Matrix Blog

One of the things I have found particularly aggravating during the past two years has been all the coverage on foreclosure stats. I don’t think consumers (or the media) have much perspective on the stats being produced, mainly by RealtyTrac and their competitor Foreclosure.com It’s been a groundbreaking effort on their part to collect this data but here’s a sample representing my issue with all this. I actually posted about the foreclosure data perspective problem back in September2006 (I just re-read it and it is relatively coherent) but the communication problem remains.

We see huge percentage increases every single month and yet the typical reader doesn’t really know what these stats mean in the context of all mortgages outstanding other than…it’s getting worse. I don’t think I am alone in getting the feeling that 87.4% of all houses are under foreclosure (left-handed people only, while it’s 92.3% if you include right-handed people).

Here are some examples…

From the New York Times

Statistics on foreclosure are snapshots of a moving phenomenon, and data from the state labor department show 174 foreclosures in Belair-Edison last year, while the Community Law Center, a nonprofit public service group, counted 181; both figures are well below the more than 275 foreclosures in 2001 and in 2002.

From Forbes

In February, Florida trailed only Nevada and California in the percentage of homes in foreclosure. RealtyTrac Inc. said 32,447 homes were in foreclosure statewide in February, up more than 69 percent from February of last year and up more than 7 percent from January.

Back in October 2007, the OTS released the first Monthly Market Monitor (creatively called MMM). It referred to the mortgage problem as the “Mortgage Malaise” (2 M’s if you were wondering) The most recent issue was released on wednesday referring to the mortgage markets in “disarray”. The MMM charts are really useful because they show the pace of foreclosures in an historical context and the amount of foreclosures relative to the amount of mortgages outstanding. The info on these charts are what we need to see more of.

Here’s a housing summary from the March 2008 report:

The slump in the housing market has not only impacted residential construction, but lending and loan performance have deteriorated in concert. Non‐conforming loan originations fell 49 percent in the fourth quarter, as the secondary market for bonds backed by the collateral is still shuttered. According to data collected by Inside Mortgage Finance, approximately $84.5 billion of non‐conforming loans were originated in the quarter ending in December 2007, comprising just 19.9 percent of total loan production. This is the lowest volume of originations ever, and is a far cry from the peak origination period of 2005, when the total reached $1.58 trillion, or 50.4 percent of all production.6 By loan type, jumbo production fell 47 percent in the fourth quarter, plummeting to $44 billion, or less than 10% of all originations. The downturn in Alt‐A and subprime loan production persist, with fourth quarter volume at $27 billion and $13.5 billion, respectively.

In contrast to non‐conforming product, FHA/VA loan production rose steadily in 2007, from a low of $19.0 billion in the first quarter to $31.0 billion at the end of the year. Activity in government‐insured lending was twice that of subprime.

Even Treasury Secretary Paulson is giving us better perspective of foreclosure stats in his speech to the US Chamber of Commerce on Wednesday:

Home foreclosures are also a significant issue today. Foreclosures are painful and costly to homeowners and, neighborhoods. They also prolong the housing correction by adding to the inventory of unsold homes. Before quickly reviewing our initiatives to prevent avoidable foreclosures, let me observe that some current headlines make it difficult to put foreclosure rates in perspective. So let me try to do so.

First, 92 percent of all homeowners with mortgages pay that mortgage every month right on time. Roughly 2 percent of mortgages are in foreclosure. Even from 2001 to 2005, a time of solid U.S. economic growth and high home price appreciation, foreclosure starts averaged more than 650,000 per year.

Last year there were about 1.5 million foreclosures started and estimates are that foreclosure starts might be as high as 2 million in 2008. These foreclosures are highly concentrated – subprime mortgages account for 50 percent of foreclosure starts, even though they are only 13 percent of all mortgages outstanding. Adjustable rate subprime mortgages account for only 6 percent of all mortgages but 40 percent of the foreclosures. So we are right to focus many of our policies on subprime borrowers.

There are approximately 7 million outstanding subprime mortgage loans. Available data suggests that 10 percent of subprime borrowers were investors or speculators. This figure is likely higher, as some investors misrepresented themselves to take advantage of a cheaper rate, and others speculated on a primary residence, expecting prices to continue going up.

And if you can’t keep track of foreclosures because it’s too confusing, try something simple like converting your phone number into words.

Tags: Jumbo Mortgage, Conforming Mortgage, FHA, Forbes, Sub-Prime

2 Comments

This is huge.

