Following is a great recap of the turmoil in the mortgagae market as originally distributed by Shane Price with Houston Capital Mortgage.
Where to start? Well, foreclosure filings rose 14% in the second quarter of 2008 from first quarter totals, according to property-information firm RealtyTrac.
More troubling, foreclosures are spreading beyond so-called bubble states – Nevada , California , Florida , Arizona – and beyond economic-disaster states – Ohio and Michigan .
RealtyTrac says that 48 of 50 states and 95 of the nation’s 100 largest metro areas experienced year-over-year increases in foreclosure filings in the second quarter.
More foreclosures will pressure inventory levels on existing homes, where sales continue to slow. Indeed, sales of existing homes slowed in June and hit their lowest level in 10 years, dipping to an annual pace of 4.86 million units, down 2.6% from a pace of 4.99 million units in May, the NAR reported.
New homes sales were also languid, though less so. Sales of new single-family homes dropped 0.6% last month to a seasonally adjusted annual rate of 530,000 units, which is actually better than most expected. The “smart-money” was betting that sales would fall to a 500,000 annual rate.
Unfortunately, homes that are for sale will be more costly to finance. Mortgage rates surged last week to their highest levels this year. Reasons offered for the surge include rising inflation (indicated in last week’s jump in consumer prices) and investor fears over Freddie Mac’s and Fannie Mae’s future. Whatever the reasons, the prime 30-year fixed-rated mortgage averaged 6.77%, the prime 15-year fixed-rate mortgage averaged 6.32%, and the prime 5/1 adjustable-rate mortgage averaged 6.48 percent last week, according to Bankrate.com’s survey.
There was one morsel of good news in last week’s cornucopia of bad. Consumers are feeling a little more chipper. The University of Michigan ’s consumer-sentiment index rose five points to 61.2 in July, after hitting a multi-year low in June, lending some hope that an improving consumer outlook will offer housing some support.
Too Little, and Maybe Too Late
A lot of ink and pixels were dedicated to last week’s House vote to offer $300 billion in assistance to troubled homeowners and to throw government support behind Fannie Mae and Freddie Mac. The bill has won endorsements from key senators in both parties and convinced President Bush to withdraw his long-standing veto threat.
Major provisions of the bill for mortgage markets include permanently increasing the cap on the size of mortgages guaranteed by Fannie Mae and Freddie Mac to a maximum of $625,000 from $417,000.
It would also raise the FHA maximum loan limits for high-cost areas to $625,000. For first-time home buyers, the bill includes a tax refund worth up to 10% of a home’s purchase price but no more than $7,500. That said, the refund really isn’t a refund – it’s more of an interest-free loan, because the “refund” has to be repaid over 15 years in equal installments.
The bill will likely give the mortgage and housing markets an immediate boost, but let’s not get carried away with the back-slapping. Artificial stimulus packages are fickle; you can’t be assured that what you want stimulated is actually being stimulated.
Besides, markets, if left to their own devices, eventually get it right, though sometimes not as quickly as we’d like. But when they do get it right, they tend to get it right on a more permanent footing.
