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220nph
13 Comments
ROI, Paulson's Plan, and the Rise of Neo-Mercantilism
ROI, Paulson's Plan, and the Rise of Neo-Mercantilism
The comment "Instead, we are being asked to subsidize the losses of major financial institutions without receiving any of the benefits. " shows a complete misunderstanding of the plan ... this is NOT an investment in supporting a company, as with AIG or others - this is the Fed purchasing the assets
And it is not making the selling entity whole or giving them a windfall - they will take haircuts, and likely big haircuts on the sale of these assets
The claim the taxpayers get none of the benefits is simply false - the taxpayers will own these assets and when the assets are sold - or if they are held to maturity - the TAXPAYERS - the government - will receive 100% of the profits
Many in congress and most of the public, including alleged experts, simply haven't a clue what this plan is intended to and NEEDS to, accomplish - and it is much more than taking these assets off the books
... it is to recapitalize, increase solvency, increase liquidity and increase confidence in these entities - to allow them to be able to lend and to encourage other they are worth doing business with
.... more importantly this plan si intended to stop the death spiral created by the ridiculous mark to market rules - which have caused perfectly good, non impaired in any way, assets to be written down to fire sale prices ...which write downs casue liquidations at fire sale prices - which then become the new "value" for mark to market forcing a whole new round
This plan - brilliantly IMO - addresses this massive problem.
The Fed is not a vulture buyer - if there was credit available these assets would be purchased today for fair values based on their cash flows and performance, both historic and projected ... there is no credit however and the only buyers today are the vultures ... the Fed has no pressures and plenty of access to cash - they can easily afford to hold these assets and collect the cash flow and other distributions.
And by doing that - paying the fair discounted present value these assets are worth based on their performance - they address many important goals ... as noted it provides liquidity, it also however establishes a real market value that will then be used by all company's to value their remaining assets - it allows assets to be written up to current fair value greatly enhancing balance sheets that were unfairly impacted by the ridiculous fire sale values on non-impaired assets - it eliminates the "paper" insolvency - allowing them to accurately reflect values on their books
AIG has said the forced mark to market write downs on their assets were more than 4 times the actual losses expected if they hold the assets - as planned - to maturity ... this plan addresses that
Some say we should let the market collapse - that we should let the vultures buy these assets - which is ridiculous in many ways ... especially considering the majority of these vulture buyers are foreign ... corporations, country's, sovereign wealth funds ...
If we allow that we have done oursleves what Osama and AL Qeada couldn't - we;ve given away our country to the Chinese, Arab Emirates, Koreans etc - and we've given it to them for 25 cents or so on teh dollar
The author talks about ROI ... but ignores the huge benefits - the ROI - this plan provides ...
Buffet, BlackRock, the CBO and many, many others have said the taxpayers and govt will<b> profit</b> in the purchase of these assets
Add to that restoring solvency, liquidity and most importantly confidence in the markets and the players - and preventing the collapse of the financial markets and Americas position as a leader ... THAT is ROI ....
China has already begun promoting the idea in the media that there should be a new world financial order - without the US at the center ... how do you think all the folks whining and compalining about this plan will feel then ...??
Freddie Chief: House Price Declines Only Halfway Done [Housing Tracker]
He said: "Previously we said house prices would fall at least 15% nationally <b>peak-to-troug...
he continued: "We now believe that national home prices will fall 18%-20% <b>peak-to-troug...
and then said "... we now think we’re about halfway through the overall <b>peak-to-troug... decline.”
we originally though the TOTAL peak to trough decline would be 15% and now we think the TOTAL peak to trough decline is more likely to be 18-20% peak to trough
yet the author seems to miss that above statement pretty clearly refers to the timing - the duration - not the amount of the decline
John Hussman: Can the Emergency Housing Bill Be Fixed?
"One shortfall of the bill is that it doesn't appear to impose sufficient costs on Fannie Mae and Freddie Mac, <b>given that those institutions bought so many bad loans originated by careless lenders"</b>...
We hear this claim repeatedly made about Fannie Mae but curiously there is NEVER any factual support offered to prove it ....
