Mortgage Delinquencies Close to Pre-Recession Lows.

The Mortgage Corner

Calculated Risk reports Black Knight Financial Services (BKFS) released their Mortgage Monitor report for February on Monday. According to BKFS, 5.36 percent of mortgages were delinquent in February, down from 5.56 percent in January. BKFS reported that 1.58 percent of mortgages were in the foreclosure process, down from 2.22 percent in February 2014. This is approaching historical lows for delinquencies, and should mean a very good year for housing.

Graph: Calculated Risk

February’s delinquency rate, while still 17 percent above the pre-crisis norm of 4.6 percent, was down 49 percent from its January 2010 peak of 10.6 percent. And at 1.58 percent, the foreclosure rate remained 175 percent above precrisis norms, but was still down 63 percent from its October 2011 peak, reports Black Knight.

This breaks down as:

· 1,646,000 properties less than 90 days past due, but not in foreclosure.

· 1,067,000 properties that are 90 or more days delinquent, but not in foreclosure.

· 800,000 loans in foreclosure process.

It also means last week’s jump in Pending Home Sales was no fluke, as lower delinquency rates mean more homes with positive equity are increasing housing inventories. The National Association of Realtors Pending Sales Index is at its highest level since June 2013 (109.4), has increased year-over-year for six consecutive months and is above 100 – considered an average level of activity – for the 10th consecutive month.

So what will happen in 2015? Mortgage applications have also jumped, particularly purchase applications, as we said last week. "There was a broad based increase in mortgage applications last week (April 1) relative to the week prior. The increase in purchase volume was led by a nearly 6 percent increase in both conventional and government markets, perhaps signaling that households are finally ready to begin the home-buying season," said Lynn Fisher, MBA's Vice President of Research and Economics.

But that is largely because of still record low interest rates. The Fed wants to begin to raise interest rates sometime this year, but growth has slowed recently, due to the another severe winter, and a soaring dollar value that hurts exports. So the latest words from the Fed Governors are that low interest rates should be around for a while longer.

New York Fed Governor William Dudley said as much recently. “…as Chair Yellen remarked in her most recent press conference, removal of “patient” from the statement does not indicate that we will be “impatient” to begin to normalize monetary policy.  Rather, the timing of normalization will be data dependent and remains uncertain because the future evolution of the economy cannot be fully anticipated.”

The housing market will have a very good year, according to Core Logic’s 2015 housing forecast. “The U.S. economy is poised to grow by close to 3 percent in 2015, generating a 3- to 3.5-million-person gain in employment,” said Core Logic chief economist Frank Nothaft. “This job growth, coupled with very low mortgage interest rates and some easing in credit access, is expected to propel both owner-occupant and rental housing activity this year. This heightened level of housing demand should translate to the best home sales market in eight years.”

Let us hope the Fed remains patient for first-time homebuyers that require affordable loan rates, in particular, and are just now entering the housing market.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Mortgage Delinquency and Foreclosure Rates Lowest Since 2007

The Mortgage Corner

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 5.85 percent of all loans outstanding at the end of the third quarter of 2014. This is approaching the historical average of 4.25 percent with those eastern and Midwestern states that conduct judicial foreclosures lagging the mostly western states that conduct Trust Deed auctions in clearing their books of delinquent loans.

The delinquency rate decreased for the sixth consecutive quarter and reached the lowest level since the fourth quarter of 2007. Whereas the delinquency rates for Fannie Mae and Freddie Mac are even lower—2.05 percent for “seriously delinquent” mortgages more than 90 days late in payments.

Graph: Calculated Risk

So it is another sign of the housing recovery. All areas of distress are lower, and housing prices continue to rise, though more slowly than last year. Housing price for homes with Fannie Mae guaranteed loans are up 5.9 percent YoY, and 6.1 percent for Freddie Mac guaranteed loans.

“Delinquency rates and the percentage of loans in foreclosure fell to their lowest levels since 2007,” said Mike Fratantoni, MBA’s chief economist. “We are now back to pre-crisis levels for most measures. Foreclosure starts were unchanged on a seasonally adjusted basis, but increased slightly in the raw data. Given that this measure reached the lowest level in eight years last quarter, and given the continued decline in delinquency and foreclosure inventory rates, we expect that the increase in the unadjusted starts rate is just regular seasonal fluctuation.”

The problem is mainly in the eastern states that have judicial foreclosures which must be processed through the courts, which is a very time-consuming process. For instance, Nevada is the only non-judicial state in the top 10, and this is partially due to state laws that slow foreclosures (D.C added some new foreclosure mediation requirements).

The top states are New Jersey (7.96 percent in foreclosure, down from 8.10 percent in Q2), Florida (6.12 percent), New York (5.72 percent) and Maine (4.29 percent).  Former bubble states California (1.05 percent) and Arizona (0.85 percent) are now far below the national average by every measure.

Graph: Calculated Risk

This graph that dates from 2006 shows the difference. The blue line charts Judicial foreclosures (blue line) down to 4.20 percent of inventories, while Non-judicial foreclosures (dotted blue line) have fallen to 1.27 percent on inventories.

And interest rates are back to historical lows with ultra-low inflation. Thirty-year conforming fixed rates are now 3.75 percent in California, for instance. And such low inflation could be around for years to come, as there is oversupply in most commodities, including oil, that is feeding the deflationary environment.

This is good news for the housing market and real estate in general, as it makes housing more affordable for even entry-level buyers who have been priced out of the housing market during this recovery.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Retail Sales, Consumer Sentiment Boosting Holiday Cheer

Popular Economics Weekly

Retail Sales are growing again, and U. of Michigan survey of consumer sentiment is also spiking at the right time of year for holiday sales. That’s because job openings and hires in the September JOLTS report are bringing US closer to full employment. This is especially in some high growth areas of the country, such as California’s Silicon Valley, where unemployment rates have dropped to the low 4 percent range in September.

Graph: Calculated Risk

Retail sales ex-gasoline surged by 5.1 percent on a Year-over-Year basis--4.1 percent for all retail sales—which is somewhat misleading because sales aren’t adjusted for inflation, which has been falling. Retail outlets now routinely offer 20 percent discounts for goods of all kinds, except for luxury goods, due to depressed household incomes. So sales volumes’ have probably been rising faster than the indicators.

