National Housing Bust: Four More Quarters

Moody's Economy.com says look for a housing market turnaround in early 2009 -- provided market conditions cooperate.

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - If you've been wondering when the housing market will turn around, Moody's Economy.com says it has the answer -- early 2009 -- provided market conditions cooperate.

The report, "Aftershock: Housing in the Wake of the Mortgage Meltdown," forecasts the beginning of the end to housing market woes early next year, but only with the alignment of significant housing market conditions.

Given the current state of those conditions, a planetary alignment may also be necessary.

Economy.com's report says to generate a 2009 turnaround, home builders must further curtail housing starts, sellers must shave more off asking prices and lenders will have to loosen their purse strings, among other cooperating market conditions.

To put the housing market on the road to recovery, new homes constructed must fall to 1 million this year, down from the estimated 1.2 million last year.

The report, which incorporates the respected Case-Shiller Home Price Index, a measure of home price appreciation, says the national median home price will have to tumble 12 percent from peak levels. Prices have already fallen 5 percent from their high point, according to "Aftershock" data.

Along with a smaller inventory of homes and lower home prices, a market turnaround will also require more loan modifications to help stop foreclosures from flooding the already oversupplied market.

Creditors must also ease their grip on financing so more consumers can buy homes.

"In this scenario, the housing market finds a bottom by early 2009," the report says.

Unfortunately, the downturn could be prolonged if prices slide too much, too many mortgages fail and money stays hard.

"The ramifications of this for the economy, and thus housing, would be overwhelming. Behind this worry is the financial system's substantial exposure to hundreds of billions in mortgage losses that are set to come," the "Aftershock" report warns.

Another risk is home owners suffering equity losses that amount to too much "wealth effect" erosion.

"As consumers turn more cautious in response to their eroding wealth, the economic expansion will surely waver, but if it falters significantly it will ignite a further devolution of the already reeling housing market," the report further warns.

Without a cooperating convergence of key factors, analysts could begin to use the "C" word -- as in "crash," says the report.

Making no mention of a supposed "media effect," postulated by real estate leaders who say media coverage has exacerbated the housing market slowdown, "Aftershock" sees some light in what it considers "promising" federal policy making efforts.

The report says the Bush Administration, federal legislators and federal regulators are fully engaged in heading off the recessionary impact of the hard-pressed mortgage market.

The Federal Reserve has lowered interest rates, Congress recently passed the "Mortgage Forgiveness Debt Relief Act of 2007," effective January 1, 2008, and lawmakers have several more major pieces of legislation in the pipeline to assist homeowner.

"The most significant upside risk to the housing outlook is that policymakers appear fully engaged in stanching the financial turmoil and ensuring that the economy avoids recession," the report concludes.

Read up.
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© 2008 DeadlineNews.Com

Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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Lenders Turning The Screws On Mortgages

by Broderick Perkins
© 2007 DeadlineNews.Com

Deadline Newsroom – If you are sitting on the fence waiting for mortgage lenders to open the flood gates on the dammed up flow of home loans, get comfortable.

Lenders may not be finished turning the screws on home loans.

For borrowers, that means continued higher costs for some home loans and tougher qualifying requirements for approval.

Risky lending and borrowing habits during the last housing boom left too many homeowners with mortgages they couldn't afford.

That forced lenders to end the boom with the sound of the door on risky loans being slammed shut to lock out losses from failed home loans.

Forty percent of loan officials said their institution tightened lending standards on prime, nontraditional and subprime home loans in the past three months, according to the October Senior Loan Officer Opinion Survey on Bank Lending Practices.

That's three times as much as the 15 percent that reported tightening lending standards in the July report, says the Federal Reserve, which conducts the quarterly survey.

The Fed said 52 domestic banks and 20 foreign banking institutions participated in the latest survey.
Forty percent of loan officers surveyed said standards for prime loans had tightened, but the percentages were higher when only nontraditional or subprime loans were considered.

Of the 40 banks originating nontraditional residential loans, 60 percent in the October survey, reported tightening lending standards on nontraditional loans, up from 40 percent in July.

Five of the nine banks writing subprime loans -- 55 percent -- said they tightened lending standards on subprime loans over the past three months. A similar percentage in July said they had tightened standards, according to the survey.

As a result of the tightening, demand for home loans has weakened.

Overall, about half of the domestic loan officers indicated that demand for prime, nontraditional, and subprime residential mortgages had weakened over the past three months, compared to three months prior. Lenders reporting weaker demand for prime and nontraditional mortgage loans increased notably compared with the July survey. Those reporting weaker demand for subprime loans was only slightly larger than in July, the Fed said.

By loan type, demand for home loans was weaker during the last three months (when compared with the previous three months) at 59.2 percent of lenders offering prime mortgages, at 55 percent of lenders offering nontraditional mortgages and at 50 percent of lenders offering subprime loans.

The Fed's survey also found tighter lending standards and less demand for jumbo loans -- those larger than the $417,000 conforming loan level -- over the past three months.

Most, 84.4 percent of lenders, said over the past three months the size of jumbo loans remained the same while 15.6 said tighter restrictions were placed on the size.

The cost of jumbo loans rose at 48.9 percent of lending institutions, remained the same at 48.9 percent of lenders and declined at 2.2 percent of lenders.

The minimum down payment necessary to qualify for a jumbo loan rose at 35.6 percent of the lenders in the survey, but remained the same at 64.4 percent of the lenders.

Also the minimum credit score necessary to land a jumbo rose at 28.9 percent of the lenders and remained the same at 71.1 percent of those surveyed.

Greater income and asset documentation was required at 51.1 percent of lenders while the level of documentation remained the same at 48.9 percent of lenders, the Fed reported.

The tougher restrictions pushed the share of jumbo loan originations down at 55.4 percent of lenders surveyed, the share remained the same at 34 percent of lenders and the share of jumbo originations rose at 10.6 percent of lenders.

The squeeze is also on for commercial real estate loans used for construction and land development. Nearly 52 percent of lenders said credit standards had tightened for commercial realty loans and 48 percent said demand was down over the past three months, according to the Fed's survey.

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• APR Not a Good Judge of Mortgage Character
• Silicon Valley Bullish on Buying, Not Selling
• Mortgage Confusion Chronic

© 2007 DeadlineNews.Com

Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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DeadlineNews.Com's Editorial Content Is Intellectual Property • Unauthorized Use Is A Federal Crime

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