Is Housing at a Bottom – Part 2

I’ve said it before, but it bears repeating.   The biggest issue the housing market is facing (not the only, but the biggest) is jobs.   Unless people have jobs that allow them to afford to make their payments and jobs that they feel secure in, we won’t see people buying new houses, keeping their existing houses, putting money into home improvements, etc.

I try to keep my personal life out of the business life most days, but I was talking to my Mom yesterday (I still try to do that from time to time) and she was asking how the banking world was going.   She said, “Didn’t we get some good news on the jobs front in the last few days?”    When I explained to her that the good news was that ONLY 623,000 people filed for unemployment claims for the first time, down from over 630,000, she’s like, “Oh, that’s still a lot of people.”  Yeah, I’d say it is.

The job situation is going to drive the housing market because people won’t buy a new house if their job situation is “marginal” and if people lose one or more of their incomes, they are going to have a hard time keeping their homes.   That means additional inventory, additional foreclosures and short sales, increased downward pressure on prices and increased losses for banks and the government owned Fannie Mae and Freddie Mac.

So, when you want to get a feel for what’s going to happen in the housing market, take a look at the employment numbers and their direction.   I saw a sign at a local business that said, “Michigan’s employment rate is 88%.”    Let’s say that the number of people in Michigan who make up the “workforce” is 5 million (that is a totally unscientific pull a number out of a hat type of number) and unemployement has gone from 6 to 12.9 in the last 3 years, that means that Michigan has lost over 300,000 jobs in the last 3 years.   That means there are 300,000 people who are struggling to make house payments or rent payments,  300,000 people who are considering moving somewhere else, and 300,000 people who are NOT considering buying a home in Michigan right now.

That’s why Jobs are important to housing and if you look at the jobs market, you can see we aren’t at the bottom of the housing mess yet.

More on Monday.   Stay tuned,

Tom Vanderwell

Signs of more trouble ahead for housing market

- Rising unemployment. It doesn’t take an economist to realize people will not buy homes if they’re worried they might lose their jobs.

“Employment is crucially important,” said Peter Morici, a professor at the University of Maryland business school. “We lost more than 600,000 private-sector jobs last month. That means the housing market is not going to turn up yet for a while.”

Unemployment also will spur supply. While the first wave of foreclosed-upon homeowners comprised people who could not afford their homes from the get-go, as more people lose their jobs, they are likely to lose their homes because they no longer have enough income to make the payments.

Housing Bottom

Where does the money go?

I stumbled across this diagram which illustrates quite nicely how the money flows….

Let me outline it……

• The Fed gives the Treasury $700 Billion for TARP to rescue the banks who were a large influencing factor in getting the housing mess going.   Not the only one, but they (we) are part of the problem.
• The Treasury then bails out AIG to keep the financial system from a total meltdown.
• $90 Billion of the $160 Billion that AIG got went to settle up their obligations with other banks.   Those obligations were paid up 100 cents on a dollar (paid in full).
• Guess who they paid them to?   The banks who were in many ways responsible for this mess.

Makes me feel really good about the direction this is all going, doesn’t it make you feel good too?

Tom Vanderwell

AIG and the Bailout

Color me just a little bit skeptical…..

Okay, the government is planning on putting another $50 Billion into GM (on top of what they have already dumped in) and within 5 years, we’ll be done with this and out of ownership of GM?   Am I the only one who is skeptical of this?

See below for additional thoughts…..

U.S. Hopes To Recoup GM Outlay In 5 Years – washingtonpost.com

The United States would recover most of its planned $50 billion investment in General Motors within five years, according to a preliminary Treasury Department estimate that foresees the company, now on the brink of bankruptcy, rebounding over that time to become a strapping global competitor.
Tom here – if the Mortgage Bankers Association is estimating housing won’t “bottom” until 2011 and many of the cars that were purchased by borrowing against houses, how many people are going to be able to buy a new car in the next 5 years?  I predict that the used car market is going to be much stronger than the new car market and both of them are going to be quite lukewarm at best.  The thought is going to be, “I can get another 40,000 miles out of this one, so I’m just going to keep driving it.” 

Some industry analysts are skeptical that an automaker that has struggled for so long could be so quickly reborn. The preliminary estimate, by contrast, reflects optimism that the iconic American manufacturer can flourish after its restructuring…….

……”It’s not a completely unreasonable estimate — if the market recovers
and if they really invest in GM’s capabilities,” said Susan Helper, an
economics professor at Case Western Reserve University who specializes
in the auto industry.   Tom here – should we be focusing on saying, “It’s not completely unreasonable” when calculating how much money you and I are going to lose on GM?   Seems to me that it’s sort of like saying, “It’s not completely unreasonable that if Tom Vanderwell works 20 hours a day and makes all of the right financial moves and the Dow goes back to 15,000, he could be financially in a position to retire in 5 years.”    Yeah like that’s going to happen……

Toward that end, the United Auto Workers ratified contract changes
yesterday that will help General Motors cut more than $1 billion in
labor costs.

