Housing Prices Fell Dramatically in October

Housing prices fell dramatically in October according to the S & Ps Case Shiller Housing Price Index. The New York Times reports:

Home values in 20 large metropolitan areas across the country dropped at a record pace in October as the fallout from the financial collapse reverberated through the housing market, according to data released Tuesday.

The price of single-family homes fell 18 percent in October from a year earlier, according to the closely watched Standard & Poor’s/Case Shiller Housing Index. All 20 cities reported annual price declines in October; prices in 14 of the 20 metropolitan areas surveyed fell at a record rate as the financial crisis reached a critical point.

The fall in prices were very dramatic in most of the 20 cities that compose the 20 City Housing Price Index. The yearly declines were most dramatic in: "Prices in Las Vegas and Phoenix, where developers built subdivisions stretching into the desert, fell by nearly a third in October from 2008. Home prices fell 31 percent in San Francisco and 29 percent in Miami. Prices in New York declined 7.5 percent in October over the same month a year ago.

Locally, in the Washington, DC area prices were down 18.7% from a year ago; and 2.3% during the month of October.

Washington, DC: Housing Boom & Bust. Source (NYTimes Graph).

Of course, during the past year, the percentage price declines have not been uniform across the Washington, DC metro area. Overall, in the Washington, DC metro area we are back to May 2004 prices (nominally). Inflation adjusted, prices are back even further to early 2003.

Open Question

Can the financial leadership in the United States be trusted to make sound decisions regarding the allocation of resources?

Happy Christmas to all, and to all a good night!

Amazon.com has free Christmas music for download here and here. Considering donating to charity this holiday season? Here's some advice for the generous.

Perhaps David will post, but I'll be on vacation for the next week. Merry Christmas and happy New Year.

Home sales plunged in November

From MarketWatch.com:

Resales of U.S. single-family homes and condos fell a surprisingly bad 8.6% in November ... the National Association of Realtors reported Tuesday, even as home prices fell at the fastest annual pace on record. ...

In the past year the median sales price fell 13.2% — the largest decline since data collection began in 1968 and likely since the Great Depression — to $181,300. Separately, the Federal Housing Finance Agency reported that U.S. home prices fell 7.5% over the 12 months ending in October, according to a monthly index that includes prices for houses with mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac.

The inventory of unsold homes on the market rose 0.1% to 4.2 million, an 11.2-month supply at the current sales pace, according to NAR. The 11.2-month supply matches a recent peak set in April, and is the highest since the mid 1980s, according to NAR. ...

Elsewhere Tuesday, the Commerce Department reported that U.S. new-home sales fell to their lowest level in over 17 years in November. ... New home sales are 35.3% below their level in November 2007. ...

On Monday, federal regulators reported that the proportion of modified loans delinquent by 30 days or more was 55% after six months, while modified loans that were 30 or more days delinquent after three months stood at 37%.

Don't worry about all this. The place where you live is special. Also, the recovery is right around the corner, as it has been for the past three-and-a-half years. The recovery originally scheduled for late-2005 is now expected in mid-2009. The economists who overlooked the housing bubble can't possibly be wrong this time.

Comments?

2009's ten worst housing markets

Fortune Magazine has predictions for the 2009's ten worst housing markets. You won't be shocked to learn that eight of the ten are in California.

Here's the list, with the projected fall in prices:

1. Los Angeles, CA. 2009 projected change: -24.9%
2. Stockton, CA. 2009 projected change: -24.7%
3. Riverside, CA. 2009 projected change: -23.3%
4. Miami/Miami Beach, FL. 2009 projected change: -22.8%
5. Sacramento, CA. 2009 projected change: -22.2%
6. Santa Ana/Anaheim, CA. 2009 projected change: -22.0%
7. Fresno, CA. 2009 projected change: -21.6%
8. San Diego, CA. 2009 projected change: -21.1%
9. Bakersfield, CA. 2009 projected change: -20.9%
10. Washington, DC. 2009 projected change: -19.9%

For Washington, DC, they predict further price declines in 2010 as well, for a total predicted decline of 24.5% over the next two years.

David Lereah Admits he 'Spun' for the Realtors; Takes Responsibility

David Lereah, currently working for Reecon Advisors Inc, now admits he "put a positive spin" on the housing market during the boom and bust times. Mr. Lereah goes on to take responsibility for his predictions while he was at the National Association of Realtors. This comes from a recent interview with Money Magazine article titled 'Former real estate bull admits, "I spun"'.

Q: Were you wrong to be so bullish?

A: I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right inline with most forecasts. The difference was that I put a positive spin on it It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.

Q: Any regrets?

A: I would not have done anything different. But I was a public spokesman writing about housing having a good future. I was wrong. I have to take responsibility for that.

It is a positive that Mr. Lereah is taking partial responsibility for his actions while he was working at the NAR. It all begs the question is Lawrence Yun also engaging in 'positive spin?'

Additional Links:

Realtor Chief Economist: “I spun” (NJ Real Estate Report)

Another Reason Not to Trust So-Called Economic Experts (Seeking Alpha)

McMansion Watch: Foreclosed McMansion

This lovely foreclosed "rehab only" home, located in Springfield, Virginia, can be yours for only $425,000. Car not included.

Also, this former McMansion Watch beauty is still for sale a month-and-a-half later, despite the free Bubble Meter advertising. It's a better deal now, since the price has been dropped by $45,000.

As foreclosures increase, fewer people willing to buy them

From The Wall Street Journal:

Foreclosures have long been labeled a bargain hunter’s dream and reducing the swelling count is a key part of housing’s recovery. But a new Harris Interactive survey released Tuesday shows decreased enthusiasm for buying foreclosed properties amid concerns about aspects ranging from hidden costs to falling home values, delivering yet another blow to a crippled sector.

“What’s significant about our findings is that just as the market is being flooded with more foreclosures, homebuyers are more hesitant to buy them,” said Pete Flint, co-founder and chief executive of Trulia.com, a real-estate search engine that released the study with foreclosure tracker RealtyTrac.

The survey shows 47% of adults surveyed, saying in November they would consider purchasing a foreclosed home, down from 54% in April. Meanwhile, 80% now express concern about the negative aspects of buying a foreclosed home, up from 69%.

Buying a foreclosure can be a hassle-filled process. Real-estate agents estimate about half of foreclosed properties to be sold by mortgage companies nationwide have substantial damage, The Journal reported earlier this year (”Buyer’s Revenge: Trash the House After Foreclosure“).

As Michael M. Phillips wrote, foreclosed homes were found with all sorts of problems, from missing pipes and appliances to damage done by previous owners upset losing their homes. Mr. Phillips described holes punched in walls, paint dumped on carpets and pets locked inside “to wreak further havoc.”

Some people lock their pets in the homes, which will likely kill the pets?! The fact that so many full-grown adults will trash their homes before being evicted simply demonstrates that rather than being victims, they are often selfish, irresponsible people who don't deserve our sympathy.

The strangest house I've ever seen

From The Wall Street Journal:

From the looks of it, E.T. has come back to Earth and set up shop in Signal Mountain, Tenn. At least, that’s what one might think upon stumbling across the house designed like a spaceship at 1408 Palisades Road. ...