Federal regulators said Wednesday they would allow mortgage finance giants Fannie Mae and Freddie Mac to reduce the capital they are required to keep on hand, a move that could pump $200 billion into mortgage markets.

The rule change was announced by the Office of Federal Housing Enterprise Oversight, (OFHEO), a normally low-profile agency which sets rules for the two government sponsored companies that between them hold or guarantee nearly $5 trillion in mortgages.

Here’s the OFHEO press release.

OFHEO estimates that Fannie Mae’s and Freddie Mac’s existing capabilities, combined with this new initiative and the release of the portfolio caps announced in February, should allow the GSEs to purchase or guarantee about $2 trillion in mortgages this year. This capacity will permit them to do more in the jumbo temporary conforming market, subprime refinancing and loan modifications areas.

Fannie Mae and Freddie Mac (as well as FHA) have evolved into critical roles in stabilizing the credit market panic and have assumed important roles in providing greater liquidity to the mortgage markets, a key component in avoiding long term damage to the economy.

The OFHEO assures us that the 20% capital requirement is enough cushion for safety and the GSEs will begin to aggressively raise capital starting now. The $200B in extra funds will allow Fannie Mae and Freddie Mac to buy more mortgage securities and new home loans and increase mortgage guarantees.

Not too sound too rah rah here but I am amazed that we continue to see creative solutions to the credit crisis, seemingly everyday. Of course OFHEO missed the boat while the problems developed but at least now we are seeing some action.

Mandatory reading today: Can’t Grasp Credit Crisis? Join the Club by the NYT’s David Leonhardt. Please read it.

Raise your hand if you don’t quite understand this whole financial crisis.

Tags: Jumbo Mortgage, Conforming Mortgage, FHA, Fannie Mae, GSE, OFHEO, Sub-Prime, Freddie Mac

1 Comment

Can there be a bigger story than the housing/credit market/economy/weak dollar/recession right now? Client #9, George Fox…good grief.

Which begs the question: Do you get what you pay for?

I have been struck by all the recent solutions to the financial crises that we have slipped into, whose severity, by most accounts, caught government officials and financial institutions mostly unaware. Of course my favorite bubble bloggers have been saying so for quite a while, including The Housing Bubble Blog, Bubble Meter and Housing Doom. In fact, they have been screaming about it. Their perspective has largely been from the stand point of the absurdity or the void of logic of high prices paid and the greed. Not much dialog about the cause until recently, because few actually saw it, let alone understood it.

In retrospect, it was never about high housing prices alone, it was mainly about easy credit that enabled the purchase of property at seemingly any price. cart before the horse

The naming convention for the housing boom/bubble/bust should have been based on “mortgage” or “credit” rather than “housing.”

Anyway you slice it, we are in the middle of a real financial crises and I am hopeful that the recent stimulus package does not convince the powers that be that the problem is solved. The stimulus package is simply a baby step, but at least it is in the right direction. It looks like more reforms are being debated and discussed and (surprise, surprise) all deal with mortgages. A bailout is not on the table, nor would it be a solution, or fair to homeowners who were not greedy or did not take responsibility for what they were signing.

While ultimately, markets need to find their own balance and it is good for home prices to decline as part of the cycle, the exposure to our financial system based on ill conceived mortgage lending needs to be fixed. It really is scary how exposed our economy is on this one.

Innovative solutions will be next up on the Congressional agenda because rate cuts don’t ahem cut it.

With worsening strains in credit market threatening to deepen and prolong an incipient recession, analysts are speculating that the Federal Reserve may be forced to consider more innovative responses -– perhaps buying mortgage-backed securities directly.

As credit stresses intensify, the possibility of unconventional policy options by the Fed has gained considerable interest, said Michael Feroli of J.P. Morgan Chase. He said two options are garnering particular attention on Wall Street: Direct Fed lending to financial institutions other than banks and direct Fed purchases of debt of Fannie Mae and Freddie Mac or mortgage-backed securities guaranteed by the two shareholder-owned, government-sponsored mortgage companies.

Some legislative actions in the works right now:

• FHA will be expanded to shoulder more of the mortgage burden from the GSEs.
  
• Creation of a new mortgage corporation proposed by Senator Chris Dodd (see article: no I am not a staff member) that will enable refinancing for homeowners in trouble.
  
• Legislation to reduce the number of foreclosures is in development by the House Financial Services Committee. It sounds a lot like a bailout with the private sector writing down their mortgages to their current market value level.

