The arguments about whether there is or is not a shadow inventory have gotten silly. There is a shadow inventory, and there are certain facts we can establish about it. First, there are millions of delinquent mortgage squatters who will not be given free homes. The exact number is impossible to ascertain because no accurate records are kept outside the banks who aren’t accurately sharing this information. Since the banks aren’t disseminating accurate information (why would they?), CoreLogic, who relies on voluntary information, consistently under reports the problem.
Second, the disposition of these properties will require a sale on the MLS. This may be as an REO after a foreclosure, or it may be as a short sale in lieu of foreclosure. The only way these sales bypass the MLS is if a loan modification succeeds, which is rare, or if the property is purchased by a hedge fund and held as a rental. But even then the property will be resold, it’s only a matter of when the hedge fund wants to exit the business. Most will be out in five to ten years.
The two facts which aren’t in dispute together means there will be several million property sales on the MLS, and most of these sales would not have occurred if these borrowers were not in such dire financial distress. In other words, these are additional MLS sales above and beyond ordinary sales volumes. So how does a market absorb excess supply without causing prices to fall? It is possible, but it requires carefully managing absorption rates.
Ever since the housing bust began to overwhelm the banks with REO, asset managers have tried to sell homes at a rate the market could absorb without forcing prices to move lower. This was not successful when prices were extremely elevated and unaffordable and supply was overly abundant. But since house prices dropped, rents rose, and mortgage interest rates fell, affordability improved significantly. Now what the market needs is a healthy supply of borrowers with good jobs and good credit. Unfortunately, those people are in short supply, so lenders respond by reducing MLS inventory until such time those buyers are available.
Prices may go up or they may go down depending on how well bank asset managers control the flow. The bottom callers are all placing their faith in the skills of these asset managers rather than in the forces of the market. Right now, these asset managers overly constricted the supply in the Southwest, and prices are rising. However, this also means lenders aren’t clearing out the existing shadow inventory and are actually adding to it. This will likely prompt lenders to increase foreclosure processing rates to take advantage of the higher prices. It’s also possible lenders will become overly exuberant about regaining their non-performing capital and process too many. The cycle of real estate often proceeds from periods of scarcity to periods of excess.
Unfortunately, there is no way to know how orderly the liquidation of shadow inventory will be. We are not talking about a natural market subject to ordinary laws of supply and demand. In a normal market, millions of individual owners control the supply, and they don’t act with any coordinated effort. Today, a cartel of a few major banks control the bulk of our housing inventory. These banks openly collude on prices with the blessing of our government. Since cartel arrangement are inherently unstable, there is not telling how this plays out. Caution is advised. I recommend buying properties below rental parity so you have a viable plan B if prices were to go south.
Shadow Inventory: It’s Not as Scary as It Looks
August 14, 2012, 9:55 AM
The chart above is similar to mine on delinquencies, but it does contain a fair amount of guesswork and wishful thinking.
The housing market is improving because there are more buyers chasing fewer homes. Skeptics of a housing bottom, however, often point to a scary set of numbers: the “shadow inventory” of potential foreclosures—the millions of mortgages that are either in foreclosure or in default.
It’s true that home prices are unlikely to see brisk gains once they do hit bottom because it will take years to absorb this glut. But will this phantom inventory derail the incipient housing bottom? Maybe not, say a number of housing analysts.
Why do financial reporters feel an obligation to improve consumer confidence? Why can’t they relay the facts and let people draw their own conclusions?
What follows is a load of opinions not supported by much data. Basically, the reporter found everyone who was willing to say the huge overhang of supply won’t be a problem.
There are several reasons why the shadow inventory isn’t as scary as it sounds: It’s concentrated in a handful of markets—it isn’t inherently a national phenomenon.
So that means certain markets will get crushed, right?
It is being offset by improved demand, particularly from investors.
This improved demand is concentrated in a handful of markets, and it’s only focused on low-end properties.
And the housing vacancy rate is low, a product of very little new home construction over the past few years that could counterbalance continued high inventories of foreclosed homes.
