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In the housing market, still waiting for dust to clear



Volatility in the mortgage markets. Rising foreclosure rates and delinquencies. Increasing existing-home inventories. Weak demand for new and existing homes, and lagging construction. Continued price declines.

Not a good week for housing, which PMI Group Inc. chief economist David Berson says "historically leads the economy out of a recession."

Berson did not say it would be easy. He and other economists, including's Mark Zandi, caution that the housing market must stop falling before it reverses course, probably by mid-2010.

Not that the road will be smooth. For example, unexpected volatility in the Treasury market yesterday widened the yield gap between 2-year and 10-year bonds to a record 2.76 percentage points.

When 10-year yields rise, so do fixed mortgage rates, and those numbers gyrated wildly for most of the day, sometimes gaining and losing as much as three-quarters of a percentage point in an hour, brokers and analysts say.

When the dust cleared, unnerved investors had driven the Dow down 173.47 points. Thirty-year fixed mortgage rates then settled in at 5.375 percent, with no points, up half a percentage point from 4.875 percent a few days ago.

"Rates were unusually volatile for much of last year and early 2009," said Holden Lewis of "It was common for brokers to get three or four rate updates in one day."

The Fed then brought some order to the market by announcing it would buy hundreds of billions of dollars of mortgage-backed securities.

"Rates changed a bit from day to day, but there were few large swings forcing lenders to update rate sheets several times a day," Lewis said.

He had been expecting the 30-year fixed to be as high as 5.675 percent today because rising bond prices were still pushing loan rates up, "not enough for consumers to notice, but still . . . ."

Fred Glick, a Philadelphia mortgage broker, calls what happened in the Treasury markets "not based in reality," and he expects rates to fall back below 5 percent. "There is really no reason for it but market trading" - meaning that investors seem to overreact to just about everything these days.

Freddie Mac chief economist Frank Nothaft said rates rose as "financial markets try to discern the state of the economy."

Today, traders tried to discern the meaning of higher first-quarter foreclosure and delinquency numbers from the Mortgage Bankers Association (MBA), temporarily shaving 66 points off the Dow, but recovering by midday.

The MBA reported today that year-over-year increases in both delinquencies - at least one month's payment past due - and mortgages in some stage of foreclosure.

The culprits: California, Florida, Arizona, and Nevada.

"It is difficult to overstate the severe impact home-price declines have had on mortgage performance in those four states," said MBA chief economist Jay Brinkmann.

This week's March home-price numbers from Case-Shiller - which cover major metro areas in those states - showed continued declines, but at a slower place.

About 10.6 percent of the mortgages in Florida are in the foreclosure process. Pennsylvania's rate is 2.39 percent; New Jersey's is 4.32 percent.

Many of the moratoriums that delayed foreclosure proceedings expired when President Obama debuted his rescue plan for nine million bad mortgages - effects of which Zandi maintains will not be evident until the second or third quarter.

"Sadly, it validates that none of the current foreclosure-prevention programs is working at all," said Rick Sharga, chief economist of RealtyTrac Inc. "Any program that doesn't include some sort of forgiveness or long-term deferral of principal balance simply isn't going to be effective."

There also has been a major shift in the bad-loan category from subprime to prime, which "points to the impact of the recession and drops in employment on mortgage defaults," Brinkmann said.

New-home sales numbers today from the Commerce Department show that segment remains near bottom, as TD Bank N.A. chief economist Joel L. Naroff observed.

"The new-construction segment of the economy is still hurting," he said. "Prices have come down enormously for existing homes. It's hard in many areas for developers to compete."

Too, said Patrick Newport, IHS Global Insight Inc. economist: "It takes four months to establish a trend for new homes sold. We still project that this market will start expanding in the second half of this year."

Contact real estate writer Alan J. Heavens at 215-854-2472 or