Housing/Mortgage/Real Estate

[G M]

This does not promise to end well , , ,

Official slogan of the Obama era.

[ppulatie]

Doug,

Of course, the Taxes/Ins is calculated into the 43%, so it does not really matter.

Let's assume a mortgage of $500k

Loan Amount of      $500,000
Interest Rate                 3.25
Monthly Payment      $2176
Taxes/Ins                 $600.00
Total Payment          $2776

Total Income to Qualify  $6200 per month
Take home per month  -  $4500

Disposable Income after Debt Service  $1824.  (Still, the homeowner would likely be negative cash flow.)

So the higher the income, the more likely that a homeowner will be able to pay.  Of course, as we all know, the higher the income and the more expensive the home, the greater the likelihood that the family will have far more expenses. 

(Expenses grow to take up excess disposable income.)

BTW, I used the $175k loan amount because it more closely reflects the average home values across the US.  One more reflection that first time buyers do not exist to pull the market out of the rut it is in.  Additionally, the constraints on move up buyers is just as pronounced.

[Crafty_Dog]

Data Watch
________________________________________
Housing Starts Soared 12.1% in December to 954,000 Units at an Annual Rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 1/17/2013

Housing starts soared 12.1% in December to 954,000 units at an annual rate, coming in well above the consensus expected 890,000 pace. Starts are up 36.9% versus a year ago.
The rise in starts in December was due to gains in both single-family (+8.1%) and multi-family starts (+20.3%). Single-family starts are up 18.5% from a year ago, while multi-family starts are up 91.0%.
Starts were up in all major regions of the country, led by the Midwest.
New building permits rose 0.3% in December to a 903,000 annual rate, almost exactly what the consensus expected. Compared to a year ago, permits for single-unit homes are up 27.3% while permits for multi-family units are up 31.6%.

Implications: Blowout strong numbers on home building and the job market today. Housing starts boomed in December rising 12.1% to a 954,000 annual pace, with robust gains in both single- and multi-family starts. Starts are now the highest since June 2008 and are up 36.9% from a year ago. The total number of homes under construction (started, but not yet finished) are up 26% from a year ago. Some of the building boom in December is probably due to unusually mild weather. The average temperature in the contiguous 48 states tied the highest level for any December since the 1950s. However, building permits also rose 0.3% in December to a 903,000 annual rate, the highest level since July 2008 and up 28.8% from a year ago. Based on population growth and “scrappage,” housing starts will eventually rise to about 1.5 million units per year (probably by 2015), which means the recovery in home building still has much further to go. Don’t expect a straight line recovery, there will be zigs and zags along the way, but the overall trend will continue higher. In other news today, initial claims for unemployment insurance fell 37,000 last week to 335,000, the lowest level in five years. The four-week moving average is 359,000. Continuing claims for regular state benefits rose 87,000 to 3.21 million. Combined with other data, we’re penciling in a trend-like payroll gain of 160,000 for January. The one piece of bad economic news was the Philadelphia Fed index, a measure of manufacturing sentiment, falling to -5.8 in January from +4.6 in December. This reinforces the soft reading from the Empire State index earlier this week. However, regional manufacturing surveys measure sentiment, not actual activity, and so may be influenced by negative news reports about the debt limit debate in Washington, DC.

[ppulatie]

CD,

I  have been waiting for you to yank my leash on this.............

Here is the link to the release

http://www.census.gov/construction/nrc/pdf/newresconst.pdf

Here are key elements:

Total Starts are DOWN from Nov at 66,500 to Dec at 64,200, a drop of 2300 units.

Single Family DOWN from 40,100 to 36,400, a drop of 3700

The Northeast Region remained steady at 3300 for the second month in a row.  All other regions declined.

If you look close, Year over Year Seasonal Adjustments are quoted at 28%.  They don't quote Year over Year non seasonal.

Zerohedge had good charts showing what is going on.






Kinda get the idea that someone plays games with the numbers?

Meanwhile, Calculated Risk continues to play the cheerleader

http://www.calculatedriskblog.com/2013/01/some-comments-on-housing-starts.html

And Scott Grannis carries the pom poms

[ftp]http://scottgrannis.blogspot.com/2013/01/housing-starts-on-fire.html]http://www.calculatedriskblog.com/2013/01/some-comments-on-housing-starts.html

And Scott Grannis carries the pom poms

ftp://http://scottgrannis.blogspot.com/2013/01/housing-starts-on-fire.html

It is actually rather amazing. I spent most of Tuesday in conversations with the head of a major Risk Management and Consulting Firm, heavily involved in the Housing Market.  Last week, the guy was in Vegas last week, having dinner with a top FHA official.  Both fully agree with my opinions on housing.

The FHA guy said that all housing programs now, like over the past decade have not been about realistic housing policies.  It is all political, influenced by the politicians in the White House and on Capital Hill.  The Agencies know what will eventually happen, but no one has the cajones to do anything realistic about it.

[G M]

Glad Pat jumped in to pee in the Wesbury Koolaid. Let's see, massive un/underemployment, a spiraling nat'l debt that is mathmatically beyond our ability to repay, a political class and electorate utterly detached from reality. Nice there is still some statistical noise Wesbury can grab to spin.

Data Watch
________________________________________
Housing Starts Soared 12.1% in December to 954,000 Units at an Annual Rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 1/17/2013

Housing starts soared 12.1% in December to 954,000 units at an annual rate, coming in well above the consensus expected 890,000 pace. Starts are up 36.9% versus a year ago.
The rise in starts in December was due to gains in both single-family (+8.1%) and multi-family starts (+20.3%). Single-family starts are up 18.5% from a year ago, while multi-family starts are up 91.0%.
Starts were up in all major regions of the country, led by the Midwest.
New building permits rose 0.3% in December to a 903,000 annual rate, almost exactly what the consensus expected. Compared to a year ago, permits for single-unit homes are up 27.3% while permits for multi-family units are up 31.6%.

Implications: Blowout strong numbers on home building and the job market today. Housing starts boomed in December rising 12.1% to a 954,000 annual pace, with robust gains in both single- and multi-family starts. Starts are now the highest since June 2008 and are up 36.9% from a year ago. The total number of homes under construction (started, but not yet finished) are up 26% from a year ago. Some of the building boom in December is probably due to unusually mild weather. The average temperature in the contiguous 48 states tied the highest level for any December since the 1950s. However, building permits also rose 0.3% in December to a 903,000 annual rate, the highest level since July 2008 and up 28.8% from a year ago. Based on population growth and “scrappage,” housing starts will eventually rise to about 1.5 million units per year (probably by 2015), which means the recovery in home building still has much further to go. Don’t expect a straight line recovery, there will be zigs and zags along the way, but the overall trend will continue higher. In other news today, initial claims for unemployment insurance fell 37,000 last week to 335,000, the lowest level in five years. The four-week moving average is 359,000. Continuing claims for regular state benefits rose 87,000 to 3.21 million. Combined with other data, we’re penciling in a trend-like payroll gain of 160,000 for January. The one piece of bad economic news was the Philadelphia Fed index, a measure of manufacturing sentiment, falling to -5.8 in January from +4.6 in December. This reinforces the soft reading from the Empire State index earlier this week. However, regional manufacturing surveys measure sentiment, not actual activity, and so may be influenced by negative news reports about the debt limit debate in Washington, DC.

[G M]

http://blogs.telegraph.co.uk/news/nilegardiner/100196709/128-million-americans-are-now-on-government-programs-can-america-survive-as-the-worlds-superpower/

128 million Americans are now on government programmes. Can America survive as the world’s superpower?
By Nile Gardiner US politics Last updated: January 8th, 2013



The economic future doesn't look bright for the US superpower
I have just read a staggering report written by my colleagues Patrick D. Tyrell and William W. Beach for the Heritage Foundation's Center for Data Analysis (I direct the Margaret Thatcher Centre for Freedom at Heritage.) It is a real eye-opener for anyone who cares about America’s future as the world’s superpower, on either side of the Atlantic. Ironically, Britain, through the tremendous determination of Iain Duncan Smith and his team at the Department of Work and Pensions, is starting to roll back the welfare state, precisely at the same time the current US administration is expanding it.

The United States isn’t just gliding towards a continental European-style future of vast welfare systems, economic decline, and massive debts – it is accelerating towards it at full speed. Or as Acton Institute research director Samuel Gregg puts it in his excellent new book published today by Encounter, America is already “becoming Europe,” with the United States moving far closer to a European-style welfare state than most Americans realize.

Tyrell and Beach point out in their Heritage paper, which is based on extensive analysis of the recently released March 2011 US Census Bureau Current Population Survey (CPS), that more than two in five Americans are now on government programs:

The number of people receiving benefits from the federal government in the United States has grown from under 94 million people in 2000 to more than 128 million people in 2011. That means that 41.3 percent of the US population is now on a federal government program.

Just as worrying is the rate of increase in spending on these federal government programmes:

Between 1988 and 2011, spending on dependence-creating federal government programs has increased 180 percent versus “only” a 62 percent increase in the number of people who are enrolled in federal government programs, and a 27 percent increase in the population. Not only are more people enrolled in government programs than ever before, but more US taxpayer dollars are being spent on each recipient every year.

This level of spending is simply unsustainable. “In 2010, over 70 percent of all federal spending went to dependence-creating programmes,” a figure which is likely to rise further in coming years, with the number of Americans enrolled in at least one federal programme growing “more than two times faster than the US population.” As the report’s authors argue:

The time to reform dependence-creating government programs is now. The problem is too much government subsidizing, and too much transfer of wealth from taxpayers to those who pay fewer and fewer taxes. After all, government does not create wealth by spreading it around.

Congress would do well to remember that there are no free subsidies and benefits. The government today is borrowing from future taxpayers to pay the current government program enrollees.

In terms of indebtedness, America is well on the way to financial ruin, with total national debt already exceeding 100 percent of GDP according to the OECD, with publicly held federal debt projected to exceed 100 percent of US GDP by 2024. America’s government debt as a percentage of GDP (109.8 percent) based on 2012 figures now exceeds that of the general Euro area (100.6 percent), as well as France (105.1 percent) and the UK (105.3 percent). Only Greece (181.3 percent), Iceland (124.7 percent), Ireland (123.2 percent), Italy (127 percent) and Portugal (125.6 percent) currently exceed the US in terms of government gross financial liabilities as a percentage of GDP.

Unless there is a dramatic reversal in the overall approach taken by the US government, with deep-seated entitlement reform, significant cuts in government spending and taxes, and a return to policies that advance rather than hinder economic freedom, the United States faces a bleak economic future, with devastating implications for American leadership on the world stage and the future of the free world.

