CAR 2008 updated forecast, Round 4

Original:
Updated in April 2008:

Updated in June 2008:
Update August 2008:

(Click to enlarge)

A new California Association of REALTOR® forecast has been posted. You will notice they increased the number of sales by 53,300 since their previous forecast 2 months before. The C.A.R. also expects the median price to come in at $27,000 below their previous forecast and $178,000 below their original forecast. You'll notice the "e" next to 2008, this is now an estimate not a forecast. Let's hope their estimates are better than their forecast.

Fannie/Freddie slowing down purchases. FHA increasing fees.

In case anyone is thinking mortgage credit contraction is over, from the WSJ (emphasis added):

In their latest monthly reports, Fannie and Freddie disclosed that they cut back on commitments to buy mortgage securities in July. Those purchase commitments, net of planned sales, totaled about $16.3 billion, down from $55.1 billion in June. The companies are providing less support to the mortgage market, while reducing their capital needs.
Fannie increased its holdings of "liquid" investments, cash and short-term securities that can easily be sold, to $103.6 billion, up 43% from June. The move gives the company more flexibility to reduce its future borrowings if market conditions worsen, company officials said.

The GSE can shrink by lowering its purchases below the amount loans in its portfolio get paid off. I don't know what that level of purchases is currently but at the very least they appear to be planning to grow more slowly. I'm sure we will see additional guideline tightening in the near future. I think Freddie Mac is overdue for a tightening based on the guidelines I've read and what I've seen on the broker boards.

So if Fannie/Freddie aren't going to save housing I guess FHA will, except they are raising fees:

In a posting on its Web site Tuesday, the FHA said the upfront premiums charged to most borrowers will be 1.75% of the loan amount, effective Oct. 1. That is up from the 1.5% that was in effect until July 14, when the FHA adopted a "risk-based" pricing system that created a range of charges depending on borrowers' credit scores and the amount of the down payment or equity they owned in the home.

The FHA tried to make the increase risk-based but Congress stopped them in the new housing bill. So they just increased the rate for everyone. The biggest issue with FHA is that they are only insurance, someone else (Fannie/Freddie, Ginne, or the FHLB) would have to take the loans off the lenders hands in order for them to make more loans. Ginnie Mae has started becoming more aggressive in getting FHA loans securitized but the slowdown with Fannie/Freddie and FHA increasing fees is a significant development.

Fallout.

This is the Back On Market ratio compared to the previous 3 month average pendings. There is clearly a high amount of fallout happening and I think once offers slow even a little we will see sales fall faster than normal. I think the high amount of fallout is for many reasons, the moving target that is today's mortgage market, the lack of quality of the inventory on the market (more likely to find inspection issues), the number of POORLY managed short sales on the market (many agents are in a "let's throw it up on the market and see what sticks" mood, it's either laziness or inexperience). I tried getting data before February 2007 since that is where my data ends and I have an inkling that the fallout ratio for the few years before that was in the sub 20% range. Finacing fallout was much less due to the ability to qualify anyone so you are left with personal and inspection reasons for the deal falling apart. The few data points I could find support this 20% fallout thesis but I don't have enough for it to be cut and dried.

Jim the Realtor has seen the same thing with his REO listings (all in multiple offer situations) in his San Diego market and his comment is, "And it's only going to get tougher the next few months." I agree wholeheartedly.

San Fernando Valley July 2008 sales charts

July official sales stats are out for the San Fernando Valley. SFH sales came in at 717 which was a 6.86% improvement MoM and 16.21% improvement YoY. SFH median was $435,000 which was a 0.9 % improvement MoM and -30.95% decline YoY. My guesstimates were between 750-760 for SFH sales, off about 5% and $435,000 for median (off 0%).

Condo sales came in at 205 which was -10.8% decline MoM and -25.7% decline YoY. The median price Condo for July was $280,0000 off -5.0% MoM and -31.2% YoY. My guess was 195-200 for Condos (off about 3%) and $270,000 for median (off about 3.5%).

Pending sales for both SFH & Condos came in at 1141 right in between my last months estimate. SFH sales should be flat MoM next month and as we come into the easy YoY comparisons should be up dramatically YoY. For Condos they are continuing the perform horribly and but should still be flat to slightly higher YoY due to how far sales of everything fell off after July of last year.

I think I'm on the right track as far as estimates go so I'll have a market check around the first to give you a preview on the August numbers. If anyone needs any SFV submarkets broken out let me know in the comments or by email.

In looking at the data further I think once the traditional sales season ends sales will drop faster than normal, I will detail my reasoning for this in a post later next week. I think 2008 SFH sales will beat 2007 SFH sales but condo sales won't. The signals are mixing now for sales which is indicative of a market shift but prices are still firmly in a downward trend.

