The end of the credit crunch is here.
The last two years on Wall Street — nay, the entire global economy — have been dedicated to the destruction of the housing market and the subsequent unwinding of the real estate bubble.
Until this point, the excesses of the mid 2000s have been shored up in a vain attempt to stop the inevitable repricing of real estate.
The bailout of the financials by moving assets from the Wall Street to Washington has only deepened the debt and delayed the return of a healthy housing market.
History — in the form of Japan — has taught us that the more you hide assets and protect the big banks, the longer your economic malaise.
What you want is an immediate write-off of bad debts to clear the markets and let the housing prices find their natural value.
They will find their natural price regardless of how many and how often you use props, crutches, and delaying tactics.
You need to let those that took excessive risk fail and be replaced by those who can succeed.
Instead we have had denial, tax payer funds to subsidize the markets, continued rewards for excessive risk takers, and a hidden inventory that has stopped the requisite revaluation of the real estate market that is required for a functioning and healthy market to return.
That said, this is still America.
We may fall into the same political back-scratching nonsense as other countries, but we tend to recognize the problems and move though them faster than most.
I submit that we are nearing the beginning of the end of the housing crisis. If you believe in the standard three stages of a bear market — denial, concern, and capitulation — we are in the third stage.
Stage one was 2005 to 2007… Concern/fear characterized the last year and a half… Now we are in the acceptance stage.
I provide four points of evidence:
May saw a 3 percent drop in the national foreclosure rate — including mortgage defaults, bank repossessions, and scheduled auctions, according to RealtyTrac.
Mortgage rates are at the lowest they’ve been in 50 years. You can now get a 20-year fixed loan for 4.06%.
Housing sales have fallen 30%. No one is in denial.
Banks are hiring mortgage brokers, a sign of action.
Let’s attack the second point first.
Back around 1980, my father used to tell a story lamenting his 16% mortgage, pointing out the fact that his aunt had sold her house, financed it herself to the buyer, and was paid a measly 2% interest rate.
At the end of June 2010, the average rate on a 30-year fixed mortgage was 4.69%, compared to 5.42% a year ago.
The rate fell to 4.58% this week.
That puts your mortgage payment on $100,000 at $511 a month — compared to $1,344.76 per $100,000 my father was paying in 1980.
That’s cheap no matter how you slice it.
Mortgage rates are low because investors are bum-rushing treasuries due to a fear of equities.
But that’s another article altogether…
Houses: Buy one, get one free
The May numbers for housing speak for themselves. The number of buyers who signed contracts in that month dropped 30% — much more than the market expected, but an obvious trend to anyone who was paying attention.
The National Association of Realtors reported last week that its seasonally adjusted index of sales agreements for previously occupied homes fell to 77.6 from 110.9. May’s reading was the lowest dating back to 2001.
The index was down 15.9% from a year earlier.
Furthermore, two days ago, the Mortgage Bankers Association reported that mortgage applications for purchases fell again last week, the seventh time in the past eight weeks.
The MBA’s purchase index remains at 13-year lows despite the lowest interest rates in decades.
It is obvious to anyone who ever traded so much as a bubblegum card or a Beanie Baby that as soon as the $8,000 tax credit ended, housing prices would fall…
Not that I can tell you why someone would buy a $300,000 house in a falling market based on an $8,000 tax credit, but then again, no one ever went broke underestimating the American public.
The upshot is that you now have a unique situation where interest rates are at 50 year lows and the price of housing is coming down.
Realtytrac claims that foreclosed houses sell at an average 26% discount to regular listing. This is due to two factors: People who can’t afford the loan can no longer get it, and 25% of the houses in this country are under water.
Banks hire home mortgage lenders
But something strange is going on that you won’t see in any headlines or on the nightly news.
The banks are hiring again.
Chase alone is hiring 300 home mortgage lenders. Morgan Stanley hired 100 mortgage brokers and plans on hiring another 500.
According to BusinessReport:
In New York, 6 800 positions in the financial industry were added from the end of February to May, the largest three-month increase since 2008, according to the New York State Department of Labour.
Morgan Stanley and Citigroup are among banks that are hiring to replenish their ranks, while Nomura Holdings and Jefferies have been recruiting talent from larger firms in a bid to increase their standing on Wall Street.
“Candidates are now getting multiple offers, and companies risk losing their desired candidates if they don’t act quickly enough — and that’s a real change,” said Constance Melrose, managing director of eFinancialCareers.
The company has seen a 75 percent rise in investment banking jobs from a year earlier.
Bloomberg is reporting that Bank of America is hiring 2,000 mortgage brokers due to low mortgage rates and the possibility in a boom in refinancing.
All of this means that if velocity of money isn’t here yet, it will be in the next two quarters.
Bad loans will be written off, housing stocks will be moved, and investors will start buying.
It means the numbers now work. It is the beginning of the end.
Editor, Energy & Capital