Tom here…. Help me with the math.   We, the taxpayers, have bailed out GM to the tune of $20 Billion in the last 5 months ($4 Billion per month) and the UAW makes a big show out of cutting $1 Billion out of their contract.   $1 Billion per year?  $1 Billion per contract?   Sorry, but I don’t like taking more of the cost than the people who caused a lot of this mess.

One last thought – there’s a fair amount of talk about how GM is going to be bringing back the building of 160,000 small cars from China.   They are doing that because:

• The government told them to.   Makes me wonder what else the government is going to tell GM to do.
• The UAW touts this as a good thing because “we can build those cars in this country.”   If we can, why did it take bankruptcy and massive government intervention to do it?
• Whether we can build them or not is frankly quite irrelevant.   The question is “Do people want to buy them.”    If GM builds 5 million cars that no one wants to buy (either because of price, quality, or perceived lack of corporate stability) we’re still going to lose a LOT of our money on this mess.

If there is someone who doesn’t actually work for the UAW who thinks that this is the greatest thing around, I’d love to hear from you on why you think so.  

Tom Vanderwell

.

General Motors

Is Housing at a Bottom? Part 1

Carolyn Said from the SanFrancisco Chronicle did a piece earlier this week looking at some of the challenges that the housing market faces.   I’m going to deal with one of the “topics” per day for the next few days.   I found them not necessarily earthshaking but good things to keep in mind as we try to plan and advise people about the direction of the market.

This first one makes what I feel is a valid point.   As the market is struggling, there are so many “bad news” reports and it’s creating a “thirst” for anything good.    That’s generally a good thing.   The mainstream media focuses way too much on the negative.

But when you are dealing with things like houses and mortgages, now is not the time for blind ignorance.   Now is not the time to blindly say, “It’s a great time to buy a house!”  Yes, that’s a slam against the National Association of Realtors.   I get mad every time I hear those ads because it’s not always a good time for everyone to buy a house.

Customized, personalized financial advice and counsel are more important than ever and that involves not only being optimistic but being realistic and well educated.   it also means having the guts and the personal integrity to say, “I’m not going to do that, and I don’t think you should do that.”

Stay tuned for more thoughts on whether housing is at a bottom and thinks to look for.   An honest, solid assessment is what our customers, clients, referral sources and friends need.

Tom Vanderwell

Signs of more trouble ahead for housing market

Warren Buffett and Alan Greenspan say the housing market is near bottom.

Peppy real estate agents and gloomy stock-market traders alike eagerly embrace that supposition. Wall Street is so hungry for good news that stocks rallied at the barest hint of upbeat indicators several times this month.

Housing Bottom

CNBC appears to have it right…..

While Marketwatch.com had the previous story wrong, CNBC seems to have their facts pretty accurate in this video about the home buyer tax credit.   A couple of thoughts:

• I think that Secretary Donovan’s estimates of 101,000 new sales because of the tax credit is stretching it.   Do you really think that 101,000 families will decide to purchase a home because they can access that $8,000 now rather than in the next 12 to 15 months?
• They talk about using the money to pay points?  If someone can already get a rate down in the low 5%’s and they have to get one lower than that to feel “comfortable” with buying a home, maybe they shouldn’t be buying a home.
• I’m glad that you can’t use the tax credit for the entire downpayment.   That gets us back into the days of reckless lending.
• I have not heard of one lender (NOT ONE LENDER) who has stepped up and said, “I’ll do the loan against the tax credit.”   So until we do, it can’t be done yet.
• There’s a lot of misinformation out there.   So be very careful what you read and what you believe.

My opinion, it’s something that is going to get a lot of attention but when people sit down with a true professional mortgage lender, they’ll see that it’s not necessarily the best way to go and very few people will actually do it.

Check out what CNBC says too…..

Tom Vanderwell

HUD’s Tax Credit Loan

Marketwatch.com is wrong…..

Now this really irritates me.   Marketwatch is saying that those who have mortgages on 2nd homes and rentals are out of luck.   That’s not true.

If the loan was a conventional mortgage and sold to FreddieMac originally and if the following conditions are met:

• The loan is no more than 105% of either a new appraisal or the value from Freddie Mac’s HVE (automated appraisal estimate).
• The same borrowers are on the new loan as the last loan.   Divorced?  Sorry.  Dad co-signed last time, has to this time.  Spouse died, my condolences, but it doesn’t work.
• There can be no late payments within the last 12 months (no 30 days or more late.  29 days works, but not 30)
• If there is a second mortgage/equity line on the property, the bank who has the second mortgage needs to be willing to stay in second place (technical term – subordinate).

