What is going on with the economy?

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Home Equity Falls Below 50 Percent
Thursday March 6, 12:48 pm ET
By J.W. Elphinstone, AP Business Writer



Federal Reserve Report Shows Homeowner Equity Dipping Below 50 Percent, Lowest on Record

NEW YORK (AP) -- Americans' percentage of equity in their homes fell below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday.
Homeowners' portion of equity slipped to downwardly revised 49.6 percent in the second quarter of 2007, the central bank reported in its quarterly U.S. Flow of Funds Accounts, and declined further to 47.9 percent in the fourth quarter -- the third straight quarter it was under 50 percent.
That marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945.
The total value of equity also fell for the third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.
Home equity, which is equal to the percentage of a home's market value minus mortgage-related debt, has steadily decreased even as home prices jumped earlier this decade due to a surge in cash-out refinances, home equity loans and lines of credit and an increase in 100 percent or more home financing.
Economists expect this figure to drop even further as declining home prices eat into the value of most Americans' single largest asset.
Moody's Economy.com estimates that 8.8 million homeowners, or about 10.3 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9 percent, will be "upside down" if prices fall 20 percent from their peak.
The latest Standard & Poor's/Case-Shiller index showed U.S. home prices plunging 8.9 percent in the final quarter of 2007 compared with a year ago, the steepest decline in the 20-year history of the index.
The news follows a report from the Mortgage Bankers Association on Thursday that home foreclosures skyrocketed to an all-time high in the final quarter of last year. The proportion of all mortgages nationwide that fell into foreclosure surged to a record of 0.83 percent, while the percentage of adjustable-rate mortgages to borrowers with risky credit that entered the foreclosure process soared to a record of 5.29 percent.
Experts expect foreclosures to rise as more homeowners struggle with adjusting rates on their mortgages, making their monthly payments unaffordable. Problems in the credit markets and eroding home values are making it harder to refinance out of unmanageable loans.
The threat of so-called "mortgage walkers," or homeowners who can afford their payments but decide not to pay, also increases as home values depreciate and equity diminishes. Banks and credit-rating agencies already are seeing early evidence of this.
On Tuesday, Fed Chairman Ben Bernanke suggested lenders reduce loan amounts to provide relief to beleaguered homeowners

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Home Foreclosures Hit Record High
Thursday March 6, 12:50 pm ET
By Jeannine Aversa, AP Economics Writer



