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How close are the mortgage and housing industries to bottoming out? Is the worst yet to come or is the economy already on the way up and out of this mess? The answer, it seems, depends on who you ask.
“An unexpected jump in new and existing home sales, a fairly sharp increase in mortgage applications and a surprise increase in pending home sales prompted many to declare the bottom in housing in the month of February. Even home prices, which had been falling like a rock, showed some signs of stabilizing during the month. Moreover, speculators appear to be re-entering the market, picking up properties on the cheap,” explained Diane Swonk, chief economist of Mesirow Financial and author of the annual housing market edition of the Themes on the Economy.
This sounds like good news. On the other hand, the mortgage industry is on pace to set a new record this year…for failures, according to MortgageDaily.com.
Mortgages
This year 25 non-mortgage firms, 21 banks and 4 credit unions had failed by the end of March, Mortgage Graveyard, reports. Extrapolated to the whole year, that is a total of 200 companies compared to only 120 in 2008. The most dramatic increase, if the current pace holds true, is in bank failures where 2009’s 21 is just four short of 2008’s total. Among the banks which have failed this year, are institutions in three in California, one in Colorado, two in Florida, four in Georgia, one in Kansas, three in Illinois, one in Maryland, one in Nebraska, one in Nevada, two in Oregon, one in Utah, and one in Washington. That the banking industry has not yet bottomed out seems to be the message from the Federal Deposit Insurance Corporation (FDIC) as well.
“I see some glimmers of hope. I’m cautiously optimistic that the industry is getting on a better footing. Many banks are making money. So i see our efforts beginning to pay off. But to be honest, there’s still more pain to go,” FDIC Chairman Shelia C. Bair said at the American Bankers Association (ABA) Government Relations Summit in Washington, D.C. last week.
The effort by banks across the nation to rewrite toxic assets including mortgages will mitigate the magnitude of foreclosures and defaults over the next 18 months, according to a recent report from Portland Cement Association (PCA) Economic Research. Resets of “traditional subprime mortgages, however, are not expected to reach their apex until mid-2009 while resets of more exotic mortgages such as Alt-A and option adjustable mortgages will continue through mid-2010, according to Edward J. Sullivan, PCA chief economist.
Housing
“The housing market is still a long way from healthy: home sales are still down substantially from the lows they hit during the turbulence of the fourth quarter, pending sales were at such low levels, there was really nowhere to go but up, and more than 70% of the mortgage applications we saw in March were refinances instead of purchases,” said Swonk.
In other words, the housing market has bottomed out or is on the verge of doing so, simply because it can’t get any lower. Single family home starts are almost zero and multi-family starts are also exceedingly low., yet both are expected t continue to decline. Since it’s easier to to get a mortgage to buy a home than to build one, home sales may have already bottomed out. Home prices, however, are expected to continue to fall. The experts at PCA also expect a weak labor market and declining home prices to increase the number of properties in foreclosure adding to the housing market inventory and further slowing sales.
“Housing is expected to swing from a drag to a push on overall GDP growth in 2009, for the first time in four years. That shift, coupled with tax incentives to lower the carbon footprint of individual homes, is expected to provide a boost to spending on everythin from furniture and appliances to building materials. Any gains that we do see in housing-related activity, however, will pale when compared against previous recoveries,” Swonk concluded.
Whether they believe we’ve seen the worst or not, most experts agree that patience is needed. If there is a silver lining to the situation, it is that if the economy has not quite hit bottom yet there isn’t much farther to fall. Unfortunately, it appears it is going to take as long or longer to climb out of this economic hole, than it did to fall into it.
“Without further government cash injections into the banking system, tight lending standards could characterize the economy and mortgage lending through mid-2011, dragging down home sales,” Sullivan said. “Under such a scenario, the housing recovery and overall economic recovery could be delayed significantly.”
Last 3 posts by Jay Hammond
- Mortgage modification law threatens right to representation in California - July 15th, 2009
- How Cities & States are coping with foreclosure - July 10th, 2009
- Freddie Mac educates borrowers via YouTube - July 9th, 2009
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