brynaw's Comments

Great Society Part II: Fed Tries to Save Itself From...Itself

Fri, 24 Aug 2007 15:14:17 -0400

Oh, and for those of you out there who suspect it *might* not be such a good idea for the taxpayer to bailout reckless Enron-style banksters and other Ponzi-scheme participants, you might want to write, email or call your Congresscritters (or, even better, do all three):

www.senate.gov/general...
www.house.gov/writerep/

Great Society Part II: Fed Tries to Save Itself From...Itself

Fri, 24 Aug 2007 15:02:20 -0400

I think it's a super idea for taxpayers to bailout hedgies and banksters for having originated $Trillions in bad loans they knowingly bundled up as MBSs/CDOs and then pawned off to sucke-- er, "investors". And let's not forget all those Casey Serin clones out there that bought up millions of "investment" properties that they knew they couldn't afford, using neg-ams and NINJA loans.

I think the government SHOULD reward individuals and institutions that habitually speculate and make reckless financial decisions --that way we'll be sure to have even MORE giant asset bubbles to bailout in the future! Anyone who refused to participate in this massive Ponzi housing scheme obviously hates home"ownership" and our Freedoms™.

TAX the savers!
TAX the renters!
TAX people who refused to speculate!
SAVE the banksters!
SAVE the reckless stupid people!
SOCIALIZE risks and PRIVATIZE profits!

No moral hazard here folks, move along (and keep paying those taxes)...

Is the Normalization of Housing Prices a Realistic Expectation?

Thu, 23 Aug 2007 20:22:28 -0400

Markham Lee,

Why do you hate America and our Freedom™ so? Your post makes no sense and was clearly influenced by Freedom™-hating Gloom-n-Doomer terrorists who want to undermine our cheap-credit and hyperconsumption fueled Potemkin Prosperity.

The historic relationship between rents, incomes and carrying costs has been forever severed. The permament land shortage and endless supply of wealthy retiring Boomers and rich foreigners means that first-time American buyers will be priced out forever.

Renters, and those born in future generations, will be will be unable to afford a $10 million starter home in 5 years. They will live in tent cities, and used Hondas. This asset bubble is unlike any before it in history, because it will never slow down, or pop. The gains are permanent. It’s a new paradigm, and anyone who doesn’t buy now will forever miss out on perpetual 20%/year appreciation.

Homeownership and perpetual gains from asset speculation are inalienable *rights* guaranteed by our Constitution. If those gains are ever wiped out, the government is obligated to confiscate surplus wealth from responsible savers and renters and transfer it to Wall Street, reckless subprime lenders and people who cannot afford the mortgages on their 10 "investment" properties.

These are the "facts", the truthiness of which is beyond dispute.

There's Just No Need For A Fed Cut

Thu, 23 Aug 2007 14:05:27 -0400

Conflating not having the desire to stick responsible taxpayers/savers with the bill for a bubble caused by reckless speculators/lenders with supporting the Iraq war is not helpful to this debate. Being anti-Wall Street bailout does not = being pro-neocon. I am anti-war AND anti-bailout.

There's Just No Need For A Fed Cut

Thu, 23 Aug 2007 14:01:35 -0400

Joe,

Personally, I *do* feel some sympathy for people just looking to buy 1 home for the purpose of shelter and got bait-n-switched into a dodgy mortgage (Golly, remember that? Back when houses were primarily used for shelter, not poker chips in a global speculative Ponzi scheme?). However, I take exception to the idea that anyone *has* to buy a house. There are other alternatives --like renting, which I'm currently doing as I do not want to be a sad statistic myself.

There seems to be this absurd prevailing mindset where renter = "loser"/second class citizen, and hyper-leveraged homedebtor = "winner". Really an outgrowth of our current "winner take all" and "he who dies with the most toys wins" mindset. IMHO, this is just a symptom of a fundamentally sick society where what you consume defines who you are.

Don't let FUD and hyper-materialism run your life. You have alternatives --exercise them.

There's Just No Need For A Fed Cut

Wed, 22 Aug 2007 15:50:43 -0400

Oops...

-God bless you, Tom Sullivan
+God bless you, Todd<... Sullivan

U.S. Foreclosures Surge

Wed, 22 Aug 2007 15:46:56 -0400
*Everybody* who stepped up and bought more home than they could afford is a speculator. If they were a first-time buyer "suckered" in, they should've stayed a renter. You can't cheat an honest man!

