Boomer’s Blog

The trend heading into the holidays seems to be one of growing unemployment and a rising tide of homeowners drowning in mortgage debt.

An Ironic Twist on a Familiar Story
The U.S. Bureau of Labor Statistics’ October report finds that unemployment last month soared to a 14-year high of 6.5 percent, as 240,000 jobs were slashed. Yet the Orange County Register’s Mortgage Insider, Matthew Padilla has made an interesting observation. He sifted through the data to report that in September,  352,200 workers were making a living in the mortgage business — that’s up from 349,300 in August.

Negative Equity Plagues Homeowners
But the recent real estate statistics that really capture the real estate investor’s eye come from  First American CoreLogic: 2.1 million mortgages are within 5 percentage points of being in a negative-equity position and 7.5 million mortgaged properties are carrying more mortgage debt than they’re worth. That means that nearly 20 percent of properties with mortgages have plunged into the powerful waves the economic undertow.

Rising Percentage of Underwater Mortgages in the States
See how the mortgages currently in negative equity break down among the states listed below (Note: percentages have been rounded off and the states are listed in descending order starting with the highest reported rate of negative equity.):

1. Nevada: 48%
2. Michigan: 39%
3. Arizona: 29%
4. Florida: 29%
5. California:  27%
6. Georgia: 23%
7. Ohio: 22%
8. Colorado: 18%
9. Arkansas: 16%
10. New Hampshire: 17%
11. Texas: 17%
12. Virginia: 16%
13. Tennessee: 15%
14. Kansas: 15%
15. Iowa: 15%
16. Alaska: 14%
17. Wisconsin: 14%
18. Nebraska: 13%
19. Kentucky: 13%
20. Missouri: 13%
21. Minnesota: 12%
22. Maryland: 12%
23. Rhode Island: 12%
24. Louisiana: 11%
25. Idaho: 11%
26. Utah: 11%
27. Oklahoma: 10%
28. South Carolina: 10%
29. Indiana: 10%
30. North Carolina: 10%
31. Illinois: 10%
32. Delaware: 10%
33. Washington D.C.: 10%
34. Massachusetts: 10%
35. New Jersey: 9%
36. New Mexico: 8%
37. Washington: 8 %
38. Oregon: 8%
39. Alabama: 7%
40. Connecticut: 7%
41. Montana: 7%
42. Pennsylvania: 6%
43. Hawaii:  6%
44. New York:  4%

Source: First American CoreLogic

Notes: Data were unavailable for Maine, Mississippi, North Dakota, South Dakota, Vermont, West Virginia and Wyoming. These data are based on 42 million properties that had a first or second mortgage, accounting for at least  80 percent of U.S. mortgages.

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Long-term mortgage Interest rates rose this week to their highest levels since March, likely triggered by rising inflation, high gas prices, and dwindling consumer confidence. At the same time, home values are shrinking in every region of the United States. Can we call this a recession yet?

Mortgage Rates Take a Hike
Currently, the national average interest rate for 30-year, fixed-rate mortgages is up to 6.08 percent this week, up from 5.98 percent last week, This time last year, mortgage financing company Freddie Mac says it was 6.42 percent.

Shouldn’t this be moving the market? Not necessarily, says Freddie. As mortgage rates rise, home values continue to fall. More folks likely will be watching this selling season than the World Series.

Q1 Home Values Fizzle in Most States, All Regions
The value of U.S. homes fell 10.4 percent in the first quarter, says Freddie Mac, marking fueling the most dramatic annual dive since 1971. In the past year, Freddie’s Conventional Mortgage Home Price Index averaged 4.4 percent, the most remarkable decline in 39 years.

Freddie Mac data show that 46 states reported price drops in Q1, and 29 states measured drops over the same period last year. Only Montana, North Dakota, South Carolina and Wyoming reported price gains, however moderate, for Q1.

According to Freddie Mac’s numbers, based on the Conventional Mortgage Home Price Index Classic Series, no region in the U.S. is totally immune to the price drops that sometimes look like economic chronic wasting disease. But depending on your real estate investment strategy, there are some bright spots if you look at the big picture. Again, the real estate markets that didn’t pump-up the real estate bubble, look much more stable these days.

Regional Housing Trends
Here are are some regional housing value numbers crunched in Freddie Mac’s latest report:

West South Central Division

• Includes: Arkansas, Louisiana, Oklahoma and Texas;
• Current values reported for Q1: down 0.5 percent (-1.9 percent, annualized);
• Over the past year: home values rose 1.6 percent;
• Over the past five years, home values climbed 26.8 percent.

Middle Atlantic Division

• Includes: New Jersey, New York and Pennsylvania;
• Current values reported for Q1: down 1.1 percent (-4.1 percent, annualized);
• Over the past year: home values dropped 0.2 percent;
• Over the past five years: home values climbed 44.3 percent.