I am actually impressed by the creativity of solutions being proposed but the details make or break their effectiveness. Right now we have sort of the inverse of the period which saw immense creativity of mortgage packages during the housing (mortgage) boom. Hopefully the solutions are not as complicated as the problems that caused this situation. I don’t need to find another tranch loaded with problems.

For some, this financial crises will teach many that you actually don’t get what you pay for and you don’t get what you borrowed either.

To digress…On the Beatles’ Revolution #9 single, parts of the song, when played backwards with a turntable, sound like “turn me on dead man.”

Coincidence?

Ok, back to work.

Tags: FHA, Fannie Mae, GSE, Bailout Nation, Freddie Mac

8 Comments

On a WWII binge, having watched Saving Private Ryan, Band of Brothers, Letters From Iwo Jima, Flags of our Fathers and Heartbreak Ridge within the past month, it was time to bring out The Tank.

As Clint Eastwood said in Heartbreak Ridge, adapt, improvise and overcome…

Here’s a collection of recent articles I enjoyed but didn’t have the ahem firepower to blog.

• Shiller: How a Bubble Stayed Under the Radar [NYT]
• The Unspeakable R Word [Newsweek]
• No Country for Old Maids [PIMCO]
• Negotiators Resolve FHA Obstacle [Congressional Quarterly]
• Vacant Homes in U.S. Climb to Most Since 1970s With Ghost Towns [Bloomberg]
• U.S. frees Fannie, Freddie reins despite huge losses [USAToday]
• Thornburg Mortgage Inc.: Attack of the Verbs [Seeking Alpha]
• Upcoming Congressional Scrutiny May Target Mortgage Brokers [Appraisal Institute]
• The dog days of real estate [SF Chronicle]
• Moody’s eyeing Fannie Mae downgrade [CNN/Money]
• The Crux Of Deluxe: With ‘Luxury’ Condos, Room for Interpretation [WaPo]
• Consumers’ Alarm Grows Contagious [Barrons]
• Stagflation and the Fed [Goldseek]
• Federal Reserve Fuels Fire Without the Kindling: Caroline Baum [Bloomberg]
• Urban Fractionals: Where Does It Make Sense to Buy? [Helium Report]
• Is Housing Market Pessimism Overdone? [WSJ Developments Blog]
• “The Suze Orman Show” and “Supernanny” uncover the perils of the American dream [Salon]

Tags: FHA, Appraisal Institute

Comments Off on [List-o-links] 3-2-08 From The Tank: Housing Needs To Adapt, Improvise and Overcome

This report is provided by Jeffrey Otteau of the Otteau Appraisal Group who also authors a series of widely followed quarterly market reports on the New Jersey real estate market. This information is collected from various sources including Boards of Realtors and Multiple Listing Systems in New Jersey.

I have known Jeff for many years and consider him one of the leaders in the real estate appraisal profession. He has taught me a lot about quantitative real estate market analysis.
…Jonathan Miller

HOME SALES DECLINE FURTHER AT YEAR END

The pace of home sales in New Jersey declined further in December providing compelling evidence that the housing market recession has not yet reached bottom. In December, Contract-Sales activity declined 24% below the November pace and was 31% less than in December 2006. When considered against the backdrop of high Unsold Inventory levels and a looming economic recession, it appears certain that existing-home prices will continue their decline into 2008. As a result, strategies of ‘waiting until Spring’ are ill conceived as overpricing inevitably leads to extended marketing times and lower prevailing market price levels. Best-Practices for a weakening housing market is to price ‘ahead of the decline curve’ to shorten marketing time and capture a higher selling price before prices drift even lower. From the new construction persepective however, many home builders have already embraced this strategy with Right Pricing! that reflects the current market realities. For the next segment on our Right Pricing! Strategy, register to attend our 2008 Spring Workshop Series next month.

Despite the ongoing market decline, some bright spots are emerging. Unsold Inventory declined for the fourth consecutive month and now stands 16% lower than in August, reflecting 12,000 fewer homes on the market. Also encouraging is that mortgage interest rates continue their descent providing a boost to home buyers’ purchasing power and helping to close the housing affordability gap in New Jersey. According to Freddie Mac’s latest Primary Mortgage Market Survey® (PMMS®), the 30-year fixed-rate mortgage averaged 5.48 percent for the week ending January 24, 2008, down from 5.69 percent the prior week and 6.25 percent last year at this time. The last time mortgage rates were lower was March 25, 2004, a time when home buying activity was at a frenzied pace. Another positive factor is yesterday’s announcement that President Bush and House leaders have agreed on an economic stimulus package that would allow Fannie Mae and Freddie Mac to raise the limit on the loans they purchase from $417,000 to $625,500. Similarly the FHA limit would be increased from $362,000 to $725,000. The effect of such increases would be to expand the pool of money for borrowers of so-called Jumbo Mortgages thus increasing liquidity and reducing interest rates for these loans in the process.

