Economic Forecasting Survey Results Show Pessimism in the Housing Market

The Wall Street Journal released the results of their monthly forecasting survey of economists. Of interest to the reverse mortgage industry: the economists expect housing prices to continue to decline. Even more worrisome, they expect the 10-year treasury bond, one of the factors upon which the CMT HECM interest rate is based, to nearly double to 4.40 by December 2010. Housing starts are also expected to be a low value this year. The majority of respondants don’t expect the Case-Schiller index to rise until Q1 or Q2 of 2010. Yet, there appears to be a discontinuity between the expected performance of the economy and the expected performance of the housing market. In other words, 92% of the economists believe the economy can sustain a recovery while housing prices are still falling, and given that many see the recession ending soon, it seems like they predict that will be the case.

While predictions are nothing but predictions, a severly increased 10-year treasury bond rate and falling home prices would not be good for the reverse mortgage industry, disqualifying more customers and reducing the amount borrowers are able to receive for their homes. All that can be done now is to wait…

A Slow Rebound to the Housing Market?

A professor of economics and finance at Yale, Robert Shiller, wrote in Sunday’s New York Times that he does not expect the rebound of the housing market to be very swift. He wrote about why the housing market often does not follow typical cycles of supply and demand, tending to lag. The article is especially interesting for its use of historical examples, such as the 15-year long burst housing bubble in Japan and the 7-year market drought in the US in the early 90s.

It is also true, as Shiller points out, that it takes individuals longer to make housing transitions than stock transactions. The decision to move can have a long chain reaction, including new schools, doctors, and houses of worship. When the decision is made by a couple, it requires the consent of both parties. Then there is the sheer amount of stuff that needs to be packed, moved, and unpacked. Even renters don’t rejoice in the task.

Such a viewpoint, supported by historical fact, serves to move the debate about the rebound of the housing market from its current waiting game (Is this the bottom? No wait, is THIS the bottom? Or is it THIS?) to one of settling in for the long haul. Frankly, despite all the articles debating whether we should be optimistic or pessimistic in regards to the market (for example: http://www.reversemortgageguides.org/news/housing-market-declining-and-improving-at-the-same-time) , settling in for a long term slowdown of the housing market appears to be the wisest course of action.

Rising Mortgage Rates Increase Concerns About Housing Market

Wall Street Journal graph depicting the number of overdue mortgages and foreclosures versus the rising 30-year fixed mortgage rates

The Wall Street Journal announced today that mortgage rates have surged to their highest level in three years. The average rate on 30 year fixed rate forward mortgage was 5.44% on Thursday. But what is more remarkable is that the level jumped 7.6% from Tuesday, when the rate was just 5.03%. While forward mortgage rates are not directly related to the reverse mortgage rates, the same trend can be observed in the reverse mortgage rates. Between May 19th and May 27th, the rates for the 10-year CMT (which affects the HECM CMT programs) increased by 4.6%, while the rates for the 10-year LIBOR swap (which affects the HECM LIBOR programs) increased by 2.4%. If the forward mortgage data is any indication, next week’s reverse mortgage rates will be even higher.

The increasing mortgage rates in both markets are a cause for concern amongst those in the industry. For one, increasing mortgage rates will make homeowners less likely to buy a home. The Wall Street Journal reports that Credit Suisse estimates that each increase of .10 percentage point in mortgage rates is equivalent to a 1% rise in home prices. By their calculations, home prices would then have risen over 3% in two days (while home values have remained constant).

Increasing mortgage and reverse mortgage rates will also make it harder for borrowers to refinance and/or get out of foreclosure. They will lower the amount of money that can be saved by refinancing. These negative affects will not help a stuggling housing industry where, as reported yesterday, the number of homeowners behind on their mortgage or in foreclosure is already at record high levels.

Housing Market Declining and Improving At the Same Time?

The construction industry is not doing well, but does that mean the market is down?

Alright, it’s 10am CST. I have already read five conflicting headlines with respect to the housing market today:

1. ”Housing Starts Hurt by Steep Drop in Apartment Building” – NYTimes

2. “Sales Drop 10%, But Home Depot Tops Forecasts” – NYTimes

3. “Builder Sentiment High on Affordability” – HousingWire.com

4. “Housing Starts Declined in April” – Wall Street Journal

5. “Signs of Optimism — Home Prices Rise” – Union-Tribune

So which is it?