Known as “The Spaceship House,” the building was the creation of Curtis King, who spent $250,000 to have it built for his son in 1973, according to Terry Posey, an auctioneer with Crye-Leike Auction of Cleveland, Tenn. ...

Made of steel and concrete, the structure provides nearly 2,000 square feet of living space, including three bedrooms, two full bathrooms, a bar and entertainment area. The rooms are round, just like the house itself, and are situated around a central point. ...

Signal Mountain resident James Faris placed a winning bid of $119,000 on the Spaceship House at yesterday’s auction, according to the Chattanooga Times Free Press.

Southern California real estate prices continue to plunge

From BusinessWeek:

According to research firm MDA DataQuick, the median home price fell a record breaking 35% in November versus the same month in 2007. The median price paid for all homes combined last month was $285,000, down 5% from October. Last month’s median was the lowest since it was $298,000 in April 2003, which was the last time the median was below $300,000. November’s median stood 43.6 percent below the peak $505,000 median reached in spring and summer of last year.

The median price has eroded consistently over the past 16 months as price depreciation swept the region, discounted foreclosures ballooned in inland markets and sales stagnated in higher-end neighborhoods. The latter have suffered from, among other things, a difficult financing environment for large mortgages....

Foreclosures have accounted for about half of all Southland resales during the past three months. In November, they reached 55%.

Any DC folks want to move to sunny Southern California?

Homebuilder Hovnanian loses another $450 million

From CNN Money:

Hovnanian Enterprises Inc. said Tuesday its fiscal fourth-quarter loss narrowed slightly from a year ago, but the homebuilder continued to struggle against sharp declines in new home contracts and falling land values.

After paying preferred stock dividends, the builder lost $450.5 million, or $5.79 a share, for the quarter that ended Oct. 31. That compares with a loss of $469.3 million, or $7.42 a share, in the same period last year, and marked the ninth quarterly loss in a row.

The results included $456.5 million in pretax charges, including $319.9 million in land-related charges.

Quarterly revenue fell 48% to $721.4 million.

"Since mid-September, the housing market has deteriorated in lockstep with the widening financial crisis and declines in broader economic conditions," Ara Hovnanian, president and chief executive, said in a statement.

Underscoring that point, the Commerce Department reported Tuesday that construction of single-family homes fell last month by almost 19%, the biggest drop in a quarter-century.

Wow! The company lost $450 million in the quarter, and looking at their balance sheet, their shareholder equity is $777.9 million. At that rate, perhaps they should just cease operations and give shareholders what money they can now, rather than try to survive two more quarters.

The Economist didn't see the financial crisis coming

The New York Times reflects on The Economist's 2008 predictions:

For 23 years, The Economist has issued bold predictions for the coming year in its thick December special issue. ...

“About 2008: sorry,” reads a note from the issue’s editor, Daniel Franklin, in the prediction edition for 2009. Who would have seen the financial crisis coming, Mr. Franklin asked? “Not us. The World in 2008 failed to predict any of this,” he said. ...

“Oh, and we expected that by now Hillary Clinton would be heading for the White House,” Mr. Franklin wrote.

Like me, The Economist saw the housing bust coming, warned about it repeatedly over the years, but completely missed the financial crisis it would cause. I feel somewhat comforted that my failure to foresee the broader financial damage was matched by people much more knowledgeable than me. (In fact, most econ Ph.D.s didn't even believe there was a housing bubble.)

I was fearful of anything having to do with Fannie Mae, Freddie Mac, homebuilders, mortgage companies, and hardware retailers (e.g. Home Depot and Lowe's). I knew that Japan's earlier combined stock market/housing market collapse resulted in bad banks. Yet, I thought the economic damage would be "contained" to housing-related industries.

On the other hand, I've read the comments on this blog for several years, and many of you Bubble Meter readers did expect this. My hat's off to you.

As for the presidential election, at least The Economist got the political party right, but they had 50/50 odds going in.

U.S. housing loses $2 trillion in value

Bad news for homeowners from Zillow:

American homeowners will collectively lose more than $2 trillion in home value by the end of 2008, according to a report released Monday. ...

Some 11.7 million Americans are now "underwater," owing more on their mortgage balances than their homes are worth.

Keep in mind that it is $2 trillion that never would have existed without the housing bubble. For people who bought at the peak, however, that's no consolation.

McMansion Watch

Here's another McMansion from Fairfax Station, Virginia. I'll admit that I do like some McMansions, but this one to me is butt ugly.

The best investor became the worst

If your stock portfolio is down over the past year, take heart: It could be worse.

William H. Miller spent nearly two decades building his reputation as the era's greatest mutual-fund manager. Then, over the past year, he destroyed it.

Fueled by winning bets on stocks other investors feared, Mr. Miller's Legg Mason Value Trust outperformed the broad market every year from 1991 to 2005. It's a streak no other fund manager has come close to matching.

Mr. Miller was in his element a year ago when troubles in the housing market began infecting financial markets. Working from his well-worn playbook, he snapped up American International Group Inc., Wachovia Corp., Bear Stearns Cos. and Freddie Mac. As the shares continued to fall, he argued that investors were overreacting. He kept buying.

What he saw as an opportunity turned into the biggest market crash since the Great Depression. Many Value Trust holdings were more or less wiped out. After 15 years of placing savvy bets against the herd, Mr. Miller had been trampled by it. ...

"The thing I didn't do, from Day One, was properly assess the severity of this liquidity crisis," Mr. Miller, 58 years old, said in an interview at Legg Mason Inc.'s Baltimore headquarters. ...

Mr. Miller's picks read like a Who's Who of the stock market's biggest losers: Washington Mutual Inc., Countrywide Financial Corp. and Citigroup Inc.

"Every decision to buy anything has been wrong," Mr. Miller said. ... "It's been awful."

A couple of years ago when I saw his portfolio was full of home builders and mortgage companies, I knew he was headed for trouble. He owned stocks that have since gone to zero. On top of that, many investors have pulled out of his fund, giving him little capital to buy stocks with now that the market has fallen. There's little chance of him making the money back. Unfortunately, while I saw his errors in advance, I didn't see the errors in my own portfolio. With the notable exception of Warren Buffett, a lot of value investors are getting creamed.

Washington, DC metro area foreclosures

A picture is worth a thousand words:


These are the foreclosed homes currently for sale. Click on the image to see a full-size version. It looks like it says 307 in Washington, DC, 287 in Alexandria, VA, and 340 in Manassas, VA.

Want to buy a home?

NYU professor "explains" why foreclosure prevention efforts are failing

NYU-Stern School of Business professor Thomas F. Cooley has an article on Forbes.com "explaining" why foreclosure prevention efforts are failing. It all seems kosher until the second to last paragraph where he completely fabricates a sentence in the U.S. Constitution. He writes:

...the constitution provides that "Congress shall make no law impairing the obligations of contract."

In fact, the Constitution says no such thing. He has thrown together the first five words of the First Amendment and then appended a very loose paraphrasing of Article I, Section 10, which applies only to the states. To make matters worse, apparently nobody at Forbes noticed the error before publishing it. After reading that whopper, I decided I couldn't trust any of the other claims he was making in the article.

