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Something to Cheer About

Several factors surfaced this past week that support the case that the housing market may be better than commonly reported:

Household Worth – The Federal Reserve reports that household net worth in the US soared $2.1 trillion during the last quarter of 2010.

Delinquent Mortgages – The MBA reports that last month the overall delinquency rate for single-family mortgage loans dropped to 8.22% at the end of 2010.

Late Mortgages (one payment late) – The MBA reports that on late payment mortgages have fallen to 3.25% of all outstanding home loans and are now at the pre-recession levels of 2007.

Debt Loads – Zillow reports the US families have shaved down their debt load in 2010 to the lowest level in six years – this could mean more sustained spending in the near term. Since a healthy housing market depends on consumers’ ability to borrower, so a cash rich household and available credit are good signs. However, the tight credit environment will keep a recovery tepid and make it difficult for many households to qualify for a mortgage. Zillow reports that it will be impossible for the one-third of Americans with credit scores below 620 to qualify.
Today’s household are now well below the household debt peak in 2007, but still above historic levers. However, in 2010 household debt fell to 116% of disposal income, from 130% in 2007.

Home Are Undervalued – Capital Economics just released a study, based on the Case-Shiller home price index. They calculate that in the Q4 2010, housing as 21% undervalued when compared with disposable income per capital. When measuring values against the FHFA index housing in Q4 was 15 percent undervalued when compared the same way.
Both measures show that home prices in 29 states dipped to a new cycle low in Q4 2010.
The same study says that the recent “de-valuing” housing inventory is attracting cash buyers and investors back into the housing market. This will have a stabilizing effect on home prices and create a more affordable market.

From the Economic Focus newsletter sent out weekly by the Fidelity National Title Company.


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