Industry Group Says Home Foreclosures at Record High Last Quarter

WASHINGTON (AP) -- Home foreclosures soared to an all-time high in the final quarter of last year and are likely to keep on rising, underscoring the suffering of distressed homeowners and the growing danger the housing meltdown poses for the economy.
The Mortgage Bankers Association, in a quarterly snapshot of the mortgage market released Thursday, said the proportion of all mortgages nationwide that fell into foreclosure shot up to a record high of 0.83 percent in the October-to-December quarter. That surpassed the previous high of 0.78 percent set in the prior quarter.
"Clearly it's the worst it's been," chief association economist Doug Duncan said in an interview with The Associated Press.
More homeowners -- at the same time -- fell behind on their monthly payments.
The delinquency rate for all mortgages climbed to 5.82 percent in the fourth quarter. That was up from the 5.59 percent in the third quarter and was the highest since 1985. Payments are considered delinquent if they are 30 or more days past due.
Homeowners with tarnished credit who have subprime adjustable-rate loans were the hardest hit. Foreclosures and late payments for these borrowers also swelled to all-time highs in the fourth quarter.
The percentage of subprime adjustable-rate mortgages that entered the foreclosure process soared to a record of 5.29 percent in the fourth quarter. That was up from 4.72 percent in the prior quarter, which had marked the previous high. Late payments skyrocketed to a record high of 20.02 percent in the fourth quarter, up from 18.81 percent -- the previous high -- in the third quarter.
The association's survey covers almost 46 million home loans nationwide.
"Mortgage credit quality is deteriorating fast," said Mike Larson, a real-estate analyst at Weiss Research.
The worsening foreclosure and late payment figures come as fears grow that the country is teetering on the edge of a recession or in one already.
The wave of foreclosures threatens to deepen the already severely depressed housing market. The homes people are forced out of add to the big glut of unsold homes already on the market. That forces even more cutbacks by homebuilders, taking a big bite out of national economic activity. Harder-to-get credit, meanwhile, has thwarted would-be home buyers, aggravating problems in the housing market.
Homeowners with spotty credit histories or low incomes who took out higher-risk subprime adjustable-rate mortgages have suffered the most distress as the housing market went from boom to bust. Initially low interest rates that reset to much higher rates have clobbered these borrowers. With home values dragged down by the slump, many borrowers were left with mortgages that eclipsed the value of their homes.
"Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state," Duncan said.
In a separate report, Americans' percentage of equity in their homes has fallen below 50 percent for the first time on record since 1945, the Federal Reserve said.
Homeowners' percentage of equity slipped to a downwardly revised 49.6 percent in the second quarter of 2007, and declined further to 47.9 percent in the fourth quarter -- the third straight quarter it was under 50 percent. That marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945.
Even with relief efforts under way by industry and the government, Federal Reserve Chairman Ben Bernanke, earlier this week, warned that foreclosures and late payments on home mortgages are likely to rise "for a while longer."
The MBA's Duncan agreed. "We expect some increases in the next couple of quarters," he said. The economic slowdown, harder-to-get credit and lofty energy prices are adding to the strains, he said.
Against this backdrop, Bernanke called for additional relief and urged lenders to help distressed owners by lowering the amount of their loans. "This situation calls for a vigorous response," Bernanke said in a speech Tuesday.
Bernanke's recommendation for lenders to reduce the amount owed on troubled home loans goes beyond the position staked out by the Bush administration. The Fed chief, however, didn't go as far as to endorse some proposals embraced by Democrats on Capitol Hill.
Among the initiatives promoted by the administration is allowing some homeowners with certain subprime home loans to freeze their interest rate for five years.
California and Florida continued to represent a disproportionate share of the country's new foreclosures. The two states accounted for 30 percent of mortgages starting the foreclosure process, the association said. "In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through," Duncan said. That glut has pushed down house prices, he said.
The fallout afflicts neighborhoods, too.
"Foreclosures not only create personal and financial distress for individual homeowners but also can significantly hurt neighborhoods where foreclosures cluster," Bernanke said.

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Pending Home Sales Below Market Forecast
Thursday March 6, 11:49 am ET
By Alan Zibel, AP Business Writer



US Pending Home Sales Remain at Second-Worst Number on Record, Industry Data Show

WASHINGTON (AP) -- Industry data released Thursday show January pending U.S. home sales were below analysts' expectations and remained at the second-lowest reading on record.
The National Association of Realtors said its seasonally adjusted index of pending sales for existing homes held at 85.9, the same reading as December and just short of a revised record low of 85.8 in August, at the start of the worldwide credit squeeze. The reading was 19.6 percent below year-ago levels.
Wall Street economists surveyed by Thomson/IFR had predicted the index would inch up to a reading of 86.2.
Typically there is a month or two lag between when a buyer signs a home sales contract and the closing of the deal. Sales completed last month and into this month should be reflected in the January reading.
An index reading of 100 is equal to the average level of sales activity in 2001, when the index started. Lawrence Yun, the trade group's chief economist, said in a statement that the reading is a sign the housing market is stabilizing.
"Our members are telling us there's been a pickup in shopping activity." Yun said. "Our hope is that the increased traffic of buyers looking at homes will translate soon into more contract offers."
The Realtors group, which is more optimistic about the housing market than most economists, projects home sales will start to rise during the second half of the year.
It forecast Thursday that total existing home sales will fall 4.8 percent to 5.4 million this year, then rise to 5.6 million in 2009. The trade group projected median U.S. home prices -- the point at which half of the homes sell for less and half sell for more -- will fall 1.2 percent to $216,300 before rising to $223,800 in 2009.
As the Realtors group released its monthly report, mortgage lenders published a more dismal housing market statistics.
The Mortgage Bankers Association, said the proportion of all mortgages nationwide that fell into foreclosure shot up to a record high of 0.83 percent in the October-to-December quarter, beating the previous high of 0.78 percent set in the prior quarter.
Among the loans that have seen the most trouble -- subprime adjustable-rate mortgages made to borrowers with poor credit -- more than 20 percent were 30 or more days past due, up from 18.8 percent in the third quarter. Also, 5.3 percent of those loans entered the foreclosure process, up from 4.7 percent in the prior quarter.

