Speculator Defaults Aggravating Housing Crisis

Foreclosures rose 93% nationwide in July, while Standard & Poors' Case-Shiller index recorded a 3.2% drop in Q2 home prices. With no buyers in the mortgage securities market, lenders have tightened lending standards, discouraging applications from potential homebuyers: The Mortgage Bankers Association mortgage application index fell 4% last week, its second consecutive decline. Adjustable rate mortgage applications fell 23% and rates rose to 6.51% from 5.84% last week, while fixed interest loan rates fell. The vicious cycle has economists predicting 7-10% home price declines by 2008. Nervous homebuilders will meet with Fed chief Ben Bernanke next week, possibly to press for a Fed Funds rate cut to buffer the struggling industry. But builders may find deaf ears, as the MBA survey found that in former price and building boom states that are now suffering the most, many of the loans defaulting were to made investors and speculators. In Nevada, 32% of prime mortgage defaults as of June 30th were for non-owner-occupied homes. In Florida and Arizona it was 25%, 20% for California and 17% nationwide. Investor home subprime loan defaults were at 24% in Nevada vs. 12% nationally. Bernanke's Fed indicated with the discount rate cut that they will do their utmost to maintain calm in the credit markets, but they aren't inclined to help out speculators and flippers with an interest rate cut.

Sources: Press release, New York Times, Bloomberg, Wall Street Journal, Maryland Gazette
Commentary: But Is Subprime Really the Issue? • A Look At U.S. Home Price Performance in 20 Markets • Housing Bubble and Real Estate Market Tracker
Stocks/ETFs to watch: XHB, ITB, KBE, KBW

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Comments

[Uncle Bill:]

Good reporting, until your final comment. Why would you say such a thing with no attribution? Is that your own idea, or did someone tell you that? What a ridiculous idea -- that a Fed rate-cut would help the speculators, so therefore Bernanke won't cut. There are a lot more important considerations here than whether flippers get punished. It's not his job to punish the flippers, it's the market's.

2007 Aug 31 07:52 AM