Finance Matters

Posts Tagged ‘housing market’

The debate over the housing market rages on.  The bullish calls have been getting louder. However, we continue to hear the bearish arguments., 

In her latest Housing Watch note, Bank of America economist Michelle Meyer reiterates her own bearish 2012 call on the housing market.

“[W]e believe those who are counting on the housing sector to save the economy this year will be disappointed,” wrote Meyer in a January 27 note.

She does, however, acknowledge new government efforts to bolster the housing market, and believes they are positive developments.  From her note to clients today:

The new year arrived with a number of new policies to support the housing market. The Obama Administration expanded the modification program – Home Affordable Modification Program (HAMP) – until the end of 2013 and increased incentives for principal reduction. It also proposed a new plan for streamlined refinancing for non-agency mortgages. While the expansion of HAMP could help to modestly support modification efforts, the refinancing proposal is highly unlikely to be implemented. It requires Congressional approval for additional funding and cooperation from the FHFA, both of which are difficult. Even more important than HAMP and HARP have been the steps taken to implement an REO-to-rental program. We believe a plan could be announced before the end of this quarter; although it will take time to implement and may be done in small pilot programs initially, it will be a step in the right direction.

While policymakers continue to think of ways to provide support, the housing market has continued along its gradual, and painful, healing process. The construction market sees signs of life, particularly in multifamily building and renovations, and home prices continue to adjust with greater price discovery in several markets.

Nevertheless, she thinks home prices will continue to head lower.  Meyer writes, “Housing construction should increase this year, but home prices are likely to fall further.”

Meyer recently wrote that she expected U.S. home prices to fall another 7% through 2013.

SEE ALSO: Michelle Meyer’s Housing Outlook For 2012 >

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See Also:

• HOMEBUILDERS: 98 US Housing Markets Are Gaining Momentum
• Homebuilders Say January Was Another Strong Month (And They’re Even Raising Prices)
• Raymond James Pulls The Plug On The Great ‘Hope Trade’ Of 2012

Bill McBride is a very credible economic analyst whom I respect.  But he is dead wrong in predicting that the housing market is bottoming.  Here is why.

I will not discuss the first part of his claim – about housing starts – because I do not care about that at all.  Only economists and Bill think that this is important.

I will focus on prices in major metro housing markets.  That is what you really care about, isn’t it?

Let’s start with a major metro to which investors have been flocking because they believe a bottom in prices is at hand – Greater Phoenix. Here is a chart that was custom-made for me by the housing data website – FNC.com

Source: FNC.com

The chart shows an index of the median sale price of only single-family homes in Maricopa County (where Phoenix is located) with livable space anywhere from 1,500 to 3,000 square feet.  That is the heart of the Phoenix market.  This price chart gives a much more accurate picture of what has happened in Phoenix than the typical median price charts which can be very misleading.   You can see that there really was no uptick in price during 2009 and even early 2010.  Can you see any bottoming over the past six months?

Investors paying all cash have flocked to Greater Phoenix because they believed all the talk about the housing market showing signs of a bottom there.  We’ve been hearing that for more than two years now.  Any investor who bought in Maricopa County in the last two years owns a property worth less than the purchase price.

You see, I’m the only analyst who discusses the significance of the home equity line of credit (HELOC) debacle and its impact today.  Take a look at this shocking chart for refinancings in Maricopa County from data provider, mortgagedataweb.com

Source: mortgagedataweb.com

During the years 2004-2006, there were a total of roughly 877,000 refinanced mortgages originated in Maricopa County.  Wait a minute, you say.  That’s greater than the total number of properties in Greater Phoenix with first liens.

I’ve pointed out in previous articles that most of these refinancings were not for first mortgages.  They were second liens, mostly home equity lines of credit (HELOC). 

Keep in mind that those three bubble years were utter madness in Phoenix and elsewhere.  Homeowners often refinanced first or second liens two or three times during this madness.  The loans became known as “cash-out refis.”  They took advantage of the rising value of their property and pulled lots of cash out of their “piggy bank” home.

The Wall Street Journal finally recognized the magnitude of this second lien problem in a front page story on June 7, 2011.  Discussing CoreLogic’s latest negative equity report, the author briefly noted that the percentage of homeowners with a second lien who were “underwater” was twice as high as those who had only a first mortgage. 

