brynaw

"Unexpected Weakness In Home Sales"

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

Barry,

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

No Ceiling to This Market

<i>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</i>

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

Excellent summary and some great links. Thank you.

Homes vs. Offices

@carlos,

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

The Housing Crisis: Symptom or Cause of Market Volatility?

<i>I have never been in the housing market is going to crash camp,</i>

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

<i>but I think it's easy to see that housing is a lot closer to a bottom than a top</i>

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 &amp; 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

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?

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

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 &amp; 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

<i>Real Estate is not a commodity.</i>

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

FYI: Foreclosures now greatly outnumber sales in San Bernardino &amp; 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

Homeowner equity chart (1952-2007): bp3.blogger.com/_pMscx...

The Truth About Personal Savings and Debt Levels

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

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.