Can't agree completely with this --you paint with too broad a brush here. I know many friends and colleagues that saw prices shooting up 20-30%/year (SCAL) and basically panicked about being "priced out forever" --I was *almost* one of them (but for the grace of God and Ben Jones go I...). And it wasn't like the REIC wasn't actively promoting this fallacy either. Anyone out there recall David Lereah's book depicting a house literally floating away?. FUD has always been a powerful and effective selling tool and will continue to be.

Again, ignorance does not = malevolence. Not everyone out there is an economics expert, and for that matter, quite a few "experts" got it completely wrong too. Nowadays, everyone's on the revisionist history "it was a speculative bubble --Duh, I *always* knew that!" bandwagon. But when you look back at all the bubble-denying articles from even a year ago, it's obvious that tons of people --even economists-- missed the call.

*Everybody* who took a HELOC that they couldn't afford to pay back is a speculator.

Again, I'm sure this is true for a large % of those who did, but not 100%. Again, the industry was really pushing the idea that rolling your revolving debt into a low-low rate HELOC was the *smart* thing to do. Not saying that makes the homedebtors completely blameless for their actions, or automatically deserving of a bailout --far from it. Just saying there's plenty of blame to go around:

Reckless borrowers & outright speculators counting on endless 20%/yr appreciation.

Reckless lenders selling risks downstream to MBS/CDO sucke--, er... "investors".

Asleep-at-the-switch "regulators" that not only didn't regulate, but actively spiked the punchbowl at the exact wrong moment (Fed's 1%).

Cartel-esque NAR, always attempting to hide information from buyers, pressuring appraisers to "hit the number", and actively manipulating market statistics to give the illusion of perpetually rising prices (bogus DOM, cooked "medians", "affordability" metrics, etc.).

U.S. Foreclosures Surge

Wed, 22 Aug 2007 13:47:11 -0400
No DooDahs,

I too have no sympathy for greedy speculators and the willfully ignorant, who ignored all warning signs and common sense. The only thing is, I would caution against laying 100% of the blame on homedebtors alone. There were many dodgy lenders & brokers out there outright lying and manipulating people into buying homes with NINJAs (passing off a neg-am special as a conventional "fixed-rate" loan, etc.). Not everyone who is going to lose their home is a speculator, and the "well meaning but clueless" segment may be larger than you think (hint: up to 80% of houses in CA were purchased with IOs or neg-ams in 2006). The mortgage industry is ripe for some serious regulation (Sarbox for the REIC, anyone?).

As far as the impact of the housing bubble on the grand scheme of things, I certainly hope you're right about that. However, I'm not certain that the housing/easy-credit implosion won't have a significant impact on consumer spending (70% of the economy), as MEW (refi's, cash-outs, "wealth effect", etc.) has largely been driving GPD growth since the Dot.com meltdown. Fyi: Calculated Risk has some excellent graphs & data demonstrating this.

There's Just No Need For A Fed Cut

Wed, 22 Aug 2007 13:30:00 -0400
God bless you, Tom Sullivan. Took the words right out of my mouth. Anyone who agrees and is NOT in favor of a reckless lender/hedge fund bailout, please write your Congresscritter or Senator:

www.house.gov/writerep/
www.senate.gov/general...

Can't hurt to sign this petition too: www.petitiononline.com...

U.S. Foreclosures Surge

Tue, 21 Aug 2007 17:23:42 -0400
NO DooDahs,

Yes, the foreclosure rate --though up from last year-- is still relatively low by historical standards.

Problem #1 is, the prevailing trend going forward is up --way up, and we are only 1 year or so into the the correction phase of this RE cycle. RE corrections typically last several years or more (Japan's land bubble took a full 15 years to deflate). So... we're in the first or second inning at most, this game is far from over, and the trend is not your friend.

Problem #2 is, foreclosures aren't evenly spread out across the country. They (and the toxic loans that spawned them) are heavily concentrated in a few highly speculative markets, such as CA, NV, AZ & FL. Just because the average depth of a lake is only 3 feet, doesn't mean there aren't parts where it's deep enough to drown in. If you happen to be one of those foreclosed families in a formerly hot market, you won't feel so "lucky" about that "national" average.

But, hey, if you feel so bullish on residential RE right now, go lever up.

Market Sinkhole Alert: Look Out Below

Thu, 09 Aug 2007 15:02:36 -0400
Ok, "DooDahs", you go first!

