Pending Home Sales Plummet

November’s pending home sales (in other words signed purchase agreements) fell a dramatic 16% compared to October of this year.   A couple of thoughts:

• I think the numbers for October were artificially inflated by the “scare tactics” that were used by many to encourage first time buyers to buy before the tax credit ended at the end of November.   Once that window was past (by the middle of Nov. you weren’t going to make the Nov. 30 deadline no matter how you tried), that let a lot of steam out of the market.
• Sales were up 15.5% compared to November of 2008.   That’s good, right?   Yeah, that’s good, but let’s think back to November of 2008.   We thought the financial world was falling apart and it was Armageddon of the Financial Type.   It’s no wonder things were bad then.   Saying that things are up from November of 2008 is sort of like saying that someone with a 101 fever is doing well – because last week he had a 104.5 fever.   True, he’s better, but he isn’t healthy yet.

I’ll have more as the news justifies.

Tom Vanderwell

Calculated Risk: Pending Home Sales Decrease Sharply

From the NAR:

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in November, fell 16.0 percent to 96.0 from an upwardly revised a 114.3 in October, but is 15.5 percent higher than November 2008 when it was 83.1.

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The Lost Decade – for employment and net worth…..

A couple of interesting points to the graph that the Washington Post put together:

• GDP was up by 17% in the 2000’s.   That’s good, but a far cry from the numbers that the 60’s, 70’s, 80’s, and 90’s did.    By the way, GDP stands for Gross Domestic Product and it’s basically a measure of how much is “created” by our economy.
• Job growth in the entire decade is at 0.   That means that we’ve seen no net job growth in the last 10 years.  I know that the state that I live in has seen a negative job growth in the last 10 years.
• The household net worth (when adjusted for inflation) is negative for the first time since the 1960s.

So, if you look at your own situation and say, “It’s been a tough decade,” I think it’s safe to say that you aren’t alone.

Tom Vanderwell

Technorati Tags: Lost Decade, Job Creation

Government Loan Modification Program – Delaying the Inevitable?

An interesting and thought provoking article in the New York Times about the mortgage modification program that the government has been pushing as their “remedy” to the housing problems.    A couple of main points:

• It has failed to provide permanent relief for struggling homeowners and has therefore raised false hopes and encouraged people to avoid making the difficult decisions that they should be making.
• By delaying people from making the difficult decisions, the government is prolonging the housing market’s necessary adjustment and working through the pricing adjustments needed to get back to the point at which incomes and house prices are in line.
• With the unemployment situation as it is (I think it’s over 7 million jobs lost since this all started?) there are a lot of people who are in homes that they can’t afford any more.   The sooner we, as an entire housing and mortgage industry, can adjust to that fact, the more quickly we can return to health.

I think there are two things that this article doesn’t take into consideration:

• One of the main reasons that the modifications aren’t working well is because they aren’t substantial enough to get to the point of people actually being able to afford to keep their house.    Whether your interest rate is 2% or 8%, if you don’t have enough income to make the payments, it’s not going to matter.    It’s called principal reductions.   Without principal reductions, the loan modifications aren’t going to work.
• The “justification” of giving breaks to some people when they are struggling but not others?   According to the last statistics that I saw, 85% of the loans that Fannie Mae and Freddie Mac have are making their payments on time.   So how do you mesh those two statements?    How do you mesh the problems with those who don’t have problems?

Tom Vanderwell

Mortgage Modifications Are Seen as Adding to Housing Woes – NYTimes.com

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good………

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes…….

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

The Treasury Department publicly maintains that its program is on track. “The program is meeting its intended goal of providing immediate relief to homeowners across the country,” a department spokeswoman, Meg Reilly, wrote in an e-mail message.

But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.

Mortgage Market Year in Review – The Big Three

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Jim the Realtor

I like Jim the Realtor’s analysis and insights into the housing market that he’s in…..

Technorati Tags: Jim the Realtor, House Prices

What are these guys at Barclays thinking?

Okay, you recall the chart I put up the other day about increasing delinquencies in Fannie’s portfolio?

And you recall the fact that Fannie Mae recently rolled out new guidelines that tightened down their underwriting guidelines (the memo took 20 pages).

And you know that FHA recently announced that they intend to go to Congress by the end of January with rules and changes to bring them back within compliance (that’s a fancy way of saying that they need a LOT more cash).

Oh and on Christmas Eve, the Treasury pulls the Thursday night massacre and essentially hands their checkbook to Fannie and Freddie and said, “Here, take how much you need so that you can stay above water.”

And now Barclays says that in the 2nd quarter of 2010 we’re going to see credit restrictions easing on mortgages?   How is that going to happen?

Oh, it does mention that there is a substantial portion of the population with low loan to value and good credit scores who aren’t being taken care of.    A couple of responses to that:

• In certain areas of the country, prices have fallen up to 50%.    So, it takes a LOT of equity for someone to still have a LOT of equity in their house.
• If you know someone who has a good chunk of equity in their house and needs a mortgage but isn’t getting taken care of, I’ve got two items of information I’d like you to pass on to them.   My phone number is (616) 292-7559 and my e-mail address is tvanderwell@straighttalkaboutmortgages.com.   I’d love to talk to them about how I can help them out.

