A Look at the Week that Was (Dec 10-16)

It’s been an interesting week, but not just because of the news that made the mortgage industry. This was the first full week of HW! At the end of each week, I’ll be giving my own take on what’s making news in our housing markets and where we’re likely headed next…here goes nothing:

Turning to this week, probably the biggest story was the converging news that the number of troubled borrowers across the US continues to increase. Between the MBA’s 3rd quarter delinquency numbers, to RealtyTrac’s November report showing a new high-water point for foreclosures in November, it’s pretty clear that the housing slump isn’t over yet. Not surprisingly, it’s the former too-hot-to-touch markets like Florida and Southern California that are feeling the most pain right now.

But it seems to be anyone’s guess how much further this goes, or how much worse it can get. The secondary markets appear to be bracing for a rough go of RMBS performance next year, with Fitch saying this week that they expect mortgages originated in 2006 to display the worst cumulative losses of any vintage to date. And in its weekly real estate installment, the Associated Press suggested that 2007 may be a rough ride for real estate.

But the US Chamber of Commerce and National Association of Realtors are taking a different tack from the doom and gloom, saying they expect housing markets to recover during 2007. Not that I’d expect anything less from the groups whose haymaking depends on their ability to generate a sale, but I haven’t seen a Fitch report as decidedly pessimistic as the one they issued this week.

I’m wondering if the other shoe will drop, with commericial real estate taking a dive in the coming months. Performance there just seems too strong given the weaknesses we’re seeing in the residential sector. 

That alone, along with informal discussions I’ve had with attorneys across the US who specialize in foreclosures, suggests to me that it might be bloody in the first half of 2007 for residential property — although I think the real estate climate will improve before next year is out. If not, look out: commercial real estate will be the next domino to fall.

Funniest story of the week? That Fannie Mae is taking its former auditor, KPMG, to court. I suppose after billions in improperly recorded income, the executives at Fannie are tired of having the finger pointed at them. KPMG looks like a viable scapegoat to me, but only time will tell if there’s any real substance here.

Well, that’s it for this week. Next week should be a slow news week, with the end of the year in sight. The National Association of Homebuilders is hosting a call this Thursday with some pretty big name economists — Seiders, Lereah and Berson — which will probably be the highlight of the week.

Unless, of course, another subprime mortgage shop closes its doors. Stay tuned.