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Stocks Fall Amid Credit Concerns
Thursday March 6, 12:22 pm ET
By Joe Bel Bruno, AP Business Writer



Wall Street Falls on Continuing Worries About Credit Markets, Bleak Reading on Foreclosures

NEW YORK (AP) -- Stocks tumbled Thursday as renewed concerns about the credit markets and a spike in home foreclosures intensified the market's worries about a sagging economy. The Dow Jones industrials fell more than 125 points.
Worries about credit moved to the fore of Wall Street's concerns after Thornburg Mortgage Inc. and a Carlyle Group bond fund disclosed troubles with investments backed by mortgages. The entities failed to make margin calls, payments to guarantee much larger debt or investments.
The genesis of the credit concerns that erupted last year -- souring mortgage loans -- again added to investors' worries after the Mortgage Bankers Association reported that home foreclosures hit an all-time high in the fourth quarter.
Wall Street's sense that credit concerns appear to be seeping further into areas of the financial sector once seen as likely to avoid being tainted by bad debt weighed on financial stocks and the broader market.
"I think these are near-term, unfortunate events that if they had the luxury of time and capital they could probably weather but unfortunately with this leverage-based system we have, time is a very expensive luxury," Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said in reference to the difficulties at Thornburg and Carlyle.
In midday trading, the Dow fell 129.68, or 1.06 percent, to 12,125.31.
Broader indexes also retreated. The Standard & Poor's 500 index fell 17.53, or 1.31 percent, to 1,316.17; and the Nasdaq composite shed 18.59, or 0.82 percent, to 2,254.22.
Investors found little to celebrate as the dollar sinks to new lows against the euro. The greenback's weakness helped drive oil prices further into record territory and gold -- regarded as a defensive investment -- hovered near the psychological benchmark of $1,000 an ounce. Decisions by both the European Central Bank and the Bank of England to leave interest rates unchanged could place added pressure on the dollar.
Light, sweet crude rose to a fresh record Thursday after an unexpected decline in U.S. crude supplies and a widely expected decision by OPEC not to increase production. Oil recently slipped 68 cents to $103.84 per barrel.
Wall Street appeared to take an upbeat report from Wal-Mart Stores Inc. as a mixed message. While Wal-Mart reported stronger-than-expected sales for February, some investors are worried that success at the world's largest retailer reflects increased bargain-hunting by consumers. Reports from retailers such as J.C. Penney Co. and Limited Brands Inc., the parent of the Victoria's Secret and Bath & Body Works chains, indicated consumers are paring some spending that they don't deem essential.
Wal-Mart was one of only a few stocks among the 30 that comprise the Dow industrials to advance. The shares rose 73 cents to $50.28. J.C. Penney fell $3.30, or 6.9 percent, to $44.81, while Limited declined 37 cents, or 2.4 percent, to $14.98.
A retrenchment among consumers is an alarming prospect for Wall Street as consumer spending accounts for more than two-thirds of U.S. economic activity.
Investors' fear of becoming ensnared in widening credit troubles weighed on the financial sector. Thornburg plunged $2.04, or 60 percent, to $1.36. Stock in Amsterdam-listed Carlyle Capital Corp. Ltd., a bond fund managed by private equity firm Carlyle Group, fell more than 50 percent after saying it received a note of default for missed margin calls.
Other financial stocks retreated. Lehman Brothers Holdings Inc. fell $2.12, or 4.4 percent, to $45.94, while Merrill Lynch & Co. declined $2.96, or 6 percent, to $46.37. Washington Mutual Inc. fell 84 cents, or 6.6 percent $11.96.
Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 610.3 million shares.
The Russell 2000 index of smaller companies fell 10.66, or 1.56 percent, to 673.08.
Overseas, Japan's Nikkei stock average closed up 1.88 percent. Britain's FTSE 100 fell 1.22 percent, Germany's DAX index declined 1.38 percent, and France's CAC-40 closed down 1.65 percent.