These headlines, all from reputed publications, perhaps indicate the extent to which the market is saturated with housing news, as well as the vast amount of confusion in regards to which the direction the housing market is actually heading in. While it would certainly be easy to write about any one of these pieces, doing so would only steer your opinion in whatever direction the story I discussed took.

The data can be used to defend any viewpoint: Home Depot is doing well, Lowes is doing poorly. Housing starts for apartment buildings are on the decline. Housing starts for single family homes are stable. Housing prices are rising in some areas. The market still has not rebounded in others. The question is, which indicator do you deem to be the most important?

Or should we simply be acknowledging that it is too early to predict the rise or fall of the housing market with any certainty?

Median Housing Price Falls in the First Quarter

The median price for a home in the US fell to $169,000 in the first quarter, according to a report released by the National Association of Realtors. The number represents a 14% drop from a year earlier. Median prices in metropolitan areas ranged from a low of $30,300 in Saginaw, MI to 570,000 in Honolulu, HI. The median price has been pulled down due to a number of factors including the surge of first-time homebuyers into the market and the large number of foreclosures being sold.

While it is very tempting to see these statistics as quite negative, they also come with some positives. Yes, it is disconcerting to see the value of homes decline. Yesterday we discussed the large number of people who are underwater on their mortgages, and declining home values will only serve to exacerbate the problem. However, the influx of new buyers into the market is a positive sign for the industry. New buyers will likely remain in the market, turning people who used to rent into prospective buyers and sellers. The ultimate increase of prospective buyers should increase the demand within the market, leading to a stronger market in the long run.

Is the Housing Market Getting Better or Worse?

The WSJ featured this photo of a bulldozer tearing down houses in Southern California.

Today has been filled with mixed messages in regards to the housing market. Is it performing well or poorly? The Wall Street Journal published images of bulldozers tearing down half-finished homes in Southern California because the lender determined the cost of completing the homes would be more than they could be sold for. On the other hand, the New York Times published a front page story about how the market in Sacramento is rebounding– a potentially good sign. Sales are up 45% since last year. Sales in Las Vegas, another market hit hard when the housing bubble burst, are up 35%.

So which is it? It seems hard to tell. It is easy and addictive to follow all the housing articles published recently, but, after writing on several of them, it appears that the bottom line keeps remaining the same:

- Yes, there are a lot of foreclosures, permeating classes where they’ve never been felt before.

- Yes, many markets have been extremely hard hit by the housing crisis. Las Vegas, Phoenix, California, and Miami are four of the worst. Very few, if any, areas have emerged unscathed.

- Yes, the new $8,000 tax credit has helped buyers, leading many first-time homeowners to enter the market. Perhaps as a result, many areas have seen sales increase this past year and in the past few months.

It therefore seems safe to draw the following conclusions:

1. The nation was hit hard by the housing crisis.

2. Foreclosures still abound, as neither the economic nor the housing crisis have lifted yet. This is especially true amongst the middle-class, who in many cases took longer to feel the effects of the crisis.

3. However, foreclosures mean that prices have been pushed down in many markets, leading to a glut of new buyers who, in addition to pursuing the tax credit, can pay less in a mortgage payment than they can in their monthly rent, saving money by buying a home. This situation is especially profound in the depressed market, but leads many analysts to think that there are signs of life in the market.

What do you think? Is the housing market getting better or worse?

Housing Market Continues Decline in March

The US Census Bureau and HUD jointly released a report today which noted that the housing market continued to decline in March.

Building permits for privately-owned housing units dropped 9% below the Feburary rate and 45% compared to March of last year. For single family homes, the rate dropped 7.4% compared to February.

Housing starts declined 10.8% from February and 48.4% compared to March of last year. However, for single-family homes, the rate was unchanged from February.

But there is a silver lining– more houses were completed in March than in February. Privately owned homes were completed at a rate that is 3.5% higher than the month before, while single family homes were completed at a rate that is 5.0% higher than in February. The completion of homes is a good sign. It indicates that projects are still being completed and the growth of new homes.

The foreclosure market nonetheless surged during the first quarter. Foreclosures increased 9% over the previous quarter and 17% in March compared to February. Many of the new home sales are of foreclosed properties, especially in weakened markets, up to 70 or 80%.

Continued home sales, even if they are of foreclosures, mean the market has not stalled. Yet, increased foreclosure rates are not a good sign–hopefully the housing market will rebound soon.