Mortgage Interest Deduction Under Fire - 02/28/09 02:14 PM
Luke Mullins with U.S. News & World Report is reporting on his blogthat the Obama administration is proposing to limit the mortgage interest deduction for households in the 33% and 35% tax brackets.
The Wall Street Journaldetails the plan as, "Households paying income taxes at the 33% and 35% rates can currently claim deductions at those rates. Under the Obama proposal, they could deduct only 28% of the value of those payments".
Not surprisingly, the NAR and President Charles McMillan are up in arms.  In a recent email McMillan wrote, "NAR is launching a multiphase plan of action to eliminate this provision … (11 comments)

Obama's Housing Plan = Massive Government Intervention - 02/27/09 06:36 PM
If the events over the past couple of weeks have left any shadow of doubt that the era of big government intervention is upon us, Obama's housing plan will put that to rest.
According to an article put out by Reuters, Obama's housing plan includes two massive and sweeping initiatives that will change the landscape of the housing and mortgage market.
The first part of the proposal is to allow bankruptcy judges to write down loan principal and modify loan terms for homeowners that claim bankruptcy protection.  Considering how far home values have fallen in some markets, this could be a staggering provision.
The second part of Obama's … (4 comments)

Existing home sales contract - 02/26/09 11:04 AM
The NAR reported yesterday that existing home sales continue to face strong headwinds as the pace of sales contracted -5.3% from last month and -8.6% from last year to a seasonally adjusted pace of 4.49 million existing home sales.  This is the slowest rate of home sales in over a decade.
As I wrote about on Tuesday, until demand for real estate increases so that we can absorb the excess supply of foreclosures that are on the market, we will continue to experience downward pressure on home values.  Unfortunately, based on these sales numbers as well as the recent mortgage purchase … (0 comments)

New home sales fall to a new low...again - 02/26/09 10:23 AM
According to the Census Bureau, the current pace of new home sales, which fell -48.2% from last year (and -10.2% from last month) to 309,000 at a seasonally adjusted pace, is the lowest on record going back to 1963.  This despite the fact that there are over 100 million more Americans today than there were in 1963.
Additionally, while the inventory of unsold new homes declined by -3.1% from last month to 342,000, the month's supply of housing soared to a 13.3 month supply.  The month's supply of housing is the relationship between the supply and demand for real estate and is the leading … (1 comments)

Bernanke: Affordability not the issue - 02/25/09 06:54 PM
Federal Reserve chairman Ben Bernanke said yesterday what I have been saying for several months now, "Affordability is not the issue it was a few years ago" in terms of the housing market.  In fact housing affordability, according to data that the NAR collects, is the highest on record going back to 1973.
The reason this is an interesting statement is that the Fed recently agreed to purchase approximately $500 billion in mortgage backed securities in an effort to drive down mortgage rates and ultimately stimulate demand for real estate, it didn't have the intended results.  As mortgage rates plunged by nearly a full … (1 comments)

Mortgage purchase applications not responding to $8000 home buyer tax credit - 02/25/09 09:44 AM
Last week I wrote a post about how mortgage purchase applications remained alarmingly low despite Congress passing the recent $8,000 first time home buyer tax credit.
The goal of the $8,000 first time home buyer tax credit was to get people off the fence and to stimulate demand for real estate.  And in order for first time home buyers to buy a home, they need to apply for a mortgage, and this means a mortgage purchase application.
So, after last weeks dismal mortgage purchase application index I thought to myself, let's give it another week or two and continue to watch the index before we rush to … (3 comments)

Existing home sales, three things to look for tomorrow - 02/24/09 03:09 PM
Tomorrow, Wednesday the 25th, the NAR will publish their monthly existing home sales report.
Here are three things to look for in the report tomorrow:
1.)  Existing home sales.  "Tell me something I don't know, Mark!"  Specifically what you want to look at is the seasonally adjusted annual rate of home sales.  This is the rate that accounts for seasonal variances and it is the best barometer of current real estate demand.  Currently, existing home sales are the lowest they have been since 1997 and considering mortgage rates are hovering near 5% and housing affordability is the highest on record, one would … (2 comments)

Consumer confidence at record low, literally - 02/24/09 01:56 PM
According to Reuters, the Conference Board announced that consumer confidence cratered from 37.4 in January to 25 this month; this is the lowest reading on record since they began tracking the data in 1967.  The expectation was for a reading of 35.5.
The amazing part about this report was that only 8.7% of consumers think that business conditions will improve within the next six months, that is saying something.  The near future looks very bleak according to most Americans, I would tend to agree with them.
The reason is pretty simple, the speed of the deterioration in the broader economy and asset classes, namely stocks and real estate, has … (3 comments)