Vacancy rates are only declining in select markets, and the rate is still much higher than historic norms.
We’ll address each of those in subsequent posts. But first, let’s examine the actual size of the shadow inventory. While the shadow is very large, one often-overlooked fact is that the shadow isn’t nearly as large as it was two years ago.
Prior to amend-extend-pretend, there was no shadow inventory. It isn’t a matter of reducing this supply to some historically manageable number. Shadow inventory must be reduced to zero.
… Barclays Capital estimates that at the end of May there were around 1.8 million mortgages in the foreclosure process and another 1.45 million where borrowers have missed at least three payments. That puts the total number of properties that could be repossessed and resold by banks at around 3.25 million mortgages.
If those homes hit the market all at once, housing would be in deep trouble. Last year, for example, there were 4.4 million sales of previously owned homes. The figure is still higher than any time before June 2009.
Total sales was 4.4 million last year, and even at that rate, prices fell. So what happens if you add 500,000 properties a year for the next six years in order to clear out the 3,000,000+ homes in shadow inventory?
… “The concept of a huge shadow inventory is preposterous,” says Christopher Thornberg, a housing economist with Beacon Economics in Los Angeles. “The number of mortgages in distress is way down from one year ago. It’s clear there are fewer distressed properties out there.”
WTF?
Housing analyst Ivy Zelman has a slightly larger estimate of shadow inventory—around 6.3 million homes at the end of last year—that includes more newly delinquent mortgages and potential re-defaults. She says that in a normal market, there’s a comparable shadow inventory of 2.9 million homes. So the key figure—the excess level above the historical trend—is around 3.4 million homes.
She uses a different measure but comes up with the same estimate of excess units.
Ms. Zelman published an in-depth research note earlier with the title: “Shining a bright light on the shadow: Why what’s lurking doesn’t concern us.” In it, she explains how it’s more important to focus on the pace at which foreclosures are being liquidated, and not the absolute number.
“Just like the Wizard of Oz, shadow inventory is not very intimidating once you pull back the curtain,” the report said. That isn’t to dismiss the magnitude of the problem and headwind it will continue to pose for any housing recovery, she wrote. “The bathtub is almost full, but the water has stopped rising, and we are most concerned with how fast it drains.”
Absorption is the key metric. The absolute number of shadow inventory homes dictates how long it will take to clean up the mess. The slower the absorption rate and the larger the inventory, the longer the overhang will hinder appreciation. It’s really that simple.
Certainly, there are many other risks to housing. There are at least 11 million homeowners that are underwater, owing more than their homes are worth. There are even more than that who don’t have enough equity to make a 10% down payment on their next home, plus pay a real-estate broker’s sales commission, in order to trade up to a bigger home or downsize to a smaller one. And it’s still very difficult to get a mortgage.
But the shadow inventory is often the big trump card used to quiet any housing-happy talk. …
That’s because shadow inventory is the defining problem of the housing bust. Shadow inventory is a result of the can-kicking lenders began four years ago to deal with the precipitous decline in house prices caused by the first flood of foreclosures. Every problem which added to delinquencies was solved by adding to shadow inventory. Like sweeping dust under the rug, the buildup of shadow inventory created a mound the market is sure to trip over.
Shadow Inventory: Monitor Banks’ Speed, Not Just Volume
August 15, 2012, 10:17 AM
What’s more worrisome than the actual “shadow inventory” is how banks dispose of it—and whether there are enough buyers willing to purchase the homes when they do.
It’s increasingly clear that banks—whether by design or not—aren’t going to foreclose quickly and relist all of these homes for sale.
It is clearly by design, and it’s working. Banks will continue to manage their disposition of shadow inventory until they are done with their task. The question is whether or not they will be able to manage this disposition effectively or if it will get out of control.
… The number of bank-owned homes is down from a peak of nearly 700,000 in September 2008. After that, changes to accounting rules and the introduction of government loan-modification programs prompted banks to slow down the process and led to a drop in the volume of bank-owned properties throughout 2009.
