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The Fundamentals: How bad are they?

On a daily basis we all get confronted with a lot of data.  In that data resides many false signals and conflicting statistics.  Today, I would like to take a step back and look at the housing market as it resides today.  The housing market is where most of the trouble started and will most likely be a heavy burden for some time to come.

Housing prices seem to have stablized, but there are a lot of delinquencies that need to be worked through

Delinquencies on Subprime are declining, but what about prime borrowers?

Housing Foreclosures still need to be worked through the system - Have the banks really realized the losses?

Do not expect new housing to provide the jumpstart in the economy. I would not want to be a homebuilder.

Existing home sales spiked, new home sales stagnant. What about after the homebuyer's tax credit?

Homeowners Versus Home Renters since 1965. Should all of those families really have owned a home? Are we going to realize the long-term average?

Homeowner Vacancy Rates since 1960. All-time highs.

This might seem like a depressing bit of statistics, but it is always better to be realistic rather than put your head in the sand.  The government will do everything in its power to support the housing market and stem any further declines.  The banks are still holding a ton of this risk on their balance sheets and have not realized all of the losses that the collapsed housing market has created.  The mortgage modification program was mildly successful and I believe that the next step will be for the government to reduce principal on outstanding mortgages of troubled borrowers.  The banks and the government will do anything to keep troubled borrowers in their homes, taking care of the property, and keeping the potentially foreclosed house out of the current housing supply.  Just how much has the government supported the mortgage market so far?  Just take a look at their trillion dollars of mortgages that they have already bought in a year’s time:

The fed has supported the market in 2009 and the recent Fannie/Freddie buyout programs will support the market for the next 3 months

So if you want to buy a house, by all means go ahead as prices are much more attractive than they have been for a long time.  If you are buying a house for a quick rebound in prices, I think you are looking in the wrong place.

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5 Responses

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  1. Randy Woods says

    “The banks and the government will do anything to keep troubled borrowers in their homes.”
    Every time I read an article about mortgage modifications I see that a very small percentage of homeowners who have applied for modification have completed the process. seems to me that banks are dragging their feet and they don’t like the precedent of rewriting a mortgage contract.

  2. SurlyTrader says

    I actually have some good stats related to modifications. Of the 5.6M 60-day delinquent homes, only 1.7M were eligible for the HAMP(Home Affordability Modification Program Program). Of the 1.7M eligible borrowers, 1.27M loans have already been modified. That’s 75%, so the HAMP program is running out of steam.

    What you need to keep in mind is that Fannie, Freddie and Ginnie are going to be the largest holders of the delinquent loans as they buy them out of the agency backed mortgage pools. This means that the government will have great discretion in how they modify those loans and I bet you they will get pretty creative, which I will bet includes reduced payments alongside principal paydowns.

  3. Randy Woods says

    kuhlmann, WSJ, 20 Jan 2010
    Since the program began, more than three million homeowners have become eligible for assistance. In turn, mortgage servicers have reached out to these borrowers, initiating the modification process. Roughly 760,000 homeowners have received loan modifications on a trial basis. But just 31,000 modifications have been made permanent.

    That’s a success rate of just 1%. This means that up to 99% of eligible homeowners struggling with their mortgage payments have been unable thus far to modify their loans.

  4. SurlyTrader says

    I was looking at the government report from the “” website. Of particular interest are slides 4 & 5. 5 shows the waterfall in which eligible borrowers become ineligible.

Continuing the Discussion

  1. Government Principal Paydowns Possible? | SurlyTrader linked to this post on February 26, 2010

    […] my previous post about the fundamentals of the housing market I suggested that the next thing to come from the government would be the paydown of mortgage […]

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