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Archive for March, 2009
U.S. Housing Market Shows Signs of Life as Government Programs Kick In
By Don Miller
Associate Editor
Money Morning
The government’s efforts to put a floor under the U.S. housing market and halt a withering onslaught of foreclosures appeared to bear fruit yesterday (Wednesday), as a bevy of news indicated the housing sector might be stabilizing.
Leading the way was a report from the Mortgage Bankers Association that U.S. mortgage applications soared 32% last week, as record low interest rates spurred a surge in demand for home refinancing loans. Refinancing accounted for 78.5% of all applications.
“The housing market is coming back, but not roaring back,” Leif Thomsen, chief executive of Mortgage Master in Walpole, Massachusetts told Reuters. He said his company is doing more business now than ever, with over $1 billion in total mortgage lending since the beginning of the year, 85% of which has been refinancing.
The refinancing activity comes after a spate of government actions in its ongoing efforts to reduce mortgage rates to stimulate borrowing and boost the U.S housing market, currently in the throes of the worst downturn since the Great Depression.
After the Federal Reserve said last week it would buy Treasury securities for the first time in more than four decades, as well as more than double its planned purchases of mortgage-related securities, interest rates on mortgages tumbled.
The average rate on a 30-year fixed-rate loan fell to 4.63%, the
lowest level since the bankers group began records in 1990, from 4.89%
the prior week. At the current 30-year rate, monthly borrowing costs
for a $200,000 loan would be about $1,028, or $138 less than a year
earlier, when the rate was 5.74%.
“The drop
offered a sizable refinance incentive for most homeowners, sparking a
pick-up in refinance activity,” Orawin Velz, associate vice president
of economic forecasting at the MBA in Washington said in a statement,
according to Reuters.
New government rules put in place by President Obama’s Homeowner Stability Initiative, designed to help more consumers with little or no home equity refinance through Fannie Mae (FNM) and Freddie Mac (FRE), also are helping to keep mortgage rates low.
“The government has sown all the seeds needed to see a protracted refinancing wave,” New York-based Barclays Capital PLC (ADR: BCS) analysts wrote in the report yesterday, according to Bloomberg News.
Sales Rising, Inventories Falling
The good news continued with a Commerce Department report showing
purchases of new homes in the U.S. unexpectedly rose in February from a
record low, as plummeting prices and the cheaper rates moved buyers off
the sidelines.
New home sales increased 4.7% to an annual pace of 337,000 up from 322,000 in January, the report said. Meanwhile, the median sales price fell 18% from 2008, the biggest year-over-year drop since records began in 1964, as the glut of properties on the market dwindled.
In another hopeful sign, inventories fell even as sales of new homes were down 41% from last year. The seasonally adjusted number of new homes for sale dropped to 330,000, and supplies fell to 12.2 months from 12.9 months, based on current sales rates.
The highest jobless rate in a quarter century has limited demand for new homes, leading analysts to believe any housing rebound will be slow and deliberate even as steps to cut borrowing costs and reduce mortgage defaults kick in.
Meanwhile, the Fed followed through on its war on high interest rates by executing the first of $300 billion in Treasury purchases, targeting notes maturing from 2016 to 2019. In the next eight days, the central bank plans to buy debt maturing between 2011 and 2039, according to the tentative schedule released by the New York Federal Reserve Bank.
It was the first time since the 1960s that the Fed bought Treasuries as a tool to lower interest rates.
Typical mortgage rates will probably remain between 4.5% and 4.75% for the rest of 2009, Credit Suisse Group AG (ADR: CS) analysts in New York wrote in a report yesterday, according to Bloomberg.
But other analysts had doubts about the long-term effects of the Fed’s buying spree.
“Over the short-term, the Fed purchases of Treasuries will lower rates, but the need to issue over $2 trillion in securities over the next 18 months will make this less than effective,” Mark MacQueen, who helps oversee $7 billion as co-founder of Sage Advisory Services Ltd. in Austin, Texas, told Bloomberg.
The following article comes from ManufacturedHousingNews.com.
