Posts Tagged ‘Economists’
Refi Surge…Not So Much
As mortgage rates hit new record lows, refinance applications have surged accordingly. That, as always, is leading economists to talk once again about what the effect of all that refinancing might be on the greater economy.
Higher conforming loan limits due to expire
Unless Congress intervenes, the maximum loan amount the Federal Housing Administration will back, as well as loans backed by Fannie Mae and Freddie Mac, will return to $417,000 in most areas and $625,500 in high-cost areas. The higher loan limits are due to expire Dec. 31, 2010. Over the last two years, the government raised the limits in some high-cost areas to $729,750. If Congress doesn’t extend higher limits, home prices would “drop precipitously” because it would be “impossible to finance homes in most parts of Los Angeles and certain other major cities,” said Rep. Brad Sherman, a California Democrat and member of the House Financial Services Committee. But many economists support the end to higher limits. “We need to think how we are going to exit from a Fannie-and-Freddie world, and this is a very small step toward that exit,” said Richard K. Green, director of the University of Southern California’s Lusk Center for Real Estate. “Dialing it back to $625,500 is a perfectly reasonable thing to do.” Source: The Wall Street Journal
Americans’ economic confidence ticks up slightly
Americans’ confidence in the economy improved slightly in August, but the mood is still gloomy amid job worries, according to a monthly survey. The Conference Board said Tuesday that its Consumer Confidence Index now stands at 53.5, up from a revised 51.0 in July. Economists surveyed by Thomson Reuters had expected 50.5. The increase comes after two straight months of declines. It takes a reading of 90 or more to indicate a healthy economy – a level not reached since the recession began in December 2007. The index – which measures how Americans feel about business conditions, the job market and the next six months – had been recovering fitfully since hitting an all-time low of 25.3 in February 2009. But August’s reading suggests that American confidence hasn’t improved from a year ago, a bad sign for the economy and for retailers, which have been grappling with a weak start to the back-to-school season. Economists watch confidence closely because consumer spending accounts for about 70 percent of U.S. economic activity and is critical to a strong rebound. But worries are rising the economy is growing too slowly to support sustained job growth, and some are concerned it could fall back into a recession. “The comfort in (August’s confidence figures) is that confidence did not fall further,” Paul Dales, U.S. economist at Capital Economics, said in a statement. “But there are few signs that households will ramp up their spending. High unemployment, widespread negative housing equity and low share prices are keeping households on the sidelines.” Still, investors, bombarded by piles of bad news about the economy, seized on the bigger than-expected increase in August’s confidence figure. The Dow Jones industrial average is up 22, or 0.2 percent, at 10,032 Tuesday morning. The S&P 500 is up 1, or 0.1 percent, at 1,050. Stocks have been pummeled throughout the month because of uncertainty over signs of slowing growth. Meanwhile, a widely watched home price index reported that home prices rose in June for a third straight month as now-expired tax credits inspired a burst of homebuying. But prices are expected to fall through the rest of the year now that demand has faded. The slight improvement in August’s Consumer Confidence Index was boosted by shoppers’ improved outlook over the next six months. That gauge rose to 72.5 from 67.5. The other, which measures how consumers feel now about the economy, decreased to 24.9 from 26.4. “Expectations about future business and labor market conditions have brightened somewhat, but overall, consumers remain apprehensive about the future,” said Lynn Franco, director of The Conference Board Consumer Research Center in a statement. New figures issued Friday show the economy is weaker than expected, and the outlook for the rest of the year is looking bleaker. The Commerce Department reported that gross domestic product grew at a 1.6 percent rate for April through June. The initial estimate was 2.4 percent. Home sales are plunging, and consumers are saving more and spending less as the unemployment rate remains stuck at almost 10 percent. The Standard & Poor’s/Case-Shiller 20-city home price index released Tuesday posted a 1 percent increase in June from May and was up 4.2 percent from a year ago. Home prices nationally were up 4.4 percent in the second quarter compared with the first quarter. That was largely because buyers could take advantage of government tax credits of up to $8,000. Home sales have dropped sharply since those incentives expired. Lending standards remain tight, and unemployment is stuck near 10 percent. Last week, the National Association of Realtors said sales of previously occupied homes in the U.S. fell 27 percent in July, the weakest showing in 15 years. It marked the largest monthly drop in the four decades that records have been kept. Meanwhile, the Commerce Department reported that sales of new homes fell 12.4 percent in July from a month earlier. July’s pace was the slowest in at least 47 years. Economists will closely watch Friday’s reading on job figures for August, but they’re bracing for more bad news. Economists surveyed by Thomson Reuters expect overall nonfarm payrolls to drop 100,000 jobs in August, dragged down by government cutbacks on the state and local level. Private employers were expected to add 54,000 jobs, which would mark the fourth straight month of tepid gains. Given