mortgages, which judges are allowed to adjust.
Despite the opposition, the bill has some momentum because it could help several hundred thousand borrowers stay in their homes at no cost to the government, according to one of its sponsors, Sen. Richard Durbin, D- Ill., .
"That's very appealing politically as the election season heats up," said Seiberg. "It is the only comprehensive solution to keep people in their homes that does not require taxpayers to foot at least a large chunk of the bill."
Will it pass?
He pegged the odds of passage at 60%, but said Republicans may try to remove the bankruptcy reform provision.
In turn, "Democrats may still decide that it is politically more attractive to watch Republicans kill the bill than to pass a watered-down version," said Seiberg. Plus "There's a real question about whether the president (Bush) will accept a housing stimulus bill that includes mortgage bankruptcy reform."
One reason the mortgage industry opposes the bill is that, even without actually going into bankruptcy, borrowers could use it to threaten lenders reluctant to restructure mortgages.
"And, savvy borrowers may decide it is worth carrying the stigma of bankruptcy in order to cut their monthly mortgage payments," said Seiberg. "We would expect an advertising wave from consumer bankruptcy lawyers to educate and entice borrowers to look at whether they could use bankruptcy to reduce their monthly mortgage costs."
If Senate Democrats fail to achieve cloture Tuesday, it means the bill is still open to debate, and may be filibustered by Republicans. Nobody relishes that, and it may push Senate Majority Leader Harry Reid, D-Nev., to table the whole thing.
In fact, he may even cancel the cloture vote because of that, according to Williams.
The other provisions in the bill have drawn far less fire. These include:
Allocating $200 million in addition spending for foreclosure prevention counseling;
Allowing Housing Finance Agencies, state chartered organizations created to help home buyers find financing, to issue refinancing bonds for home owners with subprime loans;
Authorizing communities with high foreclosure rates to use community development funds to buy vacant, foreclosed properties, rehabilitate them and resell or rent them;
Simplifying disclosure forms so that mortgage borrowers can more easily understand their payment obligations; and
Allowing companies that have suffered losses to use those losses to offset profits from as many as five prior years instead of the current two.
A bill with a similar mortgage-bankruptcy-reform provision is working its way through the House of Representatives. It's still pending a vote in the full House but has picked up an additional 66 co-sponsors, according to the office of Rep. Bradley Miller, D-N.C., the bill's sponsor.
Saving in America: Patterns Reveal Room for Improvement
MBA (2/26/2008 ) Palaparty, Vijay
Americans’ saving patterns reveal mixed progress. Despite a struggling economy, nearly half of U.S. households say they save an adequate amount of money, according a survey from America Saves and the America Savings Education Council. But only 53 percent report savings of at least 5 percent of their income.
Nearly three-quarters of Americans, 73 percent, reported that they spend less than their income and save the difference, but only 28 percent save at least 10 percent of their income. More than two-thirds reported that they have enough emergency savings to pay for unexpected expenses. But 57 percent of those not retired said they are saving enough for retirement to have a desirable standard of living.
"Hard data about savings behavior suggest that responses to several questions were buoyed by the personal optimism of respondents," said Stephen Brobeck, executive director of the Consumer Federation of America.
More than three quarters of Americans said they will pay off all mortgage debt before they retire. But for retirement savings, workplaces have an opportunity to increase options for employees to save through a 401(k) or other plan, which only 55 percent of the non-retired reported having.
Only 62 percent of Americans said they have a goal-oriented savings plan and only 49 percent have a spending plan to achieve the goals of the savings plan. Only 42 percent save through automated means, such as monthly electronic transfers from checking to savings or investment accounts. Furthermore, only 41 percent save a portion of tax refunds, gifts, bonuses or other financial windfalls.
Serious debt was reported of concern to only 21 percent, who said their consumer debt is growing or remains unchanged.
The difference in savings is perhaps explained by income rather than other factors such as age, gender, ethnicity and education, which usually explain differences in savings habits and progress.