Yet another sign that the "great recession" is upon us... - 02/24/09 09:23 AM
According to an articlein Bloomberg.com yesterday, American Express is offering some cardholders $300 to pay off and close their accounts.
The article went on to say that charges-offs rose to 8.29% in January from 7% in December.
What this means is that American Express is anticipating losses growing and as a result they want to hedge these losses by getting ahead of the problem now rather than waiting for the problem to hit them in the future.
This is yet another example that the perception within the banking and financial industries is that we are going to see continued economic headwinds for an extended period … (6 comments)

Round 3 for AIG and Citi? - 02/23/09 06:48 PM
If the size and scope of the current financial crisis was at all uncertain or ever in doubt, the past couple of days of news headlines should have made things very clear, we are going to need a bigger boat.
There are two major breath-taking headlines that should have caught your attention.
First, AIG, which according to CNBC's David Faber, has already received $150 billion in loans from the government which already owns 80% of the now defunct insurance company, is looking for a third loan from the government in order to "keep operating after next Monday, when it will report the … (5 comments)

Part II: What does a bond market strategist know about real estate? - 02/20/09 04:40 PM
A couple of months ago Tony Crescenzi, a bond market strategist with Miller Tabak + Co., wrote a guest blog on CNBC.com about how the decline in new home inventory was a "bankable top-down theme for 2009".  His suggestion was that if you can eliminate the construction of new homes, natural population growth will occur and as a result home inventories will come down and the market will be well on a road to recovery.
What Tony didn't acknolwedge in his blog post was the foreclosure epidemic that we will continue to experience over the four years which is going to add to the … (2 comments)

Where is the bottom? - 02/20/09 10:52 AM
I think the question on every American's mind is, where is the bottom, when are property values going to stop falling?
Of course, there is no easy answer because all real estate is local, but the truth is, all local markets are exposed to a lot of the same headwinds like tight credit, job losses, weak consumer confidence, and foreclosures.  Every market is up against these forces to some degree and as we are seeing, each of these forces is intertwined. 
As Americans lose their homes to foreclosures, property values fall.  As property values fall consumer confidence and consumption declines and credit contracts.  … (1 comments)

CNBC's Diana Olick on Real Estate Investors - 02/19/09 12:40 PM
I have written before about the difference between real estate investors and speculators.  But every now and then it is nice to have your opinion vindicated by somebody else.  In this case it is CNBC's Diana Olick when she made a recent blog post about real estate investors.  The title was, "Not all real estate investors are irresponsible".  It was written in response to President Obama's speech yesterday when he said about his housing program, "It will not help speculators who took risky bets on a rising market and bought homes not to live in but to sell."
First of all, to set … (4 comments)

Obama's Housing Plan? - 02/18/09 03:42 PM
According to a Reuters report, the details of Obama's housing plan are to help 9 million homeowners at a cost of approximately $275 billion.  Here is a link to the four page document.  It is estimated that $75 billion will be spent in "subsidizing" mortgage payments while another $200 billion will be allocated to the Treasury to purchase preferred stock in both Fannie and Freddie, doubling their stake in each, which will presumably allow the government to modify a greater number of loans.
The big question however, is how is what Obama is proposing actually any different than from what has already been attempted on … (6 comments)

What housing starts? - 02/18/09 01:10 PM
Do you hear the sound of hammers and saws in neighborhoods across America?  Me neither.
The Department of Commerce published their housing starts report today and it signaled yet again that whatever "bottom" we thought we had in the new home market, does not exist, kind of like the stock market.
Housing starts declined -16.8% from last month and -56.2% from last year to a 466,000 seasonally adjusted annual pace.
The 906,000 housing starts that we saw in 2008 were the fewest on record dating back to 1967, and the January of 2009 numbers reveal that we are well off of the … (1 comments)

Mortgage purchase applications rebound, but still near recent lows - 02/18/09 12:01 PM
According to the mortgage bankers association, after hitting an eight year low last week and dipping -9.8%, mortgage purchase applications rebounded 9.1% this week from 235.9 to 257.3 on the index.  This is still the lowest index rating since the week of November 19th when it was 248.5 and the 30-year fixed rate mortgage was at 6.16%.
This week, according to the MBA, the 30-year fixed rate mortgage declined to 4.99%.
The reason why the mortgage purchase application index is relevant is because in order for the housing market to get price stability, we need to stimulate demand, and in order to stimulate … (0 comments)

Greenspan on housing - 02/17/09 11:27 PM
A reportby Reuters today quoted former Federal Reserve Chairman Alan Greenspan as saying that a housing recovery is a necessary condition for the end of the financial crisis.
I don't disagree with this.  In fact I have written a book and nearly 200 blog posts to the same effect.  It's the housing market, stupid.
Greenspan goes on to say that, "the prospect of stable home prices remains many months in the future."

