The former head of Ginnie Mae discusses the recent foreclosure freezes

He also predicts "further declines in the housing prices in this country."


From the CNBC interview:

Although the foreclosure freeze is stabilizing the housing market for the time being, it will trigger further housing price declines two to four quarters out, Joseph Murin, former president of the Government National Mortgage Association [Ginnie Mae] told CNBC on Monday.

"What it will cause is a more eroding of confidence in the American people," he said. "And when the American people aren't confident, they're not going to respond, which means the housing market is going to remain sluggish."

Foreclosure stalling is necessary for institutions to reassess whether they are processing correctly, Murin went on to say.

"There's no fraud involved in this," he said. "It's process inadequacy that's causing the problem. Behind the scenes, we're dealing with technology and experience that's probably a decade old. It's not kept up with the huge push [in mortgage debt]."

Off topic

Microsoft just issued it's biggest ever security fix today. If you're a Windows user, make sure Automatic Updates is turned on or do an update yourself.

If you're a Mac or Linux user, you're already secure.

The Google Price Index

For those of you who refuse to trust the U.S. government's economic statistics:

Google is using its vast database of web shopping data to construct the ‘Google Price Index’ – a daily measure of inflation that could one day provide an alternative to official statistics.

The mix of goods sold over the internet is different to the mix of goods sold in the wider economy.

The work by Google’s chief economist, Hal Varian, highlights how economic data can be gathered far more rapidly using online sources. The official Consumer Price Index data are collected by hand from shops, and only published monthly with a time lag of several weeks.

At the National Association of Business Economists conference in Denver, Colorado, Mr Varian said that the GPI was a work in progress and Google had not yet decided whether to publish it.

While the Federal Reserve is unlikely to panic just yet, Mr Varian said that the GPI shows a “very clear deflationary trend” for web-traded goods in the US since Christmas.

Of course, Google is a big corporation and we know from the Democrats that big corporations can't be trusted. Perhaps we shouldn't trust anyone.

Job market: Mixed results for September 2010

The unemployment rate, at 9.6%, remained unchanged in September. Although it is below its late 2009 peak, it has spent almost all of 2010 (except April) in a range of 9.5-9.7%.


Payrolls continued to get worse in September. Ironically, businesses are actually increasing workers. It is governments that are losing workers. John Maynard Keynes must be rolling over in his grave.


On the bright side, aggregate weekly hours worked is increasing. This suggests that underemployment is declining.


Also on the bright side, the mean duration of unemployment has continued to decline after reaching its all-time peak in June 2010.

The dismal state of the new home market

New building permits are near an all-time low:


New housing starts are near an all-time low:


And new home sales are at rock bottom:


The gray portions of the graphs indicate recessions. As you'll notice, a recovery in new home construction has been an essential part of almost all economic recoveries. ...But we're not getting that this time.

New home sales: Worst August on record

New homes in August sold at the second-slowest monthly pace since 1963. Only May of this year was lower. No August on record was lower than August 2010. Fewer homes sold in August than during any month of the 2007-2009 recession. Historically, home building has been an essential part of economic recoveries.

Sales of new homes had their second-worst month on record in August, signaling that the housing market will remain a drag on the economy.

Last month's new home sales were unchanged from a month earlier at a seasonally adjusted annual sales pace of 288,000, the Commerce Department said Friday. Sales were down by 29 percent from the same month a year earlier.

Normally the building industry powers economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

But housing has been at the center of this downturn and it shows no signs of recovering quickly.

The only time new home sales were slower was in May, when the sales pace was 282,000. That's the worst pace on records dating back to 1963. July's results had been the worst on record, but were adjusted upward.

High unemployment, tight credit and uncertainty about home prices have kept people from buying homes. Government tax credits boosted the market earlier in the year, but those expired in April.

The median sales price in August was $204,700. That was down 1.2 percent from a year earlier and the lowest since December 2003.

Existing home sales down 19% YoY

Existing home sales for August were up 7.6% month-over-month, but down 19% year-over-year:

Existing home sales bounced back in August after plunging nearly 30% in the previous month.

Sales of previously-owned homes rose 7.6% to a seasonally adjusted annual rate of 4.13 million units last month, the National Association of Realtors reported Thursday. That's up from 3.84 million in July, but down 19% from a year ago. ...

"I would call August's number less toxic — it wasn't pretty but it wasn't the ugliest," said Mark Tepper, managing partner of Strategic Wealth Partners. "We're still down 21.5% from June and sales dropped significantly in July, so the hurdle was just so low that you almost had to beat it." ...