The reality and reason is that there is not factual support for this claim ... a review of Fannie Maes loan portfolio shows a tiny fraction of their portfolio in subprime loans - a fraction of 1% - and likewise their ALT-A exposure is similarly limited at appx 10% of their total portfolio
A similar review of default and more importantly actual foreclosure rates shows that Fannies portfolio is performing very well - with both default and foreclosure rates far below industry standards
Additionally, a legitimate honest review would show that they have stopped entirely buying subprime, and almost eliminated ALT-A purchases as well
Again - a simple review of Fannie Maes real numbers would show a strong portfolio performing well above industry standards - it would show very good avg credit scores - 721 FICO - and 90+% fixed rate (not ARM) loans
It would also show, despite its low default and foreclsoure rates, support for a decreasing direction in both
And as such that Fannie Mae, rather than the albatross it is claimed to be is actually an excellent steward of the trust placed in it
An honest review would show, absent the ridiculous "mark to market "fair value" write downs (which really mean "mark your perfectly good fully performing assets down to fire sale liquidation prices"), Fannie Mae is making very good money ... $3.4 billion in interest and guarantee income in Q1 2008 alone ....
Fannie Mae is not in any way, other than if you use accounting rule forced "paper" losses not supported by real world performance, insolvent or in trouble - at least not in their assets - their loan portfolio ....
That does not seem to prevent ignorant investors - who apparently aren't smart enough to do their own research, from riding the wave of media hype right into the ground ...
FHA: Another Ticking Time Bomb?
FHA: Another Ticking Time Bomb?
Even Case Schiller's founder has recently indicated price drops are more and more isolated and leveling or reaching a bottom
Further - the OFHEO also reports a 5 year price performance along with year to year - and across all 300 markets the price performance over 5 years is (from memory) still something like a 41% gain
It would be then the loans the last 2 years that would be the issue with foreclosures and delinquencies - it is these loans affected by the price decrease - yet the FHA numbers show the FHA foreclosure claims rate on loans less than 2 years old is just 0.24% - compared with 1.94% for loans 5 years old or older
And as to year to year changes in the FHA portfolio - that info was in the link I provided from the MBA Natl Deliq Report:
Change from last year (first quarter of 2007):
The FHA foreclosure inventory rate increased 21 basis points (0.21%) - so the actual foreclosures are up a whopping 2/10ths of 1 percent year over year - to 1.94% of all FHA loans
The seasonally adjusted foreclosure starts rate for FHA loans decreased three basis points (0.03%) - essentially unchanged from the first quarter of 2007 - so new foreclosures are also essentially unchanged year to year
On a year-over-year basis, the seriously delinquent rate increased 33 basis points (0.33%) for FHA loans - another increase - of a whopping 1/3 of 1% - again essentially flat year over year
And to review - the changes from 4th Quarter 2007:
The seasonally adjusted delinquency rate decreased 33 basis points for FHA loans (from 13.05 percent to 12.72 percent)
The foreclosure inventory rate (completed foreclosures) for FHA loans saw a 6 basis point (0.06%) increase in foreclosure inventory rate (from 2.34 percent to 2.4 percent)
The seasonally adjusted foreclosure starts rate decreased four basis points (0.04%) for FHA loans (from 0.91 percent to 0.87 percent)
The seriously delinquent rate, the non-seasonally adjusted percentage of loans that are 90 days or more delinquent, or in the process of foreclosure, increased for all loan types, except FHA loans. The rate decreased 41 basis points (0.41%) for FHA loans (from 6 percent to 5.59 percent).
The data is clear - on a year to year basis FHA loans foreclsoure stats are essentially unchanged - and on a quarter to quarter basis they are trending down
More importantly FHA loans are performing well within the parameters priced into and expected for the portfolio - with more than 99% of loans NOT foreclosed upon and more thn 94% NOT seriously delinquent.
And again these numbers are trending down.
Despite that - like with Fannie Mae and their similar numbers - a large number of people are still making silly claims as with this story - which ignore the actual facts - the performance of the underlying assets - and predicting massive failures
Historic Financial Collapse Underway?
======================...
Why is it that every one of these type stories - that trumpet the dangers of Freddie, Fannie - here the FHA - or even ones like Countrywide and IndyMac etc never bother to talk about teh details
All we hear is how much risk there is - how poorly they are supposedly doing - how likely they are to fail and/or need rescue
Yet - none of these predictions are supported by facts.