[2Real4me!]

I've been having conversations with people that I know in the real estate industry. We've been talking about how we've been seeing people today that can't pay their mortgage payments with those past adjustable rates. It also includes people that had stable jobs and unexpectedly things turned for the worse. These kinda of things happen to people.

Theirs other people that got intoloans which they've shouldn't had and got over within their heads. Those are the ones with the adjustable rates thathad their payments from $1,200 go to $3,500 a month. They are just walking away from the loan. They know that their credit is shot so why kill yourself over it. I remember when people were telling me that they thought $200,000 for a home was over priced five years ago and look at it today with the average $500,000 in Los Angeles and all through SoCal. However, homes are declining and the average is becoming today at $350,000 here is Los Angeles. We've have a big increase on short sales and thats the majority of the listings as well.

One thing though regarding to the theaverage$500,000 with a mortgage of $3,500 a month not including your property taxes, I just can't seethe logic onhow anyone can really make those payments unlessyouran into some sort of income that can maintain that life style. Well some Realtors blame the news media for causing the economic panic but it was already heading their once the real estate prices were out of control eight years ago back, and especially when the flippers hit the real estate market to out flip a house.

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Oil Waffles on Profit-Taking, Dollar
Thursday March 6, 12:21 pm ET
By John Wilen, AP Business Writer



Oil Gyrates As Some Investors Take Profits, While Falling Dollar Attracts Other Buyers

NEW YORK (AP) -- Oil prices fluctuated Thursday as some investors sold to lock in profits from a rally that added 6.4 percent to the price of a barrel of crude in less than two days while others bought as the dollar dropped to new lows against the euro.
At the pump, meanwhile, gas prices extended their advance toward record levels. The national average price of a gallon of gas rose 0.7 cent overnight to $3.185, according to AAA and the Oil Price Information Service. Gas prices are following oil higher, and are expected to peak this spring well above last May's record of $3.227 a gallon.
Thursday brought a mixed slate of economic news. Although reports on same-store sales suggested some retailers are doing better than expected and the number of people filing for unemployment claims dropped last week, home foreclosures jumped in the fourth quarter to an all-time high, according to The Mortgage Bankers Association.
The European Central Bank and Bank of England, meanwhile, decided to leave interest rates unchanged.
The foreclosure data and European interest rate decisions helped push the dollar lower. Analysts believe the steadily weakening dollar is the reason oil prices have jumped to a number of new inflation-adjusted record highs this week. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling.
Still, after a big gain, investors often sell some positions to lock in profits, analysts said.
"I think it's profit-taking day, regardless of what the dollar is doing," said James Cordier, founder of OptionSellers.com, a Tampa, Fla., trading firm.
Light, sweet crude for April delivery fell 74 cents to $103.78 a barrel on the New York Mercantile Exchange, after earlier spiking to a new record of $105.97. Prices frequently alternated between gains and losses.
Keeping a floor under oil prices Thursday was an overnight rebel attack on a Colombian oil pipeline that transports 60,000 barrels of oil a day for export markets.
"The attack was in response to the Colombian military's killing of a high ranking member of the rebel group ... during a raid into Ecuador," said Addison Armstrong, director of exchange Traded Markets at TFS Energy Futures LLC in Stamford, Conn., in a research note. "The Transandino Pipeline may be out of service for up to three days following the explosion."
The attack came as traders worried about escalating tensions between Colombia and Venezuela over Colombia's raid into Ecuador. Venezuela moved tanks and soldiers to the Colombian border. Ecuador said Monday it had sent 3,200 soldiers to its border with Colombia.
In other Nymex trading, April heating oil futures fell 1.36 cents to $2.9295 a gallon, while April gasoline futures fell 4.21 cents to $2.60 a gallon.
April natural gas futures rose 2.5 cents to $9.766 per 1,000 cubic feet. The Energy Department said inventories fell by 135 billion cubic feet last week, less than analysts had expected.
In London, Brent crude fell 52 cents to $101.12 a barrel on the ICE Futures exchange.
Diesel prices jumped 1.4 cents overnight to a new record national average of $3.71 a gallon. High diesel prices are boosting prices of consumer goods, the vast majority of which are transported by the distillate fuel.
Associated Press writers Pablo Gorondi in Budapest and Gillian Wong in Singapore contributed to this report.