After steadily rising in previous months, the inventory of homes on the market edged down 0.6% in August to 3.98 million units.

But that's enough supply to last 11.6 months. To hit a balance between supply and demand, inventory should only last 4.5 to 6 months, said Tepper.

Such swollen inventory levels will continue to pressure home prices, he cautioned.

The median price of homes sold in August was $178,600, down 1.9% from the previous month and up a slight 0.8% from a year ago, the report showed. About a third of homes sold during the month were in foreclosure. ...

What does this mean for home-buyers and sellers?

"If you're a homebuyer, sell now if you can," said Tepper. "If you're looking to buy, wait a while."

That's because prices are likely to sink another 10% to 25% in the next 18 to 24 months as the economic recovery remains sluggish, said Tepper.

"This whole housing mess is a disaster that's going to last a while," he said.

The recession is officially over

The National Bureau of Economic Research is the arbiter of official recession start and end dates. They have determined that June 2009 was the end date for the most recent recession:

The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973-75 and 1981-82, both of which lasted 16 months.

In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.

To reiterate: The recession being over doesn't mean the economy is healthy again. It just means that economic output is no longer receding, thus the word "recession". We've still got high unemployment and economic activity is well below its potential. This graph shows the economy started to grow again in Q2, 2009:

Why haven't banks dumped REO's onto the market yet?

The Wall Street Journal examines the expected flood of foreclosures that hasn't (yet) occurred:

For more than a year, housing analysts and investors—some with piles of cash waiting to pounce on distressed markets—have puzzled over a question: Where is the expected flood of bank-owned foreclosures, or REOs?

The number of properties in the foreclosure or delinquency pipeline has grown to record highs, yet volumes of bank-owned properties have fallen steadily over the past year.

What’s happening?

• Some delinquent loans have “cured,” either naturally or through loan modifications. Even unsuccessful loan modifications have stretched out the amount of time that it takes to move a loan through the foreclosure process.
• Banks are getting better about approving short sales, where a home is sold for less than the amount owed, even though the process is still far from seamless.
• And even when a foreclosure happens, more investors are buying the properties from banks at courthouse auctions, which means that the property won’t show up as REO, even though it could ultimately hit the market.

So can we expect more foreclosures to move onto the market? Eventually, yes. ...

But Ivy Zelman, chief executive of Zelman & Associates, notes that “it’s not going to be a flood” ...

A more likely outcome is that foreclosures stay at elevated levels over a longer timeframe. That could stave off another crash in home prices, but it could lead to several years of no home-price appreciation.

New record for bank repossessions

CNBC reports that bank repossessions of homes hit a new record in August:

The nation's banks repossessed a record number of homes in August, according to industry sources. RealtyTrac, an online foreclosure sale site, will release its monthly numbers on Thursday, but sources there confirm the number of repossessions will come in just shy of 100,000 for the month.

That is the highest since the site began tracking in 2005. July's repossession number was the second highest on record. The last highest was 93,777 in May of 2010. ...

Yesterday J.P. Morgan Chase cited the "shadow inventory" of foreclosed properties as one of their primary reasons for pushing back their expectations for a housing recovery as far as 2014. No question, a growing supply of repossessed properties will put further downward pressure on home prices, especially given the current 12.5 month supply of existing homes already for sale.

Half of homebuyer tax credit recipients owe money back to gov't

Apparently, half of the first-time homebuyer tax credit recipients are required to pay the money back, but the IRS isn't sure who they are:

Nearly half of all Americans who claimed the first-time homebuyer tax credit on their 2009 tax returns will have to repay the government.

According to a report from the Inspector General for Tax Administration, released to the public Thursday, about 950,000 of the nearly 1.8 million Americans who claimed the tax credit on their 2009 tax returns will have to return the money.

The confusion comes because homebuyers were eligible for two different credits, depending on when their homes were purchased.

Those who bought properties during 2008 were to deduct, dollar for dollar, up to 10% of the home's purchase price or $7,500, whichever was less. The catch: The money was a no-interest loan that had to be repaid within 15 years.

Had they waited to buy until 2009, they could have gotten a much sweeter deal. Congress extended the credit and made it a refund rather than a loan.

Now, the IRS is developing a strategy for separating the 2009 taxpayers who are required to repay the credit from those who are not.

A review by the Inspector General earlier this year found that the IRS could not easily distinguish between home purchases made in 2008 and 2009. That heightened concerns that some claims could be erroneous or even fraudulent, that buyers could, for example, claim their purchase came later than it actually occurred.

