Recent talk of a recovery in housing prices appears premature. Prices as a whole recorded an 8.9 percent drop in the third quarter, compared to a year earlier -- a big improvement from the 15 percent and 19 percent drops in the prior five quarters, according to the S&P/Case-Shiller Home Price Index, the leading measure of U.S. home prices. But the drop for the closely watched 20-city index, 9.4 percent, was worse than expected.
Las Vegas remains the most depressed market in the U.S. Prices have declined for 37 consecutive months, with a peak-to-trough reading of -55.4 percent. While Detroit has seen some positive movement in recent months, the market is still at only 73 percent of its 2000 value. This compares to regions such as Los Angeles, New York and Washington, which have maintained values of 70-80 percent above their 2000 averages, in spite of the market downturn.
More bad news for the housing market, the number of people falling behind on their mortgage payments continues to climb. The Mortgage Bankers Association says 9.64 percent of all home loans outstanding last quarter were at least one payment past due. What's worse? That figure does not include loans that are in the process of foreclosure, 4.47 percent of loans were in foreclosure, up from 4.3 percent last quarter.
Prime fixed-rate loans have been hit the hardest. The MBA says 33 percent of foreclosures started in the third quarter were prime fixed-rate and that number is expected to increase next quarter. These type of loans make up nearly 50 percent of loans 90 days or more past due but not yet in foreclosure.
"Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP. Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent."
Ironically, the increasing rate of defaults has provided growth in one corner of the job market, the mortgage restructuring business. The Wall Street Journal (subs req'd) reports that four of the largest mortgage services have collectively hired almost 17,000 people this year and plan to keep adding staff.
Sales of existing homes hit a two-year high last month, as buyers scrambled to use the $8,000 federal tax break for rookie owners. Bloomberg reports:
Purchases jumped 9.4 percent to a 5.57 million annual rate, more than forecast and following a 5.09 rate in August, the National Association of Realtors said today in Washington. The median price fell at the slowest pace in a year.
The tax break runs out Nov. 30. Some members of Congress and the housing lobby have been pushing to extend the program and increase the amount to as much as $15,000. A Treasury Department audit this week show signs of fraud and abuse in the program. One reported buyer was four years old.
Housing starts increased 0.5 percent in September to a seasonally adjusted annual rate of 590,000. Most economists had expected an increase closer to 2 percent. Housing starts began to rebound in June and for the last four months they've hovered just above 560, 000.
New home sales are up 30 percent through August, but analysts and builders worry that sales are likely to slump once the $8,000 credit for first-time home buyers expires next month. The National Association of Home Builders and Wells Fargo released their builder confidence survey yesterday, and the indexes which measure sales expectations, conditions and traffic of prospective buyers all fell in October.
Senate Banking Committee Chairman Chris Dodd and Senator Johnny Isakson are part of a group of lawmakers pushing the Obama administration to extend the credit. They testified about the state of nation's housing market today on Capitol Hill.
"The credit is set to expire in five weeks. But the work of stabilizing the housing market won't be done. We still need to use every tool at our disposal to try and fix this problem," Dodd said.
Dodd and Isakson want the credit extended through the end of June.
Foreclosure filings rose by 5 percent in the third quarter of this year, reports RealtyTrac, which deals in foreclosed properties. Filings were up by 23 percent from the same period in 2008.
One in every 136 U.S. housing units received a foreclosure filing during the quarter -- the highest quarterly foreclosure rate since RealtyTrac began issuing its report in the first quarter of 2005.
From August to September, foreclosures slowed by 4 percent -- and were still high enough to make September's the third highest total since RealtyTrac starting keeping the numbers in January 2005.
NPR keeps a county-level map of foreclosures. Nevada led the pack among states, with one in every 23 housing units getting foreclosure papers last quarter. Arizona and California followed, each with one in every 53 homeowners getting a notice.
As you can see from the map, foreclosures are concentrated in particular states. Just over 60 percent of the nation's foreclosure filings last quarter happened in California, Florida, Arizona, Nevada, Illinois or Michigan. California alone saw almost 27 percent of the total.
"Just one among scores of foreclosed/bank owned houses I saw in a Latino community at North Las Vegas." (Cartographer / Flickr Creative Commons)
By Laura Conaway
It's a foreclosed world out there. From the AP:
The Census Bureau director says foreclosures will make it tougher and more expensive for census workers to get an accurate count of families next year.
Director Robert Groves said Tuesday in Los Angeles that he expects some questionnaires will land at empty homes in areas hard hit by the housing crisis. That means workers will need to make more door-to-door visits, which costs more money.
Groves says 2010 census workers will look for the newly homeless and people doubling up with relatives.