the scenario, the unemployment rate is slated to tick up to 9.6 percent from 9.5 percent. Against this background, consumers are waiting for the best deals and buying fashions that they can wear right away for the fall season. And stores don’t expect shoppers to start spending anytime soon. The Conference Board survey, based on a random survey mailed to 5,000 households from Aug. 1 to Aug. 24, showed shoppers remain worried about jobs. Those saying jobs are “hard to get” increased to 45.7 percent from 45.1 percent, while those claiming jobs are “plentiful” declined to 3.8 percent from 4.4 percent. Those expecting more jobs in the months ahead increased to 14.6 percent from 14.2 percent, while those anticipating fewer jobs decreased to 19.4 percent from 20.9 percent. Copyright © 2010 The Associated Press, Anne D’Innocenzio, AP retail writer. AP Real Estate Writer Alan Zibel in Washington contributed to this report
July new home sales fall to slowest pace on record
Sales of new homes dropped sharply last month to the slowest pace on record, the latest sign that the economic recovery is fading. The Commerce Department says new home sales fell 12.4 percent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600. That was the slowest pace on records dating back to 1963. Economists surveyed by Thomson Reuters had expected a pace of 330,000. June’s sales figures were revised downward to an annual pace of 315,000. May’s figures were revised upward and are now the second-slowest pace on record. The median sales price in July was $204,000. That was down 4.8 percent from a year earlier and down 6 percent from June.
Nearly 50 percent leave Obama mortgage-aid program
Nearly half of the 1.3 million homeowners who enrolled in the Obama administration’s flagship mortgage-relief program have fallen out. The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments. Friday’s report from the Treasury Department suggests the $75 billion government effort is failing to slow the tide of foreclosures in the United States, economists say. More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year. “The government program as currently structured is petering out. It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications,” said Mark Zandi, chief economist at Moody’s Analytics. Besides forcing people from their homes, foreclosures and distressed home sales have pushed down on home values and crippled the broader housing industry. They have made it difficult for homebuilders to compete with the depressed prices and discouraged potential sellers from putting their homes on the market. Approximately 630,000 people who had tried to get their monthly mortgage payments lowered through the government program have been cut loose through July, according to the Treasury report. That’s about 48 percent of the ones who had enrolled since March 2009. And it is up from more than 40 percent through June. Another 421,804, or roughly 32 percent of those who started the program, have received permanent loan modifications and are making their payments on time. RealtyTrac reported that the number of U.S. homes lost to foreclosure surged in July to 92,858 properties, up 9 percent from June. The pace of repossessions has been increasing and the nation is now on track to having more than 1 million homes lost to foreclosure by the end of the year. That would eclipse the more than 900,000 homes repossessed in 2009, the firm says. Lenders have historically taken over about 100,000 homes a year, according to RealtyTrac. Zandi said the government effort will likely end up helping only about 500,000 homeowners lower their monthly payments on a permanent basis. That’s a small percentage of the number of people who have already lost their homes to foreclosure or distressed sales like short sales - when lenders let homeowners sell for less than they owe on their mortgages. Zandi predicts another 1.5 million foreclosures or short sales in 2011. “We still have a lot more foreclosures to come and further home price declines,” Zandi said. He said home prices, which have already fallen 30 percent since the peak of the housing boom, would drop by another 5 percent by next spring. Many borrowers have complained that the government program is a bureaucratic nightmare. They say banks often lose their documents and then claim borrowers did not send back the necessary paperwork. The banking industry said borrowers weren’t sending back their paperwork. They also have accused the Obama administration of initially pressuring them to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out. Obama officials dispute that they pressured banks. They have defended the program, saying lenders are making more significant cuts to borrowers’ monthly payments than before the program was launched. And some of the largest mortgage companies in the program have offered alternative programs to those who fell out. Homeowners who qualify can receive an interest rate as low as 2 percent for five years and a longer repayment period. Those who have successfully navigated the program to reach permanent modifications have seen their monthly payments cut on average by about $500. Homeowners first receive temporary modifications and those are supposed to become permanent after borrowers make three payments on time and complete all the required paperwork. That includes proof of income and a letter explaining the reason for their troubles. But in practice, the process has taken far longer. The more than 100 participating mortgage companies get taxpayer incentives to reduce payments. As of mid-June only $490 million had been spent out of a potential $75 billion the government has made available to help stem the wave of foreclosures. Copyright © 2010 The Associated Press, Martin Crutsinger, AP economics writer.
