Contrary to expectations, the rapid decline of home prices showed signs of stabilization in April, according to the Case-Shiller Home Price Index, the most influential recorder of prices.
The 10-city composite index, which looks at ten major metropolitan areas across the nation, showed an annual price decline of 18.0% in April, compared with an -18.7% print in March. The market consensus prior to release was 18.8%.
“For the past three months, the 10-City and 20-City Composites have recorded an improvement in annual returns,” the report stated.
David M. Blitzer, Chairman of the index committee, was considerably more optimistic in his outlook than in last month’s release wherein he stated there was “no evidence that a recovery in home prices has begun.”
In today’s release, Blitzer said, “While one month’s data cannot determine if a turnaround has begun; it seems that some stabilization may be appearing in some of the regions.” He added: “We are entering the seasonally strong period in the housing market, so it will take some time to determine if a recovery is really here.”
The monthly price measure showed 13 of the 20 metro areas improving in their annual return compared to March. “The stock market bottomed in March and measures of consumer confidence have turned upward,” Blitzer added. “This report shows that these better spirits are also appearing in the housing market.”
From their peak before the bubble burst, prices are down an average of 32.6%, but the April figures mark “the slowest pace of price decline since September 2007,” noted TD strategist Millan Mulraine.
“On the whole, the report was encouraging in some dimensions, as it suggests that the accelerating pace of home price depreciation may perhaps be fast becoming a thing of the past,” Mulraine continued. “However, with the U.S labor market continuing to deteriorate and the overall backdrop for U.S. households remaining dire, a turnaround in the U.S. housing market may be some way off, even though the worst in the housing market correction may now be behind us.”
Other tidbits from the report:
* The three worst performing metro areas are from the Sunbelt: Phoenix was down 35.3% in April, Las Vegas declined 32.2% and San Francisco fell 28.0%.
* The best performers in keeping prices stable are Denver (-4.9%), Dallas (-5.0%) and Boston (-7.7%)
* Six cities posted record annual declines in April. They were Charlotte, Chicago, Cleveland, New York, Portland and Seattle.
Looking ahead, Deutsche Bank's chief U.S. economist Joseph LaVorgna said foreclosure-related sales will continue to drive down prices. He said: "The flood of foreclosure activity, which should be exacerbated by further upcreep in the unemployment rate, will weigh on home prices over the medium term."
Tuesday, June 30, 2009
Wednesday, June 24, 2009
New Home Sales Stagnate
News was mixed for the real estate market this morning. Sales of new single-family homes fell 0.6% in May, in contrast to expectations of a 2.3% increase. By itself, that would be awful news, but revisions to April told the opposite story: the original 0.3% advance was revised way up to a 2.7% gain.
The annual pace of new home sales is now 342,000, a whopping 32.8% below the rate in May 2008. Despite the revisions for April, that figure is quite a bit below forecasts for an annual rate of of 365,000.
At the current sales pace, there are 10.2 months’ worth of overhang sitting on the market, dragging down prices and encouraging potential buyers to wait it out as prices deflate. However, in this survey the median prices increased $9,000 in the month to $221,600, which may have contributed to the drop in sales.
Regionally, the results were all over the map, with only the South actually posting a decline (-8.5%). Sales in the Northeast surged 28.6%, while the Midwest saw an 18.6% gain, and the West saw a minor 1.3% gain.
Markets appeared to put more weight on the upward revisions than on the fresh data, as all three indexes continued climbing after the 10 am release. As of 10:30, the Nasdaq was leading the way with a 2.09% advance.
TD strategist Ian Pollick called the report “disappointing,” though he noted the two-month reduction in overhang and the upward revisions temper the pessimism.
He added: “Going forward, with mortgage rates edging higher and increased competition coming from the foreclosed housing sector, new home sales will continue to be hard pressed to eke out gains of any significance.”
The annual pace of new home sales is now 342,000, a whopping 32.8% below the rate in May 2008. Despite the revisions for April, that figure is quite a bit below forecasts for an annual rate of of 365,000.
At the current sales pace, there are 10.2 months’ worth of overhang sitting on the market, dragging down prices and encouraging potential buyers to wait it out as prices deflate. However, in this survey the median prices increased $9,000 in the month to $221,600, which may have contributed to the drop in sales.