East South Central Division

• Includes: Alabama, Kentucky, Mississippi and Tennessee
• Current values reported for Q1: down 1.1 percent (-4.3 percent, annualized);
• Over the past year: home values increased 0.3 percent;
• Over the past five years: home values climbed 26.6 percent.

East North Central Division

• Includes: Illinois, Indiana, Michigan, Ohio and Wisconsin
• Current values reported for Q1: dropped 1.5 percent (-5.9 percent, annualized);
• Over the past year: home values dropped 3.8 percent;
• Over the past five years: home values climbed 9.2 percent.

Mountain Division

• Includes: Arizona, Colorado, Idaho, Montana, New Mexico, Nevada, Utah and Wyoming;
• Current values reported for Q1: dropped 1.5 percent (-5.9 percent, annualized);
• Over the past year: home values dropped 3.3 percent;
• Over the past five years: home values climbed 44.0 percent.

West North Central Division

• Includes: Iowa, Kansas, Minnesota, Missouri, North Dakota, Nebraska and South Dakota
• Current values reported for Q1: dropped 2.2 percent (-8.6 percent, annualized);
• Over the past year: home values dropped 2.3 percent;
• Over the past five years: home values climbed 16.3 percent.

South Atlantic Division

• Includes: Washington D.C., Delaware, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia
• Current values reported for Q1: dropped 2.6 percent (-10.1 percent, annualized);
• Over the past year: home values dropped 4.4 percent;
• Over the past five years: home values climbed 37.8 percent.

New England Division

• Includes: Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island and Vermont;
• Current values reported for Q1: dropped 2.9 percent (-11.0 percent, annualized);
• Over the past year: home values dropped 4.0 percent;
• Over the past five years: home values climbed 22.2 percent.

Pacific Division

• Includes: Alaska, California, Hawaii, Oregon and Washington
• Current values reported for Q1: dropped 6.9 percent (-24.8 percent, annualized);
• Over the past year: home values dropped 12.4 percent;
• Over the past five years: home values climbed 40.1 percent.

National Real Estate Investor: Bloated Condo Market Ills set to Worsen
It appears that the days of the seven-figure condo are history. Investors in residential condominiums should sell before an additional new 100,000 units join the massive national inventory later this year, analysts say. The bottom line for investors is the growing glut on the condo market likely will hit the hardest in some of the markets that saw the greatest price gains during the boom. Chicago, for example, is expected to add 16,000 condos this year; New York has 14,600 condos currently under construction and Phoenix has 13,000 condos nearing completion. These units are expected to flood the burgeoning condo marketplace, already plagued with excess inventory, high construction loan delinquency rates, rising construction costs, fewer buyers and falling prices. Even platinum markets such as San Diego, Las Vegas, San Francisco and south Florida are expected to take huge hits on condos because their only interested buyers are likely to be investors waiting for prices to hit rock-bottom. In the past month, condos in downtown Miami have gone to auction with no minimum bid requirements. Many entrepreneurs consider this to be an engraved invitation to invest. But there are as many survivors of the price drops and and painful recovery in the wake of the Resolution Trust Corp. disaster. These folks warn that investors who wait for higher prices on their condo units may be in for a long, strange trip.

CNN: Wall Street Bets on Superman to Help Builders?
This report explores the Superman-like, “Bizarro World” disparity between the losses reported by many major home builders and their earnings on Wall Street. Analysts usually advise a “buy” when earnings are expected to be low, yet many of these stocks have rallied. Are fund managers throwing caution to the wind when they bet on a rebound in this sector? According to analysts at FactSet Research, which tracks institutional investments, several funds at Fidelity, T. Rowe Price, Manning & Napier and State Street have increased their stakes in Lennar, KB Home and other home builders in Q4, 2007. Also, Citadel Investment Group, a Chicago-based hedge fund, has shown increased holdings in KB Home, Ryland Group and Toll Brothers. These data suggest that the bottom for home builders may have an upside for investors willing to risk exposure to housing market kryptonite.

Bloomberg: HUD Secretary Quits Under Fire
Targeted by a federal investigation and under fire by legislators, U.S. Housing and Urban Development (HUD) Secretary Alphonso Jackson resigned today. Jackson has no immediate replacement, and the news comes as the White House works to ease the housing crisis. As HUD Secretary, Jackson advocated an industry-led program to encourage lenders to voluntarily refinance troubled loans rather than using federal funds to tackle the mortgage crisis. He came under fire in the U.S. Senate when he refused to answer questions regarding accusations that he improperly directed his staff to steer federal housing contracts to his associates. The Justice Department is investigating whether Jackson told the truth when he denied directing federal housing contracts to friends and political allies. The National Journal reports that investigators also are probing Jackson’s ties to a golfing partner who received more than $485,000 to manage construction work in New Orleans after Hurricane Katrina in 2005. Jackson received his post in 2001, and is credited with building the FHA Secure program, which increased federal financing for sub-prime borrowers.