Have a good day!

Tom Vanderwell

Origination Funding May Increase as Credit Restrictions Ease in 2Q10, Analysts Predict : HousingWire

A recent set of research focusing on 2010 strategies for investors of agency mortgage-backed securities (MBS) by analysts at Barclays Capital finds that credit availability for mortgage originations may increase in the next six to 12 months.

However, the situation will remain tight in the next three to six months, they add, as the market grapples with ongoing risk aversion sentiments, loan repurchases stabilization and new regulatory procedures that will need this time to take hold.

“In particular, in H210, there could be a meaningful extension of conventional credit to currently under-served segments,” write the analysts in their Agency MBS Outlook 2010, such as “the substantial population of borrowers with low LTV but only mid-range FICOs (700-740).”

Technorati Tags: Mortgage Market, Mortgage Rates, Housing Wire, Barclays

More on Fannie, Freddie and the Christmas Eve “Checkbook”

Tim Duy has a very solid explanation of what happened with Fannie and Freddie over the Christmas holiday when it gave them an open checkbook.   A couple of “points” from his article:

• After December 31, they would have had to get Congressional approval.    That would have been messy at best and they didn’t want to do that.
• They expect the financial reports from Fannie and Freddie to continue to be bad for quite some time.
• Without doing this, the markets perception of Fannie and Freddie would have been “shakier” than it already is.   That would have caused the likelihood of increased rates due to fear of default by the two entities.    

So, the losses continue and continue to climb and the government continues to throw more money at it.    Doesn’t seem to be making things better yet, even if it is slowing down how “less bad” things are.

Tom Vanderwell

Tim Duy’s Fed Watch: Why Christmas Eve?

In short, there are plenty of ulterior motives for Treasury’s expansion of the Mae and Mac bailouts. My favorite is the desire to expand the ability of the GSEs to absorb principle reductions for housing modifications. But the simplest explanation is likely the correct one – the financial damage to the GSEs continues virtually unabated, and the Treasury simply needs to make explicit what was implicit: Mae and Mac are backed by the US government’s full faith and credit, regardless of the level of losses in those institutions.

Technorati Tags: Fannie Mae, Freddie Mac

Jobs, Jobs and More Jobs

I got this chart from Calculated Risk (my favorite chart master).    It shows the relationship between house prices and the unemployment rate over the last years.   A couple of points to make about this chart:

• In the past, there has been a “general trend” linking unemployment and house prices.
• The current “bubble” shows that almost exactly when unemployment started rising is when house prices started falling.

Now a case could be made for the “chicken and the egg” question (which came first – a drop in house prices or an increase in unemployment?)   But to me, it’s pretty clear that the unemployment is the driving force in the equation.   Why?   It’s pretty simple – if you don’t have a job, it’s pretty hard to make your mortgage payments.   If you can’t make your payments, you end up either selling your house or the bank ends up owning it.   An increase in inventory pushes prices down.

So, what do we need in order to turn the housing market around?   Do we need more artificial tax credits and unbelievably low interest rates?   Nope.   What we need is jobs.   Plain and simple, we need jobs that people can feel comfortable with and that allow them to keep making their payments and to keep living their lives.

That will solve the housing problems and stabilize house prices, not at the inflated “bubble” prices but at a price that is in line with current wages.

What do you think?

Tom Vanderwell

Technorati Tags: House Prices, Unemployment

Munchin’ on the Numbers

12-30-09

MUNCHIN’ ON THE NUMBERS

So, finally the last post of the MUNCHIN’ for the year. It has been a very quiet holiday, overall, but if you will review the last seven or eight MUNCHIN’s you will see that there were several very important financial events to hit the street, top of the list of which is the Fanny and Freddy bottomless pit of money that was opened by the Administration on Christmas Eve. This one will have long range impact, just wait and see. I hope it is not as difficult a corner to be in as it seems to me to be at the moment. Not a good development.

But, to the other closing comments for the year. It saw a terrible March low, then one of the most dynamic rallies in history – ranking with the top five ever, as I see it – and our form of government took a decidedly less capitalistic turn. Seems that we will have to get used to investors being demonized, although they are the ones that create jobs. And those that speak out will have to have a thicker skin, it appears. And the taxes you will be paying, yeah even the “middle class,” will be higher by a good measure come next New Years Eve, if Washington continues on its current course.

These observations here are not political, but monetary. I have lived in a capitalistic country all my life. That seems to be changing. I see that the stock market is slowly changing the way it responded to the new way of doing things. That concerns me a great deal. My sincere hope is that somewhere along the way we see less animosity toward the risk taking, investing public and a more balanced approach to regulations that might otherwise curb growth of investment opportunities. The balance is there somewhere. I just hope 2010 proves we can find it.

So, here is to your having a prosperous and happy 2010 and may all your good wishes come true. My goal is still the S&P 1220-40 (about Dow 11,500 or so) and hope that the bonds move back above their Super Chart Keyline, soon. Lastly, buy gold, buy gold, buy gold. In 2010, it may see a big move higher unless, somehow, we get our national deficit under control or demonstrate that we, as a country, are making credible efforts to do so.