Bank-owned foreclosures began rising again in 2010, peaking at around 600,000 that September, when banks again slowed down foreclosures, this time amid the “robo-signing” scandal. Since then, banks have been very slow to process foreclosures, particularly in judicial states, where courts are overwhelmed by the volume cases and banks have struggled to properly document their ownership of mortgages.
Notice that projections for bank-owned homes are expected to rise significantly throughout 2013.
…“If you don’t understand the shadow inventory, it’s very ominous and concerning,” says Ivy Zelman, chief executive of Zelman & Associates. “But if you understand the flows and how it is brought to market” it looks less intimidating, she says.
I don’t know. I understand it, and it looks pretty daunting to me.
…“What most of the bears aren’t focused on is understanding demand,” says Ms. Zelman. This is one reason she’s turned bullish. Her most recent forecast calls for a 5% increase in home prices this year, a change from her initial forecast of a 1% decline when the year began. Getting a handle on demand “allows us to have a complete picture of the housing market.”
I understand demand. Investors are buying up below-median properties in select markets. This will stabilize prices in those areas — and only in those areas — but these investors are not prone to chasing prices higher. Owner occupant demand is still in the doldrums and showing no signs of improvement.
Finally, shadow inventory isn’t a national phenomenon. Instead, it is heavily concentrated in particular markets—and within those, in particular submarkets. To the extent banks to ramp up the foreclosure process, the shadow is more likely to resemble a “tornado” than a “flood,” as it will strike particular communities while bypassing others, says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm.
So which communities will see this flood? Will we see a triple dip in Riverside County while Orange County prices head to the moon?
Housing markets are not that compartmentalized. If prices crash in one market, the substitution effect will draw buyers in from another nearby market. We may not see a national decline in house prices as shadow inventory is liquidated, but we will see disruptions in many markets. And this process will continue for quite some time.
That Option ARM was a bad idea
It only takes one mistake to lose your home. The former owners of today’s featured property paid $182,000 back on 5/14/1998. They used a $145,600 first mortgage and a $36,400 down payment. Their only refinance was a $357,000 Option ARM with a 1.25% teaser rate. It proved to be more than they could handle. They extracted $212,400 in mortgage equity withdrawal, so it’s hard to feel too sorry for them, but they did lose their home, and now they are living in a rental. Let’s hope they have some of that $200K to comfort them.
Wouldn't you be embarrassed to overpay by $100,000? Only fools buy houses without knowing neighborhood values. Don't be a fool. Don't suffer the pain of an underwater mortgage. The surest way to lose your house is to overpay for it. Our reports identify overvalued and undervalued neighborhoods. Use it to broaden or narrow your search area. Savvy buyers work with us to find bargains. We've saved thousands from financial ruin. Let us save you too. If you want peace of mind while shopping for your next home, sign up for our monthly market newsletter.
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Proprietary OC Housing News home purchase analysis
2637 MONTEREY Pl Fullerton, CA 92833
$399,900 …….. Asking Price
$182,000 ………. Purchase Price
5/14/1998 ………. Purchase Date
$217,900 ………. Gross Gain (Loss)
($14,560) ………… Commissions and Costs at 8%
============================================
$203,340 ………. Net Gain (Loss)
============================================
119.7% ………. Gross Percent Change
111.7% ………. Net Percent Change
5.5% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$399,900 …….. Asking Price
$13,997 ………… 3.5% Down FHA Financing
3.55% …………. Mortgage Interest Rate
30 ……………… Number of Years
$385,904 …….. Mortgage
$111,105 ………. Income Requirement
$1,744 ………… Monthly Mortgage Payment
$347 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$100 ………… Homeowners Insurance at 0.3%
$402 ………… Private Mortgage Insurance
$278 ………… Homeowners Association Fees
============================================
$2,870 ………. Monthly Cash Outlays
($260) ………. Tax Savings
($602) ………. Equity Hidden in Payment
$16 ………….. Lost Income to Down Payment
$70 ………….. Maintenance and Replacement Reserves
============================================
$2,094 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,499 ………… Furnishing and Move In at 1% + $1,500
$5,499 ………… Closing Costs at 1% + $1,500
$3,859 ………… Interest Points
$13,997 ………… Down Payment
============================================
$28,854 ………. Total Cash Costs
$32,000 ………. Emergency Cash Reserves
============================================
$60,854 ………. Total Savings Needed
The property above is available for sale on the MLS.
Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
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Nearby Foreclosures
Gain a competitive advantage over other buyers. By locating distressed properties -- before they hit the MLS -- you can discover where tomorrow's REOs and short sales will appear. Most of these properties are not listed on the MLS, but they will be soon. Research properties in advance and get a jump on your competition. Don't miss out on another deal because you couldn't act quickly. Use this tool to your advantage! The red properties are already bank owned. As soon as REO asset managers prepare them for sale, they will be on the MLS. Get ready! The green and blue properties have owners who are not paying their mortgages. They may be offered as short sales, or they may go through foreclosure and become REO. Either way, they will also likely be available on the MLS soon. Find your next home! Be prepared to offer on these properties by researching them in advance or risk losing out to buyers who are have done their homework. Start your research today! To find distressed properties, enter your desired location and press search. Scroll through list by pressing "next."  |
$359,000 1299 PHILLIPS Dr |
0.47 miles 2 bd / 2 ba 1,364 Sq. Ft. |
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$389,000 36 PRESTON Ln |
1.04 miles 4 bd / 2.5 ba 1,825 Sq. Ft. |
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$520,000 26 PRESTON Ln |
1.05 miles 4 bd / 2.5 ba 1,825 Sq. Ft. |
21 Responses to “Liquidating shadow inventory requires managing absorption rates”
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IR: Why do financial reporters feel an obligation to improve consumer confidence?
——————————————————————————
Because journalism has devolved over time; now nothing more than censored propaganda.
In other news…
June Case/Shiller (flawed index; only captures owner occupied, single family detached/semi-detached homes; NOT investment, multi-family homes, condos or new construction data)
Even despite local sell-side media barrage of ”recovery abounds” headlines + mort rates @about100bsp lower YoY, LA/OC prices still can’t beat easy comps from last year.
Perhaps the propaganda machine isn’t succeeding…
Consumer Confidence in U.S. Declines by Most Since October
Confidence among U.S. consumers fell in August by the most in 10 months as households grew more pessimistic about their employment prospects and the economic outlook.
The Conference Board’s index decreased to 60.6 from a revised 65.4 in July, figures from the New York-based private research group showed today. The 4.8-point decrease was the biggest since October. The reading was less than the most- pessimistic forecast in a Bloomberg survey in which the median projection was 66.
Rising gasoline prices, a jobless rate that’s been above 8 percent since the start of 2009 and limited income gains are keeping consumers glum. Persistent pessimism raises the risk of a pullback in household purchases that account for about 70 percent of the world’s biggest economy.
“The consumer is still very cautious,” said Jim O’Sullivan, chief U.S. economist for High Frequency Economics Ltd. in Valhalla, New York, who projected a drop in sentiment. “The labor market is still relatively weak. There’s a lot of uncertainty about policy ahead of the election” and fuel costs have accelerated, he said.
This month’s confidence reading was the lowest since November. Estimates for the Conference Board gauge ranged from 61 to 68 in the Bloomberg survey of 77 economists. The measure averaged 53.7 during the 18-month recession that ended in June 2009.
Stocks were little changed ahead of Federal Reserve Chairman Ben S. Bernanke’s speech on the economy in three days. The Standard & Poor’s 500 Index dropped less than 0.1 percent to 1,409.9 at 1:55 p.m. in New York.
Home Prices
Another report today showed home prices in 20 U.S. cities rose in the 12 months ended in June, the first year-over-year gain in almost two years and showing improvement in the industry that precipitated the last recession. The S&P/Case-Shiller index of property values climbed 0.5 percent from a year earlier, the group reported in New York.