The strength of Fannie. Freddie, FHA and even IndyMac and Countrywide are in the underlying assets - the loans themselves.
So just how are these loan portfolios doing?
Even a nominal effort at research yields the broad facts.
Fannie Mae has appx $5 trillion in mortgages - appx 1/2 of all mortgages in the US.
Some are claiming they don't have enough capital - but once again these claims are the result of "fair value" accounting of their assets - which means pricing them at liquidation value - irregardless of the real value
Yet the delinquency rate on the FNMA portfolio - the 90 day late rate - is just 1.15% as of March 2008 ... the foreclosure rate is usually a bit less than half of the delinquency rate
tinyurl.com/FNMA-FC-RA...
So on ALL FNMA Loans almost 99% are not delinquent
FNMA Loan breakdown Q1 2008:
tinyurl.com/FNMA-LoanD...
A tiny fraction of all FNMA loans are subprime - and just over 10% are ALT-A ....
A total of 93% of all new business in Q1 2008 was fixed rate loans - and a total of 89% of all mortgages in their portfolio are fixed rate loans
Estimated average Loan to Value is 62% (38% down payment/equity)
Estimated average FICO score - 721 (generally considered in the very good to excellent range)
Fannie Mae Delinquency Rates Q1 2008 (only appx 50% will actually end up foreclosed):
tinyurl.com/FNMA-Delin...
In Q1 2008 just 1.15% of all loans were 90+ days delinquent - appx 50% of these will end up foreclosures
Majority of delinquencies are in CA, AZ, FL and NV ...
90+ day delinq rates on ALT-A was 2.96% in Q1 200 vs 2.15% in Q1 2007
90+ day delinq rates on Subprime was 7.42% in Q1 200 vs 5.76% in Q1 2007
Many of these higher risk loans were originated in 2007 and prior - with our tightened standards newly acquired loans will have lower credit risk
The delinquency rate overall is just over 1% - just under 99% of all FNMA loans are NOT delinquent - are performing as agreed
Fannie Mae Q1 2008 Foreclosure stats:
tinyurl.com/FNMA-FCsta...
AZ, CA, FL, and NV accounted for 17% of foreclosures in Q1 2008 vs 4% in Q1 2007
The Midwest accounted for 36% of foreclosures in Q1 2008 vs 44% of the foreclosures in Q1 2007
ALT-A loans accounted for 29% of foreclosures in Q1 2008 vs 17% of the foreclosures in Q1 2007
Total foreclosed homes rate was 0.1% of all mortages in Q1 2008 and Q1 2007
Out of ALL Fannie Mae loans 99.9% are not foreclosed on ....
At the end of Q1 2008 Fannie Mae had $2.723 trillion in mortgages on their books and $2.625 trillion in mortgage guarantees on their books - total appx $5.35 trillion .... up from 2007 which saw $2.65 trillion in loans and $2.55 trillion in guarantees for a total of $5.2 trillion
Fannie Mae has $4.53 billion - out of $5.35 trillion in total loans in foreclosed homes on their books a total actual foreclsoure rate of 0.085% of current book
... and they will recover appx 60 - 65% of that $4.53 billion as these properties are sold - leaving a net loss of appx $1.812 billion - or appx 0.034% of the total $5.35 trillion current book
Total "non-accruing&... (delinquent) loans are appx $8.723 billion - which makes the delinquency vs foreclosed rate on the $4.53 billion equal to appx 51.9%
Yep that portfolio is in terrible shape ....
