There is a great article today by Liz Ann Sonders, Chief Investment Strategist for Charles Schwab, which you can see here, and from which I’ll excerpt in this post. The title is “Housing: Glimmer of Hope.”
With so much bad news and piling on from the media on all fronts, I relish any little tidbit that says “the worst is passed” or something that is positive about the national market. Mind you, I continue to be relatively unconcerned about Seattle, but clearly things are hurtin’ elsewhere in this fine country. And Ms. Sonders doesn’t say it’s over, but she does say that there are some good signs.
Some tidbits, but there’s a lot there to read, so link off and check her out…
Comparing the Homebuilder’s Index to the Nasdaq:
From peak to trough during the 2000–2002 bear market, the Nasdaq lost 78% of its value. From peak to trough during the recent housing bubble, homebuilding stocks lost … yes, you guessed it … 78%!
Percentage of listed and sold homes which have been or are in foreclosure:
There’s likely still too much complacency about how bad things are, particularly in what had been highly speculative areas of the country. Those borrowers more severely impacted reside in areas where lending standards were the loosest and/or where the local economies were troubled. Tops on the list remain California and Nevada. For instance, about 60% of properties on the market in Las Vegas are in foreclosure. The same is true in parts of California: 46% of homes sold in Sacramento and 31% in San Diego were foreclosure sales in 2007, up dramatically from about 4% for each city a year earlier.
Interesting counter to the fallacy that this whole RE mess was caused by loans which, in a more prudent era, would never have been originated:
Delinquencies and foreclosures are not just a subprime problem. In fact, the statistics for prime mortgages are alarming. To date, over 36% of foreclosures started in this country are prime mortgages (about evenly divided between fixed- and adjustable-rate). That’s certainly lower than the 55% that are subprime, but disquieting nonetheless. In fact, subprime “serious delinquencies” (loans 90 days or more past due plus loans in foreclosure) have not yet topped their 12% record set in 2001, but seriously delinquent loans overall are at a record of just under 3% of all mortgages outstanding. That’s as a result of pressures up the spectrum to prime that are typically not so elevated during housing downturns.
There’s also a record that needs to be set straight. Many assume that mortgage rate resets are driving the elevated readings among adjustable-rate mortgage (ARM) delinquencies and foreclosures, when in fact the majority remain at their teaser rates. In the meantime, the ARM reset story is only just now really kicking into gear. There was about $300 billion in ARM loans that reset in 2007, while that will jump to an estimated $500 billion in 2008. The heart of the problem here is solvency. The Federal Reserve can lower rates all it wants and Congress can drop dollar bills from the sky … but the “cost” of money is one thing, while the “availability” of money is an entirely different thing. The latter is our bigger problem today.