Tabs

Thursday, September 2, 2010

July Housing and Mortgage Market Trend Sheet – On Nitrous

My post-college son recently bought a manual transmission car. He’s quite pleased. The ability to shift through the gears gives him the feeling of a race car. Although it’s great not having to loan out my car and I’m pleased that he’s happy, the phrase “race car makes me apprehensive. Since my son and his car have been on my mind lately, it coincided with my thoughts on the housing market – so this month’s episode will be auto themed.

If you’ve seen “Fast and the Furious,” a Hollywood flick set amidst the underground culture of street racing – the heavily modified Japanese imports are retro-fitted with nitrous-oxide injectors. The nitrous makes the car go faster for a short period of time, typically to overcome a fellow racer at the end of a race (see clip). The government’s housing tax credit was like the nitrous fed into the engine. Last July, though, we felt like Paul Walker pushing the nitrous button too soon – the housing market hit a wall. Both new and existing home sales saw month-to-month declines in the double digits and year-over-year fall-offs greater than 25%.

To put the drop-off in existing home sales into perspective, there were 3.8 million homes sold in July in comparison to the monthly average of 5.4 million units in the first half of 2010. The plunge was so severe, that existing home sales dropped to a level last seen in 1995.

The July sales of new homes were equally troubling, although the numbers were less surprising, since the last three months have seen double digit year-over-year declines in new home sales.

There was some positive news on the delinquency and foreclosure front. The Mortgage Bankers Association reported in their Q2 National Delinquency Survey that the delinquency rate for mortgages dropped to a seasonally adjusted rate of 9.85% of all loans outstanding, a reduction of 21 basis points from the first quarter. Meanwhile, 1.11% of loans had foreclosure actions started on them, which was down 12 basis points from last quarter and down 25 basis points from one year ago.

The drop was followed by optimistic news – for the first time since 2006, the inventory of homes in the foreclosure process fell, the largest drop in the inventory since 2005. However, this good news was followed by a rise in the number of short-term delinquencies, which will likely lead to a growing number of foreclosures.

The housing market, for now, is sputtering along a little like Nick’s Yellow Yugo from the movie, “Nick and Nora’s Infinite Playlist.” However, Nick still gets the girl, which should remind my son that it’s not the car, it’s the driver.

The Housing and Mortgage Market Trend Sheet, located in the "OCE Documents of Interest" column at the right, is now updated with June figures. The trend sheet includes sales, pricing, construction, underwriting and delinquency data.

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