Financial Times, The Lex Column: May 28 2008 03:00
Just how bad is the US housing market? The widely followed S&P/Case-Shiller index looks horrible. Its latest figures show prices accelerating downwards. They fell over 14 per cent year-on-year in the first quarter and are down more than 16 per cent from their 2006 peak. Contrast that with data from the Office of Federal Housing Enterprise Oversight that showed prices appreciating less rapidly during the boom and peaking in 2007 - since when they have fallen about 4 per cent. Figures from the National Association of Realtors are somewhere in between.
Which is correct? The short answer is all of them. They measure different things. Both Case-Shiller and OFHEO measure transactions on the same single-family homes over time. Case-Shiller covers 70 per cent of the country, while OFHEO is broader. But Case-Shiller covers more types of purchase, including those with jumbo and subprime mortgages, while OFHEO only measures houses bought with loans conforming to Fannie Mae and Freddie Mac's criteria. The NAR takes median prices without tracking same house sales, so it can be affected by the mix of houses being sold.
Understandably, gloom-mongers focus on the plunging Case-Shiller Index. It is not surprising that it has proved more volatile, given that it includes bigger houses and weights the index according to value of pomes purchased. That is likely to make troubled areas such as California, with a big share jumbo mortgages, more influential. Arguably, it is also the best measure for the overall destruction of US housing wealth. The OFHEO Index, however, perhaps gives a better idea of what average Americans are experiencing. The news on that front looks less alarming.
The two indices may tell different stories on the quantum of price falls. But one thing both can agree on is that the pain is spreading nationally and is still getting worse.
Alt-A Problems Grow, While Subprime Takes Turn for the Worse
By PAUL JACKSON, Housing Wire: May 28, 2008
Despite an absolute dearth of ARM resets, the number of severely delinquent Alt-A borrowers continues to grow, according to a report released late last week by Clayton Holdings, Inc. (CLAY: 5.93, +0.51%). The number of troubled Alt-A borrowers in the 2007 vintage rose an eye-popping 26.5 percent from March to April alone, nearly reaching 17 percent of loan volume.
The 2007 vintage isn’t the only Alt-A vintage facing problems, of course: 19.3 percent of borrowers with loans originated in 2006 were more than 60 days delinquent at the end of April, a jump of nearly 10 percent from March. Cumulative losses percentages for 2006 vintage Alt-A first liens continued what Clayton analysts called a “concerning upward trend,” with losses for 2006 issues running at more than three times the pace set by the 2004 and 2005 issues.
The troubles in Alt-A are appearing despite the fact that very few borrowers in any vintage are yet to face a strong wave of rate-reset activity. The graph below shows that, if anything, lenders and policymakers should be concerned about a wave of pending Alt-A resets that are looming in the back half of 2009.
That looming wave of resets may be particularly troubling, given the current U.S. interest rate and LIBOR outlook held by most economists and bank officials; most see interest rates flat to increasing over that time frame, both within the U.S. and abroad, a pattern that could bode poorly for borrowers facing rate adjustments.
