US Housing Crisis Is Now Worse Than Great Depression!

It's official: The housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression.

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Prices have fallen some 33 percent since the market began its collapse, greater than the 31 percent fall that began in the late 1920s and culminated in the early 1930s, according to Case-Shiller data.

The news comes as the Federal Reserve considers whether the economy has regained enough strength to stand on its own and as unemployment remains at a still-elevated 9.1 percent, throwing into question whether the recovery is real.

"The only comfort is that the latest monthly data show that towards the end of the first quarter prices started to fall at a more modest rate," he said. "Nonetheless, prices are likely to fall by a further 3 percent this year, resulting in a 5 percent drop over the year as a whole."

Prices continue to tumble despite affordability, which by most conventional metrics is near historic highs.

The rate for a 30-year conventional mortgage is around 4.5 percent, just above the historic low of 4.2 percent in October 2010. The ratio measuring mortgage costs to renting is 7 percent below its norm, while the price-to-income ratio is 23 percent below its average, Dale said. Yet other factors are constraining the market.

After the fallout from the sub-prime debacle, in which millions lost their homes when they defaulted on loans they could not afford, banks changed underwriting standards. More than four in every five mortgages now require a down payment of 20 percent, and credit history standards have tightened. At the same time, foreclosures continue at a brisk pace, pushing more supply onto the market and pressuring prices downward.

Then there is the issue of underwater homeowners—those who owe more than their house is worth—representing another 23 percent of homeowners who cannot leave or are in danger of mortgage default.

Indeed, the foreclosure problem is unlikely to get any better with 4.5 million households either three payments late or in foreclosure proceedings. The historical average is 1 million, according to Dales' research.

The only bright spot Dales found, aside from the slowing in price drop in March, was some isolated strength in states such as Nevada, Michigan, South Dakota, Alaska and Iowa.

It's Time To Buy

They say "actions speak louder than words." But last week, words had a big impact on the market, especially those by Fed Chairman Ben Bernanke. What did he say, and what was the impact on home loan rates? Read on for details.

Last week, Bernanke essentially made some downbeat and economically depressing comments, saying that "the economy is still producing at levels well below its potential." Remember that weak or negative economic news and comments normally hurt Stocks and helps Bonds, as investors will move money from Stocks to what they see as safer investments like Bonds (including Mortgage Backed Securities, upon which home loan rates are based). And that's part of what we saw happen last week: Bonds and home loan rates improved on these negative economic comments, while Stocks weakened.
But that's not all Bernanke said last week. He also spoke about inflation, saying, "FOMC participants currently see the recent increase in inflation as transitory and expect inflation to remain subdued in the medium term." Why is this significant? Inflation is the arch enemy of Bonds and home loan rates, because it erodes the value of the fixed return provided by a Bond, which causes home loan rates to rise. This means that Bonds, and therefore home loan rates, typically worsen at the first sign of inflation. But Bernanke playing the role of inflation dove last week (an inflation "dove" believes inflation will have a minimal impact on the economy, the opposite of an inflation "hawk") also helped Bonds and home loan rates improve.
So what does this mean for the markets and home loan rates in the short- and long-term? Here's a visual that will help explain things. Imagine a child playing with a yo-yo riding on an escalator. If Bond prices are the yo-yo, you can see how they would be moving up and down like the action of the yo-yo in the short term. And this is what we are seeing right now: Bond prices and home loan rates are moving day to day in somewhat volatile fashion but continue to move in an improving trend. But just like the child will reach the end of the escalator, Bonds and home loan rates will eventually reach the end of their improving trend... and when they do they will likely worsen quickly, as history attests.
The bottom line is that home loan rates still remain near some of the best levels we've seen this year, and it's important to take advantage of these levels while they remain. If you have been thinking about purchasing or refinancing a home, call or email me to learn more about why now is a great time to benefit from today's historically low rates. Or forward this newsletter on to someone you know who may benefit.

Foreclosure limbo: Staying without paying.

I thought I'd share this great article I found on CNN Money with my readers, this article really hits it the head. I work with Loan Modifications and Short Sales on a regular basis, and can tell you that things there aren't getting any better. People have found many ways to fight against there lender and rightfully so. 

 

This is a great little video on fighting back!

In Thousand Oaks, Calif., an actor has missed 30 payments, and still, he has not lost his home.

They're not alone.

Some 4.2 million mortgage borrowers are either seriously delinquent or have had their cases referred to lawyers to pursue foreclosure auctions, according to LPS Applied Analytics. Of those, two-thirds have made no payments at all for at least a year, and nearly one-third have gone more than two years.

These cases can go on and on. Nationwide, it takes an average of 565 days to foreclose on borrowers in default from their first missed payments to the final auction. In New York, the average is 800 days and in Florida, where the "robo-signing" issue is particularly combative, it's 807.

If they want to fight evictions hard, borrowers can remain in their homes even longer while their cases are being worked through.

The Segals have been doing that -- in court. They bought their home in 2003 with an adjustable rate mortgage. After a few years, their monthly payments tripled to $3,000, just as their home-inspection business was cratering.

The Segals want the bank to modify the mortgage so payments are affordable, and they think the court will agree that their lender put them into a toxic loan.

"The evidence will show that we were defrauded," said Jill Segal.

If they lose, of course, they'll finally have to leave. And, unfortunately, more than 50 months of missed mortgage payments hasn't translated into big savings.

"It's very hard to save," said Jill Segal. "Our company's billing is 90% off and my husband is only working about four days a week."

Lynn, who didn't want her last name used, purchased a two-bedroom on Tampa Bay in 1998 for $135,000.

As the waterfront property's value skyrocketed, eventually reaching $750,000, she refinanced twice (once to expand a business), and took out a second mortgage. She now owes more than $600,000 on the home, which is worth only $235,000.

Living in this foreclosure limbo is "Hell," Lynn said. "I feel like I'm locked in a box. I work for a financial organization and if this came out, it could cost me my job."

She's still hoping to negotiate the loan. In the meantime, small things bother her. "A couple years ago, I lost my dog and I can't decide on getting a new one," she said. If she has to move, she can't be sure she'll go somewhere that allows pets.

The actor from Thousand Oaks, Calif. began having problems during the screenwriters' strike in late 2007, followed by a threat of a strike by the Screen Actors Guild.

He's working with his lender toward a mortgage modification, submitting page after page of documents, which the bank has often misplaced or waited so long to examine them that they had grown too old to use.

His ideal outcome is get the loan modified and get all his late fees waived. He feels entitled to that because the bank advised him to stopped paying in the first place to qualify for one of the government's foreclosure programs. Before that, he had missed only one payment.

Meanwhile, he has cobbled together some income streams -- small acting parts, teaching acting classes and even handyman work.

"In a way, I feel like I'm lucky because I haven't had to pay any 'rent' for 30 months," he said.

But he feels like he's always under a cloud. "I haven't slept in three years," he said. "It's terrifying. I have to have the ultimate poker face in front of my kids."

Ruben Martinez, a Staten Island, N.Y., man trapped in a particularly bad adjustable rate mortgage, stopped paying more than three years ago. His attorney, Robert Brown, has managed to stave off one foreclosure.

Martinez, still struggling to find work, has little in savings despite the missed payments. He's earning some income as a pastor and consulting for a non-profit family counseling organization.

"There's pressure on me every day," he said. "I have a wife, three daughters and two grandchildren. Where are we going to live?"