Mortgage Matters----Great Insights

My wonderful cohort, Jim Belote, provides this great update from the mortgage officer's perspective.
Though Zillow's numbers can be a bit off and I don't always give them total reliance, this update provides
a level view of the present market.


   Thanks JIM!!!




Keeping you updated on the market!


For the week of



November 15, 2010



MARKET RECAP



We've stated (repeatedly) our belief that housing prices have stabilized. We might be a member of a dwindling minority, especially after perusing recent data from Zillow, which showed that September home prices depreciated 0.4 percent from August and 4.3 percent year-over-year to a national average of $179,900, marking the 17 th-consecutive quarter of home-price declines.



Delinquencies and foreclosures are obvious variables in Zillow's pricing algorithm, and the data here are equally discouraging. Foresight Analytics expects residential real estate delinquencies to increase again in the third quarter of 2010, with delinquencies rising 0.1 percent from the second quarter to 13.3 percent.



Taking the glass-half-full view, negative news isn't necessarily bad news. To the contrary, it can portend better times ahead, especially if there has been an extended string of bad news, which has certainly been the case with delinquencies and foreclosures. If Zillow's data are accurate and the national market has really seen 17-consecutive quarters of price declines, are we then closer to a top or a bottom? We think bottom. Moreover, price data from other sources – Case/Shiller and FHFA – support our contention.

To further assuage concerns, it's worth remembering that real estate markets are local markets. When local data are aggregated into national numbers, hot spots (cold spots, really) like Phoenix , Las Vegas , Miami , and Orlando skew the national average to make the number meaningless to any particular market. In short, we stick by our expectations of continued price stability for large swaths of the country.

We are less sanguine about price stability in the mortgage market. Mortgage rates continue to hold their historical lows, but the outlook is mixed: some mortgage lenders see lower rates because of less demand and the Federal Reserve's quantitative easing; others see higher rates because of price inflation that quantitative easing could ignite. We list toward the latter group, but that might be due to a bit of wishful thinking on our part. Continued record-low rates are no longer a good thing; they signal that much remains wrong in the world and that private mortgage investors should stay away.

Even if mortgage rates remain low, that doesn't mean that borrowing costs will remain low too. Tim Hood, a partner with the Collingwood Group, made a cogent point in the Wall Street Journal recently. Hood pointed out that the reintroduction of the human element in underwriting, processing, and servicing could result in a “quality tax” of $300 per loan. When costs rise, they invariably manifest in higher prices for the consumer. This is yet another reason why we think it's better for borrowers to act now instead of later.