Market Studies

The Federal Reserve released a new rendition of its popular Beige Book this week. Reports from all 12 Fed districts indicated that overall economic activity continues to expand, but all said housing activity remains a key risk - a point reiterated by Fed Chairman Bernanke in his semiannual report to Congress this week when he explained to lawmakers that the housing market remains weak, with the overhang of foreclosed houses still weighing heavily on prices and potential homebuyers concerned about further declines in home values.

While the housing crisis is what triggered the economic downturn and pushed so many lenders under early on in the receession, it seems the biggest threat has now shifted from residential mortgages to souring commercial real estate (CRE) loans. Commercial real estate proved to be the downfall of the 12 banks that failed last month, according to a report by Trepp, LLC. The company says CRE loans made up 72 percent of the failed banks' nonperforming assets, while residential loans were a distant second, comprising just 20 percent.

Interest rates on home loans continued their downward trend this week, marking the third straight week that they've headed lower. According to Freddie Mac's national survey, the average rate on a 30-year fixed mortgage came in at 4.87 percent for the week ending March 3. That's down from 4.95 percent the week prior. Freddie's chief economist says the drop means homebuyers could now expect to pay $263 less per year on a $200,000 loan.

Data released by Lender Processing Services (LPS) Wednesday shows that while foreclosure starts decreased in the first month of 2011, they still outnumber foreclosure sales by almost three to one. According to the company's analysis, lenders initiated 230,000 foreclosure actions in January, down 11.4 percent from the previous month. Foreclosure sales totaled approximately 80,000 during the same month. At the same time, deterioration in the 90-plus days delinquent category increased for the first time since May 2010.

Fannie Mae's latest national housing survey finds that Americans are more confident about the stability of home prices than they were at the beginning of 2010, even though they lack confidence in the strength of the economy. Seventy-eight percent of respondents to the GSE's fourth-quarter survey said they believe housing prices will hold steady or increase over the next twelve months. However, almost two-thirds said they believe the economy is on the wrong track. The number of delinquent borrowers who say they have seriously considered defaulting declined to 19 percent.

Despite new rules for short sales under the government's Home Affordable Foreclosure Alternatives (HAFA) program which went into effect on February 1, real estate agents responding to a survey said short sale transactions are still taking too long. A survey published recently by property valuations company Equi-Trax reveals the majority of short sales are taking four to nine months to complete, and Realtors say lenders are to blame, although some concede that borrowers need to be better educated about short sales.

Industry data released Monday showed that the number of homebuyers who signed contracts in January for the purchase of previously owned homes declined from both the previous month and year-ago levels. The National Association of Realtors (NAR) says its January index of pending home sales is down 2.8 percent from the December reading, which was revised downward from a previously reported gain to reflect the start of a two-month decline in pending sales. NAR's January reading is 1.5 percent below the pending sales measurement recorded 12 months earlier.

The Federal Housing Finance Agency (FHFA) reports that home prices nationally dropped 0.8 percent in the fourth quarter of 2010 when compared to the previous three-month period. On a year-over-year basis, the agency's index is down 3.9 percent. It's the largest annual decline recorded since the third quarter of 2009. Home prices have come in below their year-ago levels for 13 consecutive quarters now. The ongoing depreciation is being attributed, in part, to an elevated number of distressed properties weighing heavy on surrounding home prices.

Research released this week by the senior research economist at the Federal Reserve Bank of Cleveland reveals homeownership is more sustainable for people who come to the table with down payments. The study examines the types of homeowner assistance that the government uses to promote homeownership -- generally down payment subsidies or interest rate subsidies -- and finds down payment subsidies are more helpful and less expensive.

For the first time in six months, home sales in the 54 U.S. markets surveyed by RE/MAX are greater than one year ago, the company said in its newly released January housing report. RE/MAX says the year-over-year sales difference has improved for three consecutive months now with several cities experiencing double digit growth to lead the trend. Home prices, however, were 4.6 percent lower than in January 2010.