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May 16
U.S. Census Bureau News US Department of Housing and Urban Developement
Houseing report for April 2006
http://www.census.gov/indicator/www/newresconst.pdf
'So-Called Bubble' Likely to Deflate, Not Burst
Inman News Features (06/13/06) ; Roberts Jr., Glenn A new report from Harvard University's Joint Center for Housing Studies reveals that an economic downturn precipitated by rising unemployment, overbuilding, and population outflows could result in significant drops in home prices. But the center notes that declines of 10 percent or more are not likely. In "The State of the Nation's Housing 2006," the center states that "when and if house prices do fall, the so-called bubble is more likely to deflate slowly rather than burst suddenly." There are concerns that falling prices could lead to higher mortgage default rates, as cash-strapped homeowners would have a difficult time unloading their properties to avoid foreclosure. The report shows that subprime mortgages accounted for 20 percent of the dollar value of originations last year, while interest-only and payment-option loans accounted for 20 percent and close to 10 percent, respectively.
(http://www.inman.com/printer.aspx?ID=53089)
Reverse Deals Gaining Steam
National Mortgage News (06/19/06) Vol. 30, No. 37, P. 31
Standard & Poor's reports that the market for rated reverse mortgages is on the upswing despite the fact that only a small number of securitizations in this niche have been seen in the United States. To date, there have only been three S&P-rated U.S. transactions of this type, the largest being 2005's $503.5 million Structured Asset Securities Corp. Reverse Mortgage Loan Trust 2005-RM1 deal. However, S&P officials forecast that reverse mortgages will continue to grow in popularity as America's population of men and women aged 65 and up continues to rise and is poised for explosive growth over the next decade. The risk that lenders should consider with these mortgage products is that the principal outstanding coupled with accrued interest for the loan could surpass the value of the home in some instances. "If this occurs," explains Standard & Poor's Terry Osterweil, "a loss or point of diminished returns is reached, known as the cross-over point. Any amount that exceeds the cross-over point is a realized loss to the lender."
Federal Law on Predatory Lending May Be on Its Way
Journal Now (06/20/2006) ; Shaffrey, Mary M. U.S. Reps. Mel Watt (D-N.C.) and Brad Miller (D-N.C.) believe that Congress may be ready to pass a federal law on predatory lending because legislators have become more aggressive in addressing the issue at the state level. Watt and Miller, who have drawn up proposed federal legislation based on their state's 2005 predatory lending law, say GOP support for a predatory lending law in Ohio is a key development. However, Congress is unlikely to pass a bill this year since it is already June and elections are only a few months away. New data that indicates race affects what kind of rate or loan an applicant receives could help turn the tide, but Mortgage Bankers Association chief economist Doug Duncan cautions that the data is not necessarily evidence that lending bias is widespread in the mortgage industry.
Weakness in Housing May Be Easing, Economist Says
Chicago Tribune (06/19/06) ; Sluis, Bill Home builders are offering mortgages rates as low as 3.95 percent over three years in an effort to jump-start sales in addition to offering free upgrades--such as higher ceilings, bigger basements, central air conditioning, or big screen televisions--to entice consumers into the housing market. At the end of April, the housing market had a record backlog of unsold new homes at 565,000 units, which is about a six-month supply. However, "the persistent weakness of the housing sector seems to be leveling off," according to Chicago economist William Hummer of Wayne Hummer Investments--although he predicts that Tuesday's report on U.S. housing starts for May will reflect a slight decline to 1.83 million units from 1.85 million units in April. Meanwhile, even though mortgage interest rates have been on the rise--and they are expected to climb even higher as Federal Reserve Chairman Ben Bernanke seeks to head off inflation--a soft landing has been projected for the housing market.
Looking at Alternative Credit Scoring
Chicago Sun-Times (06/19/06) ; Wisniewski, Mary
More and more lenders are realizing that a lack of traditional credit data is creating roadblocks for many immigrants and other potential borrowers who seek financing. Buying with cash and avoiding debt may be an admirable way to live in today's increasingly debt-riddled society, but this approach to money management does not establish a conventional credit history. PRBC founder Michael Nathans reports that one way to allow consumers to build credit is to count regular, on-time payments for such expenses as apartment rent and utilities. He adds that his Washington, D.C.-based credit bureau has a "memorandum of understanding" with the National Association of Mortgage Brokers to help educate the group's members on how to offer PRBC service to prospective clients.