Fallen incomes have been the overall problem, and the reason for the slow recovery, since lower incomes depress prices which leads to decreased demand for those goods and services. But the latest JOLTS report is heartening. There were 4.7 million job openings on the last business day of September, barely changed from 4.9 million in August, but the Quits and Hiring levels are surging.

Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs, and is a major employment  indicator liked by Fed Chairman Janet Yellen. The number of quits increased from 2.5 million in August to 2.8 million in September. This was the highest level of quits since April 2008. And companies hired 5.03 million people in September, which is the highest number since December 2007, just as the Great Recession started.

The following graph from Calculated Risk shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Lastly, the preliminary Reuters / University of Michigan consumer sentiment index for November was at 89.4, up from 86.9 in October. This was above the consensus forecast of 87.5 and is at the highest level since 2007 in this graph that dates back to 1980.  So we can see that it has yet to climb above 90 to reach sentiment that prevailed during full employment periods that prevailed especially during the 1990s.

Graph: Calculated Risk

So once again, we are seeing the Goldilocks economy at work. It’s not running too hot (high inflation), or too low (there is good job creation). It is household incomes that need to rise, which should happen as we creep towards full employment. Full employment won’t be reached until the unemployment rate is in the 4 percent range these days, given the 11.1 million in underemployed and unemployed workers looking for work or wanting full time jobs.

That’s why most economists aren’t predicting that full employment will be achieved until sometime in 2016.  Guess what else is happening in 2016!

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Pending-Home Sales Decline Slightly

The Mortgage Corner

The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 1.0 percent to 104.7 in August from 105.8 in July, and is now 2.2 percent below August 2013 (107.1). Despite the slight decline, the index is above 100 – considered an average level of contract activity – for the fourth consecutive month and is at the second-highest level since last August.

Lawrence Yun, NAR chief economist, said contract signings are holding steady and fewer distressed sales and less investor activity is likely behind August’s modest decline. “Fewer distressed homes at bargain prices and the acknowledgement we’re entering a rising interest rate environment likely caused hesitation among investors last month,” he said. “With investors pulling back, the market is shifting more towards traditional and first-time buyers who rely on mortgages to purchase a home.”

And the S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 5.6 percent annual gain in July 2014. The 10- and 20-City Composites posted year-over-year increases of 6.7 percent.

Graph: Calculated Risk

Data through July 2014 show a significant slowdown in price increases. Nineteen of the 20 cities saw lower annual returns in July. Las Vegas, Miami and San Francisco were the only cities to report double-digit annual gains. Cleveland’s rate remained unchanged at +0.9% for the 12 months ending July 2014.

Las Vegas rose 12/8 percent, Miami 11 percent, and San Francisco 10.3 percent. The PHSI in the Northeast slipped 3.0 percent to 86.5 in August, but is still 1.6 percent above a year ago. In the Midwest the index fell 2.1 percent to 102.4 in August, and is 7.6 percent below August 2013.

Pending home sales in the South decreased 1.4 percent to an index of 117.0 in August, unchanged from a year ago. The index in the West rose for the fourth consecutive month (2.6 percent) in August to 102.1, but still remains 2.6 percent below August 2013.

The major reason for less investor demand is the fall in foreclosures and delinquent mortgages, as we said. Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in July to 2.00 percent from 2.05 percent in June. The serious delinquency rate is down from 2.70 percent in July 2013, and this is the lowest level since October 2008.

Freddie Mac also reported that the Single-Family serious delinquency rate declined in July to 2.02 percent from 2.07 percent in June. Freddie's rate is down from 2.70% in July 2013, and is at the lowest level since January 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Graph: Calculated Risk

“The employment outlook for young adults is brightening and their incomes³ finally appear to be rising,” said Yun. “Jobs and income gains will help repay student debt and better position first-time buyers, setting the stage for improved sales growth in upcoming years.” 

In fact, overall consumer incomes are rising. Personal income growth posted a 0.3 percent gain in August, following a 0.2 percent rise in July. The latest number matched expectations for a 0.3 percent advance. The wages & salaries component was even stronger with a 0.4 percent boost, following a 0.2 percent increase the month before.

Graph: Econoday

Personal spending jumped 0.5 percent after no change in July, while there was no increase in the PCE inflation index at all, mainly due to falling gas prices. Strength was in the durables component which jumped 1.8 percent after no change in July. August reflected a jump in auto sales. Nondurable spending declined 0.3 percent after no change in July. Services jumped 0.5 percent in August after being unchanged the month before.

And with interest rates falling again—the 30-yr conforming fixed rate is back to 3.75 percent with 0 origination points—more first-timers in particular can afford to buy homes. We are of course speaking of the 18 to 35-yr olds of the so-called millennial generation who have taken longer to both find jobs and leave their parents’ home.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Pending Sales Up, Mortgage Delinquencies Down

The Mortgage Corner

U.S. home buyers signed more contracts to buy existing homes in July, rebounding from a drop in June. This is in line with declining delinquency and foreclosure rates that portend a healthy real estate market for the rest of this year, and maybe into next year, if interest rates hold at their current lows. Today’s 30-year fixed conforming rate has fallen to 3.75 percent for 1 origination point in California.

The National Association of Realtors' monthly Pending Home Sales index rose 3.3 percent in July over June but is still 2.1 percent below its level in July 2013. It’s rising again because both consumer confidence measures have been rising of late, buoyed by rising incomes and low inflation.

Graph: Econoday

"Interest rates are lower than they were a year ago, price growth continues to moderate and total housing inventory is at its highest level since August 2012," said Lawrence Yun, NAR's chief economist. "The increase in the number of new and existing homes for sale is creating less competition and is giving prospective buyers more time to review their options before submitting an offer."

Graph: Calculated Risk

And consumer sentiment is up in the final August reading, to 82.5 vs 79.2 at mid-month, along with the Conference Board’s Confidence index, the second reading of consumer optimism that is rising this week. The gain is centered in current conditions as it was in Tuesday's consumer confidence report, and underscores the improvement this month in unemployment claims, which once again fell below 300,000 for the second consecutive week. The current conditions component in this report is at 99.8 vs 99.6 at mid-month and 97.4 in final July. A rise in current conditions points to general month-to-month strength for consumer activity.

