More homeowners than ever are having trouble making their monthly mortgage payments, according to figures released Thursday. The figures underlined the level of stress on a large segment of the country, a situation that could put out the modest recovery in home prices over the last few months and impede any economic rebound.
The overall third-quarter delinquency rate is the highest since the association began keeping records in 1972. Nearly one in 10 homeowners with mortgages was at least one payment behind in the third quarter, the Mortgage Bankers Association said in its survey. It is up from about one in 14 mortgage holders in the third quarter of 2008.
The combined percentage of those in foreclosure as well as delinquent homeowners is 14.41 percent, or about one in seven mortgage holders. Mortgages with problems are concentrated in four states: California, Florida, Arizona and Nevada.
In the first stage of the housing collapse, defaults and foreclosures were driven by subprime loans. As the subprime tide recedes, high-quality prime loans with fixed rates make up the largest share of new foreclosures. A third of the new foreclosures begun in the third quarter were this type of loan, traditionally considered the safest. Without jobs, borrowers usually cannot pay their mortgages.
In previous recessions, homeowners who lost their jobs could sell the house and move somewhere with better prospects, or at least a cheaper cost of living. This time around, many of the unemployed are finding that the value of their property is less than they owe.
Showing posts with label Housing Crisis. Show all posts
Showing posts with label Housing Crisis. Show all posts
10.27.2009
Home prices continued to rise
The prices of U.S. homes in 20 metropolitan cities continued to rise for the fourth-straight month in August, according to the Case-Shiller home price index. The home price stabilization added to signs of housing market improvement and economic stability in the United States.
In August the price index climbed by a seasonally adjusted 1% compared with July. Prices rose in 17 of 20 cities.
In the past year, the composite index is down 11.3% in the 20 cities. Prices are down 29.3% from the peak. Prices are where they were in the fall of 2003.
The Case-Shiller index lags behind the National Association of Realtors’ report on existing home sales, which have been issued for September. That number also showed improvement. Low prices and mortgage rates combined with the first-time buyers’ tax credit have spurred home sales. Congress is considering extending the tax credit that saves first-time buyers 10 percent of the sales price, up to $8,000.
Some investors have become concerned that such signs of improvement could prompt central banks to withdraw stimulus measures sooner than expected. Another factor likely to obstruct the market in the coming months is an increase in interest rates, as the Federal Reserve ceases its buying mortgage-backed securities.
In August the price index climbed by a seasonally adjusted 1% compared with July. Prices rose in 17 of 20 cities.
In the past year, the composite index is down 11.3% in the 20 cities. Prices are down 29.3% from the peak. Prices are where they were in the fall of 2003.
The Case-Shiller index lags behind the National Association of Realtors’ report on existing home sales, which have been issued for September. That number also showed improvement. Low prices and mortgage rates combined with the first-time buyers’ tax credit have spurred home sales. Congress is considering extending the tax credit that saves first-time buyers 10 percent of the sales price, up to $8,000.
Some investors have become concerned that such signs of improvement could prompt central banks to withdraw stimulus measures sooner than expected. Another factor likely to obstruct the market in the coming months is an increase in interest rates, as the Federal Reserve ceases its buying mortgage-backed securities.
7.02.2009
Brighter data on American house prices
Many think that the worst is over even though house prices in America were still roughly 18% lower than a year earlier. The latest Case-Shiller indices, released on June 30th, showed that prices continued to fall in April. The ten-city index was 0.7% lower than a month earlier, and the 20-city index went down by 0.6%. But these falls were the smallest since June 2008. The number of foreclosures in process rose by 22% in the first quarter of this year, and that the number of prime mortgages with payments at least 60 days late went up by 20%.
The government is stepping up its efforts to get people to take part in its anti-foreclosure program. Many look to housing to lead a broader economic recovery; they also believe that house prices indirectly affect consumer spending, both by allowing people to borrow against the value of their homes.
1.27.2009
U.S. home value plunged 25 percent from the peak
A closely watched gauge of U.S. home prices, the S&P Case-Shiller home-price index, showed accelerating price declines in November. Home values in 20 major U.S. cities fell a record 18.2 percent in the 12 months ending in November. No city experienced year-over-year price gains, the eighth straight month that has happened.
The Case-Shiller 20-city home price index fell 2.2 percent in November, with home values in all 20 cities falling at least 1 percent. None of the cities managed to avoid month-to-month declines for the second month in a row.