The take-away from all of these developments is that while the market has further to fall, the bottom point is getting closer. Home buyers should take notice of these developments as 2008 presents an unusual combination of being in the ‘driver’s seat’ of price negotiations at a time of record low interest rates. Those who wait too long will eventually find this opportunity window closed when higher interest rates and firmer pricing returns to the market.

UPDATE: Here’s more commentary on the New Jersey market.

Tags: Jumbo Mortgage, FHA, Jeff Otteau, NAR, National Association of Realtors

Comments Off on State Of New Jersey: Otteau December 2007 Contracts

I got a last second call from CNBC to provide commentary on the stimulus plan, specifically how and increase in conforming loan limits for both the GSE’s and FHA helps housing, if at all.

To view the clip.

The key point with the expansion of the loan limits is the potential increase in availability of mortgage products in higher priced home markets. Right now the east and west coasts have less representation in conforming loan pools because their price points are much higher. For example, the cost of living, specifically to housing in San Jose, CA is 5x as much as Cleveland, OH. This proposal could spread the access around. However, it also has the effect of restricting access in lower priced markets because the portfolio caps the GSEs abide by aren’t on the agenda to be raised. That limits the effectiveness of the expansion of loan limits (if you believe Fannie Mae and Freddie Mac can be receive adequate oversight).

OFHEO raises legitimate concerns about oversight of the GSE’s and the higher potential for risk. However, OFHEO was asleep at the switch when FNMA had accounting issues a few years back so I am not convinced OFHEO would be able to understand what changes would be needed to better oversee GSE actions. Also, any stimulus plan form needs to be implemented quickly or not at all. Government is not known for being nimble.

Interestingly, Diane Olick, who was interviewed in the above clip, mentions (via Housing Doom) that the Fannie Mae home page has changed in the past 2 years to reflect a different mission. I wonder if OFHEO understands what that change means?

The rate actions by the Fed this week and this expansion of loan limits, if passed, seem to push us in the right direction (symbolically and politically), in finding a solution to the weakening economyt. Much of the solution is correction and letting time go by.

In reality, its all about credit. So far, the symbolism in these gestures would go toward restoring confidence, but I suspect there is a long way to go.

Tags: Conforming Mortgage, FHA, CNBC, GSE, OFHEO, Television

5 Comments

The White House and the House agreed to a $150B plan to reinvigorate the economy, which because of the housing market slide, may either be in a recession or about to enter one.

Democratic and Republican congressional leaders reached a tentative deal Thursday on tax rebates of $300 to $1,200 per family and business tax cuts to jolt the slumping economy.

Its not a done deal, however, since the Senate still has to approve the measure and Senate Democrats are talking about tacking on additional items which could slow down its approval, but the speed at which the House approved may influence the Senate’s speed to approve as well.

Actually, the speed at which this was approved was annointed as a new sign of bi-partisan cooperation. The rebate elements and newfound cooperation are because its an election year and people vote with their wallets. I had fleeting thoughts that they know something we don’t know which prompted the quick action. I’ll try to keep those feelings in check as this unfolds.

Yesterday I participated in a roundtable discussion that addressed the impact of the stimulus package. The take away was that the rebate component was an important gesture, albeit political, but won’t be enough to prevent recession or further weakness. After all, the total stimulus plan represents about 1% of the US economy. Since 70% of the economy is consumer generated, the rebates are seen as a way to prime the pump. Whether its spent or saved, its a plus but a very small one at best. For a sense of Deja Vu, go here.

The idea of a expanding the OFHEO size restriction on conforming loans from $417,000 to $625,000 is a good thing, I believe, as well as doubling FHA loan limits from $367,000 to $729,750.

The California Association of Realtors has been saying that the conforming loan limit restriction is an impediment to economic recovery and I probably agree with them with some caveats. The existing conforming loan limit set by OFHEO seems to be arbitrary, simply because it doesn’t float with the housing market. When housing prices slipped, OFHEO kept the loan limit unchanged. The coastal markets, where housing prices are significantly higher, is disproportionately penalized by OFHEO restrictions.