It is no exaggeration to suggest that at least 95% of these properties with refinanced liens are now underwater.  There is strong evidence that as prices decline, a greater percentage of underwater homeowners choose to walk away from the mortgage(s).  This creates a vicious circle.  That is now happening in Greater Phoenix and other major metros around the country.  Do you begin to see the scope of the problem?

The New York City Metro

It would be a huge mistake for you to think that this problem is localized and confined only to bubble metros such as Phoenix or Las Vegas.  It is nationwide.

Let’s look at the most misunderstood housing market in the country – the NYC metro.  The published median sale price for both NYC and Long Island has seemingly held up better than other major metros – not much less than $400,000 for Queens or Suffolk Counties.  This has fooled people into thinking that the worst is over in the NYC area.  On the contrary, the real collapse in prices is imminent.

In November 2011, Minyanville.com posted my 30-page New York City Housing Market Report.  The report included never-seen-before charts, graphs and data that revealed what has been going on there.  The banks have not been foreclosing for the past three years.  This started well before the robo-signing mess.  On February 7, 2012 there were a total of only 242 repossessed properties on the active MLS in Queens according to foreclosure.com.  This is a borough with a population of 2.2 million.

Because of this, the number of seriously delinquent properties throughout NYC has been soaring.  Based on individual charts for each borough from the NY Federal Reserve Bank which I included in my report, there were roughly 80,000 properties where the mortgage had not been paid in more than 90 days as of June 2011.

That number is considerably higher now.  How about this statistic?  I received updated numbers from the NY State Department of Banking a few weeks ago.  In 2009, the state legislature passed a law requiring all mortgage servicers to send a “pre-foreclosure notice” to all delinquent owner-occupants in danger of losing their home to foreclosure. 

As of the end of December 2011, a total of 165,000 pre-foreclosure notices were sent to delinquent owner-occupants just in NYC.  This does not include delinquent investors because the law requires that these notices be sent only to owner-occupants.

While not all of these borrowers were more than 90 days delinquent, the vast majority were 60+ days delinquent.  What do you think will happen to home prices once the banks finally begin to foreclose on these properties?  Prices will collapse in the four outer boroughs and will decline sharply in Manhattan.  I am convinced that this will occur although we can’t be sure when the banks will begin to move on this.

The situation is even worse in Long Island – Nassau and Suffolk Counties.  I wrote a 22-page report on the Long Island housing market which Minyanville posted in December 2011.  Just for these two counties – with a total of less than three million people – more than 149,000 pre-foreclosure notices had been sent as of the end of 2011.  As in NYC, the banks have not been foreclosing in Long Island.  But they cannot put it off indefinitely.  When they begin, prices there will collapse.

Let’s take one last metro area – southern Connecticut where I live.  In November 2011, the median sale price per square foot – a good way to compare apples to apples – was down by 25% in Bridgeport from a year earlier.  A very nice nearby town – Seymour – showed a drop of 20% in December from a year earlier.  The statistics come from Wm. Raveis & Co. which is the largest family-owned brokerage firm in New England and whose numbers I trust.  Not much bottoming in southern Connecticut, is there?  Remember, this is Connecticut, not Detroit.

Conclusion

Housing analysts have been confidently predicting a bottom for the housing market for the last three years and they have been totally wrong.  Anyone who acted on their advice and purchased a home has taken a beating.  The clamor about a bottom finally arriving this year is just as loud and will be just as wrong.

Those of you who have an interest in your local housing market – either as a prospective buyer, seller, or just a homeowner worried about how low the value of your house might go – need to disregard this nonsense about a bottom arriving now.  There is no housing bottom in sight.

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See Also:

• Administration Officials Don’t Really Want The Housing Program To Work
• US Workers Are Toiling Harder And Getting Paid Less Than Ever
• Here Are 3 Ideas That Will Help Fix The Housing Market

The Government launches its NewBuy mortgage guarantee scheme in March, which will help house buyers by underwriting 95% mortgages on new-build properties up to £500,000 in value.

The scheme depends on having sufficient sites available to house builders and housing minister Grant Shapps revealed today that sufficient land for 80,000 properties has already been identified.

