To prevent the rising number of “walkaways”, people who just give up their homes, Fannie Mae is offering a series of new loans to help those close to foreclosure. While seen as counterintuitive by some in the mortgage industry, the bridging loans are intended to help homeowners weather rocky periods and ultimately keep their houses.

Additionally, Fannie Mae announced that they will more aggressively pursue financial compensation from homeowners who “walkaway” yet still have assets. This move reflects a growing trend in the credit markets that started with bankruptcy reform. Lenders aggressively pursuing consumers for payment of interest and debt in cases where borrowers still have the ability to pay.

The new policies sent a positive message to Wall Street which is still reeling from huge credit losses attributed to overly generous lending for the last 7 years. Some blame the current lending crisis on community activist pressure to loan money to minorities. The CRA:

“The Community Reinvestment Act (CRA) was established by Congress in 1977. The Act requires that deposit-taking financial institutions offer equal access to lending, investment and services to all those in an institution’s nextel ringtones 24 tv show ringtones nextel ringtones ringtones converter download free nextel ringtones download free ringtones tracfone free phone ringtones verizon wireless info polyphonic remember ringtones virgin mobile phone ringtones download free ringtones yahoo free real music ringtones nextel real music ringtones free phone ringtones verizon wireless download free ringtones nokia free polyphonic ringtones download motorola v3 ringtones 100 free ringtones free gospel ringtones 24 free ringtones midi ringtones geographic assessment area-at least three to five miles from each branch. In the case of large banks with many branches, the geographic area may encompass an entire county or even a state.”

However, on inspection this doesn’t hold up. Blaming CRA for the mortgage meltdown when only one in four sub-prime loans were made by the institutions fully governed by CRA.

Janet Yellen, president of the San Francisco Federal Reserve disagrees with the blame the CRA. She says:

“Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts.”

Home Sales Rose, Prices Fell in February

After declining for 2 quarters, sales of existing homes increased in February which signals sellers willingness to adjust to market forces and lower prices. 
The National Association of Realtors said that sales of existing homes rose by 2.9 percent in February to a seasonally adjusted annual rate of 5.03 million units.

The trade group reported that the median existing sales price in February fell to $195,900. The drop to $195,900 was the largest year-over-year drop on record, however the records only go back to 1999.

Regionally, sales rose by 11.3 percent in the Northeast–which reflects the completely local nature of the widely over reported real estate slump and the health of the economy in the Northeast. 

Midwest  home sales rose a modest 2.5 percent indicating steady economic performance. There was a mild 2.1 percent increase in sales in the South.

 Not surprisingly, the price inflated West saw a decline in the sales, where they dropped by 1.1 percent. But even that 1.1% dropped has surprised many in the real estate industry and economists, who were predicting a catastrophic drop.

 Overall, February’s numbers indicate an adjusting real estate market, in which prices are rationalizing and people are selling and buying based on present market conditions rather than past prices or future expectations, which is what a healthy market does.

The existing home sales numbers do not change the fact that developers of new housing are cutting back dramatically and that sales of new units haven’t kept pace with existing home sales.

Amid the doom and gloom hype by the media right now, all across the country there is a quiet real estate phenomenon going unnoticed. Neighborhoods close to dynamic city centers are maintaining their home values. There are a couple of reasons that having a home in an area close to the city center preserves your equity.

First, rising gasoline prices have made commuting more expensive. Second, the cookie cutter look of many outer suburban or exurb developments doesn’t call out to the soul. Third, commuting is a huge time expense for most people, so anything that can save us time, we value. Fourth, arts, theater, music, food, restaurants and the like attract people to close in suburbs.

 The bottom line is– location, location,location– which has and will always be the case when it comes to real estate.

Right now everyone has an opinion about the real estate market. Many people are forecasting that real estate will take 5 years to recover fully and they point to the subprime lending crisis as a reason. But recent revelations by Morgan Stanley, Citigroup and other banks that have been carrying a lot of subprime loans on their balance sheets  lead to a more measured conclusion.

Morgan Stanley wrote off about $3.7 billion in subprime loans and Citigroup about $5 billion, leaving many analysts feeling that the worst of the crisis is over. The future of subprime paper consists of finding a fair market value for the loans that are recoverable and separating out the unrecoverable junk. Once the paper has been classified and bundled, the market forces artificially driving real estate down will diminish.

With the falling dollar, US real estate is a golden investment for international capital and money is already flowing into hard assets in the commercial market. With the continuing dollar weakness, oil price inflation and US economic growth leading the Western World, US real estate markets will recover quickly.

While the stock market maintains record levels hoping for a Fed cut in late October, consumers aren’t benefitting from the trend. Because over 2/3 of the US economy depends on consumer spending, this could be a sign of trouble. Granted, stock market gains do increase consumer income through appreciation and dividends, but the stock market rally probably doesn’t reflect the overall state of the economy. This has been a 5 year bull market, which if historical trends inform us at all will likely end soon.  One possible drain on consumer disposable income could be a U.S. Energy Information Administration (EIA) forecast for 10% higher home heating costs this winter. Paper products are likely to rise as manufacturers respond to the Kimberly-Clark announcement that they will raise prices 4-7% for a portion of their consumer paper portfolio of products because of raw material and energy cost increases. Additionally, consumers are still bearing the burden of historically high gasoline prices which have reduced disposable income. 