Phoenix, Las Vegas and San Francisco continued to lead decliners, all with year-to-year drops over 30 percent and monthly drops over 3 percent. The best performance over the past year was Dallas, where prices fell just 3.3 percent.
Prices are down 25 percent from the peak in mid-2006, according to Case-Shiller.
The Case-Shiller index tracks repeat sales on the same properties over time, but it closely tracks only 20 cities, not the whole country.
Falling home values have caused plunge in value mortgage-backed securities and created chaos in the global financial system. Home owners have lost trillions of dollars of wealth and banks have been stuck with mortgage-backed securities as they turned into toxic assets.
The Case-Shiller 20-city home price index fell 2.2 percent in November, with home values in all 20 cities falling at least 1 percent. None of the cities managed to avoid month-to-month declines for the second month in a row.
Phoenix, Las Vegas and San Francisco continued to lead decliners, all with year-to-year drops over 30 percent and monthly drops over 3 percent. The best performance over the past year was Dallas, where prices fell just 3.3 percent.
Prices are down 25 percent from the peak in mid-2006, according to Case-Shiller.
The Case-Shiller index tracks repeat sales on the same properties over time, but it closely tracks only 20 cities, not the whole country.
Falling home values have caused plunge in value mortgage-backed securities and created chaos in the global financial system. Home owners have lost trillions of dollars of wealth and banks have been stuck with mortgage-backed securities as they turned into toxic assets.
12.31.2008
Another record low of mortgage rates
The average interest rates on U.S. 30-year fixed-rate mortgages fell for a ninth consecutive week, reaching their lowest level in 37 years, according to a survey released on Wednesday by home funding company Freddie Mac.
Interest rates on the 30-year fixed-rate mortgage dropped to an average of 5.10 percent for the week ending Dec. 31, down from the previous week's 5.14 percent, Freddie Mac said. The 30-year fixed-rate mortgage has not been lower since Freddie Mac started the Primary Mortgage Market Survey in 1971.
Mortgage rates have dropped dramatically ever since the Federal Reserve unveiled a plan last month to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises, Fannie Mae, Freddie Mac, and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The Fed on Dec. 30 moved forward aggressively with an effort to drive down mortgage costs, setting a goal of buying $500 billion in mortgage-backed securities by mid-2009.
The housing market is in the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards and record foreclosures push down home prices. House prices fell 18% over the 12-month period ending in October, according to the S&P/Case-Shiller 20-city composite index. From its peak set in July 2006, the composite index is down 23.4%
An improvement in the housing market could portend a turnaround for the world's largest economy, which has been in a recession since late last year. The battered housing market is critical to the U.S. economy.
Interest rates on the 30-year fixed-rate mortgage dropped to an average of 5.10 percent for the week ending Dec. 31, down from the previous week's 5.14 percent, Freddie Mac said. The 30-year fixed-rate mortgage has not been lower since Freddie Mac started the Primary Mortgage Market Survey in 1971.
Mortgage rates have dropped dramatically ever since the Federal Reserve unveiled a plan last month to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises, Fannie Mae, Freddie Mac, and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The Fed on Dec. 30 moved forward aggressively with an effort to drive down mortgage costs, setting a goal of buying $500 billion in mortgage-backed securities by mid-2009.
The housing market is in the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards and record foreclosures push down home prices. House prices fell 18% over the 12-month period ending in October, according to the S&P/Case-Shiller 20-city composite index. From its peak set in July 2006, the composite index is down 23.4%
An improvement in the housing market could portend a turnaround for the world's largest economy, which has been in a recession since late last year. The battered housing market is critical to the U.S. economy.
12.04.2008
House prices are tumbling almost everywhere
Residential-property prices are tumbling in 23 of the 45 countries on a quarter-on-quarter basis, surveyed by an estate agent, Knight Frank.
The Economist’s house-price indicators continue to show that house value has fallen sharply. America’s housing market suffered the most among the 20 countries covered.
Chart: Courtesy of The Economist
The Economist’s house-price indicators continue to show that house value has fallen sharply. America’s housing market suffered the most among the 20 countries covered.
Chart: Courtesy of The Economist10.28.2008
Home Prices Fall 20.3 Percent From June 2006 Peak
A closely watched gauge of U.S. home prices, the Case-Shiller Home Price 20-city index, dropped 1percent in August and fell a record 16.6percent from the previous year as the downturn in residential real estate prices continued, Standard & Poor published Tuesday. Prices have now fallen 20.3percent from their peak in June 2006.
