Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole. ATTENTION: Backup Blog at: http://thehousingbubble2.blogspot.com/
The BBC is reporting on the December mortgage approvals, which came in 38% lower than year-ago numbers. The number of mortgages has fallen for seven straight months and "gross mortgage lending reached £14.2bn in December, 3% lower than November and 10% lower than in December 2003".
The US Census home sales report out today puts 2004 in the record books for the most homes ever sold. But the buying seemed to let up at the end of the year, with November to December sales flat. One item to watch for the future was an increase in the homes on the market. The December 2003 inventory was 370,000 homes versus 432,000 for sale at the end of 2004, a 16% increase.
One of the more disturbing trends to develop in the home loan debt boom is the reverse mortgage. House rich, cash poor is the "predicament" many older people find themselves in. Aside from the question of how many older folks would be just plain poor were it not for the real estate boom, one has to wonder why such a risky program is being pushed upon needy seniors. As CNN reports " the number of (reverse mortgage) loans originated in 2004 was more than double what it was the previous year. ..Demand for information on reverse mortgages has increased exponentially." said Bronwyn Belling, a reverse mortgage specialist for the AARP Foundation".
The web site from National Mortgage News has a new weekly data special. This one details overall mortgage production from 1980 into the beginning of 2005. In any bubble, one expects to see a parabolic rise at the peak. This data seems to show just that. From 1980 to year 2000, the dollar increase was 800%. Yet through 2003 the originated amount shot up another 365%, more than tripling the 20 year increase in a mere three years.
The historic high levels of refinancing the last few years may have set a trap for homeowners due to inflated appraisals. In a study put out by the public action firm Demos, it stated "Households cashed out $333 billion worth of equity from homes between 2001 and 2003, the beginning of the refinancing boom--levels three times higher than any period since Freddie Mac started tracking the data in 1993".
In a report out of a group at the University of North Carolina at Chapel Hill, it is revealed the boom in subprime loans is resulting in more foreclosure. Citing "abusive loans" in particular the Center for Community Capitalism noted "Subprime loan originations grew more than nine-fold, from $35 billion to $332 billion between 1994 and 2003". How big could the problem be? "For example, 20.7 percent of all first-lien subprime refinance loans originated in 1999 had entered foreclosure by December 2003".
Here is the report.. "Overall, home-equity originations climbed 35 percent last year to a record $431.3 billion, according to SMR Research Corp., a market-research firm in Hackettstown, N.J".
"According to the results of a survey released today, members of the Association of Foreign Investors in Real Estate (AFIRE) say that while overall spending will increase both globally and in the US, they will reduce the US percentage of their total global real estate acquisitions from 71 percent in 2004, to 55 percent in 2005".
A report put out by an investment banking firm identifies 27 "urbanized areas" as experiencing housing price bubbles. "Economist Michael D. Youngblood, notes that 20 of the 27 UAs facing a bubble are in California. FBR determined the existence of home price bubbles by creating a ratio of median house prices to per capita income".
WASHINGTON, Jan 12 (Reuters) - "Federal Reserve Board Vice Chairman Roger Ferguson said on Wednesday it may be impossible to know when an asset-price bubble is building". He goes on to say that it may be improper for the Fed to slow down asset bubbles.
In a piece by a Bloomberg columnist, some researchers for S&P identified the most overheated markets in the US. "The markets that Parisi and Mason predict will ``likely to suffer declines over the next two to three years in the event of an economic downturn'' based on U.S. housing data through the second quarter are a who's who list of sizzling U.S. markets: Los Angeles, San Luis Obispo, Orange County, Santa Rosa and Ventura, California; Brockton, Barnstable, and New Bedford, Massachusetts.; Fort Pierce and Miami, Florida; Nassau-Suffolk, New York; and Monmouth-Ocean and Jersey City, New Jersey".
Here is a gloomy report from an economist in England regarding the housing downturn there.
Elliott Wave International has a good feature regarding the subprime loan boom, titled "Less A Secret Now, If No Less Dirty".
Fannie Mae's financial woes are set to deal the mortgage giant its first earnings setback since 1985. Bloomberg.com reports "Earnings per share for Fannie Mae, the largest buyer of U.S. mortgages, will fall 3.4 percent this year, according to the median estimate of 19 analysts surveyed by Thomson Financial".
USA Today reported that Federal Reserve Governor Edward Gramlich publicly warned that subprime lending may be a problem. "The subprime incidence of mortgage brokers without a lot at stake in the game is getting pretty high," the Fed official said.
The FDIC's chief economist has a warning on the use of home equity lines of credit. "Richard Brown worries that home-equity lines could meet the same fate as credit cards did between 1982 and 1992. During that period, credit-card balances, adjusted for inflation, quadrupled -- as did consumer bankruptcies".
This CNN website points out that RE taxes are rising much faster than tax on income and in one instance caused the owner to lose the property. The report adds some tips to appealing your tax bill.
The Mortgage Bankers Association reported their purchase index was down 5.8% last week and applications decreased 3% from the previous week.
Countrywide Financial Corp. is trumpeting the "soaring" level of its December 2004 funding. But if you peek at the details what has exploded is the riskiest sectors of the market:
Dominion Bond Rating Service issued a warning about mortgage companies in the coming real estate slowdown. Realty Times reports "mortgages underwritten (with) minimal documentation sometimes account for as much as 50 percent of mortgage pools" in the subprime arena.
The public policy website Demos has an interesting piece by Javier Silva addressing the many negative aspects of the refinancing explosion of the last few years. Such as collateralizing debt such as credit card balances and using home equity for current consumption. Overall a very fine analysis of this massive trend. The same site has another excellent writeup on the housing bubble by guest columnist Dean Baker.
If there is a bubble forming in the housing market, one would expect to see ordinary people buying more home than they need. "I bought it purely as an investment," says the 58 year old. He plans to use the 2,200-square-foot house, also in Park City, as a rental property. Mr. Lieberman rented it out for two weeks over Christmas, and it is booked for the Sundance Film Festival this month".
A Mortgage Bankers Association poll reveals continued weakness in the real estate market. "Overall mortgage applications fell again last week, dropping 10.6 percent on a seasonally adjusted basis from the week before, according to the Mortgage Bankers Association's weekly survey. During the holiday-shortened week, the MBA seasonally adjusted purchase index decreased by 13.7 percent to 417.3 from 483.8 the previous week. The seasonally adjusted refinance index decreased by 5.7 percent to 1,701.3 from 1,803.9 one week earlier".