I don't disagree with this either.  In fact, depending on how effective or ineffective the government's effort is to stem foreclosures by "subsidizing" mortgage payments with $50 billion worth … (2 comments)

Chrysler & GM Need More Money - Is Anybody Surprised? - 02/17/09 05:42 PM
According to the AP, Chrysler & GM announced today that they are going to need more money.  For Chrysler it is $2 billion more than they had originally requested.  
I have one question. 
Is ANYBODY surprised by this?
Would anybody be shocked if they need even more money in another 6 months?
Isn't this the nature of bailouts?
Isn't this what AIG did, and then Citi, and then Bank of America did?  Didn't they all end up going back to the trough, I mean Treasury, after their first bailout?
Isn't this what happened with the first half of TARP, the original $350 billion?  It was … (6 comments)

The homeownership predicament - 02/16/09 03:26 PM
The problem with Congress' stimulus and bailout efforts to increase homeownership rates through a new $8,000 tax credit while at the same time attempting to maintain the dream of homeowenrship by subsidizing mortgage payments is that they are overlooking a big part of the housing market, the non-owner occupied market.
According to the U.S. Census Bureau, in the second quarter of 2008 only 58% of the housing units in the United States are owner occupied.  In other words, approximately 42% of the homes in the United States are either held for investment, vacation, or are vacant.  Assuming you own the home you are living in, take a look … (2 comments)

Do you want the good news or the bad news first? - 02/16/09 12:34 PM
The NAR published their quarterly metro area median sales price report last week, and with any report that is published, you always have to ask the question, "do you want the good news or the bad news first?"
Well, I usually elect for the bad news first, so let's get that out of the way.
According to the NAR, of the 159 markets that they track, 84% or 134 lost value from last year to this year.  Additionally, the NAR did not have data for six of the markets.  So while all real estate is local, local real estate is not immune to … (3 comments)

Major banks to institute foreclosure moratoriums - 02/14/09 05:01 PM
Citi and JP Morgan have added their names to othermajor banks as well as government agencies that are going to agree to a self imposed foreclosure moratorium until the Obama administration has the time to iron out Washington's latest effort to stem the tide of a systemic foreclosure crisis.
If this sounds familiar, that's because that it is.  Banks, municipalities, and government agencies including Fannie and Freddie have been facilitating foreclosure moratoriums in some form for several months now.  And this is just one of three reasons why the housing market today actually appears much better than it actually is, I know, that is a … (6 comments)

Propecia, jobs, and home sales - 02/13/09 04:08 PM
Washington announced today that their $8,000 first time home buyer tax credit will save or create 4 million home sales over the next several years.
Well, actually, they didn't say that about home sales, but they very well could have.  It would have been right in line with their other statement about creating and or saving jobs.
Washington is spending an awful lot of money and nobody knows if it is going to have any meaningful impact on the economy.  And so in an effort to cover their "efforts" the buzz phrase has become that the economic stimulus plan will create or "save" 4 million … (9 comments)

Washington's latest efforts to modify loans - 02/13/09 03:12 PM
The Obama administration announced yesterday that they are going to unveil yet another plan to modify loans en masse, this time allowing for home owners that are not behind in their payments to qualify for a loan modification.  The plan could allocate up to $50 billion in TARP money that would be used to help subsidize the loan modifications.  This appears to be the "sweeping" effort to prevent foreclosures that I have written about before.
I understand the need to keep Americans in their homes as everybody loses when homes are foreclosed on.  Families are impacted, neighborhoods suffer, and banks lose … (0 comments)

Can there be an economic stimulus if there isn't a housing stimulus? - 02/13/09 01:46 PM
In light of Congress fumbling their latest effort to incorporate a meaningful housing stimulus into the broader economic stimulus, it begs the question, can there really be an economic stimulus if there isn't a housing stimulus or housing market stability?
I think its a fair question considering Washington is putting tax payers on the hook for nearly $800 billion.
If Americans are losing their homes, and if home values are eroding like an artificial levee during a 100-year flood, are Americans going to spend money and pump money into the economy?
If Americans aren't spending, can there be any meaningful job creation or job security?
… (1 comments)

