Housing and the Economy

I have been asked how the market looks for housing.

Consider this, summer is seasonally the time when most home purchases occur. This uptick from month to month is not a relavent figure. Sales normally increase in July and August. There are too many problems even with prime borrowers. This latest uptick is the worst.

Now, even "prime" quality borrowers are falling behind on payments at a record pace. The delinquency rate on prime mortgages hit 3.71% in the first quarter of this year, according to the Mortgage Bankers Association. That's the highest since the MBA started splitting out subprime and prime borrowers back in 1998. The overall delinquency figures go much farther back — to 1979. They show the same thing: A record high delinquency rate of 6.35%.



Home prices are way down, but they show little signs of bottoming out just yet. How Many families can afford 48,000 a year to own a home in Orange County. Yes, intrest rates % are down but how much of a persons income will housing take, 50% or more, this is the fundamental problem. Figures from S&P/Case-Shiller reflect that home prices down 15.8% in May from the same month a year earlier. That's the largest drop on record. Prices fell in all 20 metropolitan areas the firm tracks. Las Vegas (-28.4%), Miami (-28.3%), Phoenix (-26.5%), and multiple markets in California (-24.6% in L.A., -23.2% in San Diego, and -22.9% in San Francisco) are leading the way.

Market news for this week

Wednesday, July 16, 20088:30a.m. Jun Consumer Price Index: Previous: +0.6%. 8:30a.m. Jun CPI, Ex-Food & Energy: Previous: +0.2%. 9:00a.m. May Treasury International Capital Flows: Previous: $60.6B. 9:15a.m. Jun Industrial Production: Previous: -0.2%. 9:15a.m. Jun Capacity Utilization: Previous: 79.4%.10:20a.m. Crude Inventories 1:00p.m.Jul NAHB Housing Market Index: Previous: 18. 2:00p.m.

FOMC MinutesThursday, July 17, 20088:30a.m. Initial Jobless Claims For Jul 12 Week: 8:30a.m. Jun Housing Starts: Previous: -3.3%. 10:00a.m. Jul Philadelphia Fed Business Index: Previous: -17.6. 10:00a.m. DJ-BTMU Business Barometer For Jun 28:

Friday, July 18, 2008There are no economic indicators scheduled for today.

Treasury could buy Fanniew Mae and Freddie Mac

Treasuries gained as stocks fell, led by financial companies, highlighting rising concern that problems for the U.S. banking system may be worsening. U.S. stocks fell, sending financial shares to their lowest level since October 1998, on heightened concern that bank failures will spread. Washington Mutual Inc. posted its biggest drop ever and National City Corp. tumbled to a 24-year low after last week's collapse of IndyMac Bancorp Inc. spurred speculation that more regional banks may be short of capital.

Treasuries initially declined, pushing the yield on the 10- year note to the highest in almost two weeks, after Treasury Secretary Henry Paulson put a plan before Congress to provide support to Fannie and Freddie, the government-sponsored enterprises that purchase or finance almost half of the $12 trillion of U.S. mortgages.

There are some that feel that the U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an unmitigated disaster and the largest U.S. mortgage lenders are basically insolvent. Some bet that Fannie Mae shares will keep tumbling. Fannie Mae's market value is now about $10 billion, down from $38.9 billion at the end of 2007. Freddie Mac's market value has shrunk to about $5 billion from $22 billion at the end of last year.

june 27 SP 500 gap up to 1295 1300 then fall

Looks like we are going to gap up after todays action and then fall again. Nothing looks that positive except for the "opportunities that are available for the gullible. It is still a little early for real estate unless you are cash positive. Be careful out there. The Bond underwriters are all loosing their ratings and their stock is becoming worthless.

Over priced homes a world wide problem

Overvalued homes a worldwide problem.

WHERE are house prices most overvalued? As the rest of the world watches the bursting of America's housing bubble, that question should be at the top of everyone's mind. The answer is not comforting: many countries have had far hotter housing markets than America and are also suffering from tightening lending conditions thanks to the credit crisis.

