Real Estate News & Commentary

Housing Market Insight – Week of September 20th

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The tide is turning with interest rates, which is directly affecting new loan and refinance business. A new report on foreclosures discusses just how bad the problem really is, and a survey about Americans’ confidence in the housing market might just surprise you.

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Foreclosures Jump 25%

RealtyTrac reported that foreclosures rose 25% in August over August 2009. The number is up 3% since July and the August numbers represent the 9th month of the foreclosure rate rising. Meanwhile those receiving a notice of default was down 1% since July but is 30% lower than than last August. Still, at the current rate, over 1million Americans will lose their home to foreclosure this year.

With over 3million mortgages in some stage of delinquency, we’re likely to see a continued increase in the pace of properties being taken back through next spring. Time is running out for many lenders to avoid the inevitable foreclosure of many of their loans.   The number of homes getting repossessed will likely start impacting prices by next month and through the winter.

Interest Rates Rise for 2nd Straight Week

The interest rate reversal continued as Freddie Mac reported the 30-year fixed mortgage rate rose to 4.37% from 4.35%. The 15-year fixed dropped .01% to 3.82%. Rates have climbed in both of the previous weeks.

Year-to-Date Interest Rates:

While it’s too early to call the bottom, I believe these last 2 weeks are signs of the bottoming process beginning. We’re likely to see more volatility over the next few weeks though rates should remain relatively low over the next 2 quarters. Still plenty of time to lock-in a better rate on your refinance or scoop up foreclosures.

Mortgage Applications: Purchases and Refinances Dip

The Mortgage Bankers Association reported that its Market Composite Index declined nearly 9% from the prior week showing decreases in both purchase applications and refinances. The Refinance Index plummeted 10.8% while the Purchase Index declined only slightly (0.4%). These numbers are adjusted for the Labor Day holiday.

The 4-week moving average remained up 2% still showing that purchase application volume is doing better than the first part of the summer. This is a good sign for the overall health of the inventory absorbtion process. As rates are rising, less people are obviously refinancing.  However, if we have more interest rate increases you could see the Refinance Index spike again as people rush to lock-in better terms.

Americans More Confident About Housing Market

Fannie Mae released its National Housing Survey of more than 3,400 Americans’ view on the housing market. Its findings showed 82% of the respondents think home ownership is important to the economy. This is up 2 percentage points from January’s survey. Meanwhile 47% of respondents expect housing prices will hold steady and 31% said they’ll increase over the next year. Regarding rental prices 46% said rents would hold, while 39% said rents will rise in the next year.

This survey may come as a surprise to you as much of the media would have you believing that most Americans are bearish on housing prices over the next year. The poll was conducted between June and July 2010 so it should fairly accurately indicate how people feel about the market now. I think this shows that despite negativity in the market, people are pretty resilient and (maybe incorrectly) optimistic about the future of the housing market.

Thoughts on the Sideline

While Americans may be optimistic on certain aspects of the housing market such as prices bottoming out, the average person isn’t thinking about the sideline inventory. Even as foreclosures start clearing, we can expect to see a wave of people put their homes on the market who are waiting for conditions to improve. How many additional homes is this? It could be millions. This certainly doesn’t paint a pretty picture but it does attest to the fact that we are years away from a familiar place in housing. As investors, planning for the sideline inventory is key. If you’re investing for yield, then do so. Create your bond floor (e.g. rents declining 10%). Also, look at population trends and projections for the next 10 years. Focus on minimizing your downside risk above all by going the extra mile with due-diligence, inspections, and income / expense analysis.

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    John Roberts
    Replied almost 9 years ago
    When the economy goes down, almost everything that deals with finances goes down too. The real changes we are expecting may not happen within this year, but I’m sure it will happen in the future. Great post. This is a very good presentation of how things are fairing with the housing industry right now.