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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

The BBC has an excellent pair of charts that show the flow of mortgage origination in the traditional way and the method of recent years.

The US sub-prime mortgage crisis has lead to plunging property prices, a slowdown in the US economy, and billions in losses by banks. It stems from a fundamental change in the way mortgages are funded.

Traditionally, banks have financed their mortgage lending through the deposits they receive from their customers. This has limited the amount of mortgage lending they could do.

In recent years, banks have moved to a new model where they sell on the mortgages to the bond markets. This has made it much easier to fund additional borrowing,

But it has also led to abuses as banks no longer have the incentive to check carefully the mortgages they issue.

All Is Well With Mortgages

All Is NOT Well With Mortgages

UPDATE: As I was posting this, I came across a modified version of this by Michael Shedlock in his Seeking Alpha post called: A Beautiful Model for Loan Fraud. It’s a brilliant modification because it illustrates how no parties really had a vested interest in whether the borrower kept paying.

Tags: Getting Graphic, Sub-Prime

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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

An Inman News story (subscription) covered the release of a new study of the relationship of default rates and housing appreciation:

House price appreciation plays “a dominant role” in generating foreclosures, according to a study released today by the Federal Reserve Bank of Boston, “Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures.”

The idea that lower rates of appreciation in a market would lead to higher default rates as borrowers are unable to refinance their way out of trouble.

The study, of the Massachusetts housing market from 1989 to 2007, found homes originally purchased with a subprime purchase mortgage ended up in foreclosure about 18 percent of the time, or more than six times as often as those purchased with prime purchase mortgages

About 30 percent of foreclosures in the state during 2006 and 2007 were traced to homeowners who used a subprime mortgage to purchase their house.

A higher percentage — almost 44 percent of foreclosures — were on homes whose last mortgage was originated by a subprime lender. About six out of 10 of those borrowers had originally purchased their home with a prime mortgage, and then refinanced into a subprime mortgage.

Tags: Getting Graphic, Sub-Prime

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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Click here for related article.

In Floyd Norris’ NYT column this weekend titled Auto Sector’s Role Dwindles, and Spending Suffers he illustrates what consumers spend their money on. The auto industry’s contribution to the economy is at an historic low. Housing is not doing well and dropping sharply but some other sectors are in fact, doing fine.

The share of national income going to residential construction is falling rapidly, but is still not very low. It peaked at 6.3 percent of the total economy in late 2005, and is now down to 4.5 percent. That is a rapid decline, but even now the level is only a bit below the long-term average.

Nonresidential construction spending makes up a smaller part of the economy, but its strength has helped to offset some of the pain brought on by the housing plunge. Its 3.4 percent share of the economy is the highest since 1990.

The question of the day, with the credit crunch, inventory overhang, a builder downgraded to junk status, is whether housing will continue to weaken. To look at it another way, what would change or prevent housing for deteriorating further? I am not sure the Fed can avoid another rate cut at their next meeting.

Tags: Getting Graphic

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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Click here for full sized graphic.

Christine Haughney, the reporter who presented the A1 (page one) New York Times story today: $6 Million for the Co-op, Then Start to Renovate asked me to come up with a way to present sales prices by some sort of mix to represent what has been happening over the past decade. We came up with a way to do it and the New York Times graphics department went to town on it, so to speak. Christine did a really good job on the article.

While this is my sixth time on A1 (but who’s counting [wink]), I was even more excited about the final result and how clearly the chart illustrates the trend of a shifting mix toward the higher end of the market.

From a contrarian perspective, the chart also shows that even on the island of expensive apartments, there is still a lot of sales activity below $1M. I know, I know, the median sales price in the US is about $220k. But you can buy strawberries in Manhattan at 3am, and that convenience has got to be worth something.

Tags: Getting Graphic

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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Here’s a smorgasborg of mortgage related charts:

Investors are betting that the Fed will cut rates in September which likely won’t influence mortgage rates to fall, but could help stabilize the mortgage markets, eventually tempering non-conforming rate increases…

As credit tightens…

And debt grows…

And ARMs reset…

Next March is going to get interesting…
update: (Chart shows dollar value, in billions, of the adjustable mortgage resets)

(This chart is all over the Internet but I was unable to find the source or credit)

Tags: Getting Graphic

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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Harvard’s Joint Center for Housing Studies just released their quarterly Homeowner Remodeling Activity Report which forecasts low but steady growth over the coming year.

