Speculators May Now Control Mortgage Purchase Market

Last month home sales surged in many states around the nation especially in CA where they jumped to 39,500, up 12.2% June. However, values also fell 3%, foreclosures ran over 30k units and foreclosure-related sales as a percentage of total sales surged to 45%. This means ‘organic’ sales were running in the 20k range, the slowest July in recent history.

To me, this means that the overall housing market continues to worsen. (Please see my July CA Home Sales Report).  Show me a month where sales do well but prices are stable and foreclosures decline and that is a light at the end of a long tunnel. That has not happened yet.

But who is buying all of these homes?  In CA, values are down 35% in the past 14-months!  We know that a large percentage of home owners are literally ’stuck’ in their home unable to sell or refinance so they are not buyers.  The all-important ‘move-up’ buyers do not exist to any great degree any longer because affordable mortgages are gone and many can’t even afford to re-buy the home they live in today. ’Move-down’ and ‘lateral’ buyers are not out in any great numbers also because of the two reasons above.

First time home buyers and current renters are about the only groups out there in a strong enough position to buy but historically they make up the smallest percenatge of total sales.  How can sales be up so much then?

SPECULATORS! No way. After a 10-year bull run in housing and only 14-month fall speculators could not be in there buying up properties already. The specific purchase data don’t show this to any great degree. But other data may.

For some reason, as purchase volume is rising sharply Mortgage Insurance volume is plummet ting. This is a strange phenomenon. First time home buyers and current renters are not the 20% down crowd but investors/speculators are. For one reason, because most non-owner occupied loan programs require more down payment but many speculators also put more down to try to avoid detection if they are calling the purchase a ‘primary residence’ or ’second/vaction’ home.

We know that 45% of all home purchases in the State of CA were from the foreclosure stock and similar numbers hold true in other bubble states around the nation. Could speculators be once again in control of the real estate market? For their sake and ours when these buyers find themselves deeply underwater and amidst plummet ting rents in the near future, I hope I am wrong. But the MI readings may show otherwise. - Best Mr Mortgage

M.I. Volume Sinking Fast - August 29, 2008 By Mortgage Daily staff

Mortgage insurance activity has fallen by half over the past year, is at its lowest level in nearly a decade and is headed lower. But as mortgage insurers tighten their guidelines, the quality of new business is likely improving.

Last month, 70,725 policies were written for $12.3 billion, the Mortgage Insurance Companies of America reported today. Activity dropped from 74,779 policies for $13.7 billion during June.

Volume was less than half the level in July 2007, when 171,585 policies were written for $26.6 billion. The latest month’s activity is the lowest since 2000.

$12.3 billion in MI in July is a familiar dollar amount. In July in the State of CA alone, $12.5 billion in foreclosures went back to the bank due to no buyers at the Trustee Sales (foreclosure auctions). Please see my July CA Forclosure Report.

July’s volume included 70,588 traditional policies written for $12.3 billion and 137 bulk policies for less than $0.1 billion.

Future business is likely to head even lower based on declining applications. During July, 86,734 mortgage insurance applications were received, falling from 90,896 the prior month to the lowest level since at least 1999 — the oldest data available to MortgageDaily.com

Source: Mortgage Daily August 29, 2008

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