Although levels are still above normal, the serious mortgage default rate has hit a 5-year low.
The housing market continues to heal with the number of completed foreclosures declining 29 percent year-over-year in November, according to the latest data from CoreLogic.
According to the report, there were 46,000 completed foreclosures during November. That is still more than double the normal rate of foreclosures. In the pre-bubble days between 2000 and 2006, foreclosures averaged 21,000 a month.
However, the pace of foreclosures has been declining rapidly. Foreclosures were down 8 percent from the previous month. About 812,000 homes were in some stage of foreclosure, down 29 percent from a year earlier.
Completed foreclosures are an indication of the total number of homes actually lost to foreclosure. Since September 2008, 4.7 million homes have been lost to foreclosure.
The declining pace of foreclosures has been one of the major factors behind the housing recovery. In the early years following the bust, home prices failed to recover as the market was flooded with foreclosed homes.
There were fears that more homes would eventually wind up in foreclosure. Fears of a large “shadow inventory” of homes also weighed on home prices.
Those concerns have waned in the past couple of years as fewer people defaulted on their loans and banks began to pursue alternatives other than foreclosures such as loan modifications and short sales.
Shadow inventory — or the number of properties that could eventually wind up in foreclosure — stood at 1.7 million homes in October, according to CoreLogic’s estimate. That is down 26.4 percent from a year earier and the lowest level since August 2008.
CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of properties that are seriously delinquent, in foreclosure or held as REO (real estate owned) by mortgage servicers but not currently listed on multiple-listing services.
Seriously delinquent loans — those more than three months past due — accounted for less than 5 percent of all mortgage loans, the lowest level since November 2008.
All these numbers are still elevated relative to historical levels, but the trend is heading decidedly lower.
“Nationally, loan performance continues to improve. The rate of seriously delinquent loans is at a new five-year low, down 26 percent relative to a year ago,” said Mark Fleming, chief economist for CoreLogic. “The shadow inventory continues to decline as well, decreasing at an average monthly rate of 46,000 units over the last year. Healthy market levels of shadow inventory are around 650,000 units, so there is more to be done, but the trend is in the right direction.”
According to the report, the five states with the highest number of completed foreclosures for the 12 months ending in November 2013 were Florida (115,000), Michigan (54,000), California (42,000), Texas (40,000) and Georgia (36,000). These five states account for almost half of all completed foreclosures nationally.
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Fed Wanted to Taper Cautiously
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A sharp surge in interest rates caused mortgage refinances to plummet two weeks ago, but they are now finding their footing again.
Applications to refinance rose 5 percent last week after falling 9 percent the previous week, according to a seasonally adjusted measure by the Mortgage Bankers Association. They are still down 69 percent from a year ago, as mortgage rates are now up well over a full percentage point from January 2013.
The average rate on a conforming 30-year fixed loan hit 4.72 percent two weeks ago, after the Federal Reserve announced it would slowly curtail its purchases of mortgage-backed bonds. That rate stayed put last week, causing more borrowers to come back to the refinance market.
The average rate for a jumbo loan is once again below that of conforming at 4.66 percent, as lenders and investors in that market are growing more confident and competitive. They are also not faced with high guarantee fees from Fannie Mae and Freddie Mac.
Applications for a mortgage to purchase a home, however, did not bounce back, falling 1 percent on week.
“Mortgage application activity remained weak over the holiday period, with purchase applications almost twenty percent lower than at the same time last year,” said Mike Fratantoni, chief economist for the Mortgage Bankers Association. “Other economic data is reflecting a strengthening economy, so this weakness is likely due to a combination of the increase in rates and still tight credit.”
Credit availability was little changed over the past month, according to another MBA report. Investors are continuing to fine-tune credit scores and loan-to-value formulas and debt-to-income measures in order to comply with new rules from the Consumer Financial Protection Bureau; those rules go into effect at the end of this week.
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Investors returned from the holidays in a cautious mood, starting the first full week of 2014 with some light selling. The Dow Jones industrial average, the S&P 500 and the Nasdaq all ended Monday modestly lower.
