Market Recap for March 10th, 2008

Keeping you updated on the market! For the week of March 10, 2008

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MARKET RECAP An old saying declares that every cloud has a silver lining. After last week's torrent of miserable news, one can be forgiven for questioning the sanity of the saying's originator. Let's start with the heaviest downpour: According to the Mortgage Bankers Association, more than 2% of the nation's 46 million mortgage loans were in the foreclosure process in the fourth quarter of 2007, with 0.83% of loans entering the process during the quarter. Both figures are the highest they've been in 35 years. What's more, neither figure is likely to improve soon. The delinquency rate for home loans hit 5.82% in the fourth quarter, up almost a quarter percentage point from the previous quarter and the highest since 1985, when the rate topped 6%. The latest increases affected all loan types, but were most pronounced for subprime, adjustable-rate mortgages (no surprise). The data explain the growing attention paid to proposals aimed at encouraging lenders to write down the value of troubled loans. "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure," commented Federal Reserve Chairman Ben Bernanke. With low or negative equity in their home, a stressed borrower has less ability – because there is no home equity to tap – and less financial incentive to try to remain in the home, so the reasoning goes. It's a tough sell; the last thing lenders want now is to become ensnared in an uncontrollable, morally hazardous spiral of debt forgiveness. Meanwhile, the number of people who can afford houses has decreased. Payrolls fell by 63,000, the biggest drop since March 2003, after a decline of 22,000 in January, the Labor Department reported on Friday. The jobless rate also declined to 4.8%, reflecting a shrinking labor force, as more people gave up seeking work. The silver lining in these pessimism-heavy clouds is that prime-mortgage rates reversed course and dropped, with the 30-year fixed-rate mortgage averaging 6.32%, the 15-year fixed-rate mortgage averaging 5.79% and the five-year Treasury-indexed hybrid adjustable-rate mortgage averaging 5.72% last week, according to Bankrate's weekly survey. (But even this lining is tarnished; Bankrate admits rates spiked after collecting its data.)

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Wholesale Trade (January)	Mon. March 10, 10:00 am, et	Sales: 0.3% (Increase) Inventories: 0.5% (Increases)	Moderately Important. The consensus estimate is within recent norms, so it should have little impact on credit markets.
International Trade (January)	Tues. March 11, 8:30 am, et	$58.7 Billion (Deficit)	Moderately Important. The deficit is expected to remain within the low-end range of recent postings despite higher oil prices.
Mortgage Applications	Wed. March 12, 7:00 am, et	None	Important. Both refinance and purchase applications have risen on expected higher rates.
Retail Sales (February)	Thurs. March 13, 8:30 am, et	0.3% (Increase)	Important. Increases in retail sales suggest the economy continues to expand.
Import Prices	Thurs. March 13, 8:30 am, et	0.7% (Increase)	Important. Import prices, lead by oil, could prove inflationary.
Business Inventories (January)	Thurs. March 13, 10:00 am, et	0.4% (Increase)	Moderately Important. Inventories remain within recent norms and are unlikely to impart any new economic information.
Consumer Price Index (February)	Fri. March 14, 8:30 am, et	All Goods: 0.2% (Increase) Core: 0.2% (Increase)	Very Important. Credit markets do not want to see a posting above the consensus estimate.

ADDING LIQUIDITY The housing recession, into its third year, will likely deepen as a glut of unsold properties continues to pressure prices and prompts builders to cancel projects. The recession underscores why Federal Reserve Chairman Ben Bernanke has said that the central bank is ready to reduce interest rates again...and again and again, if needed. But adding liquidity with more and cheaper dollars is unlikely to materially improve the housing market; the approach is too bank-centric. Liquidity is not a fixed pool of money, but a state of mind – and a state of mind regarding risk. Liquidity is the result of the appetite of investors to underwrite risk and the appetite of savers to provide leverage to investors who want to underwrite risk. The alignment or misalignment of the two groups determines the abundance or shortage of liquidity. Right now we have a shortage. What we are really talking about though is confidence – which would be increased by stabilizing housing prices. Until that returns, liquidity won't. For more LOCAL real estate news for Riverside, Los Angeles, and San Bernardino County, go to www.TeamHomeSales.com where you can educate and search for homes yourself on the Realtor MLS (Muliple Listing Service).