by Calculated Risk on 4/24/2007 12:46:00 PM

Here are the actual cumulative existing home sales vs. three annual forecasts for 2007 (NAR's Lereah, Fannie Mae's Berson, and me).

Click on graph for larger image.

To reach the NAR forecast (revised downward on April 11 to 6.34 million units), sales will have to be at 2006 levels for the remainder of the year. Based on the coming impact from tighter lending standards, we can probably say the recent NAR forecast is "no longer operative".

My forecast was for sales to be between 5.6 and 5.8 million units (shown as 5.7 million). Right now I think the risks are to the downside for my forecast. The next few months should tell us if Berson and I were too optimistic.

by Calculated Risk on 4/24/2007 10:11:00 AM

The National Association of Realtors (NAR) reports: Weather Hits March Existing-Home Sales After Three Monthly Gains (update: add NAR press release)

Click on graph for larger image.

... total existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 8.4 percent to a seasonally adjusted annual rate1 of 6.12 million units in March from a pace of 6.68 million in February, and are 11.3 percent below the 6.90 million-unit level in March 2006.

This graph shows NSA monthly sales for 2005, 2006 and 2007. This shows that March is the first key month of the year.

The national median existing-home price for all housing types was $217,000 in March, which is 0.3 percent below March 2006 when the median was $217,600.

The second graph shows the months of supply.

Total housing inventory levels fell 1.6 percent at the end of March to 3.75 million existing homes available for sale, which represents a 7.3-month supply at the current sales pace, up from a 6.8-month supply in February.

Update2: add inventory graph. The third graph shows nationwide inventory for existing homes. According to NAR, inventory declined in March by 1.6% to 3.745 million units. Other reports show inventory surged in March, so we will have to wait and see the numbers for April.

A few key points:

1) March is the beginning of the spring selling season.

2) Inventory is at a record levels for March.

3) Existing home sales are reported at the close of escrow. This means these contracts were mostly signed in January and February. So these numbers are mostly prior to the subprime implosion of mid-February.

by Anonymous on 4/24/2007 08:40:00 AM

Maybe this strikes me as profoundly surreal just because it's early in the day. You be the judge.

From Marketwatch's "Protecting your value as foreclosures rise: Tips to buffer your home's worth if you're near an empty property":

Although Moody's Economy.com sees home prices overall declining through 2008 due to excessive inventory, individual owners can take steps to make their property more attractive, Chen said. She recommended home improvements such as fresh paint and landscaping to ward off the impacts of falling prices due to a great number of foreclosures in a neighborhood.

If you've already got vinyl siding and all the rhododendrons you can stand, I suggest lawn ornaments. The Virgin in a bathtub comes to mind, along with that buried statue of St. Joseph. Never underestimate the power of the intercession of saints, especially when the "control group" is a bucket of paint and a couple of shrubs.

For those homeowners fearing that the "low-ballers" and banks trying to unload foreclosed homes will sap the value of their own properties, Kent suggested that residents could band together to watch out for a property.

"They could try forming a little neighborhood watch where people watch over that house to make sure there's no vandalism, no squatters trying to move in, and to avoid people from stealing the fixtures of the home," he said.

Personally, I think the better strategy is just to get every irritated blue-hair in the neighborhood to call the mortgage servicer two or three times a day to report excess dandelions. If the saints don't come through for you, there's always the power of getting on someone else's nerves.

Homeowners who have to sell in an area where foreclosures are numerous might want to follow the lead of home builders, which are throwing in extras in to attract buyers while keeping up the selling price.

"One thing that the builders do is to offer to put all kinds of things into the house at no extra charge, like granite countertops," said David Seiders, chief economist for the National Association of Home Builders. "That gives the buyer more house for the money."

Also, paying your buyer's closing costs is an option that some home builders take, Seiders said. Those strategies "help hold the price up, but they do come out of the builder's margins," he said, as they would cut into home sellers profits.