It is simply unimaginable for US leadership to be replaced by that of China, with its callous disregard for liberty, human rights and democratic values. An America that ends up like much of the European Union, dominated by big government ideology, drowning in debt, over-regulation, heavy taxation and chronically high unemployment, combined with weak militaries and an unhealthy deference to supranationalism, is a nightmare scenario. Unfortunately the US presidency remains firmly stuck in denial, as it has been for the last four years. This latest report serves as another warning for an administration perilously sleep-walking America towards economic disaster. It is time for the White House to wake up.

[Crafty_Dog]

Existing Home Sales Declined 1.0% in December to an Annual Rate of 4.94 Million Units To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 1/22/2013

Existing home sales declined 1.0% in December to an annual rate of 4.94 million units, coming in below the consensus expected 5.10 million rate. Sales are up 12.8% versus a year ago.

Sales in December were down in the Midwest and South, but up in the West and Northeast. The decline in sales was due to a slower sales pace for single-family homes. Condo/coops sales rose slightly.

The median price of an existing home rose to $180,800 in December (not seasonally adjusted), and is up 11.5% versus a year ago. Average prices are up 10.5% versus last year.

The months’ supply of existing homes (how long it would take to sell the entire inventory at the current sales rate) fell to 4.4 in December from 4.8 in November. The decline in the months’ supply was due to lower inventories for single-family homes. Condo/coops inventories rose slightly.

Implications: Existing home sales fell 1.0% in December, but remain right near the highest sales pace since November 2009, which was artificially boosted by the $8,000 homebuyer credit. Sales are up 12.8% from a year ago. Meanwhile, the inventory of existing homes fell to 1.82 million in December from 1.99 million in November, the lowest level since January 2001. Inventories are down 21.6% from a year ago and the months’ supply of homes (how long it would take to sell the entire inventory at the current selling rate) fell to 4.4, the lowest level since May 2005 when we were in the height of the housing boom. Just a year ago, the months’ supply was 6.4. In the year ahead, higher prices and sales volumes should lure more potential sellers into the market. The 11.5% gain in median prices versus a year ago can be attributed to a couple of factors. First, a lack of inventory while demand is picking up. Second, fewer distressed sales and more sales of larger homes. This can be seen in the data as homes priced from $0-$100,000 were down 16.7% from a year ago while those $1,000,000+ are up 62.3% from a year ago. In general, it still remains tougher than normal to buy a home. Despite record low mortgage rates, home buyers face very tight credit conditions. Tight credit conditions would also explain why all-cash transactions accounted for 29 percent of purchases in December versus a traditional share of about 10 percent. Those with cash are able to take advantage of home prices that are extremely low relative to fundamentals (such as rents and replacement costs); for them, it’s a great time to buy. With credit conditions remaining tight, we don’t expect a huge increase in home sales anytime soon, but the housing market is definitely on the mend. In other news, the Richmond Fed index, a survey of mid-Atlantic manufacturers, fell to -12 in January from +5 in December. Regional manufacturing surveys have been coming in weaker so far in January, but this may be a head fake considering a lack of supporting evidence such as an increase in unemployment claims. Expect more plow horse growth ahead.

[Crafty_Dog]

The signs of a real estate rebound are emerging in all sorts of places. Over this past weekend, I participated in an all-cash offer for a house that went on the market a few days before at $450K. We offered $487.5K. There were 8 offers as of Sunday. It sold to someone with a better offer than ours, probably over $500K. The son of a good friend of ours made an offer on a just-listed home in Seattle last Friday. It went on the market for $420K and was sold to an all-cash buyer for over $500K after receiving over 20 offers.

Buyers are getting desperate. Inventory is low. Prices are moving up. A classic picture of a turnaround.

On Jan 16, 2013, at 8:22 AM, David M Gordon <davidmgordon@gmail.com> wrote:

And so it goes... Except, in the case of Seattle's commercial real estate, improves.
January 15, 2013
Amazon Drives Seattle Office Market Surge
By KRISTINA SHEVORY

If the strength of Seattle’s office market could be chalked up to one company, it would be Amazon.

Last year, the online retailer was responsible for the city’s biggest deal, its largest lease and the purchase of the only large chunk of downtown land to come on the market in decades. Amazon bought its 1.8-million-square-foot headquarters last month from Vulcan Real Estate for $1.16 billion, the biggest office sale nationwide and a bold departure for a company that had been content to rent space until last year.

And it’s not done yet. Although Amazon leases or owns 2.7 million square feet of space in Seattle, the online retailer plans to more than double that figure when it breaks ground on three office towers of its own on the northern fringe of downtown this year. Amazon did not return calls seeking comment.

Amazon’s flurry of activity has led to rent increases and a drop in office vacancy and has inspired confidence in the market. Other companies, largely led by technology firms, have shaved the vacancy rate to 10.7 percent at the end of last year, from 12.4 percent in the fourth quarter of 2011, according to Kidder Mathews, a commercial real estate brokerage.

The biggest vacancy decrease has been in South Lake Union, an area north of downtown where Amazon’s stake in the neighborhood has drawn other companies looking for large floorplates and new buildings. In the last three years, about half of Seattle’s net absorption, or the amount of space companies leased and occupied, was in South Lake Union, where the vacancy rate fell to 5.4 percent from 9.3 percent, according to CBRE, a commercial real estate brokerage.

“We’re seeing a lot of companies that want to be closer to Amazon and that synergy, whether they do business with Amazon or not,” said Jesse Ottele, a senior vice president at CBRE in Seattle.

A tighter office market has pushed up rents across the city. The average rent rose to $29.19 a square foot at the end of last year, from $27.80 in the fourth quarter of 2011, according to Kidder Mathews. With few large blocks of Class A office space available and little new space expected to reach the market soon, brokers expect rents to go even higher this year.

Developers are now talking about building again — even without a tenant. Eight million square feet of office space are in the works across the city, with more than half planned or under construction in South Lake Union, according to CBRE. Residential developers will also open 5,800 units this year, the most in decades, according to Dupre & Scott Apartment Advisors, a research firm.

Vulcan Real Estate is betting more companies will want to move to South Lake Union. Although the developer, which owns 30 percent of the land there, has built more than five million square feet of space in the last decade, it has up to seven million square feet of space left that it can build. This year, Vulcan is breaking ground on two office buildings leased to Amazon and a life-sciences research building. If the City Council raises height limits in the neighborhood this spring, Vulcan may move ahead with plans for two more office buildings and three 24-story residential towers.

“We’re now looking to position ourselves for a recovering economy and teeing up speculative buildings,” said Ada Healey, a vice president at Vulcan Real Estate. “We want to be in a situation to take advantage of 2013.”

Other developers are also moving ahead in anticipation of the height rezoning. After purchasing blocks in South Lake Union in the last year and a half, Touchstone and Skanska, a Swedish development and construction company, submitted permits for three office buildings, for a total of 1.1 million square feet, that would exceed current limits. Company executives said they would consider building without a signed tenant.

“Sometime around mid-2012, we saw rents for Class A office that justified new construction,” said Lisa Picard, executive vice president of Skanska USA Commercial Development in Seattle. “The project is ready to start. We’ll look at the supply and demand of the market and decide whether to go.”

Seattle appears to be at the top of many investors’ shopping lists. The Urban Land Institute ranked the city as fourth-best in the country for office buildings thanks to its projected job growth of 1.2 percent and its roster of expanding brand-name companies like Starbucks, Nordstrom and Boeing. Real estate investors, who are looking for steady returns, have flocked to Seattle for its stable and growing companies.

“The capital followed the fundamentals,” said Kevin Shannon, CBRE’s vice chairman in Los Angeles. “Seattle and San Francisco were the two stars in West Coast markets. A couple of years ago, I’m not sure Seattle would be on a core shopping list. We now have a lot of people looking at Seattle.”

The city’s investment market cemented its revival last year. The volume of deals skyrocketed 203 percent in 2012 over the previous year, to $5 billion, according to Real Capital Analytics, a research and consulting firm. Among the 14.5 million square feet sold, Amazon’s headquarters space is the largest.

The sale of the Russell Investments Center building early last year, though, was perhaps the most significant of the year because it showed the city’s investment market had fully recovered. When the 42-story office tower was put up for sale in late 2011, it attracted 34 buyer tours, an “incredible” number, said Mr. Shannon of CBRE, which handled the sale. It sold last spring for $480 million — more than four times its purchase price in 2009.

After its bid for the Russell building lost, Clarion Partners, an investment management company, looked for other buildings with the same “blue chip roster” and reliable rents, which it found at 1201 Third Avenue, the city’s second-tallest tower and a former headquarters of the failed Washington Mutual. Clarion advised on a deal to sell the 55-story tower for $548.8 million, the 10th-largest deal in the country last year, to a joint venture of MetLife and an unidentified institutional real estate investor.

“We expect it to continue to have blue chip tenancy and generate good, predictable cash flow,” said Steve Latimer, a managing director at Clarion Partners. “We’re not expecting spectacular headlines of tripling our money in three years, just steady growth.”

Seattle’s brisk sales pace may slow this year since so many office buildings have traded hands and there are few left.

“Were there other first-class properties, we’d be interested,” said Mr. Latimer, Clarion’s Seattle director. “Seattle is clearly a market that will continue to grow.”

Scott Grannis
http://scottgrannis.blogspot.com

[DougMacG]

Interesting to hear of isolated improvements.  This 'turnaround' comes is the context of zero net appreciation in the past 13 years.  Source:  Scott Grannis.  These nominal gains, if they are gains, are (also) in the context of trillions of dollars injected, as mentioned with oil and stocks.  We don't know right now what nominal gain in real estate you will need to break even with dollar dilution going forward.

Real estate is a hard asset.  Instead of comparing with an ever-changing dollar, how is it doing compared with other hard assets?

[ppulatie]

Scott and I have our differences on the Housing Market.  In his comments, he states:

"Buyers are getting desperate. Inventory is low. Prices are moving up. A classic picture of a turnaround."

But with this comment, he ignores salient issues that have caused the above.  The simple truth is that the inventory is low because banks are deliberately withholding inventory from market, either by not foreclosing, or not listing foreclosed properties on the MLS.  Therefore, in most of CA, there is a one month inventory of homes for sale.  Of course this will drive up prices.  But this is not a turnaround. 

