Pulse of the Housing Market

Given that the housing market malaise is the prime culprit for our economic and market adversity, I decided to post some charts showing key indicators such as delinquencies, foreclosures, and inventories. Sources for this data are Countrywide Financial (CFC), which has the nation’s largest mortgage servicing portfolio ($1.48 trillion), and the National Association of Realtors, which tracks home sales.

First up, Countrywide’s mortgage delinquency rates and pending foreclosure rates for the last twelve months:
As you can see, delinquency rates have stabilized the last few months, with foreclosures still headed higher, but not severely. While certainly a good sign, we can not call it a trend just yet. After all, last summer we saw a leveling off, only to see another spike shortly thereafter.The next chart is home inventories, I believe a key proxy for the future direction of home prices. We will not see stabilizing home values (and eventual gains again) until we work through very high inventory levels. Typical inventories levels are about 50% below current levels.

Again we see a curtailment of rising inventories in recent months, but I still do not think we can call it a long lasting trend of stabilization as of yet, given that we will not pass the peak in ARM rate resets for the next quarter or two.

But let’s assume for a moment that these indicators do stop getting worse in coming months. Does that mean the housing market will stabilize also? Probably not. Inventories need to come down. The only way we get that is to increase demand. With home buyers now needing the “trifecta” to get a mortgage loan application approved (good credit, proof of steady income, and money for a down payment), demand won’t outstrip supply unless prices come down further to get qualified buyers to pull the trigger in greater numbers.

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3 Thoughts on “Pulse of the Housing Market

  1. Anonymous on March 14, 2008 at 4:50 AM said:

    I must appreciate your work. from last couple of days i was searching for something interesting and this post is really nice.

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  2. Anonymous on March 14, 2008 at 5:48 PM said:

    Hi. I had been having a discussion with you about the financial stability of Citigroup. Your main argument was that there was no change of citigroup going under and that the whole credit crunch was just silly fear driven selling. I wonder what your opinion is now that Bear Stearns had to get funding from the Fed just to stay in business. Do you still think excessive leverage is a non-issue?

  3. Chad Brand on March 15, 2008 at 7:54 AM said:

    Correct me if I’m wrong, but I don’t think I ever said that excessive leverage was a non-issue. I did say that Citi was not going under, and I stand by that opinion. You really can’t compare Citigroup and Bear Stearns. Well, actually, you can compare Bear with Citi’s investment banking division only if you want, so that part of Citi could very well go under.

    My point about Citi was that they have 4 businesses, and 3 of them are doing just fine. If you value those 3, and assign a value of zero to the investment bank, you can get an idea of how much Citi would be worth if they shut down their investment bank at some point, due to the current issues.

    Since Bear isn’t a bank, they are much more exposed to liquidity problems because they can’t get money very easily. Hence, JPM and the Fed had to devise a plan to get them capital.

    I have not been keen on the investment banks in this environment, and continue to stay on the sidelines despite their obviously contrarian characteristics. They simply have too many illiquid assets, hence it is too difficult to value them and have any confidence in such projections, in my view anyway.

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