Meanwhile, the S&P Case-Shiller Home Price 10-city index dropped 1.1 percent for in August and plunged a record 17.7 percent over the past year.
Over the past year, Phoenix and Las Vegas experienced the largest declines, down nearly 31percent in both cities. Prices fell the least in Dallas, down 2.7percent, and in Charlotte, N.C., down 2.8percent. No city showed a price gain during the last 12 months.
Home prices surged in 2003 through 2006, climbing by a cumulative 52percent, according to Case-Shiller. Since then, however, homeowners have given up half of the gains from earlier in the decade as the housing and credit bubbles burst.
Falling prices have eroded Americans' wealth, cutting into their ability to borrow against the equity in their homes or refinance their mortgages or sell for a profit. Millions of Americans now owe more on their homes than the homes are worth.
The plunge in home prices also led to massive losses in major banks which in turn triggered financial crisis that have rippled to around the globe.
Meanwhile, the S&P Case-Shiller Home Price 10-city index dropped 1.1 percent for in August and plunged a record 17.7 percent over the past year.
Over the past year, Phoenix and Las Vegas experienced the largest declines, down nearly 31percent in both cities. Prices fell the least in Dallas, down 2.7percent, and in Charlotte, N.C., down 2.8percent. No city showed a price gain during the last 12 months.
Home prices surged in 2003 through 2006, climbing by a cumulative 52percent, according to Case-Shiller. Since then, however, homeowners have given up half of the gains from earlier in the decade as the housing and credit bubbles burst.
Falling prices have eroded Americans' wealth, cutting into their ability to borrow against the equity in their homes or refinance their mortgages or sell for a profit. Millions of Americans now owe more on their homes than the homes are worth.
The plunge in home prices also led to massive losses in major banks which in turn triggered financial crisis that have rippled to around the globe.
9.30.2008
Home prices tumbling at record annual rate in July
Home prices in 20 major U.S. cities tumbled at a faster pace in July, sending home values down a record 16.3percent from the year-ago period, according to the Standard & Poor's Case-Shiller home price index released Tuesday.
July's prices dropped 0.9percent, an uptick from a 0.5percent drop in June.
Prices fell in 13 of the 20 cities tracked in the index during July, but prices in all 20 metropolitan areas were lower in July than they were a year earlier. Las Vegas and Phoenix remained the weakest cities, falling nearly 30percent in the past year. Prices in Las Vegas sank 2.8percent in July, while prices in Phoenix dropped 2.7percent.
The Case-Shiller's smaller 10-city index plunged 1.1percent in July and by 17.5percent over the past year, its biggest decline in its 21-year history.
Price is expected to decline further, especially if financial crisis continue to be unsettled and credit remains tight.
Prices are down 19.5percent from the peak in July 2006
July's prices dropped 0.9percent, an uptick from a 0.5percent drop in June.
Prices fell in 13 of the 20 cities tracked in the index during July, but prices in all 20 metropolitan areas were lower in July than they were a year earlier. Las Vegas and Phoenix remained the weakest cities, falling nearly 30percent in the past year. Prices in Las Vegas sank 2.8percent in July, while prices in Phoenix dropped 2.7percent.
The Case-Shiller's smaller 10-city index plunged 1.1percent in July and by 17.5percent over the past year, its biggest decline in its 21-year history.
Price is expected to decline further, especially if financial crisis continue to be unsettled and credit remains tight.
Prices are down 19.5percent from the peak in July 2006
9.26.2008
WaMu failure: Largest bank collapse in U.S. history
In the largest bank failure in U.S. history, Washington Mutual Inc. (WaMu), with $307 billion in assets, was seized by federal regulators; and its asset was swiftly acquired by J.P. Morgan Chase for $1.9 billion Thursday.
The federal Office of Thrift Supervision said it closed WaMu on Thursday and appointed the Federal Deposit Insurance Corp. as receiver. The FDIC in turn conducted the bidding process that led to the purchase by J.P. Morgan.
J.P. Morgan purchase included all of WaMu's deposits, assets and some liabilities. All deposit accounts with Washington Mutual Bank have been transferred to J.P. Morgan Chase Bank. Those deposit accounts include checking, savings, money market, CDs and retirement accounts. J.P. Morgan purchase excluded senior unsecured debt, subordinated debt, and preferred stock of Washington Mutual's banks. J.P. Morgan said it would not be acquiring any assets or liabilities of the bank's holding company.
