2013 Year of Housing Recovery

Posted on December 12, 2012 by Popular Economics Weekly

The Mortgage Corner

Wall Street is jumping on the real estate band wagon. Not only are hedge funds now buying foreclosed homes in bulk, reducing the ‘shadow inventory’ of homes with delinquent mortgages, but the record low interest rates are boosting both refinance and purchase transactions says the Mortgage Bankers Association.

For instance, The Refinance Index increased 8 percent from the previous week and is at its highest level since the week ending October 12, 2012. The seasonally adjusted Purchase Index increased 1 percent from one week earlier.

“Continued uncertainty due to the lack of resolution regarding the fiscal cliff led interest rates lower last week, with mortgage rates reaching a new low in our survey,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Refinance activity increased, with the refinance index hitting its highest level in two months, and the refinance share reaching its highest level since January 2009. Applications for purchase increased for a fifth consecutive week, and are running almost ten percent above their level at this time last year.”

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Graph: Calculated Risk

In fact, the 30-year fixed conforming rate for single unit loan amounts under $417,000 dropped as low as 3.125 percent with zero points in origination fees last week, and has been hovering around 3.25 percent with zero points for several weeks. This is largely because the Federal Reserve is continuing its bond buying program, called QE3. The FOMC will probably announce additional bond buying tomorrow that will start in January after the conclusion of Operation Twist. “I don’t expect the Fed to announce tomorrow a change to thresholds (using the unemployment rate and inflation) for the timing of the first Fed Funds rate hike,” said Calculated Risk.

And Merrill Lynch has come out with its 2013 real estate forecast. Merrill believes 2012 will go down in history as a year of transition for the housing market. Housing starts are on track to be up 25 percent and home prices are set to rise 5 percent over 2012. Merrill also believes the recovery will continue into 2013 for several reasons. Most importantly, household formation has started to turn higher, reflecting the shortfall of household creation over the prior five years, as we have discussed in past Popular Economics columns.

In addition, listed inventory is low, owing to extraordinarily slow construction and only a gradual reduction of the distressed pipeline. There has also been a shift toward short sales as a means of disposing distressed properties, which boosts the prices of distressed properties, since banks benefit from higher sale prices than via foreclosures. Moreover, investor demand is strong, particularly for distressed inventory.

Merrill also forecasts housing starts to increase another 25 percent to an average of 975,000 and home prices to increase 3 percent in 2013. “The housing market is turning into an engine of growth once again. Housing construction will likely add to GDP growth in both 2012 and 2013 growth,” said Merrill. “The gain in homebuilding will support related sectors such as furniture, building material sales and financial companies. Moreover, construction jobs will finally come back, allowing some of the 2 million people who lost construction jobs to find employment in the field again.”

There will also be a jolt to the economy from the gain in home prices. An increase in home values lifts household net worth and boosts consumer confidence. If consumers perceive the gain in wealth to be permanent, they will increase their current consumption. But the rise in home prices can do something even more for the economy – it can spur credit creation, which then fuels housing demand and reinforces the gain in home prices. We are seeing the very early stages of a positive feedback loop between the housing market, credit market and real economy, which can be quite powerful in time, says Merrill Lynch, as quoted by Calculated Risk.

So we can say 2013 should be a very good year for housing, with population pressures increasing as young adults move out of their parent’s home at the same time that banks are ridding themselves of problem properties at a faster rate, and as the Federal Reserve continues to keep interest rates at historic lows.

Harlan Green © 2012

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Michigan Republicans Repeat Economy Wrecking Doctrine

Posted on December 11, 2012 by Popular Economics Weekly

Financial FAQs

Michigan has become the latest Republican-led effort to wreck economic growth in passing a right-to-work laws that restrict unions. With all apologies to Naomi Klein’s Shock Doctrine, Repubs are no longer waiting for recessions to enrich their wealthiest supporters—such as passing GW Bush tax cuts during the 2001 recession and in 2003 that caused the largest budget deficit in history, precipitating the Great Recession.

Michigan is a text book example of how ALEC and Americans for Prosperity, the big business lobby and the Koch Brothers have worked to bust unions. Michigan is the 24th state to enact Right-to-Work Laws that take away unions’ ability to organize and charge union dues to finance union benefits. But more insidiously it weakens the ability to bargain for their own wages and salaries. This is when corporate profits and CEO salaries are already the largest in history.