The problem is when you go inside the numbers and what you see.

a. The growth in Housing Starts is generally confined to multiple unit, not single family.  Multiple units are mostly apartments being built for renters who cannot afford anything else. In other words, investors who partake in housing construction see where the future is, and it is not single family.

b. Single Family Starts is misleading, especially when quoting the Seasonally Adjusted Numbers.  Single Family for 2012 was the 3rd worst since 1963, when records began to be kept.  And, 1963 had only 178m people in the US.  (Three of the 5 worst years have been since the crash.)

c.  Housing Starts are only occurring because of the reduced inventory available for sale.  If the banks were doing foreclosures, then there would be much more inventory and prices would be much less.

d.  There are over 6 million homes, delinquent or in foreclosure.  90% of the homes will eventually be foreclosed upon. They are only being delayed because of regulations from the Fed and States.  Also, banks do not want to foreclosure because the added inventory will drive home values down.

e.  52% of homeowners are in either Negative Equity or Near Negative Equity positions, or haven't enough equity to sell and purchase a new home as a move up buyer.  There is no Move Up Market to speak of, yet Move Up Buyers are the key to any recovery.

f.  If home values decrease, whether from more foreclosures, or higher interest rates, more Negative Equity situations occur.  When this happens, the more defaults than occur, especially as Negative Equity hits 125%.  At that point, more defaults occur which drives prices down, causing more defaults.  The "Housing Death Spiral".

g.  If you look at the areas where home values are increasing, it is because inventory is down to about 1 month supply. Yet, the numbers of homes in foreclosure in each area is extremely high. (Las Vegas, Phoenix, CA, and elsewhere.) Let the foreclosures begin again, and values will begin to drop.

h.  A large portion, over 30% are investors doing cash sales. In CA, from what I hear from realtors, up to 50% is money from China, and most of the rest is from REIT's.  Homeowner investors are taking out seconds on their property, or investment properties that they own, to buy.  (Surprise, surprise, surprise.)  This is not representative of a healthy market.

i.  The 25-35 age cohort simply does not have the income available to buy.  They are debt laden and cannot afford anything.  Homeownership rates in the cohort is dropping fast.

j.  The 35-45 cohort is in a similar position, except that the ones owning  homes haven't the equity or income to become Move Up buyers.

k.  The homeowners that bought investment properties in the Boom Years were generally in the 55-65 age cohort.  They are out of the market now, due to aging and equity issues.  The ones replacing them in the cohort were the 45-55 group that lost out big in the collapse.

l.  New family creation is stymied at about 600k per year.  This does not even cover total Starts, Single Family & Multi Unit, even if they could afford to buy.

m.  Immigration is about 800,000 legal per year.  Unless they bring money, they cannot afford to buy.

n.  Falling incomes and lack of jobs is creating less opportunity to buy, and more foreclosures.

o.  The new Qualified Residential Mortgage Rules coming out still require no more than 80% loan to value and no piggy back 2nds, increasing the loan to value.  If it is finally adopted in 2014, then that will preclude further buyers, unless they go FHA.  Of course, FHA is now underwater itself, and is experiencing 16.7% default rates.

p.  The Fed continues to buy $85 billion per month in mortgages, whether MBS ($40b) or New Originations, ($45b). Pull this out, and here comes the collapse.

q.  New laws like the CA Homeowner Bill of Rights only serves to delay foreclosures further.  In fact, it was solely because of lenders changing procedures for foreclosures and the drop in CA was so massive that it caused the slowdown across the country.  Soon, CA will become almost all Judicial Foreclosure, and go away from Non-Judicial Foreclosure. That is because the Bill of Rights states that for every violation in the foreclosure process, the "lender/foreclosure firm" will pay $7500 to the state.  And, if a foreclosure is concluded with defects, then the Homeowner has actual damages from $50k minimum up, whichever is greater.  (I can find flaws with most foreclosures.)  So, lenders will end up taking the foreclosures to court, instead of risking the fines.

I speak with very involved people who are active in the housing industry.  Many are doing Portfolio Risk evaluations, and one was the former Risk Officer for Freddie Mac.  Others are former Risk Officers of banks.  All say that the "recovery" is a joke, and is not to be believed.  Their time frames for an actual recovery, though at a slow rate, is from 10 to 15 years out.
 

[G M]

Outstanding as usual, Pat!

[ppulatie]

Thanks Doug.  Scott and I do have significant differences.


BTW,

My guess on Housing Starts coming out.  

Adjusted Starts will be up by 10%, month over month, and 30% year over year.

Non Adjusted will be about 58k  total, and about 34k single family.  Just a WAG...............but we shall see.

[Crafty_Dog]

Quality work Pat!

[ppulatie]

Scott mentions his experience on buying a piece of property.  Where I live in the Bay Area, similar things are happening.  Here are the facts behind what is happening here.

1.  Inventory is down to one month's supply. An equal mixture of homes under 2000 sq feet and above 2000 sq feet.

2.  Huge amount of foreclosures being held from market.  It is nothing to see a year before they are listed.

3.  Even greater number of delinquent homes over 90 days without Notice of Defaults filed.

4.  Large numbers of homes in the mod process, taking 6 months or more for a decision.

5.  25% of purchases for cash, Asian buyers.

6.  About 35% are REITS, buying straight from the lenders without listings.

7.  10% Move Up Buyers.

8.  Rest FHA, about 30%, 3.5% down, usually Hispanic buyers.

9.  Homes under 1900 sq ft are going for about $125 to $135 per sq foot, more than 20% above true market value, but going for that due to buyer bidding war for the properties, from lack of inventory.

10. Homes above 2300 sq ft generally going about $100 per sq ft.  Above 3000 sq ft, about $90 per ft.

11.  Investors buying homes no more than 1800 sq ft, and paying no more than $140k at the most. They try to keep purchase prices under $120k.

Does this sound like a healthy market? Or one that is recovering?  The media and realtors say so, but I don't believe them.

[DougMacG]

Excellent points, all of them.  Singling this one out: 

"A large portion, over 30% are investors doing cash sales. In CA, from what I hear from realtors, up to 50% is money from China, and most of the rest is from REIT's.  Homeowner investors are taking out seconds on their property, or investment properties that they own, to buy.  (Surprise, surprise, surprise.)  This is not representative of a healthy market."

On other threads we have been discussing income tax rates in general and California in particular.  Both federal and state tax rates just went up in Calif on high incomes, tending to chase away productive investment and new hiring.  A surge of foreign cash coming in to buy existing homes may be a surprise, but not a contradiction to that theory.  Wealth coming in is not taxed, just new income.  Cash sales of existing home causes almost no new hiring for an investment that size, just a name change on the title.  For the seller it is a tax free transaction because of the homestead exemption and decreased values, and selling the home can be a ticket to leave Calif.  A surge of foreign cash buyers of existing homes in popular coastal areas does not in itself change the Calif employment situation.  Unemployment is currently 9.8% and likely to get worse.  Hard to wage a real recovery in housing when the most important underlying factors, business investment and employment, are so gravely ill.  MHO.

[ppulatie]

Housing Starts are in for January.

58k total Starts, Non Adjusted.  Called it right.

Single Family ran 39.6, up 1900 from Dec 2012.  Off by 5600.  Surprise that these were up. 

Key points

Northeast had 3k, down 800 from the previous month. 
Midwest down 1200 to 4.1k
South up 3300 to 23.6k
West up 900 to 8.9k

Year over Year, there were 6500 more Single Family housing starts than last year.  All areas had increases, with the South having 3900 more, the West at 2800 more, 400 for both the Midwest and the Northeast. An improvement, but it does not mean much.

Why are Housing Starts increasing?  Could it have anything to do with the low inventory of homes on the MLS?  Are people buying new homes over resales because of the "status" of a new home?

[ppulatie]

Here is the Market Share of the GSE's, etc.  Sure, this is a "healthy" recovery........

The reality is that with the CFPB and their new mortgage regulations, with the Safe Harbor for GSE loans, we will never be rid of the GSE's.  They are and will be the only market for home loans.


http://washingtonexaminer.com/federal-government-controlled-99.3-percent-of-mortgage-market-in-2012/article/2522042




Federal government controlled 99.3 percent of mortgage market in 2012

Fannie Mae, Freddie Mac, and Ginnie Mae, the three major Government Enterprises created to control the U.S. housing market, issued 99.3 percent of all mortgage backed securities (MBS) in 2012, according to Freddie Mac’s 2013 Investor Presentation. As recently as 2005 these government agencies backed just 45 percent of all mortgages issued in the United States, although they did purchase vast quantities of the mortgages backed by private issuers.

Fannie Mae, created by President Roosevelt during the New Deal, and Freddie Mac, created by Congress in 1970, were both nominally private corporations before the housing bubble popped in 2008. Investors had long charged Fannie and Freddie less to borrow money since they were created by the federal government and it was assumed creditors would be bailed out if the companies ever went under. That is exactly what happened during the financially crisis costing U.S. taxpayers $154 billion so far.

Last year, Treasury Secretary Tim Geithner announced that the Obama administration would pursue legislation that would “wind down the GSEs and bring private capital back into the market, reducing the government’s direct role in the housing market.” That, of course, never happened. Instead, government control of the housing sector rose every year under Geithner’s watch from 95.2 percent in 2008 to 99.3 percent today.

Conservatives have long pushed for elimination of the housing Government Enterprises, arguing that the federal government’s role only enriches bankers at the taxpayers expense, distorts markets, and makes housing unaffordable. A recent Heritage Foundation study found the Fannie and Freddie could be completely privatized without any major disruption to the U.S. housing market.

[Crafty_Dog]

Housing Starts Fell 8.5% in January to 890,000 Units at an Annual Rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 2/20/2013

Housing starts fell 8.5% in January to 890,000 units at an annual rate, coming in below the consensus expected 920,000 pace. Starts are up 23.6% versus a year ago.
The decline in starts in January was all due to multi-family, which fell 24.1%. Single-family starts increased 0.8%. Multi-family starts are up 32.5% from a year ago while single-family starts are up 20.0%.
Starts were down in the Northeast and Midwest, but up in the South and West.
New building permits rose 1.8% in January to a 925,000 annual rate, slightly above consensus expectations. Compared to a year ago, permits for single-unit homes are up 29.2% while permits for multi-family units are up 47.0%.
Implications: Take the headline drop in housing starts with a huge grain of salt. Although housing starts fell 8.5% in January, that only partially offsets the 15.7% spike upward in December. As we noted last month, December’s weather was unusually mild, with the average temperature in the contiguous 48 states tying the highest for any December since the 1950s. As a result, a drop in January was expected. The decline in January was even steeper than the consensus (or we) expected, but all of it was due to the very volatile multi-family sector. Single-family starts hit the highest since 2008. Also, were it not for that tremendous surge in December, the level of starts in January would have been the highest since 2008, even including the drop in multi-family. In other words, the underlying trend remains strong. Single-family starts are up 20% from a year ago, while multi-family starts are up 32.5%. The total number of homes under construction (started, but not yet finished) were up 1.5% in January and are up 26% from a year ago. Building permits increased 1.8% in January and are up 35% from a year ago, signaling continued growth in home building in 2013. Based on population growth and “scrappage,” housing starts will eventually rise to about 1.5 million units per year (probably by 2015), which means the recovery in home building still has much further to go. In other recent housing news, the NAHB index, which measures confidence among home builders, slipped to 46 in February from 47 in January. The decline was due to less foot traffic among prospective homebuyers. Don’t get worked up about this dip, which follows nine consecutive increases. The bottom line is that housing – construction, prices, and sales – is well into recovery and will continue along this path for the next few years. That path will not be perfectly straight, there will be zigs and zags along the way. Just don’t let those temporary deviations distract from the trend.