Net interest income for Q1 2008 was $1.69 billion ... net guarntee income Q1 200 8 was $1.752 billion
Total income/loss before taxes was a loss of $5.113 billion for Q1 2008 however $4.377 billion of this was a "paper" mark to market "fair value" accounting loss - and there was another $3.073 billion provision for credit losses in Q1 2008 in this $5.113 billion Q1 loss
The $5.113 billion Q1 2008 loss provided a tax benefit of $2.928 billion - which reduced the net loss to $2.186 billion after taxes
According to one report:
"As of March 31, 2008, Fannie Mae had $42.7 billion in core capital, which represented a $5.1 billion surplus over the requirements of its regulator ... If we add together their statutory surplus, current loss reserve and estimated revenues, total “claims paying resources” for FNM are $56-92 billion ... If we tax effect these numbers, we see that FNM can sustain losses of $85-141 billion over 3-5 years
What is happening is that Fannie and Freddie are required, by accounting rule, to record paper losses because the immediate trading value of the assets on their books -- and in this case assets means mortgage loans that it holds--are going down. It probably has no intention of selling those now, so that is a somewhat theoretical problem. But that's what the accounting rules require, and as a result, it must record a "loss" for those on its quarterly income statement. That loss is then deducted from the value of shareholder equity on its balance sheet, thereby reducing the "capital" it has to serve as a cushion against further losses. That's basically what all the fuss is about."
Total losses in Q1 2008 = $2.186 billion (or which $4.377 billion was a paper mark to market loss which will come back as profit as the financial markets stabilize) ... and total reserves and surplus etc $56-$92 billion ...
Yep - they are in terrible shape all right ....
-steady and increasing revenue
-increasing market share with limited competition
loss reserves sufficient to handle years of losses at
current levels
-billions in unencumbered loans they can borrow
against
-improving loan credit quality on new loans
very small exposure to riskier subprime and ALT-A
loans
-far below "market" delinquency and foreclosure rates
FHA's numbers are even better than Fannie's in most metrics - the loans in their portfolios have some of the lowest default rates of all loans according to MBA's numbers
Yet we constantly hear from "traders" like this one how terrible these institutions are doing - and never with a review of the real details - the status of the assets....
Why is that?
What are all these commentators afraid of?
Historic Financial Collapse Underway?
It is clear this author - like most others - asn has been noted by several in this thread - pretty much made up his claims out of thin air - with no basis in fact
as usual with virtually every author these days of similar doom and gloom stories - he offers ZERO factual support for his claims of worthless paper and $1 trillion in losses
Why is it so many people today are sheep - blindly following completely undocumented and un-sourced alarmist comments like this? Why is it so many refuse to take the simple step - before rushing to judgment - of doing the simplest research and looking at the actual financial numbers?
clearly this author like so many others has not bothered ....
FHA: Another Ticking Time Bomb?
3,896,389 Total loans outstanding
313,405 30 days delinquent = 8.04%
113,387 60 days delinquent = 2.91%
242,749 90 days delinquent = 6.23%
56,876 Actual Foreclosures = 1.51% of total mortgages
Just 8.79% of delinquent loans end up foreclosed
And the more realistic number - just 24.25% of loans 90 days delinquent end up foreclosed
FHA loans still have a very low foreclosure rate and a low 90 day default rate ... the "total delinquent" number is essentially meaningless - the 60+90 day delinquencies are 9.14% - again, and falling
More importantly the metric shown above, that these rates are falling - decreasing - shows the absolute fallacy of the claims such as this article alleges - that FHA (or Fannie or Freddie or even IndyMac) are "ticking time bombs"
These claims are simply ludicrous and are rarely backed up by actual research or apparently even any understanding of the real portfolio quality numbers
FHA: Another Ticking Time Bomb?
FHA Serious Delinquency Rates for Q1 2008 were 5.59% down from 6% Q4 2007.
FHA Foreclosure starts were 0.87% for Q1 2008 down from 0.91% Q4 2007.
And FHA completed foreclosures (inventory rate) was flat at 2.4% Q1 2008 vs 2.34% Q4 2007.
The MBA Q1 2008 Nat'l Delinquency Survey shows:
DELINQUENCIES:
The seasonally adjusted delinquency rate increased 47 basis points for prime loans (from 3.24 percent to 3.71 percent) and 148 basis points for subprime loans (from 17.31 percent to 18.79 percent). The delinquency rate decreased 33 basis points for FHA loans (from 13.05 percent to 12.72 percent) and increased 73 basis points for VA loans (from 6.49 percent to 7.22 percent).
But delinquencies are not the important measure - REO's - actual foreclosures are:
FORECLOSURES:
The foreclosure inventory rate increased 26 basis points for prime loans (from 0.96 percent to 1.22 percent), and increased 209 basis points for subprime loans (from 8.65 percent to 10.74 percent). FHA loans saw a six basis point increase in foreclosure inventory rate (from 2.34 percent to 2.4 percent), while the foreclosure inventory rate for VA loans increased 12 basis points (from 1.12 percent to 1.24 percent).