“We are very encouraged by our results,” Robert Toll, chairman of Toll Brothers Inc. (TOL), said during an Aug. 22 call after the Horsham, Pennsylvania-based luxury-home builder’s third-quarter earnings were better than expected. “We do remain cautious in our optimism, as we believe consumer confidence remains fragile and subject to the impact of negative economic and political headlines.”
The Conference Board’s measure of present conditions was little changed at 45.8 in August after 45.9 a month earlier. The measure of expectations for the next six months slumped to 70.5, the lowest since November, from 78.4.
Inflation Expectations
Sentiment waned among almost all income and age groups, today’s figures showed. The pickup in gasoline prices may have boosted inflation expectations as well. Spending plans were mixed, with fewer Americans saying they expected to purchase autos and more indicating they planned to buy a home.
The percent of respondents who said they expected more jobs to become available in the next six months fell to 15.4 from 17.6 the previous month. The share who said they anticipated fewer employment opportunities rose to 23.4 percent, the highest since November.
The proportion who said they expected their incomes to decrease over the next six months rose to a 10-month high of 16.8 percent from 14.9 percent in July. Some 52.3 percent of consumers said jobs are currently not plentiful.
The percent of American consumers who expected better business conditions in the next six months declined to 16.5 percent in August from 19 percent. Some 17.7 percent say conditions will be worse, the most since October.
Bloomberg Measure
The Conference Board’s measure is in line with the Bloomberg Consumer Comfort Index, which dropped in the week ended Aug. 19 to the lowest level since January. The Thomson Reuters/University of Michigan preliminary August index of consumer sentiment improved after dropping a month earlier to the weakest level of the year.
A decrease in optimism may make it difficult for spending to strengthen. Purchases by consumers rose at a 1.5 percent annual rate in the second quarter, down from a 2.4 percent rate in the previous three months, according to Commerce Department data. An Aug. 30 report may probably show spending climbed in July by the most in five months, economists project.
A pickup in job growth probably helped sustain demand last month. Payrolls increased by 163,000 in July, the most in five months, according to Labor Department figures released Aug. 3. At the same time, the jobless rate rose to a five-month high of 8.3 percent in July.
Stock prices have also risen, easing the sting of higher fuel costs. The S&P 500 has advanced 2.3 percent in August through yesterday and is on pace for its third straight monthly gain.
The average price of a gallon of regular gasoline has climbed 23.5 cents this month to $3.76, according to AAA, the nation’s largest auto club. Since reaching a low of $3.33 on July 1, the average has climbed 43 cents.
Investors buying cashflow simply won’t chase the market higher. As prices move up, cashflow returns drop, and investors quickly lose interest. This refutes the bullish arguments about investor demand driving prices higher. If prices fall, investors will provide support, but they will not be a catalyst for higher prices.
Report: Rising Prices Driving Down Investor Activity
Investor participation in the housing market may be falling off after a promising second quarter, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.
Investor participation dropped drastically in July, reversing a trend of long-term growth in investor purchases of residential properties. According to the report, investor activity in the housing market fell to 21.9 percent of all transactions in July, down from 23.5 percent in June. July’s decrease also established a two-month trend of declines from May’s two-year peak of 25.3 percent.
Real estate agents who responded to the HousingPulse survey said that recent home price gains led to the sharp reversal in investor interest.
Some agents reported the shift in activity is driven by the savvier investors who know when to back off. One agent in Arizona said any participation in July was from “dumb investors” entering the market as “smart” investors leave.
“Investors need a deal. There are not as many opportunities as there was this time last year. It seems all the rookie investors are buying now and paying too much,” said another agent from Florida.
The disappearance of investor activity also reflects a change in the market. According to HousingPulse’s Distressed Property Index, (DPI) the proportion of distressed properties in the housing market fell to 42.2 percent in July from 45.1 percent in June and 46.1 percent in May. The falling distressed inventory may have driven most investors off, the report speculates.
A decline in investor participation was also apparent in the non-distressed market, however, with investor purchases making up an 11.5 percent share of July’s non-distressed sales, a dramatic fall from 14.4 percent in May.