===========================

The next FHA bubble-- Morris

http://www.dickmorris.com/the-new-housing-crash-dick-morris-tv-lunch-alert/?utm_source=dmreports&utm_medium=dmreports&utm_campaign=dmreports

[ppulatie]

Why don't people like Wesbury look behind the numbers to what is really occurring?  At a certain point, this gets absurd. 

[Crafty_Dog]

________________________________________
New Single-Family Home Sales Boomed 15.6% in January 
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 2/26/2013

New single-family home sales boomed 15.6% in January, to a 437,000 annual rate, well above the consensus expected pace of 380,000. Sales are up 28.9% from a year ago.
Sales were up in all major regions of the country.
The months’ supply of new homes (how long it would take to sell the homes in inventory) fell to 4.1 in January from 4.8 in December. All of the decline was due to a faster selling pace. Inventories of new homes were unchanged.
The median price of new homes sold was $226,400 in January, up 2.1% from a year ago. The average price of new homes sold was $286,300, up 7.8% versus last year.
Implications: New home sales boomed in January rising 15.6% to a 437,000 annual rate, the highest level since July 2008. Sales are up 28.9% from a year ago. The new home market, which is typically the last piece of the housing puzzle to recover, is clearly improving. As a result of faster sales, the months’ supply of new homes -- how long it would take to sell the homes in inventory -- fell to 4.1, the lowest since 2005. This is well below the average of 5.7 over the past 20 years and roughly the same as the 4.0 months that prevailed in 1998-2004, during the housing boom. This means that as the pace of sales continues to rise over the next few years, home builders will have room to increase inventories. After a large reduction in inventories over the past several years, builders look like they're getting ready for that transition. Inventories have not fallen for five straight months. The median price of a new home is up 2.1% from a year ago, while average prices are up 7.8%, showing that higher priced homes are moving faster. In other housing news this morning, the FHFA index, a measure of prices for homes financed with conforming mortgages, increased 0.6% in December and is up 5.8% in the past year. The Case-Shiller index, a measure of home prices in 20 major metro areas, showed a 0.9% gain in December and is up 6.8% in the past year, the largest gain since 2006. Prices rose in 19 of the 20 areas, with only New York showing a year-over-year decline. In other news, the Richmond Fed index, a survey of mid-Atlantic manufacturers, rose to +6 in February from -12 in January. Manufacturing reports have been mainly positive in February and are consistent with moderate plow horse-like growth in that sector and the economy as a whole.

[Crafty_Dog]

Zillow ®, in partnership with Pulsenomics, recently released the winners of their annual “Crystal Ball Awards” for the top home price forecasters of 2012. From a panel of over 100 economists, investment strategists, and housing market analysts, the First Trust economics team led by Brian Wesbury and Bob Stein took first place for their forecast of home price gains in 2012. The full rankings and additional information regarding the survey can be accessed on the Pulsenomics website.

[G M]

Zillow ®, in partnership with Pulsenomics, recently released the winners of their annual “Crystal Ball Awards” for the top home price forecasters of 2012. From a panel of over 100 economists, investment strategists, and housing market analysts, the First Trust economics team led by Brian Wesbury and Bob Stein took first place for their forecast of home price gains in 2012. The full rankings and additional information regarding the survey can be accessed on the Pulsenomics website.

I'll put it this way, Wesbury deserves this award as much as Buraq deserved his Nobel Peace Prize.



About Pulsenomics LLC











Pulsenomics LLC is an independent consulting and research firm that provides its clients unique and objective insights to enhance new product development and strategy, to revitalize services, and to build brand recognition.  We specialize in developing markets for data-driven products and services, investable indices, exchange-traded products and real estate derivatives.


By monitoring the pulse of relevant markets, competition, regulatory and political landscapes - and by drawing from decades of experience in executing strategic plans for mold-breaking products and services - Pulsenomics delivers solutions and market intelligence that are timely, relevant, and conducive to sustained competitive advantage.
 
Our research effort includes creation and management of expert surveys, corporate/employee surveys, consumer surveys and polls to identify trends and expectations that are relevant to effective business management and monitoring economic health.
 







Founder
 Terry Loebs is the Founder and Managing Member of Pulsenomics LLC.
 
Terry has more than 25 years of product development, product marketing, data analytics, sales and business development experience in the financial industry.  Most recently, as a Managing Director of and consultant to MacroMarkets LLC, he led the effort to transform and establish the Case-Shiller Home Price Indices (now known as the S&P/Case-Shiller Home Price Indices) into the world’s most recognized home price performance benchmark. Terry was also a catalyst for the development of related financial products and foundational market infrastructure for U.S. home price risk management, as well as for product marketing initiatives for MacroShares, an innovative exchange-traded product structure for commodities, real estate, economic indicators and other alternative asset classes.
 
At Case-Shiller Weiss, Inc., Terry was director of business development and sales before becoming its Co-President.  As Senior Vice President at Fiserv Inc. (purchased CSW in 2002), Terry continued his leadership of the property data analytics group and related product management, sales, marketing and business development activities.
 
Terry developed and managed the Case-Shiller Index business, home price forecast and automated valuation model products of the company for more than a decade, and he is recognized as a pioneer in fostering broad acceptance and understanding of home price indexes, property valuation and other risk management technologies within the lending and mortgage-backed securities industries.  Terry started his career on Wall Street as a fixed income analyst and soon thereafter became immersed in the mortgage capital and housing markets as a whole loan trader, mortgage servicing rights and financial institutions banker.   Terry earned his undergraduate degree at the Fairfield University School of Business, and his MBA at The New York University Stern School of Business.  He holds Finra Series 7 & 63 licenses.
______________________________________________________________________________________________

What is Zillow?
 
Our Mission
 

Our mission is to empower consumers with information and tools to make smart decisions about homes, real estate and mortgages.
 
What We Do
 

Zillow is a home and real estate marketplace dedicated to helping homeowners, home buyers, sellers, renters, real estate agents, mortgage professionals, landlords and property managers find and share vital information about homes, real estate and mortgages. We are transforming the way consumers make home-related decisions and connect with real estate professionals.
 
It starts with our living database of more than 110 million U.S. homes* - including homes for sale, homes for rent and homes not currently on the market. Add to that Zestimate® home values, Rent Zestimates and lots of other useful information you won't find anywhere else, and as a result, consumers are given an edge in real estate.
 
In addition to Zillow.com, we also operate Zillow Mortgage Marketplace, where borrowers connect with lenders to find loans and get the best mortgage rates; and Zillow Mobile, the most popular real estate mobile platform today.
 
What's With the Name?
 

The Zillow name evolved from the desire to make zillions of data points for homes accessible to everyone. And, since a home is about more than just data - it is where you lay your head to rest at night, like a pillow - "Zillow" was born.
 
* Zillow Internal, February 2013
 


--------------------------------------------------------------------------------


By Diane Tuman

[G M]

It'll really work this time, I swear!

http://www.cnbc.com/id/100548913

No Money? No Worries. Home Lenders Ease Up Rules


   
 Published: Wednesday, 13 Mar 2013 | 8:41 AM ET
By: Diana Olick
CNBC Real Estate Reporter



Mortgage Credit Show Signs of Thawing
 Wednesday, 13 Mar 2013 | 8:18 AM ET
CNBC's Diana Olick reports banks and lenders are loosening up the purse strings. There's been a "noticeable increase" in the purchase of fixed-rate low down payment loans, some with as little as 3-5% down, but they may require mortgage insurance.





 As housing heads into the critical spring market, credit is finally beginning to thaw. Lenders are increasingly approving low down payment loans, and government sponsored mortgage giant Fannie Mae is buying more of them.



It is a noticeable shift from the last four years, when 20 percent down on a home purchase loan was the only game in the neighborhood.

"In general lenders have been willing to do more than they may have been willing to do in the past," said John Forlines, chief credit officer for Fannie Mae's single family business. "Our requirements have not changed significantly, but other parties taking risk, the lenders and mortgage insurance companies in particular, have been more flexible than they may have been in the past."
 

Fannie Mae will buy loans with as little as 3 percent down payment, but these loans require private mortgage insurance. During the worst of the housing crash, when the private insurers were sinking under billions of dollars in claims on defaulted loans, that insurance was tough to get.
 



The only low down payment loan left was through the Federal Housing Administration (FHA)—the government's loan insurer. The FHA took on a huge share of the market, far more than it was ever meant to, and while that helped prop up the mortgage market in the short term, it was not sustainable, and the FHA took on huge losses.

[G M]

It'll really work this time, I swear!

http://www.cnbc.com/id/100548913

No Money? No Worries. Home Lenders Ease Up Rules


   
 Published: Wednesday, 13 Mar 2013 | 8:41 AM ET
By: Diana Olick
CNBC Real Estate Reporter



Mortgage Credit Show Signs of Thawing
 Wednesday, 13 Mar 2013 | 8:18 AM ET
CNBC's Diana Olick reports banks and lenders are loosening up the purse strings. There's been a "noticeable increase" in the purchase of fixed-rate low down payment loans, some with as little as 3-5% down, but they may require mortgage insurance.





 As housing heads into the critical spring market, credit is finally beginning to thaw. Lenders are increasingly approving low down payment loans, and government sponsored mortgage giant Fannie Mae is buying more of them.



It is a noticeable shift from the last four years, when 20 percent down on a home purchase loan was the only game in the neighborhood.

"In general lenders have been willing to do more than they may have been willing to do in the past," said John Forlines, chief credit officer for Fannie Mae's single family business. "Our requirements have not changed significantly, but other parties taking risk, the lenders and mortgage insurance companies in particular, have been more flexible than they may have been in the past."
 

Fannie Mae will buy loans with as little as 3 percent down payment, but these loans require private mortgage insurance. During the worst of the housing crash, when the private insurers were sinking under billions of dollars in claims on defaulted loans, that insurance was tough to get.
 



