December Residential Highlights
Comparing December 2006 to December 2005 there were 18.6% less closed listings, 12.4% fewer new listings and 11.2% less pending sales. (See table above) The 1,380 active residential listings at months end would last 4 months given the month's rate of sales.
A Summary of 2006
When comparing 2006 with 2005, new listings increased 8.9%. On the other hand, closed sales decreased 11% and pending sales dropped 11.4%.
Average sale price appreciated 12.7% ($254,800 v. $226,000). Using the same formula we can see that the median sale price increased 15.1% ($224,500 v. $195,000). Together the market measures acount from the previous year.
Mortgage rates have risen again, sharply, beginning to push 6.5 percent for low-fee, 30-year loans, and big-media "news" won’t discover the jump until late next week because of lags in national surveys. It’s real, though, right now.
The definitive 10-year T-note has blown up to 4.88 percent from 4.45 percent only six weeks ago, the damage caused by a colossal bond-market error in economic forecasting. It was just certain last summer and fall that a slowing housing market would tip over the economy, and the Fed would begin to cut its 5.25 percent overnight rate in 2007.
The effects of this error are going to ripple for months, mortgage rates continuously vulnerable unless we are saved by a delayed appearance of general economic slowdown. Here’s a great thing for the housing sector: if you want lower mortgage rates, you’ve got to hope for a deeper housing crater. Fire or ice. The same is true for fans of the stock market, which has had an ugly week as a voyeur at the bond-market wreck.
Mortgages could quickly run close to last year’s highs, just below 7 percent, in high-volatility trading. It’s been a long time since we’ve had quarter-point, over-the-weekend moves, wockety-tong up and down the stairs, but the correction following a mistake as big as this tends to break all the technical rules of trading. Support, resistance, oversold ... do not apply.
From the straightforward (UP!) to the economics of a new forecast and bond market adaptation, there is a lot in play. First, the health of the economy is unequivocal: today’s news of a 2.3 percent jump in December orders for durable goods is too strong for argument. Everyone knew that job data was running above expectation, but many dismissed that strength as a lagging indicator, convinced that weakness would ultimately appear, and the Fed would ease. They were wrong.
The newest housing market data has the Street completely confused. The Wizards of Wall bought bonds and mortgages last year on housing weakness, and this week dumped them in belief that housing has bottomed -- huge sales on thin and ambiguous data. Inventories of homes for sale fell by a half-month supply in December, interpreted as bottoming, even though resales dropped again. The Wizards don’t know what every Realtor does: a decline in listings in the winter doesn’t mean anything. A December gain in sales of new homes had traders hitting "sell" again today, but thin markets in a weird-warm winter ... meaningless.
The housing reality: neither a blowing bubble nor a bottom. Housing and its effects on the whole economy are going to take years to resolve. A jump in long-term rates is a shove from behind that will certainly worsen conditions in the bubble zones, and will also begin to close the escape hatch for ARM-reset procrastinators.
The big shoe whistling down: mortgage credit quality is deteriorating rapidly. The Wizards think that rising loan defaults will be limited to 2006 originations, and they are mistaken about that, too: older paper will soon begin to tank. As it does, credit standards for new loans will begin their inevitable tightening, and diminish the supply of buyers. Nobody knows how that spiral will play out; it’s just beginning.
The Fed on pause at 5.25 percent must feel like the audience at a Keystone Cops flicker during one of the side-to-side chase scenes. Last year, low and falling long-term rates stimulated the economy while the Fed was trying to slow it. Now, rising long-term rates will brake the economy, just as the Fed began to think it had to tighten some more.
Fed Chairman Ben Bernanke’s pause is either a sign of trans-Greenspanic wisdom, or he’s the luckiest man since Ringo Starr.
Article by: Lou Barnes, a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
Little Chad was a shy, quiet young man. One day he came home and told his mother that he’d like to make a valentine for everyone in his class. Her heart sank. She thought, "I wish he wouldn’t do that!" because she had watched the children when they walked home from school. Her Chad was always behind them. They laughed and hung on to each other and talked to each other. But Chad was never included. Nevertheless, she decided she would go along with her son. So she purchased the paper and glue and crayons. For three weeks, night after night, Chad painstakingly made 35 valentines.
Valentine’s Day dawned, and Chad was beside himself with excitement. He carefully stacked them up, put them in a bag, and bolted out the door. His mother decided to bake him his favorite cookies and serve them nice and warm with a cool glass of milk when he came home from school. She just knew he would be disappointed and maybe that would ease the pain a little. It hurt her to think that he wouldn’t get many valentines - maybe none at all.
That afternoon she had the cookies and milk on the table. When she heard the children outside, she looked out the window. Sure enough, there they came, laughing and having the best time. And, as always, there was Chad in the rear. He walked a little faster than usual. She fully expected him to burst into tears as soon as he got inside. His arms were empty, she noticed, and when the door opened she choked back the tears.
"Mommy has some cookies and milk for you," she said.
But he hardly heard her words. He just marched right on by, his face aglow, and all he could say was: "Not a one. Not a one."
Her heart sank.
And then he added, "I didn’t forget a one, not a single one!"