With business school professors like this, no wonder Wall Street is in trouble. —And still, business school professors get respect and housing bubble bloggers do not.

Thanks but no thanks to Greg Mankiw for linking to that article.

McMansion Watch: Near Me McMansion

You can't see it in the photo, but it's got vinyl siding on three sides.


Two years ago, when I was kicked out of my old apartment when it almost went condo, I moved to my current apartment in Centreville, Virginia. Since then I've been tracking the prices on a local McMansion community in the area, the homes of which were valued in the $850,000-$950,000 range at the time. As recently as a few months ago, they were valued by Zillow in the $650,000-$750,000 range and Zillow shows two recent sales (before the Lehman Brothers collapse) in that price range.

So, now I am shocked to see this. A house in the neighborhood, which is a good representation of the norm—in fact, it may be slightly on the large size—is now valued by Zillow at $667,500. But that's not all. It is listed for sale at $549,900! (It is being sold "AS-IS". A bank-owned home, perhaps?)

Zillow says it was worth $968,000 at its peak in 2005. That means this former almost-million-dollar home has fallen by roughly $400,000 in three years.

Also, this townhouse in the same general area sold for $514,855 four years ago. It is now listed for sale at $333,000.

The Prince William County housing implosion is slowly moving inward toward D.C.

May you live in interesting times.

Help fight the automaker bailout

Click here to easily email the White House and your Congressmen.

9 1/2 Street NW, Washington, DC

9 1/2 Street NW in Washington, DC

Mortgage modifications failing

CNBC's Diana Olick says loan modification programs are failing:

According to the Comptroller of the Currency, John Dugan, who gave a preview of his latest Mortgage Metrics report:

“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent.” ...

I realize that there are a lot of public and private sector programs really trying to help troubled borrowers, but the fact of the matter is that a lot of troubled borrowers are beyond help. And instead of spending so much time focusing on trying to modify these loans, perhaps we need to look at the problem from a different perspective. ...

Unless the lenders or investors or government officials are willing to simply throw the loan out and give away an awful lot of house to an awful lot of borrowers, modifications, and certainly "mass modifications" which a lot of government types are pushing, are just exacerbating the problem.

Diana Olick promotes a fantastic alternative at the end of this video: Let the properties go into foreclosure, sell them to people who can afford them (i.e. renters like us), and let the free market work. What a novel idea! There's no way politicians will go for it.

The whole "prevent irresponsible homeowners from losing their homes" effort is by definition a "prevent responsible renters from buying homes" effort.

An interesting comment

An interesting comment left by a Bubble Meter visitor. Does anyone have a useful answer?

Stocks

Dude, seriously. Since 1825? OMG.

Foreclosures Rate Set to Remain Very High

In the past year and a half we have experienced a a very high rate of foreclosures. This high rate of foreclosures will continue for at least another few years.

In a research note titled "Foreclosure Update: over 8 million foreclosures expected" (no link, hat tip Frank) updated last week, Credit Suisse analysts are now forecasting 8.1 million homes will be in foreclosure by the end of 2012, representing 16% of all households with mortgages

The analysts projected this could be as low as 6.3 million in a mild recession, with a somewhat successful loan modification program (re-default rates at around 40%), and as high as 10.2 million in a more severe recession. Via Calculated Risk.

These are reasonable foreclosure estimates by Credit Suisse. The huge job losses (530K in November) that are occurring, will make a very large contribution to the millions of foreclosures that are coming in the next 3 years. Of course, this huge wave of foreclosures and large job losses will put strong downward pressure on home prices.

Dean Baker warned us of severe recession two years ago

...And so did Bubble Meter.

Here's what Dean Baker had to say in 2006:

The decline in housing prices will sharply limit the extent to which people can borrow against their home to support their consumption. This will cause savings to rebound from their current negative rates to more normal levels—at 6 to 8 percent of disposable income—but will be associated with a sharp falloff in consumption.

Together these effects virtually guarantee a recession, and probably a rather severe recession. Even worse, there is no easy route to recovery from a recession that results from a collapse of a housing bubble...

The crash and post-crash world will not be pretty. Millions of people will lose their jobs and their homes. Unfortunately, the economists who led us down this path are not likely to be among the ones who suffer severe consequences.

And Bubble Meter:

Simply put, there are too many things that are unsustainable in the US economy. As the housing market continues to decline, it will push the US economy over the tipping point and solidly towards a recession.

Don't you hate it when bubbleheads are right? —Early, but right.

Are you as prepared for a dollar collapse?

From xkcd:

Foreclosures surging

Third quarter foreclosures are up 76% year over year:

A record 1.35 million homes were in foreclosure in the third quarter, driving the foreclosure rate up to 2.97%, the Mortgage Bankers Association said Friday.

That's a 76% increase from a year ago, according to the group's National Delinquency Survey.

At the same time, the number of homeowners falling behind on their mortgages rose to a record 6.99%, up from 5.59% a year ago, the association said.

This means that one in 10 borrowers in America are either delinquent or in foreclosure.

Many of those troubled borrowers are in California and Florida, which have among the highest delinquency rates in the nation.

The weakened economy and mounting job losses are expected to push these numbers even higher.

Americans rapily losing jobs

There have been 1.9 million job losses so far this year, with one quarter of those losses occurring in the last month:

The economy shed 533,000 jobs in November, according to a government report Friday — bringing the year's total job losses to 1.9 million.

November had the largest monthly job loss total since December 1974.

According to the Labor Department's monthly jobs report, the unemployment rate rose to 6.7% from 6.5% in October. Though lower than economists' forecast of 6.8%, it was the highest unemployment rate since October 1993. ...

November's monthly job loss total was greater than October's revised loss of 320,000. Payroll cuts in September were revised up to 403,000, which means two-thirds of this year's job losses have occurred in the last three months.

November's report provided the first glimpse at how employers reacted after the peak of the credit crisis, reached in mid-October. With credit largely unavailable and expensive, consumers scaled back their spending, dragging down manufacturing and construction businesses. ...

With the economy in a recession and most economic indicators signaling even more difficult times ahead, economists say job losses will likely deepen and continue through at least the first half of 2009. ...

According to a report by outsourcing agency Challenger, Gray & Christmas, planned job cut announcements by U.S. employers soared to 181,671 last month, the second-highest total on record.

Treasury wants to reinflate the housing bubble

The U.S. Treasury apparently wants to fight the symptom by recreating the problem:

The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full point lower than prevailing rates for standard 30-year fixed-rate mortgages.

Economist Tim Duy thinks this is "potentially very bad policy":

The key word here is “temporary,” implying a sunset clause. This is a program, however, that screams permanency. Once the federal government defines a right to low rate mortgages, they will find it very hard to reverse their position. ... Why? Because at some point in the future, revoking the right will create classes of winners and losers, especially if it results in a steep rise in mortgage rates. And the losers will fight tooth and nail to prevent that rise; just imagine the army of lobbyists from home builders and realtors that will descent on Washington. ...

