Housing Bubble Bursting?

[Pamela Crowley (Florida)]

http://nationalrealtynews.com/content/templates/standard.aspx?articleid=248&zoneid=2

National Foreclosures Increase 24 Percent
Thursday, September 14, 2006

IRVINE, CA - RealtyTracTM released its August 2006 U.S. Foreclosure Market Report, which shows 115,292 properties nationwide entered some stage of foreclosure during the month, a 24 percent increase from the previous month and an increase of nearly 53 percent from August 2005. The report also shows a national foreclosure rate of one new foreclosure filing for every 1,003 U.S. households, the second highest monthly foreclosure rate reported year to date.

"After spiking early in the year U.S. foreclosure activity has been relatively flat over the last few months. But foreclosures ramped up significantly in August, pushing the national foreclosure rate close to its highest level of the year so far," said James J. Saccacio, chief executive officer of RealtyTrac. "And with home price appreciation continuing to decelerate and billions of dollars in adjustable rate mortgages projected to reset in the next few months, this month's increase could be the beginning of an upward shift in the foreclosures market."

Colorado, Nevada and Florida post top state foreclosure rates

Colorado foreclosure activity spiked nearly 60 percent from the previous month and the state documented the nation's highest state foreclosure rate for the sixth month in a row, with one new foreclosure filing for every 301 households. The state reported 6,079 properties entering some stage of foreclosure during the month, more than twice the number reported in August 2005 and the seventh highest number reported by any state.

Other states reporting foreclosure rates among the nation's 10 highest were Georgia, Texas, Michigan, Ohio, Illinois, Indiana and Utah.

Five states account for half of nation's foreclosure activity

The five states with the most new foreclosure filings -- Florida, Texas, California, Ohio and Illinois -- accounted for 50 percent of the nation's foreclosure activity in August.

Please read the whole article.

 

[Karl]

Biggest problem with this round of Forerclosures is: The amount owed exceeds the current value. NO NO NO that can't be; IF we have a willing buyer the Appraisal MUST be adjusted to the contract.

IF you know how to search you could look back thru the threads you'll find evidence of Appraisers that actually believed this. In thier defense I'm betting that they may have changed thier minds NOW.

 

[Randolph Kinney]

Pam, what would be of interest to me on these foreclosure statistics is what is the type of loans(prime or sub prime, fixed or adjustable), credit quality before default, and LTV that were defaulted on and if any attempt was made to "short sale" before foreclosure.

I suspect what is behind foreclosures in California are ARMs used in 100% financing programs for sub prime borrowers.

 

[moh malekpour]

In the meantime, I am seriously considering buying some Hovanian stock. Of the builders, from what I have seen so for, they apear to have the best inventory of undeveloped land, options on land, etc

Brad,
If you have cash and want to invest, why don't you buy NDE?

 

[Pamela Crowley (Florida)]

http://nationalrealtynews.com/content/templates/standard.aspx?articleid=252&zoneid=2

New Housing Downswing Expected To Bottom Out By Mid-2007
Thursday, September 14, 2006

WASHINGTON, D.C. - The National Association of Home Builders (NAHB) told Congress today that the current downswing in home sales and housing production following the record housing boom of 2004-2005 is expected to bottom out around the middle of next year and gradually move back up toward trend by late 2008.

Testifying before the Senate Economic Policy and Housing and Transportation Subcommittees, NAHB Chief Economist David Seiders said that while the housing downswing still has some distance to go, “various economic and financial market fundamentals figure to be supportive of housing demand for the foreseeable future.”

These fundamentals include the following:

* Payroll employment is proceeding at a decent and sustainable pace.
Household income growth is strengthening as the economic expansion proceeds.
* The interest rate structure is favorable, mortgage credit is readily available and monetary policy has stabilized following a long run of upward rate adjustments.
* Energy prices have receded from record highs earlier this year.

Seiders also told lawmakers there are several downside risks to the housing and economic outlook he presented. These include the possibility of spikes in interest rates or energy prices, a large resale of homes back onto the markets by investors/speculators and uncertainties regarding the size of the inventory overhang in the market for new homes.

There also are considerable uncertainties about the impacts on consumer spending from a fading housing wealth effect as well as from the impacts of “payment shock” on home owners facing upward adjustments to monthly payments on “exotic” types of adjustable-rate mortgages (ARMs).

The record housing starts and sales of the past two years were well above levels supportable by demographics and other fundamental demand factors, and were fueled to a great extent by investors and speculators seeking to make a quick profit and through the surge of unconventional ARMs, according to Seiders.

“In retrospect, it was the finance- and price-driven acceleration of buying for homeownership and for investment that drove housing market activity into unsustainable territory during the boom,” he said.

After posting double-digit gains during the past two years, national home price appreciation is expected to remain relatively flat for the foreseeable future. “Indeed, some decline is a distinct possibility, and the rate of price appreciation should remain below trend for some time,” said Seiders.