We know the result in the other 23 states. They are the poorest states, who require the most government assistance. So this exposes Republicans and conservatives agenda in general. Restricting union organizing and collective bargaining impoverishes the majority of wage and salary workers, which drives the poorest into government assistance at the slightest economic downturn. It therefore preserves the profits of the investors who live off of corporate profits, while passing on the costs of wrecking the incomes of the majority to government-financed programs—i.e., our tax monies.

Wisconsin’s direct restriction of collective bargaining rights for government employees was the most blatant example until now. By directly restricting their incomes and benefits, it puts a wrecking ball to economic growth in Wisconsin, putting it into the group of have-not states that have consistently lower standards of living.

Many studies have shown this, but the most convincing evidence is listing the have-not states. They include the most rural and red states in the South and Midwest dependent on government benefits to supplement the meager incomes and lower standard of living of their citizens.

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The AFL-CIO has put out the latest statistics on union, vs. non-union incomes and benefits: Employees covered by union contracts receive 28 percent more in wages and benefits than workers without unions.  For women workers, the union advantage is 34 percent. For African American workers, the union advantage is 29 percent.  And for Hispanic workers, the union advantage is a whopping 50 percent.  When “right to work” laws weaken unions and drive down wages and benefits, workers have less to spend and the entire economy – particularly small business–suffers.

It should be blindingly obvious why Republicans are pushing their anti-union agenda. It increases their wealth and power at the expense of everyone else.

Harlan Green © 2012

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Unemployment Rate Falls to 7.7 Percent

Posted on December 7, 2012 by Popular Economics Weekly

Popular Economics Weekly

Economists are rubbing their eyes over the November jobs report. It seems stimulus spending works. Obama’s $830 Billion ARRA stimulus + the Federal Reserve’s QE efforts to hold down interest rates has now created almost 6 million jobs since the Great Recession, and in spite of Hurricane Sandy.

The plunge in November unemployment was good news in several sectors. Firstly, Hurricane Sandy didn’t have much of an effect. In fact, it will stimulate more job formation in the coming months during the reconstruction. We know this because it mostly affected the goods-producing sector, which posted a 22,000 drop in jobs after an 18,000 gain the prior month. In November, manufacturing jobs slipped 7,000, construction fell 20,000.

Had there been no Hurricane Sandy, payroll jobs would have increased more than 200,000—back up to early 2012 levels. Private service-providing jobs rose 169,000 in November after a 171,000 increase in October. For November, notable gains were in retail trade (up 53,000), professional & business services (up 43,000), and health care (up 20,000).

Secondly, the retail trade numbers are particularly encouraging as these jobs have risen 140,000 over the past three months, suggesting healthy holiday sales this year.

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Graph: Econoday

That is why consumers are spending more. Consumer credit is a very good indicator of spending and outstanding debt in September rose $11.4 billion, following August’s very large revised gain of $18.4 billion. The non-revolving component, inclusive of the student loan category and auto sales, rose $14.3 billion in the month on top of August’s $14.1 billion gain. Revolving credit, where credit card debt is tracked, actually fell, down $2.9 billion for the third decrease in four months.

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Graph: Calculated Risk

And lastly, state and local governments are hiring again, a sign that lingering effects of the Great Recession might be over. Calculated Risk’s graph shows total state and government payroll employment since January 2007. State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, and 230,000 in 2011. So far in 2012, state and local governments have actually added a few jobs, and state and local government employment increased by 4,000 in November.

We know that some of the lower unemployment rate was due to discouraged workers leaving the work force, and that is the tragedy of still timid efforts to stimulate job growth. It is a fact that almost any infrastructure stimulus spending, such as in President Obama’s original $4B budget offer, would not only create many more jobs, but more than pay for itself in added revenues.

Harlan Green © 2012

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Fourth Quarter Economic Growth Higher

Posted on December 5, 2012 by Popular Economics Weekly

Popular Economics Weekly

We are seeing a boost in Q4 economic growth, in spite of “fiscal cliff” worries. Service sector growth has increased significantly, job formation is accelerating, and real estate is coming back to life, thanks mostly to more jobs.