Graph: Calculated Risk

Lastly, home prices continue to rise and delinquencies to fall. A total of ​​3,785,000 loans were delinquent or in foreclosure in July. This is down from 4,599,000 in July 2013. Calculated Risk reports Black Knight Financial Services (BKFS) released their Mortgage Monitor report for July today. According to BKFS, 5.64 percent of mortgages were delinquent in July, down from 5.70 percent in June. More importantly BKFS reports that 1.85 percent of mortgages were in the foreclosure process, down from 2.82 percent in July 2013.

Both delinquencies and foreclosures are finally approaching historical levels, which means that housing sales—including new-home sales will do the same. The rate of monthly new problem loans has now fallen to 2005-06 levels, reports BKFS. Many foreclosure sales were held up by lengthy court proceedings in many of the eastern and Midwestern state that did judicial sales, rather than the western states with Trust Deed liens that could be auctioned off on courthouse steps.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Lower Household Debt, Housing, Now Boosting Growth

The Mortgage Corner

In another sign that this could be a better growth year, builder confidence in the market for newly built, single-family homes rose two points to 55 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for August, and housing starts surged. This third consecutive monthly gain brings builder optimism to its highest level since January, and housing starts to the highest level in 8 months.

And housing has been the missing component of GDP growth since the end of the Great Recession, which is another sign that 3 percent plus GDP growth is in the cards for the rest of this year and maybe next year as household formation (mainly the millennial generation of 18 to 36 year-olds finally leaving home) returns to normal levels.

Graph: Wrightson ICAP

All three HMI components posted gains in August. The indices gauging current sales conditions and expectations for future sales each rose two points to 58 and 65, respectively. The index gauging traffic of prospective buyers increased three points to 42.

"Each of the three components of the HMI registered consecutive gains for the past three months, which is a positive sign that builder confidence appears to be firming following an uneven spring," said NAHB Chief Economist David Crowe. "Factors contributing to this rise include sustained job growth, historically low mortgage rates and affordable home prices, which are helping to unleash pent-up demand."

Based in part on the strength in the NAHB index last month, Wrightson ICAP, a leading financial market data provider, expects a third straight solid increase in single-family building permits in today’s July report. Today’s NAHB data suggest that the uptrend in permits will continue into August.

And sure enough, U.S. housing starts jumped 15.7 percent in July, hitting the highest level in eight months. The 1.09 million annual rate of new housing starts topped economist expectations of 975,000. And permits for new construction, a sign of future demand, rose 8.1 percent to an annual rate of 1.05 million from 973,000 in June.

Some lenders are getting around the tight lending conditions and higher risk fees imposed by the Fed on conventional mortgages guaranteed by Fannie Mae and Freddie Mac, in particular. For instance, they are beginning to offer interest only mortgages again, though borrowers have to be qualified at the fully amortized interest rate, rather than the lower interest only payment.

And, the July 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices showed a continued easing of lending standards and terms for many types of loan categories amid a broad-based pickup in loan demand. “Although many banks reported having eased standards for prime residential real estate (RRE) loans,” said the report, “respondents generally indicated little change in standards and terms for other types of loans to households.”

However, a few large banks had eased standards, increased credit limits, and reduced the minimum required credit score for credit card loans. Banks also reported having experienced stronger demand over the past three months, on net, for many more loan categories than on the April survey.

The good news, though, was that many of the new Quality Mortgage standards imposed by the CPFB (i.e., 43 percent maximum debt-to-income ratios, no interest only provisions) don’t apply to GSE guaranteed mortgages, if they meet the stricter conforming underwriting criteria.

What all this means is that banks are willing to lend again, which should put some of that cash savings’ hoard back to work that is held by banks and wealthy individuals. Market Watch’s Rex Nutting has reported on this extensively.

Graph: Marketwatch

“The majority of Americans are doing their patriotic bit, spending nearly everything they earn,” writes Nutting. “ A recent report from the Fed showed that little more than a third of families are able to save any money at all after they pay their bills each month. More than 60 percent say they couldn’t come up with $400 in an emergency without borrowing or pawning something.”

The bottom line is that most people are saving next to nothing, while just a few are saving a large amount of their personal disposable income (i.e., after taxes). A recent bankrate.com survey found that the top 1 percent save some 36 percent of their income, whereas the overall personal savings rate for all Americans is still not much more the 5 percent at present.

It speaks to the unequal income distribution since the end of the Great Recession, with lower and middle class income earners actually losing income—in part due to the housing bust—and those able to profit from the rise in financial markets garnering almost 100 percent of the income gain since then. Those who do save are saving a ton — more than $1.2 trillion a year of the $10.8 trillion held in financial assets, rather than investing in productive capacity.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Housing Inventories Continue Increase

The Mortgage Corner

Calculated Risk and Housing Tracker report that existing-home for sale inventories have increased 4.7 percent in February. It is good news for those who worry that the lack of inventory will hold back existing-home sales this year.

Graph: Calculated Risk

The red line denotes 2014 inventory from Housing Tracker’s Department of Numbers. California cities led the increases, with San Francisco inventory up 7.1 percent, San Jose + 8.6 percent, and Sacramento + 8.8 percent. And as of February 10, San Francisco had the highest weekly price increase of 4.9 percent. Thank you, Silicon Valley, as such high-tech startups as Twitter are headquartered in San Francisco.

This should mean price increases will slow, however, as more supply comes on the market, and default ratios continue to decline. The median asking price for homes in the US peaked in June 2006 at $319,459 and is now 21.1 percent lower. From a low of $211,844 in January 2011, the median asking price in the US has increased by $40,327 (19.0 percent), says Housing Tracker.

Tracking total distressed sales is the best way to determine how quickly housing is recovering from the Great Recession. And California’s distressed sales have dropped sharply in a year, down to 22.2 percent of sales in December 2013, vs. 42.5 percent in December 2013, according to Calculated Risk. Sacramento, noted for overbuilding even in good years, had the sharpest drop with total distressed sales down to 22.2 percent of sales in Dec. 2013, vs. 51.5 percent in December 2012.

