Click on the following link:
http://reinmls.com/files/pdf/press/8e5fc0be.pdf
Tuesday, October 27, 2009
Tuesday, October 20, 2009
Market Recap
Keeping you updated on the market! For the week of October 19, 2009
MARKET RECAP
The U.S. economy continues on its path to salvation. Retail sales, an arbiter of economic activity, declined 1.5% in September, which would seem a step back at first glance. On second glance, the numbers suggest sales are improving nicely. Stripping out autos (which everyone knew would decline after the “cash-for-clunkers” program expired) and volatile gasoline and building materials, sales actually increased 0.5%, building on the 0.7% increase in August.
Just as important, people are not just buying more here, but abroad too. World trade is accelerating, evinced by the dollar value of exports, which rose 0.2% in August. Signs of an upward turn in world trade are good news for us, because they will spur an increase in production and hiring in exporting sectors that are plagued by high unemployment.
Unemployment remains “the” ongoing concern, but concerns are also rising over housing's ability to deflate an inflating economy. Integrated Asset Services reported house prices declined 0.2% in August, the second month of declines after a fourth-month-long rally that brought a 2.8% increase. This piece of data has led a few pundits to speculate that we are headed for a double-dip – a return to falling home prices.
We are unconvinced that is the case. It is worth noting that IAS also reported price increases of 0.7% in the Midwest and Northwest, while New York City and San Diego both posted 1.3% month-over-month increases. Yes, pockets of price deflation persist: namely, in the South and West, which reported declines of 0.1% and 1.2%, respectively, but those percentages were influenced by concentrated trouble spots, such as San Joaquin County in California and Lee County in Florida .
The price-deflation believers also point to the market-propping effect of the $8,000 first-time homebuyer’s tax credit, set to expire on November 30. The credit has helped support prices, to be sure, but we should not overlook the impact of an improving economy. Besides, we still think odds favor a credit extension, though we cannot say for sure how long the extension will last, or what bells and whistles will be added.
We also think that odds still favor a rising mortgage-rate environment, which is tougher to refute, considering gold traded at over $1,070 an ounce last week. Treasury yields moved slightly higher, and so did mortgage rates, though they are still very good. Zillow.com showed the state average remains below 5.15% in all 50 states. We will say it again: If you are looking for a mortgage loan, there's no better time than the present.
Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
Housing Market Index(October)
Mon, Oct. 19,1:00 pm, et
20 Index
Important. Expect additional improvement in the single-family component of the index.
Housing Starts(September)
Tues, Oct. 20,8:30 am, et
610,000 (Annualized)
Important. Starts are reflecting an improving economic outlook.
Producer Price Index(September)
Tues, Oct. 20,8:30 am, et
All Goods: 0.1% (Increase)Core: 0.1% (Increase)
Important. Producer inflation remains subdued, but there are signs of growing pressure.
Mortgage Applications
Wed, Oct. 21,7:00 am, et
None
Important. Recent economic data have tempered purchase activity.
FHFA House Price Index(August)
Thurs, Oct. 22,10:00 am, et
None
Important. Another price increase will mitigate price-deflation concerns.
Leading Indicators(September)
Thurs, Oct. 22,10:00 am, et
0.5% (Increase)
Moderately Important. Indicators continue to support notions of a sustained recovery.
Existing Home Sales(September)
Fri, Oct. 23,10:00 am, et
5.3 Million (Annualized)
Important. Sales are expected to recover after dipping in August.
A Realistic View of Prices
S&P/Case-Shiller 10-City Composite Home Price Index rose 3.6% between April and July, following a decline of 4.8% in the previous period, between January and April. But that's nothing new. Robert Shiller, the index's co-founder, found a close parallel at the end of the 1990-91 recession, where home prices rose 2.3% from April to July 1991 after having fallen 2.1% from January to April that year.
Here is another interesting fact to suggest price volatility is the norm: Since 1979, residential real estate prices have had two 10-year long cycles where prices have risen significantly, then retreated approximately 15% to 20% over the subsequent two years. This tendency to increase then tumble back has kept housing appreciation more or less on pace with inflation over the past 100 years.
Mortgage rates have also demonstrated spurts of volatility. In 1977, the prime 30-year fixed-rate mortgage averaged 8.8%, spiking to 13.7% in 1980 before topping out at 16.0% in 1982. From 1984 through the present, mortgage rates have steadily trended lower to today's unprecedented levels, with no significant spikes in the interim. Does that mean mortgage-rate volatility is a thing of the past? All we can say is that it is worth heeding the late economist Hyman Minsky's admonition on stability. According to Minsky, the longer things are stable, the more likely they are to become unstable.
