Seeking Alpha

Michael David White's  Instablog

Michael David White has seventeen years in real estate as both lender and owner. He has purchased and sold more than 275 properties for his own account. Mr. White, the CEO of The New Mortgage Company, originates residential mortgages from his office in Chicago’s Loop financial district. He is... More
My business:
The New Mortgage Company
My blog:
New Observations
  • Losses and Zombie Debt in Residential Mortgages Surpass $5 Trillion


    Mortgage debt of $5.6 trillion is a bubble legacy and the most obvious source of a renewal of the financial crisis.

    The application of bubble logic has been defiantly resisted by all quarters in contemplation of residential mortgage debt. High loss projections by masters of doom, Nouriel Roubini and T2 Partners, reach $1.5 trillion to $2 trillion. History may look upon these brave prognosticators as mere pansy pretenders.

    A standard projection of mortgage debt levels prior to bubble oddity shows “erroneous” debt issued of $5.6 trillion. The same figures show our lighthearted bankers writing off 1% of these “payless” balances. Fully 99% of the balances remain “active”. Isn’t it refreshing to believe in the kindness and solvency of strangers?

    Real estate values have fallen 30% by the Case-Shiller index. These losses approach $7 trillion. They are regarded as realistic and obvious.

    So tell me sir, are you saying we will lose $1 or $2 in mortgages for every $7 we will lose in house value? The basis of this superstition is that a house value can fall, but not a mortgage value.

    Fannie and Freddie own or guarantee a mammoth $5.3 trillion. A squirt-gun-like credit line of $200 billion has been issued to bring the flying dinosaur pigs back to earth.

    Were that credit line a girlfriend, she would be both frumpy and dumpy. There’s no exit from this romance. Thus the latest fashion in banking: A grocery bag over the head very tightly secured by the neck tie. And always paper. Never plastic.

    It looks very smart on you sir. Can you breath? Can you think?

    ***

    Michael David White is a mortgage broker in Chicago.

     
    Nov 26 11:11 pm | Link | Comment!
  • Case-Shiller Still Predicts Massive 45% Fall From Today’s Values

    The 10 major cities in the Standard & Poor's/Case-Shiller home price index have risen 5% from their April low, but the index is still predicting a massive 45% fall from today’s values.
    Tuesday's new number from the index showed a gain of just under .5% for the month of September, but the index remains 30% below the high in June 2006. Based upon a trend generated from the actual prices of 1987 to 1997, and generated forward in a linear projection, the index will fall a total of 62% before it reaches the trend norm.
    More »
    Nov 25 10:17 pm | Link | Comment!
  • Single Family Homes Remain Oversupplied by 900,000 Units


    Inventory of single-family homes fell 136,000 units in October, but they remain oversupplied by 913,000 units when compared to the long-run average.

    The total of existing units for sale equals 3.57 million, according to the National Association of Realtors (NAR) in its release yesterday of October data. The long-run average is 2.66 million.

    The inventory fell by 3.67% from September to October. At that pace of reduction it will take 7 months to restore inventory to its average. 

    “Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November,” said NAR chief economist Lawrence Yun, in a release titled “Existing-Home Sales Record Another Big Gain, Inventories Continue to Shrink.”

    The association reported that supplies equal 7 months of sales at the current pace, which is 1.2 months greater than the long-run average. 

    Click to see four key charts on real estate prices.
     
     
    Nov 24 05:10 pm | Link | Comment!
  • Delinquent Mortgages Equal to Three Times A Balanced For-Sale Inventory
     
    A Flood Will Humble Thee

    Eight million homes with delinquent mortgages represent a staggering 300% of the normal supply of existing homes for sale. With 3.63 million units now on the market, one million above the long-term average, an inundation of foreclosures represents a fatal death blow capable of inflicting brutal damage on the largest financial market in the world.


    The inventory of existing homes is now over supplied by one million units – an excess almost identical to two months of sales. The delinquent mortgage accounts represent an additional 17 months of sales.