Well, now, there's an idea. Do as the builders do: protect your value by cutting your price while pretending that you aren't cutting your price. Let every potential buyer know that you are not including your countertops in the sales price--they are free to a good home. Heck, anyone who falls for this might also take that litter of kittens under the porch.

It's important to think of homeownership as a long-term investment, said David Berenbaum, executive vice president with the National Community Reinvestment Coalition. "People have been in an environment where they're flipping homes. We need to look at homeownership as promoting intergenerational wealth."

Berenbaum added that owners should remain calm rather than panicking and trying to sell now. Owners don't actually lose money on a home until they sell at a discount to the purchase price, he pointed out.

That's the final of four tips: don't sell, bequeath. There's nothing like that "intergenerational wealth" to protect home values.

In tomorrow's episode, maybe we'll get tips for how to buy properties in a foreclosed neighborhood, wherein we will learn the true value of paint, shubs, roving gangs of homeowners, free countertops, and sellers who would rather die than cut the price.

by Calculated Risk on 4/23/2007 07:19:00 PM

From Reuters: US new home market may take til 2009 to rebound-S&P (hat tip Roy)

"We do not expect to see a recovery for most rated home builders until 2008, under the best of circumstances," the [Standard & Poor's] rating agency said in a research note. "In fact, a rebound could easily slide into 2009 if a subprime contagion spreads to the Alt-A and prime products."

by Calculated Risk on 4/23/2007 02:11:00 PM

From Realty Times: NAHB's Chief Economist Releases Housing Forecast. See the link for excerpts from Seiders' forecast.

The overall economic forecast is still pretty positive on GDP growth with "major uncertainties" and significant downside risk. Seiders says the probability of recession later this year has risen, and he puts the odds around 25%.

The NAHB housing forecast is grim. Rising inventories, especially a record number of vacant housing units, combined with falling demand, because of the subprime and Alt-A debacle, "has downside implications for house prices and has prompted downward revisions to NAHB's forecasts of home sales and housing production for the balance of 2007-2008."

Nothing new here except that this is the forecast from the National Association of Home Builders!

by Calculated Risk on 4/23/2007 12:53:00 PM

From the WSJ: Home Equity Is Rising Source Of Funds, Greenspan Paper Says

Housing equity served as a growing source of funds for U.S. consumer spending between 2001 and 2005, financing close to 3% of total personal consumption expenditures, according to a paper co-authored by former Federal Reserve Chairman Alan Greenspan.

In the paper, posted on the Fed's Web site Monday, Greenspan and Fed Economist James Kennedy estimate that between 1991 and 2005, equity extracted through home sales, home-equity loans and cash-out refinancings freed up about $530 billion per year in cash available for other uses, such as consumption and debt repayment.

The paper provides new estimates on how MEW is used. However, the paper does not provide data after Q3 2006.

by Anonymous on 4/23/2007 06:43:00 AM

In late 2006, the Massachsetts Commissioner of Banks convened a "Mortgage Summit" to address issues of foreclosures, predatory lending, and mortgage fraud. The report of the working groups formed at the summit was published on April 11, 2007, and is definitely worth a read for anyone interested in the issue of regulating lending practices or dealing with a foreclosure epidemic.

I will say, as I've said before, that one frequently sees--and the Massachusetts report is no exception--the objection arising to certain legislative or regulatory reforms that it involves the potential for increased costs of mortgage credit. In the Massachusetts example, the proposal to require judicial foreclosures in all cases is met with the utterly predictable response from the lending industry that such a requirement makes foreclosures more expensive, and that lenders would pass such costs on in the form of marginally more expensive mortgage rates.

What frustrates me is that no one--including the Massachusetts task force--is coming back with the response of "And so?" I have some dusty old Econ 101 textbook that is probably filled with a fair amount of nonsense, but I remember it implying that moral hazards can be dealt with by imposing failure costs on the risk-taker. From a rather different economic perspective, I note that extremely cheap mortgage credit, backed by cheaper non-judicial foreclosure options, has really done a lot for us lately.

