Housing Data Contradicts Media Reports of Subprime Crisis

I just read a very interesting article by Sam Cass on BestCashCow. He compares a chart of where subprime mortgages are concentrated (Northeast and California) with data from the National Association of Realtors. The data, which I published several days ago, shows that both of those markets have relatively healthy housing markets, with prices having gone up over the last year.

The conclusion to draw isn't a hard one. How can there be a sub-prime crisis when the markets with the largest number of sub-prime loans are healthy?

I live in Massachusetts and I can tell you that as I reported earlier, prices here have not come down significantly. The local economy is strong and sellers are taking their homes off the market rather than sell them at lower prices.

My interpretation of the data is that housing prices are declining in places with oversupply and that are overbuilt - South, Midwest, Southwest. But these areas are less expensive and didn't require as much use of subprime and exotic mortgages. So the places where prices are falling are the places where there aren't a whole lot of sub-primes. At least that's what the data says.

NAR Reports Existing Home Sales Stable in July

The National Association of Realtors reported that existing home sales were stable in July with "increases in the West and Northeast offset by a decline in the Midwest, according to the National Association of Realtors®."

Total existing home sales dropped by .2% to a seasonally adjusted rate of 5.75 million. This is 9% below the 6.32 million-unit level in July 2006.

The median prices dropped by .6% to $228,900 from $230,200, the highest monthly price on record. Thus, despite all of the talk of the sky falling, prices have fallen less than 1%.

Invenstories are rising though:

"Total housing inventory rose 5.1 percent at the end of June to 4.59 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace, up from an upwardly revised 9.1-month supply in June."

Overall, this paints a picture of a mixed real-estate market with the high-prices Northeast and West Coast doing better than the South and Midwest. It appears that the areas where prices dropped first are also the first to start to experience a bounce. I project that prices will continue to firm over the next couple of months despite the mortgage problems of the last few weeks. If anything, many markets may soon present a buying opportunity.

Sales Down and Prices Flat

The National Association of Realtors just released their second quarter numbers and it looks like Salt Lake City is the winner. Salt Lake City finished first for the quarter ,its median price of $233,100 rose 21.9 percent from a year ago! Overall, house prices dropped 1.5% from a year earlier.

Despite the relatively good news on prices, home sales declined by 10.8% To me, this is a sign that many sellers have pulled their houses from the market rather than settle with a lower price. I've seen it happening in my area where real-estate listings are way down.

The average inventory is listed at around 8 months which isn't overly high.

Overall, prices are 1.7% off their peak, recorded in the third quarter of 2005. While any drop is obviously undesirable, to me this doesn't register as a catastrophe.

Jim Cramer Should Should Stick to Stocks

I just read an article on The Street.com about how Jim Cramer advised owners who were underwater with their equity to consider walking away and giving the house up to foreclosure. I don't think it very good advice at all. It will blast your credit score forever (or at least the next 7 years), potentially open you up to litigation from your lender, and force you to give up your home. If you purchased properties to flip then I guess it's okay, but if it's your home, it seems like awfully impractical advice.

I don't know what someone does if they are underwater in their equity and can't make the mortgage. It's tough, really tough but advising them to walk-away isn't the right call either.

Mortgage Markets in Turmoil

BestCashCow just ran an article entitled Mortgage Crisis Spreads, Wall Street Gyrates, and the Fed May Drop Rates that summarizes what is happening in the mortgage markets. As I blogged below, the impact is also being felt by us "little people."

Mortgage Market is Tough

I have a friend that is looking to buy a house with an 80-20 mortgage. That means that she will take out a first loan for 80% of the purchase price, and a second loan for 20% of the purchase price. There will be no money down.

The rate on her loans was originally quotes at around 7% for the first and 8.5% for the second. The rate on the second has now gone to over 18%.

I've been reading about what's happening in the mortgage market. Here's some first-hand evidence of how it's directly impacting real-estate.

Housing Bubble or Not

I've been following real estate for the last four or five years, since we purchased our new house. I got so into scanning the papers, comparing prices, and checking out places that it became a habit. I still go to open houses, and I spend a lot of time following the real estate market across the country. Together with my husband we're thinking about buying some investment properties. But first, I want to wait let the market come down.

Which bring me to my second point for this post. Will the market come down further. Based on what I have seen I'd say it will. Maybe not much more but I think prices will be soft or decline a bit more. They say that Real Estate tends to run in 7 year cycles. We have one great upward cycle and now we're on the down. It started last year - 2006 - which means it could be 2013 before things start to pick up again. Of course, the deals will be there.

Keep reading and I'll keep telling you what I find out. I scan the papers almost daily and have found a great source for information on a site called BestCashCow. Let me know what you think.