Housing: The Roof Isn't Falling In
Business Week (06/12/06)No. 3988, P. 24 ; Mehring, James Home builders can expect a gradual and orderly easing of sales this year, as the monthly pace of new single-family sales is up in March and April and on track to weigh in as the third-best year ever even though activity is off 11 percent in the first four months of the year compared to the same period a year ago. Furthermore, the share of new residences sold prior to completion--74 percent--remains high. However, 2007 could be the real downer year thanks to increasing costs for building materials and land coupled with a projected slowdown in home price appreciation. Furthermore, while the number of new houses available for sale is still low from a historical perspective, the levels are on a decidedly steep upward climb--up almost 23 percent from a year ago through April 30.
(http://www.businessweek.com/premium/content/06_24/b3988043.htm?ca...)
Home Prices Too High in 71 Cities
USA Today (06/13/06) P. 4B ; Kirchhoff, Sue The number of extremely overvalued markets for single-family homes has risen 11 percent to 71 U.S. cities during the first quarter of the year, up from 64 cities at the end of 2005, according to joint research by National City Corp. and consulting firm Global Insight. The study--which used data from the Office of Federal Housing Enterprise Oversight--considered a market to be extremely overvalued when prices were 34 percent above normal, based on income, employment and other variables. Cities in California and Florida dominated the list of the 20 most overvalued markets--including Naples, Fla., which has a median price of $383,000 and a 102.6-percent overvaluation. Global Insight senior economist Jeannine Cataldi expects home-price gains to slow gradually but adds that "some markets will see a more pronounced decline than others."
(http://www.usatoday.com/money/economy/housing/2006-06-12-home-prices-usa.. .)
Household Debt Rate Increases as Asset Gains Lift Net Worth
Wall Street Journal (06/09/06) P. A6 ; Conkey, Christopher
The Federal Reserve's most recent "flow of funds" report reveals that U.S. household debt rose at an annual pace of 11.6 percent during the January-through-March period, up from a fourth-quarter growth rate of 11.1 percent. Economists were surprised by the gain, as they assumed rising interest rates would put a damper on borrowing during the first quarter. The report also shows a $250-billion jump in mortgage debt during the first three months of the year. However, net worth shot up 2.7 percent, as well--versus an increase of 2.4 percent in the fourth quarter--because of boosts in the value of real estate and other assets.
(http://online.wsj.com/article/SB114976996631474857.html)
FHA Finalizes 'Anti-Flipping Fraud' Rules
Realty Times (06/12/06) ; Harney, Kenneth R. Beginning on July 7, only the homeowners listed on recorded documents can sell properties slated for Federal Housing Administration-backed financing, according to new FHA rules intended to discourage property flipping. Additionally, FHA financing will not be available for homes sold within 90 days of purchase. Sellers will have to provide additional valuation data to unload properties between 91 and 180 days after the last transaction, in cases where the new sales price is 100 percent or more higher than the previous sales price. HUD, Fannie Mae, Freddie Mac, lenders unloading their real estate owned (REO) portfolios, local or state housing agencies, nonprofits with HUD permission to purchase discounted REO properties, inherited properties, and dwellings located in presidentially declared disaster areas are exempt from the anti-flipping rules.
(http://realtytimes.com/printrtpages/20060612_antiflipping.htm)
Home Mortgage Foreclosures Increasing
Monterey County Herald (CA) (06/09/06) ; Yerak, Becky Mortgage foreclosures have risen 38 percent this quarter, which is the highest increase in any quarter of last year, reports property tracker RealtyTrac. More homeowners are defaulting on their mortgages because they are losing their jobs, have health-care issues, have a sizable debt load, have stretched to qualify for a mortgage, and now are unable to account for higher utility and gasoline costs. Additionally, many lenders have offered home loans to borrowers who may not have been able to afford them. Some industry observers believe the situation may worsen. "The increases we've been seeing in foreclosures don't even reflect the worst-case scenario that could happen when the $2.7 trillion in adjustable rate mortgages are reset over the next 18 months," says Rick Sharga, vice president of RealtyTrac.
(http://www.montereyherald.com/mld/montereyherald/business/14778288.htm )
What Happens If Inflation Is Overstated?