The service sector is our largest business sector and its ISM’s non-manufacturing index rose five tenths to 54.7 with business activity over 60 for the first time since February. New orders are near 60 at 58.1 for a more than three point gain and the best reading since March. But employment is barely over 50, at 50.3 for a nearly five point monthly dip for the worst reading since July. Businesses are doing more with less as seen in this morning’s productivity report and in the details of this report. But still, the gain in activity and orders is good news and other indicators show jobs increasing.

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Graph: Econoday

The Non-Manufacturing Business Activity Index registered 61.2 percent, which is 5.8 percentage points higher than the 55.4 percent reported in October, reflecting growth for the 40th consecutive month. The New Orders Index increased by 3.3 percentage points to 58.1 percent. And overall growth is accelerating.

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Graph: Econoday

Even more important was the upward revision in Q3 Gross Domestic Product growth to 2.7 percent, which will boost fourth quarter growth as well. Real GDP growth for the third quarter was revised up significantly because of a large inventory buildup, rather than increased sales.  But the Commerce Department raised the second estimate to 2.7 percent annualized, from the advance estimate of 2.0 and second quarter rate of 1.3 percent.

And we know that real estate activity has picked up, because housing prices are rising. The Case-Shiller Index has been rising since January. Improvement was really evident in the year-on-year rate which is up to plus 3.0 percent from plus 2.2 and plus 1.1 percent in the prior two months. Gains were in nearly all 20 cities, with Phoenix and San Diego prices rising the most.

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Graph: Econoday

And the Conference Board’s consumer confidence index in November was steady and firm with buying plans for homes a special positive. The consumer confidence index rose to a new recovery high of 73.7 in November from an upwardly revised 73.1 in October. Strength was centered in the expectations component which is up 1.1 points to 85.1.

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Graph: Econoday

Lastly, the most positive indicator of future sales is pending home sales up a very strong 5.2 percent even with the impact of Hurricane Sandy.  This is based on only a fractional decline in the Northeast, at least in the October report. The Midwest showed a very strong gain as did the South. The NAR’s October pending home sales index is at a five-year high.

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Graph: Econoday

Real estate has seen falling foreclosure inventories, as well. And Hurricane Sandy will give a big boost to reconstruction of much of the Atlantic seacoast, boosting construction employment. So 2013 could be a very good year for economic growth, if as I believe any fiscal cliff issues will be resolved sometime early next year.

Harlan Green © 2012

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High Pending Home Sales—A 2013 Housing Shortage?

Posted on November 29, 2012 by Popular Economics Weekly

The Mortgage Corner

The huge jump is pending home sales could presage a sharp drop in inventory of homes for sale in 2013. Why? There are fewer foreclosures because of the declining shadow inventory of homes in default that have been bloating the for-sale inventories resulting from the housing bubble. And this is already causing home prices to rise while housing construction is still lagging, 50 percent below its recent high.

The Pending Home Sales Index just released by the National Association of Realtors, a forward-looking indicator based on contract signings but not closings, increased 5.2 percent to 104.8 in October from an upwardly revised 99.6 in September and is 13.2 percent above October 2011.

Lawrence Yun , NAR chief economist, said buyers are responding to favorable market conditions. “We’ve had very good housing affordability conditions for quite some time, but we’re seeing more impact now from steady job creation, and rising consumer confidence about home buying now that home prices have clearly turned positive.”

Outside of a few spikes during the tax credit period, pending home sales are at the highest level since March 2007 when the index also reached 104.8. On a year-over-year basis, pending home sales have risen for 18 consecutive months.

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Graph: Calculated Risk

“The Northeast saw some impact from Hurricane Sandy, but limited inventory in the West is keeping a lid on the market. All regions are up from a year ago, with double-digit gains in every region but the West,” Yun said. Housing inventories are down 23 percent in one year.

And we see that foreclosure inventories have been declining, as have foreclosure rates. We now see short sales replacing foreclosure sales, down to just 20 percent of all sales from its high of 35 percent just after the Great Recession.

Calculated Risk reports Lenders Processing Service released their First Look report for October today. LPS reported that the percent of loans delinquent decreased in October compared to September, and declined about 7 percent year-over-year. Also the percent of loans in the foreclosure process declined sharply in October and are the lowest level since August 2009.