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See today's average mortgage rates across the country. Source: Bankrate.com




Loan Type
Today
Last Week


30 Year Fixed
6.03% Today
6.05%Last week

15 Year Fixed
5.42% Today
5.48% Last Week

1 Year ARM
4.66% Today
4.87% Last Week

30 Year Fixed Jumbo
6.99% Today
6.94% Last Week


5/1 ARM
5.21% Today
5.12% Last Week

3/1 ARM
5.10% Today
5.00% Last Week

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Market Trends

February2008

Housing Affordability Improves as Prices and Rates Decline
By Robert A. Kleinhenz, Ph.D. Deputy Chief Economist


Affordability Low Despite Market Slowdown

Decreases in the median price and declining mortgage rates during the fourth quarter of 2007 dramatically improved affordability in California for the first time in two years. At $483,730, the statewide median price fell by a record margin of 14.9 percent or $84,400 compared to the third quarter median of $568,130. The median price was nearly $80,000 lower than the median of $561,430 from the fourth quarter of 2006, corresponding to a record-setting 13.8 percent year-to-year decrease. Nearly all areas of the state experienced large price declines, as tighter underwriting standards and the liquidity crunch dramatically reduced the pool of qualified buyers who could obtain a loan.

Dramatically lower prices have contributed to large improvements in affordability in recent months. The C.A.R. Housing Affordability Index for First-Time Buyers (HAI-FTB) measures the share of all households that can afford the entry-level home. At 85 percent of the overall median, the price of an entry-level home in the fourth quarter was $411,170. Assuming a 10 percent down payment and a 1-year adjustable rate mortgage of 6.21 percent, the monthly payment (including taxes and insurance) was $2,740. With a 40 percent qualifying ratio the minimum income required for such a home was $82,200, considerably below the levels of recent quarters when the minimum income approached $100,000.

Given these calculations, the HAI-FTB was 33 in the fourth quarter of 2007, meaning that 1 in 3 households could afford the entry-level home in California. The index rose by an impressive 9 points from 24 in the third quarter, and also rose 8 points compared to 25 a year ago. Affordability last stood at 33 percent was in the first quarter of 2005.

Part of these gains came from decreases in mortgage rates. The one-year effective adjustable rate was 6.21 percent in the fourth quarter, down more than a third of a percent from 6.56 percent a quarter earlier, and somewhat below the 6.36 percent rate of a year earlier.

No region of the state came close to the national affordability reading of 65, although the High Desert and Sacramento County both had affordability readings over 50. Monterey and Santa Barbara Counties were the least affordable, with just one in five households able to afford the entry-level home in those parts of the state.

In a sense, these are only ‘paper-gains’ in affordability. The index does not account for changes in underwriting standards. Because of tighter underwriting standards, even some well-qualified buyers have been unable to obtain financing on home loans. Nor do the HAI-FTB calculations take the current liquidity crunch into consideration. Would-be buyers seeking homes over $500,000 frequently have been left empty-handed as lenders have been unable to fund their loans because of the liquidity crunch. Those who successfully obtain jumbo loans pay a premium, with the spread between jumbo and conforming rates approaching two percent. So while affordability appears to have improved, it remains to be seen whether it will trigger an uptick in activity over the near future.





This article above is from last month and here is January's 2008 quarter home prices index.