Mr Shapps said he is now working with the BBC, Network Rail, Royal Mail and public sector organisations such as HM Treasury and the Ministry of Justice to identify further unused sites for housebuilding.

He expects enough land for 100,000 homes to be released by 2015.

The NewBuy mortgage guarantee scheme is an extension of the New Build Indemnity Scheme which was announced in November.

The initial scheme was designed to help first-time buyers, but the NewBuy scheme extends this help to people who wish to move house.

Mr Shapps revealed a number of other measures to boost the housing market, including plans to devolve power from Whitehall to town halls and to allow councils to keep rents collected from council tenants and invest the money in their housing stock.

Councils previously had to surrender social rents to the government, which then redistributed the revenue, leaving some councils with less than half the amount they collected.

Speaking to housing sector organisations, Mr Shapps said: “I’m pulling out all the stops for those who want to get on the property ladder, so from March the NewBuy Guarantee scheme will be on hand to help people buying newly built properties with just a fraction of the deposit they would normally need.”

Nationwide Building Society is launching an advertising campaign to highlight its efforts to support first-time buyers.

The building society claims it is doing more than any other lender for first-time buyers by providing Save to Buy and limited liability guarantor mortgages, online guides to the mortgage process, discounted fees and by participating in New Build Indemnity Scheme.

This post originally appeared at The Atlantic. 

It has been six years since U.S. housing markets began their tumble. Prices continue to fall despite the few markets that have stabilized. Foreclosures continue at historic levels and housing starts are at their lowest level in decades. Meanwhile, nothing the federal government has done to address the situation to date has had much impact.

The crisis has devastated millions of American families, but it also has stalled the recovery of the economy as a whole. Despite this, the gravity and magnitude of the situation have yet to sink in among leaders in Washington. 

Even President Obama made only passing mention of the housing crisis in his State of the Union address. His proposals – yet another investigation of mortgage fraud and yet another mortgage refinancing program – will do no more to revive housing markets than similar efforts in the past have.

Little on the horizon promises change. Jobs are returning, but at a rate that will take years to bring back full employment and with it strong demand for new housing. Despite historically low interest rates, banks continue to constrict mortgage financing while the residential mortgage–backed security market remains dormant, leaving the federal government the primary source of mortgages. 

There are ways the federal government could revive housing, three of which are discussed below. But as will be evident, the two most significant ideas are politically controversial and would require stronger leadership than has been shown on housing to date. 

Read the rest of the story at The Atlantic >

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See Also:

• REO Conversion To Rental Is A Clear Negative For The Housing Market
• Home Foreclosures Fell 40% Last Year, But That’s No Reason To Celebrate
• Why The Housing Market Has Much Farther To Fall

The latest figures from the Land Registry show that house prices fell by 1.3 per cent in England and Wales in 2011, with the average property costing £160,384 in December.

Prices remained stable at the end of the year, with no change between November and December 2011.

The only place in England and Wales where house prices increased in December was London, where they rose by 0.8 per cent to an average of £345,298.

Over the year, property prices have increased by 2.8 per cent in the capital with estate agents reporting an increase in buyers from overseas who are exiting countries involved in the eurozone crisis, including Greece, Italy and Spain, in order to finder a safer place to invest.

Hartlepool recorded the biggest fall in property values in 2011, with an annual decline of 17.5 per cent.

For the north-east as a whole, house prices fell 7.1 per cent year-on-year in December 2011, more than any other region.

In the north-east the average house cost £99,000 at the end of the year.

The Land Registry also reported a fall in the number of completed sales in 2011.

Meanwhile, a survey by estate agent Rightmove suggests that 60 per cent of people who are moving house believe it is a buyers’ market, while just 13 per cent believe the balance of power is in sellers’ hands.

People in Scotland are most likely to perceive the housing market in this way and Londoners are the least likely.

Miles Shipside, director of Rightmove, said: “While parts of the stock-starved South, and London in particular, are feeling relatively bullish about prices, the turmoil of the last few years has wreaked havoc in parts of the buyer-blocked North.”

Rightmove’s ‘Consumer Confidence Survey’ was based on 32,111 online responses in January 2012.