Perhaps I worry too much. Perhaps it really will be temporary. Consider, however, who is behind this proposal:

The Treasury plan is similar to ideas previously floated by the National Association of Realtors and the lobby group for home builders...

I can only think of Adam Smith’s warning:

The proposal of any new law or regulation which comes from [businessmen], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

What is the alternative? Stop focusing on the housing market. Stick to policies that will be revocable when necessary. There are virtually unlimited opportunities for good policy in education, infrastructure, and health care, to name a few (Rebecca Wilder fears there may even be too many).

WSJ skewers Barney Frank and Sheila Bair

The Wall Street Journal skewers Congressman Barney Frank and FDIC Chairwoman Sheila Bair:

What do you do if you've spent your career encouraging mortgage loans to people who can't repay them? Barney Frank's answer is to grill federal officials on why they aren't preventing foreclosures. Infuriated at the difficulty of modifying mortgages, the Beltway crowd doesn't understand that such contracts weren't designed to let people live in houses they can't afford.

Still, at a recent hearing of his Financial Services Committee, Mr. Frank received encouraging words from FDIC Chair Sheila Bair. She outlined her ballyhooed plan to prevent an estimated 1.5 million foreclosures by the end of 2009. ...

What we have here is another uncharted voyage into the land of taxpayer risk, and for little economic gain. We can only hope that news of the FDIC program doesn't encourage more people to stop paying their mortgages as they await rescue from Sheila Bair.

NYC luxury housing market starting to experience problems

There's nothing like a financial crisis to ruin the New York City luxury housing market:

For a while, even as the rest of the housing market sputtered, the luxury sector had looked strong, wealthy home buyers packing cash were largely unaffected by the mortgage meltdown and foreign buyers, for a time, were still buying. Now…not so much, foreign buyers have lost interest, according to Barron’s, and “big stock-market losses, a sagging economy and massive layoffs in financial services are sorely affecting the liquidity, wealth and confidence of potential buyers of high-end homes.”

Those still in the market for a fancy house can find some huge discounts. ...

Because of the troubles on Wall Street and in the finance sector, the worst-off areas in coming months are likely to be Manhattan and surrounding suburbs...

All told, luxury-home prices in and around Manhattan could drop by as much as 20% to 25% over the next 12 to 15 months...

Lereah & Others Missing The Housing Bubble

From a blog at The Atlantic:

Unless I were allowed to rely exclusively on David Lereah (until recently the permabullish economist for the National Association of Realtors) I would be hard put to find one economic expert who had completely missed the housing bubble, much less write an entire article consulting no one else.

David Lereah definitely missed and dismissed the housing bubble. If one goes back to 2004, 2005 or even 2006 there were plenty of economic experts who had completely missed the housing bubble including economists at Harvard the Federal Reserve and at other prominent institutions.

Americans expect housing prices to bounce back soon

Some people never learn:

Many Americans still see real estate as their best shot at wealth. In survey after survey, people expect prices to bounce back — in some cases, as soon as six months from now.

Those hoping for a quick rebound are likely to be disappointed. Economists and other pros generally say home prices won't bottom out before the second half of 2009, and some don't see a bottom until 2011 or 2012. Even when they stop falling, prices may scrape along the bottom of the rut for years.

Foreclosure modification programs still falling behind

Foreclosure modification programs can't keep up with the growing mass of foreclosures:

The nation's top banking regulator warned Tuesday that help for troubled homeowners is failing to keep pace with the foreclosure crisis.

"We're definitely behind the curve, and we fall further behind the curve every day," FDIC Chairwoman Sheila Bair told an audience at the Fortune 500 Forum in Washington, D.C.

According to Bair, the nation's financial system would be in much better condition today if earlier warnings she made about mortgage modification had been heeded.

Bair began sounding the alarm more than two years ago, warning that lenders had to shore up capital reserves to offset non-performing loans. In October 2007, she told lenders that they should start modifying more at-risk mortgages so borrowers could afford to stay in their homes.

Meanwhile the mortgage mess has ballooned, expanding beyond the housing market into the entire financial sector and the overall economy.

What Sheila Bair doesn't seem to understand is that in the bubble markets of the east and west coasts, high mortgage costs and declining home prices mean many people would be better off financially if they lost their home to foreclosure and became renters.

Since the cost of renting is still significantly less than the cost of owning, people who get "help" are still likely to be paying more for their mortgage than they would pay to rent an equivalent home. Furthermore, since housing prices are still falling, and are likely to for several more years, people who get "help" will likely find their negative equity is continuing to grow.

That said, the emotional cost of foreclosure may be worse than the financial cost of remaining homeowners.

U.S. officially in recession

I'm sure you've all heard this by now: The United States is officially in a recession.

The National Bureau of Economic Research—a private, nonprofit research organization—said its group of academic economists who determine business cycles decided that the US recession began last December.

The news pushed US stocks lower and renewed calls for another economic stimulus program.

The current recession, which many economists expect to persist through the middle of next year, is already the third-longest since the Great Depression, behind only the 16-month slumps of the mid-1970s and early 1980s.

"I think that we've got a ways to go, that this is going to be probably a deep and long recession," Jeffrey Frankel, a Harvard University economist who sits on the NBER's committee, told CNBC. "It could be the worst post-War recession. We don't know yet." ...

Many Wall Street financial institutions already had declared that the US recession began in December 2007, when there was a sharp increase in the US unemployment rate.

The last two recessions have been so short—about eight months—that the NBER's official prenouncement came after the downturn had actually ended. ...

What's been confusing for economists this time around is that a contraction in gross domestic product—what laymen consider a key recession indicator—did not happen until the third quarter of this year.

Other key barometers, such as payrolls and the jobless rate, have clearly been in a recessionary trend for most, if not all, of the year, economists say. ...

A senior adviser to U.S. President-elect Barack Obama said news that the United States has been in a recession for a year underscored the need for an economic stimulus package.

Lawrence Summers, tapped by Obama to become director of the White House National Economic Council, said the slump may be worsening.

Based on the currently available numbers, it does not (yet) look like this recession is deeper than the early 1980s recession, but it will almost certainly be longer—possibly much longer. What should the government do in response to this extended recession? See here.

To my readers: I hope you will do your patriotic duty and buy your family lots of presents this holiday season—And buy a few gifts for yourself too. This doesn't mean you just go out and buy a bunch of junk. Instead, think of things you would likely buy at some point in the future, and simply move the purchases forward in time. Your nation's economy is depending on you.

Ignoring the housing bubble—What a great idea you guys had, Messrs. Greenspan and Bernanke!

Stock market wipeout today!

The DJIA is down 680 points today, on news that we are officially in a recession. (We're in a recession? Gee, what a shocker!)

Hovnanian, R.I.P.?

It looks like homebuilder Hovnanian is in a heck of a lot of trouble:

Hovnanian, the big New Jersey-based homebuilder, got a big no thanks from its bond holders [last] week. The company had tried to reduce its massive $1.6 billion debt load by offering bondholders new securties paying 18% interest. The catch was they had to accept just 60 cents on the dollar for their outstanding notes. Just $71 million worth of bonds were tendered.