A Rate Cut Won't Save This Economy

Tue, 07 Aug 2007 13:42:10 -0400
Paul Schwartzmeyer,

Paying off debt is soooo 20th century. No one does that anymore. Aren't you familiar with our brave New Paradigm: "Debt = Wealth"?

Stop hating Amerika with your baseless Doomster hand-wringing and get out there and start spending (on credit of course)! Only more debt can save us. A true Patriot will spend everything he has, plus everything his children will earn, plus everything his grandkids will earn. And after that, he goes out and gets an additional<... line of credit from the central banks of China/Japan. To buy more stuff made in... China/Japan.

Get with the program already!

Stop the Presses: Personal Saving Rate Is Now Positive

Wed, 01 Aug 2007 17:35:46 -0400
So let me get this straight, because the media is reporting negative savings numbers for the past few years (first time this has happened since the Great Depression), politicians are taking some flack and Joe Howmuchamonth is getting a little nervous --especially since his Debt = Wealth home ATM machine is now in the process of shutting down.

So... aforementioned politicans go the the BLS and demand that they torture the data until it produces the positive results they need in order to reassure the American sheeple. So, taking a page from the CPI playbook, they just 'hedonically' adjust the ol' "savings" formula, and viola! Positive savings rate achieved!! Time to hang the 'Mission Accomplished' banner from the deck of the U.S.S. Hyperleveraged.

Is it any wonder the public trust in any statistics the government releases has all but disappeared?

The Credit Window Is Now Closed

Fri, 27 Jul 2007 14:28:59 -0400
@Paul Meisel,

Granted, 2 or 3-days of poor performance does not a secular trend make. However, I'd caution against taking anything the talking heads over at Bubblevision say at face value. Last I checked, the Dow was down another ~100 pts and still dropping.

Will Subprime Mess Hit Prime Borrowers?

Thu, 26 Jul 2007 19:47:20 -0400
God bless you, Mr. Bernabe (not to be confused with "Bernanke"). You obviously haven't imbibed any of the sweet, sweet Kool-Aid offered at so many typical MSM outlets, such as BubbleVisision (MSNBC), WSJ, "Goldilocks" Kudlow, Krammer, etc.

"Unexpected Weakness In Home Sales"

Thu, 26 Jul 2007 19:37:32 -0400
Wow. johnlewing and I (and Barry, too, I'd wager) are in 100% agreement. Is the Apocalypse just around the corner or what?

Ahhh... can't you feel the love? :-)

Brief Foreclosure History & Mortgage Delinquency Maps

Thu, 19 Jul 2007 16:57:48 -0400
Barry,

Please let's also not forget Businessweek's "Map of Misery". A thing of beauty to be sure.

No Ceiling to This Market

Mon, 16 Jul 2007 14:38:55 -0400
The total deficit through the first nine months of the budget year, which began Oct. 1, is $120.97 billion, down 41% from the same period a year ago, when the deficit totaled $206.5 billion

Let me get this straight: on an annualized basis, the government's still running a $121 billion deficit (to add on top of our existing ~$8.9 Trillion (with e "T") total National Debt. And this is "good news" to be reported as a "surplus"?

Is it any wonder why most ordinary households treat debt as synonymous with wealth, when our fearless leaders run our national finances this way?

Seven Notes On The Real Estate Sector

Thu, 12 Jul 2007 17:03:58 -0400
Excellent summary and some great links. Thank you.

Homes vs. Offices

Thu, 05 Jul 2007 13:43:24 -0400
@carlos,

I think Barry was being tongue-in-cheek here.

The Housing Crisis: Symptom or Cause of Market Volatility?

Wed, 27 Jun 2007 21:41:49 -0400
I have never been in the housing market is going to crash camp,

So, how exactly would you define a "crash"?

If by "crash" you mean a near-overnight plunge in RE values, similar in magnitude to the NASDAQ 2000 crash, then I would agree. Of course, the RE market has never "crashed" in this way before in recorded history. On the other hand, if we define a RE market "crash" as a slow, gradual drip-drip erosion in nominal and/or real (inflation-adjusted) prices over several years that results in a cumulatively large drop in real value --say in the range of 30-50%-- then please count me in that kooky "housing market is going to crash camp".

