Seems sensible to keep away from the US housing disaster, at least for the time being....
BOSTON (Reuters) - For decades, buying a home was a key step on the path to financial security for the American middle class. Home owners could count on a fixed mortgage payment rather than rising rent, take advantage of tax breaks, and build equity as their houses increased in value over time.
But with home prices falling and families losing their homes to foreclosure, some people who under other circumstances would be looking to buy their first home now see greater security in renting. One such person is Lisa Chesnut, who lives in Tucson, Arizona, and works as an information systems coordinator. With a good job and two young sons, 29-year-old Chesnut and her husband, Bryan, look like classic first-time buyers.
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The fed's attempts to save the housing market have come to nothing. Risk has returned with a vengence. Banks have remembered how interest rates should properly reflect default probabilities.
Feb. 29 (Bloomberg) -- Consumers like Valerie Jacobsen aren't getting much of a break on borrowing costs even after five months of interest rate cuts by the Federal Reserve. Jacobsen, 30, wants to refinance her 7.25 percent first and 8.5 percent second mortgages into one loan at a lower cost. To cut the payments enough to recoup her $3,000 in closing costs, she needs a rate well below 6 percent. She wasn't ready when costs dipped in January and now they're back at levels that make her plan too expensive, the Austin, Minnesota, resident says.
``Rates I'm seeing aren't really mimicking what the Federal Reserve is doing,'' said Jacobsen. ``I'm wondering why that is.''
Trying to spur lending and avert a recession, the Fed has chopped 2.25 percentage points off its benchmark rate since September. Wariness among lenders and fears of inflation are keeping mortgage and auto loan rates close to or above levels before the central bank began easing, while credit-card issuers are tightening their standards.
The slippage between the Fed's rate cuts and consumers' ability to borrow or reduce loan costs is weakening the central bank's ability to stimulate the biggest part of the economy, consumer spending. It accounts for more than two-thirds of goods and services output and stalled for the second consecutive month in January after adjusting for inflation, the Commerce Department said today.
This must be a bank's worst nightmare; a homeowner who doesn't care about foreclosure. If there are enough people like Mr. Zulueta, then the very existence of the US banking system is in question. The walk-away home debtors are very dangerous.
When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried. In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford. “I was terrified,” said Mr. Zulueta, who services automated teller machines for an armored car company in the San Francisco area.
Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure.
Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender’s problem. “They took the negativity out of my life,” Mr. Zulueta said of You Walk Away. “I was stressing over nothing.”
You Walk Away is a small sign of broad changes in the way many Americans look at housing. In an era in which new types of loans allowed many home buyers to move in with little or no down payment, and to cash out any equity by refinancing, the meaning of homeownership and foreclosure have changed, economists and housing experts say.
Existing-home sales took the biggest tumble in 18 years during March. According to the NAR, home resales fell to a 6.12 million annual rate, a 8.4 percent decrease from February's revised 6.68 million annual pace.
The NAR again blamed bad winter weather. "For the last couple of months we've been expecting a weather 'hit' on home sales," NAR chief economist David Lereah said. However, he also conceded that subprime problems in the housing market might have hurt sales.
Althougth inventories of homes fell 1.6 percent at the end of March to 3.75 million, we are still a 7.3-month supply. Sales fell in all four regions of the U.S. Demand dropped 10.9% in the Midwest, 8.2% in the Northeast, 9.1% in the West, and 6.2% in the South.
So here is the key "take-away" from these numbers. Sales away down, inventory still high, all regions affected, the weather is still bad, and the NAR are in denial. In some respects, a fairly ordinary month.
It has been a while since a bank failed in the US. However, the first one in three years went under last week. The FDIC came in and organised the take-over of Metropolitan Savings Bank, Pittsburgh, Pennsylvania, by Allegheny Valley Bank of Pittsburgh, Pittsburgh, Pennsylvania. The grim details can be found on the FDIC website.
Hey! You've won a ride back to the top
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