National Credit Default Rates Reach Eight Year Low in May 2014 According to the S&P/Experian Consumer Credit Default Indices

S&P Dow Jones Indices released the latest results for the S&P/Experian Consumer Credit Default Indices. Data is through May 2014.  S&P/Experian Consumer Credit Default Indices Press Release – June 2014

Housing Bubbles Around the World

The International Monetary Fund (IMF), best known for bailing out over-indebted countries, is worried about housing bubbles around the world. In a recent speech (here) Martin Zhu, the Deputy Managing Director of the IMF, notes that housing prices are climbing in numerous countries. Citing the experience here in the U.S. with the housing boom and bust and subsequent deep recession, he argues that we should not sit by and watch home prices, propelled by loose mortgages lending, climb to the sky.  In simple terms, let’s learn something from the recent past.  The IMF launched the Global Housing Watch web page. The charts at the bottom are from that site.

How serious are the risks of global housing bubbles?

The old story about the key to real estate being location-location-location might be replaced with country-country-country.  A glance at the IMF charts shows that the conditions differ from country to country and that some places that appear out of line by one measure appear normal by another. Moreover, measures to moderate housing booms depend on national, not global, regulations and laws. One country that stands out with higher price-to-rent and price-to-income ratios is Canada.  Looking back over the last few years, Canada was relatively unaffected by the financial crisis – no major bank failures or surge in foreclosures.  However, home and apartment construction is strong and Vancouver in particular is experiencing a lot of foreign home buying coming from China. Another country seeing high home prices is England.  In the last few days the Governor of the Bank of England and the Chancellor of the Exchequer have both suggested rules and regulations on mortgages tied to income levels and loan to value ratios.  These are the same kinds of policies suggested by the IMF.

house prices around the world_rev2 copy chart2_ chart2_

 

Click on the charts for a larger image.

S&P’s Affordable Housing Hot Topics Event

Please join us on Tuesday, June 10, for Standard & Poor’s Ratings Services’ Affordable Housing Hot Topics Event in New York. Senior credit analysts from S&P Ratings’ Housing Enterprises and Structured Securities group along with our financial services, corporate and RMBS ratings teams will discuss mortgage finance and housing industry trends.

Register Today.

Our cross-sector topics will include:

  • U.S. macro-economic outlook, presented by Standard & Poor’s Ratings Services’ Chief Economist, Beth Ann Bovino
  • The role of municipal issuers in the affordable housing sector
  • Keynote presentation by John Burns, CEO, John Burns Real Estate Consulting
  • Internal and external views on GSE reform and its potential impact on affordability

Featured Speakers will include:

  • John Burns, John Burns Real Estate Consulting
  • Eric Chatman, Connecticut Housing Finance Authority
  • Maria Day-Marshall, District of Columbia Housing Finance
  • Ellen K. Duffy, New York City Housing Development Corp
  • Garth Rieman, National Council of State Housing Agencies

Click here to view the agenda.

 

Click here to R.S.V.P. and reserve a seat today.

We look forward to seeing you there!

Something’s Missing in the Housing Recovery

Something’s Missing in the Housing Recovery

The two most popular comments about the housing recovery are that it’s weak and the reason why GDP growth is so slow.  There is some truth to both of these — the problem is new single family homes. Looking across housing, one sees surprisingly strong construction of apartments, progress in working through the backlog of foreclosures as banks sell real estate they don’t want to own and increasing sales of existing homes.  Prices of existing single family homes, helped by low mortgage rates and improved consumer confidence rose 12.5% in the year ending in March.

Capture1

All this is positive, but without growth in new single family homes, GDP growth lags.  New construction, not sales of existing homes, is what generates jobs and adds to GDP growth.  In most recoveries, the share of single family homes in housing starts (see chart) surges. This time, there was an initial surge followed by a sharp drop.  While apartment construction is up, it has not made up the difference in housing starts which continue at about two-thirds the level we should be seeing.

