Market Studies

Data released Tuesday morning by Standard & Poor's show that home prices are continuing to trend downwards. The 20-city composite reading of the S&P/Case-Shiller home price index fell 1.0 percent in January 2011 when compared to the previous month. The 20-city composite is down 3.1 percent from its January 2010 level. San Diego and Washington D.C. were the only two markets to record positive year-over-year changes, while 11 cities posted new cycle lows during the first month of this year.

New data released by Lender Processing Services (LPS) Monday clearly illustrates that foreclosure timelines are growing longer and longer. The company reports that the average loan in foreclosure right now has been delinquent for a record 537 days, and 30 percent of loans in foreclosure have not made a payment in over two years. As of the end of February, LPS says foreclosure inventory levels stood at more than 30 times monthly foreclosure sales volume.

After declining for two months, pending sales of existing homes unexpectedly increased in February, the National Association of Realtors reports. The trade group's pending home sales index rose 2.1 percent compared to January but remains 8.2 percent below February 2010. The index reading for last month was 90.8. A reading of 100 indicates a healthy level of sales activity. The last time the pending sale index registered above the 100 mark was in April 2010 when homebuyers were rushing to sign contracts before the homebuyer tax credit deadline.

Data released Monday shows an increase in mortgage related fraud in areas with high rates of foreclosures and underwater borrowers. Risk analytics firm Interthinx released its annual Mortgage Fraud Risk Report which analyzes loan applications and determines the most significant mortgage fraud risk trends for the past year. According to the report, overall mortgage fraud risk is highest in areas that have been hit hardest by the housing and economic downturns, and fraud criminals are migrating to these regions.

The number of new filings for foreclosures in the state of New York fell in 2010, but the percentage of properties in the foreclosure process is growing, according to a new report from New York State Comptroller Thomas P. DiNapoli. He says the sharp drop in new filings can be attributed in part to a temporary suspension of foreclosure related activity, not an improvement in the market.

The mortgage default risk index from University Financial Associates (UFA) registered a reading of 141 for the first quarter of 2011. The index's baseline of 100 correlates to the default risk of the 1990s. Translation -- investors and lenders should expect defaults on loans originated in Q1 to be 41 percent higher than that of loans originated in the 1990s. UFA says the most important story behind the numbers is that the default risk index has found a plateau, and if inflation rates continue to rise, default risks will improve more rapidly.

Radar Logic's latest RPX Composite, which tracks home prices in 25 major metros, declined to $179.50 per square foot in January, its lowest level since 2007. The company says the rapid decline suggests weak market fundamentals, including a high supply of homes coupled with high rates of mortgage defaults. The report also notes that sales of foreclosed homes by financial institutions, or ""motivated sales,"" made up 35 percent of all home sales as of January 20, the second highest share of motivated sales that Radar Logic has observed.

Almost half of the 111 economists and real estate experts polled this month by MacroMarkets are forecasting a double-dip in home prices to happen this year, and not a single panelist expects property values to recover to the pre-bubble trend for at least the next five years. MacroMarkets was founded by Robert Shiller, namesake of the closely-watched Case-Shiller Home Price Index. He says the deteriorating outlook among panel members has been influenced by the unabated foreclosure crisis and persistently weak market fundamentals.

A push for servicers to implement principal write-downs and provide screening for as many modification options as possible before proceeding to foreclosure has been met with stiff resistance from servicers and some lawmakers. Meanwhile, the number of loan modifications pales in comparison to the number of foreclosures. But new data suggests that modifications and even write-downs in certain cases might actually be more beneficial to investors as well as struggling borrowers.

Mortgage interest rates this week came in slightly higher, as macroeconomic data showing inflation rising higher than expected and investors' concerns over political strife around the globe led to an uptick in Treasury bond yields. The yields on these long-term government bonds are closely tied to mortgage rates. Freddie Mac says the 30-year fixed-rate mortgage is now averaging 4.81 percent, while the 15-year rate came in at 3.97 percent. Adjustable-rate mortgages also headed higher.