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Graph: Calculated Risk

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 7.03 percent from 7.40 percent in September. Note: the normal rate for delinquencies is around 4.5 percent.

Lastly, home prices are rising because of the declining for-sale inventories. Case-Shiller, CoreLogic and others report nominal house prices, and it is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio, since housing prices cannot rise faster than rents (i.e., household incomes) over the longer term. Therefore the ratio between rents and prices tells us if housing prices are rising abnormally, as happened during the housing bubble. As an example, if a house price was $200,000 in January 2000, the price would be close to $275,000 today adjusted for inflation.

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Graph: Calculated Risk

This actually means that we should see a surge in housing construction, and therefore construction jobs in 2013. Stay tuned for the National Association of Home Builders sentiment survey that tracks builder’s confidence in new home construction to confirm that will happen.  Its index has already tripled since its post-recession lows.

Harlan Green © 2012

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Household Formation Key To Housing Recovery

Posted on November 28, 2012 by Popular Economics Weekly

Financial FAQs

The formation of new households—young adults leaving the homestead—has always been an important ingredient of home sales. We are talking about 18 to 34 year-olds who have been staying at home during the Great Recession for understandable reasons—whether lack of jobs, or college. And 2011 was the first year that household formation returned to more normal levels, which is why we are seeing housing beginning to recover.

One impact of the Great Recession is that it markedly reduced the rate at which Americans set up households, said a recent Cleveland Federal Reserve report on household formation. But pent up demand from young adults finding jobs will certainly reverse that trend and lead to a stronger sales and price increases.

Compared to the previous 10 years, the growth rate in the number of households was cut by two-thirds between 2007 and 2010. This slowing in household formation reflects the overall weak economy, but it has also negatively impacted the housing market, as lower household formation rates reduce housing demand.

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Graph: Cleveland Fed

While younger adults between the ages of 18 and 34 make up a relatively small proportion of heads of households, they account for almost three-quarters of the overall shortfall in household formation. The growth in the number of younger households was lower in metropolitan areas that experienced weaker labor and housing markets, though, to be sure, household formation slowed across the United States, consistent with the widespread nature of the shocks to output, labor, and housing markets that occurred during the Great Recession.

From 1997 to 2007, about 1.5 million households were formed on average each year in the United States. Then the Great Recession hit, and in the ensuing three years, the rate fell to 500,000 per year. This decline in household formation occurred even as the U.S. population was expanding at a rate of 2.7 million per year, only slightly below the rate of 2.9 million a year observed between 1997 and 2007. A “modest” rebound has since followed during the economic recovery, with 1.1 million new households being created in 2011.

That is why we predict much better years ahead for housing. The Harvard Joint Center for Housing Studies (JCHS) in a recent blog said, “Given the trends of the last five years, the spurt in household growth to an annual rate of 900,000 through the first three quarters of this year is notable.  If the upward trend in household growth continues, housing should see a sustained recovery in 2013.”

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Graph: JCHS

In fact, we are already seeing the rebound in 2012, with both housing construction and new home sales increasing significantly. The Census Bureau reports New Home Sales in October were at a seasonally adjusted annual rate (SAAR) of 368 thousand. This was down from a revised 369 thousand SAAR in September, but up 17 percent from October 2011. Supply, at 4.8 months for the lowest reading since 2005, is very tight and actually is limiting sales, according to Calculated Risk.

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Graph: Calculated Risk

And sales of existing homes increased in October, even with some regional impact from Hurricane Sandy, while home prices continued to rise due to lower levels of inventory supply. Total housing inventory at the end of October fell 1.4 percent to 2.14 million existing homes available for sale, according to the National Association of Realtors, which represents a 5.4-month supply at the current sales pace, down from 5.6 months in September, and is the lowest housing supply since February of 2006. It is 21.9 percent below a year ago when there was a 7.6-month supply, a sure sign that housing is already in recovery.

Harlan Green © 2012

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National Home Prices (Finally) Recovering

Posted on November 27, 2012 by Popular Economics Weekly

The Mortgage Corner

Is the end of the housing bust in sight?  The Case-Shiller Home Price Index reported the fourth consecutive year-over-year (YoY) gain in their house price indexes since 2010 – and the increase back in 2010 was related to the housing tax credit. Excluding the tax credit, the previous YoY increase was back in 2006. The YoY increase in September suggests that house prices probably bottomed earlier this year.