Goodbye $15,000, Hello $8,000 - 02/13/09 01:05 PM
In all of Washington's infinate wisdom, Congress has agreed to reduce the Senate's proposed $15,000 home buyer tax credit to an $8,000 first time home buyer tax credit.  The piece of legislation which is part of the broader economic stimulus bill, is expected to be voted on today.
To say that the proposed $8,000 first time home buyer tax credit which will not have to be repaid is an improvement from last years $7,500 tax credit which did have to be repaid over 15 years is kind of like saying that the 2009 Memphis Grizzlies basketball team is better than the 2008 team, … (4 comments)

The latest sign that lower mortgage rates aren't a solution - 02/11/09 11:44 AM
The mortgage bankers association announced today that the seasonally adjusted purchase index decreased -9.8% to 235.9, the lowest level since 2000.  This despite the fact that the 30-year fixed mortgage rate actually dipped from 5.28% last week to 5.19%.
The reason this is alarming is that the pace of home sales over the past two months is actually lower than it was when mortgage rates were nearly a full point higher.  In other words, lower mortgage rates simply have not had a stimulative impact on demand for real estate.  And now, with mortgage purchase applications plunging even further this past week, despite … (4 comments)

Larry Kudlow: Those aren't mustard seeds, they're weeds - 02/10/09 03:48 PM
If you have ever watched CNBC before, you probably would have seen Larry Kudlow.  He's the guy with the pink tie and Phil Donahue-like glasses.  He's a good guy.  He touts himself as pro-growth, strong defense, virtuous values, business, and stocks.  But he's wrong in his assessment of the economy and about these mustard seeds that he claims are being planted.
Larry is the type of guy that sees the silver lining in nearly any type of economic report, and then uses that silver lining as the basis for an economic recovery, even though the preponderance of evidence runs to the contrary.  And hence … (4 comments)

Fannie Mae expands investment loan portfolio - 02/10/09 01:21 PM
I have to thank Fred Glick for sharingthe latest information about Fannie Mae expanding its loan portfolio to allow for up to ten financed properties for individual borrowers.
This new policy is a change in course for Fannie Mae that had been limiting the maximum number of financed properties to four.  This expansion of Fannie's lending guidelines will be effective on March 1st, of 2009.
The reason why this is significant, is that there simply are not enough first time home buyers that are available to absorb the excess supply of homes for sale, regardless of a first time home buyer or primary … (1 comments)

Washington is Insane - 02/08/09 03:01 PM
I know what you're thinking, "thank you, captain obvious, tell me something I don't know".
But I'm not talking about O.J. Simpson insane, I'm talking about the other definition of insanity, the one that says, "doing the same thing and expecting different results" kind of insane.
Representative Darrell Isa of California was quoted by Matthew Benjamin in a Bloomberg.com article as saying, "They continue to assume that if you do something and it hasn't worked, you have to continue to do more of it"  Isa went on to say, "That's the definition of insanity".
The first $350 billion of TARP capital injections didn't work?  … (17 comments)

With all due respect to Senator Isakson, 2009 is not 1974 - 02/07/09 10:18 PM
Who is Senator Isakson?
He's the prime sponsor and former real estate broker of the current $15,000 home buyer tax credit that is making it's way through Congress.
In a recent New York Times article he was quoted as saying, "We do have a history in this country with housing and it goes back to the crash of 1974, which actually in terms of inventory and price declines was comparable to what's happening now".
Really?
In terms of inventory, in 1974, according to data from the Commerce Department, there was an 8.09 month supply of new homes.  Today, in December of 2008, … (5 comments)

And you wonder why Americans aren't buying homes? - 02/06/09 06:29 PM
The Bureau of Labor Statistics announced the January unemployment and it wasn't pretty, and no I'm not talking about the 7.6% unemployment rate that you see the media reporting about, I'm talking about the 13.9% unemployment rate that nobody wants to acknowledge.  
This is the rate that accounts for people that are unemployed, are not looking for work, but have in the past and still want a job.  It also accounts for discouraged workers who gave a job market reason for not looking for a job currently.  And finally, those that are employed part time but want full time work. … (3 comments)