By expanding the loan limits to be more consistent with local housing markets in higher priced areas, the availability of credit, may be expanded and that would help with refi and sales activity which could temper foreclosure actions and temper the slow down in transactions.

My concern is that there would be more risk placed on the GSE’s (Fannie and Freddie) and thats OFHEO’s concern as well. Congress forced portfolio size restrictions on the GSE’s in light of their accounting problems and I have yet to find whether this issue was addressed in the package. In other words, will more loans actually fall under this change or would there simply be a reallocation of mortgage types.

Media Appearance: I’ll be on CNBC Power Lunch at about 12:30 today on a panel discussion covering this issue.

UPDATE: As far as I can tell, the portfolio caps on the GSE’s are not being expanded, which significantly mutes the benefit of expanding the loan limit because it will result in the spreading around of loans taking from lower priced markets and moving availability to higher priced markets. Hopefully the Senate version will expand them.

Tags: Conforming Mortgage, FHA, CNBC, GSE, OFHEO, NAR, National Association of Realtors

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Not a month goes by that Larry doesn’t say housing is getting better and that mortgage problems are temporary.

Lawrence Yun, NAR chief economist, expected the sluggish performance. “As noted last month, temporary mortgage problems were peaking back in August when many of the sales closed in October were being negotiated. We continue to see the biggest impact in high-cost markets that rely on jumbo loans,” he said. “Mortgage availability has improved as evidenced by much lower mortgage interest rates and a sharp jump in FHA endorsements for home purchases.

I was wondering what mortgage data Larry is referring to? I don’t believe its part of his research but is a primary basis of rationalization for glowing market conditions, despite the fact that inventory tracked by NAR is at its highest level since 1985 and has continued to rise despite temporary mortgage problems.

Here’s what I said about Mr. Yun’s choice of the word “temporary” last month. Hmmm… perhaps this should be a monthly ritual until he stops using the word. Even then, we can’t be assured it will be temporary.

I yearn for the day when NAR finds that perfect moment and decides to inform the public and the consumer what is happening in the housing market, rather than assume we are illiterate. I know many, many brokerage firms and agents that agree with this. PR driven quotes like this don’t move markets so what is there to be afraid of?

UPDATE: Here’s a related article referencing some of my feelings about this topic in a Business week piece: Northeast Home Prices Remain Strong: Unlike the rest of the U.S., the region has seen price increases for the past six months. But a bad bonus season could change that

UPDATE 2: Supply of homes on market at 22-year high: Existing-home sales pace falls to 4.97 million for October, off 1.2%

Tags: Jumbo Mortgage, FHA, Lawrence Yun, NAR, National Association of Realtors

7 Comments

In the New York Times article today Reports Suggest Broader Losses From Mortgages indicates that employment levels will be impacted from the job losses associated with problems in the mortgage industry. So now we have, lower levels of mortgage production, lower levels of construction and lower levels of consumer spending.

I guess thats why federal funds futures are indicating a 70% probability that the Fed will cut rates at their next meeting by 25 basis points.

Since August, Lawrence Yun, Chief Economist of the National Association of Realtors, has kept characterizing the mortgage and credit market problems as temporary. Every month, as the blogosphere continues lament the loss of his predecessor, David Lereah, Mr. Yun has been able to continue the tradition of reality distortion and he does not disappoint.

Temporary? Relative to what? Will mortgage problems continue on forever? Of course not. Merrill Lynch reported an $8B loss due to mortgage related problems today. National lenders are having difficulty selling paper to the secondary market investors. Will this problem go away in a few months? I don’t see how.

If we relied on Mr. Yun’s use of the word temporary and heeded his advice back in August and September, credit market issues would have long been resolved. For next month, here are some alternatives to the word temporary. I vote for fugacious.

I have long lamented how NAR has missed its golden opportunity to gain the trust of the consumer as being the authority on the housing market, despite the fact that they are a trade group. Rather than leveraging the wealth of information at their disposal, they provided comments like this:

“Mortgage problems were peaking back in August when many of the September closings were being negotiated, and that slowed sales notably in higher priced areas that rely more on jumbo loans,” he said. “The good news is that mortgage availability has markedly improved in recent weeks with interest rates on jumbo loans falling, and more people are applying for safer and conforming FHA mortgage products.