However, the NAR’s Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 8.7 percent to 92.4 in December from a downwardly revised 101.2 in November, and is 8.8 percent below December 2012, as we said last week. The data reflect contracts but not closings, and are at the lowest level since October 2011, when the index was 92.2.

Graph: NAR

But we believe with the percentage of conventional (vs. distressed) sales’ inventories increasing, existing-home sales will pick up in 2014. And if not, then new-home sales will take up the supply slack, with new-home building permits issued increasing close to 1 million annually.

Sales of newly built, single-family homes fell 7 percent to a seasonally adjusted annual rate of 414,000 units in December, according to newly released figures from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Despite the monthly drop, home sales in 2013 were up 16.4 percent over the previous year. But several factors seem to be slowing down new-home sales.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Mortgage Delinquencies Continue to Decline

The Mortgage Corner

The good news is that foreclosure rates continue to fall, though delinquencies more than 90 days late are fluctuating with the season, according to Lender Processing Services (LPS) in their Mortgage Monitor report for September. According to LPS, 6.46 percent of mortgages were delinquent in September, up from 6.20 percent in August. But LPS reported that 2.63 percent of mortgages were in the foreclosure process, down from 3.86 percent in September 2012, in this graph that begins in June 1995.

This is great news, and due mainly to the increase in housing values that has allowed many homeowners to either refinance or sell their homes.

Graph: Calculated Risk

This gives a total of 9.03 percent delinquent or in foreclosure. It breaks down as, according to Calculated Risk:
• 1,935,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,331,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,328,000 loans in foreclosure process.

Meanwhile, CoreLogic reports that home prices nationwide, including distressed sales, increased 12 percent on a year-over-year basis in September 2013 year over year. This change represents the 19th consecutive monthly year-over-year increase in home prices nationally. On a month-over-month basis, including distressed sales, home prices increased by 0.2 percent in September 2013 compared to August 2013.

Graph: Calculated Risk

Excluding distressed sales, home prices increased on a year-over-year basis by 10.8 percent in September 2013 compared to September 2012. On a month-over-month basis, excluding distressed sales, home prices increased 0.3 percent in September 2013 compared to August 2013. Distressed sales include short sales and real estate owned (REO) transactions.

The bottom line is that housing values should continue to increase, in spite of the shutdown, because overall business activity continues to improve in both the manufacturing and non-manufacturing (service industries) sectors. The October Purchasing Managers’ Non-Manufacturing Business Activity Index increased to 59.7 percent, which is 4.6 percentage points higher than the 55.1 percent reported in September, reflecting growth for the 51st consecutive month. Though the New Orders Index decreased by 2.8 percentage points to 56.8 percent (maybe because of the government shutdown), the Employment Index increased 3.5 percentage points to 56.2 percent, indicating growth in employment for the 15th consecutive month.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

Mortgage Delinquencies Down, Equity Higher

Financial FAQs

According to the second quarter Zillow Negative Equity Report, the national negative equity rate continued to fall in the second quarter, dropping to 23.8 percent of all homeowners with a mortgage from 25.4 percent in the first quarter of 2013. The negative equity rate has been continually falling for the past five quarters.

More good news was that real GDP growth for the second quarter was raised to an annualized rate of 2.5 percent compared to the initial estimate of 1.7 percent and compared to a fourth quarter rise of 1.1 percent. Expectations were for 2.2 percent.

Graph: Econoday

Final sales of domestic product showed a revised gain of 1.9 percent versus the advance estimate of 1.3 percent. This series increased 0.2 percent in the first quarter. Final sales to domestic producers (which exclude net exports) was nudged down to 1.9 percent versus the initial estimate of 2.0 percent. This followed a 0.5 percent gain in the first quarter.

In the second quarter of 2013, more than 805,000 American homeowners were freed from negative equity. However, more than 12 million homeowners with a mortgage remain underwater. Moreover, the effective negative equity rate nationally — where the loan-to-value ratio is more than 80 percent, making it difficult for a homeowner to afford the down payment on another home — is 41.9 percent of homeowners with a mortgage.

While not all of these homeowners are underwater, they have relatively little equity in their homes, and therefore selling and buying a new home while covering all of the associated costs (real estate agent fees, closing costs and a new down payment) would be difficult. Of all homeowners – roughly one-third of homeowners do not have a mortgage and own their homes free and clear – 16.7 percent are underwater.

Graph: Zillow

Figure 3 shows the loan-to-value (LTV) distribution for homeowners with a mortgage from 2012 Q2 to 2013 Q2. Even though many homeowners are still underwater and haven’t crossed the 100 percent LTV threshold to enter into positive equity, they are moving in the right direction. The good news is that with these high rates of appreciation negative equity has been reduced at a fast pace in the near-term (this will change as home value appreciation moderates later on this year and into the next, as the current rates are not sustainable).

Over the last year Phoenix’s negative equity rate dropped by 20.4 percentage points, Las Vegas’ dropped by 20.1 percentage points and Sacramento’s dropped by 17.7 percentage points (Q2 2012-Q2 2013). However, nationally the effective negative equity rate remains very high at 41.9 percent. In a move-up market, homeowners with less than 20 percent equity will effectively still be “locked” into negative equity. On average, a U.S. homeowner in negative equity owes $74,700 more than what their house is worth, or 42.3 percent more than the home’s value. While roughly a quarter of homeowners with a mortgage are underwater, 92 percent of these homeowners are current on their mortgages and continue to make payments.

Almost half of the borrowers with negative equity have a LTV of 100 percent to 120 percent (the light red columns). Most of these borrowers are current on their mortgages - and they have probably either refinanced with HARP or the loans are well seasoned (most of these properties were purchased in the 2004 through 2006 period, so borrowers have been current for eight years or so). In a few years, these borrowers will have positive equity.

The key concern is all those borrowers with LTVs above 140 percent (about 8.7 percent of properties with a mortgage according to Zillow). It will take many years to return to positive equity ... and a large percentage of these properties will eventually be distressed sales (short sales or foreclosures).

