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The S&P Case Shiller June 2010 report of existing home sales showed year-over-year 4.2% price gains averaged across 20 major metropolitan areas. In June, 17 of the 20 metro areas covered by the index were up. However S&P noted that this reporting period was during the peak of activity corresponding to federal homebuyer tax credit deadlines, so data after this might look more like the record low new and existing home sales for July that we saw last week. Full text of press release below.

Case Shiller June 2010 Home Price Index

Homes are most people’s largest investment so it’s not surprising NYT’s most read story the past 2 days is Housing Fades As A Means To Build Wealth. It cites 5 housing experts who all have similar bearish outlooks on housing. There will always be chatter about the demise of a certain asset class, so remember these two points: (1) Understand your own time horizon and objectives, and do your math accordingly before making investments, and (2) property is the least efficient asset class, so security selection is everything—in non-investor terms, this means that property prices are extremely localized, so there will always be higher-than-average returns on property investments for those who do their research.

As for the NYT piece, the only practicing investment professional among the sources cited was Barry Rithotlz, head of investment research firm Fusion IQ, who later expanded on his blog to say that it is safe to buy 2 kinds of properties right now—see below. more…

As financial markets froze this very week in 2007, the real-time media market was catching fire. So instead of summarizing it all with a 140 character Tweet, below we offer some broader perspective by bringing everyone’s favorite obsessions together: mortgage rates, Twitter, and iPhones. Stat-filled timeline and rate chart are included.

Home prices started falling in 2006 but it wasn’t until 2007 that the full impact of loose credit was felt. Loans made to unqualified (mostly U.S.) borrowers underpinned bond funds around the globe and countless derivatives were created from those bonds. Because of this, Nouriel Roubini was one of the first economists to note that “we have a subprime financial system, not a subprime mortgage market.” more…

How To Leave Your Underwater Home
Fannie Mae launched a new consumer website, KnowYourOptions.com, to educate homeowners about their options to avoid foreclosure and how to get help. There’s an accompanying site for lenders who want marketing materials to promote these KnowYourOptions features.

Treasury Auctions Next Week
The Treasury will sell $34 billion of 3-yr notes next week, down from $38 billion at its last quarterly refunding, $24 billion of 10-yr notes, and $16 billion of 30-yr bonds on Aug. 12. (The U.S. Treasury again cut the size of debt offerings, citing stronger tax revenues, but warned it may not be able to keep trimming sales at the same rate due to doubts about economic recovery.) By the end of the day, 10-yr Treasuries were down almost .5 in price to 2.96%, and current coupon mortgage security prices were worse by about .125. Originators sold $2.9 billion – mostly 4% – a little more than recent volumes. more…

Saw this story on San Francisco Realtor Katy Dinner’s blog today, a WSJ piece I missed which highlights a Fed study about underwater homeowners. According to the Fed, “the median borrower who ‘strategically’ defaults doesn’t walk away from the mortgage until the amount owed exceeds the value of the home by 62%.” Below are some other good excerpts from WSJ, the whole piece is worth reading.

Nearly 80% of all defaults in the sample resulted from the traditional combination of income shocks and negative equity. But for borrowers that had a loan-to-value ratio of 150%, half of all defaults were strategic defaults, driven purely by negative equity. more…

The S&P Case Shiller April 2010 report of existing home sales showed year-over-year 3.8% price gains averaged across 20 major metropolitan areas, which brings prices back to the same level they were in late-summer 2003. S&P cited the homebuyer tax credit (which homebuyers had to be in contract by April 30 to be eligible for) as a reason for recent strength, but cautioned that sharp declines in Existing and New Home Sales—the May reports for each were last week and showed big post-tax-credit drops—could mean that “consistent and sustained boosts to economic growth from housing may have to wait to next year.” Notable and consistent gains are as follows: Dallas, Denver, San Diego and San Francisco have all posted six consecutive months of positive annual rates of return, recording +3.3%, +4.4%, +11.7% and +18.0% in April, respectively.
Case Shiller April 2010 Home Price Index