MARKET RECAP
The U.S. economy continues on its path to salvation. Retail sales, an arbiter of economic activity, declined 1.5% in September, which would seem a step back at first glance. On second glance, the numbers suggest sales are improving nicely. Stripping out autos (which everyone knew would decline after the “cash-for-clunkers” program expired) and volatile gasoline and building materials, sales actually increased 0.5%, building on the 0.7% increase in August.
Just as important, people are not just buying more here, but abroad too. World trade is accelerating, evinced by the dollar value of exports, which rose 0.2% in August. Signs of an upward turn in world trade are good news for us, because they will spur an increase in production and hiring in exporting sectors that are plagued by high unemployment.
Unemployment remains “the” ongoing concern, but concerns are also rising over housing's ability to deflate an inflating economy. Integrated Asset Services reported house prices declined 0.2% in August, the second month of declines after a fourth-month-long rally that brought a 2.8% increase. This piece of data has led a few pundits to speculate that we are headed for a double-dip – a return to falling home prices.
We are unconvinced that is the case. It is worth noting that IAS also reported price increases of 0.7% in the Midwest and Northwest, while New York City and San Diego both posted 1.3% month-over-month increases. Yes, pockets of price deflation persist: namely, in the South and West, which reported declines of 0.1% and 1.2%, respectively, but those percentages were influenced by concentrated trouble spots, such as San Joaquin County in California and Lee County in Florida .
The price-deflation believers also point to the market-propping effect of the $8,000 first-time homebuyer’s tax credit, set to expire on November 30. The credit has helped support prices, to be sure, but we should not overlook the impact of an improving economy. Besides, we still think odds favor a credit extension, though we cannot say for sure how long the extension will last, or what bells and whistles will be added.
We also think that odds still favor a rising mortgage-rate environment, which is tougher to refute, considering gold traded at over $1,070 an ounce last week. Treasury yields moved slightly higher, and so did mortgage rates, though they are still very good. Zillow.com showed the state average remains below 5.15% in all 50 states. We will say it again: If you are looking for a mortgage loan, there's no better time than the present.
Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
Housing Market Index(October)
Mon, Oct. 19,1:00 pm, et
20 Index
Important. Expect additional improvement in the single-family component of the index.
Housing Starts(September)
Tues, Oct. 20,8:30 am, et
610,000 (Annualized)
Important. Starts are reflecting an improving economic outlook.
Producer Price Index(September)
Tues, Oct. 20,8:30 am, et
All Goods: 0.1% (Increase)Core: 0.1% (Increase)
Important. Producer inflation remains subdued, but there are signs of growing pressure.
Mortgage Applications
Wed, Oct. 21,7:00 am, et
None
Important. Recent economic data have tempered purchase activity.
FHFA House Price Index(August)
Thurs, Oct. 22,10:00 am, et
None
Important. Another price increase will mitigate price-deflation concerns.
Leading Indicators(September)
Thurs, Oct. 22,10:00 am, et
0.5% (Increase)
Moderately Important. Indicators continue to support notions of a sustained recovery.
Existing Home Sales(September)
Fri, Oct. 23,10:00 am, et
5.3 Million (Annualized)
Important. Sales are expected to recover after dipping in August.
A Realistic View of Prices
S&P/Case-Shiller 10-City Composite Home Price Index rose 3.6% between April and July, following a decline of 4.8% in the previous period, between January and April. But that's nothing new. Robert Shiller, the index's co-founder, found a close parallel at the end of the 1990-91 recession, where home prices rose 2.3% from April to July 1991 after having fallen 2.1% from January to April that year.
Here is another interesting fact to suggest price volatility is the norm: Since 1979, residential real estate prices have had two 10-year long cycles where prices have risen significantly, then retreated approximately 15% to 20% over the subsequent two years. This tendency to increase then tumble back has kept housing appreciation more or less on pace with inflation over the past 100 years.
Mortgage rates have also demonstrated spurts of volatility. In 1977, the prime 30-year fixed-rate mortgage averaged 8.8%, spiking to 13.7% in 1980 before topping out at 16.0% in 1982. From 1984 through the present, mortgage rates have steadily trended lower to today's unprecedented levels, with no significant spikes in the interim. Does that mean mortgage-rate volatility is a thing of the past? All we can say is that it is worth heeding the late economist Hyman Minsky's admonition on stability. According to Minsky, the longer things are stable, the more likely they are to become unstable.