After the purchases of WaMu and the investment bank Bear Stearns Cos. in March, JPMorgan Chase is now the second-largest bank in the United States after Bank of America Corp., which recently bought Merrill Lynch.
WaMu is expected to declare bankruptcy as soon as Friday, putting stock holders at the end of a long line of claimants and leaving them empty handed.
On Wednesday, a Standard & Poor's ratings downgrade further pushed the bank toward collapse. Its stock price had plummeted some 95% to its close of $1.69 a share Thursday.
Seattle-based WaMu, which was founded in 1889, is the largest bank failure in U.S. history with $307 billion in assets. The magnitude surpasses the $40 billion of Continental Illinois National Bank & Trust, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July 2008.
WaMu, long one of the nation's largest mortgage lenders, was hit hard by the subprime crisis that has widened to threaten U.S. financial markets and led to the current financial crisis.
WaMu ran into trouble after it got caught up in the once-booming subprime mortgage business. Troubles then spread to other parts of WaMu's home loan portfolio, namely its "option" adjustable-rate mortgage (Option ARM) loans. Option ARM loans were offered to borrowers for very low introductory payments. Those loans often included the option to defer some interest payments until later years or to pay only interest, which caused the borrowers debt to grow with each payment, becoming negative amortization loans.
When housing prices began to fall just at the time rates were adjusting higher on those loans, borrowers began defaulting at alarming rates, leading to big losses for WaMu and others who had extended the credit or purchased securities based on the credits. The bank stopped originating those loans in June.
The federal Office of Thrift Supervision said it closed WaMu on Thursday and appointed the Federal Deposit Insurance Corp. as receiver. The FDIC in turn conducted the bidding process that led to the purchase by J.P. Morgan.J.P. Morgan purchase included all of WaMu's deposits, assets and some liabilities. All deposit accounts with Washington Mutual Bank have been transferred to J.P. Morgan Chase Bank. Those deposit accounts include checking, savings, money market, CDs and retirement accounts. J.P. Morgan purchase excluded senior unsecured debt, subordinated debt, and preferred stock of Washington Mutual's banks. J.P. Morgan said it would not be acquiring any assets or liabilities of the bank's holding company.
After the purchases of WaMu and the investment bank Bear Stearns Cos. in March, JPMorgan Chase is now the second-largest bank in the United States after Bank of America Corp., which recently bought Merrill Lynch.
WaMu is expected to declare bankruptcy as soon as Friday, putting stock holders at the end of a long line of claimants and leaving them empty handed.
On Wednesday, a Standard & Poor's ratings downgrade further pushed the bank toward collapse. Its stock price had plummeted some 95% to its close of $1.69 a share Thursday.
Seattle-based WaMu, which was founded in 1889, is the largest bank failure in U.S. history with $307 billion in assets. The magnitude surpasses the $40 billion of Continental Illinois National Bank & Trust, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July 2008.
WaMu, long one of the nation's largest mortgage lenders, was hit hard by the subprime crisis that has widened to threaten U.S. financial markets and led to the current financial crisis.
WaMu ran into trouble after it got caught up in the once-booming subprime mortgage business. Troubles then spread to other parts of WaMu's home loan portfolio, namely its "option" adjustable-rate mortgage (Option ARM) loans. Option ARM loans were offered to borrowers for very low introductory payments. Those loans often included the option to defer some interest payments until later years or to pay only interest, which caused the borrowers debt to grow with each payment, becoming negative amortization loans.
When housing prices began to fall just at the time rates were adjusting higher on those loans, borrowers began defaulting at alarming rates, leading to big losses for WaMu and others who had extended the credit or purchased securities based on the credits. The bank stopped originating those loans in June.
9.20.2008
Rescue plan seeks $700B to buy bad mortgages
The Bush administration is asking Congress to let the government buy $700 billion in toxic mortgages in the largest financial bailout since the Great Depression, according to a draft of the plan obtained Saturday by The Associated Press.
The plan would give the government broad power to buy the bad debt of any U.S. financial institution for the next two years. It would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue. The proposal does not specify what the government would get in return from financial companies for the federal assistance.
- AP -
The plan would give the government broad power to buy the bad debt of any U.S. financial institution for the next two years. It would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue. The proposal does not specify what the government would get in return from financial companies for the federal assistance.
