Home Prices Down 0.7% YoY in January

The latest Case-Shiller data is out. Home prices for the 12 months ending in January 2010 were near flat at -0.7%. Here’s a longer term view.

The trend does appear to be positive, but we’ll see what happens if/when the home buyer tax credits end in April. And what effect Bernanke pulling out of the MBS market has on rates. And how the Option-ARM peak plays out.

h/t Big Picture.

Half of Loan Modifications Fail

More bad news on America’s housing front. Bloomberg reports that 51% of loan modifications have failed within 9 months.

More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.

The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.

U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 24 percent of properties with a mortgage were underwater in the fourth quarter, First American CoreLogic said last month. The median price of a U.S. home was $165,100 in February, down 28 percent from its peak in July 2006, according to the National Association of Realtors.

The current round of foreclosure-prevention plans have failed after just 9 months, even though they were short-sighted extend/pretend in nature — reducing interest rates to 2% for 5 years and extending loan schedules out to 40 years. They probably thought this would buy them at least a couple of years. So while banks collected a ton of fees from the govt for “trial” modifications, they obviously aren’t working.

It’ll be interesting to see what happens after the Fed ends MBS purchases, and rates (presumably) go up a bit. The homebuyer tax credit expires in April, which could also negatively affect demand. But so far the efforts appear to be an utter waste, more backdoor bank bailouts.

If anything, they only pulled demand forwards, and served to reward people lucky enough to buy during the bonanza. Buy a house a day before or after the tax credit is in effect? Tough sh*t.

Extend and Pretend Take Two: Principal Reduction (For a Few)

Some have applauded Bank of America’s recently announced principal reduction program, which cuts loan amounts up to 30%. But it should also be noted that BofA isn’t doing this out of the kindness of their heart. It’s part of a settlement with multiple attorneys general in connection with their sketchy Countrywide loan portfolio. The Obama administration is expected to announce a more widespread program tomorrow.

This efforts’ prospects nearly as bad as the original loan-modification programs. To qualify, borrowers must be at least 20% underwater, have an ARM or Interest-only loan,  and be at least 2 months behind on their payments. The prospect of a $40,000 reduction in a loan will inspire a lot more people to be a lot later on their mortgage payments. And probably a lot of fraud losses along the way. More moral hazard incoming…

Greenspan’s Mistakes, Visualized

This chart from ContraryInvestor.com (subscription req’d) shows 40+ years of Fed Fund rates vs. full CPI (including food and energy prices, excluding shelter/housing costs).

The disconnect between interest rates and CPI from 2002-07 is especially noteworthy in light of Greenspan’s recent arguments that low interest rates weren’t responsible for the housing bubble. Apparently giving banks access to a spigot of cash does not encourage reckless lending. Here’s Greenspan rationalizing extended low interest rates during this period:

We had been lulled into a sense of complacency by the modestly negative economic aftermaths of the stock market crash of 1987 and the dotcom boom

Given history, we believed that any declines in home prices would be gradual. Destabilizing debt problems were not perceived to arise under those conditions

Given that we had never seen home price appreciations this rapid, might an objective observer have thought something off? Someone who’s full-time job it was to assess these things?


Here’s another great chart from Contrary Investor (again – CI is subscription only, but well worth it IMO. I have no stake in posting these links, but they offer some of the best charts and analysis I’ve found).

The chart below shows various home and rental market vacancy stats. Though things have improved, we still have to see what goes down when (and if) the Fed/Govt ends their massive support programs (currently scheduled to expire near the end of Q1 2010). Things may start deteriorating all over again, but we’ll have to see.

TradeKing Review

TradeKing’s $4.95 trade fees have attracted a lot of attention in the e-brokerage world, allowing them to steal customers away from competitors. Compare their pricing to $9.99+ at Etrade and Ameritrade, and it’s easy to see why.

Fees and Pricing

Say you make 100 trades per year. Switching to TradeKing would save you $500/year, assuming you pay $9.99 today. That’s $500 more to put to work in the markets every year, money that will compound and grow over time. Investors who trade more often will see even bigger savings, of course.

Follow this link to

Pricing Comparison:

As you can see, trading is much cheaper on TradeKing. Their $4.95 price includes broker-assisted trades. I’ve had to use this option before with Etrade, when my internet went down. It wasn’t cheap. If you get in a similar spot, it’s nice that TK doesn’t charge a ton.

Official TradeKing site here:

Options pricing: Trades are $4.95  plus $.65 per contract. Compare that to $9.99 and $.75 per contract with Etrade. Big difference, especially when you trade volume.

Savings like that can make a huge difference for options traders. TK also offers options price calculators and options screening tools, allowing you to search for options that are fundamentally cheap (or expensive) depending on whether you’re looking to buy or sell.

Mutual Funds: Transaction fees also beat rivals by around 25%. They’re $14.99 vs. $19.99. These small savings make a big difference over time, especially in retirement accounts where your portfolio has decades to grow.

TradeKing is the cheapest online broker I know of. I can’t see fees going much lower, as TK’smargins must already be thin when you factor in exchange fees and business overhead. I assume TradeKing must be relying on some more advanced offerings to pad margins.

Drawback – Not Ideal For OTC/Penny Stocks

One potential drawback is TradeKing’s $.01/share fee on shares priced less than $1. For dumpster-divers and OTC gurus, this is not ideal. Those fees can really add up over time, when you’re doing transactions with 100k or even 1m shares at a time.

Charts and Technical Analysis Review

TradeKing offers some nice technical analysis tools, which are powered by Recognia. You can set up email alerts to notify you when breakouts or other events are happening.

Charting is pretty standard. Pattern-recognition, tons of TA indicators you can add, comparisons, etc. Like research, most investors can find the charts they need for free these days.

Margin Rates

TradeKing’s margin rates are slightly cheaper than the competition, at 6.5%. That compares to ETrade’s 7.99% and TD Ameritrade’s 9.00%.

Research Reports

TK offers MarketGrader fundamental research reports to clients. These look solid, but don’t boast the same big-name appeal that firms Etrade pay for. But to be honest, I find very little value in reports from companies like Standard and Poors.

All these ratings agencies have fee-based relationships with the companies they cover, and that creates a bias problem. I was an Etrade customer for 8 years, and found most of those reports to be useless. Better information can be found for free on the web, in my experience. I’d rather not pay for pricey research that I never use.

Customer Service

TradeKing offers phone support with minimal wait times. They also offer online chat and email support. I made a call to test their claims, and got a real person on the line within a minute. Not bad, considering how cheap the trades are. They also received Smart Money’s #1 in Customer Service award in 2008.

Tax Reporting

Review Conclusion:

Controlling costs today is more important than ever. TradeKing is a good way for investors and traders alike to cut their brokerage fees in half. I’m currently in the process of moving my old Etrade account to them. I make about 120 buys a year, so this should save me $600 in the next 12 months alone. Not bad.

Here’s a link to signup:

Feel free to share your own review of TradeKing in the comment section. I’d like to hear all experiences, good and bad.

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