Click here for full sized graphic [pdf].

I expanded their chart back to 1995 using their historical data [XL]. It shows 2-3 year cycles of robust activity followed by a sharp drop in activity.

Click here for full sized graphic.

I always assumed their was a fairly close correlation between housing activity and remodeling activity over the past decade. As prices rise, activity increases due to either upgrading the home after purchase, or expanding and re-configuring homes as an alternative to buying a new one. I know in my home town, it seemed as though there were more homes being extensively renovated and expanded, than there were sales of new homes. However, my expanded chart shows a different pattern as far as I can tell.

The whole topic of remodeling brings to mind one of my pet peeve with repeat sales indexes. Advocates of this methodology say it is clearly better than looking at aggregate differences in prices since the index plots patterns of the same asset over time. However, in reality, repeat sales indexes rely on a false sense of continuity because tend to miss a significant characteristic of a changing housing market: Houses change a great deal. Houses get larger or their interiors are significantly improved upon in a large number of the transactions. The subsequent sale gets distorted because it may essentially be a different house.

but I need to digress…

While writing this post, I thought of Remake/Remodel. Did I dress like that in the early 70’s? (age check: I was 13) I must have remodeled since then.

Tags: Getting Graphic, Harvard JCHS

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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

I read an article in Barron’s this weekend written by the chief U.S. economist at High Frequency Economics, of whom (grammar?) Dow Jones likes to rely on that was pretty cool. Ian provides some sobering insight about the national housing market in these two charts that are pretty powerful. Of course, anyone that can invert a data point to make a point is ok in my book.

Mortgage rates are low, yet the number of sales continue to drop. Inventory levels are high. He makes the argument that real (not nominal) mortgage rates, calculated by deducting the rate of home price growth from actual (nominal) mortgage rates are actually high right now, explaining the low level of demand.

The key problem now is not the level of nominal mortgage rates, which are not particularly high by the standards of the past decade. Instead, buyers are backing off because the real mortgage rate has rocketed and continues to rise. At the peak of the boom, people essentially were being paid to buy a home. The average 30-year fixed mortgage rate in 2005 was a tax-deductible 5.9%. The Office of Federal Housing Enterprise Oversight says that home prices rose 10.7% that year.

As long as buyers expected prices to keep rising, the implied real mortgage rate — home-price increase minus mortgage-interest rate — was minus 4.8%. This was an enormous incentive to borrow heavily to buy real estate. Result: a bubble.

But recently, the average 30-year mortgage rate was 6.5%, so with home prices up just 3%, real mortgage rates are now 3.5%. And with most potential buyers well aware of the huge excess supply of homes, there’s no reason to expect prices to rebound soon. A reasonable person might expect them to fall further, boosting the real mortgage rate further.

Here’s Bob Hagerty’s monthly inventory piece in the WSJ [free] providing more detail on rising inventory levels throughout the US based on ZipRealty data. June inventory is up 2.5% from May overall in the 18 markets covered.

Hence the notion that the national housing market probably has a few years to go before things stabilize.

Tags: Getting Graphic

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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Click here for full sized graphic.

In Floyd Norris’ column this weekend titled Homes Sell. Homes Don’t Sell. Builders Still Build. he notes that there is a disconnect between the demand for new homes and the number being built.

starts have been very high relative to the number of homes that builders are trying to sell, a fact that could indicate the weakness will last while builders seek to sell homes they have already built.

One of the things I have observed about builders is their powerful optomism. They have to be brash and fearless to be able to make things happen. That is part of their success formula. However, sometimes that can prevent them from seeing a downward change in demand. In addition, builders have their own internal infrastructure like staff, office space and aquired land.

New supply can often be like a conveyorbelt. It enters the market at a steady pace no matter what the current demand actually is.

They don’t always have the luxury of quickly adapting to a changing market or perhaps, their overhead prevents them from seeing the change until its too late after having gone 1 to 2 new developments too far.

