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Eat any really joining me now executive vice president of Carrington mortgage holdings Rick Sharjah and chief economist was -- -- Stan Humphries and Rick we'll start with you.
Because is that mortgage area what are people I see the activity starting to pick up.
The rates have been low -- keep going lower.
What is it that's now causing some people to say this is a sign of a turnaround.
Well we're we're seeing home prices increases you mentioned that's been going on for for several months now -- also seeing sales activity start start percolate so.
We're we're looking at what appears to be somewhat of an investor driven recovery about 32% of purchases are being made with -- cash.
Which which -- your question about mortgages.
It really that that they'll hold the hold up in a more robust recovery is is the fact that.
Only the very very most qualified people -- are able to get those low rate mortgages.
And there's no private money and in the secondary market to to stimulate mortgage activity.
On the purchase side.
So this is and -- this is a thing.
I keep looking at the fact that you've got this huge number of people -- you tell me what the number is now what I thought it was something like one out of four people.
Are under water and then it seemed like you can have all the programs and all the low interest rates in the world what Intel.
You get people were there have equity in their homes.
They're not going to sell and they certainly can't refinance.
That's right but by -- speculation we've got about one in three homeowners into mortgages -- in an underwater condition meaning they're negative equity.
And that's definitely a big it's gonna cast a long -- housing market because it's.
By our estimates about a one point.
One trillion dollar problems it was not a problem that the government to write a check for that we can take out of bond funds -- real expensive problem that we can't get rid.
And it does definitely keeps foreclosure rates elevated.
And we're seeing it create really acute inventory shortages and a lot of these markets that are heating up you know you look at Phoenix.
Where home values are up by 20% -- -- relaxed here.
And a lot of hone my appreciation is the fact that you do have event -- -- aggressive demand coming in from investors.
And and you -- constrained supply because allies people who wanna sell -- underwater and they can't sell.
Via and that's the thing it seems like.
It's the old rule of supply and demand there are not as many homes for sale because a they can't because or neutral water -- the third as a really amazing.
So if you have if you have very few homes that are for sale.
Well but then then you get any kind of increase in demand whether -- some investors are people who wanna buy a home for their own shelter.
And that -- supply is limited prices are certainly gonna go so rig count.
What are you project as far as home price increases is going to really take effect and finally get to the place where people have.
Positive -- putting.
Well it just did the nominal increases we've seen over the the last six months or so have have put.
Probably -- between a million a million and a half people.
Who were upside down at a neutral or positive equity position.
So as long as we continue to have that limited inventory to see prices go up.
I think consensus estimate is is somewhere in the neighborhood of of between one and a half and 2% for the rest of the year.
And it probably little bit higher than that for next year.
But but you know the thing we have to keep in mind is.
-- that the prices will fluctuate with available inventory.
In addition -- people lots selling their homes because there upside down we've also at home builders not building homes for the last few years.
We've had procedural always in foreclosures which -- kept that that foreclosure inventory off the market.
Foreclosure activity starting to percolate at least in terms of foreclosure starts.
Homebuilders are starting to build so a year from now we might be looking at a very differing equation and I suggest.
-- we're gonna -- is -- home prices fluctuate up -- down within a fairly narrow -- over the next couple -- years before they -- finally start to go -- sustainably.
Dan what do you do you -- Trying to highlight yet -- I completely concur that I mean we view nationally we've got home that is up about one point 7% over the past year.
So pretty modest price appreciation if you thinking.
A long term real estate returns anywhere from two and a half to 5% per year our expectations over the next year.
-- for home prices to increase in the one and a half percent range.
So what we think we're gonna see a period of two to four years.
Really -- -- bottom where rebels along the bottom some months up some months down and -- solitude bottom.
Where we're gonna see one to 3% appreciation for the next two to four years.
That's just determined by the fact that unemployment rates we think are still gonna remain high.
And we've got high negative equity rates in those two combined are gonna keep foreclosure rates elevated.
There's really gonna be more likely sixteen before receive most housing markets get back to -- normal.
Appreciation what's not normal appreciation but I.
But let me ask the question because stand yesterday you said you know the of these ones into the numbers and -- -- -- -- through in there.
But how far down on your measurement did we fall.
And I know some part -- were down 60%.
I don't know what the national average was but ME week -- seems like what you're describing is it gonna take note.
We may have normal appreciation but how -- until we get back to those all the prices that we had five years ago.
This is a good question to them nationally if you exclude foreclosures.
20% from their peak.
And that's excluding foreclosure prices so it just means that typical consumers looking to buy either so conventionally what -- what -- what's happened their home value and it's declined by 20% from its peak and and 2007.
So yeah it'll take you know during this period 24 years where we're seeing very muted appreciation they're gonna see much extraction.
People from from negative equity you -- you see a little bit.
But -- really gonna see that M after -- sixteen when the market to get back to something a higher appreciation right.
In this so important admitted that real estate industry drags the economy along -- pushes and pushes it up when it's going but.
What are Rick how about the the QE3 of me that now we know that they're gonna be going out and buying forty billion dollars month.
A mortgage backed securities what does that do to the mortgage industry.
You know that did the effect is going to be nominal on on what we're talking about today I think -- that the overarching effect.
It is it's going to keep interest rates very very low and we saw a new record lows reported over the past week.
So so I think that's really what's going to happen but a lot of that mortgage activity is at the refinance level.
People -- able to get refinance loans a lot easier than they're able to get purchase loans.
And again a lot of people who would like to buy homes or are upside down on their current properties.
So it it it's going to have the effect of keeping interest rates low for a a fairly long period of time.
But low interest rates have not been the problem and have not been the hold back in in getting the housing -- -- bloodied but that may actually turn into a problem Rick because it if I'm thinking.
I better -- that piece of property before rates go back up again and if you're telling -- rates aren't gonna go back up anytime soon I'm thinking.
-- all of this sit back and think for a while there's no there's no urgency here.
No you're you're right that it that it does diminish the sense of urgency because.
Property values still relatively low and and you have historically low interest rates that are going up anytime soon.
-- -- longer term issue to which is if everybody in the country's now locked in at a three and a half percent interest rate loan.
What happens when interest rates start to go back up who's gonna want to trade out of that low rate loan.
Into a higher rate loan so.
-- short term issues long term issues but but what QE3 is not gonna have an immediate -- that's a good point a finds it with a 3% mortgage five years and I'm not gonna wanna go.
Get another house -- -- 7% for pictures something like -- -- Sharia and Stan Humphries the gentlemen thank you very much.