Pulse of the U.S. Housing Market

Given that the housing market malaise is the prime culprit for our economic and market adversity, I decided to post some charts showing key indicators such as delinquencies, foreclosures, and inventories. Sources for this data are Countrywide Financial (CFC), which has the nation's largest mortgage servicing portfolio ($1.48 trillion), and the National Association of Realtors, which tracks home sales.

First up, Countrywide's mortgage delinquency rates and pending foreclosure rates for the last twelve months:

As you can see, delinquency rates have stabilized in the last few months, with foreclosures still headed higher, but not severely. While certainly a good sign, we can not call it a trend just yet. After all, last summer we saw a leveling off, only to see another spike shortly thereafter.

The next chart is home inventories, I believe a key proxy for the future direction of home prices. We will not see stabilizing home values (and eventual gains again) until we work through very high inventory levels. Typical inventories levels are about 50% below current levels.

Again we see a curtailment of rising inventories in recent months, but I still do not think we can call it a long lasting trend of stabilization as of yet, given that we will not pass the peak in ARM rate resets for the next quarter or two.

But let's assume for a moment that these indicators do stop getting worse in coming months. Does that mean the housing market will stabilize also? Probably not. Inventories need to come down. The only way we get that is by increasing demand. With home buyers now needing the "trifecta" to get a mortgage loan application approved (good credit, proof of steady income, and money for a down payment), demand won't outstrip supply unless prices come down further to get qualified buyers to pull the trigger in greater numbers.

Comments

[nanci:]

What we need to get thing moving would be programs to help first time home buyers. Even with good credit and steady income, many lack sufficient down payments. However, it is the first time buyer who doesn't need to sell their house first. By helping first time home buyers, it would stimulate sales so that others can move on following the sale of their homes and start things spiraling in a positive direction.

2008 Mar 17 08:00 AM

[David Lentz:]

First time home buyers should focus on building up quite substantial down payments, MUCH more than they ever dreamed of having to provide.

If they cannot do that, lenders will not give them the time of day, even after these terrible times in the housing market are behind us, as the memories of it will linger on.

No more zero-down (or 5 per cent down, or even 10 per cent down) mortgages should be expected until a new generation of lenders arrives, eager to repeat the mistakes of their predecessors.

Cheap mortgage money is not the answer -- a robust economy and different mindset toward buying a home is.

2008 Mar 17 09:25 AM

[Jason Young:]

Many are quick to blame the banks and loan officers for this mess but history shows proof. 17 rate hikes in a row by our wonderful new fed chairman, Bernanke was the true cause of this. The fed knew and has always known how many adjustible loans we have as it is "Banking law" that it is reported to the fed. Housing inventory was at an all time low, the nations loan health was above the norm in risky loans that the senate ruled the banks must make in order to help the poor; and the fed knew all of this. So why 17 rate hikes in a row? His answer to control inflation....well he did it and so well we are now in a recession. Fact the higher interest rates the lower the price of homes and while Bernanke was busy destroying the investments that so many people made in the housing market including many first time buyers, most just didn't see the point of continuing to make a payment on a depreciating asset were the payments are about to go up even when they probably could afford it. Believe me if payment was about to go up and you could still sell it for a nice profit most would have figured out how to get the money and continue their payment...... Now he is trying to lower the rates again to fix his obvious mistake and we now have to deal with the senate stepping in trying to tighten up the credit they ruled to loosen in the first place!

2008 Mar 17 11:40 AM

[Hyman:]

The problem is that home prices just got way out of sync with incomes. The reason prices soared was that almost anyone with a pulse could get zero or low down no doc loans. Now economic reality has set in, and home prices will have to plunge down to the levels that finally meet the incomes of the local workers. Prices will drop down at least 35% to around 2001 levels before we see any real stabilization.

2008 Mar 17 02:35 PM

[WAKEUP:]

Hyman: House prices are going to fall 50%, not 35%. Keep this note, and look again, at the end of 2010.

2008 Mar 17 02:40 PM

[Jason Young:]

Housing is coming down to a level everyone can afford? Housing believe it or not is too cheap. Being in the insurance industry most homes can not be insured at the price they are coming down to, because they would be underinsured as they can not be built for this price anymore. Minimum wage has increased increasing other income levels, land price is up and building materials are up.

Not to mention the realism is, Mortgage backed securities are not favorable if housing prices keep tumbling. Who will buy stock on a company that is loosing money? The same goes with Mortgage backed securities, nobody wil invest if profits can't continue to be made on homes. Its not just about the good credit that these securites can look good for investors because even those with good credit today will foreclose if they see their most cherished investment going down the toilet!!!

2008 Mar 17 03:33 PM

["Magazine-C...:]

Jason, house prices cannot be maintained at a multiple vs median family income of much above 3.5. Even 3.5 is a strain. It doesn't matter what the old replacement prices were. The re-sets in prices will also reset replacement costs lower. Because the bubble in house prices caused a bubble in both lumber prices and expert labor, and is also reversing.

2008 Mar 17 04:54 PM

[Jason Young:]

The main cause of the increase in price of the building materials had more to do with China than our local markets. Most of the concrete companies and Truss companies were bought by chinese companies then they were exporting it back to china to support their massive growth and then charging a premium to American buyers due to the shortage caused by exporting. This was known by most of the seasoned investors in the housing market which added to the price increase of both homes and materials. Labor prices don't just go down unless wages suddenly decrease which is not going to happen. As far as expert labor when was the last time we saw a decrease in pay accepted by the union? Not going to happen.

2008 Mar 17 09:17 PM

[tradersyste...:]

And if we go into recession and real incomes drop, unemployment rises and an increasing number can't make mortgage payments, do you think the number of delinquencies, foreclosures and home inventories might rise? Also, as building demand drops so do costs but it's important to point out that in past recessions building costs as a floor under the market became irrelevant, especially when inventories of unsold existing homes remain high...

2008 Mar 19 02:40 AM