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

Mortgage Delinquencies Continue Decline

The Mortgage Corner

Mortgage delinquencies and foreclosures continue to decline. According to Lender Processing Services (LPS), 6.08 percent of mortgages were delinquent in May, down from 6.21 percent in April, while 3.05 percent of mortgages were in the foreclosure process, down from 4.12 percent in May 2012.

This was the largest drop in delinquencies in 11 years, and gives a total of 9.13 percent delinquent or in foreclosure. It breaks down as:
• 1,708,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,335,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,525,000 loans in foreclosure process.

Graph: Calculated Risk

Delinquencies are down more than 15 percent since the end of December 2012, coming in at 6.08 percent for the month. As LPS Applied Analytics Senior Vice President Herb Blecher explained, much of this improvement is supported by the fact that new problem loan are approaching the pre-crisis average.

“Though they are still approximately 1.4 times what they were, on average, during the 1995 to 2005 period, delinquencies have come down significantly from their January 2010 peak,” Blecher said. “In large part, this is due to the continuing decline in new problem loans -- as fewer problem loans are coming into the system, the existing inventories are working their way through the pipeline. New problem loan rates are now at just 0.73 percent, which is right about on par with the annual averages during 2005 preceding.

It has to be why consumer spending is in effect soaring. Consumers were out in force in May as consumer credit rose a huge $19.6 billion. Revolving credit jumped $6.6 billion for the largest gain since May last year and the second largest of the recovery. The gain points to a jump in credit card use which, if extended, would be a big plus for retailers. It hasn’t increased at all for most of the year, until now.

Graph: Econoday

Non-revolving credit also jumped in the month, up $13.0 billion for yet another outsized gain that reflects both strong car sales but also gains in the student loan component that are tied in part to ongoing government acquisitions of student loans from private lenders, acquisitions that do not necessary reflect current student borrowing.

So the wealth effect from more jobs and rising housing prices seems to be taking hold. That is why delinquencies have been declining, in the main. This is while the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) showing some 3.828 million new job openings in June, and 4.4 million new jobs created.

Graph: Econoday

Both hires and separations are oscillating upward with hires running a little higher than separations. In May, there were 4.441 million hires versus 4.395 million the month before. There were 4.323 million total separations in the month of May-slightly up from 4.287 million in April. The separations rate was 3.2 percent. Total separations include quits, layoffs and discharges, and other separations.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

Existing-Home Sales, Inventories Climbing

The Mortgage Corner

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.6 percent to a seasonally adjusted annual rate of 4.97 million in April, reports the National Association of Realtors. This could be a trend, as housing inventories are also increasing, while foreclosure rates continue to fall, allowing more homes on the market. Sales activity is 9.7 percent above the 4.53 million-unit level in April 2012.

Graph: Calculated Risk

Total housing inventory at the end of April rose 11.9 percent, a seasonal increase to 2.16 million existing homes available for sale, a 5.2-month supply at the current sales pace, compared with 4.7 months in March. Listed inventory is 13.6 percent below a year ago, when there was a 6.6-month supply, with current availability tighter in the lower price ranges. Inventories are improving, but more homes need to be available for sale to continue the upward trend.

Lawrence Yun, NAR chief economist, said the market is solidly recovering.  “The robust housing market recovery is occurring in spite of tight access to credit and limited inventory.  Without these frictions, existing-home sales easily would be well above the 5-million unit pace,” he said.  “Buyer traffic is 31 percent stronger than a year ago, but sales are running only about 10 percent higher.  It’s become quite clear that the only way to tame price growth to a manageable, healthy pace is higher levels of new home construction.”

Meanwhile, according to the First Look report for April by Lender Processing Services (LPS), the percent of loans delinquent decreased in April compared to March, and declined about 10 percent year-over-year, reports Calculated Risk. Also the percent of loans in the foreclosure process declined further in April and were down almost 25 percent over the last year.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.21 percent from 6.59 percent in March. Note: the normal rate for delinquencies is around 4.5 to 5 percent. The percent of loans in the actual foreclosure process declined to 3.1 percent in April from 3.37 percent in March, but that is still higher than pre-recession levels.

One danger signal to a continued housing recovery are rising mortgage rates, however. They have been rising from as low as 3.25% for the conforming 30-year fixed rate to 3.625 percent today.  And this has caused mortgage applications to drop. The Refinance Index decreased 12 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier.

“Mortgage rates increased to their highest level since March last week, leading to the largest single week drop in refinance applications this year,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “The refinance index has fallen almost 19 percent over the past two weeks and is back to its lowest level since late March. Purchase activity declined over the week but is still running about 10 percent above last year’s pace at this time.”

Given consumers’ slow growing incomes, such low interest rates have been the main driver of housing sales. We can only hope the Federal Reserve continues its Quantitative Easing purchases of securities to keep interest rates low enough for housing to fully recover.

Harlan Green © 2013

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Saving Fannie and Freddie—Part II

Financial FAQs

The Federal Housing Finance Authority that supervises the so-called Government Supervised Enterprises (GSE), now including Fannie Mae and Freddie Mac, just announced restrictions that not only weaken Fannie and Freddie’s mandate, but the mortgage and housing markets in general. The FHFA just announced that it will no longer allow Fannie and Freddie to purchase or guarantee so-called “non-qualified” mortgages with more than 30 years amortization or that have interest only payments, among other restrictions.

Fannie and Freddie’s mission is to “Ensure that the housing GSEs operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment”. So why has it just made a ruling that will restrict their ability to be the most “reliable source of liquidity and funding”, and so real estate in general?

FHFA’s answer is the “Adoption of these new limitations by Fannie Mae and Freddie Mac is in keeping with FHFA’s goal of gradually contracting their market footprint and protecting borrowers and taxpayers,” said the announcement.

Yet Fannie Mae and Freddie Mac are the gold standard for mortgage underwriting, with the toughest qualification criteria, which is why these GSEs have the lowest default rates—some 3.13 percent vs. 6.7 percent for all private label mortgages, as I said in a past column (Saving Fannie and Freddie). That means first time home buyers and those with lower incomes will have to depend on portfolio lenders for those programs. These lenders therefore tend to use weaker qualification criteria and so either have to keep those mortgages on their books, or who package them as less credit worthy securities.

