Monitoring Existing Home Sales
Sep 29th, 2007 @ 4:56 PM by Alden Smith
With things still very much up in the air in the mortgage market, we see from newly released figures that there is a glut of homes on the market, and they aren’t moving. This comes as no surprise when you figure that 15-20% of people looking for a mortgage loan do not qualify at this time, even though their credit is satisfactory. Lenders have gotten very picky about where their money goes, and it only adds to the problems in housing.
Thoughts From the Frontline
According to John Maudlin, in his Thoughts From The Frontline newsletter, we are seeing that the inventory of existing homes has risen yet again to 4,581,000 units. This amounts to an increase of more than 1,000,000 since March. This is now more than double the supply since the beginning of 2005. There is now a 10 month supply of homes for sale, up from 6.6 months in January. Homes are not selling. Add to this the factor that over 500,000 homes are in the process of foreclosure and will soon come onto the market. There is good news – Friedman Billings Ramsey, is reporting that 89.9% of sub-prime loans funded in 2007 were still current as of June 30. It now appears, though, that there will soon be a 12 month supply of homes on the market very quickly.
Keep in mind that this is all an average. Different markets make for different scenarios. What may be true in the northwest, where nation wide sales are down only 11% is not comparable to the south, where sales are down 30%.
The Jumbo Mortgage Market
These figures are not taking into account the jumbo mortgage, which is considered to be a loan of over $417,000. These jumbo loans are weighing in at selling down by over 35% from last year. The median home price of homes selling at $500,000 to $749,000 is down by 25%. Congress is expected to take a look at raising the bar for Fannie Mae and Freddie Mac to allow them to handle loans up to an analyst figure of $600,000.00.
If the nation is to work back to a 3% GDP, it needs to solve the problem of a structured security and a collateralized debt obligation market. Some suggestions are for the banks that put together the packaged securities to hold an equity tranche, thus holding them more accountable in what they put together. Banks would be forced into protecting that “slice of pie” and bring possible stability. Because the equity tranche is the first to be called, banks would certainly have more focus. Banks would be forced to making good loans rather than merely taking fees. And investors would have a bit more confidence if the banks were held more accountable.
What We Are Seeing
This is not going to go away soon. We see layoffs and job loss in the mortgage market, CEO’s bailing out of stock options and a general panic on Wall Street. The plus side? Congress is considering a bill backed by Democrats and the House Financial Services Committee, and has drafted a predatory-lending bill that would sweep more loans into the “high-cost” category and make it very difficult for lenders to provide traditional sub-prime loans to borrowers facing “life events” such as bankruptcy, job loss, or foreclosure. Time will tell…