by Calculated Risk on 2/15/2011 08:43:00 PM

From Mitra Kalita at the WSJ: Banks Push Home Buyers to Put Down More Cash

The median down payment hovered around 20% in the late 1990s and began to creep downward in 2001 in the nine cities Zillow analyzed: Chicago; Stockton, Calif.; Las Vegas; Los Angeles; Miami-Fort Lauderdale; Phoenix; San Diego; San Francisco; and Tampa, Fla.

It fell as low as 4% in the fourth quarter of 2006, and in some markets came close to zero.

Little or no skin in the game matters for home buyers too. I think 20% down (10% with mortgage insurance) is not unreasonable. If someone cannot save 10%, are they really ready for home ownership? I think that question was answered a few years ago.

by Calculated Risk on 2/15/2011 05:17:00 PM

CoreLogic released their U.S. Housing and Mortgage Trends Report: 2010 Year End Summary today.

From the report:

During 2010 CoreLogic estimates home sales totaled 3.6 million, down 12%from 4.1 million in 2009. Sales remain extremely low relative to the last decade as sales last year were more than 50% below the level in 2005 and about 33% below the level in 2000. Although it’s been widely reported that the National Association of Realtors’s (NAR) existing home sales data fell only 5% to 4.9 million in 2010, down from 5.2 million in 2009 and flat relative to 2008, the CoreLogic data indicates otherwise.
...
Historically, the CoreLogic existing sales data have covered about 85% to 90% of all NAR’s existing home sales data. However, in 2006 NAR’s sales data became elevated relative to the CoreLogic, MBA, HMDA and Census sales related data, and that trend has continued and become more pronounced through 2010. There are several reasons for the divergence, including benchmarking drift, more sales going through MLS systems due to consolidation and a lower share of for sale by owners (FSBO) home sales. Net, NAR’s existing home sales data are overstated by about 15% to 20.

CoreLogic also discusses the impact of lower sales on months-of-supply and potentially prices, however it also appears the NAR data overstates the level of inventory too - so it is hard to tell if months-of-supply will be revised up (or even down). As I've mentioned before, I expect that later this year, the NAR will revise down both sales and inventory numbers for the last few years.

Also from the report:

Click on graph for larger image in graph gallery.

This graph (posted with permission) shows the percentage of short sales and REO (lender Real Estate Ownder) sales since January 2006 through November 2010. There is a seasonal pattern for conventional sales (strong in the spring and summer, and weak in the winter), however distressed sales happen all year - so the percentage of distressed sales increases every winter. Notice that the percentage of distressed sales increased in 2010 following the expiration of the tax credits. Recent reports suggest the percent of distressed sales will be very high in January.

by Calculated Risk on 2/15/2011 02:29:00 PM

A few key points:
• Total home sales were weak in January.
• New home sales were at a record low.
• A large percentage of buyers were investors paying cash at the low end.
• Foreclosure activity - as a percent of sales - was higher in January (we've seen an increase in many areas of the country).

Weak sales, with a high level of distressed sales, means lower prices - and we should see new post-bubble lows on the repeat sales home prices indexes soon.

Note: the Case-Shiller house price index that will be released next Tuesday is for the three months ending in December - and there will be further weakness in early 2011. Also January existing-home sales will be released next Wednesday and new home sales on Thursday.

From DataQuick:

Last month 14,458 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties. That was down 26.0 percent from 19,528 in December, and down 5.9 percent from 15,361 in January 2010, according to DataQuick Information Systems of San Diego.
...
The total number of homes sold last month was the lowest for a January since 2008, when 9,983 sold, and the second-lowest since 1996. Last month’s sales fell 18.8 percent below the average January sales tally of 17,802.

January new-home sales were the lowest for any month in DataQuick’s records back to 1988. Builders have struggled to compete with prices on resale homes, especially distressed properties.