Risks abound if too many refinance
Lots of homeowners are frustrated these days that they can’t seem to get a mortgage refinance even though interest rates are at historical lows. It turns out they’re not alone. Plenty of people on Wall Street would also love to see a boom in refinancing activity, saying it would be a near-painless way to inject more money into the economy. If more people can refinance, the thinking goes, the more cash they’ll have to spend. Those economists and analysts calling for a mass mortgage reset say it could be engineered by the government, which controls the giant mortgage lenders Fannie Mae and Freddie Mac. Have them loosen underwriting standards and give breaks on fees, and more people will qualify to refinance. Here’s what the Obama administration says about that idea: Don’t get your hopes up. And that’s a good thing, since ushering in a refinancing boom would only be a short-term fix for the housing market and the economy that would have long-term consequences. A widespread refinancing of loans would mean reverting to looser lending standards, one of the things that got us into this mess. It could also boost mortgage rates for new borrowers and force U.S. taxpayers to shoulder more risk, since they technically own Fannie and Freddie. “At some point, we have to ask ourselves how much more can we ask taxpayers to do to support people staying in their homes,” says Dean Baker, co-director of the left-leaning Center for Economic and Policy Research in Washington. Wall Street has been abuzz in recent weeks over the possibility of the government engineering a broad refinancing of loans. Mortgage rates for a 30-year fixed home loan are now 4.49 percent, the lowest it has been since Freddie Mac began tracking rates in 1971. But millions of borrowers haven’t been able to benefit from those low rates. A big reason has to do with the fact that falling housing prices have left many borrowers with little or no home equity, which is also known as being “underwater.” As a result, they can’t qualify for refinancing. Others are deterred from refinancing by strict lending standards and the high fees that come with it. To get more mortgage resets done, some well-known economists and analysts at firms like Morgan Stanley and Goldman Sachs say the government should encourage a refinancing wave by adjusting lending policies at Fannie and Freddie. The mortgage lenders were taken over by the government two years ago. They own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. They buy home loans from lenders, package them into bonds with a guarantee against default and sell them to investors. The savings from a major mortgage reset could be significant. Allow someone with a $200,000 mortgage at 6 percent to refinance down to 4.5 percent, and suddenly there is $3,000 a year available to be plunged back into the economy. Add that up across millions of people, and you have what Morgan Stanley economist David Greenlaw calls a “slam dunk stimulus.” The government is already trying to help borrowers refinance, but its existing program has been a bust. The Home Affordable Refinance Program, or HARP, is directed at homeowners whose loans nearly or completely outsize the value of their homes. The government had hoped HARP would lead to millions of mortgage resets, but only a few hundred thousand have been done. The problem is that there are too many restrictions when trying to refinance under HARP. That’s why some people on Wall Street want the government to roll out a less restrictive program to get more mortgages resets done. Regardless of the pressure coming from homeowners and some on Wall Street for the government to ease refinancing rules, Treasury Department spokesman Andrew Williams tells The Associated Press that “the administration is not considering a change in policy in this area.” The government sees where the pitfalls are. Taxpayers have already pumped $145 billion into Fannie and Freddie over this last two years, and widespread refinancing now could raise that burden. Fannie and Freddie would very likely see their earnings decline and writedowns on their mortgage securities go up. In total, a mass mortgage reset could cost the mortgage lenders $75 billion, according to research from investment firm Keefe, Bruyette & Woods. Let’s also consider that a refinancing boom could have unintended consequences. The pace of foreclosures might not slow. A lower interest rate still might not be attractive enough for deeply underwater borrowers to stay in their homes. To some, it is not worth paying any money toward a depreciating asset, regardless of the interest rate. New borrowers could also face higher interest rates. A large refinancing wave would depress the value of mortgage-backed securities, making them less attractive to investors such as pension funds and foreign governments. Weak demand for those securities could lead to higher mortgage rates because lenders could have a harder time selling off their loans to investors. A short-term refinancing wave could help stabilize the housing market now, but it could also hurt home sales later. Homeowners who are able to lock in a once-in-a-lifetime interest rate could be deterred from moving in the future. Hitting the mortgage reset button could put more money into homeowners’ pockets today, and would also give the economy a quick jolt. But the ultimate costs may be too high. Copyright © 2010 The Associated Press, Rachel Beck, AP business writer.
Existing Homes Sales are Up-But Realtors are Still Down
Today's existing home sales report should have had analysts, experts, economists, and Realtors dancing in the streets.