Our friends over at Youth Radio filed a report this week on a brother and sister who've worked and scrimped and worked some more and now own houses. It helps to have parents who know how it's done.
"He gave me a huge lecture," Denise Tejada says about her father's intervening in her teenage spending habits. "He analyzed my bills and my checks and how much I was spending on certain extra things that I wanted." The dad put his kids on a savings program so they could afford to break into the depressed real estate market. As Wilmer Tejada says, they might not get another chance like this one for a long time.
Existing home-sales fell in August after making strong gains in the summer months. The National Association of Realtors says sales fell 2.7 percent last month to a 5.10 annual rate. Economists had expected home sales to rise to 5.35 million
From NAR economist Lawrence Yun:
Home sales retrenched from a very strong improvement in July but continue to be much higher than before the stimulus. The first-time buyer tax credit is having the intended impact of bringing buyers into the market, allowing them to take advantage of very favorable affordability conditions. Some of the give-back in closed sales appears to result from rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process, but the decline demonstrates we can't take a housing rebound for granted.
Look on the bright side: U.S home prices rose 0.3 percent from June to July, the Federal Housing Finance Agency reports. Or the darker side: In the year that ended in July, home prices fell 4.2 percent.
The House Price Index uses the purchase price for homes with mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac. That means it tends to exclude the most expensive properties and ones in the subprime mortgage market. The delinquency rate among subprime mortgages is now above 41 percent.
The housing market has gotten a boost recently from the $8,000 federal tax credit for first-time homebuyers. As of Friday, 1.4 million people had used the credit to buy property. The deal runs out on Dec. 1.
"Isn't 0% down part of what got us into trouble in the first place?"
Prices at Highland Lane are running $285,000 to $324,950. The "$0 down" offer will cost you a full point on interest, according to the site, which also pitches the federal government's $8,000 tax credit for rookie buyers.
After a week of mixed housingmarketindicators, we finally have one that shows some firm good news. Sales of existing homes rose in July, for the fourth consecutive month, according to the National Association of Realtors. They're up 7.2 percent from last month, and 5 percent from year ago. It's the largest gain since record-keeping began in 1999.
Overall, July existing home sales hit a seasonally-adjusted annualized rate of 5.24 million, far exceeding expert predictions of 5 million. Experts attributed the increase to the housing stimulus tax credit, and the best housing affordability in two decades. According to the report, the median price of existing homes fell 15 percent.
If the building boom and housing bust lead to too many empty houses, an increase in home sales is a very good sign -- it means that some of those houses are starting to be filled, which could encourage home builders to start building again. Still, at the current pace, it would take 9.4 months to sell every previously-owned home on the market. In a stable market, it should only take seven months.
The number of mortgages with overdue payments rose to a seasonally-adjusted 9.24 percent of total mortgages in the second quarter of 2009, according to today's Mortgage Bankers Association National Delinquency Survey. That's the highest it's ever been since the MBA began keeping records in 1972. The figure is up from Q1's figure of 9.12 percent, and up nearly from 6.41 percent last year.
The percentage of foreclosures is at the highest in three decades: it's at 4.3 percent. Loans overdue by at least 90 days -- which is an indicator of foreclosures to come -- rose to 7.97 percent, the highest on record.
But what's scariest isn't the numbers, it's that the increases are no longer being driven by subprime loans. Instead, they're being caused by unemployment. From the report:
While the rate of new foreclosures started was essentially unchanged from last quarter's record high, there was a major drop in foreclosures on subprime ARM loans. The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase. As a sign that mortgage performance is once again being driven by unemployment, prime fixed-rate loans now account for one in three foreclosure starts. A year ago they accounted for one in five.
The index is still down over fifty percent from April high of 1250.6 -- it's now at 527. But the real thing to pay attention to is the reason for the rise: affordability. According to the report, interest rates are at a five-week low. Analysts say that the low rate, combined with low housing prices and the stimulus' $8000 tax credit for first-time home buyers, is encouraging more folks to take out mortgages.
Construction of new houses was down one percent in July, according to the latest Residential Construction Report from the Census Bureau. Housing starts fell from a seasonally-adjusted annual rate of 587,000 in June to 581,000 in July. That's below analyst's expectations, and down 37.7 percent from last year's rate of 933,000.
Yesterday, the National Association of Home Builders released their index of home builder confidence in the industry, and it was up -- largely based on expectations that an increase in home sales is on the way. But today's report may bring those expectations down to earth, especially since applications for building permits -- an indicator of future home construction -- are also down 1.8 percent.
The National Association of Home Builders and Wells Fargo just released their monthly housing market index, and it's up one point. The index came in at 18 for August, the second increase in two months and the highest it's been in over a year.
