The 80/20 Rule Applies To Foreclosures

RealtyTrac released Q1 2008 foreclosure statistics and the data follows an interesting statistical phenomenon most commonly known as the "80/20 Rule".

The 80/20 Rule states that 80 percent of the effects come from 20 percent of the causes.

In this case, 80 percent of bank repossessions in the first three months of 2008 came from 20 percent of the states in the union.

Accounting for 156,463 repossessed homes nationwide:

1. California (40,023 homes)
2. Texas (14,935 homes)
3. Michigan (12,016 homes)
4. Ohio (10,299 homes)
5. Florida (10,185 homes)
6. Georgia (8,265 homes)
7. Arizona (7,956 homes)
8. Colorado (7,022 homes)
9. Tennessee (4,533 homes)
10. Indiana (4,446 homes)
11. Illinois (4,216 homes)

Overall, 0.55 percent of homes were repossessed by banks in the first quarter.

Looking Back And Looking Ahead : April 28, 2008

Mortgage markets lost ground last week on inflation concerns and a general feeling that "the worst may be over" on Wall Street.

As investors moved money into the stock market, mortgage rates ticked higher for the second straight week.

The biggest story from last week was the rising cost of gasoline.

Rising energy costs combined with rising food prices are creating worries about the American consumer's ability to spur the economy forward.

That sets up the biggest story of this week -- the Federal Open Market Committee meeting.

The FOMC starts a 2-day meeting Tuesday and is widely expected to lower the Fed Funds Rate by 0.250 percent at its adjournment.

Cuts to the Fed Funds Rate are meant to promote growth in the economy by decreasing borrowing costs for businesses and consumers. For example, credit card rates are tied to the Fed Funds Rate so when the Fed Funds Rate falls, American households pay less interest and (theoretically) have more money to spend on "things".

But the FOMC meeting is not the only big news to watch for.

On Thursday, the Personal Consumption Expenditures data is released. PCE is the Federal Reserve's favorite inflation gauge because it's a smarter version of the "Cost of Living" index. If PCE rises more than expected, it's an indication of inflation and inflation tends to make mortgage rates rise.

Then, on Friday, it's the jobs report. The economy is expected to post the fourth consecutive month of negative job growth. Markets have been highly sensitive to the jobs data lately so expect wild swings in mortgage rates in its wake.

And lastly, sprinkled throughout the week, more than 100 influential members of the S&P 500 will report their earnings. If earnings and outtlooks are strong, mortgage rates should rise. If earnings are weak, mortgage rates should fall.

New Home Sales : How The Newspaper Headlines Mislead You

Newspaper headlines rarely tell the full story and today's papers provide a terrific example.

From the Baltimore Sun (and others):

New-home sales lowest since 1991
8.5% March decline exceeds forecasts; prices also tumble

As always, there's more to the story than the headline.

The Census Bureau reported a 8.5 percent decline in New Home Sales last month, but in the "fine print" of the report, the Census Bureau cites a margin of error of 16.1 percent.

By including a margin of error, the Census Bureau is acknowledging that the "headline number" is not precise and that the actual change in New Home Sales data lies somewhere between the values -24.6% and +7.6%.

Notice that the range of possible reading includes positive numbers.

This means that New Home Sales could have just as easily shown growth in March -- if only the Census Bureau had interviewed a different set of home builders.

The Census Bureau acknowledges this possibility, adding that it "does not have sufficient statistical evidence to conclude that the actual change is different from zero." The data, therefore, is worthless.

The housing market may be strong or the housing market may be weak. Most likely, it is both of these things. It all depends on your street in your neighborhood because all of real estate is local.

Either way, look deeper than the headlines. They're a good source of information, but the real analysis requires a deeper look.

Source
New Residential Sales In March 2008
Census.gov
April 24, 2008
http://www.census.gov/const/newressales.pdf

How To Determine When You'll Get Your Tax Rebate

More than 130 million Americans will receive tax rebates this year as part of Congress' $168 billion economic stimulus package.

Payments begin in about two weeks and range from $600 for individuals to $1,200 for couples, plus an additional $300 per child.

Not everyone is eligible for a full rebate, however.

For single filers earning more than $75,000 and joint filers earning more than $150,000, the tax rebate is reduced by $50 for each $1,000 of income beyond the limits.

An individual with no children, therefore, will not receive a tax rebate if income exceeds $87,000 annually. The IRS provides a tax rebate calculator that can help make sense of the math.

For tax filers using direct deposit, the rebates will be paid based on the last two digits of the social security number:

• SSN ending in 00-20 will arrive May 2
• SSN ending in 21-75 will arrive May 9
• SSN ending in 76-99 will arrive May 16

For tax filers using paper checks instead of direct deposit, payouts begin a little bit later on May 16 and extend through mid-July. The IRS makes the exact dates known on its Web site.

For late income tax filers, the IRS send rebate checks about two weeks after the returns are processed, but not before the regularly scheduled date.

It Doesn't Matter That The Median Home Sale Price Rose In March 2008

The National Association of REALTORS released its Existing Home Sales report for March 2008. An "existing home" is one that is not considered new construction.

A sub-headline in the report showed that the median sales price of all homes sold in March increased by 2.5 percent to $200,700.

But don't assume that the housing market is improving because of a statistic like that because in the field of Statistics, median is just the "middle" in a group of numbers.

With respect to the Existing Home Sales, the median sales price is the price point at which half of all homes sold went for more, and half went for less.

If more homes sell in high-priced San Jose, CA than in low-priced Youngstown, OH, for example, the median will be skewed to the high-side. The reverse is true, too.

Median sales price make for good headlines, but it does nothing to talk about the local market and that's where real estate is bought and sold.

(Image courtesy: New York Times)