The move was an attempt to preserve some assets for stockholders, including the 18% of the shares owned by management and the Hovnanian family, says the debt watchers at the research firm Gimmie Credit.

Over the past twelve months, the company lost $17.16 per share. Hovnanian's stock was recently trading for $2.19 per share.

Flashback 2004: Art Laffer denies the housing bubble

Exactly four years ago today, Art Laffer, one of the founders of the quack economic theory of supply-side economics, denied the existence of the housing bubble:

The price of housing is one of those topics that grabs just about everyone’s attention. In fact, if it hadn’t been for the presidential election squeezing other topics of interest off center stage in recent months, there would have been a lot more focus on what’s been happening with the housing market. Yet, in spite of the near monopoly of politics on the media’s attention span, there still have been quite a few reports and news articles covering the virtually unabated rise in housing prices. And these stories—some of which border at times on panic—almost all invoke the word “bubble.”

A closer investigation of these alarming reports reveals that many are unsubstantiated or based on logic that is faulty. Bubbles very well may “carry the seeds of their own destruction,” but from our standpoint there is no bubble. When viewed properly, the data do not show housing to be overpriced.

Washington, DC condos are feeling the pain

From The Washington Post:

More than two years into the housing slump, the challenges facing Washington's condos are mounting. Sales prices are falling and are not expected to stabilize soon. The number of condo owners not paying their association fees is rising along with foreclosure rates, creating a budget crunch weighing down many communities.

In the face of budget shortfalls, some associations are taking drastic steps to cope, including delaying maintenance and hiking monthly assessments. Others are setting aside part of their budget to cover delinquencies for a time or looking for ways to help owners catch up on payments.... The options can often be limited by owners' personal financial realities. ...

The problem may get worse before it gets better, according to some industry watchers. Foreclosure rates for condos have been rising. By the end of October, 1,208 condominiums were in the foreclosure process in the Washington area, according to RealtyTrac, a research firm.

The average sales price of new condos fell 3.6 percent in the Washington area during the third quarter compared with the same period a year ago.... The impact on existing condos has been even more dramatic: Sales prices fell 8.1 percent during the third quarter. At the current pace, it would take 8.2 years to sell the finished and almost-completed new-construction condominiums on the market.

New home sales lowest since 1991

New home sales have fallen to an 18-year low:

Sales of newly constructed homes slumped in October to an annual rate not seen since 1991, according to government figures released Wednesday.

The U.S. Census Bureau reported that new home sales fell to an annualized rate of 433,000 in October. That's down 5.3% from the revised 457,000 annual rate recorded in September, and off more than 40% from a year ago.

"October was definitely another disappointing month for the home-building industry," said Mike Larson, real estate analyst at Weiss Research. But he added that the decline was not surprising given the ongoing weakness in the housing market.

October's sales pace was well below the consensus forecast of 450,000, according to economists surveyed by Briefing.com. And it was the lowest number since January 1991, when the sales rate was 401,000.

The number of new homes on the market decreased in October to an estimated 381,000 from 414,000 in September. At the current sales pace, it would take more than 11 months to sell through the inventory.

The median sales price of new houses sold in October was $218,000, down from $218,400 the month before. It was the lowest level since June 2004, when the median home price was $215,700.

Happy Thanksgiving!

No posts today (except this one). Have a happy Thanksgiving.

Now the housing industry wants a bailout, too!

From the Hot Property blog:

Bailouts are in fashion. The financial industry got one. The automakers have their hands out. Now the National Association of Home Builders and the National Association of Realtors are pushing their own multi-billion-dollar stimulus proposals.

The proposals are designed to get buyers off the fence and rejuvenate the flagging home sale market. The more expensive proposal comes from the home builders who want a $250 billion Fix Housing First package, which calls for a home buyer tax credit of 10% of the purchase price (up to $22,000) and a heavy subsidy from the federal government that would bring 30-year mortgage rates down to 3% for homes bought in the first half of next year and 4% for purchases in the second half, according to The Wall Street Journal.

The Realtor plan sounds is somewhat modest by comparison. The group also wants taxpayers to subsidize mortgages to bring down rates by about 2% — at a cost to taxpayers of about $100 billion. And it wants the homeowner tax credit approved by congress this year to be changed so that the $7,500 credit can be given to all buyers, not just first-time buyers and that it no longer would have to be paid back. That part of the plan would cost another $40 billion, the group’s chief economist Lawrence Yun told me today, adding that he thought the builder plan was too expensive.

Finally, the Realtors want the higher limits for federally-backed jumbo loans of up to $729,000 to be permanently extended (They’re set to expire next year).

Enough with the bailouts!

Bubble book recommendation

The Hot Property blog recommends the book Chain of Blame, which is about the subprime mortgage crisis.

Meanwhile, I have The Trillion Dollar Meltdown on my Christmas list. Since there have been so many comparisons of our current situation with the Great Depression, I have also put The Forgotten Man: A New History of the Great Depression on my Christmas list as well.

While on the subject, let me also say that although I believe Alan Greenspan deserves much of the blame for the housing bubble and the resulting financial crisis, his book, The Age of Turbulence, is still an excellent read.

S&P/Case-Shiller: House prices down 16.6% year over year

S&P/Case-Shiller released their latest home price index numbers yesterday:

Home prices continued to fall as the economic downturn deepened in September, according to the S&P/Case-Shiller home-price indexes and the Federal Housing Finance Agency home price index.

"The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its own fundamentals," Case-Shiller index committee chairman David Blitzer said.

For the third quarter, the Case-Shiller national index posted a 16.6% decline in home prices from a year earlier, worse than the 15.1% drop posted in the second quarter.

Don't worry. As people have been predicting for three years now, the recovery is right around the corner.

Has the bubble fully deflated?

The Wall Street Journal says two different methods of measuring home valuation disagree on whether there is still a housing bubble:

Two measures provide conflicting answers. Home price increases have traditionally kept pace with income, and that measure has returned to its historical average, suggesting that housing prices are close to returning to normal. But a separate gauge, which tracks home prices increases against rent increases, shows that the housing market is still overvalued by around 15%, suggesting that it has further to fall.

I'd say that rental prices, which are a substitute for buying, are the better measure. A third measure, which the WSJ didn't discuss, is inflation-adjusted home prices. Adjusted for inflation, housing is still way overvalued.

In fact, I'd say there's something fishy going on with the price-to-income ratio. For incomes to have kept pace with housing prices, there must have been a dramatic increase in real incomes. However, many economists like Paul Krugman have been repeatedly pointing out that median real incomes have not increased during this decade.

Are there any economists out there who want to take a stab at this?

I've been hit! You sunk my housing graphs.

Like many bloggers and web site developers, I assume, I find it interesting to see how many visitors I get and where on the web they come from. Attracting visitors to a web site or blog is a bit of a catch-22 situation. People won't visit your site unless there are links to it, but people won't link to it until they've visited it. Even showing up in Google search results requires numerous incoming links.

Ever since I created my housing graphs web site in March 2006, Bubble Meter has been a significant source of visitors to the site. Even though the vast majority of visitors these days come from Google, Bubble Meter's links to my site are primarily responsible for my Google PageRank (with the dormant Chicago Bubble Blog and Baltimore Metro Area Housing Blog also helping out).

