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Mixed signals – US Housing Market

The climb is steep, the load is heavy and the climbers are nervous!

The climb is steep, the load is heavy and the climbers are nervous!

Fannie Mae, the largest provider of funding for U.S. home mortgages … said its mortgage investment portfolio shrank in February, while delinquencies on loans it guarantees accelerated.

The portfolio decreased by an annualized 14.2 percent to $725.9 billion in February from $735.2 billion in January … Year-to-date the portfolio has decreased by an annualized 31.2 percent. In February 2009, the portfolio was $784.7 billion.

Delinquencies on loans in Fannie Mae’s single-family guarantee business rose by 0.14 percentage point to 5.52 percent in January — the most recent data available. A year earlier it was 2.77 percent.

The government has been relying heavily on Fannie Mae and Freddie Mac in its efforts to stimulate the battered U.S. housing market by buying more mortgage loans, easing refinancing and helping homeowners avoid foreclosure.

Fannie Mae last month reported a loss of $16.3 billion for the 2009 fourth quarter and said it requested $15.3 billion from the U.S. Treasury to keep its net worth in positive territory.

The company said it would need additional taxpayer funds in the future to continue operations. (via Fannie Mae Feb. portfolio down, delinquencies jump).

Mixed signals … crossed wires

Total delinquency rate of Fannie Mae portfolio

Total delinquency rate of Fannie Mae portfolio

Three conflicting developments show just how fragile the US Housing Market is. One – Fannie Mae reported a record increase in delinquencies. This is making the whole housing markets very jittery. Second – The Boston Globe reports,

The number of Massachusetts single-family homes put under agreement in March was up 27 percent over the same time last year, while condominiums were up 38 percent, the Massachusetts Association of Realtors said.

March was the ninth straight month that pending sales gone up when compared to the same month a year ago, the association said.

According to the association, pending sales can be a leading indicator of where the local housing is heading. A better measure, of course, is completed sales. March figures for completed sales are set to be released later this month.

Tumbling records … fragile recovery

The saga continues ...

The saga continues ...

Before that sales growth of 8.2% in February was best since the record October 2001 month. The third element is that on April 30, the $8000 first time Federal Home Buyer Tax Credit ends.

This US$8000 credit was the proverbial carrot in front of the buyers. After this Federal incentive, home prices adjusted by US$8000. When (and if) it expires on April 30th, prices are expected to drop by US$8000.

The story does not end here. As they usually don’t! A recent survey by Fannie Mae found,

found that two-thirds of survey respondents prefer owning a home to renting — even in the face of economic challenge and the downturn in housing prices — the mentality of strategic default is spreading. A contagion effect within communities is leading borrowers to consider default as an acceptable option in the face of financial hardship … Despite a growing acceptance of strategic default on the community level, thinking about walking away and actually walking away are separate events.

A Hindi idiom phrase captures this situation. Paraphrased, it says, “one does not know which side the camel will rest”. क्या पता ऊंट कौनसी करवट बैठेगा.

I am not betting. Not in this case.

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