As been frequently noted in this blog(how did I know?) and Jim's Mortgage Update, the housing market has strengthened throughout 2012. Only given areas of the country(like Northeast) are still suffering depressed values....most of us are seeing upperward pressure on prices.
So now, in Jim's notes, you will see the terms "Savior" attached to the housing industry as relates to the U.S. economy as it struggles with mortgage financing restrictions and uncertainty on the budget agreement. It was bound to happen....good things are continuing to happen!!!
Read and enjoy. Question and contradict(is so inclined).
Keeping you updated on the market!
For the week of
November 19, 2012
MARKET RECAP
All the hype and hoopla that centered on shadow inventory and its ability to depress the housing market earlier this year seems a little overdone in retrospect.
Indeed, shadow inventory has almost become a non-issue these days, and heading into 2013 it will likely become even less of an issue. We say that because the Mortgage Bankers Association reports mortgage delinquencies hit a four-year low in the third quarter. At the same time, the foreclosure inventory rate fell 20-basis points, posting the lowest quarterly drop since the MBA began surveying the market.
The delinquency and foreclosure trend has actually been on the decline since peaking two years ago. We expect it will continue to decline through 2013, and very likely beyond.There are a number of reasons we think distressed properties won't spoil the recovery.
For one, negative equity is declining. Zillow reports that negative equity declined 30% in the third quarter of 2012, the largest percentage decline Zillow has ever reported.
The decline in negative equity is the corollary to rising home prices. Over the past year, we've continually, and almost without fail, reported on rising home prices. Keeping the streak alive, we report this week that Zillow's data show home values rose 1.3% in the third quarter compared to the second quarter, with the national median home price rising to $153,800.
A dearth of inventory will keep home prices rising, and thus further reduce the negative-equity overhang. New-home inventory is at record lows. The National Association of Realtors will report existing-home inventory next week, and most industry watchers are expecting inventory levels will be down sharply year over year in October. Low supply plus rising demand equals rising prices.
The current interest-rate environment should continue to ensure a minimum level of demand going forward. We are all aware that mortgage lending rates are at multi-decade lows, and that's unlikely to change through 2013.
Underwriting is the more pressing issue these days. Lending standards remain tight, particularly with lower-rated borrowers. A less diverse lending environment is one reason they remain restrictive. Private investment has yet to return in mass following the financial-sector meltdown in 2008.
Risk aversion is another reason. Lenders are rightfully concerned with the costs Obamacare will impose on the economy next year. They are also concerned with the fiscal cliff, which would mean tax-rate hikes and spending cuts. It also appears more likely that Europe could fall into recession. If that occurs, the probability rises that the United States could fall into recession too.
The fiscal cliff is the most oppressive concern these days. Democrats and Republicans have attempted to pound out various compromises. We've heard some chatter that the mortgage income tax deduction is on the table. One bipartisan plan would limit the deduction to $25,000 worth of mortgage interest annually. Other proposals include eliminating the deduction for taxpayers earning $250,000 or more, ending the deduction on second homes, and even ending the deduction entirely (this last option is unlikely).
In short, there is a heckuva lot of uncertainty in the financial markets today. Until some of the uncertainty is removed, we can expect mortgage rates to remain low, but we can also expect for underwriting standards to remain elevated.
Economic Indicator Release Date and Time Consensus Estimate Analysis
Existing Home Sales(October) Mon., Nov. 19, 4.8 Million(Annualized) Important.sales momentum, but
10:00am,ET the trend is being held in check
by low inventory.
Home Builder Index(November)Mon., Nov. 19, 42 Index Important. Strengthening
10:00am, ET demand and new construction
projects continue to lift builder
sentiment
Housing Starts(October) Tues., Nov. 20, 835,000 (Annualized) Important.The surge in starts
8:30 am, ET points to housing as a leading
economic driver in 2013.
Mortgage Applications Wed., Nov. 21, None Important.Applications spiked
7:00 am, ET on the return of Northeast
borrowers, but week-to-week
purchase activity remains
volatile
Housing as Savior
Times certainly change. Until early this year, most pundits and commentators were lamenting how housing was a drag on the economy. No more, housing is now looked at in many circles as the savior that will get the economy going. The great investor Warren Buffett, for one, sees housing growth stimulating the economy (and he is investing in housing and banking accordingly).
While its growth has been far from parabolic, housing has been the one constant this year. Equity markets, commodities, Europe, and our own domestic economy have displayed fits of volatility and stagnation. Housing in contrast, has continually pushed forward.
This is very good news, and better than most people appreciate. Residential fixed investment accounted for 0.33% of one percentage point of GDP growth (a sixth of its growth) during the third quarter of 2012, up from 0.19% in the second quarter, and up from 0.03% in the year-ago quarter. Housing is obviously a big contributor to economic growth.
Housing is also a big contributor to consumer confidence. Many people don't understand the stock market or the European debt crisis or the fiscal cliff, but everyone understands housing. As housing goes, so goes consumer confidence. Considering the direction housing is going, that's a strong positive indicator of how things could go in 2013.
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