The S&P Case-Shiller 20-city index of home prices fell 18.0% y/y and the 10-city index showed a 19.1% y/y drop through October. All cities showed greater decline in home prices in October relative to September, and while the index is not seasonally adjusted and October is typically a time of softer pricing, this same pattern was seen in the annual measures. All 20 cities saw prices decline, with New York posting the smallest monthly decline of 0.9% and Detroit registering the largest drop at 4.5%. The smallest annual decline was in Dallas where home values fell 3.0%, and Phoenix saw the largest drop at 32.7%. The acceleration in the financial crisis this fall has hit the housing market hard, with sales, building activity and prices all taking another leg down in the wake of the market turmoil. We expect this pattern to persist in the months ahead.

The following article has been reprised on websites across the ideological spectrum. 

The gap between US Treasury 10 yr bond rates (the duration of a normal mrtgage bond portfolio, hedge the appropriate hedge instrument)  and a consumer mortgage rate  of 4.50 is now 2.40 bps.  This would be very attractive investment paper to many, many financial institutions.   If Fannie &Freddie extended a stripped down, vanilla 30-year mortgage refinance with normal terms on ALL first mortgages of any size they  would give every household with a mortgage the equivalent of a “tax cut”  since even in 2003 the 30-year rate never dropped below 5%.  This program would shore up demand for housing, and put an end to the nonsense of  underwriters demanding 500 800 bps to re-finance.  Home builders would be able to move inventory.   The spread would slowly help the GSEs and the banks dig out of the leverage hole that they have dug for themselves.

Pending home sales declined by 0.7% m/m in October, less than expected (consensus: -3%; Barclays: -3.5%). The prior month’s reading was also revised up to show a 4.3% m/m decline rather than 4.6% decline. On a year-over-year basis, the pending home sales index is down 0.6%. Both the Northeast (+0.4%) and South (6.9%) showed an increase in pending sales, but activity declined in the Midwest (-3.6%) and West (-9.9%).  The pending home sales index tracks signed contracts for existing home sales, and is thus a leading indicator of the actual existing home sales measure, which is based on contract closings. The index has been trending higher in a choppy fashion over the past nine months, and is now up 7.1% from its trough. In our view, the rise partly reflects higher foreclosure activity which, although a positive development, suggests that the pressure on home prices is likely to continue.

Mortgage delinquencies, as measured by the Mortgage Bankers Association, increased in Q3. The share of mortgages 30 days or more delinquent rose to 6.99% in Q3 from 6.41% in Q2, driven by a jump in seriously delinquent mortgages (more than 90 days late). The delinquency rate on subprime mortgages rose 136bp to 20.03%, owing to a 198bp increase to 18% in the delinquency rate on fixed-rate subprime mortgages. The delinquency rate on adjustable-rate subprime mortgages edged up 28bp to 21.31%. Delinquencies for prime mortgages increased to 4.34% from 3.93%.

This is a relatively new type of loan that allows you to remodel your home and refinance your mortgage at the same time. The benefit is that you get the best rate available for a standard refinance, and you get that same great rate for the construction work.

Typically, construction loans are shorter-term, covering just the construction period alone; they are adjustable mortgages as well, usually based on prime.