Real Estate Information

Taken from DSNEWS.com

By: Carrie Bay

11/03/10

The Federal Reserve decided Wednesday to pump another $600 billion into the economy in the hopes of bolstering what it called a “disappointingly slow” recovery.

The capital injection will come in the form of purchases of long-term Treasury securities by the central bank, about $75 billion a month between now and the end of June 2011.

Fed officials said they also plan to continue reinvesting principal payments from existing securities holdings. According to a separate announcement put out by the Federal Reserve Bank of New York – essentially the central bank’s money manager – these reinvestments will amount to another $250 billion to $300 billion in Treasury bond purchases over the same period.

The goal is to buoy economic growth by keeping interest rates low. By throwing more money into the financial system, the Federal Reserve is hoping banks will lend more, allowing consumers to purchase a home or refinance their mortgages and giving businesses the capital they need to grow their operations.

If it plays out correctly, the move is expected to spur spending, foster job creation, and keep deflation in check.

The analysts at the international research firm Capital Economics say they don’t expect lower long-term interest rates to do much to stimulate demand in the wider economy.

Paul Ashworth, a senior U.S. economist with the firm, explained, “Half of all mortgage borrowers don’t qualify to refinance at lower rates because they don’t have enough equity in their homes. Larger businesses are already sitting on stockpiled cash, while small businesses dependent on banks for their credit can’t get loans at any cost.”

Ashworth added, “When the Fed realizes that QE2 [its second round of quantitative easing] isn’t working it will have two choices: Admit this is a lost cause and halt its purchases or increase the size of its purchases. We suspect the Fed would double-down rather than fold.”

This marks the second big bond-buying spree by the central bank since the recession took hold. From November 2008 to March of this year, the Fed bought up $1.7 trillion in mortgage-backed securities (MBS), debt from Fannie Mae and Freddie Mac, and Treasury bonds.

That effort succeeded in pushing mortgage interest rates to extreme lows, but even that hasn’t been enough to boost housing demand. Even after the Fed’s bond buying initiative ended in the spring, mortgage rates continued to drop, hitting lows not seen in more than 60 years.

The Federal Reserve said in its policy statement released Wednesday that information received since its last meeting in September “confirms that the pace of recovery in output and employment continues to be slow.”

Household spending is increasing only gradually, and remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit, the central bank said.

The Fed committee voted to maintain the target range at 0 to 0.25 percent for its benchmark federal funds rate – the rate at which banks lend to one another. As it has reiterated for months on end now, the central bank said it anticipated economic conditions will warrant “exceptionally low levels” for the federal funds rate “for an extended period.”

According to Capital Economics’ latest report on U.S. housing markets, Illinois, Florida, California, and Nevada appear the most vulnerable to further home price declines. Alaska, the District of Columbia, Maine, and West Virginia seem the best placed to weather another downturn.

Mortgage applications for home purchase have remained weak despite the plunge in mortgage rates to a record low. Capital Economics says “even the mortgage bargain of a lifetime has not been enough to bring the market back to life.”

The company’s analysts predict housing demand will remain “unusually weak” for at least the next three years. At the same time, supply is set to stay “unusually high.”

Relative to today’s demand, Capital Economics says there are currently about 1.5 million too many homes up for sale. And a steady flow of foreclosures will mean that excess supply will continue to grow.

According to Capital Economics’ report, the bulk of the 2.5 million households that are already in foreclosure and the 2.4 million that are at least 90 days past due will at some point be put up for sale.

“The economy will not be able to support a decent housing recovery,” the company’s analysts wrote. “Income growth will stay muted, unemployment will stay high, and the threat of deflation will rise.”

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Randy Dockery

According to the ratings agency, the number of months between the date of the borrower’s last payment and the date of liquidation has steadily increased over the past several years, and is now at more than 18 months on average. Fitch says that is the highest figure on record.

While the volume of newly delinquent mortgages has begun to improve in recent quarters, Fitch says liquidation rates of existing distressed properties have been constrained by weak demand and expanded initiatives to modify loans for troubled borrowers.

On top of that, the agency’s analysts believe the recent discovery of defects in the residential mortgage foreclosure process will further extend liquidation timelines, slowing the resolution of distressed properties in the shadow inventory and preventing home prices from finding a floor.