Absentee buyers – mostly investors and some second-home purchasers – bought a record 24.8 percent of the homes sold in January, paying a median $198,500. Over the last decade, absentee buyers purchased a monthly average of about 16 percent of all Southland homes. ... Buyers who appeared to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for a near-record 29.5 percent of January sales ...

Foreclosure resales – homes foreclosed on in the past year – accounted for 37.0 percent of the resale market last month, up from 35.1 percent in December but down from 42.1 percent a year ago. Over the past year, foreclosure resales hit a low of 32.8 percent last June and have generally trended higher each month since then.

by Calculated Risk on 2/15/2011 01:09:00 PM

My first post of the year was: What about those Option ARMs? (with those old scary option ARM charts)

2011 was supposed to be the year that the Option ARM borrowers defaulted in mass. (An "Option ARM" is an adjustable rate mortgage with several payment options including interest only and negatively amortizing options).

However, as I noted, "many of the loans have already defaulted ... and some of these loans were modified (Option ARMs and Alt-A loans were targeted by the banks for internal modification programs), and some of these borrowers have probably refinanced."

Prashant Gopal and Jody Shenn at Bloomberg have more: Option ARM Time Bomb Blows Early, Easing Damage to U.S. Housing (ht Mike in Long Island)

In a 2006 cover story in BusinessWeek magazine titled “Nightmare Mortgages,” George McCarthy, a housing economist at the Ford Foundation in New York, compared the looming resets to a neutron bomb.

“It’s going to kill all the people but leave the houses standing,” he said at the time.

What he and other analysts didn’t anticipate was that so many option ARMs would go bad before resetting, and that interest rates would stay low enough to minimize the impact of the adjustments on borrowers ...

And the banks have targeted Option ARM borrowers for modifications:

Terms on about 20 percent of option ARMs have been revised, sometimes with a switch to a fixed rate, said Michael Fratantoni, vice president of research at the Mortgage Bankers Association ... JPMorgan has reworked about a quarter of the $40 billion of option ARMs it inherited when it acquired Washington Mutual in 2008. The New York-based bank plans to adjust terms on an additional $2 billion to $4 billion before resets kick in ... Wells Fargo has modified more than 80,000 loans since the beginning of 2009. The company’s outstanding balance of Pick-A- Pay Loans fell to $54 billion on Dec. 31, 2010, from $101.3 billion at the end of 2008, primarily through payoffs and modifications. The company has forgiven $3.7 billion in principal, [Tom Goyda, a spokesman for the bank] said.

Although there will be more delinquent Option ARM loans this year, the feared "2nd wave" of defaults will be much smaller than originally feared.

by Calculated Risk on 2/15/2011 10:00:00 AM

The National Association of Home Builders (NAHB) reports the housing market index (HMI) was unchanged at 16 in February. This was slightly below expectations of an increase to 17. Confidence remains very low ... any number under 50 indicates that more builders view sales conditions as poor than good.

Click on graph for larger image in new window.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the February release for the HMI and the December data for starts (January housing starts will be released tomorrow).

Both confidence and housing starts have been moving sideways at a very depressed level for over two years.

Press release from the NAHB: Builder Confidence Unchanged for Fourth Consecutive Month in February

Builder confidence in the market for newly built, single-family homes remained unchanged at 16 for a fourth consecutive month in February, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.
...
"Builders are telling us that some pockets of optimism have begun to emerge, but many prospective purchasers are concerned about selling their existing home in the current market, or face difficulty securing credit for a home purchase -- even when they are well-qualified," said NAHB Chief Economist David Crowe
...
On a positive note, two out three of the HMI's component indexes edged slightly upward in February. The component gauging current sales conditions improved by two points to 17, while the component gauging sales expectations in the next six months rose a single point, to 25. Meanwhile, the component gauging traffic of prospective buyers held unchanged, at 12.

On a regional basis, HMI scores were mixed in February, with gains reported in two parts of the country and declines in two others. The Northeast registered a two-point gain to 22, the South posted a one-point gain to 18, the Midwest posted a one-point decline to 12 and the West posted a two-point decline to 13.