Fox Business Network
November 20, 2007
8:00 AM - 9:00 AM
PETER BARNES, anchor:
Some important housing figures expected to be released any second here, housing starts for the month of October. Joining us now for a quick preview is the president of Americana Mortgage Group in Manhasset, that's Bob Moulton, and Ethan Harris, chief economist at Lehman Brothers.
And fellas, I want to welcome you, but tell you we might just break away here any second.
Ethan, what's the expectation here?
Mr. ETHAN HARRIS (Lehman Brothers): Well, we're expecting kind of a flattish report. You've come off of three very bad months in a row. So just a little brief respite from the ugly data coming out of the housing sector.
BARNES: Bob, no surprise that--oh, and here we have the numbers from Robert Gray.
Robert?
ROBERT GRAY reporting:
Hey, guys, we're just seeing the numbers coming in stronger than expected for those October housing starts, coming in at $1.23 million, that's a gain of 3 percent. The expectation was for a drop of 9/10ths of 1 percent for housing starts in the month of October.
So, we are seeing that number coming in stronger than expected. Once again, a gain of 3 percent on housing starts, the expectations were for a drop of 9/10ths of 1 percent, Peter.
BARNES: All right, thank you, Robert.
Ethan, let me go right back to you and ask you your reaction to those numbers, I assume you heard them?
Mr. HARRIS: Yeah, like I said, I mean, the--we've had really some horrible data on the housing starts numbers, if you look back over the past three months it came to 20 percent drop in starts. This is--this little pickup here is good news, but in truth, there's still more pain to come in the housing market.
Homebuilders have way too much inventory on their lots of homes, you know, waiting to be sold. And they're still cutting back their construction. So, you know, this is good news today, but unfortunately, I don't think it's going to continue going forward.
BARNES: Bob Moulton, you were expecting this and we were talking about this during the break just before we came back; no big surprise.
Mr. BOB MOULTON (Americana Mortgage Group CEO): No big surprise, nothing really to get excited about. There's still a lot of inventory out there, builders aren't really going to build as aggressively as we would like them to build until all that inventory is depleted. We have a lot of inventory with existing homes, older homes and new homes, and I think they're going to have to trim inventories.
You have potential buyers waiting for prices to come down; that's not really factored into the numbers. The whole overall trend is down. This little rise, you know, for this month, I think, is a blip. I think you'll still continue to see down data until it starts to trend back up.
BARNES: Ethan, how long do you think it's going to take for all of this to get resolved?
Mr. HARRIS: Well, I would add to that list the fact that we're--we haven't even gotten to the point where there's serious foreclosures happening in the housing market, which will happen next year and in 2009; there's already some foreclosures. But things will get really serious in the next couple of years.
I think for the construction industry, in terms of housing starts themselves, probably doesn't bottom out until the middle of next year. I don't expect big drops from here, but I think it continues to be under pressure.
Other parts of the housing market, for example, home prices, could be weak much longer. We could see a gradual decline in home prices nationally through 2009. It's a very slow adjusting market.
So, you know, I think there's a long way to go in terms of this housing correction we're looking at.
BARNES: Bob, how does that outlook sound to you?
Mr. MOULTON: I mean, with all the--you have two things there that are really going to affect prices, you have inventory and you have too much supply, which forces prices to come down. But the thing that is also not factored in is all the change in the underwriting guidelines at the different credit markets.
BARNES: Which you've had to deal with as a mortgage broker.
Mr. MOUTON: And it's tougher to get a loan right now. You have to have perfect credit, you have to put a little more into the deal, a larger down payment, you have to document your income. We're really not seeing the effect of that, because that's really just happened since August when the credit crunch hit. Sixty percent of people that apply for a mortgage last year would apply--would qualify for that same mortgage this year.
So it's almost one in two borrowers...
BARNES: Yeah.
Mr. MOULTON: ...qualify for a loan when they're applying.
BARNES: A lot of subprime lending is gone.
Mr. MOUTON: A lot of the subprime lending is gone. A lot of the 100 percent financing stated income is gone. One hundred percent financing with a full income check up to a conforming limit is still available, but the things are getting tighter, that's going to affect prices and the ability of borrowers to buy homes right now.
BARNES: Ethan was talking about the foreclosure situation and the fact is we haven't even really begin--begun to see the start of that, and we have to go through that in order for us to--for the market to hit a bottom. You, I assume, sell your loans off as a broker, but what have you been seeing in the foreclosure side of this?
Mr. MOULTON: We're seeing, it's tougher for those people to refinance out of those 228 mortgages, which are fixed for the first two years or fixed for the first three years. They don't have enough equity in the deal. They don't have the income, so they're starting to become delinquent on their mortgage payments.
Once they become delinquent one month they're technically in foreclosure. However a lender doesn't generally start to act up on that homeowner until three, four or five months into the deal. We haven't seen the real effect of that yet; the worst is to come.
BARNES: Ethan, we had DH Horton announcing its earnings this morning; it was not as bad as expected. But one thing that confuses me is with things looking so bad for the homebuilders, why they aren't just taking the hit and writing everything off at one time and just moving on. They seem to be doing this in dribs and drabs.
Mr. HARRIS: Well I think it's because the shock to them has been building, I mean, you've had really three shocks to the housing industry; first, the loss of confidence a year and a half ago, and the beginnings of a turn in what was a somewhat speculative market. Then this spring, you had a big shift in credit availability with subprime borrowers being, you know, pushed out of the market and low documentation loans pushed out of the market. More recently, there's been a further tightening of credit
standards in the housing market.
So, I think it's been hard for the homebuilders to kind of catch up to the bad news here. And so, I think that's one of the reasons why, you know, they've been a little slow in, you know, kind of writing things down.
BARNES: Kind of acknowledging all of this, yeah.
Ethan and Bob, if you could stand by a moment, we're going to go now over to Liz McDonald and Charles Payne to get their reaction to these numbers and see what the impact might be on today's market action.
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(Unrelated Segments)
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BARNES: OK, Liz, and Charles, and Bob, and Ethan, thank you one and all.