“The strongest relationship was between savings and income. Basically, results divided America into three groups. The data revealed that a large majority of households with incomes of at least $75,000, about half of those with incomes between $35,000 and $75,000, and a small minority of those with incomes below $35,000 are adequate savers,” Brobeck said. “Among all households in 2005, about 27 percent were high-income, 33 percent, were middle-income and 40 percent were low-income.”
Of those who save at least 5 percent of their income, only 34 percent in the low-income group versus 81 percent in the high-income group reported saving. Emergency savings funds are popular among 90 percent of the high-income group compared to only 48 percent of the low-income group.
Among those not retired, 85 percent of the high-income group, but only 28 percent of the low-income group, said they are saving adequately for retirement; 85 percent of the high-income group and 36 percent of the low-income group reported having a savings plan; and 72 percent of the high-income group versus 29 percent of the low-income group have a spending plan.
Members of the high-income group also had much more awareness about their future savings than the low-income group—72 percent versus 38 percent knew their overall net worth, 54 percent versus 28 percent save automatically through checking transfer and 55 percent versus 30 percent saved financial windfalls.
"A low income certainly makes it difficult to build adequate retirement savings but does not prevent developing saving and spending plans,” Brobeck said. "Regardless of income level, having a financial plan increases saving and financial stability.”
Americans’ saving patterns reveal mixed progress. Despite a struggling economy, nearly half of U.S. households say they save an adequate amount of money, according a survey from America Saves and the America Savings Education Council. But only 53 percent report savings of at least 5 percent of their income.
Nearly three-quarters of Americans, 73 percent, reported that they spend less than their income and save the difference, but only 28 percent save at least 10 percent of their income. More than two-thirds reported that they have enough emergency savings to pay for unexpected expenses. But 57 percent of those not retired said they are saving enough for retirement to have a desirable standard of living.
"Hard data about savings behavior suggest that responses to several questions were buoyed by the personal optimism of respondents," said Stephen Brobeck, executive director of the Consumer Federation of America.
More than three quarters of Americans said they will pay off all mortgage debt before they retire. But for retirement savings, workplaces have an opportunity to increase options for employees to save through a 401(k) or other plan, which only 55 percent of the non-retired reported having.
Only 62 percent of Americans said they have a goal-oriented savings plan and only 49 percent have a spending plan to achieve the goals of the savings plan. Only 42 percent save through automated means, such as monthly electronic transfers from checking to savings or investment accounts. Furthermore, only 41 percent save a portion of tax refunds, gifts, bonuses or other financial windfalls.
Serious debt was reported of concern to only 21 percent, who said their consumer debt is growing or remains unchanged.
The difference in savings is perhaps explained by income rather than other factors such as age, gender, ethnicity and education, which usually explain differences in savings habits and progress.
“The strongest relationship was between savings and income. Basically, results divided America into three groups. The data revealed that a large majority of households with incomes of at least $75,000, about half of those with incomes between $35,000 and $75,000, and a small minority of those with incomes below $35,000 are adequate savers,” Brobeck said. “Among all households in 2005, about 27 percent were high-income, 33 percent, were middle-income and 40 percent were low-income.”
Of those who save at least 5 percent of their income, only 34 percent in the low-income group versus 81 percent in the high-income group reported saving. Emergency savings funds are popular among 90 percent of the high-income group compared to only 48 percent of the low-income group.
Among those not retired, 85 percent of the high-income group, but only 28 percent of the low-income group, said they are saving adequately for retirement; 85 percent of the high-income group and 36 percent of the low-income group reported having a savings plan; and 72 percent of the high-income group versus 29 percent of the low-income group have a spending plan.
Members of the high-income group also had much more awareness about their future savings than the low-income group—72 percent versus 38 percent knew their overall net worth, 54 percent versus 28 percent save automatically through checking transfer and 55 percent versus 30 percent saved financial windfalls.
"A low income certainly makes it difficult to build adequate retirement savings but does not prevent developing saving and spending plans,” Brobeck said. "Regardless of income level, having a financial plan increases saving and financial stability.”