The only low down payment loan left was through the Federal Housing Administration (FHA)—the government's loan insurer. The FHA took on a huge share of the market, far more than it was ever meant to, and while that helped prop up the mortgage market in the short term, it was not sustainable, and the FHA took on huge losses.

http://www.americanbanker.com/bankthink/problems-at-fha-too-big-for-congress-to-ignore-1057393-1.html

Problems at FHA Too Big for Congress to Ignore


Larry Taylor

MAR 12, 2013 9:00am ET



Recent blog posts from the House Financial Services Committee about the risks in the Federal Housing Administration indicate significant and growing political risk for the program. Clearly Chairman Jeb Hensarling (R-TX) and his fellow Republicans have some issues with the program, but even less partisan observers of the program recognize there are significant problems. Most recently, the U.S. Government Accountability Office identified the program as high risk and in need of reform.

The deteriorating financial condition of the FHA stems mainly from its slow response to changing market conditions and its attempts to prop up a rapidly deteriorating residential housing market. As the bubble began to burst, the FHA was slow to adjust its guarantee programs and Congress even significantly increased the size of loans the FHA could make in 2008, moving the FHA far beyond its original mission of providing home loans to low-income Americans. As a result, the dollar volume of new loans guaranteed by the FHA tripled between 2007 and 2008, then almost doubled again in 2009, to more than $330 billion. As of the end of FY 2012, the FHA insured $1.1 trillion of loans through its Mutual Mortgage Insurance Fund programs.

The FHA continued to increase the amount of loans it guaranteed despite not meeting its congressionally mandated capital threshold of 2%. According to the FHA, this was done to help prop up the housing market, which is plausible. A less charitable interpretation, however, is that the FHA continued to "double down" on the housing market in an attempt to keep its capital levels above zero, but ran out of room to keep doubling its exposure as its market share rose from less than 5% of originations in 2006 to almost 30% of all originations in the third quarter of 2008. The rapid addition of new loans, which had not yet had time to sour, allowed the FHA to offset the impact of its older insured loans with expected revenue from insurance on new loans.

The FHA has dramatically improved the credit scores of its borrowers in recent years, but continues to be a major source of mortgages to people with bruised or nonexistent credit histories. In the fourth quarter of FY2012, 44% of all FHA borrowers either had no credit score or a score of 679 or lower. In addition, the FHA's commitment to low down payment financing has not wavered through the depths of the credit crisis, as 95% or greater loan-to-ratio financing has continued to make up an overwhelming majority of the loans guaranteed by the FHA.

As a result, most FHA borrowers owe more on their home than they are likely to net on sale for at least several years after origination, assuming a stable housing market. Given the huge volume of loans guaranteed by the FHA in recent years, the preponderance of FHA borrowers who are mediocre to poor credit risks, and the likelihood of these borrowers owing more than their house is worth after factoring in sales costs, the FHA could continue to have the potential to incur huge losses in the event of future housing market downturns for the foreseeable future.

[ppulatie]

Thought it was time to check in again, and see what was being posted.  I have been heavily involved in Expert Witness work for a couple of homeowners and also further development of the Loan Default Risk Score.

Yesterday, I was in a meeting with people who are working on the Compliance Systems for lenders for Basel 3 risk issues. We were discussing different things, and of course FHA came up, as well as many different things.  All present, even a former Fannie Mae Risk Expert, had the same view of FHA, "bury it".

The consensus of all was that the Housing Recovery is smoke and mirrors, especially in light of 50% of home sales now being cash offers.  It is a propped up market, with much to fear, especially if the Fed can effect a 2% Inflationary effect as they desire. If that happens, Interest Rates would go to 4%, and there goes any Housing Recovery by the wayside.

A key issue that we are working on is related to Risk Evaluation of Existing Loans.  Noting that not only are Living Expenses increasing, which drives up risk, but also with the costs that Obamacare will end up in reducing Disposable Income, we are trying to expand upon the Default Risk Model to reflect the added Default Probability Percentage that will certainly occur. A difficult task, but one that needs to be taken into consideration at the very least, it will go to the heart of Basel 3 needs.

The simple fact is that foreclosures are going to increase again, as Living Expenses rise, and as Obamacare and other regulatory costs increase. People cannot realistically meet needs now, for up to 50% of the population. How will they do it 5 years, or 10 years in the future?

The idiots in Washington, and in each State Capital, haven't got a clue what they are actually doing.  The added costs from the b.s. programs that they are putting together will only serve to hasten collapse further, across all demographic divisions and divides.  The strains that the Middle Class is feeling now is only going to increase, and at a certain point, is going  to completely break in the next few years.  Then, the Depression will seem like the Roaring 20's.

Sorry about the rambling thoughts, but it is very disheartening when you meet with people who have far greater understanding of the factors at play, than you do and they confirm your thoughts.  Then, when you try and develop programs to stave off or lessen collapse, the idiots in Washington and elsewhere find new ways to destroy things in the name of "good".

Over the past decade I have really come to appreciate Thomas Jefferson and his comments about the "Tree of Liberty" needing to be replenished with the blood of patriots from time to time.  And I can really accept his belief that this must be done every generation.

Time to have a glass of wine and prepare for tomorrow................Cheers!!!!!

[Crafty_Dog]

Good to see you hear Pat.

"the "Tree of Liberty" needing to be replenished with the blood of patriots from time to time."

I could be mistaken, but I remember it as being the blood of tyrants, not patriots; as Gen. Patton said, "The idea is not to die for your country, it is to make the other guy die for his country" or something like that , , ,

[ppulatie]

You are probably right about the quote.  My memory gets worse daily.  If only I could "delete" memories and information to free up space like on a hard drive.

Reading the articles written by various commentators and financial analysts is so frustrating.  They just look at the raw data, and make proclamations without any real understanding of what is going on in "backrooms" across the country.  There are very well intentioned and knowledgeable people who are trying to develop the systems and the processes to restore not just the housing market, but lending in general.  As well, they are engaged in creating the monitoring systems to evaluate risk across portfolios, and then determine true reserve requirements under various scenarios.  Stress testing is a large part.

One of the things that we often read is how lending requirements are so tight, and they must be loosened.  But they make no recommendations, and just assume it is easily done.  That is not the case.

To create "loosened" lending standards is not simply a matter of reducing FICO Scores, or allowing for higher Debt Ratios, etc.  Each loan must be looked at from its own unique perspective, taking into account a large number of different factors.  My process looks at over 40 different factors alone and then the endless combinations that will affect default risk. Even then, it will be revised frequently to take account of changing economic conditions.

To give an example of how difficult loosening lending restrictions will be, we simply look at Fannie, Freddie and FHA.  Right now, F&F have extremely high qualifying standards, but not to the extreme that the new Qualified Residential Mortgage is expected to impose.  F&F defaults are at a semi-reasonable rate.  FHA, which has looser standards, but is still greater than what was occurring during the Housing Boom, is running delinquency rates of about 17%, and default rates of 9%.  Eventually, we expect to see defaults up to 30% over a 5 year time for FHA.

Qualifying for each of the programs are based upon FICO, Loan to Value and Debt to Income Ratios.  These are loosely linked together. 

The problem with this approach is that like with FHA, far too many bad loans are being funded, but also far too many good loans are being denied because the borrowers do not meet certain standards. 

To loosen the qualifying standards means more than just reviewing FICO, Loan to Value and Debt to Income.  One must also consider actual debt loads, family size, loan size, residual income, loan purpose, borrower behavior, and many other factors not currently considered and factored into the decision. 

A person with a 780 credit score, debt to income of 41%, and loan to value of 80% might seem like a very qualified borrower. But, if we are looking at a first time buyer, new construction home, loan amount of $150k, 4 kids, payment shock and medical insurance costs,  then this borrower is almost certainly going to default on the loan at some point. It is inevitable. 

Yet, at the same time, you could have a borrower who wants a loan, 90% loan to value, cash out debt consolidation, 36% debt ratio, but has a FICO of 603, and may very well be a perfect candidate for a loan, especially if the loan amount was $500k, and no kids.  But change the parameters to 45% debt ratio and a loan amount of $150k, and there is a significantly increased risk of default.

These are the types of problems that are being addressed, and we must resolve to allow for loosened qualifying standards.  But even then, it does not end at that point. 

How are the loans going to effect Basel 3 requirements for risk?  Greater risk means greater reserve requirements.  And if economic factors change, like increased costs from Obamacare, how is that going to affect borrower default risk?  What about decreasing home values, based upon rising interest rates?  What about exit strategies for loans going into default?

Then, how does one identify loans going bad, before they do, and how to institute loss mitigation procedures before it is too late? 

Or, how does one create a good pool of mortgages for securitization, which needs to be done if there is going to be a wind down of F & F?

These are the types of questions being asked daily, and for which we are looking for answers.

[G M]

http://legalinsurrection.com/2013/03/the-real-estate-markets-demographic-problem-in-the-most-depressing-chart-ever/
The real estate market’s demographic problem in “the most depressing” chart ever

 



Posted by William A. Jacobson   Monday, March 25, 2013 at 6:30pm



26
 


74
 

How low is low? Has real estate bottomed out?
 
Via @TheBubbleBubble, some advice about not thinking the real estate bubble is done imploding:

 Jesse Colombo @TheBubbleBubble


I'd have no business whatsoever buying houses until this demographic tsunami is well underway, which years from now: http://www.businessinsider.com/matt-kings-most-depressing-slide-ever-2012-12 …



Via Business Insider,  ‘The Most Depressing Slide I’ve Ever Created’ demonstrates that we are not generating enough of a next generation to buy our houses:
 

Citi’s Global Head of Credit Strategy, Matt King, has a knack for  putting together useful illustrations.
 
Here, he examines one of the implications of one of the most powerful forces in  all of economics: demographics.
 
King explained his charts to us like this:
 

It’s what I like to call “the most depressing slide I’ve ever created.” In almost every country you look at, the peak in real estate prices has coincided – give or take literally a couple of years – with the peak in the inverse dependency ratio (the proportion of population of working age relative to old and young).
 
In the past, we all levered up, bought a big house, enjoyed capital gains tax-free, lived in the thing, and then, when the kids grew up and left home, we sold it to someone in our children’s generation. Unfortunately, that doesn’t work so well when there start to be more pensioners than workers.
 
The slide:

[ppulatie]

GM,

The article you posted can be verified through US Census Data that breaks down home ownership by Age Cohorts.  The data shows that there is not enough new potential Home Buyers coming up in the 19-24 age cohort, the 25-34 cohort, or the 35 to 44 cohort to stimulate housing purchases.  This is because only the 35 to 44 cohort actually engages in buying behavior, and they are already at average highs.  The lower cohorts haven't the income, and don't engage in the same buying behavior.