In the latest World Economic Outlook, Roberto Cardarelli of the IMF calculates the share of the increase in real house prices between 1997 and 2007 that cannot be accounted for by fundamental factors such as lower interest rates and rising incomes. This “house-price gap” is greatest for Ireland, the Netherlands and Britain, where prices are about 30% higher than can be justified by fundamentals. France, Australia and Spain have house-price gaps of around 20%. In America, where prices were already falling in 2007, the gap is just over 10%.

No secondary market for Loans.

According to Inside Mortgage Finance, an unbelievable 99% of all new mortgages that were securitized in April went through Fannie Mae, Freddie Mac or Ginnie Mae. That compares to an "Agency" market share of less than 50% one year ago, proving that there's simply no secondary market for non-agency product at this time. That is an amazing statistic. NO secondary market..

Expect more volatility in interest rates this week. Today we have the LEI (index of Leading Economic Indicators), with the PPI report (wholesale inflation) due out tomorrow. Neither of these reports are expected to have a big impact on rates unless they miss expectations by a wide margin.

The most important news item on the calendar this week will be the FOMC Minutes, released on Wednesday. Traders will comb through these minutes to look for confirmation that The Fed has changed its posture toward interest rate cuts going forward.

Jobless claims up, single family housing down.

Jobless Claims continue high, U.S. Industrial Production (factories, mines, and utilities) was -0.7%, twice as weak as anticipated by economists, and capacity utilization, which measures the proportion of plants in use, fell to 79.7 percent, the lowest since September 2005. Lastly yesterday we had the Philadelphia Fed Index come out at -15.6 in May, better than forecast, from -24.9 in April. ( Readings less than zero signal contraction.)

Today we had Housing Starts increase by 8.2%, but the increase is entirely due to multi-family homes, up by 36%. In contrast, single family starts fell by another 1.7%, albeit from an upward-revised base. This follows the large decline last month, when starts fell by 13.8%, and year-over-year starts are down 30.6% - no surprise given the inventory levels that are out there. Building Permits were up, and single family permits rose by 4.0%, the first rise in a while. After it we have the 10-yr sitting at 3.87%.

Treasuries were little changed with two-year note yields near the lowest in almost four years deterring investors and Federal Reserve officials indicating the U.S. economy remains under pressure from the housing slowdown, credit debt, bonds and bond insurers.

Fed Chairman Ben S. Bernanke urged lenders to forgive portions of mortgages for more borrowers whose home values have declined, and Vice Chairman Donald Kohn said U.S. banks face ``challenging market conditions.'' Bernanke, in remarks at a conference in Orlando, Florida, said more must be done to stem foreclosures. ``Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done,'' he said. ``Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.''

In a sign the U.S. economic slowdown is spreading, the Bank of Canada cut its benchmark lending rate by a half-percentage point and signaled it will have to act again to offset a slump in exports to the U.S. The slowdown in the U.S. is beginning to have a greater effect on the rest of the world. Citigroup Inc., the biggest U.S. bank, may need additional capital from outside investors as losses stemming from the collapse of the U.S. subprime mortgage market increase.

First it will hit America/Canada, next will be Britan then Europe. Expect to see new high against the dollar across the board.

$4.20 a gallon gas could be coming for this summer.

We shall see.

90 % increase in foreclosures

Repossessions rose 90 percent to 45,327 last month from the same period a year ago, RealtyTrac Inc. said today in a statement. Total foreclosure filings, which include default and auction notices as well as bank seizures, increased 57 percent. What we are seeing is the failure of home owners to make payments on their adjustable rate loans. These loans are resetting at higher rates.

The talking heads are saying this is the bottom, I see another 460 billion dollars of Adjustable loans ready to reset this year and wonder how long this next group will hold on. This is also not considering that most of these homes were purchased at the top of the market and are upside down.

Existing home sales have just fallen to their lowest level in a decade. Standard and Poor's announced that the last quarter of 2007 housing fell 8.9%. The largest single drop in 20 years.