On the other hand, homeowner activity continued to rise in July, with homeowners accounting for 43.5 percent of purchases, up from 42.0 percent in June. Participation by first-time homebuyers stayed fairly flat.
Use of cheap mortgage financing by current homebuyers increased strongly in June and July, but rising mortgage rates may cause problems for demand and prices.
“Overall homebuyer demand and home price appreciation is being driven by historically low interest rates,” said Thomas Popik, research director for Campbell Surveys. “But savvy investors are the canaries in the coal mine-they are warning that if rates rise, the high proportion of distressed properties could once again push home prices down.”
Can we be honest with ourselves and stop using the double, triple dip term?
Dip infers it will be short-lived. “Honey, I’m going for a quick dip in the ocean.” If in reality you were heading on a week long surf trip to Mexico, honey might be a little bit angry.
Double and triple infers we experienced ‘recovery’ and more of whatever we did to create the ‘recovery’ is needed next time. There are headfakes in secular bear markets, downcycles if you will.
Dipping in and out of recession is for people who dont understand that GDP increases are solely inflation. And real GDP is measured by understated CPI figures. No actual recovery in sight any time soon for economy or housing.
Your average consumer doesn’t want to face those realities. They want happy talk about good times to come, even if those good times are an illusion of printed money.
tic…tic…tic…
FHA’s 30x leverage on mortgages is creating a new “subprime” market
For eight of the largest U.S. banks with substantial portfolios of FHA-guaranteed loans on their books, combined 90-day past due delinquencies totaled $79.4 billion at June 30. Of that total, 83%, or $66.0 billion, represented government-guaranteed mortgages.
http://www.creditwritedowns.com/2012/08/fhas-30x-leverage-on-mortgages-is-creating-a-new-subprime-market.html
The upfront cost and ongoing insurance fees charged by the FHA would make a subprime lender blush. They are worse than subprime.
I’m back….
The cynic in me will say that they banks won’t default on these loans, and let the homeowner squat, more of the extend and pretend crap
Or does FHA have a faster foreclosure time lime? Or does the bank want the insurance payout from FHA on the 20% down guarantee? So the bank will foreclose on the loans that come with the federal guarantee versus non-federal guarantee loans? Just some questions in my mind that will affect the rate.
Glad you’re back, Mike. I hope you have fully recovered.
I think the FHA bailout will take the form of a zero percent interest loan to be paid back out of future insurance premium proceeds. The government knows if they wait long enough with the onerous rates they are charging, the FHA will be made whole. As long as they are the only game in town for less than 20% down financing, they can charge whatever they want, and people will line up to pay it.
What Housing Recovery? Distressed Sales Still High, Shadow Inventory Massive
Housing markets seemed to have turned a corner, with Tuesday’s Case-Shiller data adding to the optimism. Home prices have risen for a second consecutive month for the first time since the summer of 2010, but much of this is a consequence of the falling percentage of distressed sales, while prices are still more than 31% of their peaks and may take years to recover. With 11.4 million, or 23.7%, of all residential properties with a mortgage under water, and a shadow inventory worth $246 billion, according to CoreLogic, a true housing recovery is far away.
Tuesday’s Case-Shiller release, with data through June 2012, showed home prices continuing to recover. Both the 10- and 20-city composites finally recorded annual gains (0.1% and 0.5% respectively), prompting index Chairman David Blitzer to say:
“We seem to be witnessing exactly what we needed for a sustained recovery; monthly increases coupled with improving annual rates of change. The market may have finally turned around.”
The report was met with optimism, as it came after improved existing and new home sales, which Wells Fargo’s analysts suggest indicate markets may be “bottoming in July.” Morgan Stanley/Smith Barney’s people also acknowledged the “improving U.S.-housing fundamentals,” while Barclays’ research team now expects home prices to rise 3% on an annual basis in 2012.