Regionally, the results were all over the map, with only the South actually posting a decline (-8.5%). Sales in the Northeast surged 28.6%, while the Midwest saw an 18.6% gain, and the West saw a minor 1.3% gain.
Markets appeared to put more weight on the upward revisions than on the fresh data, as all three indexes continued climbing after the 10 am release. As of 10:30, the Nasdaq was leading the way with a 2.09% advance.
TD strategist Ian Pollick called the report “disappointing,” though he noted the two-month reduction in overhang and the upward revisions temper the pessimism.
He added: “Going forward, with mortgage rates edging higher and increased competition coming from the foreclosed housing sector, new home sales will continue to be hard pressed to eke out gains of any significance.”
Tuesday, June 23, 2009
Loan Mods Increase As Prime Borrowers Fall Further Behind
The Federal Housing Finance Agency (FHFA) today released first quarter foreclosure prevention data for Fannie Mae and Freddie Mac. Total foreclosure prevention actions (including loan modifications) totaled 86,600, 20 percent more than the previous quarter and more than double the amount of first quarter 2008. Of the nearly 87,000 actions, 90 percent resulted in home retention, which is consistent with 2008 data, while the remaining 10% resulted in mostly short sales and deeds in lieu of foreclosure.
Out of the 30 million residential mortgage Fannie Mae and Freddie Mac own, 37,328 loans were modified by the two mortgage giants in the first quarter of 2009. That is a 57 percent increase in loan modifications since the fourth quarter of 2008 and more than double the number of modifications done one year earlier. Loan modifications accounted for 43 percent of all completed foreclosure prevention actions in the first quarter of 2009, 10 percent higher than the previous quarter. The majority of modifications included both term extensions and rate reductions. More than half of the modifications resulted in at least a 20% decrease in monthly payments. Only two percent resulted in a 20 percent reduction in the first quarter of 2008.
Although more homeowners are seeing a significant reduction in payment and fewer are losing their home, the FHE 's stated that mortgage delinquencies continued to increase during the first quarter. Approximately 173,700 more loans became 60 days-plus late on payments in the first quarter of 2009, an increase of 19 percent from the previous quarter to 1.1 million. Of the total GSE mortgage portfolio, prime loans had larger increases in delinquency volumes and rates. Furthermore, FHFA's report indicated that compared to the prior quarter, foreclosure starts increased by 63 percent to 243,800 in the first quarter of 2009. Of the increase in foreclosures, prime borrower foreclosures rose more than nonprime borrowers, this trend is indicative of the weak economy and rising unemployment.
The FHFA defines foreclosure starts as: "the total number of loans referred to an attorney to initiate the legal process of foreclosure during the month. These are loans measured as not being in foreclosure in the previous month but referred to foreclosure in the current month".
When discussing the outlook for expected future foreclosures, one must consider the change in 30-59 payment delinquencies, as new late payments are an indicator of things to come. Unfortunately the FHFA did not publish this data for previous quarters, it should however be noted that in the first quarter of 2009, 316,000 prime loans had first time late payments while 299,000 nonprime loans began to fall behind.
Out of the 30 million residential mortgage Fannie Mae and Freddie Mac own, 37,328 loans were modified by the two mortgage giants in the first quarter of 2009. That is a 57 percent increase in loan modifications since the fourth quarter of 2008 and more than double the number of modifications done one year earlier. Loan modifications accounted for 43 percent of all completed foreclosure prevention actions in the first quarter of 2009, 10 percent higher than the previous quarter. The majority of modifications included both term extensions and rate reductions. More than half of the modifications resulted in at least a 20% decrease in monthly payments. Only two percent resulted in a 20 percent reduction in the first quarter of 2008.
Although more homeowners are seeing a significant reduction in payment and fewer are losing their home, the FHE 's stated that mortgage delinquencies continued to increase during the first quarter. Approximately 173,700 more loans became 60 days-plus late on payments in the first quarter of 2009, an increase of 19 percent from the previous quarter to 1.1 million. Of the total GSE mortgage portfolio, prime loans had larger increases in delinquency volumes and rates. Furthermore, FHFA's report indicated that compared to the prior quarter, foreclosure starts increased by 63 percent to 243,800 in the first quarter of 2009. Of the increase in foreclosures, prime borrower foreclosures rose more than nonprime borrowers, this trend is indicative of the weak economy and rising unemployment.