- AP -
9.17.2008
Remarkable rescue of U.S. largest insurer, AIG
The U.S. government late Tuesday agreed to rescue insurer American International Group (AIG) with an $85 billion loan from the New York Federal Reserve in exchange for a nearly 79.9 percent stake in the nation’s largest insurer. The rescue came just two days after the government refused to save Wall Street icon Lehman Brothers, which filed for bankruptcy on Monday, and is the latest in a series of government and private sector steps that have remade the U.S. financial system.
The government's deal dilutes current shareholders by giving the government a 79.9percent stake in the insurance company, with the power to veto asset sales and payment of dividends to shareholders. The line of credit to AIG comes with steep interest rate of 3-month Libor plus 8.5percent. AIG has two years to pay back the loan, and is likely to sell assets. An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won't have to go through a tumultuous fire sale.
The effort was aimed to stave off a bankruptcy that many feared would spark a global financial chaos. A disorderly failure of AIG could have caused unprecedented global ripple effects since AIG has $1.1 trillion in assets and 74 million clients in 130 countries. AIG is a major player in the market for credit default swaps, which are insurance-like contracts that guarantee against a company defaulting on its debt. Also, it is a huge provider of life insurance, property and casualty insurance and annuities.
The bailout marks the most dramatic turn yet in an expanding crisis that started more than a year ago with the mortgage meltdown. The resulting credit crunch is now toppling not only mainstay Wall Street players, but others in the wider financial industry.
The insurer has been hit hard by the housing crisis and credit crunch because its sales of credit default swaps and its subprime mortgage-backed securities holdings. Its derivatives unit sold guarantees on mortgage-related securities known as collateralized debt obligations, or CDOs, using credit-default swaps. As house prices fall and the credit crunch deepens, the market for these CDO exposures is disappearing, forcing AIG to report big write-downs of the value of the credit default swaps by $14.7 billion, pretax, in the first two quarters of this year. It also has had to write down the value of its mortgage-backed securities. The company has lost more than $18 billion in the past nine months as it wrote down these exposures and has seen its stock price fall more than 91percent so far this year.
Shares of AIG plunged more than 40percent Wednesday after the government's takeover of the insurance giant failed to assuage investors' fears about its troubles or soothe broader concerns about the health of the financial markets.
Related story:
Nightmare on Wall Street following AIG rescue
The government's deal dilutes current shareholders by giving the government a 79.9percent stake in the insurance company, with the power to veto asset sales and payment of dividends to shareholders. The line of credit to AIG comes with steep interest rate of 3-month Libor plus 8.5percent. AIG has two years to pay back the loan, and is likely to sell assets. An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won't have to go through a tumultuous fire sale.The effort was aimed to stave off a bankruptcy that many feared would spark a global financial chaos. A disorderly failure of AIG could have caused unprecedented global ripple effects since AIG has $1.1 trillion in assets and 74 million clients in 130 countries. AIG is a major player in the market for credit default swaps, which are insurance-like contracts that guarantee against a company defaulting on its debt. Also, it is a huge provider of life insurance, property and casualty insurance and annuities.
The bailout marks the most dramatic turn yet in an expanding crisis that started more than a year ago with the mortgage meltdown. The resulting credit crunch is now toppling not only mainstay Wall Street players, but others in the wider financial industry.
The insurer has been hit hard by the housing crisis and credit crunch because its sales of credit default swaps and its subprime mortgage-backed securities holdings. Its derivatives unit sold guarantees on mortgage-related securities known as collateralized debt obligations, or CDOs, using credit-default swaps. As house prices fall and the credit crunch deepens, the market for these CDO exposures is disappearing, forcing AIG to report big write-downs of the value of the credit default swaps by $14.7 billion, pretax, in the first two quarters of this year. It also has had to write down the value of its mortgage-backed securities. The company has lost more than $18 billion in the past nine months as it wrote down these exposures and has seen its stock price fall more than 91percent so far this year.
Shares of AIG plunged more than 40percent Wednesday after the government's takeover of the insurance giant failed to assuage investors' fears about its troubles or soothe broader concerns about the health of the financial markets.
Related story:
Nightmare on Wall Street following AIG rescue
9.07.2008
Historic U.S. government takeover of Fannie and Freddie
Treasury Secretary Henry Paulson and James Lockhart, director of the Federal Housing Finance Agency on Sunday unveiled an extraordinary takeover of twin mortgage buyers, Fannie Mae and Freddie Mac, putting the government in charge of the twin mortgage giants and the $5 trillion in home loans they back. The sweeping plan places the two companies into a "conservatorship" to be overseen by the Federal Housing Finance Agency. Under the plan, the FHFA will assume the power of the board, and the two firms' cheif executives will resign after a transitional period.