Ventura County July 2008 Sales

July continued the upward trend in sales rising 13.4% MoM and 10.9% YoY. From here forward each month should show positive YoY gains. As you can see in the top graph, once Alt-A blew up the music stopped in the housing market and everyone was looking around for a chair. The tremendously slow sales during that historic lull means that the yearly sales comparisons will be easy. If you look at the sales in historic context they still are very low but it is clear that the sales bottom has been reached in Ventura County and now it's just a question of how far prices will drop. If the banks stay motivated through the winter and the economy muddles through we could even have "ok" sales (10% off average for any particular month) next year at significantly discounted prices. I was thinking that July was probably the peak because of the rate jump in June pulling demand forward. But looking at some forward looking stats I think some areas will hit higher highs than July, in the aggregate it will be close to see if August can beat July, but it is certainly a distinct possibility. There is also significant of fallout of pending transactions so predictions are really tough.

Guesstimates of July SFV sales

Update: Looks like DQ won't be releasing until next week. The Ventura charts will be released then.

I'm working on getting a running total of SFV sales and pendings going, the first step will be to see if I'm even in the ballpark. The current sales for July according to my calculations is 744 for SFH homes with a $435,000 median. For condos sales are around 190 with a $270,000 median. Late reporters should increase both these numbers so I think the final tally will be in the 750-760 ballpark for SFH and 195-200 area for condos.



This would represent a increase of 10.8% MOM and 20.5% YoY for SFH sales and a decrease of 17.3% MoM and 31.1% YoY for condo sales. Active inventory is basically flat (slightly up) and pendings are either between 1060 and 1170 depending on various factors, this brackets last months pendings of 1128. Sales should be positive for the SFV through the rest of the year, the YoY comparisons are very easy. Something catastrophic will have to happen for that not to be the case.



We will see how things look once the official numbers come out then I can fine tune my efforts a bit better. Once I have that dialed in I can have running totals down to the city level if people are interested. I will also work at defining the short sale and REO market versus the rest of the market.



Here are the charts as things stand with the above numbers.



SFH sales:




July only SFH sales:



Condo sales:

I think DQ numbers should be reported tomorrow, if they are I'll get the Ventura County charts up.

Robin hood?

"Little John: You know somethin', Robin. I was just wonderin'. Are we good guys or bad guys? You know, I mean, uh… our robbin' the rich to feed the poor.
Robin Hood: Rob? Tsk tsk tsk. That's a naughty word. We never rob. We just sort of borrow a bit from those who can afford it.
Little John: Borrow? Boy, are we in debt. "-Robin Hood, Disney Animated Film

Fannie Mae announced that they will change their Loan Level Pricing Adjustments (LLPA) and raise their Adverse Market Delivery Charge. The LLPAs are variable depending on the loan FICO and LTV. They raised the fees in some areas and lowered it in others. They Adverse Market Delivery Charge is a flat fee per loan that was raised from .25% to .50%. I will take a crack at a possible explanation for the changes. For background you can look at the charts for purchases displayed in the announcements, here is the old fee structure and here is the new.


What I did was combine the Adverse Market Delivery Charge with the LLPA fees and then took the difference between the results and we get the following:

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You will notice that the fees impact the people with downpayments the most. Basically, they feel like they have pricing power in this group.

Looking at the last May 2008 LTV chart, I added a shaded area to correspond with the downpayment size getting hit with the most fees.

(click to enlarge)

Loans are very concentrated around this point. Everyone to the left of the pink area gets hit by only a .25% increase, possibly a recognition that these loans are ultra-safe and banks might portfolio them instead of selling them to secondary if the price gets too high/attractive. Everyone to the right (ignore VA and FHA, I don't believe they get assessed these fees) is private mortgage insurance territory. Basically, Fannie isn't putting any more pricing pressure on the MI companies since MI above 90% is getting scarce. They are also trying to limit fees on the more economically sensitive borrowers. Fannie will definitely get flack for raising fees but I'm sure they will point out to their friends in Congress that they are trying to take from the rich, not the poor.

MGIC tightens again

Mortgage insurer MGIC updated their guidelines again. Basically they loped off the max LTV for purchases in AZ, CA, FL, NV by 5% and now max out at 90%. I think they won't drop the LTV anymore in the bubble zones but will start restricting DTI's to give themselves more of a cushion and insulate them from the most debt ridden borrowers:


On a different note, I've noticed several flips come on the market lately that originated at either the courthouse foreclosure auction or the REDC type auction. What was interesting about these flips was the purchase price was low enough for an investor to attempt a flip, still have a profit margin and be the lowest priced listing nearby. If the servicers start pushing volume during the fall and winter months things could get interesting. I notice Hudson & Marshall is starting to do some absolute auctions in other states as well. I think July will represent the sales volume peak of 2008 and prices will start accelerating downward again through fall and winter.