    If all mortgage delinquencies and current units for sale are combined, they represent 24 months of average sales. A rule of thumb says six months of supply is a balanced number of units “for sale”.

    The current oversupply represents approximately 35% of the normal inventory. Add in the delinquent mortgages, and the inventory equals more than 400% of the average inventory. That would be a power-crash creator.

    Given the huge intrusion which new foreclosures represent, only the most risk-hungry cash-fat and street-smart investors should be considering a purchase at this time.

    Get Thee To A Nunnery

    Any ordinary person thinking about buying or renting today should choose renting. There is no question about it. The element of risk created by delinquent mortgages and negative equity represents profound risk. Joe and Jane Homebuyer are not meant to buy into a market laced with profound risk.

    The hard facts show a total of 3.63 million existing homes are currently “for sale” according to the National Association of Realtors. The long-run inventory average is 2.66 million. With average monthly sales of 482,000 units in the last ten years, the excess supply of 970,000 units is equal to two months of sales. This in itself is not frightening or insurmountable.

    Prices of existing homes have stabilized according to major indexes including Case-Shiller. Many hope we have hit bottom in the massive price crash which has destroyed 30 percent of home prices since June 2006. Has a new floor been established and it is safe to go swimming again?

    The recent numbers and their good trends cannot anticipate the factor which scares the daylights out of any breathing analyst -- the wild bubble blowing up in delinquent mortgage accounts.

    "Can You Tell Me, Where Is the Point of No Return? How Do I Know I Am There?"

    Foreclosure is a toxic substance for property values. The Mortgage Bankers Association reports that 14.41% of all mortgage accounts are delinquent. It’s a record. The record delinquencies represent approximately 8 million borrowers -- based upon the assumption of a total pool of homes with mortgages equal to 56 million homes.

    inventory of delinquent propertiesGiven the cure rate for past-due mortgages has decreased to near zero in the land of milk and negative equity, if you add in the 8 million delinquent accounts to the current existing-homes-for-sale pool of 3.6 million units, you now have a total supply for sale of almost 12 million. The long-run average inventory of “for sale” existing units is 2.6 million.

    You take what you want from the comparison of 12 million units “for sale” and 2.6 million as the target inventory. The first is abnormal. The second is normal.

    I make no predictions of Armageddon. I don’t mind making basic calculations and letting those numbers define my best guess. If foreclosures appear in the great numbers described as possible here, one would expect prices will fall forever or they will fall quickly to zero. It’s not promising.

    Only a berserk fool is buying real estate today. Only a criminal is recommending to someone else that they buy a home.

    ***

    Please check my math and send corrections:

    Inventory Key Stats 20091119Michael David White is a mortgage broker in Chicago.

    Nov 20 02:15 am | Link | Comment!
  • Delinquent Mortgages Equal to Three Times A Balanced For-Sale Inventory
     
    A Flood Will Humble Thee

    Eight million homes with delinquent mortgages represent a staggering 300% of the normal supply of existing homes for sale. With 3.63 million units now on the market, one million above the long-term average, an inundation of foreclosures represents a fatal death blow capable of inflicting brutal damage on the largest financial market in the world.

    Inventory and Foreclosures by NewObservastions.net 20091119The inventory of existing homes is now over supplied by one million units – an excess almost identical to two months of sales. The delinquent mortgage accounts represent an additional 17 months of sales.

    If all mortgage delinquencies and current units for sale are combined, they represent 24 months of average sales. A rule of thumb says six months of supply is a balanced number of units “for sale”.

    The current oversupply represents approximately 35% of the normal inventory. Add in the delinquent mortgages, and the inventory equals more than 400% of the average inventory. That would be a power-crash creator.

    Given the huge intrusion which new foreclosures represent, only the most risk-hungry cash-fat and street-smart investors should be considering a purchase at this time.

