Many Americans extended their July 4 th holiday through last week, a precept reflected in the dearth of market data to hit the wires. But what did hit the wires was at least meaningful, if not insightful.
For instance, we’ve stated repeatedly in these missives that the real engine of change in the mortgage and housing market is the individual market participant (like us). Government can be a mitigating factor, to be sure, but nothing mitigates like the actions of individuals to get things moving in the right direction. Indeed, recent data from Clayton Holdings showed that recent government-supported foreclosure moratoriums had virtually no impact on stemming the foreclosure tide, which is much less of a tide today anyway.
Many pundits were predicting a second wave of foreclosures headed our way in the second half of the year, as banks tried to unload homes they can’t refinance. But for now, at least, the big wave of bank-owned properties appears to have crested. According to Foreclosures.com, foreclosures dropped 11% nationally in the second quarter of 2009 to 205,000 compared to 231,000 in the first quarter of 2009. Even more encouraging, June’s foreclosure numbers reached record lows for the year.
More good news on housing was dispensed by Clear Capital, which noted that for the first time since 2006, the nation posted positive quarter-over-quarter price returns in the second quarter of 2009, according to its July Home Data Index Report released last Thursday. Fueled by strong seasonal spring sales in the Midwest , which had a price increase of 5.3% over the first quarter of 2009, the overall U.S. price growth increased by 1.7%.
It’s obvious that people are buying more homes – foreclosures or otherwise. The Mortgage Bankers Association released its Weekly Mortgage Applications Survey for the week ending July 3, and new loan applications increased 10.9% from the previous week. Mortgage rates remain low, and are actually dropping. The benchmark 30-year, fixed-rate mortgage fell 11 basis points to average 5.59% last week, according to the Bankrate.com national survey of large lenders, while the benchmark 15-year, fixed-rate mortgage fell 14 basis points to average 4.93%. The drop should assuage concerns among many potential borrowers that they missed the boat.

The Truth of the Matter
An enlightening op-ed piece by Stan Liebowitz, University of Texas ( Dallas ) economics professor, appeared in the July 3 rd edition of the Wall Street Journal, vetting the mushrooming rate of mortgage foreclosures since 2007. What Liebowitz had to say supports the old adage that a lie can get half way around the world before the truth gets out of the gate.
In short, Liebowitz debunked the myth that subprime mortgage lenders fooled hapless borrowers into taking complex, low initial rate loans. He noted that the focus on subprimes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not subprime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures.
Liebowitz also found that interest-rate resets did not measurably increase foreclosures until the reset was greater than four percentage points. Only 8% of foreclosures had an interest rate increase of that much. In a nutshell, the overall impact of upward interest rate resets was much smaller than the impact from reduction in homeowners’ equity.
The good news, according to Liebowitz, is the reduction in homeowners’ equity appears to be ending. He notes that housing prices are likely to stop falling soon (an opinion we’ve been forwarding the past few months), because current prices are approaching their long-term, inflation-adjusted pre-bubble level. In turn, a perceived, and very real, end to the drop in housing prices will only stimulate further activity.

- Courtesy of Lori Donnnelly, V.P. Mortgage Lending, M&I Bank, Minneapolis:
http://www.mibank.com/ldonnelly