Even some people who purchased in 2009 or 2010 will have to repay:

Some who claimed the credit for homes purchased in 2009 and 2010 will also be required to repay it. For instance, repayment is required if the home is sold within 36 months of the date of purchase by the taxpayer claiming the credit, provided there is a gain on the sale.

Cash for Clunkers hurt poor and unemployed drivers

One year later, Cash for Clunkers was still a dumb, economically harmful idea:

IN THE market for a used car? Good luck finding a bargain: The price of “pre-owned’’ vehicles has climbed considerably over the past year. ...

No great insight was needed to realize that Cash for Clunkers would work a hardship on people unable to afford a new car. “All this program did for them,’’ I wrote last August, “was guarantee that used cars will become more expensive. Poorer drivers will be penalized to subsidize new cars for wealthier drivers.’’ ...

When all is said and done, Cash for Clunkers was a deplorable exercise in budgetary wastefulness, asset destruction, environmental irrelevance, and economic idiocy.

The reason Cash for Clunkers pushed up used car prices is because it required that perfectly functional used cars be destroyed, thus decreasing the supply of used cars available to poorer drivers.

Aid for homeowners may be doing more economic harm than good

Fortune Magazine questions the usefulness of government programs to aid struggling homeowners:

It's easy to see the need for such programs. Theoretically, they keep people in their homes and bring some stability to fragile housing market. But the plethora of programs announced since the housing crisis started have largely been failures, suggesting that any effort to fight foreclosures and boost home sales is going to be a futile one. ...

Not even record low mortgages rates have boosted home sales or enticed a debt-weary public. Of course, this doesn't seem much of a shocker. Experts say home prices — which have fallen by more than 30% since 2006 — are still inflated by 15% to 20% in many areas.

So why try to prop up prices any longer with federal programs? ...

Evidence is mounting that government interference in the housing market might be doing the broader economy more harm than good, at least for the long-term. ...

The few who are buying homes now might likely be overpaying for them. And many latching onto their properties are being convinced it's okay to continue trying to pay off a home they can barely afford — echoes of the homeownership encouragement that led us into the bubble in the first place. ...

Paving the way for a true market correction would not be easy to endure — letting home prices free-fall is a scary thought. But is a gradual decline that could prolong real economic recovery really any easier to stomach?

Banks helping more troubled homeowners than Obama

That's the claim made by CNNMoney:

Remember how everyone complained that banks weren't doing enough to help troubled borrowers?

Well ...

Banks have realized that foreclosing on home after home after home may not be in anyone's best interest — least of all their own. So they've ramped up the number of loan modifications they're handing out to their delinquent clients.

Banks are doing nearly twice as many modifications under their own foreclosure prevention initiatives than under the Obama administration's signature Home Affordable Modification Program, known as HAMP.

But before homeowners rejoice, they should take a close look at the terms of their bank modification offers, consumer advocates say. Many may not be as good as HAMP, which lowers monthly payments to 31% of pre-tax income.

Homeownership fetish harmful

Washington Post columnist Robert J. Samuelson writes:

The relentless promotion of homeownership as the embodiment of the American dream has outlived its usefulness.

Historically, the pursuit of homeownership dates to the Great Depression of the 1930s, notes historian A. Scott Henderson of Furman University. In some ways, it's a great success story. In 1940, 44 percent of households owned a home; by 1985, the rate was 64 percent. The size and quality of homes have increased dramatically. Owning a home contributes to neighborhood stability and encourages property improvement.

Unfortunately, we let a sensible goal become a foolish fetish. Not everyone can become a homeowner. Some are too young and footloose; some are too old and dependent; some are too poor or irresponsible. Some don't want a home. ...

Tax breaks for homeowners ... exceeded $120 billion in 2009, reports the Congressional Budget Office. These benefits go heavily to higher-income borrowers, who are encouraged to buy bigger and more expensive homes that generate larger tax savings. This is both unfair and unnecessary. By contrast, government subsidies for lower-income renters are skimpier...

The single-minded promotion of homeownership failed and, paradoxically, undermined the American dream. It contributed to the housing "bubble" and favors housing investment over new industries and technologies.

CNBC housing market discussion

Graphs: The decimation of the home-building industry

New housing permits:


New housing starts:


New single-family home sales:

New home sales hit all-time low

New home sales in July hit the lowest number ever recorded:

New home sales unexpectedly fell in July to the lowest level on record as the housing market continued to suffer from the end of the homebuyer tax credit boost.

New home sales dropped 12.4% to a seasonally adjusted annual rate of 276,000 last month, down from a downwardly revised 315,000 in June, the Commerce Department reported Wednesday. Sales year-over-year fell 32.4%.

Commerce started tracking new home sales in 1963.