And this is the slow time of year when families that have already moved to put their children in new school districts. It really means that those at the bottom of the housing bubble—Las Vegas (up 1.4 percent, 3.8 percent YoY), Phoenix (up 1.1 percent, 20.4 percent YoY), San Diego (up 1.4 percent, 4.1 percent YoY)—are finally seeing some relief from the worst economic slump since the Great Depression.

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Graph: Calculated Risk

“Home prices rose in the third quarter, marking the sixth consecutive month of increasing prices,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “In September’s report all three headline composites and 17 of the 20 cities gained over their levels of a year ago. Month-over-month, 13 cities and both Composites posted positive monthly gains.”

The Federal Housing Finance Authority (FHFA) house price index posted also another monthly increase in September. This measure is up 4.4 percent YOY, a bigger YOY gain than the 3 percent rise in the Case-Shiller index. Also, the FHFA index is down just 16 percent from its peak, about half the cumulative decline in the Case-Shiller gauge. Most of the discrepancy reflects the fact that the FHFA index is much less affected by distress sales, since it covers only properties financed with conventional GSE mortgages (Fannie Mae and Freddie Mac), which have more stringent qualification guidelines.

This may be because of the continuing rise in consumer confidence. The Conference Board’s Consumer Confidence survey rose again with buying plans for homes a special positive, said the report. The consumer confidence index rose to a new recovery high of 73.7 in November from an upwardly revised 73.1 in October. Strength is centered in the expectations component which is up 1.1 points to 85.1. The present situation component is down one tenth to 56.6.

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Graph: Econoday

A major reason for the increased confidence is a jump in those who expect to buy a house in the next six months. This is the latest indication of building momentum for the housing sector. Inflation expectations are another plus in the report, down two tenths for the 12-month outlook to 5.6 percent in what is a reflection of falling gas prices.

California is also doing well. I reported last week that Southern California home sales also rose sharply in October as move-up buyers joined investors, according to San Diego-based DataQuick, shifting the mix of homes selling upward as foreclosure resales hit a five-year low. Southern California’s real estate market bucked the typical fall slowdown last month, with buyers snapping up pricier homes and sales roaring up 18 percent over the prior month.

Sales hit a three-year high for an October, rising 25 percent from the same month last year. The median sale price for a Southland house last month was $315,000, equal to September and up 17 percent from October 2011.

Harlan Green © 2012

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Falling Households Incomes—The Real ‘Fiscal Cliff’

Posted on November 26, 2012 by Popular Economics Weekly

Popular Economics Weekly

It is household income that is falling off a cliff. This is partly due to the busted housing bubble and subsequent Great Recession that shaved 40 percent from household wealth. But household incomes haven’t been rising as fast as inflation since the 1970s, either. So we should be worrying about the drastic decline in buying power, rather than Congress’s inability to agree on a federal budget, if we want to cure the looming ‘fiscal cliff’.

If we don’t find a way to improve average household finances, Americans could plunge into decades of slow growth and the continued deterioration in their standard of living. Why? We are a consumer society, so that 70 percent of U.S. economic growth is powered by consumer spending. That is why government has to be part of the solution.

Three-fifths of all jobs lost during the Great Recession paid middle-income wages, while those created during the economic recovery pay low wages, according to a new study by the National Employment Law Project. Both economic forces and government budget cuts are causing this deficit of good jobs, according to the study.

For instance, many of the losses in well-paying jobs came from state and local governments, which have cut 485,000 jobs since February 2010, NELP found. Many mid-wage government workers that have been laid off during the economic recovery include teachers and police officers.

There is an easy way to reverse the downward spiral in wages—begin to upgrade our aging public services. In what New York Times Nicholas Kristof has labeled A Failed Experiment, the World Economic Forum ranks American infrastructure 25th in the world, down from 8th in 2003-4.

One would think with the ongoing drought, Tsumanis, and Hurricane Sandy that we would know how important government is to the solution of our many problems. New Jersey Governor Chris Christy certainly thought so in lauding President Obama for his help during Sandy. So the most obvious place to start is a national program to repair our crumbling infrastructure that the American Society of Civil Engineers estimates needs at least $2.2 Trillion in repairs and upgrades over the next 5 years just to keep it safe.

