pochovilla

12 Observations on Residential Housing

Dave: The next time someone mentions which inning are we in just say it's the World Series and could go to 7 games.

Why We're Still in the Early Innings of the Bursting of the Housing and Credit Bubbles - And Implications for MBIA and Ambac

Let's try this again for the DINK's.
A $500K home purchase price with 10% down on a 30 yr 6.5% fixed rate with debt to income at 45% requires $69,500 at closing financing a balance of $450K with a monthly income of $11,389 or $137,000 annually. The P3 chart shows 1/1/06- 6/1/07 $40 K annual income and pushing debt to income to 55% + provided borrowing power for a $340K + home. Without all of the detail in the P3 calculation that says $60K annual income could push the borrowing power to $500K.
Does anyone else see the disconnect? Where would a $60K earner get $69,500 for closing? and how long could the charade last when pretax income needs to be over $137K. Let's just forget about the incremental escalating cost of taxes, insurance and utilities that are paid with after tax dollars and become additional burdens within 2-3 years after move-in.

Why We're Still in the Early Innings of the Bursting of the Housing and Credit Bubbles - And Implications for MBIA and Ambac

A fabulous piece of work by a dedicated team. The work here is totally out of the reach of most analyst organizations. I know the moral of the story is to support short positions. But there chart on page 3 presents an even more revealing story of housing affordability. Using some common sense standards back pre-'97 and calculating Housing affordability by today's stricter standards indicates that $42K pre tax income with $15K down (15%) monthly debt between $400-$800 (car loan that never ends) including closing costs taxes and insurance, a fixed 30 year rate of 6.5-8% and bingo you can afford between $120-171K for a new home, not even the $217K home in the chart. So who will buy those $325K houses? Someone that has $29K for closing and $75.9 K annual income with a 6.5% 30 yr mortgage. THIS IS VERY UGLY BUT REAL

In a Storm, Both the Good and Bad Get Hit

In this high risk questionable reward environment, would it not be more prudent to find a safe haven to ride out the storm? Let's assume the big banks "fix" the balance sheets in 2008. How much will they sacrifice to do so? What will be the quality of earnings? Can we assume their profit model will be decent with an infusion of capital?
I think next year will bring pack dog lawyers, congressional oversight and new regulations. I anticipate the evening news will be full of "sub-prime" related stories. This can't be a good environment for investment.