Home Prices, Interest Rates, Delinquent Loans, and Pending Home Sales

The final week of 2010 gave us insight on mortgage loan delinquency, a final update on interest rates, October home prices, and pending home sales. Also, we’ll finish off with some predictions for 2011.

4.3 Million Loans Are 90-days Late or in Foreclosure

Lender Processing Services (LPS), the nation’s leading provider of mortgage processing services, reported in its December Mortgage Performance Observations that 4.3 million loans are 90-days delinquent or in foreclosure. While this number is staggering on the surface it is down from 5 million year-over-year. Nationally, 9% of all loans are in default (90-days past due or more). The number at early stage delinquency is down from 1.997 million to 1.835 million in the last 12 months.

Its hard to argue that the situation isn’t bleak. It is. It is trending better though and early stage delinquency is down 8%. Loans 60-days delinquent is down 17% and those 90-days or more late + foreclosures are down 14% year-over-year. This represents a declining potential shadow inventory. Interestingly, the average days delinquent has grown to 499 days as banks hold off from taking homes back due to aggressive loan modifications and work outs.

Interest Rates Continue Rise

Freddie Mac’s final report of the year mirrored recent weeks showing rates continue to drift upward. The 30-year fixed rose from 4.81% to 4.86%. The 15-year fixed rose from 4.15% to 4.20%. Rates ended 2009 at 5.14%.

We’re going to remember 2010 as the year of the unbelievably low interest rates. As we look forward to 2011, investors using financing to purchase property will need to adjust their cost of money. Rates are still low by historical levels, but remember rents are still depressed in most markets as well.

Home Prices

Standard & Poor’s released its Case-Shiller Home Price Index covering October home prices this week showing that price declines continued across the US. Of the major MSAs, only 4 showed year-over-year price gains. Those were; LA, San Diego, San Francisco, and Washington DC. Meanwhile 6 markets hit new lows – Portland, Charlotte, Miami, Seattle, Atlanta, and Tampa. David M. Blizter, Chairman of the Index Committee stated, “The double-dip is almost here.” and “There is no good news in October’s report.”

At this point, I think we all realize the double-dip IS here. The Case-Shiller Index trails the present by 2 months, and few markets are showing price increases. As investors we have to make decisions based on our own specific financial plans. Are you investing for growth? If so then you should be looking closely at some of the price growth bellwethers like San Francisco or Manhattan within New York City. Growth investors can also get more speculative with markets like Phoenix and Miami, but know they may take short-term losses in the meantime. Investors seeking income from real estate should consider the short-term price declines we’re likely to see in 2011 within their plan.

Pending Home Sales Rise

The National Association of Realtors reported a rise in its Pending Home Sales Index this week. The index rose 3.5% to 92.2 from a downwardly revised 89.1% in October. The index is down just 5% from November 2009 (1^st month post tax credit). Pending Home Sales is an indicator of future real estate closings. Typically closings occur 30-60 days from “pending” date.

NAR is being pretty cautious on their outlook. While they obviously showing an optimistic outlook for the housing market, they are on target. People are more confident (at least a little) over the last 5-6 months. With the economy adding jobs (even if a few), people generally feel better about the future and will consider purchasing a home instead of simply doing home improvements.

Looking ahead to 2011

Writing this weekly housing column for BiggerPockets over the last 52 weeks has given me an opportunity to see people’s reaction to the housing market. Many opportunists have concurred with the idea of improving market conditions. Last year we’ve seen foreclosures near peak (meaning inventory reduction), delinquency slowly decline, record low interest rates coupled with low home prices, and the overall economy start creating jobs. The last year will be remembered as the bottom of the housing market and one of the best opportunities to invest in our lifetimes. Many of you reading this have taken advantage of the market as has my firm. I’m glad to have not sat idle during the opportunistic year of 2010.

On the other end of the spectrum I’ve had people comment on this blog that “the worst is yet to come”, I sound “like a NAR commercial”, and other pessimistic views on the market. I guess depending on your world view all of the comments are right to some extent. Those waiting for the prices to plummet will have instead missed out on interest rates we’re not likely to see again for a long time.

If you measure the real estate market by home prices, then I forecast a lackluster year. If you measure it on the ability to trade real estate through flipping contracts, homes, or earning strong yields secured on America’s largest consumption good, then forecast another great year for you in 2011.

Photo Credit: KansasCity.com

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