The quote attempts to parse out problems with the mortgage markets from the timing of contract and closing dates. Elements of the statement are correct, but out of context, and ultimately paint an inaccurate picture.

Speaking of disconnect, did you hear George Carlin’s comments on The View about the fires in southern California regarding people losing their homes?

Tags: Jumbo Mortgage, Conforming Mortgage, FHA, Lawrence Yun, Pending Home Sale Index, David Lereah, PHSI, NAR, National Association of Realtors

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There has been a lot of change and turmoil in the mortgage arena as of late: Subprime problems, rising mortgage rates, credit tightening and so on are the things that many of us are acutely aware of. Never in my experience has so much discussion been placed on the topic of mortgages. The orientation about a formerly overheated housing market has shifted front and center to mortgages. As a result, the topic is being analyzed, dissected and over-interpreted just the way the housing market was.

Here are a few mortgage topicss and their interplay with a weak housing market. Additional topic ideas are welcome.

According to David Berson of Fannie Mae, there is growing trend toward government backed mortgages like FHA and VA loans.

Borrowers with blemished credit histories (who previously might have taken out conventional subprime loans) are likely now turning to FHA loans to purchase a home or to refinance their existing mortgages.

While the idea that the US government is gaining more exposure to residential mortgages after being asleep at the switch as the subprime mortgage mess developed is offensive to many, its not like the government is lending the money directly (unless I am missing something, so please enlighten me if I am). Here’s some message board feedback addressing the irony (via bankrate.com)

Of course, having lived through the S&L crisis filled with acronyms like FDIC and RTC, I know that government has a weak track record of oversight when it comes to mortgages.

In addition, conventional mortgages are getting “fixed”…

The market share of adjustable rate mortgages have dropped considerably as mortgage rates trend upward (albeit modestly). According to the Mortgage Banker’s Association, the market share of ARM’s to Fixed Rate mortgages have dropped from 31% to 20% over the past 18 months. The drop is attributed to the decline in the number of investors and weakening sales prices. Regulatory pressures will also keep the number of new ARM mortgage products down, like no-doc (liar) loans and negative-ams (negative amortization). This will filter out a large swath of potential buyers including a large swath of first time buyers making the shift from rental to owner occupancy.

A self-serving (for me, since I am a co-owner of an appraisal firm) strategy that comes into play with values slipping in many markets is playing with the timing of the appraisal. In Bob Tedeschi’s always interesting (despite the column name) Mortgages column, his recent article Could Be Time for an Appraisal, addresses the issue of slipping markets and timing the appraisal.

“If you’re not selling, you’re typically fine,” said Bob Moulton, the president of the Americana Mortgage Group, a brokerage in Manhasset, N.Y.

But, Mr. Moulton said, there are exceptions. “As house values drop,” he said, “people can have a tougher time refinancing, because the house won’t appraise for the amount they might need.”

I am a little fuzzy (and squeamish) on the comment made about “not selling” but otherwise, this concept banks (sorry) on the idea that in a declining market, get an appraisal early in the application process. In other words, it may be an advantage to the applicant (you) to request the appraisal earlier from your mortgage broker. If values are dropping, the mortgage will be based on a higher value than if the appraisal was done just before closing. hmmmm…

This seems logical (but as a result, off-loads more risk to lenders), but I am not aware of any banks that my firm deals with that will generally honor an appraisal even if it is three to four months old. Even during the height of the market, I wasn’t familiar with appraisal valuation dates exceeding 90 days.

The appraisal is a perishable product, a snap shot of the market. Lenders are well aware of generally weaker market conditions than seen in prior years. In other words, when a market is deteriorating, one of the things a lender looks more closely at is the valuation date of the appraisal (and rumor has it, is actually reading the reports now). In changing markets, an underwriter’s comfort level drops significantly as the timeline from appraisal (valuation) date to closing date expands.

Possible summaries

* Recap (safe, generic version): In the cart before the horse analysis, the challenges facing the mortgage market will exaggerate the problems facing the housing market. Tightening credit and an elevated wariness within lending institutions toward home mortgages will temper any form of housing recover for the next few years.

* Recap (cynical, sarcastic, “late-night I’m tired” version): Weaker housing markets (price and volume) have caused more emphasis to be placed on (clearing throat sound) an actual understanding of the market values of collateral being used, with less emphasis on questionable lending practices and less volatile mortgage products. While there is certainly nothing wrong with being creative in lending, the backlash of tightening credit is in direct response to lax lending practices by the very same industry to begin with.