Truck Driver Wisdom Suggests Housing Stocks Are Bottoming

Wed, 27 Jun 2007 13:38:35 -0400
but I think it's easy to see that housing is a lot closer to a bottom than a top

Paul, the historical evidence and market fundamentals indicate you have it exactly backwards. See Robert's excellent analysis (above) and links to the Shiller price index & Credit-Suisse ARM-reset charts. We're barely past the top on this bubble. Going by previous RE market corrections, we have at least several more years to go before prices are back in line with supporting incomes and comparable-house rents. If non-RE inflation runs relatively high in coming years, this might shorten the process a bit --but, this remains to be seen.

Truck Driver Wisdom Suggests Housing Stocks Are Bottoming

Wed, 27 Jun 2007 06:33:48 -0400
Umm, the housing market doesn't quite turn on a dime, Mike. It seems a tad early to join the ranks of serial bottom-callers (NAR, NAMB, etc.), especially when the last housing bust took a full 6-7 years to fully play out (1990-1997) and we're only in the first inning of this one. Consider the infamous Credit-Suisse chart, and I think you may get some idea of how long the current housing bear market may last: tinyurl.com/2h4x8t

Your "truck driver" story sounds apocryphal. Around my neck of the woods (SoCal) Joe Howmuchamonth is *still* convinced that house prices are about to reverse course and continue their "normal" 20%/year ascent to the sky. The housing bubble (and MBS/CDO) implosion stories are definitely gaining traction in the MSM, this much is true. However, most of the sheeple are still convinced that any correction will be shallow and short-lived. So, the contrarian play in housing was --and still is-- to focus on the fundamentals: overall direction of inventory, sales, core demand (minus speculators), borrower quality and access to cheap credit.

And what are those fundamentals telling us?

Inflation Consensus?

Thu, 21 Jun 2007 00:55:03 -0400
It's really quite simple, Barry:

Price increases of goods and services ordinary people need in order to live = invisible to Wall Street.
Increase in rank-n-file worker salaries = INFLATION CRISIS --CALL OUT THE MARINES!!!

FTC Confirms That Most Homebuyers Couldn't Identify Mortgage Amount

Thu, 14 Jun 2007 18:03:15 -0400
MSM verification that most mortgage borrowers are ignorant about the most basic facts of their loans will come as no surprise to anyone paying attention to this giant Ponzi scheme over the past few years. The source of the "confusion" is (at least) three-fold:

1. An innumerate public that has grown accustomed to spending far beyond its means and maintaining the illusion of wealth. No one cares anymore about their total debt burden, or the opportunity cost of the interest repaid over the life of the loan, or the future cost of servicing adjustable-rate debt --as long as those "monthly payments" are do-able *right now*. Joe Howmuchamonth does not understand the terms or risks of his leverage and simply does not care. Until he gets his option-ARM reset in the mail, that is.

2. A mortgage-origination industry (notice I didn't say "lending") that has invented a wonderful tool with which to offload all default risks from themselves onto sucke--, er... "investors": Mortgage-Backed Securities & Collateralized Mortgage Obligations. As a result of this delightful invention, the banksters no longer have to worry about borrower credit-worthiness or ability to repay. Thus, they can eliminate old-fashioned anachronisms, like requiring down payments or proof of income. They are now free to create fantastically complex and risky new "mortgage products" (which cooincidentally generate far more fees and profits for the banks) vs. those "quaint" 20%-down, full-doc, fixed-rate 30/15-year loans of yester-year.

3. A serial bubble-blowing Fed that seeks to inflate every asset class on the planet as fast as possible (but not wages), and a complicit no-oversight Congress and Administration that allows it to continue and provides banking industry support and/or bailouts whenever anything might threaten to derail this grand scheme. This goes on mostly in plain sight, as Joe Howmuchamonth has no clue what's going on and would not care less even if he did.

At the current rate things are going, we can look forward to the future housing market being driven by serially refinanced, no-upper-limit, inter-generational neg-am mortgages, where the principal perpetually rises and the borrower can simply cash-out refinance whenever s/he sees something shiny s/he "needs" to have but can't afford. In other words, perpetual Debt Serfs on the bankster's treadmill. Welcome to the Brave New World of consumer finance in America.

Foreclosures Are Skyrocketing

Wed, 13 Jun 2007 22:21:06 -0400
Real Estate is not a commodity.

David S,

Do you mean to imply that "All Real Estate is Local"?

