Posted by Michael A. Kamperman on November 24, 2009
I wish I could say we reached the bottom of the decline in home prices. But wishful thinking is no substitute for a hard look at the latest data. In the third quarter 14.4% of all mortgages are somewhere between 30 days past due to being already in the foreclosure process. The WSJ just reported that 23% of all homeowners with mortgages were underwater. Almost 12% of homeowners have mortgages that are more than 20% higher than the value of their home. In October new home starts dropped almost 10% while existing home sales rose almost 10%. That discrepancy is due entirely to the November 30 expiration of the first time homebuyers’ tax credit, which has now been extended. Purchase mortgage applications for homes plunged in November without the aid of the tax credit mirroring the October new home starts. Despite the report from Case/Shiller that home prices rose in the second and third quarter of 2009, a stunning 11% of 2009 home buyers are already underwater on their mortgages. So we enter the fourth quarter of 2009 with one in four mortgages underwater, one in seven mortgages 30 days or more delinquent, and one in ten mortgages to purchase a home in 2009 already underwater. Meanwhile, GDP for the third quarter has been revised down to an annualized growth rate of 2.8%. More significantly the inflation component of GDP was revised down to .5% from .8%. And one in six Americans are unemployed or underemployed and that number continues to rise. Additionally, tightening credit standards by FHA and other key mortgage lenders are further decreasing the pool of potential buyers. Against this backdrop home prices will continue to fall as desperate sellers continue to out number potential buyers. Home prices will not stabilize until supply and demand is balanced.
Most of us interpret stories easier than we interpret statistics. My wife told me a PHD student has moved back to Waco from Seattle to finish her dissertation. She said the job market was so bad in Seattle that a waitress position she applied for had one hundred applicants, mostly from people with Masters Degrees, and only one person received an interview. The 99 people who did not find a job will not be buying a home and some will default on the mortgage they already hold. And really, just what type of home can a waitress buy in Seattle anyway?
Washington will need to provide much more help to the housing market than it has so far. The early rumor is the Federal Reserve is considering extending its quantitative easing program by continuing to purchase agency mortgages in order to keep interest rates low. This would be a positive for housing as will be the recently extended first time homebuyers’ tax credit, which now includes a $6,500 tax credit for those that just sold a home. But low interest rates don’t help those with mortgages underwater refinance and tax credits don’t help unemployed or part-time workers buy a home. A simple solution would be for the federal government to allow everyone who is current on their mortgage to refinance at 4% without a credit report, appraisal, or new title policy. Since the federal government already is on the hook for over 80% of all mortgages this would not significantly increase potential losses to taxpayers. Additionally, lowering payments will lower the number of defaults and the enhanced cash flow in consumers pockets will increase consumer spending. Fewer foreclosures and more jobs will lower the burden on taxpayers, not increase it.
Posted by Michael A. Kamperman on August 21, 2009
Over 1 in 8 mortgages in America are now 30 days or more past due. The Mortgage Bankers Association has reported that 13.2% of all mortgages are more than 30 days past due, which means people owe two or more payments. So who are these people? Mainly they are parents with children who are still living at home who are not wealthy. While exact data is not available, it is reasonable to assume that perhaps up to 1 in 5 families with children living at home and classified as lower to upper middle class are delinquent on their mortgage. How is this possible if only 1 in 8 people are delinquent on their mortgages? Well, currently about 66% of all households own a single family home. About 83% of married couples own a home. Most of the truly poor people in America do not own a home, although recently some did. Many of the non-poor married couples who do not own a home consist of those recently married for the first time still renting and those near the end of life who are living in assisted living situations. Most of the others are so mobile they do not purchase a home, or they live in natural rent areas like New York City. Basically, it is the dream of most middle class married couples to purchase a home. The data that 1 in 8 mortgages are delinquent is for all mortgages, whether they were made last month or 29 years and 11 months ago. The vast majority of mortgages owed by people who have been in their homes for 15 or more years are not delinquent. Most of the married couples who have been in their homes for 15 or more years have seen their children grow up, move out, and in some cases move back in. Basically, the vast majority of troubled mortgages are to people who have been in their homes for less than 15 years. Most middle class families with children living at home have been in their homes for less than 15 years.
Yet middle class families with children are not only reeling from significant price depreciation on their properties. They are also reeling from suffering a disproportionate blow from the unemployment crisis. Most employers that have laid off workers have based their decisions on seniority. Therefore, job losses are much higher amongst people in their 20’s and 30’s than it is for those in their 40’s and 50’s on average. So the crisis is not only most acute amongst families with all ages of children living at home, but especially amongst families with younger children.
Sadly, Washington seems oblivious to the crisis. Today Ben Bernanke, who was our last and best hope to give the economy the jolt it so desperately needs, predicted the economy would soon return to growth. Apparently Fed Chair Bernanke is too focused on Wall Street and not nearly focused enough on Main Street. How will a world economy that is dependent on the spending patterns of U.S. households with children return to growth when 1 in 5 of these households are struggling to hold on? What kind of consumer confidence can exist in middle class families not affected by the crisis when all of them know a close personal friend or family member that has lost their job? At this point we are back to President Obama, who desperately wants to be re-elected in 2012, as our last best hope. If I were him I would refinance every existing mortgage in America at 4% without an appraisal, a credit check, a new title policy, or a verification of income. And for those people that are delinquent I would simply add the delinquent payments to the mortgage balance and give them a chance to start over. All of the money for existing mortgages is already out the door and in one way or another the American taxpayer is already on the hook for over 80% of all mortgages. We don’t need change we can believe in, we need leadership we can believe in.