So, I’ll be back next year (only get to say that once a year, you know) with a new web site, new ways to use the Keyline to make a profit, and some daily gab that will help keep you abreast of “what is going on out there!” Truly hope your year was a profitable one. Will be back Monday, bright eyed and bushy tailed, Lord willin’ and the creek don’t rise.

NEED SOMETHING TO TALK ABOUT TONIGHT?

SIX MAJOR IMPACTS ON THE MARKET TODAY

1. Time Warner made an 11^th hour bid to not lose all the Fox cable shows. Late in the day. Hope it works.

2. Dollar rises to a 3 month high, as more carry trade investors head for the Yen. Blunts year end trading.

3. Oil price closes to within $.70 of $80 a barrel, as cold weather closes in on U.S major cities.

4. Options trading in the U.S. set a new record of over 3.5 billion contracts in 2009. WOW!

5. Most treasury dealers say that 2010 will see higher long term bond yields, lower bond prices. I agree.

6. Oh, yeah. Chicago PMI rose 3^rd month in row. Next ISM report to follow? Ho Hum. Another report.

#6 is one I don’t want to slough off too easily, but where is the employment improvement that these numbers should be improving? Until we see that, these are just numbers. No help at all. And if you have Time Warner cable – like I do – you may not see some of your favorite shows unless Time decided to cave in and pay a higher price for shows that EVERYONE likes. Next year my cable bill is clearly going up – your too likely. Ugh! And #5 should be good news for the seniors and bad news for those that pay interest on loans – like the U.S. on its debt. Serious problem. Hummmmm.

THE NUMBERS SECTION

DAILY CHANGES DAILY WEEKLY

Closes as of Wed. 12-30-09 CHANGE (cash) KEYLINE# ABV/BLW

DOW INDU. 10,548.51 +3.10 points 9,846.18 ABV +702.33

S&P 1,126.42 +0.23 points 1,059.95 ABV +66.47

30 YR BONDS 115 26/32 +11/32 ticks 116 25/32 BLW -1 11/32

NASDAQ 2,291.28 +2.88 points 2,107.45 ABV +183.83

GOLD $1,092.10 -5.30 $932.26 ABV +$165.01

OIL $79.31 +$0.62 $84.70 BLW -5.39

DOLLAR INDEX 77.90 +$.04 79.75 BLW -1.85

COPPER $3.3415 +$0380 $2.6670 ABV +.6745

DOW DAILY PRICE RANGE 45.05 points

S&P DAILY PRICE RANGE 4.8 points (really, really low!)

EOD BOND YIELDS 1 YR. 0.41% -.012 10 YR. 3.79% -.010 30 YR. 4.61% -.026

Note: All closes at 4pm using continuous cash contract results

*The name Super Chart Keyline is a registered Trademark of Max Whitmore.

Well, of course they do….

Okay, call me Captain Obvious, but this doesn’t surprise me at all.   Let me lay it out:

• TARP cost taxpayers $787 Billion (or it will eventually).
• There was a huge public backlash and anti-banker sentiment was running rampant during the time that this was put into place.
• The rules regarding TARP cost bank executives (aka bankers many levels up the food chain from me) a LOT of money because of salary caps and bonus caps.

So, of course the majority of them are going to say that it didn’t have a positive impact.   It cost the bankers money, cost them public prestige and made them “not liked” by people.    Of course they don’t like it.

The second part of this is a similar type of statement.    Let me explain:

• As part of the banking crisis last year, the FDIC increased the insurance on deposit accounts to $250,000, from $100,000.
• They did so because many people were concerned (and rightly so) about their banks.
• The banking executives said, “We think that was a very good thing to do!”   

Well, why would they say that?    A couple of potential reasons:

• By increasing the limit, it kept their clients from moving their money elsewhere.
• That made these executives’ banks more profitable.
• That made the bonuses that they could get larger.

Unexpected?   Nope.    But you need to ask yourself the questions that you didn’t know you should ask.   It puts a different spin on things.

Tom Vanderwell

Only 12% of Bank Execs Think TARP Leaves Positive Impact : HousingWire || financial news for the mortgage market

While larger financial institutions complete full repayment of the Troubled Asset Relief Program (TARP), as is the case with the $45bn repaid last week by Citi (C: 3.31 -1.78%) and Wells Fargo (WFC: 26.6101 -0.26%), a bank survey completed by the Bank Administration Institute (BAI) claims only 12% of respondents feel the program positively impacted their operations.

The BAI & Finacle Bank Executive Index tracked the opinion of banking executives from the top 100 financial institutions in the United States. The executives, who staff commercial and savings banks, as well as credit unions, filled out an online survey regarding questions on the overall health of the economy as well as factors that improve customer satisfaction.

While respondents feel negative towards TARP, 87% of those surveyed said the government’s action to raise FDIC insurance to $250,000 helped drive confidence in consumer bank deposits.

Technorati Tags: Markets, Banks, FDIC

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