Housing Market Insight - Week of August 23rd

During this most recent mid-month week of housing news, the Obama Administration released its recent Housing Scorecard, Freddie Mac’s interest rate survey continued to shock both analysts and borrowers, a reversal occurred in the latest purchase application trends, and Deutsche Bank made a bold prediction about residential construction jobs. And to close out in the spirit of the word “double-dip”, you’ll get your fill of that too.

Administration: Housing Stabilizing

The Obama Administration released its third monthly Housing Scorecard and deemed that housing prices are“stabilizing”. It also says the market is still fragile as high rates of delinquency still exist and the foreclosure pipeline is still full. The scorecard shows that twice as many modifications have started as foreclosures completed, showing the administration is focused on helping homeowners who are behind on their mortgages. The scorecard used the Case-Shiller Index and the Federal Housing Finance Agency (FHFA) index to determine 30 months of price declines in housing have finally been stabilized.

Although the prices may have stabilized at this point because of the home buyer credit, I think it’s premature to say the recovery more than weak (nationally) now. Also many of the programs in place to help homeowners don’t affect the average person who’s paying on time and has a high interest rate but is presently underwater. I’ll be curious to see how the housing scorecard looks after the home buyer credit purchases cycle through.

Interest Rate Update: Records are Made to be Broken

This week Freddie Mac’s mortgage interest rate survey showed yet another record low interest rate as the 30-year fixed declined from 4.44% to 4.42% last week. The 15-year dipped to 3.90% from 3.92%. Rates have been consistently in decline since June 17^th leaving consumers with the ability to borrow at historically low rates and low home prices.

The low rates simply aren’t enough to stimulate growth. In fact, Kansas City Fed President, Thomas Hoenig maintains that we need to start increasing rates slowly to ease into the inflationary period that is to come with the high cost of deficits. Opponents say the low rates are needed to stimulate spending and investment, but it doesn’t appear to be working. I was talking to a colleague of mine here in New York and he was theorizing that gradual purposeful increases may actually stimulate rates more as consumers feel they may be missing the purchasing opportunity.

Mortgage Purchase Applications Retreat After 4 Weeks of Gains

The Mortgage Purchase Index declined by 3.4% from the previous week as the Refinance Index increased by 17.1% from the prior week. The percentage of applications which were refinances increased to 81.4% from 78.1% over the prior week. Refinances dominated the marketplace showing that people are continuing to restructure debt.

This decline in purchase activity is very concerning as rates simply aren’t enough to cause people to purchase. This, to me, shows that the consumer is not confident. Consumers are staying where they are rather than upgrading or even upgrading for larger homes at the same monthly commitment. Instead they’re restructuring debt and living with what they have. Business are following suit and choosing not to take out new debt despite low rates.

Potential for Another 1 million Job Losses in Residential Construction

Deutsche Bank predicted this week that as many as 1million more jobs will be lost in the residential construction industry. This is after an already estimated 1.6million jobs have been lost in the sector. Deutsche Bank says the ratio of workers to output (housing starts) is still unbalanced. At the same time, the bank does expect to see housing rebound somewhat despite July starts missing expectations.

While housing starts maintain depressed levels, and builders still have too many people, we’ll likely see them trim further. The report showed that nearly 10,000 residential construction jobs are being lost each month in 2010 which is in decline from the initial reductions when the bust occurred. Builders have been likely holding on as long as they can to employees in hopes of a rebound that simply isn’t coming back. I think the same can be applied to many business who simply have excess capacity in the current environment. Businesses want to expand but are unable to despite low interest rates and conditions which have improved over the last 12 months.

The Double-Dip You’ve Been Expecting

Over the last few months, we’ve certainly heard many people calling for a double-dip in home prices. The reality is the market is setting up for just that. How much will the decline be? Good question. In March I talked about Standard & Poor’s chief economist predicting 5-6% decline using the Case-Shiller Index. Since prices have increased (mostly due to the tax credit) since then, a 5-6% decline nationally (from January) still seems likely. That would but us around a 7-8% decline since January 2010’s numbers. Some say a 20% decline nationally is possible. The test is coming as seasonality diminishes leaving many homeowners looking to sell hoping for a better summer in 2011.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.