Boomer’s Blog

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.

Black gold is making real estate investment king in states that produce energy by fueling prices in dozens of local U.S. housing markets.

Today, the price of crude oil topped $135 per barrel, up from $65 this time last year, and experts are predicting that the price is likely to reach $200 before too long. While difficult for most of the world to swallow, these prices are producing a boom in some U.S. housing markets, while others languish in an ongoing struggle for economic survival.

Because soaring oil prices result in higher consumer costs for gas, energy bills and food, local economies in many housing markets still reeling from the foreclosure epidemic are suffering from lower tax revenues and other harsh realities. Once-thriving infrastructures appear to be fizzling out in many of the markets that saw the greatest gains during the housing boom.

Give and Take
At the same time, high fuel costs are driving hot housing markets in many energy-producing states. In these real estate markets, high gas prices are stimulating job growth, boosting personal income, contributing to a healthy tax base and rising demands for housing.

The Wall Street Journal reports that five states producing oil, gas and other fossil fuel commodities are beating April’s national unemployment rate of 5 percent and personal income growth of 5.9 percent by significant margins. Here are the numbers from some of the hottest energy producing states for the sake of comparison to the overall national average:

Montana

• Unemployment rate: 3.8 percent;
• Personal income growth: 6.6 percent.

North Dakota

• Unemployment rate: 3.1 percent;
• Personal income growth: 6.4 percent.

Oklahoma

• Unemployment rate: 3.2 percent;
• Personal income growth: 7.0 percent.

Texas

• Unemployment rate: 4.1 percent;
• Personal income growth: 7.4 percent.

Wyoming

• Unemployment rate: 2.6 percent;
• Personal income growth: 6.8 percent.

Since many of these states never experienced the real estate price surges that came with the housing boom, they’re not being ravaged hit by the bust. This may factor significantly into long-term real estate investment stability as the overall U.S. economy struggles to overcome recession, lost revenues and other related economic pangs.

Shelter from Recession’s Storm
Because energy producing states currently are boasting more robust tax revenues, public infrastructures are thriving: schools, hospitals parks and law enforcement are well-funded, roads are better maintained and additional funding is available for the improvements that contribute greatly to property value increases.

These factors all work together to improve the quality-of-life assets that attract qualified buyers for home relocation and up-sizing. When such conditions are in place, they also stimulate the service industry and retail sectors, prompting them to expand their presence, poised to join the party.

Nature Takes her Course
In energy booming states, especially those that smartly diversified their economies during former energy market declines to minimize their economic dependance on oil prices, these indicators offer real estate entrepreneurs broader investment options than many other markets. Currently, they’re generating demand for many different types of housing: rental properties, low-income housing, single family homes and retirement communities, to name a few. When favorable market conditions spark demand, the nature of capitalism takes its course.

Boom and Bust Economy
In the past, real estate markets in energy-producing states were vulnerable to the boom and bust economic cycle. When energy prices would surge, local economies would quickly grow, only to be subjected to painful busts when energy prices inevitably declined. Today however, analysts are saying that we may never again see dramatic declines in oil prices. So as long as the supplies hold out, and local economies strike a healthy balance, these markets look like promising investment opportunities. Savvy real estate entrepreneurs may want to take a look at what some of the up-and-coming markets in energy producing states have to offer their portfolios.

CNNMoney: Home Prices in a Downward Spiral
While existing home sales recently have seen modest market boosts, analysts say that residential real estate prices have posted record drops in the past year. The S&P Case/Shiller Home Price index of 20 key markets finds that home prices plunged 11 percent in a 12-month period that ended in January. These findings mark the lowest levels ever reported for the index, which debuted in 2000.

Marketwatch: Emerging Bargains in REO New Construction
With falling home prices and changing lending practices, a growing number of foreclosures are now available in up-scale areas at at lower price points. In one new Sacramento, Calif. suburb, changing markets mean changing demographics in once-hot sellers’ markets. The greatest deals often are found in new-construction areas that were hot in 2005-2006 when they were priced well above the median price for the greater area.

Associated Press: Fed Auctions $50 Billion in Short Term Loans
Hoping to ease the economic turmoil for credit-crunched banks, the Fed has so far offered a total of $260 billion in short-term loans via eight auctions since December. The central bank has posted results of its latest such auction where commercial banks bid for their share of $50 billion in short-term loans. Reports say this is a continuing effort to minimize the impact of the recession on the vulnerable economy.

Forbes.com: Wall Street Chaos Ups Ante on Countrywide Buy-out Rumors
Rumors about Bank of America’s latest plan to acquire Countrywide Financial hit today, indicating that Countrywide might get a better takeover deal than the $4 billion offered by the bank in January. Even then, the deal was lauded by the Fed and other regulators hoping it would stop a liquidity-constrained Countrywide from causing more trouble in markets already cramping from the credit squeeze.  Speculators today may be counting on the Fed continue bailing out financial firms who are heavily vested in subprime markets.

Forbes.com: PennyMac to Profit from Contrywide’s Blunders
As the largest mortgage lender in the United States, many believe that Countrywide Financial helped to trigger the subprime mortgage disaster with its uninhibited lending practices. Countrywide currently is under FBI scrutiny for possible securities fraud and regulatory violations. Now, a group of former Countrywide executives are looking to capitalize on their wealth of experience by purchasing distressed mortgages at low prices and re-selling them for profit. Led by former Countrywide talent, the newly formed Private National Mortgage, or PennyMac, will use private capital to invest in and service residential mortgages; it also will acquire loans from institutions seeking to reduce mortgage exposure risks. Critics claim that Countrywide executives should not be empowered to profit from the mortgage crisis they may have helped to create.

Los Angeles Times: Equity Strippers to Bear All in Court
Federal prosecutors have so far charged 19 people, mostly from Southern California, with defrauding cash-strapped homeowners using “foreclosure rescue pitches” and an equity-draining technique called “equity stripping.” Two indictments have so far been issued in relation to the $12.6 million scam. Prosecutors say that defendants could get more than 20 years in prison, if convicted.