 

Capture2

There are lots of reasons, but no one big reason for the softness. Mortgages rates are low, but banks are still reticent about loans.  Many potential home buyers may have little borrowing capacity due to recent car purchases or student debts.  The New York Times noted that the number of foreclosed homes sold by banks has been substantially greater than the number of new homes sold by builders in recent years.  While these factors will be resolved over time, there are questions about demographic shifts that could mean less building of single homes in the future.  Will people prefer renting to buying because they expect their employment to change more often or will their preferences shift to urban living from suburbia?  As the baby boomers begin to retire, will they ignore retirement communities and head to new downtowns in revived cities?  This may seem farfetched to some observers. However, suburbia and universal car ownership didn’t really exist before the Second World War, so single family homes could change again.

Home Prices Rise in March According to the S&P/Case-Shiller Home Price Indices

Data through March 2014, show the 10-City and 20-City Composite Indices gained 0.8% and 0.9% month-over-month. In the first quarter of 2014, the National Index gained 0.2%. Nineteen of the 20 cities showed positive returns in March – New York was the only city to decline. Dallas and Denver reached new index peaks. S&P/Case-Shiller Home Price Indices ─ March 2014

Making Sense of the Housing Outlook

News on housing continues to contradict itself.  Housing starts rebounded to over one million units in April, but the gains were apartment construction, not single family homes. Mortgage rates touch a seven month low but the Fed’s FOMC minutes report that banks aren’t willing to lend, existing sales seem to be recovering while new home sales lag until they both reverse in recent reports. Home builders’ sentiment falls and a study at the New York Fed says there are no first time home buyers because they all have to pay off their student loans.

A little bit of  light will be seen next Tuesday, May 27 at 9AM when the S&P/Case-Shiller Home Price Indices are released.

National Credit Default Rates Reach New Post-Recession Low in April 2014 According to the S&P/Experian Consumer Credit Default Indices

S&P Dow Jones Indices released the latest results for the S&P/Experian Consumer Credit Default Indices. Data is through April 2014. S&P/Experian Consumer Credit Default Indices Press Release – May 2014

Housing Angst Around the World

While housing news in the US is mixed – starts rebounded above one million units at annual rates on a surge in apartments while the NAHB Housing Market Sentiment Index slipped to 45 – other markets are spreading fear and anxiety.

China’s housing market appears to be peaking, raising fears of a further slowdown in the Chinese economy and weakness spreading to much of Asia.  Bloomberg reports new home prices rose in the smallest number of cities across China in the last one-and-one half years. Prices were up in 44 of 70 cities in April compared to 56 in March.  China’s central bank is urging lenders to make more mortgage credit available to support the construction sector and reduce the risk of sharper and deeper drop in housing. However, some commentators point out that easy credit maybe part of the problem while others wonder if it’s not too late to prevent a sharp drop in housing and home building and a further softening in China’s GDP growth rate, already down to 7%-8% from 10% or more.

A similar story is taking shape in Great Britain where support for home buying was one of the policies designed to get the economy growing after the financial crisis. Rapidly rising house prices and surging debt levels are seen as a threat to the British economy by Vince Cable, the government’s business secretary.  The “Help to Buy Scheme” designed to assist home buyers is pushing prices higher but is pushing debt back to levels seen in 2008. Nick Clegg, deputy Prime Minister and Mark Carney, head of the Bank of England issued similar warnings.  Unlike China where more credit is being called for to cushion the fall, Britain seems to be looking at little further ahead in its concerns about preventing another debt overhang.

Some housing markets still runaway with runaway demand.  A piece in the New Yorker magazine suggests that there are some “hedge” cities where the wealthy, concerned about politics in their home country, invest in housing to protect their wealth or hedge their political issues. London prices may reflect developments in Russia or Eastern Europe at times; Miami prices respond to turmoil in Latin America and more recently Vancouver reacts to concerns of Chinese populations across Asia.  For Vancouver this may not be that new – prior to 1997 when Great Britain returned Hong Kong to China, a similar pattern was seen.

All this makes U.S. housing look almost peaceful by comparison. Prices continue to rise but all signs point to a moderating pace.  Freddie Mac expects home prices to rise about 5% in 2014 down from the double digit seen recently. The big questions for the US are different: the strength is in apartment construction, not single family homes. Is this temporary as the economy continues to recover from the financial crisis or is it the beginning of a long term shift people’s preferences for homes and apartments.  Time will tell.