So Fannie and Freddie are the most “reliable source of liquidity and funding for housing”. There are really no other viable mortgage programs to sustain the housing market, in particular. They now guarantee some 90 percent of mortgage originations precisely because private label lenders have not come back into the market, even as housing prices have risen.

FHFA’s actual announcement said, “Beginning January 10, 2014, Fannie Mae and Freddie Mac will no longer purchase a loan that is subject to the “ability to repay” rule if the loan:

· is not fully amortizing,

· has a term of longer than 30 years, or

·includes points and fees in excess of three percent of the total loan amount, or such

other limits for low balance loans as set forth in the rule.

“Effectively, this means Fannie Mae and Freddie Mac will not purchase interest-only loans, loans with 40-year terms, or those with points and fees exceeding the thresholds established by the rule, said its announcement.”

Yet both interest only and 40-year amortized mortgage lower the payments for first time homebuyers, in particular. It also means shutting out lower-income buyers, even though Fannie and Freddie qualify them at the fully amortized rate.

There is no other way to interpret this ruling, other than another attempt to lower the overall quality of mortgage lending at a time when housing and real estate in general is at the beginning of its recovery.

Fannie Mae just reported pre-tax income of $8.1 billion for the first quarter of 2013, compared with pre-tax income of $2.7 billion in the first quarter of 2012 and pre-tax income of $7.6 billion in the fourth quarter of 2012. Fannie Mae’s pre-tax income for the first quarter of 2013 was the largest quarterly pre-tax income in the company’s history.

Need we say more? A financially sound Fannie Mae and Freddie Mac will continue to be the mainstay of housing finance, unless those who do not want or support a healthy mortgage market for all home buyers succeed in limiting their mission to “serve as a reliable source of liquidity and funding for housing finance and community investment.”

Harlan Green © 2013

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January Housing Prices, Mortgages, Surging

The Mortgage Corner

CoreLogic reported that home prices nationwide, including distressed sales, increased on a year-over-year basis by 9.7 percent in January 2013 compared to January 2012. This change represents the biggest increase since April 2006 and the 11th consecutive monthly increase in home prices nationally.

Excluding distressed sales, home prices increased on a year-over-year basis by 9.0 percent in January 2013 compared to January 2012. On a month-over-month basis excluding distressed sales, home prices increased 1.8 percent in January 2013 compared to December 2012. The five states with the highest home price appreciation, including distressed sales, were: Arizona (+ 20.1 percent), Nevada (+17.4 percent), Idaho (+14.9 percent), California (+14.1 percent) and Hawaii (+14.0 percent).

Graph: Calculated Risk

This is a huge increase, and may mean borrowers and home buyers fear interest rates may rise later this year, as some Federal Reserve Governors are objecting to the sustained purchase of QE3 securities until the unemployment rate drops to 6.5 percent from its current 7.8 percent.

A major reason for the price increases is increased mortgage activity due to still low interest rates, even though stocks are rallying to record highs. The Mortgage Bankers Association reported both the Refinance and Purchase Indexes increased 15 percent from the previous week and were at the highest levels since mid-January to early February.

Graph: Calculated Risk

The 30-year fixed conforming rate is still at 3.50 percent for a 1 point origination fee in California, and the high-balance fixed rate is now 3.75 percent for 0 points origination.

Another reason for such rising prices is the decline in mortgage delinquency and foreclosure rates. These are homes that tend to sell under market prices, which bring down overall values. The delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 7.09 percent of all loans outstanding at the end of the fourth quarter of 2012, the lowest level since 2008, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the fourth quarter was 3.74 percent, the lowest level since the fourth quarter of 2008, down 33 basis points from the third quarter and 64 basis points lower than one year ago.

And lastly, an increase in overall wealth has to be putting consumers in a buying mood. CNBC estimates that $1 trillion of the $4.8 Trillion increase in household wealth since the end of the Great Recession has been from rising housing values, and studies show homeowners tend to spend 10 percent of that increase, more than the additional wealth created by financial markets.

Harlan Green © 2013

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Mortgage Delinquencies Lowest Since 2008

The Mortgage Corner

The delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 7.09 percent of all loans outstanding at the end of the fourth quarter of 2012, the lowest level since 2008, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the fourth quarter was 3.74 percent, the lowest level since the fourth quarter of 2008, down 33 basis points from the third quarter and 64 basis points lower than one year ago.

“We are seeing large improvements in mortgage performance nationally and in almost every state.  The 30 day delinquency rate decreased 21 basis points to its lowest level since mid-2007. With fewer new delinquencies, the foreclosure start rate and foreclosure inventory rates continue to fall and are at their lowest levels since 2007 and 2008 respectively,”   said Jay Brinkmann, MBA’s Chief Economist and Senior Vice President of Research.

The foreclosure starts rate decreased by the largest amount ever in the MBA survey and now stands at half of its peak in 2009. Similarly, the 33 basis point drop in the foreclosure inventory rate is also the largest in the history of the survey.   

Brinkman said the two biggest factors impacting the number of loans in the foreclosure process still are the magnitude of the problem in Florida and the judicial foreclosure systems in some states.  12 percent of the mortgages in Florida are in the process of foreclosure, down from a peak of 14.5 percent last year but still an extraordinarily high rate that is impacting the national rate.  In addition, while the percentages of loans in foreclosure dropped in almost all states, the average rate for judicial states was 6.2 percent, triple the average rate of 2.1 percent for nonjudicial states.

And RealtyTrac reported foreclosure-related sales accounted for 21 percent of all U.S. residential sales during 2012, down from 23 percent of all sales in 2011 and down from 28 percent of all sales in 2010.

Graph: RealtyTrac

Properties not in foreclosure that sold as short sales in 2012 accounted for an estimated 22 percent of all residential sales — bringing the total share of distressed sales to 43 percent including both foreclosure-related sales and non-foreclosure short sales.

California, Georgia, Nevada posted highest percentage of foreclosure sales in 2012. Foreclosure sales accounted for more than 38 percent of all residential sales in California in 2012, the highest percentage of any state but down from 44 percent of all sales in 2011 and down from 49 percent of all sales in 2010. California pre-foreclosure sales in 2012 increased 12 percent from 2011 while California REO sales decreased 27 percent over the same time period.