Foreclosure Starts also shows a decline for FHA loans in Q1 2008:
FC STARTS:
The seasonally adjusted foreclosure starts rate increased 13 basis points for prime loans (from 0.41 percent to 0.54 percent), 62 basis points for subprime loans (from 3.44 percent to 4.06 percent), and 11 basis points for VA loans (from 0.39 percent to 0.5 percent). The foreclosure starts rate decreased four basis points for FHA loans (from 0.91 percent to 0.87 percent).
And last - the Serious Delinquency Rate - which is a foreteller for filings and foreclosures is also down for FHA.
SERIOUS DELINQ:
Compared with last quarter, the seriously delinquent rate increased for all loan types, except FHA loans. The rate increased 32 basis points for prime loans (from 1.67 percent to 1.99 percent), increased 198 basis points for subprime loans (from 14.44 to 16.42 percent), increased five basis points for VA loans (from 2.83 percent to 2.88 percent) and decreased 41 basis points for FHA loans (from 6 percent to 5.59 percent).
FHA loans represent 8% of US loans outstanding and 7% of foreclsoures started. Subprime loans (fixed and ARM) are 12% of all US loans but represent 50% of foreclosure starts
Even the subprime loans don't have a 17% delinquency rate.
www.mortgagebankers.or...
FHA: Another Ticking Time Bomb?
All we hear is how much risk there is - how poorly they are supposedly doing - how likely they are to fail and/or need rescue
Yet - none of these predictions are supported by facts.
The strength of Fannie. Freddie, FHA and even IndyMac and Countrywide are in the underlying assets - the loans themselves.
So just how are these loan portfolios doing?
Even a nominal effort at research yields the broad facts.
Fannie Mae has appx $5 trillion in mortgages - appx 1/2 of all mortgages in the US - some are claiming they don't have enough capital - but once again these claims are the result of "fair value" accounting of their assets - which means pricing them at liquidation value - irregardless of the real value
Yet the delinquency rate on the FNMA portfolio - the 90 day late rate - is just 1.15% as of March 2008 ... the foreclosure rate is usually a bit less than half of the delinquency rate
tinyurl.com/FNMA-FC-RA...
So on ALL FNMA Loans almost 99% are not delinquent
FNMA Loan breakdown Q1 2008:
tinyurl.com/FNMA-LoanD...
A tiny fraction of all FNMA loans are subprime - and just over 10% are ALT-A ....
A total of 93% of all new business in Q1 2008 was fixed rate loans - and a total of 89% of all mortgages in their portfolio are fixed rate loans
Estimated average Loan to Value is 62% (38% down payment/equity)
Estimated average FICO score - 721 (generally considered in the very good to excellent range)
Fannie Mae Delinquency Rates Q1 2008 (only appx 50% will actually end up foreclosed):
tinyurl.com/FNMA-Delin...
In Q1 2008 just 1.15% of all loans were 90+ days delinquent - appx 50% of these will end up foreclosures
Majority of delinquencies are in CA, AZ, FL and NV ...
90+ day delinq rates on ALT-A was 2.96% in Q1 200 vs 2.15% in Q1 2007
90+ day delinq rates on Subprime was 7.42% in Q1 200 vs 5.76% in Q1 2007
Many of these higher risk loans were originated in 2007 and prior - with our tightened standards newly acquired loans will have lower credit risk
The delinquency rate overall is just over 1% - just under 99% of all FNMA loans are NOT delinquent - are performing as agreed
Fannie Mae Q1 2008 Foreclosure stats:
tinyurl.com/FNMA-FCsta...
AZ, CA, FL, and NV accounted for 17% of foreclosures in Q1 2008 vs 4% in Q1 2007
The Midwest accounted for 36% of foreclosures in Q1 2008 vs 44% of the foreclosures in Q1 2007
ALT-A loans accounted for 29% of foreclosures in Q1 2008 vs 17% of the foreclosures in Q1 2007
Total foreclosed homes rate was 0.1% of all mortages in Q1 2008 and Q1 2007
Out of ALL Fannie Mae loans 99.9% are not foreclosed on ....