Foreclosure Activity Continues to Wind Down

RealtyTrac® (www.realtytrac.com), released its U.S. Foreclosure Market Report™ for April 2014 today showing foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 115,830 U.S. properties in April, a 1% decrease from the previous month and down 20% from April 2013. The report also shows one in every 1,137 U.S. housing units with a foreclosure filing during the month. Despite the decrease in overall foreclosure activity, bank repossessions in April increased 4% from the previous month, but were down 14% from a year ago. There were a total of 30,056 bank repossessions nationwide in April.

Bank repossessions increased from the previous month in 26 states and were up from a year ago in 16 states, including New York (142% increase), Oregon (91% increase), New Jersey (58% increase), Illinois (55% increase), Indiana (52% increase), Maryland (45% increase), Connecticut (44% increase), California (27% increase), and Nevada (15% increase).

Scheduled foreclosure auctions down nationally, up from year ago in 17 states

A total of 49,239 U.S. properties were scheduled for a future foreclosure auction in April, down 3% from the previous month and down 21% from a year ago — the 41st consecutive month where scheduled foreclosure auctions decreased annually.

Scheduled auctions increased from the previous month in 22 states and were up from a year ago in 17 states, including Oregon (up 229%), Utah (up 101%), Colorado (up 87%), New Jersey (up 73%), Alabama (up 25%), New York (up 25%), and Florida (up 8%).

Foreclosure starts down nationally, up from a year ago in 16 states

A total of 54,613 U.S. properties started the foreclosure process in April, down 2% from the previous month and down 22% from a year ago — the 21st consecutive month where U.S. foreclosure starts decreased annually.

Foreclosure starts, which are scheduled auctions in some states, increased from the previous month in 26 states and were up from a year ago in 16 states, including Massachusetts (up 101%), Indiana (up 60%), New Jersey (up 15%), and Wisconsin (up 13%).

Florida, Maryland, Delaware post top state foreclosure rates

Florida foreclosure activity decreased 9% from a year ago in April, but the state still posted the nation’s highest foreclosure rate for the seventh consecutive month. One in every 400 Florida housing units had a foreclosure filing during the month, nearly three times the national average.

Maryland foreclosure activity increased from a year ago for the 22nd consecutive month in April, helping the state maintain the nation’s second-highest foreclosure rate for the third consecutive month. One in every 624 Maryland housing units had a foreclosure filing during the month.

Delaware foreclosure activity increased 8% from a year ago in April, giving it the nation’s third-highest state foreclosure rate for the month: one in every 657 housing units with a foreclosure filing. Delaware foreclosure activity has increased on an annual basis in 11 of the last 14 months.

Indiana foreclosure activity in April increased 13% from a year ago — the second consecutive month with an annual increase in foreclosure activity — and the state posted the nation’s fourth highest foreclosure rate for the month: one in every 681 housing units with a foreclosure filing.

New Jersey foreclosure activity in April increased 29% from a year ago — the fifth consecutive month with an annual increase in foreclosure activity — and the state posted the nation’s fifth highest state foreclosure rate for the month: one in every 700 housing units with a foreclosure filing.

Other states with foreclosure rates ranking among the top 10 were Illinois (one in every 706 housing units with a foreclosure filing), Ohio (one in every 750 housing units), Nevada (one in every 770 housing units), Connecticut (one in every 887 housing units), and South Carolina (one in every 890 housing units).

Affordable Housing Hot Topics Event

Please save Tuesday, June 10, for Standard & Poor’s Ratings Services’ Affordable Housing Hot Topics Event in New York. Senior credit analysts from S&P Ratings’ Housing Enterprises and Structured Securities group along with our financial services, corporate and RMBS ratings teams will discuss mortgage finance and housing industry trends.

Our cross-sector topics will include:

  • U.S. macro-economic outlook, presented by Standard & Poor’s Ratings Services’ Chief Economist, Beth Ann Bovino
  • The role of municipal issuers in the affordable housing sector
  • Keynote presentation by John Burns, CEO, John Burns Real Estate Consulting
  • Internal and external views on GSE reform and its potential impact on affordability

A full agenda will be available shortly.

Click here to R.S.V.P. and reserve a seat today.

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