New York Times (06/09/06) P. C1 ; Norris, Floyd New York Times columnist Floyd Norris believes the Consumer Price Index (CPI) understates inflation because it uses "owner's imputed rent," or the rental value of residential properties, to calculate increases in home values. Imputed rent has jumped less than 33 percent since 1996, while actual home prices as calculated by the Office of Federal Housing Enterprise Oversight doubled. Norris thinks the core inflation rate would presently stand at 4.2 percent instead of 2.2 percent if actual home prices were used; and he notes that rental costs may increase as the housing market weakens, leading to an overstatement of the inflation rate in the coming months. ITG chief economist Robert Barbera thinks Federal Reserve Chairman Ben Bernanke "could find himself raising rates because housing does worse because of the arithmetic of how that plays out in the CPI."
(http://select.nytimes.com/gst/tsc.html?URI=http://select.nytimes....)
HUD Seeks More GSE Purchase Oversight
American Banker (06/08/06) ; Hochstein, Marc; Shenn, Jody HUD officials have proposed bolstering the agency's oversight of the kinds of mortgages that Fannie Mae and Freddie Mac may purchase. The proposed rule would provide HUD with a fast-track process for broadening the lists of "unacceptable" terms and practices that would disqualify a loan as counting toward the two government-sponsored enterprises' housing objectives. According to a HUD statement: "Currently, these lists can only be expanded upon the initiation of the GSEs with the secretary's concurrence." A comment period on the proposal is scheduled to last until Aug. 7.
(http://americanbanker.com/article.html?id=20060607RTLGHXTT&from=n...)
Will Bernanke Tank Housing?
BusinessWeek (06/08/06) ; Coy, Peter
Just as the realty community relaxed at the prospect of a halt to the Federal Reserve's rate-raising campaign, the head of the central bank this week implied that interest rates would be artificially increased once again at the June 29 policymaking session. Concerned that yet another hike in borrowing costs will further cripple an already limping housing market, the industry's mouthpiece--the National Association of Realtors--issued a public statement arguing that "this is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable." While new Fed Chairman Ben Bernanke previously has indicated a desire to set policy in such a way as to protect the property sector from a collapse, economists note that the market has turned bearish--with home building activity down, sales declining, prices dropping, and the inventory of unsold units swelling. Unlike the Realtor group, meanwhile, the mortgage business is not calling on the Fed to end its rate-raising cycle, as the effort to check inflation--which eats into the value of fixed loans--benefits lenders. Still, while Mortgage Bankers Association chief economist Douglas Duncan says the organization does not give the Fed "instruction on how to conduct monetary policy," he agrees that there is some risk that officials could raise rates so much that they will hurt the employment sector--which is the true lynchpin of the housing market.
(http://www.businessweek.com/bwdaily/dnflash/jun2006/nf2006068_415...
)
Building, Related Job Gains Cool as Housing Activity Downshifts
Investor's Business Daily (06/06/06) P. A1 ; Shinkle, Kirk
The construction sector added only 1,000 jobs last month, according to the most recent payroll report, while 1,300 jobs were lost in the residential building arena. The housing slowdown also is expected to affect Realtors, mortgage brokers, and mortgage lenders; but experts say the jobs outlook hinges on how fast the market weakens. The report also reveals sluggish growth in the factory and service sectors, meaning that these industries are not yet offsetting losses in housing-related fields. While some residential construction workers could pick up non-residential jobs, experts note that there are not enough positions to meet demand.
(http://www.investors.com/editorial/IBDArticles.asp?artsec=16&issu...)
1st-Quarter Home Prices Rise, But at Slower Pace
Washington Post (06/02/06) P. D1 ; Fleishman, Sandra
The Office of Federal Housing Enterprise Oversight reports a 12.5-percent jump in national home prices during the first quarter, down from growth of 13.3 percent last year. However, the average residential value edged up just 2 percent to an annual appreciation rate of 8.1 percent during the January-through-March period, marking the lowest quarterly gain in two years. Weaker price gains are attributable to a slowdown in home sales, rising mortgage rates, and a decline in affordability, particularly for first-time buyers. OFHEO chief economist Patrick Lawler notes that home prices have not declined despite the cooler market because sellers refuse to budge on their asking prices.
(http://www.washingtonpost.com/wp-dyn/content/article/2006/06/01/A...)
Prefab Gains Signal Housing Pain
BusinessWeek (06/05/06) ; Der Hovanesian, Mara
The manufactured homes industry appears to be picking up momentum as the larger housing market slows down. The prefab business has benefited from hurricanes that last year struck the Gulf Coast region, prompting the federal government to spend $900 million on some 25,000 mobile and modular homes for displaced storm victims. Meanwhile, manufactured home companies are getting a boost in sales from prospective owners who are looking for a more affordable housing option--models built in factories and transported to sites are 10 percent to 25 percent cheaper than their traditional "stick built" counterparts, not including land. Sales are up in markets such as Arizona, Florida, and California, and they are expected to continue to rise as interest rates increase and retired baby boomers on budgets look to trade down.