At the end of Q1 2008 Fannie Mae had $2.723 trillion in mortgages on their books and $2.625 trillion in mortgage guarantees on their books - total appx $5.35 trillion .... up from 2007 which saw $2.65 trillion in loans and $2.55 trillion in guarantees for a total of $5.2 trillion
Fannie Mae has $4.53 billion - out of $5.35 trillion in total loans in foreclosed homes on their books a total actual foreclsoure rate of 0.085% of current book
... and they will recover appx 60 - 65% of that $4.53 billion as these properties are sold - leaving a net loss of appx $1.812 billion - or appx 0.034% of the total $5.35 trillion current book
Total "non-accruing&quo... (delinquent) loans are appx $8.723 billion - which makes the delinquency vs foreclosed rate on the $4.53 billion equal to appx 51.9%
Yep that portfolio is in terrible shape ....
Net interest income for Q1 2008 was $1.69 billion ... net guarntee income Q1 200 8 was $1.752 billion
Total income/loss before taxes was a loss of $5.113 billion for Q1 2008 however $4.377 billion of this was a "paper" mark to market "fair value" accounting loss - and there was another $3.073 billion provision for credit losses in Q1 2008 in this $5.113 billion Q1 loss
The $5.113 billion Q1 2008 loss provided a tax benefit of $2.928 billion - which reduced the net loss to $2.186 billion after taxes
According to one report:
"As of March 31, 2008, Fannie Mae had $42.7 billion in core capital, which represented a $5.1 billion surplus over the requirements of its regulator ... If we add together their statutory surplus, current loss reserve and estimated revenues, total “claims paying resources” for FNM are $56-92 billion ... If we tax effect these numbers, we see that FNM can sustain losses of $85-141 billion over 3-5 years
What is happening is that Fannie and Freddie are required, by accounting rule, to record paper losses because the immediate trading value of the assets on their books -- and in this case assets means mortgage loans that it holds--are going down. It probably has no intention of selling those now, so that is a somewhat theoretical problem. But that's what the accounting rules require, and as a result, it must record a "loss" for those on its quarterly income statement. That loss is then deducted from the value of shareholder equity on its balance sheet, thereby reducing the "capital" it has to serve as a cushion against further losses. That's basically what all the fuss is about."
Total losses in Q1 2008 = $2.186 billion (or which $4.377 billion was a paper mark to market loss which will come back as profit as the financial markets stabilize) ... and total reserves and surplus etc $56-$92 billion ...
Yep - they are in terrible shape all right ....
-steady and increasing revenue
-increasing market share with limited competition
loss reserves sufficient to handle years of losses at
current levels
-billions in unencumbered loans they can borrow
against
-improving loan credit quality on new loans
very small exposure to riskier subprime and ALT-A
loans
-far below "market" delinquency and foreclosure rates
FHA's numbers are even better than Fannie's in most metrics - the loans in their portfolios have some of the lowest default rates of all loans according to MBA's numbers
Yet we constantly hear from "traders" like this one how terrible these institutions are doing - and never with a review of the real details - the status of the assets....
Why is that?
What are all these commentators afraid of?
Perhaps an interesting "tell" is the strong interest the SEC has in the whole "shorts" situation ....
Housing Data: Crybabies and Deceivers
This "commentary" is pretty much what it complains about - crybabying ...
He complains about median price comments now and says these people should ignore the real world stats unless they also acknowledged the differences early on - who the heck cares?
Facts are facts .... the fact is the median price was higher earlier on due to the mix including more expensive homes, more jumbos, and the median now is being drawn down by the increasing numbers of
lower priced foreclosures.
This is an important point - one the author could have commented on more instead of focusing on/about the past. The important point is that the early run up in median prices coupled with the current lower median
due to skewing from lower priced homes has inflated the home price drop. True statistical analysis would throw out outliers. That isn't overall possible here, but what is possible is
what has been done - to start breaking out into price tiers to see more reliable numbers.
Bottom line - for majority of homes - the reported drops are not accurate - the reported overall drop in values is greater than the real world for most homes in most areas.