Existing Home Sales Decline Slightly; Condo Sales Drop
MBA (2/26/2008 ) Velz, Orawin
Total existing home sales edged down 0.4 percent in January to a seasonally-adjusted annualized rate of 4.89 million, as the drop in condo sales outweighed the small increase in single-family home sales. This is the sixth consecutive monthly decline.
Sales of single-family homes rose 0.4 percent—the first increase in 11 months—while condo sales dropped 6.5 percent. January’s pace of total sales is the weakest in its nine-year history. From a year ago, sales of single-family homes were down 24.4 percent, compared with a decline of 30.2 percent for condo sales. Single-family sales have declined 31.5 percent since their peak in September 2005. Condo sales have been down 40.9 percent from their June 2005 peak.
Sales dropped in three regions: 3.6 percent in the Northeast; 0.5 percent in the South and 2.1 percent in the West. Sales rose 3.5 percent in the Midwest.
Inventories continued to rise in January. The number of total homes available for sale increased 5.5 percent from December. (The data are not seasonally-adjusted.) From a year ago, inventory was up 18.4 percent. The drop in the sales pace and a considerable increase in inventory pushed up the months’ supply (or the inventory-sales ratio) to 10.3 months from 9.7 months in December. The months’ supply for single-family homes was 10.1 months, compared with 6.5 months a year ago. The months’ supply for condos was 11.8 months, rising from 7.4 months in January 2007.
Elevated months’ supply continued to put downward pressure on home prices. The median price for single-family existing homes fell 5.1 percent in January from a year ago. This is the 18th consecutive month of year-over-year drop in prices. The median price for condos fell 1.0 percent from last January, the third consecutive monthly drop.
Despite the decline in home sales, the financial markets took it as better news than expected. The National Association of Realtors reported earlier that the Pending Home Sales Index fell 1.5 percent in December, following a 3.0 percent decline in November. The index is based on signed contracts for existing single-family homes, condos and co-ops. It is a leading indicator of NAR’s existing home sales, which are based on closing, as the signed contract for the purchase of a home generally precedes its closing by one to two months.
Large declines in pending home sales in November and December suggested soft existing home sales in January and February. The small decline in total existing home sales in January, with rising detached single-family home sales for the first in almost a year, helped boost the stock market, causing a decline in demand in the Treasury market.
Stocks also rose after Standard & Poor's kept AAA credit ratings on bond insurers MBIA Inc. and Ambac Financial Group Inc., while demand contracted further in the Treasury market The yield on 10-year Treasuries rose 10 basis points to 3.90 percent by mid-Monday afternoon. Fed funds futures indicated about a 95 percent probability that the Federal Open Market Committee will cut the target rate by 50 basis points to 2.5 percent at its March 18 meeting.
Total existing home sales edged down 0.4 percent in January to a seasonally-adjusted annualized rate of 4.89 million, as the drop in condo sales outweighed the small increase in single-family home sales. This is the sixth consecutive monthly decline.
Sales of single-family homes rose 0.4 percent—the first increase in 11 months—while condo sales dropped 6.5 percent. January’s pace of total sales is the weakest in its nine-year history. From a year ago, sales of single-family homes were down 24.4 percent, compared with a decline of 30.2 percent for condo sales. Single-family sales have declined 31.5 percent since their peak in September 2005. Condo sales have been down 40.9 percent from their June 2005 peak.
Sales dropped in three regions: 3.6 percent in the Northeast; 0.5 percent in the South and 2.1 percent in the West. Sales rose 3.5 percent in the Midwest.
Inventories continued to rise in January. The number of total homes available for sale increased 5.5 percent from December. (The data are not seasonally-adjusted.) From a year ago, inventory was up 18.4 percent. The drop in the sales pace and a considerable increase in inventory pushed up the months’ supply (or the inventory-sales ratio) to 10.3 months from 9.7 months in December. The months’ supply for single-family homes was 10.1 months, compared with 6.5 months a year ago. The months’ supply for condos was 11.8 months, rising from 7.4 months in January 2007.
