Last week offered a much anticipated report on home prices from Case-Shiller, an update on interest rates, mortgage application volume, and a discussion over the foreclosure procedure mess that has many banks temporarily halting foreclosures.
Case-Shiller: Prices Stable
Standard & Poor’s Case-Shiller Home Price Index was released this week showing prices were stable and up 3.2% year-over-year in July. Unfortunately S & P’s chief economist David Wyss suggested that prices will fall another 10% nationwide over the winter due to high foreclosures. Also, Wyss warned that you shouldn’t expect much in the way of appreciation saying, “The main value you should be getting from the house should be the value of living there”
At this point, we’re all expecting a further drop nationally in home prices. I’ve been noting that this will be very regional with the majority of decreases coming in the sand states. Further, my belief will be that the it will be price-point specific in most areas. This means you’ll see low end drop further while the very top and the middle may only see moderate declines.
Interest Rates Drop Back to Record Low
Freddie Mac reported that the 30-year fixed mortgage rate declined back to 4.32%, tying its previous record low. The 15-year rate dropped significantly to 3.75% from 3.82% last week, taking it to a new record low.
While I think we’re near the bottom on rates, calling a bottom is difficult in this current climate. Every bit of economic data is being watched closely by everyone, leaving interest rates up to major volatility. I do reiterate that now is an incredible time to be focused on securing low interest rates via refinance or buying that next property at low prices and rates.
Mortgage Applications: Purchases Rise While Refinances Fall
The Mortgage Bankers Association reported its Purchase Index increased 2.4% from the prior week driven by a large increase in government purchase applications. The seasonally-adjusted, 4-week moving average for the Purchase Index is now up 1.1%. Refinances on the other hand are in decline, down 1.6% from the prior week. The 4-week moving average is down 4.2%.
The increase in purchase applications is small but still showing that conditions are improving slightly. Refinances on the other hand are somewhat limited in supply. I believe we’re seeing refinances taper off because of this. Many people have already refinanced though refinances are still 80.7% of the market. This week that number dropped from last week’s 81.1%. I think as we’re seeing a small drop in rates as reported by Freddie Mac, we’ll likely see this number spike a bit.
GMAC, J.P. Morgan Chase & Co. and Bank of America have all halted foreclosures in many states this week due to potentially faulty processes. The issue stems from employees of banks signing documents without verifying whether loan documents and other records are correct in the foreclosure file. Several employes have been deposed, admitting they didn’t have personal knowledge of the documents they were signing. One employee at Chase said her and 8 others in her department were signing 18,000 foreclosure-related documents per month. These allegations have caused banks to halt foreclosures to review their existing processes.
This is an extremely heated issue with many lenders finding themselves under a microscope for poor practices in how they process foreclosures. The idea that a handful of employees could be familiar with thousands of files per month is an impossibility. Many of these files are often an inch or more thick. The question, is, how is this solved? Banks are still operating with thinner payrolls than in recent years and the idea of increasing head counts is far from their minds. Maybe the current allegations will change this.
The Fall of Fall 2010
As we enter fall, the weather will change (already is here in New York) and I feel the tide in home prices. We’ll see reports start showing a decline in home prices as we did last week. Case-Shiller’s numbers this month were July, so the decline will start becoming apparent for many as we near the holidays. Hopefully declining home prices won’t dominate the headlines by then. The focus seems to be turning away from the housing market and more towards mid-term elections. This should give the market a break from negative sentiment which certainly has an impact on consumer behavior. In the meantime, there are more bargains out there than ever for investors seeking yield. Personally, buying for anything other than yield as an investment makes little sense as prices aren’t likely to trend up in most markets (save places like Manhattan where prices are rising) for some time. While prices decline you can focus on quality income-producing assets and lock in your interest expenses(permanently) and your yield for 12 months. In buying an investment property today, you’re next 12 months could be your worst-performing 12 months (using today’s rental rates). It sure beats the volatility in the equities markets.