But, when I have pointed this out before elsewhere, I have been pooh-poohed...................

BTW, the GSE's have just announced a new Modification Program for their loans beginning in Jul 2013, and extending through Aug 2015.  They will be No Income Doc and No Hardship Letter Streamline Programs.  As long as you have made payments for 12 successive months on time, at any time in the past, but are now behind from 90 days up to 720 days, you are automatically eligible.  You must also have Mark to Market LTVs greater than 80%.  Principal Forbearance will be granted.

What does this mean?  Essentially, the GSE's will be stopping foreclosures for those who chose to accept it.  Just let us know and we will provide you the Interest Rate relief that you want, and forbearance relief as well.   And, if we deny you a modification if you are up to date, then just stop making payments and we will modify your loan.

This is about nothing more than pumping more money into the economy by reducing homeowner monthly payments in one manner or another.  Whether HARP, HAMP or the new program, the government is going to keep the economy going by reducing mortgage rates.

Now, here is something that I am wondering, but there are no answers to yet:

Since the GSE's are going to be "ended" (we hope) in about 5 - 7 years, is this designed to effective pump up the economy through the destruction of the GSE loans?  Is the private lending going to be left to pick up the pieces of the Real Estate Industry from there?  Or is this designed to ensure that the GSE's cannot stop their lending?

After the willful modification of these loans, essentially the GSE loans mean that this bulk of homeowners are out of the RE market, pretty much for life.  That accounts for perhaps 50% or more of the entire market, and 95% of all loans done in the past 5 years.

Now you see why I was so depressed yesterday.  It is plain b.s. what is being done.  And we are left to create the new lending industry for the future.

[G M]

Well, the 20 somethings won't be buying homes or raising families, but they'll have lots of cool Obama swag and 100,000 in student loans, so it evens out....

[G M]

http://www.cnbc.com/id/100589622

Don't Get Snookered by Rising Home Prices, Shiller Warns
Tuesday, 26 Mar 2013 | 1:00 PM ET

Home prices see their biggest gains since 2006. Discussing whether housing will lift S&P to a new record, with economist Robert Shiller, Yale University; CNBC's Jackie DeAngelis; and the Futures Now Traders, Rich Ilczyszyn at the CME and Anthony Grisanti at the Nymex.Housing data released Tuesday was mixed, showing home prices jumped while new home sales dropped, prompting renowned economist Robert Shiller to call the housing recovery positive in the short-term, but not without many headwinds. There might even be a bubble, he said.


"One thing that makes it very hard to forecast home prices right now is that we're living in a totally artificial real estate economy," said Shiller, co-creator of the Standard & Poor's/Case-Shiller Index, a widely followed measure of housing prices.

Shiller pointed to the Federal Reserve, which last week reaffirmed its policies on bond purchases and record-low interest rates. In September, the Fed launched a third round of quantitative easing (QE), in which it has bought $40 billion of mortgage-backed securities per month, primarily in mortgage-backed bonds.



Meanwhile, Fannie Mae and Freddie Mac, the two largest U.S. home funding sources, remain in government conservatorship as Congress looks for ways to raise new tax revenues, Shiller noted.


"All of these things are weighing on the futures of housing," Shiller said on CNBC's "Futures Now," adding the recovery might even be a bubble. "One thing you learn from history is that bubbles can occur at any time."


The Case-Shiller Index on Tuesday soared 8.1 percent compared to a year ago, kicking off the year with the biggest year-over-year increase since 2006. Home prices in the 20 major U.S. cities tracked by the index gained 1 percent in January versus the month prior, topping estimates for a gain of 0.9 percent.

(Read More: Home Prices Up, Best Yearly Increase Since 2006)
 
Source: World Economic Forum
Richard ShillerTo Shiller, the Phoenix and Las Vegas housing markets have grown incredibly fast, suggesting the recovery might be a little frothy. Both markets joined the housing bubble in 2004, he noted, only to later crash by 50 percent. Today, home prices in both cities are rising "with some exuberance," which troubles Shiller.


Nevertheless, Shiller thinks a full housing recovery is a long way off. He thinks it could take 40 years before home prices rise to pre-2007 levels.

[ppulatie]

But Wesbury says otherwise, so who is to argue?

The idiot................

[Crafty_Dog]

GM:  If this is the same Shiller, he is an economic illiterate.

http://www.project-syndicate.org/commentary/balanced-budgets-without-austerity-by-robert-j--shiller#WZ4jrXA1EdQrgUH4.99

[DougMacG]

GM:  If this is the same Shiller, he is an economic illiterate.

http://www.project-syndicate.org/commentary/balanced-budgets-without-austerity-by-robert-j--shiller#WZ4jrXA1EdQrgUH4.99

Yes. Same Shiller.  The piece begins: "With much of the global economy apparently trapped in a long and painful austerity-induced slump..."  Austerity-induced slump??!!

"There is a way out of this trap...away from austerity...increasing taxes even more..."

As a Professor of Economics at Yale University, this is what we choose to teach our best and brightest.     Taking from Reagan, "it is not that they are ignorant, but that they know so much that isn't so."

Shiller continued: "This kind of enlightened stimulus (good grief!) runs into strong prejudices. For starters, people tend to think of taxes as a loathsome infringement on their freedom, as if petty bureaucrats will inevitably squander the increased revenue on useless and ineffective government employees and programs.

Yes we do!

With Prof. Case a fellow at Harvard and Prof. Shiller teaching at Yale, living in a bubble takes on new meaning.  Thanks to PP and Crafty, I don't think I will quote a Case-Shiller index ever again except for taking any opportunity to discredit it.

For credibility(?), it is now called the S&P Case Shiller Index.  Isn't S&P the group charged by the Eric Holder Justice Department with Fraud?  http://business.financialpost.com/2013/02/12/obamas-5-billion-sp-lawsuit-a-culmination-of-four-years-of-investigation/

[ppulatie]

If you look at Shiller from a year ago, he was much more optimistic about a Housing Recovery.  Then about 6 months ago, he decided that recovery to 2007 prices might take up to 50 years.

At least he can change his mind a bit.

Tom Lawler is another one.  After leaving Fannie Mae, he started a Real Estate Consulting business.  He is extremely optimistic about recovery.  Of course, he must be so he can sell his services.

I don't think that anyone other than those who are actually engaged in the mechanics of trying to create a stable lending environment, in conjunction with meeting Basel 3, and the restoration of Securitized Lending, understand what the actual difficulties present are.

Heck, I can barely get my head around the tiniest of basics on Basel 3.  You can't believe how simple they have to make explanations for me. Even then, I only get about 10%.

[Crafty_Dog]

http://www.washingtontimes.com/news/2013/apr/2/are-housing-investors-creating-a-new-bubble/?page=all#pagebreak

[Crafty_Dog]

Is the Fed Blowing a New Housing Bubble?
Stagnant real incomes suggest that rising home prices reflect artificially low interest rates..
By EDWARD PINTO

Over the past year, the Federal Reserve has ramped up its policy of quantitative easing, with the result being new stock market highs and surging bond prices. Moreover, housing prices jumped 8%, the biggest annual gain since 2006.

The result is that more than a trillion dollars have been added to the market value of single-family homes. Homeowners are now wealthier and according to what economists call the "wealth effect," they should be willing to spend more, helping the economy.

But there is another, less sanguine view of the housing recovery. Recent data released by the Federal Housing Finance Agency (FHFA) suggest that the increase in house prices is not being driven by a broad-based improvement in the economy's fundamentals. Instead, the Fed's lower rates are simply being capitalized into higher home prices. This does not bode well for the future.


A comparison of FHFA's conventional home-financing data for February 2012 and February 2013 shows that borrowers bought newly built and existing homes in 2013 for 9% and 15% more respectively than in the previous year. Increases of this magnitude cannot be attributed to higher incomes, as these rose a mere 2% over the last year, just keeping up with inflation. It appears that home prices are being levitated by quantitative easing. Because interest rates were .625% and .90% lower on new and existing homes respectively this year compared with last year, the monthly finance cost to purchase a new home remained the same and went up only 3% for an existing home.

While a housing recovery of sorts has developed, it is by no means a normal one. The government continues to go to extraordinary lengths to prop up sales by guaranteeing nearly 90% of new mortgage debt, financing half of all home purchase mortgages to buyers with zero equity at closing, driving mortgage interest rates to the lowest level in 100 years, and turning the Fed into the world's largest buyer of new mortgage debt.

Thus, with real incomes essentially stagnant, this is a market recovery largely driven by low interest rates and plentiful government financing. This is eerily familiar to the previous government policy-induced boom that went bust in 2006, and from which the country is still struggling to recover. Creating over a trillion dollars in additional home value out of thin air does sound like a variant of dropping money out of helicopters.

Will history repeat? When it comes to interest rates, whatever goes down must go up.

The average mortgage rate during the first nine years of the 2000s was 6.3% compared with today's rate of less than 3.5%. If mortgage rates were to increase to a moderate 6% in three years, say, some combination of three things would have to happen to keep the same level of homeownership affordability. Incomes would need to increase by a third, house prices would need to decline by a quarter, or lending standards would need to be loosened even further.

The National Association of Realtors and the rest of the government mortgage complex can be relied on to push for looser lending. The Consumer Financial Protection Bureau recently came out with new rules that would grease the skids for relaxed lending standards, compliments of Fannie Mae, FNMA -4.12%Freddie Mac FMCC -4.32%and the Federal Housing Administration.

Given the continued subpar economic recovery and our past experience with the disastrous impact of loose lending encouraged by federal policies, homeowners would best be cautious about spending their new found "wealth." Americans have seen this movie before and know how it ends.

Mr. Pinto, a resident fellow at the American Enterprise Institute, was the chief credit officer at Fannie Mae from 1987 to 1989.

[Crafty_Dog]

Can We Afford Another Housing Boom?
With prices rising, now is the time to prevent over-investment..
WSJ
 
Fannie Mae FNMA -3.60%put an exclamation point on the housing rally with last week's announcement of its largest-ever annual profit. The news comes soon after Fannie's cousin, Freddie Mac, FMCC -4.40%announced its own record high. These results may seem like cause for celebration after years of losses at the two taxpayer-backed mortgage giants. But they also underscore the urgent need for reform to ensure that the next real estate boom doesn't end as badly as the last one.

***
It's certainly good news that the very long housing recession is finally over, and that prices in most of the country are rising again. For the 12 months through January, the S&P/Case-Shiller index of 20 U.S. cities shows an annual increase in home prices averaging 8.1%. Prices in Miami were up almost 11% on the year, the Las Vegas market enjoyed a pop of more than 15%, and in Phoenix prices jumped more than 23%. Not a single one of the 20 metropolitan areas in the index suffered an annual price decline.