The wealthy have always had an answer to the ongoing decrepitude of public services, said Kristof. “Public playgrounds and tennis courts decrepit? Never mind—just join a private tennis club. I’m used to seeing this mind-set in developing countries like Chad or Pakistan, where the feudal rich make do behind high walls topped with shards of glass; increasingly, I see it in our country.”

The ASCE has launched a new series of reports that take a closer look at the economic impacts of America’s deteriorating infrastructure. These economic studies look forward to 2020 and 2040 to predict impacts on GDP, personal income, and jobs if current infrastructure investment trends continue. 

The first report was released in July 2011 and focused on surface transportation. The landmark study, Failure to Act: The Economic Impact of Current Investment Trends in Surface Transportation Infrastructure, found the nation’s deteriorating surface transportation infrastructure will cost the American economy more than 870,000 jobs, and suppress the growth of the country’s Gross Domestic Product by $897 billion by 2020. Commissioned by ASCE and conducted by the Economic Development Research Group of Boston, the report shows that the nation is facing a funding gap of about $94 billion a year compared with our current spending levels.

In fact Nobel Economist Joseph Stiglitz asserts in a recent Project Syndicate blog that “Spending, especially on investments in education, technology, and infrastructure, can actually lead to lower long-term deficits.”

Most of the federal ‘fiscal cliff’ was created by borrowing to finance serial tax cuts and increased military spending that benefited the few at the expense of the many, instead of shoring up social security and Medicare reserves, as Bush Treasury Secretary Paul O’Neill advocated.

In fact, those tax revenues were diverted to the real ‘takers’, the wealthiest Wall Street financiers and corporate CEOs who have managed to capture most of the created wealth over the last decades. Just in 2009, it’s well documented that 93 percent of the income increase went to the top 1 percent of income earners through lower dividend and capital gains taxes, as well as record corporate profits.

But that means taking political power back from the elites who would rather starve government programs that could boost middle class incomes and consumers, asserts Chrystia Freeland in Plutocrats, The Rise of the New Global Super-Rich and the Fall of Everyone Else. Plutocrats are putting the wealth accumulated from deregulation of the U.S. economy into developing the middle classes of developing countries such as India, China, and Brazil, rather than the U.S.

Need we say more? Should we continue to allow the private good to trump public good? Not unless we enjoy reverting back to conditions like those in the developing world.

Harlan Green © 2012

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Southland Home Sales Up, Foreclosures Down

Posted on November 15, 2012 by Popular Economics Weekly

The Mortgage Corner

Southern California home sales rose sharply in October as move-up buyers joined investors, according to San Diego-based DataQuick, shifting the mix of homes selling upward as foreclosure resales hit a five-year low. Southern California’s real estate market bucked the typical fall slowdown last month, with buyers snapping up pricier homes and sales roaring up 18 percent over the prior month.

Sales hit a three-year high for an October, rising 25 percent from the same month last year. The median sale price for a Southland house last month was $315,000, equal to September and up 17 percent from October 2011, according to DataQuick.

Sales rose sharply in most mid- to-higher-cost markets. Sales between $300,000 and $800,000 – a range that would include many move-up buyers – jumped 41.5 percent year-over-year. October sales over $500,000 rose 55.2 percent year-over-year, while sales over $800,000 rose 52.4 percent compared with October 2011.

Gary Wood’s analysis of Santa Barbara County’s MLS sales including Carpinteria/Summerland, Montecito, Hope Ranch, downtown Santa Barbara and Goleta through October 2012 were similar. Sales rose to 100 from 83 in September. The median sales price also came up from $750,000 in September to about $815,000 in October with escrows rising from 94 to about 120 for the month. The median list price on those escrows showed the biggest upswing—going from $762,540 to almost $900,000.

Year over year, the numbers of sales are still way up with about 1,050 transactions completed compared to 780 last year. The median sales price is basically unchanged but down just a little from $800,050 in 2011 to about $795,000 now. The escrows are also still way up from 841 last year to about 1,150 this year while the median list price on those escrows has risen a little from about $825,000 last year to approximately $830,000 now.