Breaking down the numbers, the increase has more to do with expected housing sales than current sales, which remained unchanged this month. Expectations for sales over the next six months rose to 30 points from 26. That prediction is based on an increase in people are looking to buy a house: the index of buyers' traffic rose from 13 to 16.
Still, analysts were expecting the index to rise to 19 this month, and the current number is a far cry from its height during the bubble -- it hit 72 in 2005. And the index is still among the lowest it's ever been since NAHB began recording numbers in 1985.
Mathew Padilla has an interesting take on mortgage delinquencies over at the O.C. Register. He looks at the 90-day delinquency rates in Orange County. The data charted above come from FirstAmerican Corelogic, and makes it seem like the foreclosure rate is only going to go up. It shows the 90-day delinquency rates, the foreclosure rates, and the rates of REOs (or real-estate owned, meaning the foreclosured properites on banks' books).
The 90-day rate includes mortgages that have been delinquent for at least 90 days, but aren't foreclosed yet. That rate just keeps on going up. Sam Khater, senior economist at First American CoreLogic, told the OC Register that government efforts have delayed some foreclosures, hasn't prevented many.
Of course, Orange County has been particularly hard-hit by the mortgage crisis, but this still could be an bad omen for the wider market -- especially when combined with Deutsche Bank's prediction that nearly half of U.S. mortgages will be underwater by 2011.
Pending home sales are up for the fifth month in a row, the National Association of Realtors reports.
The cheaper stuff's going first, says NAR economist Lawrency Yun. "Historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who've been on the sidelines," he says, in the group's press release.
The Pending Home Sales Index for contracts signed in June was up 3.6 percent from May and 6.7 percent from June 2008. For what it's worth, the last time pending sales rose for a fifth straight month was in July 2003, just after the post-9/11 recession ended.
That little blue line is the represents homeowners who've staved off foreclosure by reworking their mortgages. (Center for Responsible Lending)
By Laura Conaway
With homes at risk of foreclosure outpacing loan modifications by seven to one, the Obama administration met with mortgage servicers this week. The servicers promised they would speed up the pace of working out new deals with struggling homeowners.
Now a report in the New York Times suggests that mortgage servicers have an incentive to keep borrowers on the hook when those borrowers can't make their payments on time. From the NYT:
Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue -- fees for insurance, appraisals, title searches and legal services.
"It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen," said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. "I don't think they're motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It's a license to do whatever they want."
You might remember a Planet Money visit to Ocwen headquarters in Florida. The company reports it refinances 75 percent of its troubled mortgages, compared to an industry average of 10 percent.
That little blue line is the represents homeowners who've staved off foreclosure by reworking their mortgages. (Center for Responsible Lending)
By Laura Conaway
This chart shows two things, really. First, we can see the scale on which struggling homeowners have managed to keep their homes by getting lenders to rework the mortgages. Second, we can see the scale on which the sheer number of struggling homeowners has risen. The strugglers are outpacing the rescued by a factor of seven.
The Center for Responsible Lending, which produced the chart, is calling on Congress to protect families. The advocacy wants the goverment to the most of the federal Making Home Affordable program, which launched with a goal of reaching 4 million families and has so far gotten only 200,000. Mortgage servicers met with the Obama administration today and promised to speed things up.
The Center is also asking Congress for legal changes that would allow bankruptcy judges to rewrite mortages on principal residences. It's lobbying for the Consumer Financial Protection Agency proposed by the Obama administration. The new agency has faced criticism from Federal Reserve Chair Ben Bernanke and FDIC chair Sheila Bair, some of whose current power would be subsumed by the new regulator.
Planet Money pal Felix Salmon notes an idea from the Center for Responsible Lending's director, Keith Ernst, for a mediation program to work out deals between mortgage services and lenders. Salmon writes:
I fear that Congress is beginning to get reform fatigue, after so many attempted solutions have failed. But that's no reason to stop trying new things -- in fact, it's a good reason to try even harder.
For the first time in three years, U.S. single-family home prices rose in May, according to today's S&P/Case Shiller Home Price Index. The index tracks changes in the value of the residential real estate market in 20 metropolitan areas across the U.S. In May, the index went up by 0.5 percent. According to a Reuters poll, economists had forecast a 0.5 percent drop in the index.
The seasonally adjusted version of the index shows another drop in housing prices, but it's the smallest drop since 2007.
The stabilization in the index comes right after yesterday's news that sales of new homes are up, even though median prices for new homes fell. Much of the mess we're in started with the bubble in the housing market. Stabilizing home prices will be key to getting us back out again.