The healthy part of this revival is the normal adjustment of supply and demand after a painful recession. Foreclosures have been slowly working their way through the system, and the long dry spell in building means there are fewer new homes to buy.

But there's a less desirable side to this new boom: It is fueled by the same kind of government super-subsidy for housing that drove the boom and bust a decade ago. Through Fannie, Freddie and the Federal Housing Administration (FHA), the feds now underwrite some 90% of all mortgages.

Meanwhile, the Fed's rock-bottom interest rates and its QE policies are both intended to reflate the housing market. The Fed is buying $40 billion a month in mortgage securities, despite the housing rebound, plus an additional $45 billion in long-term Treasurys to keep mortgage rates low. This makes it cheaper for families to borrow to buy a home. But the Fed's goal is also to keep rates so low that investors will dive back into real estate in a search for yield they can't get from savings accounts or financial investments.

And sure enough, from Georgia to California, investors have been scooping up residential properties, often in foreclosure auctions. As the Journal has reported, large private-equity firms such as Blackstone Group BX -0.17%and Colony Capital have spent billions of dollars over the last year buying single-family homes.

Mom and Pop are also back buying property for investment returns, rather than for shelter. A software engineer looking to buy a house in California's Orange County as an investment property recently told the Journal, "Right now, it just seems like real estate is a good place to put cash."

It's true that many of today's investors are planning to be landlords collecting regular rent, not speculators betting on their ability to execute a quick flip. But the hard part is knowing how much an asset-price rally is rooted in genuinely rising prosperity and how much in government policies that can't last. One danger sign now is that prices are rising much faster than the economy, which isn't sustainable over time.

It's also worth keeping in mind that housing is not the secret sauce of economic prosperity. The anemic 0.4% GDP growth in the fourth quarter of 2012 would have been even worse without a 17.6% surge in real residential fixed investment. But even though the government calls it investment in GDP calculations, housing is substantially a form of consumption. A large home (assuming the occupant can afford it) is a manifestation of wealth, not a creator of it.

Enlarge Image


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A sold sign posted in front of a Phoenix home on in March.
.
Every dollar of capital that policy makers drive into housing is a dollar that won't be spent creating the next great innovation in software or medicine or something else. Over the long haul, the economy grows when people invest in things other than housing—specifically in technologies that enhance productivity and allow all of us to achieve higher living standards. Housing does fine when people are employed and wages are rising. In other words, sustainable growth in real-estate values is a symptom of a vibrant economy, not a cause.

In the 2000s, America tried to use a debt-fueled real-estate boom as a substitute for real wealth creation. The Fed's loose money, government endorsement of private credit-ratings agencies and reckless promotion of homeownership created a housing bubble. The bursting of this bubble created a financial crisis. We do not want to repeat the experience.

***
Yet there are signs that the politicians have failed to learn that lesson. Beyond the Fed, the Washington Post reported last week that "the Obama administration is engaged in a broad push to make more home loans available to people with weaker credit." The government is pressing banks to press borrowers to take advantage of FHA guarantees and other federal subsidies. That's the same thinking that gave us the Fannie Mae-Countrywide Financial subprime loan machine, the subprime bust and the $187.5 billion failure of Fannie and Freddie.

With prices rising again, now is precisely the time to begin reducing the federal subsidies that encourage over-investment in housing. In some areas of the country Fan and Fred still back mortgages of more than $600,000, while the FHA backs loans of more than $700,000. Reform-minded lawmakers may not be able to stop Fed Chairman Ben Bernanke from dropping money from helicopters, but they can begin reducing the conforming loan limits at Fan, Fred and FHA to put some guardrails around Washington's reckless credit policies

[Crafty_Dog]

Housing Starts Rose 7.0% in March to 1.036 Million Units at an Annual Rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 4/16/2013

Housing starts rose 7.0% in March to 1.036 million units at an annual rate, easily beating the consensus expected 930,000 pace. Starts are up 46.7% versus a year ago.
The increase in starts in March was all due to multi-family units, which surged 31.1%. Single-family starts declined 4.8%. Single-family starts are up 28.7% from a year ago while multi-family starts are up 85.3%.
Starts in March were up in the Midwest, South, and West, but down in the Northeast.
New building permits declined 3.9% in March to a 902,000 annual rate, lagging the consensus expected 942,000 pace. Compared to a year ago, permits for single-unit homes are up 27.7% while permits for multi-family units are up 1.3%.
Implications: Housing starts soared 7% in March, defying consensus expectations of only a small gain due to unusually cold March weather. At 1.036 million, the annual rate of starts is now the highest since mid-2008. However, the underlying details were not quite as strong as the headline. All of the gain in starts in March was due to the multi-family sector, which is extremely volatile from month to month; single-family starts declined 4.8%. As a result, we expect multi-family starts to drop back down next month, dragging down the top-line number as well. Still, the underlying trend in housing is upward and we expect large percentage gains for residential construction for at least the next two years, probably longer. Based on population growth and “scrappage,” housing starts will eventually rise to about 1.5 million units per year (probably by 2015). Housing permits were down in March but almost all of the decline was due to the multi-family sector. Single-family building permits were down only 0.5% in March and are up 27.7% from a year ago. In other recent housing news, the NAHB index, which measures confidence among home builders, slipped to 42 in April from 44 in March. However, the index for future single-family sales increased to 53 from 50. The key here is that the underlying trend in the housing industry is clearly upward and the gains have much further to go. Don’t get worked up over every zig and zag in the data. Sometimes one indicator ticks down, like the NAHB; other times an indicator, like housing starts, will surge up above the underlying growth trend. That’s what a recovery looks like.

[Crafty_Dog]

New Single-Family Home Sales Rose 1.5% in March, to a 417,000 Annual Rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 4/23/2013

New single-family home sales rose 1.5% in March, to a 417,000 annual rate, almost matching the consensus expected pace of 416,000. Sales are up 18.5% from a year ago.
Sales were up in the Northeast and South but were down in the West and Midwest.
The months’ supply of new homes (how long it would take to sell the homes in inventory) was unchanged at 4.4 in March. The slightly faster selling pace was offset by a 3,000 unit rise in inventories of new homes.
The median price of new homes sold was $247,000 in March, up 3.0% from a year ago. The average price of new homes sold was $279,900, down 1.3% versus last year.
Implications: The new home market, which is typically the last piece of the housing puzzle to recover, is clearly improving. Sales were up 1.5% in March and a whopping 18.5% from a year ago. In fact, Q1 of 2013 was the best quarter of new home sales since Q3 of 2008. The months’ supply of new homes -- how long it would take to sell the homes in inventory – remained unchanged at 4.4, but is still well below the average of 5.7 over the past 20 years and close to the 4.0 months that prevailed in 1998-2004, during the housing boom. This means that as the pace of sales continues to rise over the next few years, home builders will have room to increase inventories. After a large reduction in inventories over the past several years, builders look like they're getting ready for that transition. Inventories have increased in 6 of the last 7 months. The median price of a new home is up 3.0% from a year ago, and we expect prices to continue to move higher in the coming years. In other recent housing news, the FHFA index, which measures prices for homes financed by conforming mortgages, increased 0.7% in February (seasonally-adjusted) and is up 7.1% from a year ago. On the factory front, the Richmond Fed index, a survey of mid-Atlantic manufacturers, fell to -6 in April from +3 in March. Manufacturing reports have been mixed but are still consistent with mild plow horse-like growth in that sector and economy as a whole.

[Crafty_Dog]

MARKETSApril 19, 2013, 9:53 a.m. ET.Regulators Worry Mortgage REITs Pose Threat to Financial System .
By DEBORAH SOLOMON
WSJ

WASHINGTON—A panel of top financial regulators is targeting mortgage real-estate investment trusts as a potential risk to the U.S. financial system, the latest example of Washington's growing concern with market bubbles.

Next week, the Financial Stability Oversight Council, a panel comprising the top U.S. financial regulators, is expected to cite mortgage REITs as a source of market vulnerability in its annual report, according to people familiar with the matter, a distinction that could set the stage for stricter oversight of the industry.

Eager to avoid the mistakes of the past, regulators are attempting to identify overly frothy activity before it poses problems. Even though the economy continues to recover only slowly, regulators see potential bubbles forming in a range of financial markets, in part because of the Federal Reserve's easy-money policies, which have driven interest rates to near-record lows and prompted investors to seek higher returns elsewhere.

Mortgage REITs, which are publicly traded financial companies that borrow funds to invest in real-estate debt, have seen their assets quadruple to more than $400 billion since 2009. They differ from traditional REITs in that they invest in mortgage debt, rather than actual real-estate like office buildings or shopping malls. The firms take advantage of inexpensive, short-term borrowing to buy mortgage securities backed by Fannie Mae FNMA -0.25%and Freddie Mac, FMCC +0.90%and offer returns to investors of as much as 15%.

They join leveraged loans and money-market mutual funds as areas of risk cited by officials. Three Federal Reserve officials have singled out mortgage REITs in recent weeks, saying the industry merits watching.

Calvin Schnure, vice president of research and industry information at the National Association of Real Estate Investment Trusts, said that rather than a source of instability, mortgage REITs have been essential to the housing recovery.

 .
"Mortgage REITs have tripled their holdings of agency mortgages over the past couple of years because their access to public markets positions them to put new capital into the housing market," said Mr. Schnure.

The heightened scrutiny stems from the growth of such companies as Annaly Capital Management Inc. NLY +1.04%and American Capital Agency Corp., AGNC +1.46%whose assets have ballooned to more than $100 billion apiece over the past three years. The market capitalization of the industry has grown over the past three years from $22.1 billion to $59 billion, according to KBW Research.

"Mortgage REITs are bigger today, but they are bigger by virtue of an increased capital base," said Wellington J. Denahan, chairman and CEO of Annaly Capital. "Many of us have operated through challenging markets, including the financial crisis, and we continue to support and are helping to implement the regulatory changes that are being put in place to make the markets safer for all participants. This low-rate environment poses risks that investors in every market must be prudent about managing. In general, the mortgage REIT sector does so through a range of hedging tools, like interest-rate swaps, reducing leverage and conservative balance-sheet management activities."

The recipe behind their rapid growth is raising red flags in Washington, where regulators worry about the REITs' exposure to interest-rate spikes, reliance on leverage and short-term funding agreements that can dry up in times of crisis.