Elevated months’ supply continued to put downward pressure on home prices. The median price for single-family existing homes fell 5.1 percent in January from a year ago. This is the 18th consecutive month of year-over-year drop in prices. The median price for condos fell 1.0 percent from last January, the third consecutive monthly drop.
Despite the decline in home sales, the financial markets took it as better news than expected. The National Association of Realtors reported earlier that the Pending Home Sales Index fell 1.5 percent in December, following a 3.0 percent decline in November. The index is based on signed contracts for existing single-family homes, condos and co-ops. It is a leading indicator of NAR’s existing home sales, which are based on closing, as the signed contract for the purchase of a home generally precedes its closing by one to two months.
Large declines in pending home sales in November and December suggested soft existing home sales in January and February. The small decline in total existing home sales in January, with rising detached single-family home sales for the first in almost a year, helped boost the stock market, causing a decline in demand in the Treasury market.
Stocks also rose after Standard & Poor's kept AAA credit ratings on bond insurers MBIA Inc. and Ambac Financial Group Inc., while demand contracted further in the Treasury market The yield on 10-year Treasuries rose 10 basis points to 3.90 percent by mid-Monday afternoon. Fed funds futures indicated about a 95 percent probability that the Federal Open Market Committee will cut the target rate by 50 basis points to 2.5 percent at its March 18 meeting.
Agency Mortgages Hit by Credit Downturn
Wall Street Journal (02/26/08) P. C2; Ng, Serena
UBS Investment Research reports a 2.42-percentage-point spread between the yield on "current coupon" bonds backed by 30-year fixed mortgages and the yields on five- and 10-year Treasury bonds on Feb. 22, marking a 22-year high. These fixed-rate agency mortgage-backed bonds, until recently, were deemed safe for debt investors. Analysts attribute the widening spread to the large supply of mortgage debt, the failure of banks and government-sponsored enterprises to purchase these securities as a market backstop and a drop in demand among both local and foreign money managers.
UBS Investment Research reports a 2.42-percentage-point spread between the yield on "current coupon" bonds backed by 30-year fixed mortgages and the yields on five- and 10-year Treasury bonds on Feb. 22, marking a 22-year high. These fixed-rate agency mortgage-backed bonds, until recently, were deemed safe for debt investors. Analysts attribute the widening spread to the large supply of mortgage debt, the failure of banks and government-sponsored enterprises to purchase these securities as a market backstop and a drop in demand among both local and foreign money managers.
Frank Wants State to Buy Foreclosed Homes
Boston Herald (02/26/08); Kronenberg, Jerry
House Financial Services Committee Chairman Barney Frank, D-Mass., wants to earmark $5 billion that can be borrowed by states to purchase foreclosed properties at bargain prices as a means of bolstering the affordable housing stock, rather than allowing homes to sit vacant. His proposal also calls for $2 billion to allow the FHA to refinance struggling mortgages--provided that lenders are willing to write off a portion of the existing mortgages--and another $200 million to add more FHA staff and provide credit counseling to borrowers to curtail foreclosures. Meanwhile, Sens. John Kerry, D-Mass., and Gordon Smith, R-Ore., hope to provide affordable mortgages to cash-strapped borrowers by issuing $10 billion in tax-free bonds.
House Financial Services Committee Chairman Barney Frank, D-Mass., wants to earmark $5 billion that can be borrowed by states to purchase foreclosed properties at bargain prices as a means of bolstering the affordable housing stock, rather than allowing homes to sit vacant. His proposal also calls for $2 billion to allow the FHA to refinance struggling mortgages--provided that lenders are willing to write off a portion of the existing mortgages--and another $200 million to add more FHA staff and provide credit counseling to borrowers to curtail foreclosures. Meanwhile, Sens. John Kerry, D-Mass., and Gordon Smith, R-Ore., hope to provide affordable mortgages to cash-strapped borrowers by issuing $10 billion in tax-free bonds.
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