Double Dip is Almost Here says S&P Case Shiller

New data from the S&P Case-Shiller Home Price Indices shows a deceleration in the annual growth rates in 18 of the 20 MSAs and the 10 and 20-city composites in October compared to what was reported in September.

The 10-City Composite was up only 0.2% and the 20-City Composite fell 0.8% from their levels in October 2009. Home prices decreased in all 20 MSAs and both Composites in October from their September levels.

In October, only the 10-City Composite and four MSAs – Los Angeles, San Diego, San Francisco and Washington DC – showed year-over-year gains. While the composite housing prices are still above their spring 2009 lows, six markets – Atlanta, Charlotte, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices started to fall in 2006 and 2007, meaning that average home prices in those markets have fallen beyond the recent lows seen in most other markets in the spring of 2009.

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“The double-dip is almost here, as six cities set new lows for the period since the 2006 peaks. There is no good news in October’s report. Home prices across the country continue to fall.” said David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “The trends we have seen over the past few months have not changed. The tax incentives are over and the national economy remained lackluster in October, the month covered by these data. Existing homes sales and housing starts have been reported for both October and November, and neither is giving any sense of optimism. On a year-over-year basis, sales are down more than 25% and the months’ supply of unsold homes is about 50% above where it was during the same months of last year. Housing starts are still hovering near 30-year lows. While delinquency rates might have seen some recent improvement, it is only on a relative basis. They are still well above their historic averages, in both the prime and sub-prime markets.

“Looking at the monthly statistics, all 20 MSAs and both Composites were down in October over September. While not always consecutive months, twelve of the MSAs and both composites have posted at least six months of decline since the beginning of 2010. In addition 15 MSAs and both composites have posted three consecutive months of decline with October’s report; a further sign that the few months of positive print earlier this spring were only a temporary boost. The seasonally adjusted data tell largely the same story.”

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  • One thing I appreciate about the prognostications this year is that they are NOT attempting to belittle originators for not meeting some imagined achievable goal — as a CEO of one large lender declared in an November 2009 article in another publication. That article still riles me. That CEO should write an apology to the industry and to the originator he attacked in such an “educated” way. It is hard to believe he understands what “educated” means. That article with its odd theme in the face of so much evidence to the contrary stands as what I hope will be one of the worst examples of industry leadership.

    Yet some of the truly educated in our industry are holding firm to their projections of over 100,000 endorsements during this fiscal year. In one case the prognosticator is between a rock and a hard place as the CEO of a service provider and not a lender. He at least admits that his perspective is on the optimistic side; there are probably a few choicer words which better describe this continued “optimism.” I will leave those words to other commentors.

    There is nothing on the horizon that indicates home values are going to rise any time in the future. As to the short run, the “sky is falling in” on rising home values. With the expected dump of foreclosed properties into the market over the next nine months and current home sales volume, there is only one way for home values to go in most major real estate markets.

    Admin has expressed his opinion several times that based on the current HECM program he does not see how the endorsement situation can substantially turn around without increases in home values. Who can really dispute that position?

  • Home price trends will continue to be an important driver of reverse mortgage volumes, although I would put them a distant second to principal limit factors based on historical trends. In context of 2011 volume projections, my opinion is that HECM Saver will drive substantial incremental volume from seniors that would otherwise take a HELOC and/or replacing existing HELOCs. I would also expect Saver to be less home price sensitive than Standard given the difference in customer segment most likely to utilize each.

    That said, I continue to believe that we’ll see an increase in Standard business in 2011 vs 2010 barring a significant double dip in home prices (call it -10% meaning significant). Given what we’re seeing in application trends of both Standard and Saver, I continue to believe a 95,000-100,000 volume level is where we’re likely to end up next year.

    I realize that makes me optimistic relative to comments here and particularly on the Saver specifically. As to whether our industry can turn around volumes without increases in home values, I would suggest that if home prices were simply flat and PLs held constant, we’d see volumes grow significantly from current levels on the basis of Saver reaching new customers and Standard borrowers coming off the fence as they adjust to new expectations of home prices and appreciation.