Thus, when David started getting blogger's fatigue, one of the factors influencing my decision to become a co-blogger here was the fact that I had a vested interest in Bubble Meter's survival. My housing bubble graphs get more incoming visitors from Bubble Meter than from any other site except Google.

Every once in a while, I will get a spike in visitors when somebody links to my housing graphs on a discussion forum. I really get intrigued when the incoming links are from a foreign language forum. For example, within the past month or two, quite a number of visitors have been coming from several Japanese discussion forums. (I wish I could read what they are saying.) However, I've never had such a bombardment of incoming visits as I've had within the last few hours.

I was checking the visitor stats for my other blog on StatCounter.com last night, when I decided to check the stats for my housing graphs web site. I was surprised to see that it had gotten over 1,000 daily page loads, which is a bit more than what it normally gets. Seeing the spike in visitors, I decided to check where they are coming from. So, I looked at the recent visitor history and was surprised to be getting almost all visitors from Patrick.net.

(Click image to enlarge.)

Even more surprising, all these visits were in the last hour of the day. It appears Patrick.net linked to me at around 11:12 PM. The swarm of visitors keeps coming in. By the time you read this, even if it is before noon, Patrick.net will likely have caused more people to visit my housing graphs than I have ever had in a single day.

Anyway, I'm not really going anywhere with this post. I just thought I'd share this little bit info about watching a housing bubble web site grow.

National median house price falls to $183,300

Surprise! NAR says housing prices are still falling:

The National Association of Realtors reported that sales by homeowners slid in October to an annual pace of 4.98 million. That was down 3.1% from September's revised reading of 5.14 million. ...

The national median existing-home price in October was $183,300, down 11.3% from a year ago when the median was $206,700. In September, the median existing-home price was $191,400.

October's median existing-home price was the lowest since March 2004, when it stood at $183,200. That means that homeowners who has lived in their homes for 4-1/2 years are seeing their homes worth the same or less as when they bought them.

I bet you didn't see that coming.

McMansion Watch: For Sale McMansion

I'm not sure if this qualifies as a McMansion, but it sure is ugly. This unlovely home, with a pavement and dirt lawn, can be yours for only $879,320. It is located in Warren County, Virginia.

Flashback 2006-2007: Peter Schiff warned of danger

Cool video: Peter Schiff warned of financial and economic danger. Others laughed at him.

Foreclosure Meter?

Google searches for the phrase "housing bubble":

Google searches for the word "foreclosure":

Fannie and Freddie to suspend foreclosures during Christmas season

From CNBC:

Mortgage finance companies Fannie Mae and Freddie Mac are suspending foreclosures during the holiday season.

The two companies say they will halt foreclosure sales between Nov. 26 and Jan. 9, while they evaluate whether borrowers qualify for a new loan modification program.

Call me a softy, but I agree with this. A little extra kindness during the Christmas season never hurt anyone. Besides, how can you buy gifts from Amazon.com if you don't know where you're going to be living when the package arrives.

I encourage other mortgage lenders to do this as well.

McMansion Watch: Model Home McMansion

I've seen this McMansion on the national TV news at least once. Since it's in the DC area (where a lot of the national press is located) and easily visible from a very busy road, it's an ideal candidate for news stories about housing. Notice the luxurious vinyl siding. You can't tell from the photo, but it's got a great view of traffic! This is a great house for someone who wants other people to see where they live, because lots of cars drive by every day and it really stands out from the road.

Like Monday's under-construction McMansion, this house is located on Pohick Crest Drive in Fairfax Station, Virginia. It is a model home for the builder, Calvert Luxury Homes.

Which type of person are you?

Bubble Meter used to get criticized by commenters for being too pessimistic. Now-a-days, Bubble Meter gets criticized by commenters for not being pessimistic enough. This may be due in part to the change in bloggers. David is more pessimistic than me, but he doesn't post much anymore. There are four different types of people, and which type you are tends to affect how you view the economic outlook:

• Perma-bears usually expect the worst.
• Perma-bulls usually expect the best.
• Lemmings usually expect the current trend to continue.
• Contrarians believe in reversion to the mean.

Most people are lemmings. Lemmings are the people who cause bubbles. When everything's great, they expect it to keep getting better. When everything's rotten, they expect it to keep getting worse.

I'd guess David is a perma-bear, although you'd have to ask him. I suspect most longtime Bubble Meter readers are also perma-bears. Lance is definitely a perma-bull.

I, however, am a contrarian. I believe that over the long run, housing prices, stock prices, and economic growth correct themselves. The long-term trend is up, but when things get too good they will get worse; when things get too bad they will get better. That is why I am currently optimistic about both the economy and the stock market over the long run. Housing prices, however, are still too high. But, at some point housing will again become a great investment.

Looking at the list, which type are you?

A short video explaining the mortgage banking meltdown

This video was produced by Enspire.com

Parker Flats condos revisted

Back in 2006, Bubble Meter wrote about the Parker Flats condo/townhouse development in Washington, DC:

The condo / townhouse development called Parker Flats at Gage School is currently being marketed.

Here, the top of the webpage it still says "Urban Condos from the $300s" (as of 4/6/06).

But found this line in an email advertising for the condo development today [4/5/06]: "Homes are priced from the low $200,000's for a studio flat to the $500,000's for a 2 bedroom in the historic school.."

Thus originally studios were priced from the 300's and now the studio's are going in the low 200's. Hmm... who is going to pay over 300 for a studio?

Two-and-a-half years later, they don't list prices for studios anymore, but those $500,000 2 bedroom condos now sell for as low as $434,900.

Recession as an advertising gimmick

I got a kick out of seeing this ad on CNBC.com. For those businesses that offer products or services on the cheap, a weak economy is a potential benefit. For example, Wal-Mart's stock is up since the subprime mortgage crisis began.

NAR: Home prices down 9% year-over-year

According to the National Association of Realtors, single-family home prices fell 9% over the past year.

National home prices, driven lower by a flood of foreclosures, plummeted in the third quarter by a record 9% year-over-year, according to a report issued Tuesday.

The median price of a single-family home fell in four out of five states, the National Association of Realtors reported. The national median price was $200,500, down 2.9% from the second quarter of 2008.

A flood of foreclosures has driven home prices down. As many as 40% of all sales made during the three months that ended Sept. 30 were short sales pr properties repossessed by banks. These are eager sellers. The longer the banks hold the vacant homes, the more it costs them in maintenance, taxes and insurance.

Are you missing the real estate bust?

My other blog

I'd like to let Bubble Meter readers know about my other blog, Policy and Economy. While Bubble Meter is focused on the the decline of the housing bubble and the economic destruction it has caused, Policy and Economy gives me a forum to talk about a much broader range of topics. Going forward, the difference in focus between the two blogs will be as follows:

Bubble Meter: housing bubble, housing bust, real estate, foreclosures, financial crisis and recession caused by housing bust, irresponsible homeowners, homeowner and bank bailouts.

Policy and Economy: broader economy, financial crisis, recession, bank and automaker bailouts, economic recovery (when it occurs), stocks, politics, civil liberties, foreign policy, terrorism, national security, global warming, taxes, energy prices, etc.