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Graph: RealtyTrac

Foreclosure resales – properties foreclosed on in the prior 12 months – accounted for 16.3 percent of the Southland resale market last month. That was down from 16.6 percent the month before and 32.8 percent a year earlier. Last month’s level was the lowest since it was 16.0 percent in October 2007. The foreclosure resales had hit a high of 56.7 percent in February 2009 during the Great Recession.

The delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 7.40 percent of all loans outstanding as of the end of the third quarter of 2012, a decrease from the second quarter of 2012, and a decrease of 59 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.

“Mortgage delinquencies decreased compared to last quarter overall, driven mainly by a decline in loans that are 90 days or more delinquent,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “The 90 day delinquency rate is at its lowest level since 2008, and together with the decline in the percentage of loans in foreclosure, this indicates a significant drop in the shadow inventory of distressed loans-a real positive for the housing market. The 30 day delinquency rate increased slightly, but remains close to the long-term average for this metric.  Given the weak economic and job growth in third quarter, it is not surprising that this metric has not improved. ”

And foreclosures nationwide are declining as well, mostly in the 26 so-called non-judicial states that enable Trust Deed auctions, such as California and Texas. This was the largest decline in foreclosure inventory ever recorded. Judicial states’ foreclosure inventory was at 6.61 percent, and the non-judicial states’ inventory was at 2.42 percent, reports the MBA.

Harlan Green © 2012

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Next 4 Years—Back to the Future

Posted on November 10, 2012 by Popular Economics Weekly

Financial FAQs

President Obama’s victory means it’s Back to the Future for economic as well as social policies. It means he now has the mandate to implement what the electorate chose him for—a functioning government to not only fix disasters such as Hurricane Sandy, but the economy; to lead the United States of America into the future rather than backward with Republican economic policies of the 1920s, as Obama said in the third debate.

Yes, that does mean government creates jobs, contrary to the Bain Capital ethos—whether in Detroit, or with clean energy investments, infrastructure building, better regulations that prevent economic disasters, and lower cost student loans that enable a better educated workforce.

That is, if he doesn’t give in to Boehner’s House Republicans who aren’t budging on returning tax rates to the Clinton era, when 23 million jobs were created and there was greater prosperity for all.

Paul Krugman has called it economic blackmail. “Because Republicans are trying, for the third time since he took office, to use economic blackmail to achieve a goal they lack the votes to achieve through the normal legislative process. In particular, they want to extend the Bush tax cuts for the wealthy… So they are, in effect, threatening to tank the economy unless their demands are met.”

The fiscal cliff is not the real problem, or large budget deficits at a time when the economy still needs a boost. It is not really a cliff, according to most analysts. The Center for Budget and Policy Priorities is one of many that say it is more of a slope, in that the effects of letting the Bush tax cuts lapse and the sequester agreement to cut government spending only begin to take effect in 2013.

“In fact, the slope would likely be relatively modest at first (and then much steeper if 2013 unfolds without a fiscal resolution). This means that if there is no agreement by January 1, policymakers will still have some (although limited) time to take steps to avoid the serious adverse economic consequences that the Congressional Budget Office (CBO) outlines in its recent analysis of what will happen if the expiring tax cuts and new spending cuts take effect on a permanent basis.”

Exit polls showed voters tended to blame Bush for the Great Recession, rather than Obama, and so have given President Obama the opportunity to lead us back to fiscal sanity. It turns out Republicans tried to label Democrats as the tax and spend party, but voters decided Republicans have been the real tax-cut and spend party; which is true. Presidents Reagan and GW Bush were responsible for both the largest tax cuts and largest budget deficits since WWII, in their decision not to follow the pay-as-you-go budget rules that said tax cuts had to be matched by spending cuts.

It really boils down to how much to tax which U.S. taxpayers. Conservatives have called for lower taxes in the name of greater freedom from government controls. But Obama’s victory is a victory for the right to choose—the freedom to choose union representation and negotiate wages via collective bargaining, or women’s control of their health, family planning, or even a cooler climate.

The future belongs to those who have recognized that the richest have been helping themselves, rather than the country. It belongs to those who see that government is for the common good, rather than the few. This is the direction, however halting, that government has been marching ever since the New Deal began to cure the flaws and real damage that unrestrained capitalism can cause—back to the future.

Harlan Green © 2012

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