My Mortgage Blog

This week stumbled to an end, markets largely unchanged and I think exhausted at the sight of non-functioning government here and over there.
     
10-year T-notes did rise from all-time-bottom 1.90% to 2.10%, but either value is an emergency trade, and the rise did little to mortgages, still 4.125-4.25% and which three weeks ago stopped following the 10-year down.
     
The economy is conjugating the verb, “to stall.” Stalling, stalled, will stall... the NFIB small biz index fell for the sixth-straight month, now back to recession levels. Industrial production rose a mighty 0.2% in August, and regional surveys found a slower rate of slowing. August retail sales were flat, precisely zero change. In modest good news, layoffs have stalled, too, no real change in newly unemployed.
     
The Fed next Wednesday will announce some new effort to help the economy -- the stronger the measure, perversely the more likely to push up mortgage rates in optimism. However, the Fed’s internal politics are a mess, and not helped by a .4% CPI reading in August; inflation isn’t going anywhere, but it’s impossible to argue the point with the Fed’s minority rockheads.
     
We depart Europe, boiling in its own reduction sauce, lectured today by Li’l Timmy Geithner to watch what you say or people might be scared by reality. And
we depart a failing Presidency, never a pleasant sight, no matter who you don’t like.
     
We move to The Word That Cannot Be Spoken.
     
Housing.
     
Three sources: the FHFA home-price series, CoreLogic’s new report on underwaters, and today’s Z-1 “Flow of Funds” from the Fed.
     
The Fed, markets, and the standard run of economists seem confounded by economic stall. From the glowing forecasts of last winter, then slow on uptake in spring, in-denial insistence on a better 2nd half, now jaw-dropped at no second half at all. And in response to “Why?”... nothing but mumbling.
     
The FHFA national home-price index, reasonably stable at a value of 191 through last August, began a sharp new decline of ten points that bottomed in April -- the one, single indicator leading the general economic decline. As of June FHFA shows an artificial rebound to 183.7, achieved by masses of foreclosures blocked by procedural obstruction. Everyone in the marketplace knows the defaulted homes are there, and fears what will happen to prices when they hit the market.
     
CoreLogic reports that 27.5% of all mortgaged homes as of June 30 had negative or near-negative equity. That’s 13,300,000 households. Not getting any worse, or better, but terribly vulnerable to renewed resales of foreclosures. The only forgiving aspect: trouble is concentrated in CA, FL, NV, AZ, and MI. The inhabitants of these states are, however, fellow citizens and participants in the national economy.
     
Z-1 confirms. As of the end of June the aggregate value of US homes in the prior year had lost one trillion dollars. And smarty-pants economists cannot explain why things are a little soggy. Last year’s loss is in addition to the five trillion lost in the prior four years (the total value decline: from $22.7 trillion to $16.2 trillion).
     
Connect some dots... mortgage balances outstanding since the bubble blew in 2006 have declined by only $775 billion to $10.4 trillion. Of all homes, about 30% are free and clear. Thus of the $16.2 trillion in remaining home value, homes worth about $11.3 trillion carry the entire national mortgage balance, $10.4 trillion. In the aggregate, the equity in the 70% of US homes that are mortgaged is less than 10%. On trend... evaporating.
     
If you run into one of the guys who thinks “deleveraging” is the way to heal the nation, before you punch him in the nose, ask if he is bright enough to grasp: home values have fallen eight times as fast as mortgage balances. The guy standing next to him, who thinks the only problem is that prices have not fallen far enough, and when they do everything will be okay... not worth bruised knuckles.