Retailers are anticipating a tough Christmas season as indicated by Wal-Mart accelerating by 2 weeks its 10 to 50 percent off its “Top 12 Toys of Christmas”  sale compared to last year. Employment remains a strong spot in the economy, yet while the Labor Department now says that 118,000 more jobs were created in June, July and August than it originally reported, it also overstated employment growth by nearly 300,000 in the 12 months ending March 2007.

So how is real estate doing in the uncertain economy?  

Prices are holding firm in

California, one of the nations biggest markets, even as  listing numbers are up and days on market are up. Forecasts indicate that

California median home prices could drop 4% to $553,000 in 2008 compared to this years already high median price of $576,000. California Association of Realtors (C.A.R.) anticipates that sales for 2008 could drop 8-9% to 334,500 units in 2008 against the  367,500 units for 2007.

Some are predicting that mortgage lenders tightening the standards will lead to a further drop in home sales in 2008, while contrarians see a positive side to reducing the predatory practices of the past. Housing bulls say that increasing credit availablity to debt-healthy consumers at even better rates will prevent a catastrophic downturn in the economy. 

Prepared at the Federal Reserve Bank of Chicago and based on information collected before July 16, 2007. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
——————————————————————————–

Reports from the twelve Federal Reserve Banks indicated that economic activity continued to expand in June and early July. New York, Richmond, St. Louis, Minneapolis, and San Francisco described the pace of growth as “moderate” while Cleveland and Chicago saw it as “modest.” Philadelphia noted that economic conditions improved. Kansas City said the regional economy continued to grow but at a moderating pace, and Dallas characterized its economy as strong but said it decelerated. Boston and Atlanta described business contacts’ reports as “varied” or “mixed.”

On balance, consumer spending rose at a modest pace, although a number of Districts indicated that sales were mixed or below expectations. Several reports indicated that capital spending increased, and expenditures for most business services continued to rise. Employment increased further in most regions and in many sectors of the economy. Most Districts said that residential construction and real estate activity continued to decline. Commercial construction and real estate markets were generally more active than during the previous reporting period. District reports indicated that manufacturing activity continued to expand during June and early July. Household lending declined in most regions, while commercial and industrial lending expanded at a modest pace. Contacts generally reported ongoing input cost pressures, particularly for petroleum-related inputs, while prices at the retail level continued to increase at a moderate rate. Energy and natural resource activity remained at high levels, or in some instances, rose further. Many Districts described overall wage gains as moderate and/or similar to the previous reporting period. Agricultural conditions varied widely, as the impacts of drought were felt east of the Mississippi River and heavy rains affected the Dallas and Kansas City Districts.
Construction and Real Estate
Most Districts said that residential construction and real estate activity continued to decline on balance. Many Districts, however, noted increased activity in some individual market locales or segments. Atlanta, Chicago, St. Louis, and Minneapolis said construction decreased. Boston and Kansas City said housing markets remained “soft” and “weak,” respectively, while San Francisco indicated that residential markets were weak and had slowed further in some areas. New York said markets were mixed but stable. Two notable exceptions were the Cleveland and Richmond regions, which experienced slight increases in sales. Atlanta said home inventories remained high, as did Dallas (even after a slight decline in the recent period). Inventories increased in Kansas City, but they declined in New York, and contacts in Boston and Cleveland described the number of homes for sale as “normal” and “acceptable,” respectively. District reports on home price appreciation were mixed: Boston noted a return to price appreciation and Kansas City indicated slower rates of decline. But Richmond and Chicago reported slower rates of increase or the beginning of declines, and in the Dallas District, some contacts projected a correction in entry-level home prices. Looking ahead, contacts in the Cleveland District were uncertain about how long it would be until the market turned, and analysts in Dallas had revised their housing outlook down. Contacts in Atlanta expected further declines overall, though they anticipated the market in Florida would be flat.

Commercial construction and real estate markets were generally more active than during the previous reporting period. New York said markets strengthened and San Francisco reported continued firming. Cleveland, Atlanta, Minneapolis, and Kansas City indicated small gains in development. Richmond and Dallas described local markets as still “solid” and “robust,” respectively. Chicago said the pace of development was steady, and St. Louis said markets were mixed. Richmond and Chicago observed that overall commercial vacancy rates were stable. Office vacancy rates fell in four regions. Demand for industrial space increased in four Districts, while net absorption in the Minneapolis District was negative. Richmond, Kansas City, and San Francisco reported increases in rental rates for commercial space, and New York said that the asking rents for space “continued to soar.”

This morning the U.S. Census Bureau and the Department of Housing and Urban Development announced that for the month of June, privately owned housing starts increased 2.3 percent from May’s levels, to a seasonally adjusted annual rate of 1.467 million.

Quicken Loans Chief Economist, Bob Walters, says that while builders may be starting to bet on the housing sector, it is far too early to call it a comeback.

“With long-term interest rates remaining at favorable levels, today’s report shows that builders are again starting to put their faith in the housing market,” said Walters. “However, it is important to keep in mind that the summer months are historically a strong period for housing starts, so it would be unwise to read too much into this report. I would wait for a long run of positive news before deeming this a comeback.”

News provided by Quicken Loans