As you can see, there is some overlap between the two blogs. In those cases, I will occasionally cross-post the same post on both blogs. However, Bubble Meter will have a strong housing bust focus, while Policy and Economy will not.

Thus, between your two Bubble Meter bloggers we have the following:

David's sites

• Bubble Meter blog (admin)
• Lawrence Yun Watch blog
• David Lereah Watch blog
• Recession Times blog
  

James's sites

• Bubble Meter blog
• Policy and Economy blog
• Housing Graphs website

Mortgage broker raffling off his house

For $50, you can gamble on winning a house in Maryland:

In the casino of the housing market, Tom Walters is holding the wrong cards. He's a mortgage broker, so business has been slow, and on his own house, payments have risen to about $6,200 — too much to handle.

Instead of gambling on a sale, Walters and his wife decided to let others take a chance.

So for just $50, people can buy a raffle ticket for his six-bedroom, 4 1/2 -bath, 6,000-square-foot home on a two-acre parcel just outside of Annapolis. Estimated value? One million clams.

Walters is partnering with Annapolis-based We Care and Friends in the raffle venture because under Maryland law only charity groups can raffle off houses. The charity must sell at least 31,500 tickets to pay off the loans and keep its cut of at least 10 percent, Walters said.

This is the 10th house raffle attempted this year, according to the Maryland secretary of state's office. But only one, in Hagerstown, has been successful so far.

In the Walterses' raffle, the winner (to be picked Dec. 31) gets the home, free and clear. No closing costs. No mortgage payments. No broker fees. The Walterses get to walk away.

According to this article, the home was appraised for $1.28 during the summer. He also originally tried to have the drawing on September 27.

Even if the house really is worth $1.28 million, it's a stupid bet. According to the rules, if no drawing is held, you don't get all your money back. Instead, Tom Walters gets to skim 1%. Furthermore, he gets to cancel the raffle unless it raises at least $1,575,000. That mean you're paying $50 for a bet that on average is only worth at most $40.63 (assuming the $1.28 million appraisal didn't overvalue the house).

The math: $1,280,000 / $1,575,000= 0.813; $50 x 0.813 = $40.63

Realtors want government to subsidize mortgages

The National Association of Realtors opposes any re-privatization of Fannie Mae and Freddie Mac. Instead, they effectively want Uncle Sam to continue its current subsidization of the housing market.

To insure that there is sufficient capital to support mortgage lending to qualified borrowers, the National Association of Realtors® has adopted principles that recommend continued government involvement in the secondary mortgage market. ...

“NAR believes that the federal government must continue to play a role in the mortgage markets to insure the continued flow of capital.”

McMansion Watch: Under Construction McMansion

I took this photo yesterday. This house is being built right by several other newly-constructed McMansions on Pohick Crest Drive in Fairfax Station, Virginia. It is visible from Fairfax County Parkway. The builder is Calvert Luxury Homes.

I took several other photos of McMansions right near this one, so I'll share other photos over time.

Dead Realtor blog

*** That's [dead] [Realtor blog], not [dead Realtor] [blog]. Get those malevolent thoughts out of your head! ***

Back in 2006, Bubble Meter pointed out that the National Association of Realtors had started their own housing blog. Well, after two years of Realtor spin, it is now dead. I guess people just don't believe NAR's lies anymore.

Sure, many part-time bloggers simply just get tired of doing it. NAR, however, is an organization with paid employees. If one blogger gets tired, just hire another. The only reason I see for them to stop the blog is if it isn't convincing anyone.

NAR tried to lie about the outlook for housing for a long time. They kept trying to convince people that a recovery is right around the corner. The facts of the housing decline have now become so obvious and overwhelming that NAR probably gave up swimming against the current.

Adolf Hitler faces foreclosure

Bubble blogs are stupid!

Agent Genius Mag: Are bubble bloggers crazy or ignorant?

Bubble Meter told you so!

A warning from Bubble Meter in 2006:

The recession is coming soon. Be warned. :-(

In retrospect, David's warning was early, but right.

Those in government still don't get it!

Tim Duy writes:

From the wires:

15:30 *PAULSON SAYS MARKET TURMOIL WON'T ABATE UNTIL HOUSING REBOUNDS

Such comments always leave me with a sick feeling in my stomach – if policymakers are waiting for the housing market to rebound, they had better be prepared for a long wait. Sort of liking waiting for the NASDAQ to revisit the 5,000 mark. I think the biggest potential for policy error lies in maintaining the delusion that preventing housing, and by extension, consumer spending, from adjusting is central to fixing the nation’s economy. Policy would be best focused on supporting the inevitable transition away from debt-supported consumer dependent growth dynamic.

Housing prices are falling because fundamentally the price of housing became unaffordable. The stream of expected household income necessary to repay the loans exceeded the capacity of household budgets. It is that simple – there is no sense in paying $3,000 a month in mortgage payments on property with the rental equivalent of $1,000. To be sure, a homeowner could justify such a purchase as long as they thought they were guaranteed a 15% annual risk free return. But who, other than realtors and mortgage brokers, remain under that delusion?

Similarly, I find programs that purport to “help” homeowners by reducing their mortgage payments of questionable value. Lowering your mortgage payment to 38% of income might sound like a good deal – but if you have no equity, you do not really own anything. You are just a renter by another name. So if your final mortgage payment significantly exceeds the rental equivalent, has the government really made you better off? And if, as I suspect, homeowner bailouts will not stem price declines, the program recipient could soon find themselves with negative equity again in a matter of months. If you really wanted to help underwater homeowners, you would bring their payments in line with the rental equivalent. I suspect this would be extremely costly.

Again, price and affordability are inversely related. Those who want to prop up home prices essentially want unaffordable housing.

The effect of falling prices on the conforming loan limit

From The Wall Street Journal:

At least one thing is holding steady for 2009: the conforming home loan limit, or the maximum size of loans that [Fannie Mae and Freddie Mac] can purchase. The current limit of $417,000 for single-unit homes will remain in place for most of the U.S., the Federal Housing Finance Agency, the regulator of the two mortgage buyers, said today.

The Housing and Economic Recovery Act of 2008, signed into law in July in response to the subprime mortgage crisis, established that changes in home prices in a given year would determine the loan limit for the following one. The limits could not decline, so falling home prices produce no change. ...

“For this year…all reliable metrics point to lower prices, and a price decline of any size is sufficient to determine that the national limit will not change,” the agency said in a statement. ...

Homes in “high-cost” areas are subject to different guidelines, as set by the Housing and Economic Recovery Act. The loan limits for those areas are equal to 115 percent of average local prices, but they cannot exceed the standard limit of $625,000 for one-unit homes.

Bits bucket for Friday, November 14

Please post your thoughts, links, and MLS/Craigslist finds here.

Barney Frank on foreclosure prevention programs

From CNN Money:

Rep. Barney Frank, chairman of the House Committee on Financial Services, highlighted the need for a bailout program for troubled homeowners on Wednesday. But he stressed that not all borrowers should necessarily be rescued.

