The glimmer of light that we saw several columns ago amid the economic doom and gloom may be getting brighter. I don’t say this as a contrarian—those who sell when irrational exuberance reigns and buy when everyone is pessimistic—although contrarians can occasionally be right.
No, my pessimism is lifting because real estate in particular is beginning to recover. Not only because existing and new-home sales improved in September, but several states, including California, have recently seen a sharp drop in foreclosures, according to both RealtyTrac and the Mortgage Bankers Association (MBA)
MBA chief economist Jay Brinkman says that 8 states are now above the national delinquency rate of 6.41 percent. California and Florida continue to lead the way with 39 percent of all foreclosures started in the second quarter.
But RealtyTrac just reported a huge drop in new foreclosure filings in California for the second month, partly due to new legislation that requires a 30-day notice to the homeowner before a foreclosure auction can take place.
“We’ve seem sharp declines in new foreclosure filings after legislation mandating delays to the foreclosure process was signed into law in several states—most notably in California, where overall foreclosure activity was down by double-digit percentage points for the second straight month in October, and where default filings were 44 percent below October 2007 levels,” said RealtyTrac CEO James Saccacio.
California’s foreclosures decreased 18 percent in October, but even more remarkable was that the number of foreclosure filings are now down almost 50 percent from the peak reached just this August.
We should also see more improvements in financing when the new conforming loan limits take effect in January, as we said in last week’s column. It allows conforming loan amounts of $625,500 for a single unit up to $1,202,925 for 4 units (owner and non-owner, but with a maximum limit of 10 financed properties and 4 non-owner financed properties) in many California counties. You should call your favorite banker or broker for more details.
The National Association of Realtors’ affordability index has risen 7 percent since May, due to the lower housing prices and falling interest rates. And, last but not least, consumers may have begun spending again. This is after recent news that retail spending had actually decreased for two consecutive months.
September consumer credit increased 3.2 percent after decreasing 2.9 percent in August, with non-revolving loans (e.g., car loans) up 4.4 percent. This means fears that consumer spending had ground to a halt were unfounded. With gas prices below $3 per gallon, we might see a boost to consumer confidence and so a better Christmas than the doomsayers have predicted.
And lastly, the huge amount of fiscal stimulus by the federal government is beginning to take effect. Economist and now Nobel laureate Paul Krugman has stated that consumers need a $600 billion stimulus package to make up for the loss in economic growth to come out of this recession.
The House of Representatives is already considering an additional $300 billion on top of the $150 billion package of rebates given out earlier this year, while Treasury Secretary Paulson is diverting some $60 billion of his bailout plan to bolster consumer loans. That already adds up to $500 billion, which might do the trick.
© Harlan Green 2008