So, no, Marketwatch.com is wrong.   I’ve got several specific examples of transactions I’m doing that work that way, and it’s not “my bank” it’s a Freddie Mac thing.

Tom Vanderwell
No federal mortgage help for second-home owners – MarketWatch

Question: Are there any new laws going into effect that would allow someone with a second home to refinance or adjust the mortgage? My lender won’t let me do either because they claim that I owe more than the second home is worth. However, the lender is using assessed value and not comparable values based on recent sales of similar properties. My rate is 6.4%; if I could get it down to today’s rate, I could afford to pay it!

Answer: Sorry to disappoint, but nothing the feds are trying applies to folks with second homes or investment properties. Under the rules, only troubled owners of primary residences need apply. The rest of us are left to our own devices.

marketwatch.com

Government Intervention in the Mortgage Market

I had talked earlier this week about how we’d have to have a massive government intervention in the bond markets to get the rates back down to where they were.

Could this “story” be a leaked signal by the government that they aren’t going to do that?

Just asking the question, what do you think?

Tom Vanderwell

Fed Not Setting Rates in Credit Markets: Sources – Economy * US * News * Story – CNBC.com

The $1.2 trillion in mortgage assets and $200 billion in Treasurys bought by the Fed in an attempt to backstop the troubled credit market were not designed to impact rates, the sources said.

Yields on 10-year U.S. government bonds jumped more than 50 basis points in the last two weeks, which unnerved many investors

Government Intervention

Government Motors

Alex Taylor at Fortune Magazine has a good overview of what’s happening with the GM problem.   Let me throw a couple of thoughts into it:

• I’m amazed at how many people “assume” that having GM go through bankruptcy is going to be a relatively painless and “certain” outcome.   It’s sort of like they don’t want to acknowledge that things could go differently than what the President says.
• There are very few people talking about the “right size” for GM.   Do they need to shed 25% of their size?  50%?  The focus is all on what the UAW will agree on and what the bondholders will agree on.    While those are important, they are not the things that will impact the economy most of all.   How many dealerships will get closed?   How many plants will be closed?   How many people will get laid off?   How big of an impact will that have on surrounding businesses?   How many people will lose their homes because of the bankruptcy?
• What happens if things don’t go the way the government says?   Will we ever get our “investment” back?
• What happens if people stop buying GM cars?
• How will the 50 employee tool and die shop survive if GM “stiffs” them out of $500,000 they are owed for work already done?

The bankruptcy of GM has been talked about for a long time and it has been analyzed by the media forever.   So much so that I think many people are not giving it the seriousness that it deserves and aren’t seeing the implications it’s going to have for the economy.

Tom Vanderwell

Bankruptcy will force lots of changes on GM – May. 29, 2009

With General Motors poised to enter Chapter 11 reorganization, the question arises: What will the bankrupt company look like and how will it be different?

The answer to the second part is “a lot.” The answer to the first is nobody knows for sure, but it may not be pretty.

As GM goes, so goes the Nation

Mortgage Market Update

Well, it’s a little later in the day than I had planned on, but here’s the latest on the markets today……

Rates have improved today.  We’re currently at:
5.375% with .125 pts for a 30 year fixed refi.
5.125% with 0 pts for a 30 year fixed purchase.

Both assume a credit score of 740 or better.

So what’s going on today?

• Consumer confidence was up in a University of Michigan Survey
• Revised GDP (gross domestic product) for the 1st quarter of 2009 was down by less than originally reported.   In other words, when they got updated numbers it looked less bad than expected.
• Oil hit a 6 month high.
• The Institute for Supply Management showed that business activity in the Midwest shrank more than expected.

As you can tell, from Wednesday, rates have done like they have on many situations where they have spiked up and then come down some afterwards.   I’m expecting that they will settle down but won’t be down quite as far as they were last week.

My recommendation remains to lock all loans.   The risk of higher rates is greater than the potential advantage of lower rates.

I’ll have my Mortgage Market Week in Review ready to go out later this afternoon with more thoughts on what’s happening.

Stay tuned,

Tom Vanderwell

Mortgage Market Update

Reactions to GM

This video played on my local TV station.   It’s got both the current governor and the leading Republican candidate (and also a US Rep. from Michigan, on it.

Oh, and just for the record, I don’t agree with our governor most of the time, and I didn’t vote for her, but I think she’s right this time.   It’s going to be a challenging time.

A sobering assessment of a challenging time…..

Tom Vanderwell

GM, Granholm, Pete Hoekstra

Next Page »