“While the reduced volume of distressed sales since 2009 has temporarily helped home prices, Fitch believes that the extension in foreclosure and liquidation timelines is simply prolonging the housing correction underway,” the agency said in a report issued Monday.

The total number of troubled loans reached a peak in early 2010 and had begun to show some improvement prior to the most recent foreclosure moratoriums resulting from documentation issues, Fitch said.

According to the ratings agency’s analysis, the latest industry trends indicate that it will take more than three years to sell the properties of loans that are currently seriously delinquent, in foreclosure, or REO. Fitch says for judicial foreclosure states, such as Florida, it is expected to take longer than the national average of 40 months to resolve the distressed loans, while for nonjudicial foreclosure states, like California, the inventory will likely be resolved faster.

The agency points out in its report that the market’s ability to absorb the supply of distressed homes has been affected by limited demand for home purchases.

While interest rates are near historical lows and affordability has improved, fewer potential buyers can qualify for new loans due to the heightened credit standards, Fitch says. Additionally, high unemployment, weak consumer confidence, and uncertainty about the future of home prices have prevented some potential buyers from entering the market.

“Recent concerns about the title-transfer process for foreclosed homes could further weigh on demand,” Fitch noted.

The agency says at this point, it is still unclear how much the foreclosure process will be extended specifically due to document defects. However, even prior to recent developments, Fitch assumed the ultimate resolution of the backlog of distressed properties would result in further home price declines and prevent sustained home price increases for a number of years.

“Fitch is currently assuming approximately a further 10 percent home price decline nationally, with the majority of the adjustment occurring by the end of 2012. However, the timing of the adjustment will be affected by the timing of the distressed inventory resolution,” the agency said in its report.

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Randy Dockery

From the DSNEWS.com

Article by: Carrie Bay on 10/12/2010

Economists Say Home Prices Have Already Hit Bottom

Home prices in the United States found their floor during the early part of 2010 and are expected to begin trending upward next year, according to a panel of elite economists surveyed by the National Association for Business Economics (NABE) for its October 2010 Outlook.

“The housing recovery is intact, but tepid overall. Home prices have hit bottom,” NABE stated in its report outlining the survey results.

The panel anticipated a 1.5 percent drop in residential home values this year, and that decline has already been registered through the first half of 2010, NABE explained.

The group of economists is projecting gains in home prices of 1.2 percent over the course of 2011, but they warn that the modest increase will not keep up with the broader measures of inflation.

NABE panelists expect any evidence of price weakness post-tax incentive to be temporary. Their assessments of the importance of the government’s recent stimulus measures in the form of tax breaks for homebuyers vary widely. Nearly one-third feel that a persistent relapse will follow the incentives’ expiration, while the remaining two-thirds believe an underlying recovery is in place.

When it comes to the distressed side of the business, it’s become clear that the nation’s high level of unemployment is now one of the primary triggers of default among struggling homeowners. Getting more people back to work is key to a recovery in housing and getting a handle on still-rising delinquency numbers. But NABE’s panel warns that labor market conditions will be slow to improve.

The economists are forecasting monthly payroll gains to average 150,000 or less until the latter half of 2011, at which time gains will improve to a range of 170,000 to 175,000. The unemployment rate is expected to persist at over 9.5 percent through midyear 2011, before easing only slightly to 9.2 percent by the end of next year.

“This will mark the worst post-recession job recovery on record,” NABE said.

NABE panelists trimmed their projections on overall economic growth. Those projections now remain sub-par through year-end, the organization explained.

“This summer’s slowdown has exposed the economy’s sensitivity to wealth losses, the unwinding of debt, and the reductions in economic stimulus,” said Richard Wobbekind, NABE president-elect and associate dean of the Leeds School of Business at the University of Colorado-Boulder. “Confidence in the expansion’s durability is intact, but recent economic weakness has prompted many panelists to scale back expectations for the year ahead.”

The October 2010 NABE Outlook presents the consensus of macroeconomic forecasts from a panel of 46 professional analysts. The group included economists from such firms as Moody’s Analytics, the PMI Group, Fannie Mae, and Goldman Sachs.