There are several reasons to remain skeptical, though, that this recovery will both be swift and will fuel economic growth that will help pull the U.S. farther from the edge of a new recession. Goldman’s economics research team understands that much of the improvement in housing markets can be attributed to a fall in the percentage of distressed transactions, which accounted for 50% of sales in 2009 and has now fallen to 25%. (Read Steve Schaefer‘s piece, Why The U.S. Housing Recovery May Be Due For A Stumble for more on this).
The typical foreclosure discount is on the order of 27%, according to John Campbell, chair of Harvard University‘s economics department. Thus, a falling percentage of distressed sales mean a lower percentage of discounted transactions. The number of distressed sales also affects the size of the foreclosure discount, which in May was reported to be about 20%, according to Goldman. A falling rate of distressed sales provides a double-whammy then, reducing the discount and the number of discounted transactions.
While the number of distressed sales vis-à-vis regular sales has fallen quite dramatically since March 2009, its decline was more moderate from May 2011 to May 2012, when it went from 31% to 25%. The historical average, though, is far away, at about 5%. While Goldman expects the percentage of distressed sales to slowly tend toward this average, they understand this could take many years:
“In our view, returning to a more normal proportion of distressed sales will take several years, given the large number of borrowers with negative equity, the large current delinquency and foreclosure inventory, and the long current foreclosure timelines.”
The so-called pent-up demand is still pent up. Calculated Risk is confused as to why anecdotal surveys do not match the data. Perhaps it’s because the respondents are wishfully imagining demand is increasing when it really is not. Everyone who believes the housing market has bottomed is suffering from the same confirmation bias.
MBA: Mortgage Refinance Activity declines
From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey
The Refinance Index decreased 6 percent from the previous week to its lowest level since May 11, 2012. The seasonally adjusted Purchase Index increased more than 1 percent from one week earlier.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.80 percent from 3.86 percent, with points remaining unchanged at 0.42 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The purchase index has been mostly moving sideways over the last two years.
I’m still puzzling over why the MBA index is moving sideways but the recent Senior Loan Officer survey showed “moderately to stronger” demand for mortgages to purchase homes:
Over half the banks surveyed reported moderately to substantially strong demand for mortgage to purchase homes. It isn’t clear why the MBA index and the Fed survey results are different.
Read more at http://www.calculatedriskblog.com/2012/08/mba-mortgage-refinance-activity-declines.html#pGJYyTI4ZUcjjVhj.99
Just locked a 15-year 3% refi today! Bless ZIRP!
Congratulations! That is awesome.
“See? Proof they are saving the housing market one owner at a time.”
Meanwhile ZIRP is gutting savings, gutting the economy, and debasing the dollar.
Victory for the shortsighted.
Congratulations! You will be very happy with that decision. You will be in a position to move-up far quicker than your cohorts.
Anybody who denies shadow inventory is a moron and should be ignored because they are too stupid to carry on a meaningful conversation.
Do a Google news search on shadow inventory, and a significant portion of the articles will be denials of shadow inventory’s existence, and the rest will downplay its significance. Everyone seems intent on manipulating consumer confidence at the expense of the truth.
I think the shadow inventory is still getting worse. According to the FED, residential loan delinquencies have been increasing since Q3 2011 and its been over 10% since Q3 2009:
http://www.federalreserve.gov/releases/chargeoff/deltop100nsa.htm
I wish banks were forced to mark to market, then we’d all know they are all insolvent and prices might actually reflect people’s income. This is not going to happen though. They donate too much to the political elite.
Thanks for the link. I may make a chart from that.
The major banks are still running a delinquency rate five times normal, yet people deny shadow inventory. Do people really believe we can modify that many loans successfully? Or that we can process that many foreclosures without making prices go back down?
IR,
Every government guaranteed loan modification is a success for the bank. The liability has been successfully transferred from the bank to the taxpayers. From the banks perspective, the only thing that could have gotten better, was to not have any short-term loss in principal reduction but more upfront profit. The banks just need to modify as many as possible before the other shoe drops.
The HAMP program is a boon to them. They get to generate a lot of fees on the refis will simultaneously getting out from under potential losses and liabilities.