Click on link below to take a peek.

http://www.car.org/index.php?id=MzgyOTM=

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Housing Market Spirals, No End in Sight
Thursday March 6, 5:30 pm ET
By J.W. Elphinstone, AP Business Writer



Low Home Equity, Record-High Foreclosures: a Limp Housing Market Looks Even Weaker

NEW YORK (AP) -- Nervous homeowners and economic analysts have been wondering how much worse the housing market could get. On Thursday they got an answer: Plenty.
Foreclosures are at a record high. Home equity is at a record low. The housing market is spiraling down with no end in sight -- and taking people's sense of economic security with it.
For the first time since the Federal Reserve started tracking the data in 1945, the amount of debt tied up in American homes now exceeds the equity homeowners have built.
The Fed reported Thursday that homeowner equity actually slipped below 50 percent in the second quarter of last year, and fell to just below 48 percent in the fourth quarter.
And that was just one example in a day of dismal housing reports.
The Mortgage Bankers Association said foreclosures hit an all-time high in the final quarter of last year. And pending U.S. home sales -- those in the gap between when a buyer signs a contract and when the deal closes -- came in below analyst expectations for January and remained at the second-lowest reading on record.
"There is no sign that we're near the bottom in the housing market," said Douglas Elmendorf, a senior fellow at the Brookings Institution and former Fed economist. "Housing prices will probably fall for a year, two or three to come."
The trifecta of reports illustrates a housing market caught up in a "very negative, reinforcing downward spiral," said Mark Zandi, chief economist at Moody's Economy.com.
Home equity, the percentage of a home's market value minus mortgage-related debt, has steadily decreased even as home prices and homeownership rates jumped earlier this decade. That was due to a surge in cash-out refinancings, home equity loans and lines of credit and an increase in no-down-payment mortgages.
Now declining home prices are eating into equity, and economists expect the figure to drop even more.
Economy.com estimates 8.8 million homeowners, or about 10 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households will be "upside down" if prices fall 20 percent from their peak. The latest Standard & Poor's/Case-Shiller index showed U.S. home prices plunging 8.9 percent in the final quarter of 2007 compared with a year earlier.
Experts believe foreclosures will rise as more homeowners struggle with monthly payments as the interest rates on their mortgages adjust higher. Problems in the credit markets and eroding home values are making it harder for people to refinance their way out of unmanageable loans.
The threat of so-called "mortgage walkers," or homeowners who can afford their payments but decide not to pay, also increases as home values depreciate and equity diminishes. Banks and credit-rating agencies already are seeing early evidence of it.
"If you're struggling with payments and you have negative equity in your home, your struggling isn't getting you very far," Elmendorf said. "It's very likely you want to stop and walk away."
Even for those who retain some equity, the effect on consumer sentiment and spending will be profound.
Homeowners, who once happily tapped home equity for expenditures and home improvements, may instead save money as they watch their total net worth wither. Those who are willing to spend their home equity will find lenders reluctant to give out home equity loans or lines of credit.
"People were relying on home equity to maintain consumption. They can't keep doing that once the equity's gone," said Dean Baker, co-director at the Center of Economic Policy Research. "Undoubtedly, this is one reason for the falloff in consumption in last couple of months."
Economists worry that the prolonged housing downturn has put the economy on the brink of recession. The economy grew an anemic 0.6 percent in the fourth quarter.
A massive loss in home equity could even mean some Americans won't have enough money to retire. On average, housing is Americans' single largest asset, representing 39 percent of a household's total net worth.
Melba Dumay, 44, worries that higher costs for insurance and other expenses will outpace any growth in value of the home she's owned in Tampa, Fla., for about 10 years. She was depending on her home equity for retirement and as something she could pass on to her high-school-aged daughter.
"It's your legacy to your children and everything else, and if that's not worth anything then you got to start all over again," Dumay said.
So far, the government has stepped in with a number of measures to contain the housing fallout. Last month, Congress passed a $168 billion economic stimulus package with provisions aimed at helping homeowners refinance into more affordable loans. The Federal Reserve has also slashed interest rates to in hopes of spurring growth.
On Tuesday, Fed Chairman Ben Bernanke suggested lenders reduce loan amounts to provide relief to beleaguered homeowners. But some experts think more help is needed.
"At the end of the day, these efforts will be insufficient," Zandi said. "Policymakers will need to be more aggressive and put taxpayer money on the line to stem this. Ultimately, we will find a bottom, but it would be a mistake to let the market run its course."
Associated Press Writers Jeannine Aversa and Alan Zibel in Washington and Anthony McCartney in Tampa, Fla., contributed to this report.