Fannie and Freddie, which were created by the U.S. government, have been badly hurt in the last year by the sharp decline in home prices as well as rising mortgage delinquencies and foreclosures.
The move marks Washington's most dramatic attempt yet to shore up the nation's housing market, which is suffering from record foreclosures and falling prices. Paulson said that the cost to taxpayers would largely depend on the future financial performance of Fannie and Freddie.
For more than a decade Fannie Mae and Freddie Mac have attracted overseas investors with a simple pitch: the securities they issue are just as good as the United States government’s, and they usually pay better. The trillions in securities issued by Fannie and Freddie and backed by American mortgages were never explicitly guaranteed by the U.S government, but foreign and domestic investors alike have always believed that the guarantee would be backed up if it were tested.
About one-fifth of securities issued by Fannie, Freddie and a handful of much smaller quasi-governmental agencies, some $1.5 trillion worth, were held by foreign investors at the end of March. One out of 10 American mortgages is, in effect, in the hands of institutions and governments outside the United States. Asian institutions and investors hold some $800 billion in securities issued by Fannie and Freddie, the bulk of that in China and Japan. China held $376 billion and Japan $228 billion as of June 2007, the most recent country-specific Treasury figures.
The bulk of investments related to Fannie and Freddie are in the form of mortgage-backed securities, often called agency securities or agency paper. This agency paper is considered of much higher quality than securities backed by sub-prime loans because Fannie and Freddie generally lend to borrowers with good credit histories and require higher down payments.
Fannie and Freddie, which were created by the U.S. government, have been badly hurt in the last year by the sharp decline in home prices as well as rising mortgage delinquencies and foreclosures.
The move marks Washington's most dramatic attempt yet to shore up the nation's housing market, which is suffering from record foreclosures and falling prices. Paulson said that the cost to taxpayers would largely depend on the future financial performance of Fannie and Freddie.
For more than a decade Fannie Mae and Freddie Mac have attracted overseas investors with a simple pitch: the securities they issue are just as good as the United States government’s, and they usually pay better. The trillions in securities issued by Fannie and Freddie and backed by American mortgages were never explicitly guaranteed by the U.S government, but foreign and domestic investors alike have always believed that the guarantee would be backed up if it were tested.
About one-fifth of securities issued by Fannie, Freddie and a handful of much smaller quasi-governmental agencies, some $1.5 trillion worth, were held by foreign investors at the end of March. One out of 10 American mortgages is, in effect, in the hands of institutions and governments outside the United States. Asian institutions and investors hold some $800 billion in securities issued by Fannie and Freddie, the bulk of that in China and Japan. China held $376 billion and Japan $228 billion as of June 2007, the most recent country-specific Treasury figures.
The bulk of investments related to Fannie and Freddie are in the form of mortgage-backed securities, often called agency securities or agency paper. This agency paper is considered of much higher quality than securities backed by sub-prime loans because Fannie and Freddie generally lend to borrowers with good credit histories and require higher down payments.
6.02.2008
House Prices Plunge
Since sub-prime mortgage bubble burst in 2007, house prices have persistently declined. The sub-prime mess, which was originated by high interest rate, has adversely affected the financial market. Since then the credit market has gotten dry as lenders apply more prudent lending standards and are busy to consolidate their books. Recent data from the S&P/Case-Shiller National Home Price Index for 20 cities revealed that home prices are falling at accelerated rate. After dropping 5.4% in the forth quarter of 2007, home prices fell again 7% in the first quarter ending on March 31th, 2008. As the end of the first quarter, the prices have declined 16.6% since their 2006 peak and have fell a record 14.1% from a year earlier.
Although house prices have become more affordable and mortgage rates have declined in the past few months, the demand of houses has been weak. Credit crunch has been the major culprit. Banks have been consolidating their balance sheet and tightening credit standards that have made more difficult for home buyers to get new mortgages.
Homeowners' net-worth has shrink significantly as their house prices decline. To compensate the declining net-worth, they need to set aside a larger amount of their disposable income. The declining house value has also left the owners with almost no opportunity to use their houses to tap home equity loan, which was traditionally source of extra cash. As the households feel poorer, they curb discretionary spending. As a result, these households’ misery would keep slowing down economy in the foreseeable future.
Chart: BusinessWeek
Subscribe to:
Posts (Atom)