In all seriousness, in the nearly 40 years I've been alive, California real estate has been significantly more expensive than most other parts of the country. Even so, it has NEVER come close to the stratospheric heights it has achieved over the past 6 years, when inflation-adjusted and measured against its supporting economic fundamentals (rents and incomes). It's true that big, desirable cities with low unemployment and high job growth (S.F., L.A., NYC, Boston, Miami, etc.) will *always* demand a certain premium over rural and not-so-desirable areas. However, this doesn’t mean that no price is ever too high to live there, or that prices cannot correct because “everyone wants to live in ______”.

California’s long-term affordability stats have been well below the rest of the country for a long time, this is true. Whereas in the past, the long-term median price-to-HH income ratio might be 3:1 in “flyover country”, in CA, it was probably closer to 5:1 (pre-bubble). Rents have also been persistently higher in CA by a similar margin, which indicates that (a portion of) higher prices is *not* speculative in nature, but a true “destination” (or NIMBY) premium. The problem today is, prices are ridiculously out of line with BOTH rents and incomes, even accounting for that so-called "sunshine premium". The CA median price-to-HH income ratio today is close to 11:1, and rents cannot cover more than 50% of carrying costs of a new mortgage (assuming a conventional, non-toxic loan) and a typical down payment.

I should also mention that part of CA’s high pre-bubble price-income ratio is probably due to NIMBYism and illegal immigration, as much as a “sunshine” or destination premium. 40 years ago (before UBLs, Prop. 13, anti-development zealots, Reagan immigration amnesty, etc.), the price-income ratio here was about equal with the rest of the country –about 3:1. Explosive population growth among illegals of course has increased real housing demand, while virulently anti-market forces have artificially constricted supply. So, arriving at a long-term price-income equilibrium ratio closer to 5:1 does not seem too unreasonable for today's California. But 11:1? That looks a bit toppy and unsustainable, even by CA standards.

Bottom line: when the fundamentals are this far out of whack, prices must eventually revert to the mean, either by general inflation, or by nominal price drops, or (likely) both. Either way, a house purchased today --or very recently-- is virtually sure to lose substantial real value --especially here in LA-LA land.

Foreclosures Are Skyrocketing

Wed, 13 Jun 2007 21:49:14 -0400
FYI: Foreclosures now greatly outnumber sales in San Bernardino & Riverside Counties.

Foreclosure rate spikes in region
www.pe.com/business/lo...

Riverside County recorded 4,550 foreclosure filings last month, which was more than four times the 1,066 filings recorded in May 2006.

San Bernardino County was the seventh-ranked county in foreclosure activity, with one foreclosure last month for every 166 households, or a total of 3,633 filings, up more than seven-fold from 513 a year earlier

Southland home sales hit 12-year low
www.latimes.com/busine...

Most of the erosion in May’s sales appeared in the lower-priced regions, particularly the Inland Empire. In Riverside County, sales fell 45.4% to 3,307 year over year, while in neighboring San Bernardino County, sales plunged 46.5% to 2,220.

The Truth About Personal Savings and Debt Levels

Fri, 08 Jun 2007 15:19:17 -0400
Homeowner equity chart (1952-2007): bp3.blogger.com/_pMscx...

The Truth About Personal Savings and Debt Levels

Fri, 08 Jun 2007 15:17:53 -0400
Oh, and a couple more points:

--It is virtually impossible to get a positive cash-flow on any house bought in the last 5 years using a conventional (non neg-am) mortgage, especially along the bubble coasts. Unless, of course, you put 50% or more down. Even then, you would still get a very poor return on capital vs. stocks or even bonds.

--Despite the meteoric rise in nominal house prices over the past several years, homeowner equity (which should have sharply risen) instead FELL to its lowest level since they began collecting the data in 1952.

The Truth About Personal Savings and Debt Levels

Fri, 08 Jun 2007 15:11:12 -0400
I agree that the Fed should NOT be looking at rate cuts anytime soon, but for very different reasons. I do not see our negative-for-the-first... savings rate or the extreme speculative housing malinvestment of the past several years as a good thing.

Refinancing to lock in a lower fixed-rate mortgage rate is a good thing. Refinancing to cash-out or getting a 'teaser' low-rate on a neg-am/option-ARM right now, while gambling that perpetually rising house prices will bail you out before-the-reset, is NOT a good thing.

As the Dot.com crash taught us, there IS such a thing as too much leverage and too little diversification in one's portfolio. There is also a critical difference between prodcutive debt and consumptive debt. Mr. Market is just starting to teach Mr. Howmuchamonth that valuable lesson right now. And it looks like class is in session for at least the next few years.