“Having a why – a powerful, compelling
reason – is the one thing no one can give you.” – Stephen Pierce: Internet marketer and author
reason – is the one thing no one can give you.” – Stephen Pierce: Internet marketer and author
In the last quarter of 2010 Freddie Mac reported that 46% of homeowners who refinanced lowered their principal by putting in more money at closing, the highest cash-in percentage on record. Meanwhile, Freddie’s cash-out borrowers fell to 16% of all loans, the lowest percentage on record. Combine that with the MBA is projecting residential origination will drop below $1 trillion (2002-levels, and a 35% decrease from last year), expecting new home purchases to rise 30% & refinancing activity expected to fall 66%, and we have a different market. Keep on top of those business plans!
MBA Weekly Mortgage Applications Survey Market Composite Index increased 11.3%, Refinance Index increased 11.7 %, and the Purchase Index increased 9.5%. “Applications increased this week relative to the holiday week,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Looking over the past two weeks, purchase applications are flat, and refinance applications are down about five percent.” The refinance share activity decreased to 69.3% and the ARM share increased to 5.5%. The average 30-year rate increased to 4.81% from 4.80% and 5-year rate increased to 4.13% from 4.12%.
The Federal Reserve Board on Tuesday announced that it does not expect to finalize three pending rulemakings under Reg. Z, which implements the Truth in Lending Act, prior to the transfer of authority for such rulemakings to the CFPB. RegZ
As the “flight to quality” concerning Egypt continued to ebb out of the market, yesterday fixed-income prices continued to worsen, pushing rates higher. 10-yr notes were worse by .5 (with the yield closing at 3.44%), and mortgage-backed security prices worsening by about .375. MBS sales also picked up a little, not a particularly good sign during a sell-off. Mortgage prices often trade as a spread to Treasury yields, and one trader reported that “spreads were about in the middle of their recent range, so not exactly enticing for money managers. Lower prices, however, helped and brought in some real money interest through the morning session; however, it was more than offset by modest supply and better selling.”
In terms of economic news, the ISM manufacturing number slowed in January, but still showed growth. The January reading was the strongest level since May 2004. On the flip side, Construction Spending fell 2.5% in December, and was 6.4% below its level in December 2009. This’s morning’s ADP number, with its dubious predictive power, was higher-than-expected. Currently the 10-yr yield is sitting around 3.40%, down from Tuesday’s close, and MBS prices are .125-.250 better.
What Exactly Is Shadow Inventory?
It is difficult to read an article about real estate today without the term “shadow inventory” being mentioned. But, what exactly is shadow inventory? It refers to the inventory of homes not yet for sale that will eventually come to market in the near future. Most definitions include properties already foreclosed on and owned by the banks (REOs), those houses in the foreclosure process and those homes where the homeowner is seriously delinquent on their mortgage payment (at least 90 days behind).
There are many questions about shadow inventory. Here are the most common misunderstandings addressed:
I’ve heard about shadow inventory for years. Does it really exist?
Not only does it exist, it is being slowly released onto the market. The National Association of Realtors has reported that over 30% of all home sales over the last few months have been distressed properties.
Why include seriously delinquent homes in this number?
Seriously delinquent are counted because studies show that 98% of all those who fall 90 days behind never catch up and these properties eventually come to the market as distressed sales (short sales or foreclosures).
Do banks have a backlog of properties that they currently own?
Yes. In an article
in Housing Wire, RealtyTrac Senior Vice President Rick Sharga said:
“…major banks currently hold roughly 1 million REO, or homes repossessed through foreclosure, but only 30% have actually made it onto the market.”
Why are banks holding this inventory?
The article mentioned above answers this question this way:
Striking a proper balance on how to mange this shadow inventory of foreclosures is vital for the banks to show a healthy balance sheet while not dumping too many distressed properties onto the market, further dragging down home prices and values.
Isn’t most of this inventory sub-prime and exotic mortgages?
Not any longer. A study
recently done by Morgan Stanley shows that:
26.3% of the loans are sub-prime
17.4% are Alt-A
56.2% are prime mortgages
Right now, prime mortgages make up the majority of loans in this shadow industry.
Isn’t most of this inventory confined to CA, AZ, NV and FL?
Not any more. The Morgan Stanley study showed:
…the shadow inventory is growing across all of the United States…” While hard-hit cities represent a more than fair share of shadow inventory, its distribution broadly encompasses all corners of the country,” said the analysts.
Bottom Line
Shadow inventory is real and will impact almost every part of the country. Make sure you ask a local real estate expert to find out how it may impact your market.
A FEW HEADLINES IN THE NEWS TODAY:
Can anything end this ‘Groundhog Day’ of a winter? All this snow will affect commerce, the economy, and will most likely cause volatility in economic indicators.
that was less than the original report of 297,000. The median estimate called for a gain 140,000 gain in January. Friday’s BLS Non-Farm Payrolls report is forecast to show 140,000 jobs increase in January, with the jobless rate at 9.5%.
. The U.S. Treasury Department today said it would keep its long-term borrowing at steady levels and warned that the federal debt limit could be reached as soon as April 5.
ADP Employment report: jobs increased by 187,000 in January after a revised 247,000 gain in December
Treasuries Advance as Egyptian Concern Reemerges, Fueling Demand for Haven , and are now down slightly. UST price support comes on concern political turmoil in Egypt may worsen, fueling demand for safe assets, as well as Fed buying of $1.5 billion to $2.5 billion of notes maturing between 2021 and 2027 today as part of QE2. The 10-year UST yield is at 3.45 this morning and has ranged between the 3.25% and 3.5% range this year. The US will sell $72 Billion UST’s at the quarterly refunding next week in the form of $32 billion in 3-year notes, $24 billion in 10-year notes and $16 billion in 30-year bonds.
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