Home prices continue to recover, rising gradually. The FHFA price index for December for homes with Fannie Mae and Freddie Mac conventional mortgages gained 0.6 percent, following a rise of 0.4 percent the prior month. The December advance was led by the East South Central region, increasing 2.3 percent, with the Middle Atlantic region down 0.1 percent.

Graph: Econoday

The year-on-year rate posted at plus 5.8 percent versus 5.4 percent in November.
The FHFA report combined this morning with a favorable Case-Shiller report, point to further progress in restoring home prices toward pre-recession levels. Much of the price rise comes from the decline in for sale inventories to a low 4 month supply at current sales rates for both new and existing-home sales.

And as the number of foreclosure and short sale transactions continue to decline, prices could rise even faster, further boosting the real estate recovery.

Harlan Green © 2013

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Mortgage Quality Highest in Decade

The Mortgage Corner

Record low interest rates and low prices, are making housing more affordable than ever. This is also helping lower default rates, as average credit scores have soared, and Debt to Income Ratios used to quality borrowers have plunged since the end of the Great Recession. This tells us that the Fed’s efforts to hold down interest rates until at least 2015 is producing results.

The National Association of Realtors’ Housing Affordability Index showed that housing affordability is expected to set a record in 2012. The trade association is forecasting that its index of housing affordability will hit a record level of 194 in 2012, up from 186 in 2011, when the prior record was reached. NAR data go back to 1970.

A reading of 100 means that a household with median income would have exactly enough income to qualify for buying a median-priced existing single-family home. A level of 194 for last year means that families had almost double the income needed for buying a median-priced existing single-family home. However, skeptics might note that NAR’s index didn’t fall below 100 even during the recent bubble. Indeed, the last time the index reached under 100 was in 1985, when mortgage rates were in double digits.

Graph: WSJ Marketwatch

This is while average credit scores for so-called conforming loans purchased by Fannie Mae and Freddie Mac started rising in 2008 and remain high. In the third quarter, the weighted average credit score of single-family mortgages purchased by Fannie reached 761, while the score was 762 for Freddie-acquired loans. Those levels are up from the 730s in 2008. Consumer confidence in the housing sector grew last month, marked by continued positive attitudes toward home price, rental price, and mortgage rate expectations, according to Fannie Mae’s December National Housing Survey results.

Graph: WSJ Marketwatch

While credit-score standards have increased post-bubble, debt-to-income ratios have been falling. For home-purchase loans, the weighted average debt-to-income ratio at the time of origination is currently around 34 percent, down from a bubble high of about 40 percent. “The average debt-to-income ratios are back to basically the early 2000 levels for reasonable, sustainable mortgage payments,” said Mark Fleming, chief economist for analysis firm CoreLogic. “Apart from credit scores maybe being a little bit too tight, all of the other aspects of the traditional metrics on which you underwrite mortgage loans are really back to reasonable and tried and true levels.”

Continued price improvement is dependent on interest rates maintaining their lows for a sustained period. Fed Chairman Bernanke has promised to maintain such low rates until the unemployment rate has declined to 6.5 percent, which won’t probably happen until 2015, as I’ve said.

More mortgage relief is also coming from the $8.5 billion settlement with 10 major loan servicers. The firms involved in this agreement are Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo. Roughly 3.8 million borrowers whose homes were in foreclosure in 2009 and 2010 will receive cash compensation under the settlement, with payments ranging from a few hundred dollars to potentially as much as $125,000 in a small percentage of cases. Those eligible are expected to be contacted by the end of March, regulators said.

Harlan Green © 2012

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Southland Home Sales Up, Foreclosures Down

The Mortgage Corner

Southern California home sales rose sharply in October as move-up buyers joined investors, according to San Diego-based DataQuick, shifting the mix of homes selling upward as foreclosure resales hit a five-year low. Southern California's real estate market bucked the typical fall slowdown last month, with buyers snapping up pricier homes and sales roaring up 18 percent over the prior month.

Sales hit a three-year high for an October, rising 25 percent from the same month last year. The median sale price for a Southland house last month was $315,000, equal to September and up 17 percent from October 2011, according to DataQuick.

Sales rose sharply in most mid- to-higher-cost markets. Sales between $300,000 and $800,000 – a range that would include many move-up buyers – jumped 41.5 percent year-over-year. October sales over $500,000 rose 55.2 percent year-over-year, while sales over $800,000 rose 52.4 percent compared with October 2011.

Gary Wood’s analysis of Santa Barbara County’s MLS sales including Carpinteria/Summerland, Montecito, Hope Ranch, downtown Santa Barbara and Goleta through October 2012 were similar. Sales rose to 100 from 83 in September. The median sales price also came up from $750,000 in September to about $815,000 in October with escrows rising from 94 to about 120 for the month. The median list price on those escrows showed the biggest upswing—going from $762,540 to almost $900,000.

Year over year, the numbers of sales are still way up with about 1,050 transactions completed compared to 780 last year. The median sales price is basically unchanged but down just a little from $800,050 in 2011 to about $795,000 now. The escrows are also still way up from 841 last year to about 1,150 this year while the median list price on those escrows has risen a little from about $825,000 last year to approximately $830,000 now.

Graph: RealtyTrac

Foreclosure resales – properties foreclosed on in the prior 12 months – accounted for 16.3 percent of the Southland resale market last month. That was down from 16.6 percent the month before and 32.8 percent a year earlier. Last month’s level was the lowest since it was 16.0 percent in October 2007. The foreclosure resales had hit a high of 56.7 percent in February 2009 during the Great Recession.

The delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 7.40 percent of all loans outstanding as of the end of the third quarter of 2012, a decrease from the second quarter of 2012, and a decrease of 59 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.

“Mortgage delinquencies decreased compared to last quarter overall, driven mainly by a decline in loans that are 90 days or more delinquent,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “The 90 day delinquency rate is at its lowest level since 2008, and together with the decline in the percentage of loans in foreclosure, this indicates a significant drop in the shadow inventory of distressed loans-a real positive for the housing market. The 30 day delinquency rate increased slightly, but remains close to the long-term average for this metric.  Given the weak economic and job growth in third quarter, it is not surprising that this metric has not improved. ”

And foreclosures nationwide are declining as well, mostly in the 26 so-called non-judicial states that enable Trust Deed auctions, such as California and Texas. This was the largest decline in foreclosure inventory ever recorded. Judicial states’ foreclosure inventory was at 6.61 percent, and the non-judicial states’ inventory was at 2.42 percent, reports the MBA.