The companies take advantage of low interest rates to buy longer-term mortgage-backed debt with inexpensive debt. They then pledge those securities as collateral to secure additional short-term funding, or leverage, to boost returns. The companies make money on the difference between the low interest rate they pay on their debt and the higher rate paid on their mortgage assets. One reason regulators are worried is the REITs finance their holdings with very cheap short-term debt which they have to newly secure on a regular basis.

"Some of these companies are getting really big and there's a lot of interconnectedness between them and large investment banks," said Mark DeVries, U.S. consumer-finance analyst with Barclays PLC. BARC.LN +3.04%"The Fed has been concerned about any large financial company with leverage relying on wholesale financing."

The companies have acknowledged in filings the risks inherent in their business but say they are protected against much of the downside.

The firms say they use interest-rate swaps to hedge against rate swings and have raised more than $30 billion in equity over the past two years.

"I'm not convinced there's a big problem because these REITs are holding relatively liquid securities and represent a modest part of the mortgage market," said Stijn Van Nieuwerburgh, director of New York University's Stern Center for real estate finance research. Mr. Van Nieuwerburgh said the biggest risk is a sudden spike in interest rates, which would "torpedo the value of these mortgages" and hamper the firms' ability to repay loans.

As they ponder the risks, regulators must also weigh the impact of action, such as drying up one of the only sources of private-sector capital for housing.

The FSOC's labeling of mortgage REITs as a source of risk doesn't mandate changes but could set the stage for stricter oversight of the firms, which aren't subject to the capital standards or leverage limits that large banks face.

The Securities and Exchange Commission, whose chairman is an FSOC member, could opt to regulate mortgage REITs under the Investment Company Act, or the FSOC could designate an individual firm as a "systemically important financial institution," subjecting it to heightened capital standards and Fed oversight.

Fed officials have warned recently about the deterioration in underwriting standards for some corporate loans, and William Dudley, president of the Federal Reserve Bank of New York, recently cited mortgage REITs as an area deserving of "ongoing attention."

"There is a focus internally on trying to identify vulnerabilities early, before they become a problem," said Nellie Liang, director of the Fed's Office of Financial Stability Policy and Research.

Regulators are becoming more outspoken in part to help deflate bubbles by sending a word of caution to market participants who may be dismissing risks in order to keep up with other investors.

Write to Deborah Solomon at deborah.solomon@wsj.com

[DougMacG]

New Single-Family Home Sales Rose 1.5% in March, to a 417,000 Annual Rate

Up, up, up... to an annual rate less than half of what is was in 2005.  Other than the current crisis, this is the lowest rate of new home sales roughly since a time when this country had just 48 states, less than half the population and Harry Truman was President. 

http://www.census.gov/econ/currentdata/dbsearch?program=RESSALES&startYear=1963&endYear=2013&categories=ASOLD&dataType=TOTAL&geoLevel=US&adjusted=1&submit=GET+DATA

When the new home sales rate fell in 2008 to a rate of 526,000 per year, a rate 26% better than now, it triggered a global financial meltdown.  But now the glass is half full.
http://connection.ebscohost.com/c/articles/31845819/new-home-sales-plunge-526-000-annual-rate

Not mentioned also is that we tear down 300,000 homes per year so we are barely ahead of replacement demand.

[ppulatie]

I'm baaaaaack!

To put housing into perspective, since I haven't had the time lately to do much of anything, here is a report that really talks about the Housing Recovery for what it is.  I normally do not agree with Lee Adler on many things, but here I do.


http://wallstreetexaminer.com/2013/04/23/its-a-housing-recovery-in-orwellian-terms-heres-the-reality/

It’s A Housing “Recovery” In Orwellian Terms – Here’s The Reality

April 23, 2013

The Commerce Department  today reported really good March home sales  relative the the past 4 years of the housing depression. Media reports included only the seasonally adjusted annualized sales rate, which was 417,000 versus a consensus estimate of 415,000. PR flaks at the major financial infomercial outlets were breathless in their reports. Bloomberg proclaimed “A dearth of existing properties is encouraging builders to undertake new projects that will keep fueling the economy. Mortgage rates close to record lows, higher home values and rising household formation are helping lay the groundwork for increased buyer traffic in 2013.”

It’s mostly mindless bullshit as usual. The numbers were good relative only to the recent past, and with the tailwind of Benito Bernanke’s massive mortgage rate subsidy. Looking at the actual numbers from the Commerce Department surveys, not annualized and not seasonally adjusted, we get a better view of current reality.

New house sales rose by 7,000 units to 40,000 in March. This was better than last year’s March gain of 4,000 units to 34,000, and better than the March 2011 gain of 6,000 to 28,000. Sales are up 43% in two years. Wow.




But let’s put this in perspective. It’s still below the 48,000 units that were sold in March 2008 in the middle of the housing market crash, the 120,000 units a month during the bubble years, and the 80,000 units per month typical before that.



New house sales normally peak in April, so there may yet be another peak ahead, but the NAHB builder survey indexes for March and April suggest that sales have already peak. Builders reported lower sales and traffic from mid March to mid April. This may be as good as it gets in this cycle.



Even with the Fed’s massive mortgage rate subsidy, sales have not surpassed 40,0o0 units per month. That’s half or less than half the peak levels reached from 1997 to 2007.

But builders are supplying enough houses to meet demand. The talk of inventory shortage is overblown.  Demand is weak. New supply production is consistent with the level of demand.




The talk of inventory shortage is overblown.  Supply production is consistent with the level of demand.  The inventory of new homes relative to sales is below the bubble years, but at normal levels relative to those seen in 2003-2005.





Median reported new house sale prices have risen 20% since 2009. Effective sale prices may have risen even more than that as builders were giving large incentives, including extra amenities, or discounts not reflected in prices as late as last year. Effective sale prices at the 2009 lows were lower than reported prices. The discounts and incentives have ended or been reduced in many cases.

Meanwhile, the average sale price dropped back over the past year as the ratio of cheap to expensive houses sold rose



The so called recovery is mostly a recovery in prices. Thanks to the Fed mortgage subsidy, we have housing inflation, but not much recovery in housing activity relative to historical norms. The market has bounced back to around 50% of historically normal levels only with the help of the massive Fed subsidy. We have to wonder where the market would be without that, or rather what will happen when that subsidy is withdrawn.  Knowing that removing this subsidy could devastate the so called housing recovery, it seems unlikely that the Fed would only do so under extreme pressure from the market in the form of consumer price inflation.  The government has managed to keep those numbers suppressed.

[ppulatie]

Rep Mel Watt being named to run the FHFA and therefore the GSE's. Among other things:


1.  Took campaign donations from Fannie and Freddie

2.  Supports more mortgage lending for low income borrowers

3.  Supports more mortgage lending for blacks

4.  Supporter of Community Reinvestment Act

5.  Supporter of the GSE's

6.  Opposed restructuring of the GSE's in 2003

7.  Against making the Fed more "transparent" and more regulated

8.  In favor of principal reductions on underwater loans and borrowers in default

9.  Wants to keep the GSE's


And I thought Mark Zandi would  be bad.........................

Welcome to socialized housing............not that it doesn't exist now.


Pat

[ccp]

right up Brock's socialist alley.

[DougMacG]

We are lucky the constitution only grants to the federal government authority over housing that is transported across state lines.  Right? 

[Crafty_Dog]

The gathering clusterfcuk , , ,

[ppulatie]

Watt is going to do everything that he can to force Principal Reductions on GSE loans.  Of course, that means two things.

1.  Ginnie Mae bond holders (includes Fannie & Freddie) will suffer additional losses in income revenue from the reduced payments.

2.  Taxpayers will be bailing out the GSE's for further losses.

Additionally, he is going to push lower lending standards for people who can't qualify at established standards, which means that we will be back to the standards that led to the Housing Crisis.

How will the market ever recover with these idiots in charge?

[Crafty_Dog]

http://www.housingwire.com/news/2013/05/03/more-move-buyers-are-going-miami


More move-up buyers are 'going to Miami'

Home sales in Miami rose year-over-year for the 11th consecutive month in March. The March report from DataQuick also revealed sizeable increases in mid- to high-end activity and a record level of sales to investors and other absentee buyers.
Miami’s median price paid for a home rose 14.1% year-over-year, marking the 15th consecutive month that the city saw a gain.
In March, there were 10,215 new and resale houses and condos closed in the metro area that encompasses Miami-Dade, Palm Beach and Broward counties. Sales in March rose 18.8% from February and 7.1% from one-year prior, according to DataQuick.
However, while a sharp gain between February and March is normal, the change between those two months has averaged 26.7% since 1997.
During the first quarter of 2013 — January through March — a total of 28,294 homes sold in the region, a 14.2% increase from the first-quarter of 2012.
Sales of homes that were priced below $100,000 dipped 11.2% year-over-year, while sub-$200,000 homes dropped 3.3%.
In Miami and other markets slammed by foreclosures in recent years, you tend to have the greatest inventory restraints in the most affordable areas — the bottom third or so of the market, says Andrew LePage, a spokesperson for DataQuick.
Supply can't meet demand. Why? Because typically there aren't as many homes being foreclosed on today compared with a year ago, meaning fewer foreclosed properties are up for sale.
"The more affordable neighborhoods are also where you have the highest concentration of folks who still owe more than their homes are worth. They can't afford to sell, further limiting the supply of homes on the market," said LePage, who notes that price appreciation has also pushed a number of homes out of the sub-$200,000 market and into a higher bracket.
Conversely, the number of homes sold between $200,000 and $600,000 increased 24.9% year-over-year, while the number of homes sold above the $800,000-mark jumped 27% from March 2012. This is where we’re seeing a lot of pent-up demand, LePage adds.
Over the past year we've seen more strength in the economy and housing market. Gradually more and more folks have gained enough confidence in their jobs, the economy and the housing market to buy a home. Meanwhile, mortgage interest rates fell to historic lows, yanking more people off the housing market sidelines, says LePage.
"Among buyers there's been a big shift in psychology in the span of a year, where fewer worry about prices falling and more worry they'll rise (making it harder to buy)," LePage said. "Also, keep in mind that price appreciation means that a greater portion of the housing stock will sell for more than $200K this year, helping to boost sales at the lower end of that $200,000-to-$600,000 range."
The multi-million-dollar luxury market in Miami saw 124 homes sold for $2 million or more in March, a 63.2% increase year-over-year. In 2013’s first quarter, 278 homes sold for $2 million or more, a 48.7% jump from the same period last year.

[Crafty_Dog]

Life is tough.  It's tougher when we are stupid.  Intelligence is the amount of time it takes to forget a lesson.

http://www.dickmorris.com/fha-the-new-fannie-mae-dick-morris-tv-lunch-alert/?utm_source=dmreports&utm_medium=dmreports&utm_campaign=dmreports