Clayton Homes, a Berkshire Hathaway Subsidiary: An Admirable Track Record
March-19-2009
At a time when the newspapers are full of stories about predatory lenders, irresponsible homeowners, and the terrible impact of foreclosures on the national economy, it is refreshing to read about a home builder that largely avoided the housing meltdown. The qualities of the company and its customers can serve as a case study demonstrating the positive outcomes that occur when all parties to a transaction attempt to operate with a sense of accountability and ethical standards.
Clayton Homes, a Berkshire Hathaway subsidiary, is the largest company in the manufactured home industry with 34% of the market in 2008. Manufactured housing has been in decline for several years since hitting a peak of nearly 373,000 units in 1998. Unit volume for the industry in 2008 was just short of 82,000 units. What makes the story of Clayton even more remarkable is the dismal state of ethical standards that prevailed in the manufactured housing sector in the late 1990s. Warren Buffett wrote at some length about Clayton and the housing crisis in his recently published annual letter to shareholders. Let’s examine some of the facts behind Clayton’s admirable track record.
Avoiding the Excesses of the late 1990s
In his letter, Buffett writes about how Clayton avoided the predatory lending excesses of the late 1990s and followed sensible practices throughout this period. Buffett’s comment that no purchaser of a securitized loan originated through Clayton ever lost any principal or interest seems almost too good to be true. This took place during a period of very significant losses on securitized manufactured loan portfolios.
Buffett reported that Clayton’s borrowers do not have unusually high credit scores; in fact, Clayton’s borrowers have below average FICO scores with many falling into the sub-prime category. However, despite the lower credit scores, Clayton borrowers had a delinquency rate of only 3.6% in 2008. This has risen from 2.9% in 2006, but is still very low considering the overall economic climate. Even more amazing is that foreclosure rates declined to 3% of originated loans in 2008 which is down from 3.8% in 2006 and 5.3% in 2004.
How Did Clayton Achieve This Record?
Buffett’s comments regarding how Clayton achieved this record seems very basic. Loan originators looked at borrower’s incomes and only provided loans that could be repaid based on the borrower’s actual income without counting on refinancing the home in the future or using “teaser” rates on adjustable rate mortgages that reset after a few years.
Buffett points out that Clayton borrowers are by no means immune from the current economic crisis, particularly because many of them have no savings and live “paycheck to paycheck”. Rising unemployment will surely result in delinquencies and foreclosures within this population. However, Buffett believes that the majority of foreclosures will result from borrowers being unable to make monthly payments rather than borrowers “walking away” from properties that are “underwater”, meaning that the loan balance is more than the property is worth.
Lessons Learned
The lessons learned from the current housing debacle and Clayton’s unusual experience seem almost too obvious: Homeowners should not rely on anything other than their regular incomes to make monthly payments. Monthly payments should be a reasonable percentage of take home pay. Homeowners should be required to come up with a reasonable down payment as a condition of purchase. Lenders should put in place incentive plans for originators that rely on the performance of a loan over time rather than large lump sum payouts that incent loan officers to provide mortgages regardless of a borrower’s ability to pay in the long run.
These common sense principles were abandoned by home builders, lenders, and borrowers during the past decade with disastrous results. Any proposed solution to the housing meltdown that does not focus on a return to fundamental principles of responsible lending and borrowing will fail to lead to a sustainable housing market in the future.
Ravi Nagarajan
Rancho Del Rey Community Features
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Of all factory-built housing, 66 percent is manufactured housing.
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Anaheim Mobile Estates Community Features
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California Tax Credit for New Home Purchases
California Legislators have approved a Tax Credit of up to $10,000 for
new homes, including real and personal property manufactured homes,
purchased on or after March 1, 2009 and before March 1, 2010. Qualified
Home Buyers and who purchase a Qualified Principal Residence/New Home
may apply for a tax credit equal to equal five percent of the purchase
price or $10,000, whichever is less. The available credit allocated by
the State is $100,000,000 and will be allocated on a first-come
first-served basis.
Applications for the allocation will be accepted by the Franchise Tax
Board (FTB) for escrows that have closed on or after March 1, 2009. The
Franchise Tax Board has posted detailed procedures on their website and
recommends that interested parties check their site frequently for
updates. (Source: CMHI)
California FTB Web Site - Check Here Frequently!