The index tracks existing single family homes, and is a credible pricing barometer for broad market analysis because it excludes condos and new construction. Condos can have more volatile pricing, and new construction pricing can be artificially set by builders, especially in times of distress when discounts an incentives can skew pricing. S&P refers to 10 and 20 “City” Composites, but these are actually metropolitan regional areas, not just cities. For example, where the city says San Francisco, this isn’t just San Francisco, but rather the entire 9 county Bay Area region. more…

Are Your Sure Home Prices Don’t Always Rise?
According to a study released by the MBA (or the MBAA, depending on if you use “Mortgage Bankers Association of America”), multiple factors including poor data, incomplete performance metrics, and, short-term focus and unrealistic optimism among senior business managers contributed to the collapse in the US housing and mortgage markets.

“As home prices increased, lenders were pressured to offer innovative products that could help borrowers afford a home. The resulting increase and expansion of risk layering and change in borrower behavior, left risk managers unable to offer reliable risk estimates.” more…

The S&P Case Shiller March 2010 report of existing home sales showed year-over-year 2.3% price gains averaged across 20 major metropolitan areas. This is the second positive number since December 2006, following a 0.6% YOY gain posted for February, which is a significant rebound from the record low decline one year ago when Q12009′s 20-city return was -18.9%. See returns for each metro area in the table below.

However S&P issued strong caution, saying that high foreclosure rates and resulting inventory of unsold homes weigh on the recovery. They also noted that “it’s especially disappointing that the improvement we saw in sales and starts in March did not find its way to home prices. Now that the tax incentive ended on April 30th, we don’t expect to see a boost in relative demand.” Full text of press release below.
Case Shiller March 2010 Home Price Index

Which Bonds Are Mortgage Rates Tied To?
Rates on mortgage loans up to $417k and up to $729k are tied to trading in “agency” mortgage-backed bonds—meaning bonds issued by Fannie Mae, Freddie Mac, and Ginnie Mae. So while many look to the 10yr Treasury Note for clues on mortgage rates, they should be looking at mortgage bonds. And specifically, there are different duration mortgage bonds to watch during different times in the market to predict what rates might do, and how to properly lock a rate at the best time.

Prices on agency mortgage bonds have been slightly abnormal lately, so we have to look at the security price difference between a 4% and a 4.5% security to see what’s going on. Historically, on average, price differences between .125% for a 30-yr mortgage is about .5 in price, or 2 points for .5%. This relationship, however, has gotten out of whack with the latest volatility and prepayment fears in the mortgage-backed security sector. Currently the price difference between a 4.0% security and a 4.5% security is now 2.75 in price (instead of 2.00), so therefore the difference in price between a 4.75% loan, which would typically be slotted into a 4.50% security, and a 4.625% loan, which would go into a 4.00% security, same impounds, same LTV, same credit score, is now much greater. more…

Underwater Homes Drops In Q1
CoreLogic reflected some good news about the housing market. The number of homes where borrowers owe more on the mortgage than the house is worth has dropped to about 11.2 million in the first quarter, down from 11.3 million last year. But we still have about 24% of all residences have negative equity. Given that negative equity and unemployment are the two biggest causes of default, and both are relatively stable, it is good news. CoreLogic bases their numbers on 47 million mortgaged properties out of about 55.3 million using its AVM’s value estimation versus outstanding mortgage debt (from public records). There are few surprises in the top negative equity states: NV, AZ, FL, MI, CA, GA, ID, VA, MD, and UT. The top 10 states with lowest negative equity rates are OK, NY, MT, PA, ND, KY, AL, IA, NE, and HA.

Zillow: 23.3% Of Homes Underwater
Many have opinions about Zillow. But the Zillow Quarterly Real Estate Market Report indicated that home values continued to decline in the US during the first quarter of 2010. The firm reported that negative equity across the country remained high with 23.3% of single-family homes with mortgages underwater, up from 21.4% in the fourth quarter of 2009. Zillow’s chief economist believes that home values are more likely than not to remain above their lowest point last year, with several caveats including factors such as tax credits and inventories. more…