Second is the implication that current values reflect ongoing future values. This is equally silly. Certainly there is an overall drop in values. That said there is also a large share of current market that is distress
sales.
Lenders and as significantly builders, who are liquidating properties in a significantly constricted "down" market, are selling properties for grossly unrealistic values in many areas simply to get them off their books
as fast as possible. They do not reflect "market" sales - and even most buyers realize that.
This glut of distressed inventory - new and existing - is being liquidated - and as it is consumed we will move back to a more realistic market. There will be a relatively immediate median price spike as we move
out of liquidation mode to a more normal market with an adjusted more normal inventory. And then a more gradual return to normal market conditions and appreciation.
Housing is as affordable as in a long time. Interest rates are low and likely to remain so. New programs, like FHA and increased loan limits mean more people CAN own homes.
Right now they aren't buying - in large part because of the severe negativity and fear mongering in media.
Consumer confidence is currently low but positive news is gradually starting to outweigh negative. The credit/investment market is stabilizing.We see more and more medoa stories with glimmers of positive. Soon the media will reach the bandwagon tipping point - one of them in their silly rush to "be first" will make the decision we've hit the bottom and are turning corner and the rest of the media lemmings will then follow.
Sales have dropped far below the level of investor and speculator buyers - meaning a lot of real buyers have been putting off purchases sitting on the sidelines. They are real buyers who need homes - and when
the market confidence turns they will jump in to try and catch the bottom.
And then success will breed success - sales will breed sales.
And when that happens - when the distress starts moving out of the market - the investment bank side also moves out of distress and fire sales and having to " mark to market" and take all those billions in ridiculous
writedowns - which bore zero relation to any semblance of the real values of their portfolios/investments .... and when that dustress goes out of the investment/credit side those same investments will need to
experience "write ups" ... suddenly there will be tens, or more like hundreds, of billions in value added back to the balance sheets of these entities.
Which will generate even more positive news and momentum.
The simple fact is housing values were not grossly inflated in most markets - in reality it was a small number of areas across the US. The biggest decreases were in markets with biggest increases - and even
those markets still show, after big declines, significant overall gains.
The OFHEO data shows exactly this. It is a much more representative sample of values as its based on FNMA sales and appraisal data - AND it covers close to 300 markets not just 20 as with Case-Schiller. The OFHEO data shows overall home prices have barely declined over last year. And over last 5 years home prices across all markets are still up 40% when looking at entire country.
Certainly a small number of buyers who purchased in last few years are suffering with current conditions. But home ownership still remains an overall good value and investment.
Not to mention that in too many of these discussions the fact that a house has another value - it is also a home is too often forgotten.
It is easy to whine and complain - as this story seemed to be focused on.
It is much harder to look at, try to understand, and then write about the real facts - to try to offer comment that adds value or perspective to the discussion ....
Blame Realtors, Brokers and Bankers - Not Greenspan
Even the repotrt listed as reference on commission rates indicated that the fact the 6% fee is relatively standard and has been for many years indicates a fair and balanced fee for service rendered.
It also touches on the important differences between US and other conutries - and that is risk the Realtor assume in a US listing. In the US the Realtor assumes risk of ALL costs - advetising, marketing, fees ... all expenses are borne by the agent or company and none by Sellers.
If the home does not sell the agent and company receive nothing. Try that with you doctor or attorney - tell them you aren't paying unless the cure you or win your case.
You pay them for their knowledge and experience - and you pay them on an hourly basis. Realtors have equally valuable knowledge and experience, yet are expected to take full risk.
That is why commissions are 6% - to reflect the assumption of costs and risk.
Additionally, in yet another show of ignorance, the author shows a lack of understanding of market valuation of real estate. In the US, because of the long history and consensus that the fee is fair, home prices have that 6% factored into the home price. This is evidenced by buyers who will generally try to reduce the price paid if property is offered by owner.
If the real estate industry were to reduce rates significantly the home prices in the US would drop by a commensurate amount.
Clearly this alleged "author" was more interested in attacking - than in presenting a well researched, ACCURATE, story. Had they done even the most basic research they could have found these answers ... this info is well documented.
In the end this story is nothing more than mindless finger-pointing iwth little rational thought or basis in fact.