(http://aol.businessweek.com/magazine/content/06_23/b3987045.htm)
Home Depot's Loan Plan Meets Strong Opposition
Salt Lake Tribune (UT) (06/05/06) ; Paletta, Damian
The National Association of Realtors has joined the Independent Community Bankers of America in calling on the Federal Deposit Insurance Corp. to hold public hearings on Home Depot's attempt to move into banking. Home Depot bought EnerBank USA early last month; and the retailer has plans to use the bank, which has a Utah-based industrial loan charter, to offer home-improvement financing. In a letter to the FDIC, NAR President Thomas Stevens said banking and commerce must remain separate, insisting "this plan will have an anti-competitive effect and adversely affect Home Depot's competitors and other banks." Community banks also have tried to block an attempt by Wal-Mart to obtain an industrial loan charter in Utah in its effort to offer banking services.
(http://www.sltrib.com/business/ci_3903375)
US Luxury Homeowners Still Add Property--Coldwell
Reuters (06/05/06) ; Adler, Lynn Despite rising interest rates and a slowdown in home sales, Coldwell Banker reports that over 33 percent of homeowners whose primary residences are worth more than $1 million own second homes for personal use or investment purposes. The 2006 Coldwell Banker Previews International Luxury Survey reveals that interest rates have no impact on the spending habits of 70 percent of those polled, most of whom were younger baby boomers. Nevertheless, Coldwell Banker Real Estate Corp. CEO Jim Gillespie says the high-end price ranges also are experiencing increases in inventory. Meanwhile, the National Association of Realtors and the Federal Reserve have expressed concerns about a larger-than-expected slowdown in the housing market in the event that investors begin unloading properties.
(http://today.reuters.com/investing/financeArticle.aspx?type=bonds...)
Bernanke Jolts Markets Over Inflation
Forbes (06/06/06) ; Crutsinger, Martin Market analysts believe the Federal Reserve will raise interest rates a 17th consecutive time later in the month, following comments made by Fed Chairman Ben Bernanke in which he expressed concern about rising inflation. At an international monetary conference on Monday, the economist said the central bank "will be vigilant to ensure that the recent pattern of elevated monthly core inflation readings is not sustained," as he noted that one gauge has core inflation rising at an annual rate of 3.2 percent and another has it increasing at 3 percent. Many economists were anticipating a pause in June but, in light of Bernanke's remarks, they now believe the Fed could raise interest rates not only this month but in August as well. An increase in interest rates would result in higher borrowing costs for home buyers.
(http://www.forbes.com/markets/feeds/ap/2006/06/06/ap2795529.html)
Immigrants Buying a Place Face Pitfalls, But Can Get Help
Dallas Morning News (06/05/06) ; Yip, Pamela
Congress continues to debate how the country should handle undocumented aliens; but the housing market has welcomed immigrants, and the government has programs in place to help them make the transition to homeownership. Immigrants have the potential to keep the housing market growing in the years to come as baby boomers retire and become less of a factor in real estate, according to industry analysts. Nonetheless, they face some barriers as they seek to purchase homes--such as low credit scores, as many have not been in the country long enough to build up a credit history; a lack of a legitimate Social Security number; and susceptibility to predatory lenders. The housing industry has responded by accepting nontraditional sources of credit and adding bilingual loan officers, while the government is helping to educate people about the home buying process and providing more financial assistance to first-time home buyers.
(http://www.dallasnews.com/sharedcontent/dws/bus/stories/060506dnbusperfi.. .)
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Commercial Real Estate Bright Spot in National Economy Walt Molony WASHINGTON (June 13, 2006)
– Healthy demand for space is driving commercial real estate markets with solid fundamentals and strong investment activity, according to the latest COMMERCIAL REAL ESTATE OUTLOOK of the National Association of Realtors®.
David Lereah, NAR’s chief economist, said fundamentals are improving with tightening vacancies. “Rent growth in commercial space is gaining traction, although there is some softness in part of the retail sector,” he said. “Commercial real estate remains a bright spot in the economy, but there are concerns over energy costs, rising interest rates and slower-than-expected job growth which could dampen future demand."
http://www.realtor.org/PublicAffairsWeb.nsf/Pages/CmrclMrktForecastJune06?OpenDocument | |
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