"Diminishing foreclosures is an important part of getting out of this [financial crisis]," said Frank, D-Mass., in an opening statement at a Congressional hearing on bank rescue plans for homeowners facing foreclosure.

But Frank added that taxpayer money should not be used to give anyone a "free ride," and warned that aid should not go to homeowners who never could have afforded their mortgage to begin with.

"There is, in my judgment, zero likelihood that taxpayer dollars will go to those who should never have had loans in the first place," Frank said.

Mortgage Interest Rate Watch

Source: Bankrate.com

Almost 85,000 foreclosures in October

From CNN Money:

As government and industry scrambled to stem the housing crisis, another 84,868 homes were lost to foreclosure in October, according to a report released Thursday.

Last month 279,561 struggling borrowers received foreclosure filings, including default notices, notices of auction sales and bank repossessions, according to RealtyTrac, an online marketplace for foreclosures. That's a 5% increase from September, and up 25% from October 2007.

"October marks the 34th consecutive month where U.S. foreclosure activity has increased compared to the prior year," said James J. Saccacio, chief executive officer of RealtyTrac in a statement.

A total of 936,439 homes have been lost to foreclosure since the housing crisis hit in August, 2007.

Imagine what the numbers would be if we didn't have all these anti-foreclosure programs!

New York City joins housing slump

While the housing bubble decline has adversely affected much of the United States, some previous bubble markets like New York City, Boston, and Washington, DC proper, have been largely resistant. Well, according to Robert Toll, CEO of home builder Toll Brothers, New York City is now taking it on the chin.

According to the transcript of the company’s conference call, provided by Thomson Street Events, Mr. Toll is asked if there were there any areas that stood out as stronger than others. Mr. Toll responded: “I wouldn’t say so. … No, I reviewed that just this Monday night with all of the regionals, and unfortunately, I don’t see any areas of strength. We used to be able to claim New York City. We don’t claim that any more. We used to claim Connecticut, and that slowed down a little bit. I don’t see any standouts.

Later, he added: “Been a tremendous change in the last six weeks. Up to the financial debacle crisis that we’ve entered, New York City was a nice stand-alone, and a beacon, but it has now joined the ranks of the rest of the country. … I would expect the financial business in New York to probably lose 100,000 people. You don’t think it will be that high, guys? Well, I hope I’m wrong, but that’s got to have a serious impact on the price of real estate, and I would think that the foreign market, which supported in large measure the pricier condos in New York City, is not there in force as it was. What with the euro going down in comparison to the dollar lately, and with their own economic crisis. So I would think you are in for a more challenged time in New York.

Put a bunch of the city's highest paid employees on the unemployment line, and it will have an effect.

Toll Brothers is still seeing declining sales

Home builder Toll Brothers is continuing to see declining sales:

Troubles in the home-building industry keep getting worse. Toll Brothers Inc. said Tuesday that customer traffic and sales hit record lows last month, as the financial meltdown spooked an already weak market and triggered a wave of contract cancellations.

Chief Executive Robert Toll said signs of stabilizing conditions through the summer and into early September were "upended by the past month's financial crisis" and the fear of job and stock-market losses.

Don't worry, Messrs. Toll, the housing recovery is right around the corner. I know because people have been saying it's right around the corner for three years now.

Tomorrow, tomorrow, I love you, tomorrow! The recovery is always a day away!

Government announces "Streamlined Modification Program"

The U.S. government announced a new foreclosure prevention plan yesterday:

The plan centers on Fannie Mae and Freddie Mac, which between them own or back about 31 million mortgages worth a combined $5 trillion. The federal government took over the firms in September due to mounting losses on their portfolios of mortgages.

Eligibility is determined by several factors: Homeowners must be 90 days or more late in their mortgage payments, owe at least 90% of their home's current value, live in the home on which the mortgage was taken and have not filed for bankruptcy.

Their mortgage payments would be adjusted through lower interest rates or longer repayment schedules with the goal of bringing payments below 38% of monthly household income. Interest rates could be lowered for five years and then raised to a predetermined level. Loan terms could be lengthened to 40 years.

Officials said the standards for loan modifications should fast-track changes in payments. The standards will be applied to loans owned and guaranteed by Fannie and Freddie, but officials said they hope they will also be adopted industrywide.

"We expect that it could significantly increase the number of modifications completed," said James Lockhart, director of the Federal Housing Finance Agency, the regulator that oversees Fannie and Freddie. ...

Fannie reported this week that 1.7% of its mortgages by value are delinquent by 90 or more days. Fannie's filings suggest that it has about 18 million mortgages on its books, which would work out to about 300,000 mortgages that could potentially be eligible. ...

But even in cases where declining home prices have taken the value of a home to less than is owed on the mortgage, the balance of the loan will not be lowered under this program.

"This is not loan forgiveness; the loans will be paid but at terms affordable for borrowers," said Brian Montgomery, commissioner of the Federal Housing Administration.

The fact that mortgage balances will not be reduced for the so-called underwater mortgages — those in which a homeowner owes more than the home is worth — will limit the use and impact of the program, according to some experts.

The Washington Post has more details:

Instead of the standard cumbersome loan modification process, which can include reviewing a borrower's credit report and tax returns, the new plan focuses on the borrower's income and how much he or she can afford to pay. It also creates a formula for determining what a homeowner can afford, eliminating some guesswork.

Government officials said they expect the effort, dubbed the Streamlined Modification Program, to be able to help "hundreds of thousands" of homeowners. ...

The program, set to begin Dec. 15, applies only to mortgages owned or guaranteed by Fannie Mae and Freddie Mac, which are involved with more than 50 percent of residential loans. But major lenders, including Bank of America, Wells Fargo and Citigroup, have agreed to apply the formula to loans they administer for Fannie Mae and Freddie Mac and are expected to extend it to their own loans, industry officials said. ...

A borrower who is 90 days delinquent will be eligible for a new loan with a payment that does not exceed 38 percent of his gross monthly income.

To qualify, the homeowner must provide proof that he has suffered a hardship, such as losing a job, that made it impossible to keep up with payments. The terms of the borrower's loan then could be extended from 30 years to 40 years, and if that is not enough, the interest rate could be reduced to as low as 3 percent to make the payments more affordable. The homeowner could be subject to a interest rate increase after a set time, depending on how low their new interest rate is. If those options don't reduce payments enough, part of the principal owed on the loan could be deferred until the end of the loan term.

When I first read that this program is only available to people 90 days delinquent or more, I though it would reward irresponsible behavior. (If you pay your mortgage, you don't get help.) The criteria that the homeowner must "provide proof that he has suffered a hardship, such as losing a job" may prevent this plan from rewarding irresponsible homeowners. However, it may also dramatically reduce the number of financially-troubled people who can take advantage of the program.

Of the various loan modification options available, extending the mortgage to a 40-year mortgage is the least objectionable, because it doesn't give the homeowner free money. It just reduces their payments, while slowing the pace at which they will (eventually) acquire equity in their home. Reducing the interest rate or reducing the principal on a loan effectively gives free money to homeowners, so I generally oppose them.

CNN Money points out that this plan doesn't help most subprime homeowners, who are the people in the most financial trouble.