The FHFA defines foreclosure starts as: "the total number of loans referred to an attorney to initiate the legal process of foreclosure during the month. These are loans measured as not being in foreclosure in the previous month but referred to foreclosure in the current month".
When discussing the outlook for expected future foreclosures, one must consider the change in 30-59 payment delinquencies, as new late payments are an indicator of things to come. Unfortunately the FHFA did not publish this data for previous quarters, it should however be noted that in the first quarter of 2009, 316,000 prime loans had first time late payments while 299,000 nonprime loans began to fall behind.
Thursday, June 4, 2009
Fed Official Says 'Nation of Savers' Will Hurt Recovery
Echoing comments from Federal Reserve Chairman Ben Bernanke on Wednesday, Cleveland’s regional Fed President Sandra Pianalto said economic recovery could be slower than expected.
"Once the recession ends, we may be tempted to hope that the economy will take off at a full gallop, but that is not likely to happen because of some long-standing imbalances within our economy," Pianalto said to the INVESTKentucky conference on Thursday.
Bernanke stressed that businesses will be cautious to hire even once economic growth resumes, noting that a quick recovery simply cannot take place until the unemployment rate falls. Pianalto added that Americans’ recent loss of household wealth is turning the United States into a nation of savers, which could be good for the long-term, but in short-term is slows recovery.
"As people come to grips with the fact that their finances are more uncertain than they had ever thought they would be, they are not likely to resume spending at the pace they once did," she said. “We should not expect consumer spending to return to the 70 percent share of GDP that it posted just before the recession began.” Like Bernanke, Pianalto also voiced concerns about the growing fiscal imbalance.
“For years, we have been able to finance a large share of our budget deficits with relatively cheap capital from abroad, and for years this has worked to our benefit. But our country should not regard international capital markets as a bottomless well,” she said. “As access to this well becomes more limited, the cost of financing our fiscal deficits could rise.”
Speaking about the labor market, Pianalto said “the jobless rate is likely to stay elevated for quite some time.” Moreover, she said some of the losses were not merely cyclical “but the result of structural shifts” in the economy.
“Given the glut of housing in many markets, it is hard to imagine employment in the construction industry making a quick return to its peak levels of 2006,” she said. “Even when the economy resumes a more normal growth rate, many laid-off workers will need to find jobs in new business sectors because their former industry has simply become a smaller part of our economy.”
Pianalto is not a voting member on the FOMC
"Once the recession ends, we may be tempted to hope that the economy will take off at a full gallop, but that is not likely to happen because of some long-standing imbalances within our economy," Pianalto said to the INVESTKentucky conference on Thursday.
Bernanke stressed that businesses will be cautious to hire even once economic growth resumes, noting that a quick recovery simply cannot take place until the unemployment rate falls. Pianalto added that Americans’ recent loss of household wealth is turning the United States into a nation of savers, which could be good for the long-term, but in short-term is slows recovery.
"As people come to grips with the fact that their finances are more uncertain than they had ever thought they would be, they are not likely to resume spending at the pace they once did," she said. “We should not expect consumer spending to return to the 70 percent share of GDP that it posted just before the recession began.” Like Bernanke, Pianalto also voiced concerns about the growing fiscal imbalance.
“For years, we have been able to finance a large share of our budget deficits with relatively cheap capital from abroad, and for years this has worked to our benefit. But our country should not regard international capital markets as a bottomless well,” she said. “As access to this well becomes more limited, the cost of financing our fiscal deficits could rise.”
Speaking about the labor market, Pianalto said “the jobless rate is likely to stay elevated for quite some time.” Moreover, she said some of the losses were not merely cyclical “but the result of structural shifts” in the economy.
“Given the glut of housing in many markets, it is hard to imagine employment in the construction industry making a quick return to its peak levels of 2006,” she said. “Even when the economy resumes a more normal growth rate, many laid-off workers will need to find jobs in new business sectors because their former industry has simply become a smaller part of our economy.”
Pianalto is not a voting member on the FOMC
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