Congress is bringing a knife to a gun fight - 02/06/09 03:05 PM
If you've seen the movie the "Untouchables" with Sean Connery, you probably remember the line where he says something to the effect of "bringing a knife to a gun fight", only he uses a term that I won't repeat.
Well, that's exactly what Congress is doing with their proposed housing stimulus plan that is making its way through the Senate, they are bringing a knife to a gun fight and they have been now for nearly a year.  And that's why the housing market has and will continue to deteriorate.
The latest of Congress' efforts is to provide a 10% home-buyer … (7 comments)

Housing market bottom in sight? - 02/05/09 01:17 PM
"Housing Market Bottom In Sight" was the headline of a Reuters article on CNBC based on Moody's recent assessment and report on the housing market. 
CNBC's Jim Cramer has also been calling for a housing bottom on June 30 of 2009.
First of all, what exactly is a housing bottom?  Is it the point in time when the month's supply of housing has peaked and there is maximum downward pressure on home values, or is it the point when home values stabilize?  And for that matter, what is a housing recovery?  Is that the point when home values have stabilized, or is it … (5 comments)

Homeownership bubble deflating - 02/04/09 12:49 PM
A couple of months ago I wrote a post about a bubble that you don't hear much debate about, the homeownership bubble.  The chart below shows that over the past decade, due to easy credit and cheap money, a disproportionate percentage of Americans than ever before have owned a home.  This trend is already in the process of "correcting".
The reason why that post as well as the new homeownership data published by the Census Bureau is relevant is because it holds the secret as to a housing recovery. 

The Census Bureau recently published their 4th quarter of 2008 homeownership … (6 comments)

Mortgage purchase applications sink again - 02/04/09 11:53 AM
The Mortgage Bankers Association announced today that the seasonally adjusted purchase index decreased -11.2% to 261.4, its lowest index since November 26th of 2008 when it was at 261.6.  The 30-year fixed rate mortgage at that time was 5.99%, currently it stands at 5.28%.  In other words, despite rates being nearly 75 basis points lower today than during the week of November 26th, and despite the fact that we are past the holiday season and well into the new year, the demand for mortgage purchase applications is nearly unchanged, this is a problem.
The problem with this is that in order … (0 comments)

The $7,500 first time home buyer tax credit to be expanded? - 02/03/09 05:32 PM
Jeanne Sahadi, with CNNMoney.com recently wrote an article about how the Senate may propose a broader housing stimulus plan that would include the creation of 4% mortgage rates for a limited period of time, expand the $7,500 home buyer tax credit to all primary residence purchases, not just first time buyers, increase the tax credit to $15,000, and of course the compulsory 90 day foreclosure moratorium.
Here's my two cents:
The "creation" of a 4% mortgage rate is going to be incredibly expensive.  The Fed already tried to plunge mortgage rates by purchasing approximately $600 billion worth of mortgage backed securities … (3 comments)

Pending home sales - that's it? - 02/03/09 04:04 PM
The NAR published their pending home sales index today for December and it reflected a 6.3% increase from last month to 87.7.  The 87.7 number is better than the October number of 85.7 but lower than the September number of 89.2.  In other words, despite mortgage rates that plunged to 5.29% in December (source: Freddie Mac), and housing affordability that is literally off the charts that the NAR has been tracking for over 3.5 decades, it appears that the seasonally adjusted home sales in January will likely be in the 5 million range.  This is the same range that we have … (7 comments)

No, REALLY, it's not about housing affordability anymore - 02/03/09 03:37 PM
A couple of weeks ago I wrote a post titled, It's NOT about housing affordability.  The basis of the post was that according to the NAR's housing affordability index, affordability in November of 2008 was the highest on record since 1973 when they began tracking the indicator.  The NAR measures the relationship between the median existing single family home value, the median family income, and mortgage rates.
Housing affordability is one of those catch phrases that has been said for a long enough period of time that the assumption is that it must still be true, otherwise, why would everybody still … (0 comments)

There is no free lunch with falling home prices - 02/02/09 09:55 AM
A week ago I wrote a post about Peter Schiff on the housing market.  It was in response to U.S. News & World Report's Luke Mullins and an interview he did with Schiff on his blog.  In the interview Schiff lobbys for home values to come down and for the government to allow the free market to sort it out.  The problem with this is that a lot of people overlook is that there is no "free lunch" with a free market solution, somebody always has to pay for it, and its usually not the person who got the free lunch.
… (2 comments)

 

Mark MacKenzie

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