NAHB’s forecast has a cumulative shortfall of housing starts of roughly 400,000 units from the middle of this year through the end of 2008, in line with the estimated excess supply generated during the recent boom period.

And while the current downswing in home sales and housing production will continue to detract from overall economic growth through mid-2007, Seiders said that much of this negative impact should be offset by strengthening activity in other sectors of the U.S. economy (spending on capital equipment and software, nonresidential structures and exports).

(I added the bold)

 

[Randolph Kinney]

Randolph,

On your question: "It is a good thing back then they didn't have the 100% financing using low credit scores like today."

I cannot remember what loan programs they had back then except I am certain of two things back then: 1) they were doing sub-prime loans and 2) they had adjustable rate loans.

Brad

I don't suppose you would buy into my belief that acceptable credit quality for mortgages have changed, they have been lowered along with 100% loan to value and lower income to debt ratios. This seems to be the red hot part of the mortgage market (sub prime). Even Fannie wants to engage in sub prime lending.

I read Pam's article on the foreclosure statistics and how fast they are rising. It does not say if ARMs were involved or if sub prime loans were causing most of the problems. One thing is for sure, we don't have a recession yet and interest rates are still relatively low so why are defaults and foreclosures rising so fast?

 

[Steve Owen]

...we don't have a recession yet and interest rates are still relatively low so why are defaults and foreclosures rising so fast?

Read Jim Bartley's post #1439. That's it in a nutshell. I used to call it the California attitude, but it really exists everywhere... the idea that you can live a high lifestyle and outspend your income... worry about the results tomorrow. Credit is a double-edged sword.

 

[Randolph Kinney]

Read Jim Bartley's post #1439. That's it in a nutshell. I used to call it the California attitude, but it really exists everywhere... the idea that you can live a high lifestyle and outspend your income... worry about the results tomorrow. Credit is a double-edged sword.

Steve,
I believe more people than ever are home owners today. In part, that was made possible with 100% financing, high debt to income and accepting low credit scores. I believe that is exhibited in the statistics in Jim's post:

Of the last 100, I have taken some simple statistics and have found the following:

68/100 had LTV's over 80% at time of application
16/100 had LTV's over 100% at time of application
78/100 had back end DTI's over 55%
31/100 had back end DTI's over 70%
23/100 had FICO's under 500
81/100 had credit card debt above $10,000
54/100 had credit card debt above $20,000
18/100 had credit card debt above $50,000
66/100 had Pay-option ARMs
27/100 had Pay-option ARMs and mortgage lates
22/100 were either in forbearance or had been in forbearance within the past 12 months

It would be great to see something like the above data presented on the default and foreclosure properties and what are the number of these kinds of financing, total, are out there. It just might scare some investors of CMOs back to reality.

 

[moh malekpour]

Read Jim Bartley's post #1439. That's it in a nutshell. I used to call it the California attitude, but it really exists everywhere... the idea that you can live a high lifestyle and outspend your income... worry about the results tomorrow. Credit is a double-edged sword.

Steve,
Your opinion is very simplistic to the problem at hand. It is very easy to tell an obese patient just not to eat but it is not the way to diagnose the problem nor to cure it.
Since 2001, the fed increased the money supply, which is the credit expansion, which fueled the housing bubble but since April 2005 till this day, the Fed decreased the money supply. The problem is that when you start expanding credit, you must continue that expansion otherwise you are going to have recession and that is what we have, housing recession.
One of the consequences of excess credit is that people tend to accumulate debt.
Heavy mortgages are just one of the ways excess debts is acquired. The inflated prices of homes encouraged people to borrowing against their properties. Artificially low interest rates drive up the value of homes, which then encouraged the owners to borrow more from the banks, which were doing everything in their power to rid themselves of their excess deposits. Sooner or later the monetary brakes must be applied and that is what the Fed has been doing but the result is housing recession.
This is a very complicated scenario that was designed by the Fed and you are doing one-sided judgment that people shouldn’t outspend the readily available credit. What would you do if someone offered you easy money?

 

[Randolph Kinney]

Home builders' confidence falls again in September

Home builders' confidence falls again in September

By Rex Nutting
Last Update: 1:11 PM ET Sep 18, 2006




WASHINGTON (MarketWatch) -- The confidence of U.S. home builders fell for the eighth straight month in September, dropping to the lowest level since February 1991, the National Association of Home Builders said Monday. The NAHB/Wells Fargo housing market index dropped by three points in September to 30 from a revised 33 in August, indicating that most builders think the housing market is poor. Economists expected the index to fall to 31. A year ago, the index was at 65. A reading of 50 would indicate builder sentiment was balanced between good and poor. (This is an update to correct how many months in a row the index has fallen.)