HSH Market Trends

Preface

A stumbling economy, the continued influence of euro-zone troubles, and no signs of significant improvement on the horizon have helped mortgage rates drift to 50-plus-year lows. A world awash in capital (and too afraid of financial risk to do much with it) has had some beneficial effect, but still-tight underwriting standards and a largely sated pool of potential borrowers means that even these record-low interest rates can offer only limited benefits.

Housing markets and demand dynamics remain distorted, due to the end of federal tax incentives and existing loan failures. With financial-market overhaul now the law of the land, we are about to enter a new age of re-regulation which promises to muddy up the already-murky waters of calculating risk and receiving reward. Until new clarity about the structure of finance and mortgage markets comes, it will be hard to expect any improvement beyond those at the fringes of the market.

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Popularity: 1% [?]

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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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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…has been posted. Our forecast for mortgage rates during that period were on the mark — all the more amazing given the turmoil in the markets. Will we do it again this time? Stay tuned!

We also continue to be pessimistic about the government’s string of mortgage bailouts:

With regards to the HASP, there is probably some value for borrowers who are lucky enough to have a Fannie/Freddie held mortgage to refinance even if they are mildly underwater. However, we think that claims of 4-5 million homeowners leaping at the chance to be put through today’s mortgage underwriting wringer is wildly optimistic, even if a better interest rate can be obtained after all the “adder fees” and all the hurdles can be overcome to obtain financing.

As well, prospects for 3-4 million loan modifications also seem outlandish, even if there are new incentives to participate for various parties. We’ve heard too many claims already about how concept A or concept B will save the housing market: anyone remember last summer’s much ballyhooed Housing and Economic Recovery Act (HERA)? Or how about the $300 billion Hope for Homeowners, which has only completed about 25 loans since it began in October? (We note that the Congressional cramdown bill will revise and extend the HOPE program.

To read the Two-Month Forecast, click here.

Popularity: 21% [?]

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% [?]