Harlan Green © 2012

New-Home Sales, Mortgages Boosting Growth

The Mortgage Corner

Following the 15 percent housing construction bump in September, new-home sales rose 11.7 percent and are up 27 percent over September 2011, as inventories have shrunk to a meager 4.5 months, especially at the affordable level. The Census Bureau reports New Home Sales in September were at a seasonally adjusted annual rate (SAAR) of 389 thousand. This was up from a revised 368 thousand SAAR in August. This is the highest level since April 2010 and the tax credit related bounce, says Calculated Risk.

Graph: Calculated Risk

The Mortgage Bankers Association (MBA) also expects to see $1.3 trillion in mortgage originations during 2013, largely driven by a spillover of refinances into the first half of the year. This is thanks in large part to the Fed’s QE3 that has pushed 30-year fixed conforming rates to 3.125 percent with 0 points in California at this writing.

The MBA also upwardly revised its estimate of originations for 2012 to $1.7 trillion, approaching levels at the height of the housing boom. MBA expects to see purchase originations climb to $585 billion in 2013, up from a revised estimate of $503 billion for 2012. In contrast, refinances are expected to fall to $785 billion in 2013, down from a revised estimate of $1.2 trillion in 2012, as more new homes are built.

Graph: Calculated Risk

“We expected 2012 originations to be front-loaded in the first half of the year, with refis falling off with rate increases, said Jay Brinkmann, MBA’s Chief Economist. “Instead we saw the refinance market grow during the year due to a combination of low rates, thanks to QE3 and slowing global growth because of continuing problems in Europe, and adjustments in the HARP and FHA refinance programs. We expect 2013 refinance originations to play out like our original expectations for 2012, with a long tail of refis extending through the first half of the year followed by a rapid drop-off in the second half.”

The bottom line is that with banks still holding some 2 million plus of the so-called ‘shadow inventory’ of existing homes, as they work through their homes in default, the demand for new homes should continue to grow. Serious delinquencies, which are the main driver of the shadow inventory, declined the most from April 2012 to July 2012 in Arizona (3.2 percent), Pennsylvania (2.8 percent), New Jersey (2.3 percent), Delaware (2.2 percent) and Maine (2.2 percent).

In the end, an improving jobs picture will be most effective in bringing down serious delinquencies, and so the shadow inventories further—thus increasing the supply of houses available for sale. And employment is improving with 150,000 private sector jobs per month created just over the past year, enough to absorb new entrants.

Harlan Green © 2012

Shadow Housing Inventory, Foreclosures Fall

The Mortgage Corner

CoreLogic reported the current residential shadow inventory as of July 2012 fell to 2.3 million units, representing a supply of six months. This was a 10.2 percent drop from July 2011, when shadow inventory stood at 2.6 million units, which is approximately the same level the country was experiencing in March 2009. Currently, the flow of new seriously delinquent (90 days or more) loans into the shadow inventory has been roughly offset by the equal volume of distressed (short and real estate owned) sales.

“The decline in shadow inventory has recently moderated reflecting the lower outflow of distressed sales over the past year,” said Mark Fleming, chief economist for CoreLogic. “While a lower outflow of distressed sales helps alleviate downward home price pressure, long foreclosure timelines in some parts of the country causes these pools of shadow inventory to remain in limbo for an extended period of time.”

Data Highlights as of July 2012:

• As of July 2012, shadow inventory fell to 2.3 million units or six-months’ supply and represented just over three-fourths of the 2.7 million properties currently seriously delinquent, in foreclosure or in REO.
• Of the 2.3 million properties currently in the shadow inventory, 1 million units are seriously delinquent (2.9 months’ supply), 900,000 are in some stage of foreclosure (2.5-months’ supply) and 345,000 are already in REO (1.0-months’ supply).
• The dollar volume of shadow inventory was $382 billion as of July 2012, down from $397 billion a year ago and $385 billion last month.
• Serious delinquencies, which are the main driver of the shadow inventory, declined the most from April 2012 to July 2012 in Arizona (3.2 percent), Pennsylvania (2.8 percent), New Jersey (2.3 percent), Delaware (2.2 percent) and Maine (2.2 percent).
• As of July 2012, Florida, California, Illinois, New York and New Jersey make up 45 percent of all distressed properties in the country.

Graph: Calculated Risk (1/06-7/12)

CoreLogic also released its latest National Foreclosure Report which provides monthly data on completed foreclosures, foreclosure inventory and 90+ delinquency rates.

• The five states with the highest number of completed foreclosures for the 12 months ending in August 2012 were: California (110,000), Florida (92,000), Michigan (62,000), Texas (58,000) and Georgia (55,000). These five states account for 48.1 percent of all completed foreclosures nationally.
• The five states with the lowest number of completed foreclosures for the 12 months ending in August 2012 were: South Dakota (25), District of Columbia (113), Hawaii (435), North Dakota (564) and Maine (612).
• The five states with the highest foreclosure inventory as a percentage of all mortgaged homes were: Florida (11.0 percent), New Jersey (6.5 percent), New York (5.2 percent), Illinois (4.8 percent) and Nevada (4.6 percent).
• The five states with the lowest foreclosure inventory as a percentage of all mortgaged homes were: Wyoming (0.5 percent), Alaska (0.8 percent), North Dakota (0.8 percent), Nebraska (0.9 percent) and South Dakota (1.1 percent).

Graph: Calculated Risk

Corelogic said that home prices nationwide, including distressed sales, increased on a year-over-year basis by 4.6 percent in August 2012 compared to August 2011. This change represents the biggest year-over-year increase since July 2006. On a month-over-month basis, including distressed sales, home prices increased by 0.3 percent in August 2012 compared to July 2012.

So we see the Federal Reserve’s commitment to keep interest rates at historic lows for as long as it takes to revive the housing market, and bring down the unemployment rate to more acceptable levels, is already showing results.

Harlan Green © 2012