There is also the predictable claim that regulation of predatory or potentially predatory loan products or brokering relationships would "hurt the poor." This, coming out of the mouths of for-profit lenders, is pretty rich. The idea seems to be that "suitability standards" are OK for middle-class financially-literate people, but they get in the way of making loans to low-to-mod income wage earners who may not have been through Econ 101 and don't run Excel. I'll go on record with the thought that anyone who believes that "democratizing" homeownership means that the poor are helped most by getting loans at any cost is full of MBS.

For discussion purposes, here are a few of the recommendations the working groups were able to agree on (which doesn't mean they'll happen, of course, unless and until not just MA but other states get on board with regulating and legislating these issues).

• Pre-payment penalties should not be charged after the initial reset period of an ARM product.

• Full, simple, and clear disclosure of all the features of the loan that might affect the monthly payment and borrower equity, should be provided.

• Full, simple, and clear disclosure of the incremental cost of each of the risk layering features of the approved loan should be provided.

• Changes in loan terms at or just prior to closing that adversely affect the borrower by increasing costs, fees, or rates or changing other terms are inappropriate and should be considered predatory.

• Require that the name and license number of the mortgage broker be added to the mortgage so that it becomes a public record.

• Require all licensed mortgage lenders and mortgage brokers to report through the annual report to the Division of Banks the number of loans that they originated that went into foreclosure.

• Require all licensed mortgage lenders and mortgage brokers to report through the annual report to the Division of Banks the number of loans originated in Massachusetts that meet the definition of a high APR loan (HAL) under the Home Mortgage Disclosure Act (HMDA)7 and the percentage of all loans originated in Massachusetts that are HALs.

• Based on the HAL data reported by mortgage lenders and mortgage brokers, consideration should be given to the following:

1. If the majority of a lender’s or broker’s business are HALs, the lender or broker must disclose this to the customer in writing, along with information that better pricing and terms may be available from another lender.
2. If the majority of a mortgage lender’s or broker’ closed loan business is defined as HALs, a separate license designation could identify them as a High APR lender or broker. This High APR identification would also have to appear in all advertising.

by Anonymous on 4/21/2007 10:30:00 AM

. . . my name is Alt-A.

That pretty much sums up the message this earnings season from the mortgage lenders.

Yes, if I could have found a YouTube of Jessi Colter, or even Erika Jo, I'd have chosen it. So sue me. Let me remind you that if you are looking for good taste in music, you should go bug Barry Ritholtz.

Oh yeah, and "rock" means whatever I say it means. I'm a mortgage lender, dudes.

by Calculated Risk on 4/20/2007 08:15:00 PM

IndyMac provided an (pdf) Update on First Quarter Mortgage Loan Production today. Here are a couple of interesting tables.

Click on graph for larger image.

This shows the breakdown of loans by documentation. Most of their loans fall into Type 2:

Borrower states income and documents employment and assets. Lender assesses income for reasonableness and verifies employment, assets, credit history and home value (by appraisal).

Click on graph for larger image.

The second image (two tables) shows the actual loan production in Q1 by documentation type, and the Proforma Loan Production had their new guidelines been in place on Jan. 1, 2007. Overall production would have declined by about one third. Type 2 loan production would have decreased from $13.161 Billion to $8.066 Billion.

by Calculated Risk on 4/20/2007 06:49:00 PM

Every month, for most of the last year, we have seen some prominent economist, analyst, or government representative call the housing bottom. My only regret is I didn't keep a list of their erroneous calls!

Of course someone will eventually be correct, and maybe it will even be Treasury Secretary Hank Paulson, from MarketWatch 4/20/2007 (hat tip Anthony Fleming):

In a question-and-answer session, Paulson delivered an upbeat assessment of the economy, saying growth was healthy and the housing market was nearing a turnaround.

"All the signs I look at" show "the housing market is at or near the bottom," Paulson said.

This is the start of a list of bottom callers. Please post any other prominent bottom calls (not Lereah!).