    The funding challenges of longevity aren’t going away, especially if home prices aren’t increasing. I’d bet on that long term trend consistently in absence of other better funding alternatives.

    • John,

      Your reason for sticking with your prediction is very well presented but that does not mean it is well reasoned. I do not believe that the new PLF floor will have nearly as much impact on production in the CURRENT market as you declare. Here is a short list of things working against your position: FHA Case Number Assignment (or as some refer to them “application numbers”) production to date, the economy, the direction of home value trends, forecasts on foreclosure sales activities, and the level of Saver acceptance by the HECM originator/lender community, financial community, and the press.

      If one looks at FHA Case Number Assignment production for the period of June 1, 2010 to November 30, 2010 versus the same six month period for last year, we are down over 11%. To get to the same FHA Case Number Assignment production level for the 12 month period which normally provides the vast majority of HECMs endorsed during a fiscal year, we need a 17% increase during December 1, 2010 to May 31, 2011 over the sixth month period of December 1, 2009 to May 31, 2010, just to get to the total number of FHA Case Number Assignments produced in the twelve month period ended May 31, 2010.

      To get to 95,000 endorsements for this fiscal year, we will need at least 130,845 FHA Case Number Assignments during the 12 month fiscal period ended May 31, 2011, if the rate of conversion from FHA Case Number Assignments to endorsements is approximately the same as last fiscal year. With only 57,679 FHA Case Numbers issued in the first six months of the 12 month period ending May 31, 2011, there will have to be 87,550 new FHA Case Number Assignments from December 1, 2010 to May 31, 2011. That is over a 100% increase from what was produced during the six month period of December 1, 2009 to May 31, 2010. It is also an over 50% increase from the production level of FHA Case Number Assignments for the six month period ended November 30, 2010.

      While the economy seems to show sporadic signs of improvement, there is no great change in employment numbers. We are seeing a new wave of double digit percentage reduction in home values in some areas of the country right now. The predictions of a near term release of substantial portions of the foreclosure inventory seem to indicate that home values will only continue going down in 2011. Finally our industry was for far too long (and to a significant extent remains) lukewarm about Savers; some originators remain negative about them. The financial industry has barely recognized their existence and the press is largely ignoring them.

      With December 2010 and January 2011 part of the six month period where you are implying we will see such a humongous rise in FHA Case Number Assignments, your level of optimism settles well into the camp of “irrational exuberance.” With home values STILL going down (double digit percentage or not) and the lackluster acceptance of Savers by our own origination core, what is it that gives you such hope? All of the numbers, the economy, and even the industry seem working against your prediction. That is why my predictions dropped by exactly 16,000 to 80,000 endorsements for this fiscal year; the problem is the more I write the more the HUD prediction of 75,000 seems reasonable.

      My New Years wish is for you and Jeff Lewis to be right on this issue. Wishing you and yours a safe, prosperous, and happy New Years, The_Cynic.

      • The_Cynic,

        Case Number production is the greatest concern. It is good that someone else is picking up on this issue. It is difficult to believe that so much production can be made up before June.

        John has a very strong point. I was certain (and wrong) that the increased principal limit factors at 5% as of October 1, 2010, would have created huge amounts of applications. Is it the soft bottom of home values which offsets this positive? Some people refer to the current home value situation as enduring a rough ride along the bottom. I think that is an overly optimistic interpretation. The offset certainly is not the “recovery.”

        I fully agree with you and John about Savers. While Savers may not come to the rescue of endorsement numbers for this fiscal year, it seems as if it should gain traction in fiscal 2012. Anything new needs a time for acceptance and finding the right marketing approach.

        It is good to see someone else sticking out their neck with 80,000 endorsements for this fiscal. There is no conviction in my number; it was taken from trying to read a terribly cracked and cloudy crystal ball and some bogus tea leaves.

        Happy New Year to one and all!!!

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