Tag Archives: Subprime mortgage

US house sales surge as prices decline, housing struggle not over yet

Existing-home sales climbed strongly last month following a healthy gain in January, marking the highest level since last April, indicates recent data released by the National Association of Realtors. The association has said that existing-home sales increased 3.9 percent to a 6.69 million-unit annual rate, beating the projection that existing-home sales would to slide down to a 6.31 million-unit pace made by the Wall Street analysts. Analysts believe that a mild weather earlier in the winter has encouraged home buying; however the latest figure also shows that inventories of unsold homes increased last month. Inventories of unsold homes shot up 5.9 percent to 3.75 million, constituting a 6.7-month supply, up from 6.6 months in January. The data represents the largest rise in inventories since April. Given that inventories are not seasonally adjusted, making comparisons are somewhat complicated. Though the sales of previously occupied homes increased unexpectedly, but economists are of the view that the increase was partially driven by warm weather and did not completely mirror the existing turbulence in the subprime mortgage market. The latest rise in defaults on subprime mortgages, those consumers with weaker credit records, has compelled lenders to stiffen their standards. However, the move is likely to wipe out many prospective home buyers and it could result in damping sales in the coming months. The recent surge will certainly help to appease market fears of a moderating housing market. Though the data shows that this is the third straight monthly increase in the housing sector, still the January and February housing data are seems to be quite unstable. Therefore, before jumping to a conclusion that the housing market is strengthening, it would be wise to wait for March and April data to form a better idea of what is really happening in the sector. In addition to it, the monthly report has indicated that lower prices, following a long boom in the property market that ended last year, have contributed to stimulate sales last month. The average sales price went down by 1.3 percent to $212,800, which represented the seventh decline in a row. The property market has been struggling as lending rates have increased and speculators have pulled out of what had been a fascinating sector.

Fed says rate increases may prove essential as growth, inflation remain uncertain

The Federal Reserve has reinforced its position that inflation remained the biggest threat to the economy in its minutes from the March meeting. At the last meeting, Federal Reserve officials had concluded that more interest rate increases might be needed to suppress rising inflation, although they had also expressed concern that the economy could slow more than forecast. The Fed has said in minutes of the Open Market Committee’s March 20-21 meeting that further policy firming might prove essential to nurture lower inflation. The minutes has given no hint of a rate cut, which some economists and experts had anticipated and suggested that policy makers stayed convinced that their anticipation of an economic recovery would be borne out. However, in the wake of the amplified ambiguity about the outlook for both growth and inflation, the committee also agreed that the statement should no longer mention only the possibility of further firming. The Fed had maintained their benchmark interest rate at 5.25 percent on March 21, at the same time expressed reservations about their forecast for slowing inflation. The minutes further outlined, ‘The latest readings on core inflation were higher than expected, and it was difficult to discern whether the apparent downward trend in core inflation during the past few quarters was continuing’. Evidently, the minutes demonstrated that central bankers grappled with an increasing ambiguity about which direction the economy was headed. However, additional confirmation of slow-moving business investment and recent developments in the subprime mortgage market suggests that the downside risks relative to the prospect of moderate growth had increased in the weeks since the January meeting of Fed policymakers. On the other hand, the minutes has said that Fed policymakers at the meeting agreed that on the notion that while recent economic data had been mixed, the economy was expected to develop at a moderate rate in coming months. Analysts have argued that the Fed will not consider cutting rates until inflationary pressures ease further. Although housing and manufacturing are in serious slowdowns, and weakness is not likely to threaten to derail an expected rebound in growth this year. Economists anticipate that the Fed will leave its federal funds rate, the interest that banks charge each other, unchanged at 5.25 percent when it meets next.

US home sales prediction revised downward, subprime ‘Disaster’ to delay housing recovery

The National Association of Realtors that once said that US home prices have not fell on a nationwide scale since the Great Depression now declare they are expected to do just that this year. The Realtors are expecting the prices for previously occupied homes will slide 0.7 percent this year compare to the 2006 level. The association had earlier projected that a 1.9 percent increase in the median home price this year. In its monthly housing outlook, the real estate industry group has said that tighter lending standards will cut into home sales even further than it was earlier projected, consequently driving prices lower. Economist with the Chicago-based association, Lawrence Yun, has said, ‘the 2007 median price for an existing home likely will decline 0.7 percent to $220,300, the first drop since the real estate trade group began keeping records in 1968 and probably the first decline since the Great Depression’. However, the median price for newly built homes is expected to increase by 0.4 percent to $246,200 this year, marking the smallest increase since prices fell in the year 1991 and 2 percent in 2008. On the other hand, a separate report released by the Mortgage Bankers Association has stated that applications for mortgages declined for the fourth straight week last week, led by a decline in refinance loans. In addition to it, adjustable-rate loans slip to the smallest share of applications in nearly four years, after the huge negative publicity in the past few months about the downside risks to ARMs. Home purchases are being derailed as subprime lenders stop financing mortgages or go out of business, increasing inventory and weakening demand, said Lawrence Yun. And in the last 12 months, as many as 40 subprime lenders have discontinued operations, gone out of business, or sought buyers as borrower defaults increased. Recently, New Century Financial, the largest independent subprime lender, has filed for bankruptcy protection. As a matter of fact, subprime borrowers with weak credit have recorded higher wrongdoing and foreclosures in recent months, triggering off a crisis in the home lending market. At the same time, investors have started draining the subprime market of capital while regulators and lawmakers give consideration to tougher lending standards. Therefore, it’s apparent that subprime vulnerability has strained the Realtor group to cast a shadow on its outlook.

Bank of America puts $2bn in Countrywide

Bank of America has invested $2bn in Countrywide Financial Corp, to shore up the finances at the largest U.S. mortgage lender, which has hard hit by the subprime mortgage crises. Under the terms of the deal, bank will buy 7.25% of non-voting preferred stock, which can be converted into Countrywide common stock at $18 per share. Bank’s decisions came six days after Countrywide stunned investors by tapping an entire $11.5bn credit line because it was having difficulty selling short-term debt, which raised apprehension over its future. In January, before the mortgage crisis surfaced, Bank of America was the subject of speculation it might enter a joint venture with Countrywide, but later all speculations didn’t materialized. Bank’s move is definitely in favor of investors and took us near to the prior speculation, but in the middle of market volatility the impulsion behind the $2 billion investment and the bank’s longer-term goals were not immediately clear as market does not allows us to speculate the any type of joint venture with any mortgage lender firm. After the bank’s intervention Countrywide’s market value soared up by 19% to $12.6 billion. In an hour trading largest US mortgage lender’s share mounts $25.91, whereas Bank of America’s shares rose 95 cents to $52.60. Image Via: USA-Today