And there’s a new index in town! CNNMoney’s Tech 30 Index made its debut. The index is designed to give investors a snapshot of 30 tech industry leaders around the globe.
The index includes U.S. tech heavyweights such as Apple (AAPL, Fortune 500), Google (GOOG, Fortune 500), Microsoft (MSFT, Fortune 500) and Facebook (FB, Fortune 500) as well as international companies Baidu (BIDU) and SAP (SAP). The Tech 30 was up slightly.
After starting the year with a lackluster performance last week, stocks could continue to tread water in the run-up to Friday’s big jobs report.
Investors are also awaiting the release of minutes from the Federal Reserve’s December meeting, when it announced plans to trim its monthly bond purchases by $10 billion to $75 billion beginning this month. Later Monday, the U.S. Senate is expected to confirm Janet Yellen to serve as the next chair of the Federal Reserve, after Ben Bernanke’s second term ends in January.
Fool’s gold? Gold prices briefly plunged $30 an ounce before bouncing back. The move triggered a 10 second pause in trading after a “velocity logic event” occurred, according to a spokesman for exchange operator CME Group. Velocity logic events are relatively common in electronic markets, the spokesman said. They provide a brief window for investors to modify or cancel orders, he added.
While the CME spokesman said there were no erroneous trades, there was rampant speculation on StockTwits about what caused the drop. Some compared it to the 2010 Flash Crash in stocks, while others claimed that gold prices are being manipulated. But most were just trying to figure out what happened.
“Very erratic & unusual trades in $GLD last couple minutes – wonder what that is about – perhaps news pending” said BenCBanks.
In corporate news, Men’s Wearhouse (MW) launched a hostile bid for rival suit seller Jos. A. Bank (JOSB). After a series of friendly offers and counter offers, Men’s Wearhouse made a $1.6 billion cash bid and notified that it will nominate two members for its board of directors.
Liberty Media Corporation (LMCA) unveiled a complex proposal to take full control of satellite radio company Sirius XM Holdings (SIRI) by swapping stock. Liberty already owns a controlling stake in Sirius, but one analyst said the move is linked to a potential deal between cable companies Charter Communications (CHTR, Fortune 500) and Time Warner Cable (TWC, Fortune 500).
Charter, which Liberty also owns a stake in, has reportedly been in talks with major banks to borrow money to fund a possible bid for Time Warner Cable. Shares of Twitter (TWTR) fell 4% after the stock was downgraded by several analysts. Twitter had a strong rally last month, but shares have been volatile recently as analysts have warned that the stock is overvalued.
Bearish traders on StockTwits seized on the downgrades.
“$TWTR This stock is way too overvalued. With the downgrade, Id make the wager we’ll see the 50’s this week,” said drhee2k.
Twitter shares were trading around $66, down from a high near $75 in late December. But Twitter wasn’t the only stock moving in response to an analyst report. ”I wonder what made more money today, MS downgrade of $TWTR or GS upgrade of $SCTY?,” said soopy9.
SolarCity (SCTY) shares jumped after being upgraded by Goldman Sachs (GS, Fortune 500). SolarCity’s chairman is Tesla (TSLA) CEO Elon Musk. Meanwhile, First Solar (FSLR) shares tumbled after Goldman downgraded the stock in the same report. But one trader quipped about how the two big moves canceled each other. The Guggenheim Solar (TAN)exchange-traded fund barely budged.
“Goldman cuts First Solar to Sell (down 9%), raises Solar City to Buy (up 9%). Investors in the solar ETF yawn (flat). $FSLR $SCTY $TAN,” said reformedbroker. European markets ended mixed after the latest purchasing managers’ survey showed the euro zone services sector lost some momentum in December. Many Asian markets ended lower. The latest report from HSBC on China’s services sectors showed a slower rate of growth in December, adding to the downbeat tone.
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Wearable Tech is Positioned To Reach $8 Billion By the End of Year