Tags: Getting Graphic

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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

With all the discussion about the doubling of the foreclosure rate last month as compared to the prior month (based on RealtyTrac‘s stats), then it would follow that sub-prime resets are something to look at. David Berson of Fannie Mae, in his weekly column, took a close look at the numbers. [Note: Berson’s link lasts one week. On or after 5/25/07, go here and search for his 5/18/07 post.]

The 2006 loan status is a good summary because all those products have reset. 76% were paid off and 12% continue to be paid at the higher rate (88% in good shape). 10% are under some sort of stress. The 2007 are really too soon to rely on because this data is only through the 1st quarter. However the stressed loans (excluding payoffs and current) are nearly double the rate of last year at 18%.

This is probably something to worry about because mortgage rates are currently rising which will add to the stress level.

Tags: Fannie Mae, Getting Graphic, Bankrate.com, Sub-Prime

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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

The FOMC held the line on the federal funds rate this go round which didn’t surprise anyone. Here is the WSJ’s interpretation of the FOMC press release (here’s the actual):

I don’t think housing hasn’t been fully accounted for in the economic slowdown, and despite the Fed’s somewhat sanguine views, which may change later this year. Sales concessions in lieu of price drops are likely tempering the housing number stats nationwide.

Purchase mortgage applications have been generally flat (They increased this week.) yet home sales are about 20%+ below the same period in the prior year.

Why is that? Perhaps one reason is the general tightening of credit. David Berson of Fannie Mae suggests that people are submitting more applications when making a purchase. [Note: Berson’s link lasts one week. After 5/13/07, go here and search for his 5/7/07 post.]

Tags: Fannie Mae, Getting Graphic

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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Click here for an interactive graphic.

In the national market, inventory increased this month [WSJ] (free version) according to ZipRealty, which is normally “normal” except that this time, the increase was unusually high. Of course, I have no idea what the actual inventory levels are from ZipRealty because there are no numbers in this article. The reader has no sense of the size of the sample or how representative ZipRealty is of the market.

These stats are 100 percent, ahem, percent-driven.

NAR reported 3.748M houses for sale in February, up 5.9% from January so 6.5% in March by ZipRealty doesn’t really seem that inconsistent with what we are already seeing.

If we accept that ZipRealty represents the market as a whole (which I am pretty sure it doesn’t), the reasoning was given that consumers feel it may take longer to market a property with higher inventory (very logical) so the houses are coming on the market a little sooner. However the Credit Suisse 22 year average of 1.7% increase over this period would contradict this theory since there have been plenty of periods with excess inventory over the past two decades. Something has got to be wrong with the CS stats – they strike me as severely understated.

Of course the other side of the coin to this argument is that sluggish sales levels are allowing inventory to back up. I am on the fence on this one, perhaps leaning toward the former and “buy” into the argument that sellers are anticipating longer marketing times.

In Manhattan, the situation is the opposite as of late as indicated in my market survey, with inventory levels slipping, despite the fact the market is entering the spring selling season.

Tags: Getting Graphic, GSE, NAR, National Association of Realtors

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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Click here for full sized graphic.

Floyd Norris’ article When It Comes to House Prices, the Bloom Is Off the Cactus illustrates quite clearly how much housing price patterns varied by sub-market but also how much houseing spiked in some markets and how some markets were unaffected by the recent boom.

These are year over year changes rather than actual price level movements and are based on repeat sales, which uses properties that had multiple transfers. This technique has many flaws including and smaller data set and not considering changes to the same house, such as a renovation or extension.

Given the fact that renovations were another significant phenomenon of the housing boom, it is likely that repeat sales would greatly exagerate price change in some markets. However, in the markets with the largest price spikes, namely Pheonix, Las Vegas and San Diego, a large portion of housing activity was comprised of new development. Must have been a heck of a lot of flipping going on for this to be captured in the repeat sales index. 40% figures I have heard thrown around must not be far from the truth.

Which brings to mind another point. Is anyone still buying and selling flips these days? Apparently so. Its hard to believe its still going on as proactively as this article suggests.

Tags: Getting Graphic

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