I wonder if any lessons have been learned in this housing cycle as it pertains to mortgages. When taking the long view, somehow I doubt it.

Tags: FHA, Fannie Mae, FDIC, Bankrate.com, Sub-Prime

5 Comments

This week, there was no hot air in the Zeppelin commentary. In fact it was so heavy, I don’t think it got off the ground. Here’s a sample:

• It’s interesting reading everyone talk about the inpact of interest rates on the slowing real estate market. “Rates when up .24356, that’s why real estate is slowing” etc. That is nothing! I live in Florida. I paid $3500 for my home owners policy last year. I thought that was too high. I just got my renewal notice. My new premium is $12,500! That’s an increase of $700 per month! Florida and the coastal areas of the US are in a free fall in property values as it is. This new wave of insurance hikes will be a disaster for coastal property values!

• Are you allowed to say “in a gentrifying area”?

• I have come to belive all news is presented in the most negative light possible, especially news about the economy. I have also come to believe that most people who post comments to blogs or news stories want the sky to be falling (I don’t know why – but it appears to be the case). I expect that you will be bashed for trying to “keep it in perspective”. [as I suspected, Matrix readers didn’t do that – Jonathan]

• We can strip away all the information overload and focus in to what real estate pricing is all about which is simply supply and demand.

• You definitely pinpointed the limited usefulness of the RealtyTrac report in that the comparison should be to the national housing stock that has mortgages. That’s exactly what the Mortgage Bankers Association did in a survey out today, which puts the foreclosure rate for the second quarter at .99 percent — up 1 basis point from last quarter, but down 1 basis point from the same quarter last year. If you have a lot more people taking out loans, as they did in the boom years, the (raw) number of foreclosures is naturally going to go up, even if people are just continuing to default at the same old rate. The real question is what’s the number of homes in foreclosure as a percentage of all loans. The MBA survey did show a pretty good bump in the number of delinquencies on subprime and FHA loans, however (and even prime ARMs), but chief economist Doug Duncan said he doesn’t expect “order of magnitude” increase in delinquencies next year. Companies like RealtyTrac are in the business of selling info about foreclosed properties to investors, and maybe the raw numbers mean something to that crowd — like more opportunities to cash in on others’ misfortunes. Which doesn’t mean their numbers aren’t true. They just, as you say, lack perspective.

• Here in Southern California, foreclosures (Notice of Defaults, actually) are sky-rocketing. In the first year of this housing market down cycle, the monthly number of NODs is already nearing the worst monthly levels of the 1990’s housing market down cycle. Yes, this is perspective. This is going to get very ugly before the sun starts to rise again.

• Now that you mention it, Lereah has been MIA for the NAR — hadn’t noticed that. Stevens tenure is about to end, so we soon won’t have him to kick around any more. But let’s give it one more shot. The Washington Post carried a piece last Saturday about (essentially) NAR President Stevens getting caught in the market … um … correction. “his old house in Great Falls has now been on the market for a year at the price of $1.45 million.”What I should have done,” confessed the senior vice president of NRT Inc., parent of Coldwell Banker Residential Brokerage, “was listened to my agent and cut the price by $50,000 to $100,000 early on, and the property would have sold last October.” Or, even better, he said, “I should have listed it a month earlier,” when the market was only just beginning to lose air.” And on, and on he goes. I don’t know what average days on the market is in the DC area, but I bet it is less than 365. And Stevens hasn’t sold yet…

• I was under the impression that prior to the impending bonuses of 2006, 2005 was also a record year. However, it didn’t seem to do all that much for housing – maybe in the luxury/ultra luxury area, but not overall. We still had a lousy spring. So I can’t see why that would change this year, with inventory so much higher. Besides, don’t all those rich guys own by now?

• New York’s economy is strong, and people are pouring in. In the short run, therefore, any price decrease would be the result of prices being too high relative to income to being with, and nothing else. I think that may happen. Next year, however, it may also be that weakness in the housing market elsewhere causes weakness in the economy elsewhere and weakness in the stock market, working its way back to NYC. Bonuses will be at record levels this year, but Crains reported on Monday Wall Street’s three-year bull-run is losing steam. “After a terrific first half, earnings are expected to fall 40% in the second half…The slowdown is hitting virtually every trade plied on Wall Street. Stock and bond underwriting volume plunged nearly 50% in the summer quarter compared with a year earlier. The hugely lucrative businesses of advising on corporate mergers and taking companies public are also slumping.” Perhaps, with a slowdown coming, those high flying finanical geniuses won’t blow their bonuses this time around. Naaaah.