Thursday, October 8, 2009
The Case of the Missing REO Inventory
The Case of the Missing REO Inventory
Rick Sharga
Certain things in life are simply meant to be mysteries. There are age-old philosophical questions that have kept philosophers busy for millennia: What is the sound of one hand clapping? If a tree falls in the forest and no one is there, does it still make a sound? Other mysteries hang heavy with intrigue: What really happened to Amelia Earhart? And who really kidnapped the Lindbergh baby? And still others simply defy logic: If Denny’s is open 24 hours a day, 365 days a year, why are there locks on the doors?
Now we can add another question to the list of ongoing mysteries: With foreclosure activity breaking records nearly every month, where are all the REOs?It’s a fair question. In normal market situations, a bank will repossess a home and usually process it through to a listing agent to put on the MLS within 30 days. In a relatively short period of time, virtually every marketable REO property finds itself listed for sale on the local MLS. Today, that’s simply not the case; it’s likely that between 450,000 and 500,000 properties repossessed over the past year are still not on the market. And with buyers hungry for housing bargains, and agents and brokers champing at the bit ready to sell the properties, it begs for a reasonable answer.
Lenders and servicers admit that it’s taking longer to process REOs than it has in the past, and they offer a number of legitimate reasons:
-Many of the properties have title issues that need to be resolved
-Many of the properties are in states of utter disrepair
-A number of states have strict redemption rights periods, which prevents the lender from reselling the property
-A few states have extended the length of eviction proceedings
-The sheer volume of REO activity has created a “pig in the python” phenomena, (to put this in perspective, there will be roughly four times the number of REOs this year as in the last “normal” year, 2005)
What else could be slowing things down? A popular theory is that many banks are holding the properties off the market in order to defer losses. There is some accounting logic to this theory, as in most cases banks aren’t required to adjust asset prices until the actual resale of the property. Another idea is that the industry is holding back the inventory to create leverage with the government in order to force the creation of a “toxic bank” or RTC-like entity that would buy the distressed assets at 50 to 60 cents on the dollar rather than the 30 to 35 cents available on the market today. This theory suggests that, seeing the threat of a massive inventory of distressed homes being released all at once, the government would “blink” rather than risk another housing market meltdown.
Whatever the reason — process issues or conspiracies — we’re going to continue to see record-breaking numbers of REOs for at least the next year, and will all be watching to see when these sought-after homes finally make their way to the market.
Rick Sharga
Certain things in life are simply meant to be mysteries. There are age-old philosophical questions that have kept philosophers busy for millennia: What is the sound of one hand clapping? If a tree falls in the forest and no one is there, does it still make a sound? Other mysteries hang heavy with intrigue: What really happened to Amelia Earhart? And who really kidnapped the Lindbergh baby? And still others simply defy logic: If Denny’s is open 24 hours a day, 365 days a year, why are there locks on the doors?
Now we can add another question to the list of ongoing mysteries: With foreclosure activity breaking records nearly every month, where are all the REOs?It’s a fair question. In normal market situations, a bank will repossess a home and usually process it through to a listing agent to put on the MLS within 30 days. In a relatively short period of time, virtually every marketable REO property finds itself listed for sale on the local MLS. Today, that’s simply not the case; it’s likely that between 450,000 and 500,000 properties repossessed over the past year are still not on the market. And with buyers hungry for housing bargains, and agents and brokers champing at the bit ready to sell the properties, it begs for a reasonable answer.
Lenders and servicers admit that it’s taking longer to process REOs than it has in the past, and they offer a number of legitimate reasons:
-Many of the properties have title issues that need to be resolved
-Many of the properties are in states of utter disrepair
-A number of states have strict redemption rights periods, which prevents the lender from reselling the property
-A few states have extended the length of eviction proceedings
-The sheer volume of REO activity has created a “pig in the python” phenomena, (to put this in perspective, there will be roughly four times the number of REOs this year as in the last “normal” year, 2005)
What else could be slowing things down? A popular theory is that many banks are holding the properties off the market in order to defer losses. There is some accounting logic to this theory, as in most cases banks aren’t required to adjust asset prices until the actual resale of the property. Another idea is that the industry is holding back the inventory to create leverage with the government in order to force the creation of a “toxic bank” or RTC-like entity that would buy the distressed assets at 50 to 60 cents on the dollar rather than the 30 to 35 cents available on the market today. This theory suggests that, seeing the threat of a massive inventory of distressed homes being released all at once, the government would “blink” rather than risk another housing market meltdown.
Whatever the reason — process issues or conspiracies — we’re going to continue to see record-breaking numbers of REOs for at least the next year, and will all be watching to see when these sought-after homes finally make their way to the market.
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