Thursday, September 6, 2007

Just When You Thought It Couldn't Get Any Worse.

The Mortgage Bankers Association reported Thursday that mortgage-holders starting the foreclosure process in the April-June quarter reached 0.65 percent, marking the third consecutive quarter that this figure has set an all-time high. The delinquency rate, which tracks the number of people who are behind in their payments but have not yet entered the foreclosure process, was also up sharply during the spring, rising to 5.12 percent of all loans, up nearly three-fourths of a percentage point from the same period a year ago.
Doug Duncan, the MBA's chief economist, said the worsening performance was driven by two factors - heavy job losses in the Midwest states of Ohio, Michigan and Indiana and the collapse of previously booming housing markets in California, Florida, Nevada and Arizona. . Another big problem is that an estimated 2 million adjustable rate mortgages are scheduled to reset this year at sharply higher interest rates, which will cause monthly payments in some cases to double or even triple, a problem that is especially severe in the market for subprime mortgages, loans offered to borrowers with weak credit histories. The delinquency rate for subprime loans increased sharply to 14.82 percent - up from 13.77 percent - in the first quarter.
Now for the rest of the story.
Standards and Poor’s reported that in the second quarter of 2007 the average home price was down just under 4% on a year over year basis. People have tried to hold to their asking price for there home for as long as they can the result in many market the asking prices are to high. The problems in the housing market are far from over and as I indicated in another Blog that I felt that it might well take into 2008 before we see the bottom in the real estate market. When the homeowner finally gives up and starts to reduce the price of their homes next Spring, to get out from under, you will see a significant drop in the price of housing perhaps as much as double digits.
Is their opportunity in adversity? I think so. Just over a year ago, I bought HPB. This is a managed closed end fund that is short the Philadelphia housing stock index. In other words this investment believes that housing will continue to fall and the more it falls the more HPB will appreciate.

Is HPB for everybody? No. Check with your financial advisor and see if together you think it is good for your portfolio.

Dan Perkins

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