HSH Market Trends

Preface

Although there seems to be no imminent turnaround in the economy, the trajectory of the recession has flattened out and perhaps even lessened somewhat. Home sales — if not prices — have bottomed and mortgage markets are functioning in a more stable atmosphere. Capital-impaired lenders have found a fair response as they start to raise “stress-test” required capital, and financial markets have stabilized and perhaps are performing a bit better. It is in this trough, from this platform, which we will begin to build out the next growth phase of the economy.

That may yet be a while, since even getting back to even 0% GDP will require a much stronger bit of momentum than the economy seems to have at the moment. Still, an outlook for a recession with waning severity is far better than one where we’re still peering into a dark abyss.

However, significant challenges yet remain. It appears that the worst may be over for job layoffs, at least as far as initial weekly claims go, but the ranks of those receiving benefits continue to grow. Real improvement in hiring may not happen for as long as six months to even a year from now, and a high jobless rate remains an impediment to any strong resumption of growth. After the cacophony of crashing markets during the last two, it seems that it is shaping up to be a considerably quieter Summer this year.

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Popularity: 1% [?]

Preface

Financial markets remain under duress, even as (or perhaps due to?) the government pledges trillions of dollars in economic supports for various facets of the economy. New programs have been unveiled one after the other, joining the expansion and/or resurrection of older ones. At this point, the success of exactly none of them can be predicted with any certainty, and the values of others remain unclear.

Several venerable financial institutions have required new infusions of cash; AIG and Citicorp are the latest, requiring more billions of dollars to keep them afloat. “Stress tests” are now underway for the collection of banks which hold the majority of the nation’s assets, and it has become all too clear that “too big to fail” more likely means “too big to manage effectively and requiring government support no matter the price tag.” For some institutions, some form of quasi-nationalization is surely on the way, if temporarily, but the long-term future is much less clear.

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Popularity: 8% [?]

Preface

It was quite a year.

Since our last forecast, significant portions of the residential mortgage market have been reshaped due to government intervention and — in some ways — due to a lack of government action. We’ve come through an election cycle, seen hundreds of billions of dollars spent trying to comfort financial markets, and heard the promise of hundreds of billions more dollars in various forms of ’stimulus’ that may be on the way. For mortgages and real estate, at least one important support is in place; others may arrive under a new administration.

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Popularity: 5% [?]

Preface

We’re a little later than expected with this forecast. Frankly, there’s been so much going on in mortgage and financial markets, we forgot the self-imposed deadline of October 10. Oh well.

What’s happened since the last forecast? Well, the sweeping housing bill signed back in July has just started to kick in, but has since been dwarfed by other efforts. Fannie Mae and Freddie Mac were put into conservatorship by their regulator, effectively nationalizing their function in the mortgage market (buying loans from lenders to produce liquidity).

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Popularity: 20% [?]

Preface

It’s been a wild ride since our last forecast A new housing bill has been signed into law, producing new opportunities for lenders to rid their books of perhaps their worst-performing mortgages — that is, if they wish to realize those losses today, rather than ‘bleeding’ slowly over time. Fannie and Freddie’s mission will continue unabated, and new regulatory frameworks are coming into place. The FHA program will enjoy new prominence in housing markets, and some incentives to buy homes are now available.

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Popularity: 9% [?]

Preface

So far, despite a continuing slow period, the US economy has skirted an actual recession. Housing markets remain moribund, as bloated inventory levels and stiffer underwriting standards for mortgages are the order of the day. At some point, perhaps even later this year, when lower home prices and fiscally-prepared borrowers intersect, sales will firm and housing inventories will begin a slow process of reduction. For their part, credit markets have largely stopped deteriorating and have achieved a shaky stability as the process of raising capital and rebuilding loan-loss reserves continues.

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Popularity: 9% [?]