Friday, September 15, 2006

Hard Landing Already Here?

From Comstock Partners:

The Hard Landing For Housing is Already Here

The market is suddenly assuming that since energy prices are declining and mortgage rates are drifting down, consumer spending will pick up and the housing industry decline will end. In our view this outcome is highly unlikely. Our negative outlook for consumer spending is based far more on the end of the housing boom than it is on high oil prices. In turn, it now evident that housing is already undergoing a hard landing that can’t be cured by a downturn in mortgage rates, and that the situation is likely to worsen. Here are some facts to consider.

Ø 32.6% of new mortgages and home equity loans in 2005 were interest only, up from 0.6% in 2000

Ø 43% of first-time home buyers in 2005 put no money down.

Ø 15.2% of 2005 home buyers owe at least 10% more than their home is worth.

Ø 10% of all home owners have no equity in their homes

Ø $2.7 trillion in loans will adjust to higher rates in 2006 and 2007.

Ø 70% of borrowers who took out pay-option ARMS in the past year have loan balances larger than their initial loan.

Ø Homeowners face higher payments as mortgages are reset. Generally, monthly payments rise between $200 and $500 depending on the size of the mortgage.

Ø According to Reality Trac, August foreclosures were up 23% over July and 53% over a year ago.

Ø The number of homes for sale is at record highs, and inventories are 59% higher than a year earlier.

Ø New home sales are down 22% and existing home sales down 11%.

Ø The NASB housing market index has recorded an all-time decline.

Ø The housing affordability index is at a 15-year low.

Ø The house price-to-income (rents) ratio is off the charts. According to HSBC, in 18 states accounting for over 40% of national home values, the price-to-income ratio is 3.6 standard deviations above the mean.

Ø The OFHEO index of house prices deflated by the consumption price deflator has soared to a record high of 350 from 250 in 2001. From 1976 to 1996 it never was above 220.

Ø According to the NAR the year-to year prices of existing homes are now flat. A short time ago they were rising at a yearly rate of 16%.

Ø Nationally, home prices have not declined on a year-to-year basis since 1933. Recently, however, prices have been dropping in the North East, West and Mid-West.

Ø Sales incentives are now estimated at 3% to 7% of selling prices.

6 Comments:

Anonymous Anonymous said...

Hard landing is NOT already here.

These media heads don't know s**t from shinola. This is the latest buzz words. I admit this RE market is at stand still, but by no means is it yet a hard or soft landing.

If they think that at current times this is a hard or soft landing...man, I can't wait to see what they write up when the REAL landing comes.

Better batten down the hatches.

Please...oh please... big government...help us...help us...for we are stupid people...
(that was sarcasm, natural selection at its best because the stupid and stubborn are the ones whom will get burned)

SAS

9/15/2006 04:35:00 PM  
Anonymous UnRealtor said...

Greedy Grubbers are feeling "air time" from this market decline -- as on a roller coaster when the seat drops out from under you.

They're not at the bottom yet, by a long shot, but their asses started flapping in the wind at bubble peak last summer.

9/15/2006 04:44:00 PM  
Blogger judicious1 said...

Reading through that list makes one realize a recipe for disaster has been put together over the last few years. It's now cooking in the oven and should be fully baked between '07 and '08. This is going to get a lot worse before it gets better. Keep up the great blog Grim.

9/15/2006 05:22:00 PM  
Anonymous LeeS said...

From my perspective they're basically saying "Watch out, the hard landing IS here, and it's not soft. Home prices went from appreciating 16% to being 0% now. If that isn't hard, we don't know what is."

9/16/2006 06:58:00 AM  
Anonymous Anonymous said...

The Comstock people have been big-time bears (and I have largely been in agreement with them) but I don't think I'd go with "the hard landing is here."

As SAS notes, it sure looks like there's a long way down from here, but I'm damned if I know when we will be "landing."

If you've been a bear on this as long as I have (2003), I hope you wouldn't be rushing to gloat, because we looked bad for two years.

I still think we're headed for a real disaster, but I sure am not in a rush to predict how it will play out.

BTW, short of something truly stunning, I don't think the govt. is coming to offer any real kind of help anytime soon... Unless you count the devaluation of the dollar that is coming.

Lindsey

9/16/2006 11:21:00 AM  
Blogger MortgageTop said...

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Smell a Good Deal for a Real Estate – Try to discover a property that has already got some equity in it, when you purchase it. Equity represents the value of a real estate, a property after you have paid any mortgage or other charges relating to it.

Try to Get a Second Mortgage on the Real Estate – You could try to be more creative and ask the seller whether he would be willing to have a second mortgage on that home. Thus you could set up an agreement with the seller through which you will have to pay monthly an approximate sum of $200, for instance, on $15,000 of the price of the real estate (plus or including the interest rate), for the second mortgage.

Save Some Money to Pay in Advance – Some lenders might give you a full credit if you come with at least a small percentage of the sum. This would grant you supplementary points for getting the credit and would also lower the interest rate – e key point of any mortgage refinance program.

Don’t Give up, Go Further – don’t trust the first broker who tells you that there is no hope for you. You will finally find someone who could offer a viable solution, just keep asking and searching. An alternative is to apply online to mortgage services. Thus your application would be seen by more lenders and you might get more offers to analyze your solvency.

Improve Your Present Credit Score – by not applying to credit cards, auto loans or other loans, if possible. Too many inquiries would also affect credit scores. Another important thing you should do to improve your credit scores is to acquit your current duties and payments on time.

If you feel this helps, please drop by my website for additional information, such as how to refinance a second mortgage or additional resources on mortgage rates.

Regards,

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11/18/2006 11:24:00 AM  

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