    Get Thee To A Nunnery

    Any ordinary person thinking about buying or renting today should choose renting. There is no question about it. The element of risk created by delinquent mortgages and negative equity represents profound risk. Joe and Jane Homebuyer are not meant to buy into a market laced with profound risk.

    The hard facts show a total of 3.63 million existing homes are currently “for sale” according to the National Association of Realtors. The long-run inventory average is 2.66 million. With average monthly sales of 482,000 units in the last ten years, the excess supply of 970,000 units is equal to two months of sales. This in itself is not frightening or insurmountable.

    Prices of existing homes have stabilized according to major indexes including Case-Shiller. Many hope we have hit bottom in the massive price crash which has destroyed 30 percent of home prices since June 2006. Has a new floor been established and it is safe to go swimming again?

    The recent numbers and their good trends cannot anticipate the factor which scares the daylights out of any breathing analyst -- the wild bubble blowing up in delinquent mortgage accounts.

    "Can You Tell Me, Where Is the Point of No Return? How Do I Know I Am There?"

    Foreclosure is a toxic substance for property values. The Mortgage Bankers Association reports that 14.41% of all mortgage accounts are delinquent. It’s a record. The record delinquencies represent approximately 8 million borrowers -- based upon the assumption of a total pool of homes with mortgages equal to 56 million homes.

    inventory of delinquent propertiesGiven the cure rate for past-due mortgages has decreased to near zero in the land of milk and negative equity, if you add in the 8 million delinquent accounts to the current existing-homes-for-sale pool of 3.6 million units, you now have a total supply for sale of almost 12 million. The long-run average inventory of “for sale” existing units is 2.6 million.

    You take what you want from the comparison of 12 million units “for sale” and 2.6 million as the target inventory. The first is abnormal. The second is normal.

    I make no predictions of Armageddon. I don’t mind making basic calculations and letting those numbers define my best guess. If foreclosures appear in the great numbers described as possible here, one would expect prices will fall forever or they will fall quickly to zero. It’s not promising.

    Only a berserk fool is buying real estate today. Only a criminal is recommending to someone else that they buy a home.

    ***

    Please check my math and send corrections:

    Inventory Key Stats 20091119Michael David White is a mortgage broker in Chicago.

    Nov 20 02:15 am | Link | Comment!
  • Values Have Dropped Less Than 25% of the Fall Required To Reach Trend

    PRICE TRENDS / WAR OF THE WORLDS (Part 4): Property owners nationwide have lost only one dollar for every four dollars they can ultimately expect to lose on their home.
    The good news according to the leading data series issued by the United States government is that prices have only fallen 6 percent. If you are a homeowner, you are wealthier than you knew. The bad news is you still have three dollars to lose for every one dollar which has already been lost.
    The total projected fall from the Federal Housing Finance Agency (FHFA) “All Transactions Index”, which begins in 1975, shows a peak-to-trend fall of 27%. Since prices are 6% lower by this measure, prices must still fall an additional 23% from today for prices to revert to trend.
    The assumption built into these estimates is that prices in the years 1975 to 1999 advanced at a typical rate. A trend line was generated to the present based upon that 25-year period. The chart depicts the divergence of the trend established from 1975 to 1999 and the actual prices recorded from 2000 to 2009.
    The FHFA prediction of a total fall of 27% is far less than the total fall of between 49% to 60% predicted by Case-Shiller. Based upon the four data sets reviewed in the last few weeks (see summary below), we can estimate a total fall of between 27% to 60% from the bubble top to the long-term trend. The average of the four indexes projects a total fall of 41% from the bubble high to the trend bottom. 
    Looking ahead from today, the average of the four indexes predicts that property values will fall 26% from our current price levels.
     
    Nov 11 10:27 pm | Link | Comment!
Full index of posts »
Posts by Ticker
DMM, FNM, FRE, FRI, ICF, ITB, IYR, RWR, RWX, UMM, VNQ, WLP, XHB

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.