• But you DON’T have perspective until you can answer the question, “What is the impact of NODs (or foreclosures) on the market?” Are they affecting inventory? By how much? What other pressures are there on inventory? The RealtyTrac survey reports 12,506 California homes entered into foreclosure in August — up 25 percent from July and 160 percent from the year before. That sounds pretty serious, right? Well, maybe not if foreclosures were at historic lows. Maybe not if some 500,000 homes change hands in the state every year. Which is not to say that the market’s not soft, especially in particular areas. Inventory in the state is up — CAR puts it at 7.5 months in July, versus 2.9 months same time last year. But what is causing inventory to rise? Is it because more homes are going into foreclosure, or because houses are just sitting on the market because they are overpriced? The bottom line is that the raw number of foreclosures, by itself, doesn’t tell you that much about supply and demand.

Tags: FHA, Wall Street Bonus, David Duncan, Sub-Prime

Comments Off on [Matrix Zeppelin Series] Coastal, Gentrifying, Negative Light, Overload, Raw Numbers, Get Ugly, Lereah Is MIA, Bonuses, Slowdown Coming, Going Into Foreclosure

The 2Q 2006 Manhattan Market Overview that my appraisal firm, Miller Samuel, prepares for Prudential Douglas Elliman, was released today. Each quarter I place links throughout the day of publication to make it easy to compare how each media outlet (big and small media, blogs) presents the exact same set of data.

Even more interesting to me is how the other real estate brokerage companies who write alternative reports, frame their comments in the articles. While I have not had access to their specific results, I understand that some of the statistics such as average sales price, differed from the results in our report. Some of the reporters that cover the real estate market in New York have expressed frustration at trying to discern what actually happened this quarter.

To view the actual data and charts (going live by noon Friday 7-7-07). The actual report pdf will be available next week.

This list is in no particular order and were generally presented when I found them. I included some of the duplicate news feeds because I found it interesting who picked up the story. I will keep adding to the list through the remainder of the week.

Little Shift in Prices of Manhattan Apartments [NYT]
Manhattan Has Most Apartments for Sale Since 1994, Report Says [Bloomberg]
Mixed messages on Manhattan home prices [CNN/Money]
Manhattan apt. price hits record [NY Daily News]
Disparities in Manhattan apartment prices show a market that is neither booming nor busting [NY Newsday]
Condo Expectations May Be Rethought As Prices Plunge [NY Sun]
Manhattan apartment prices leap despite sales drop [Reuters]
Manhattan real estate inventory grows [Inman]
NYC Housing Prices Keep Climbing [TheStreet.com]
Manhattan condos again outsell co-ops [The Real Deal]
Sales drop, prices rise in Manhattan market [The Real Deal]
2nd Quarter 2006: “The Boom is Done” [The Real Estate]
Manhattan housing prices up [USAToday (Miller Samuel)]
Brokerages Submit Reports, Hope to Avoid Summer School [Curbed]
Manhattan Apartment Price Hits Record Highs [All Headline News]
Investing: Rising rates depress N.Y. apartment sales [IHT]

_Duplicate News Feeds_
Sales mellow in Manhattan [Houston Chronicle]
Manhattan apartment prices leap despite sales drop [Yahoo News]
Manhattan has most apartments for sale since 1994 [The Journal News (Westchester, NY)]
Manhattan apartment prices leap despite sales drop [Washington Post]
Sales of Manhattan apartments falling [Sun-Sentinel]
Apartments On The Market In Manhattan Hit 12-Year High [Tampa Tribune]
Manhattan apartment prices leap despite sales drop [MSN Money]
Manhattan apartment prices leap despite sales drop [7KPLC (Lake Charles, Louisiana)]
Manhattan apartment prices leap despite sales drop [Wave3 (Louisville, Kentucky)]

Here are a handful of radio and tv spots as well – more to come.

[Bloomberg TV]

[WPIX WB11]

Morning Call [Bloomberg TV]

Bloomberg Morning Markets [Bloomberg TV]

Squawk Box [CNBC]

News at Ten [WB11]

News at 5 [Fox 5]

WSJ Report [WCBS Radio]
NPR poor fidelity – better clip coming [WNYC]

Tags: FHA, CNBC, New York Observer, Radio

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